INCOME TAX OFFICER, LUDHIANA vs. K P EXIM INC, LUDHIANA
Facts
The Revenue challenged the CIT(A)'s order deleting a penalty of Rs. 1,25,53,423/- imposed under Section 271(1)(c) of the Income Tax Act. This penalty was levied by the AO based on an ex-parte assessment order under Section 144 read with Section 147, which included an addition of Rs. 3,60,17,984/-. However, the CIT(A) had previously set aside this very ex-parte assessment order.
Held
The Tribunal upheld the CIT(A)'s decision to delete the penalty, reasoning that if the underlying addition which formed the basis of the penalty is extinguished by an appellate order, then no penalty is computable. Since the genesis of the penalty (the ex-parte assessment order) was set aside, the penalty could not survive. The appeal filed by the Revenue was therefore dismissed.
Key Issues
Whether a penalty imposed under Section 271(1)(c) is sustainable when the underlying assessment order and addition, on which the penalty was based, have been set aside by the appellate authority.
Sections Cited
Section 144, Section 147, Section 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
आयकर अपील�य अ�धकरण,च�डीगढ़ �यायपीठ, च�डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’ CHANDIGARH BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 605/CHD/2025 �नधा�रण वष� / Assessment Year. : 2014-15 The ITO, Vs K.P. Exim INC. Ludhiana. Main Bahadur Ke Road, Ludhiana. �थायी लेखा सं./PAN NO: AAKFK2926M अपीलाथ�/Appellant ��यथ�/Respondent Assessee by : None. Revenue by : Shri Manav Bansal, CIT DR Date of Hearing : 24.11.2025 Date of Pronouncement : 27.01.2026 O R D E R PHYSICAL HEARING PER RAJ PAL YADAV, VP
The present appeal is directed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 25.02.2025 passed for assessment year 2014-15.
The grievance of the Revenue is that ld.CIT (Appeals) has erred in deleting the penalty of Rs.1,25,53,423/- without going into the merits of the case.
ITA No. 605/CHD/2025 A.Y. 2014-15 2
With the assistance of ld. Representative, we have gone through the record carefully. The ex-parte assessment order u/s 144 read with Section 147 of the Act was passed in the case of the assessee whereby an addition of Rs.3,60,17,984/- was made. On the basis of this assessment order, ld. AO has imposed a penalty u/s 271(1)(c) of the Act vide order dated 21.09.2022. Before ld. CIT (Appeals) it was pointed out that ld.CIT (Appeals), NFAC has set aside this ex-parte assessment order vide its order dated 15.01.2025, meaning thereby, the very genesis to impose the penalty upon the assessee has been extinguished. Accordingly, ld.CIT (Appeals) has deleted the penalty.
On due consideration of the facts and circumstances, we are of the view that if sub-clause (iii) of Section 271(1)(c) of the Act is being perused, then it would contemplate that an assessee would be required to pay a penalty which would not be equivalent to the amount of tax which is sought to be evaded by the assessee on account of additions made to its income and this penalty would not exceed three times of the taxes on such addition. In other words, a penalty is to be calculated on the taxes computed on additions made to the income of the assessee but in case this
ITA No. 605/CHD/2025 A.Y. 2014-15 3
addition is extinguished by an order of an Appellate Court, then no penalty would be computable. Following this ratio, the ld.CIT (Appeals) has deleted the penalty. Once an issue is being set aside to the file of AO, he would re-determine the issue and then it would be in his discretion to visit the assessee with penalty or not but on the basis of an addition made by the AO which does not survive when this penalty appeal was listed before the CIT (Appeals), no penalty is imposable. Accordingly, we do not find any merit in this appeal. Appeal is dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 27.01.2026. Sd/- Sd/-
(MANOJ KUMAR AGGARWAL) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE PRESIDENT “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant 1. ��यथ�/ The Respondent 2. आयकर आयु�/ CIT 3. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 4. गाड� फाईल/ Guard File 5.
सहायक पंजीकार/ Assistant Registrar
