Penalty u/s 271(1)(c) Imposed During Pendency of Quantum Appeal: ITAT Terms It Premature, Sets Aside Order [Read Order]

Murmu Pankaj Kumar,appellant-assessee,worked as a pilot with Air India Limited. He did not file his return of income for the assessment year 2016-17 under Section 139 but later filed it in response to a notice under Section 148, declaring income of ₹37,42,310.

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The Assessing Officer (AO )completed the assessment on 22.01.2024 under Section 147 read with Section 144B, making additions of ₹6,31,125, including ₹2,400 disallowed under Section 80D and ₹6,28,725 treated as unexplained investment under Section 69, taxed under Section 115BBE. The total income was assessed at ₹43,73,435, and demand of ₹5,43,487 was raised. Penalty proceedings under Sections 271(1)(c) and 271(1)(b) were also initiated.

The assessee filed an appeal against the assessment on 03.07.2024, which was still pending. Meanwhile, the AO passed an ex-parte penalty order under Section 271(1)(c) on 16.07.2024, imposing a penalty of ₹1,95,022 for furnishing inaccurate particulars.

The appeal against the penalty was dismissed by the CIT(A) on 27.11.2024, holding that the assessee failed to disclose material facts. The present appeal was filed before the tribunal against this penalty order.

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The assessee counsel informed the tribunal that the quantum appeal filed before the CIT(A)/NFAC was still pending. He relied on the Karnataka High Court's decision in Anjanadri Fuel Station v. ITO and requested that the penalty order be sent back to the CIT(A)/NFAC for reconsideration along with the quantum appeal.

The departmental representative supported the orders passed by the lower authorities.

The two member bench comprising Keshav Dubey (Judicial Member) and Laxmi Prasad Sahu (Accountant Member) noted that the quantum appeal was still pending before the CIT(A) yet the authorities had proceeded with issuing penalty notices and passing the penalty order.

It referred to the Karnataka High Court’s ruling in Anjanadri Fuel Station v. ITO, which held that when an appeal against the assessment order is pending, penalty proceedings should be kept in abeyance.

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The assessee’s counsel requested that the penalty matter be sent back to the CIT(A), and the tribunal agreed. It held that deciding the penalty appeal while the quantum appeal was still pending would be premature.

The appellate tribunal set aside the penalty order and remitted the matter to the CIT(A) for fresh consideration, with a direction to give the assessee a fair opportunity of hearing.

The appeal was partly allowed.

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