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Facts
The revenue challenged the CIT(A)'s order deleting the penalty of Rs. 1,18,37,790/- imposed under Section 271AAC(1) of the Income Tax Act, 1961. The penalty was based on additions made under Section 147 r.w.s. 143(3), which were later deleted by the CIT(A).
Held
The Tribunal held that the penalty proceedings under Section 271AAC(1) should not be initiated or concluded if the additions are dropped or the issue is still under appeal. Since the quantum addition was deleted by the CIT(A) and a subsequent appeal by the revenue was dismissed, the basis for levying the penalty was removed. Consequently, the penalty was not warranted.
Key Issues
Whether the penalty imposed under Section 271AAC(1) is justified when the underlying additions forming the basis of the penalty have been deleted.
Sections Cited
271AAC(1), 147, 143(3), 68, 115BBE
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Income Tax Appellate Tribunal, JAIPUR BENCHES,’’B” JAIPUR
fu/kZkj.ko"kZ@AssessmentYear : 2017-18 The DCIT cuke M/s. Bharat Spun Pipe And Construction Company Vs. Circle-1 43, Industrial Area, Jhotwara, Jaipur-302 012 Jaipur LFkk;hys[kk la-@thvkbZvkjla-@PAN/GIR No.: AABFB 4917 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby :Shri Tarun Kumar Mittal, CA jktLo dh vksjls@Revenue by: Shri Anil Kumar Bhardvaj, CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 01/10/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: : 07/10/2025 vkns'k@ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM By way of present the revenue challenges the order of the National Faceless Appeal Centre [ for short CIT(A) ] dated 28.05.2025. The dispute relates to the assessment year 2017.18. In this appeal the solitary ground raised by revenue reads as under : ‘’Whether on the facts and in the circumstances of the case and in law,the ld. CIT(A)is justified in deleting the penalty of Rs.1,18,37,790/- imposed u/s 271AAC(1) of theAct, 1961 on the ground that the quantum addition has been deleted by CIT(A) in quantum appeal ignoring the facts that the Department has filed appeal before the Hon’ble ITAT,Jaipur Bench, Jaipur which is pending?’’ 2025 DCIT, CIRCLE-1, JAIPUR VS BHARAT SPUN PIPE AND CONSTRUCTION COMPANY, JAIPUR 2.1 Apropos solitary ground of appeal of the Department, it is noticed that the ld. CIT(A) allowed the appeal of the assessee by observing as under:- ‘’3. The appellant vide his letter dated 13.01.2025 submitted that the additions which formed the basis for the penalty under Section 271AAC(1) have been unwarranted and deserve to be deleted which was imposed through order under section 147 r.w.s. 143(3). The appeal in this case has already been disposed of and the additions have been deleted by first appellate authority vide order dated 08/01/2025. The necessary copy of assessment order under section 250 of income tax act 1961 was passed through Order No. ITBA/NFAC/S/250/2024-25/1071990814(1) dated 08/01/2025 is enclosed herewith. Legal Precedent and Relevant Provisions. The law is settled that penalty proceedings under Section 271AAC(1) should not be initiated or concluded if the additions are dropped or the issue is still under appeal. This principle has been upheld in various judicial pronouncements, and hence, the penalty order in this case is premature and liable to be cancelled. Given the above circumstances, we hereby request you to relief may be granted by deleting the penalty levied under Section 271AAC(1) for A.Y. 2017-18 and drop the proceedings in view of the fact that the penalty order has been passed even though the appeal is pending before the first appellate authority and latter on the additions have been dropped by first appellate authority
5. Adjudication: The appellant's quantum appeal against the order u/s.147r.w.s143(3) dated 29/05/2023 has been adjudicated by the NFAC vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1071990814(1) dated 08/01/2025 wherein the NFAC has allowed the appeal of the appellant and deleted the addition made u/s 68 amounting to Rs. 15,32,40,000/-towards bogus contract receipts. The NFAC has held that from the perusal of documents furnished during assessment proceedings it can be concluded that appellant had executed the subcontract work for Two lane ROB at Chainage 90+ 733 at Degana. It is also seen that the Income Tax Appellate Tribunal, Ahmedabad in the case of M/s 2025 DCIT, CIRCLE-1, JAIPUR VS BHARAT SPUN PIPE AND CONSTRUCTION COMPANY, JAIPUR Dineshchandra R Infracon Private Limited vide order passed in and 414/Ahd/2018 has deleted the bogus expenses to the tune of Rs. 16,98,19,305/- added by the jurisdictional AO. From the perusal of the above order, it is evident that the additions regarding bogus subcontract expenses in the case of DRAIPL which were the only basis for reopening the case of assessee, stood deleted by the jurisdictional ITAT. Ahmedabad. Further, the sub- contract receipt was declared in the return of income filed by the assessee and due taxes were paid. Hence, based on the order of jurisdictional ITAT on the main case, facts and circumstances, it can be concluded that addition of sub- contracting Income from M/s DRAIPL to the income of assessee firm was unwarranted and deserves to be deleted, Hence, since the foundation of the penalty (the additions made) has been deleted, the penalty itself is not warranted to be levied As a result, the appeal is allowed.’’ 2.2 During the course of hearing, the ld. DR supported the penalty order u/s 271AAC(1) of the Act passed by the AO vide order dated 27-03-2024 but at the same time did not dispute the facts placed on record by the ld. AR of the assessee that the even the co-ordinate bench of Jaipur has confirmed the action of the ld. CIT(A) in deleting the addition made by the ld. AO and thereby the fact that the present appeal has no grievance as such. 2.3 On the other hand, the ld. AR of the assessee relied upon the order of the ld. CIT(A).
2025 DCIT, CIRCLE-1, JAIPUR VS BHARAT SPUN PIPE AND CONSTRUCTION COMPANY, JAIPUR 2.4 We have heard both the parties and perused the materials available on record. It is noticed that the AO imposed penalty of Rs.1,18,37,790/- u/s 271AAC(1) by observing asunder:- ‘’In view of the above facts and circumstances, Rs.15,32,40,000/- was determined to be income of the assessee u/s 68 of the Act which renders the assessee liable for penalty u/s 271AAC(1) of the Income Tax, 1961. I consider it to be a fit case for levying penalty u/s 271AAC(1) @ 10% of the tax payable under section 115BBE of theI.T.Act.’’ The Bench noticed that the ld.CIT(A) vide his order dated 28-05-2025 deleted the penalty as the quantum appeal of the assessee was already allowed by the ld. CIT(A). The Bench also noticed that against that order of the ld. CIT(A) revenue filed an appeal before this tribunal in quantum proceeding in vide which revenue challenges the action of the ld. CIT(A) in deleting the addition amounting to Rs.15,32,40,000/-. The co-ordinate Bench considered the appeal of the Department and C.O. of the assessee and thus dismissed the appeal of the revenue relating to quantum addition and allowed the C.O. of the assessee by observing at para 15 of his order. The fact so narrated before the bench by the ld. AR of the assessee has not been disputed by the revenue and thereby the grounds of the appeal taken by the revenue that the ld. CIT(A) was not justified in deleting the penalty of Rs.1,18,37,790/- imposed u/s 271AAC(1) of theAct, 1961 on the ground that “the quantum addition has