ACIT Vs Saurabh Gupta (ITAT Agra)
The Income Tax Appellate Tribunal, Agra dismissed the Revenue’s appeals and upheld deletion of penalties levied under sections 271D and 271E of the Income-tax Act, 1961, holding that penalties cannot survive independently when the underlying quantum additions have been deleted. The case related to Assessment Year 2015–16, where assessment was completed under section 143(3) read with section 153C following a search under section 132 in BNR Group cases. During assessment, the Assessing Officer treated alleged cash loans received and repaid as unexplained money under section 69A and made additions aggregating to ₹2.94 crore. Based solely on these additions, penalties equal to the amounts of alleged cash receipts and repayments were imposed for violation of sections 269SS and 269T.
On appeal, the Commissioner of Income-tax (Appeals) deleted the penalties after noting that the very additions on which the penalties were founded had already been deleted in quantum proceedings. The Revenue challenged this deletion, contending that penalty proceedings are independent of assessment proceedings and that the quantum additions were wrongly deleted.
The Tribunal observed that it was undisputed that the quantum additions had been deleted by the first appellate authority and that such deletion had already been confirmed by the Tribunal in earlier proceedings. The penalties under sections 271D and 271E were purely consequential and entirely dependent on the additions made in assessment. Relying on the decision of the Supreme Court in K.C. Builders vs. ACIT, the Tribunal reiterated that when the additions forming the basis of penalty are deleted, the foundation for levy of penalty ceases to exist.
The Tribunal further noted that initiation of penalty proceedings under sections 271D and 271E requires valid satisfaction regarding violation of sections 269SS and 269T to be recorded in the assessment order itself. Once the assessment order and the additions therein are set aside or annulled by appellate authorities, the satisfaction recorded therein also collapses, rendering the penalty proceedings invalid. In such circumstances, penalties cannot be sustained independently.
Finding no infirmity in the orders of the Commissioner (Appeals), the Tribunal dismissed both Revenue appeals and confirmed deletion of the penalties.
FULL TEXT OF THE ORDER OF ITAT AGRA
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.
2. 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.
3. 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.
4. 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.
5. 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 ?.
6. 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 ITA No. 36 & 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.
7. In the result, the appeals of the Revenue, ITA No. 165 & 166/Agr/2025 stand dismissed.
Order pronounced in the open court on 15.01.2026.
