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Facts
The assessee received and repaid cash loans, leading to additions under Section 69A and penalties under Sections 271D and 271E. The CIT(Appeals) deleted the penalties because the underlying quantum additions had already been deleted by the first appellate authority and confirmed by the ITAT.
Held
The tribunal upheld the deletion of penalties, stating that once the quantum additions forming the basis of the penalties are deleted, the penalties cannot survive independently. The satisfaction recorded for penalty initiation also ceases to exist when the assessment order is annulled.
Key Issues
Whether penalties under Sections 271D and 271E can be sustained when the quantum additions, which were the basis for these penalties, have been deleted by higher authorities.
Sections Cited
Section 69A, Section 271D, Section 271E, Section 269SS, Section 269T, Section 143(3), Section 153C, Section 132, Section 250(6)
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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
ORDER PER : SUNIL KUMAR SINGH, JUDICIAL MEMBER:
Both these appeals have been preferred by Revenue against two separate impugned orders each dated 24.01.2025 passed in Appeal No. CIT (A)-IV/KNP/10428 and CIT (A)-IV/KNP/10438 respectively by the Ld.
Commissioner of Income-tax (Appeals)-4, Kanpur u/s. 250(6) of the Income- tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2015-16, wherein the ld. CIT(Appeals) has allowed assessee’s first appeals, deleting penalties imposed u/s. 271E and 271D of the Act respectively.
Briefly stated, the facts are that the assessment in the case of the respondent-assessee was completed under section 143(3) read with section 153C of the Act, pursuant to incriminating material found during search and seizure proceedings dated 26.09.2017 under section 132 conducted in the BNR Group cases. During the assessment proceedings, the Assessing Officer made additions of Rs.1,75,00,000/- on account of cash loans received and Rs.1,19,60,000/- on account of repayment of such loans in cash, treating the same as unexplained money under section 69A of the Act.
Consequent thereto, the Assessing Officer initiated penalty proceedings under sections 271D and 271E of the Act for contravention of sections 269SS and 269T, respectively, and imposed penalties of Rs.1,75,00,000/- and Rs.1,19,60,000 vide separate orders each dated 29.05.2023, passed u/s. 271D and 271E of the Act.
Aggrieved, the assessee preferred appeals before the learned CIT(Appeals), who allowed the appeals and deleted the penalties on the ground that the underlying quantum additions had already been deleted by the first appellate authority and, therefore, the penalties could not survive.
The Revenue has filed the present second appeals on the ground that the quantum additions were deleted on erroneous findings and that penalty proceedings are independent of the assessment proceedings.
The principal issue for adjudication under appeal is as to whether the learned CIT(Appeals) erred in deleting the penalties when the quantum additions had already been deleted ?. 2 | P a g e
It is undisputed fact that the additions made by the Assessing Officer have been deleted by the first appellate authority, vide order dated 30.11.2023 passed in Appeal No. CIT (A)-IV/KNP/10331/2014-15, which has been confirmed by ITAT vide order dated 13.02.2025 passed in & 37/Agr/2024 for A.Yrs. 2015-16 & 2017-18. The impugned penalties were levied solely on the basis of those additions and were thus consequential in nature. Ld. CIT(Appeals) relied K.C. Builders vs. ACIT, 135 Taxman 461(SC), wherein Hon’ble Apex Court held that where the additions in the assessment order, on the basis of which penalty was levied, are deleted, there remains no basis at all for levying the penalty. Since the additions forming the very basis of the penalty proceedings are deleted, the very foundation of the penalties collapse. The penalties cannot thus be sustained independently. The law mandates that the Assessing Officer must record satisfaction regarding the alleged violation of sections 269SS and 269T of the Act in the assessment order itself for valid initiation of penalty proceedings under sections 271D and 271E of the Act. When such an assessment order is annulled or set aside by a higher authority, the satisfaction recorded therein also ceases to exist, rendering the penalty proceedings invalid. In view of the above, we find no infirmity in the orders passed by the learned CIT(Appeals) deleting the impugned penalties.
Accordingly, both the appeals filed by the Revenue are dismissed. 3 | P a g e
In the result, the appeals of the Revenue, & 166/Agr/2025 stand dismissed.
Order pronounced in the open court on 15.01.2026.