FUJIYAMA POWER SYSTEMS,PARWANOO vs. ITO PARWANOO, PARWANOO

The ld. CIT(A) is wrong in confirming the validity of penalty order passed by the ld. A.O. u/s 270A of Rs 89,22,970 on the additions made in the assessment order passed u/s 143(3) dated 08.04.2021, ignoring the undisputed fact that the said assessment order as well as the notice initiating penalty u/s 270A dated 08.04.2021 is set-aside/ quashed by the juri ictional Himachal Pradesh High Court, therefore penalty order passed u/s 270A on the basis of already quashed notice is without juri iction and so liable to be quashed.

The ld. CIT(A) is wrong in confirming the penalty order passed u/s 270A, ignoring the fact that ld. A.O. did not provided sufficient opportunity of being heard to the assessee.

Briefly, the facts of the case are that the assessee is a partnership firm. For the assessment year under consideration, the assessee filed its return of income on 16.10.2018 declaring total income of Rs. 6,54,01,070/-. The assessment was completed under section 143(3) of the Act vide order dated 08.04.2021, whereby the total income was assessed at Rs. 11,72,22,004/- after making, inter alia, the following additions/disallowances:

1 On the basis of the aforesaid additions, the Assessing Officer initiated penalty proceedings under section 270A of the Act for under reporting of income amounting to Rs. 5,15,65,934/- and ultimately levied penalty of Rs. 89,22,970/- vide order dated 25.11.2021, being 50% of the tax payable on the alleged under-reported income.

Aggrieved by the assessment order dated 08.04.2021, the assessee filed a writ petition before the Hon’ble High Court of Himachal Pradesh, primarily on the ground of violation of principles of natural justice, as adequate opportunity was not provided during the assessment proceedings.

The Hon’ble High Court initially granted interim protection vide order dated 28.05.2021, restraining the department from taking coercive action.

Thereafter, the Hon’ble High Court, vide final judgment dated 16.11.2021 passed in Civil Writ Petition No. 3094 of 2021, allowed the writ petition and categorically set aside the assessment order dated 08.04.2021 along with the consequential notice of demand and notice for initiating penalty. The operative portion of the judgment reads as under: “In view of the afore discussion, we find merit in this petition and the same is accordingly allowed and the impugned assessment order dated 08.04.2021 along with consequential notice of demand and notice for initiating penalty is set aside.” It is an undisputed fact that the aforesaid order of the Hon’ble High Court was passed prior to the passing of the final penalty order dated 25.11.2021, and the same was also brought to the notice of the Assessing Officer during the course of penalty proceedings.

Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), while passing the impugned order under section 250 of the Act, held that since part of the additions were deleted by the Assessing Officer while

Against the order of the CIT(A) the assessee preferred in appeal before the Tribunal.

During the course of hearing, the Ld. AR submitted that the Ld. CIT(A) failed to appreciate the fundamental legal position that once the Hon’ble High Court had set aside the assessment order along with the notice for initiating penalty, the very foundation of the penalty proceedings ceased to exist. It was submitted that penalty proceedings cannot survive independently of the assessment order and, therefore, the entire penalty deserved to be quashed.

The Ld. DR relied upon the order of the Ld. CIT(A).

We have carefully considered the rival submissions and perused the material available on record. The undisputed factual position is that the Hon’ble Juri ictional High Court, vide order dated 16.11.2021, set aside the assessment order dated 08.04.2021 along with the notice for initiating penalty proceedings. It is a settled principle of law that penalty proceedings are consequential and dependent upon the validity and subsistence of the assessment order. Once the assessment order itself is quashed by a superior judicial authority, the penalty imposed on the basis of such assessment order automatically falls.

The expression “set aside” used by the Hon’ble High Court unequivocally means that the assessment order was quashed and rendered non-est in the eyes of law. There was no liberty granted to sustain or continue the penalty proceedings independently.

In such circumstances, the Assessing Officer had no juri iction to proceed with or pass the penalty order dated 25.11.2021, and the Ld. CIT(A) erred in law in sustaining the penalty partly instead of quashing it in toto.

Once the foundation itself is removed, the superstructure cannot survive. Judicial discipline mandates that the orders of the Hon’ble High Court are binding on all subordinate authorities.

In view of the above facts and the settled legal position, we hold that the penalty levied under section 270A of the Act is without juri iction and unsustainable in law.

In the result, the appeal filed by the assessee is allowed, and the penalty of Rs. 89,22,970/- levied under section 270A of the Act is hereby quashed in entirety.

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File