Loading judgment…
Facts
The Revenue filed an appeal against the deletion of penalty by the CIT(A) for AY 2011-12. The penalty was levied based on additions made in the assessment order, which were primarily related to bogus purchases and accommodation entry donations.
Held
The Tribunal noted that the assessment order itself had been quashed by a prior ITAT order. Since penalty proceedings are consequential to the assessment, they cannot survive independently if the assessment order is annulled.
Key Issues
Whether penalty proceedings can survive when the assessment order on which they are based has been quashed by the Tribunal.
Sections Cited
271(1)(c), 143(3), 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
This appeal has been filed by the Revenue challenging the order passed by the learned Commissioner of Income-tax (Appeals)– 52, Mumbai, whereby the penalty levied by the Assessing Officer for the assessment year 2011–12 has been deleted.
At the outset, the learned counsel for the assessee submitted that the very assessment proceedings, on the basis of which the impugned penalty was levied, have already been quashed by the Kanakia Spaces Realty Private Limited Kanakia Spaces Realty Private Limited No. 4099/MUM/2025 Tribunal vide its order in vide its order in and Cross 1639/Mum/2024 and Cross Objection No. 86/Mum/2024. It was, therefore, contended that Objection No. 86/Mum/2024. It was, therefore, contended that Objection No. 86/Mum/2024. It was, therefore, contended that once the foundation of the assessment itself no longer survives, the once the foundation of the assessment itself no longer survives, the once the foundation of the assessment itself no longer survives, the consequential penalty proceedings are rendered unsustainable in consequential penalty proceedings are rendered unsustainable in consequential penalty proceedings are rendered unsustainable in law.
We have heard the rival submissions and perused the material We have heard the rival submissions and perused the material We have heard the rival submissions and perused the material available on record. The learned Commissioner of Income-tax available on record. The learned Commissioner of Income available on record. The learned Commissioner of Income (Appeals), while adjudicating the penalty appeal, has taken note of (Appeals), while adjudicating the penalty appeal, has taken note of (Appeals), while adjudicating the penalty appeal, has taken note of the fact that the assessment order passed under section 143(3) read the fact that the assessment order passed under section 143(3) read the fact that the assessment order passed under section 143(3) read with section 147 of the Income with section 147 of the Income-tax Act, 1961 had already been tax Act, 1961 had already been subjected to appellate proceedings. The learned Commissioner of subjected to appellate proceedings. The learned Commissioner of subjected to appellate proceedings. The learned Commissioner of Income-tax (Appeals) further recorded that, pursuant to the tax (Appeals) further recorded that, pursuant to the tax (Appeals) further recorded that, pursuant to the decision of the Tribunal in the quantum proceedings, the entire decision of the Tribunal in the quantum proceedings, the entire decision of the Tribunal in the quantum proceedings, the entire assessment order stood quashed. Consequently, the very basis on sment order stood quashed. Consequently, the very basis on sment order stood quashed. Consequently, the very basis on which the penalty under section 271(1)(c) was levied ceased to exist. which the penalty under section 271(1)(c) was levied ceased to exist. which the penalty under section 271(1)(c) was levied ceased to exist. The relevant finding of the Ld. CIT(A) The relevant finding of the Ld. CIT(A) is reproduced as below: “6.1 Ground No.1 raised by the appellant pertains to levy of 6.1 Ground No.1 raised by the appellant pertains to levy of penalty 6.1 Ground No.1 raised by the appellant pertains to levy of u/s 271(1)(c) of the Act amounting to Rs. 1,69,950/-. I have considered u/s 271(1)(c) of the Act amounting to Rs. 1,69,950/ . I have considered the facts of the case, submissions made by the appellant. In this case, the facts of the case, submissions made by the appellant. In this case, the facts of the case, submissions made by the appellant. In this case, the appellant has e-filed his return of income on 28.09.2011 declaring the appellant has e filed his return of income on 28.09.2011 declaring income of Rs. 3,05,31,399/-. Thereafter, the appellants case was re income of Rs. 3,05,31,399/ eafter, the appellants case was re- opened on the basis of the information received from DGIT(Inv.), opened on the basis of the information received from DGIT(Inv.), opened on the basis of the information received from DGIT(Inv.), Mumbai that appellant had made bogus purchases amounting to Mumbai that appellant had made bogus purchases amounting to Mumbai that appellant had made bogus purchases amounting to Rs.13,52,010/- from the entities M/s Siddhivinayak Trading Company, from the entities M/s Siddhivinayak Trading Company, from the entities M/s Siddhivinayak Trading Company, M/s Subh Enterprises and M/s R B Enterprises amounting to Rs. M/s Subh Enterprises and M/s R B Enterprises amounting to Rs. 31,149/-, , 3,29,913/- 3,29,913/ & 9,90,948/- respectively. respectively. Accordingly, Accordingly, assessment was completed on 21.03.2016 assessing total income at assessment was completed on 21.03.2016 assessing total income at Rs. 7,27,77,186/-, The additions were made on account of bogus Rs. 7,27,77,186/ , The additions were made on account of bogus purchases of Rs. 13,52,010/- and accommodation entry donation of purchases of Rs. 13,52,010/ accommodation entry donation of Kanakia Spaces Realty Private Limited Kanakia Spaces Realty Private Limited No. 4099/MUM/2025 Rs. 3,00,00,000/-, The AO has also initiated penalty u/s 271(1)(c) of Rs. 3,00,00,000/ , The AO has also initiated penalty u/s 271(1)(c) of the Act in assessment order for furnishing inaccurate particulars of the Act in assessment order for furnishing inaccurate particulars of the Act in assessment order for furnishing inaccurate particulars of income. Aggrieved by the assessment order, the appellant filed appeal income. Aggrieved by the assessment order, the appellant filed appeal income. Aggrieved by the assessment order, the appellant filed appeal before Ld.CIT(A). The Ld.CIT(A) vide his order dated 30.01.2024 has ). The Ld.CIT(A) vide his order dated 30.01.2024 has ). The Ld.CIT(A) vide his order dated 30.01.2024 has deleted the addition made on account of accommodation entry of deleted the addition made on account of accommodation entry of deleted the addition made on account of accommodation entry of donation amounting to Rs. 3,00,00,000/-. However, on the issue of the donation amounting to Rs. 3,00,00,000/ . However, on the issue of the bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. 1,69,001/- as against Rs. 13,52,010/ as against Rs. 13,52,010/- as added by the AO. Pursuant as added by the AO. Pursuant to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/- on to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/ to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/ Bogus Purchase of Rs. 1,69,001/- as determined by the Ld.CIT(A). Bogus Purchase of Rs. 1,69,001/ as determined by the Ld.CIT(A). 6.2 Thereafter, revenue as well as appellant preferred appeal before 6.2 Thereafter, revenue as well as appellant preferred 6.2 Thereafter, revenue as well as appellant preferred Hon'ble ITAT vide & CO No.86/Mum2024 Hon'ble ITAT vide & CO No.86/Mum2024 Hon'ble ITAT vide & CO No.86/Mum2024 respectively. Further, the appellant submitted that the Hon'ble ITAT respectively. Further, the appellant submitted that the Hon'ble ITAT respectively. Further, the appellant submitted that the Hon'ble ITAT vide vide vide its its its pronouncement pronouncement pronouncement dated dated dated 20.12.2024 20.12.2024 20.12.2024 has has has quashed quashed quashed the the the assessment order and dismissed the appeal of the revenue and on assessment order and dismissed the appeal of the revenue a assessment order and dismissed the appeal of the revenue a other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT has quashed the assessment order u/s 143(3) r.w.s 147 dated has quashed the assessment order u/s 143(3) r.w.s 147 dated has quashed the assessment order u/s 143(3) r.w.s 147 dated 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO become infructuous and unsustainable. Therefore, the AO is directed to become infructuous and unsustainable. Therefore , the AO is directed to delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/- for A.Y delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/ delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/ 2011-12. Hence, the appeal of the appellant on Ground No.1 stands 12. Hence, the appeal of the appellant on Ground No.1 stands 12. Hence, the appeal of the appellant on Ground No.1 stands Allowed.”
The above findings recorded by the learned Commissioner of The above findings recorded by the learned Commissioner of The above findings recorded by the learned Commissioner of Income-tax (Appeals), clea tax (Appeals), clearly demonstrate that the penalty was rly demonstrate that the penalty was levied solely with reference to the additions made in the assessment levied solely with reference to the additions made in the assessment levied solely with reference to the additions made in the assessment order. Once those additions and, indeed, the assessment itself have order. Once those additions and, indeed, the assessment itself have order. Once those additions and, indeed, the assessment itself have been annulled by the Tribunal, the penalty proceedings cannot been annulled by the Tribunal, the penalty proceedings cannot been annulled by the Tribunal, the penalty proceedings cannot independently surviv independently survive. It is a well-settled principle of law that settled principle of law that penalty proceedings are accessory and consequential in nature and penalty proceedings are accessory and consequential in nature and penalty proceedings are accessory and consequential in nature and cannot stand when the substantive assessment giving rise to the cannot stand when the substantive assessment giving rise to the cannot stand when the substantive assessment giving rise to the penalty is set aside or quashed. penalty is set aside or quashed.
Kanakia Spaces Realty Private Limited Kanakia Spaces Realty Private Limited No. 4099/MUM/2025
In the present case, there is no dispute tha In the present case, there is no dispute that the assessment t the assessment order dated 21.03.2016 has been quashed by the Tribunal in the order dated 21.03.2016 has been quashed by the Tribunal in the order dated 21.03.2016 has been quashed by the Tribunal in the quantum proceedings. quantum quantum proceedings. proceedings. In In In such such such circumstances, circumstances, circumstances, the the the learned learned learned Commissioner of Income Commissioner of Income-tax (Appeals) was fully justified in holding tax (Appeals) was fully justified in holding that the penalty levied under section 271(1)(c) of the Act had that the penalty levied under section 271(1)(c) of t that the penalty levied under section 271(1)(c) of t become infructuous and unsustainable. We find no infirmity, legal become infructuous and unsustainable. We find no infirmity, legal become infructuous and unsustainable. We find no infirmity, legal or factual, in the reasoning or the conclusion arrived at by the or factual, in the reasoning or the conclusion arrived at by the or factual, in the reasoning or the conclusion arrived at by the learned Commissioner of Income learned Commissioner of Income-tax (Appeals).
Accordingly, the order of the learned Commissioner of Income Accordingly, the order of the learned Commissioner of Income Accordingly, the order of the learned Commissioner of Income- tax (Appeals) deleting the penalty is upheld. (Appeals) deleting the penalty is upheld.
In the result, the appeal filed by the Revenue is dismissed. In the result, the appeal filed by the Revenue is dismissed. In the result, the appeal filed by the Revenue is dismissed.