ITO Vs K.P. Exim INC (ITAT Chandigarh)
The appeal before the Income Tax Appellate Tribunal, Chandigarh Bench was filed by the Revenue challenging the order of the Commissioner of Income Tax (Appeals) dated 25.02.2025 for Assessment Year 2014–15, whereby a penalty of ₹1,25,53,423 was deleted. The Revenue’s grievance was that the CIT(A) had deleted the penalty without examining the merits of the case.
The Tribunal examined the record and noted that the Assessing Officer had earlier passed an ex-parte assessment order under Section 144 read with Section 147 of the Income Tax Act, 1961, making an addition of ₹3,60,17,984. Based on this addition, a penalty under Section 271(1)(c) was imposed by order dated 21.09.2022. During appellate proceedings, it was brought to notice that the National Faceless Appeal Centre had already set aside the ex-parte assessment order by its order dated 15.01.2025. As a result, the very foundation for levying the penalty no longer survived. On this basis, the CIT(A) deleted the penalty.
The Tribunal analysed the scope of Section 271(1)(c), particularly sub-clause (iii), and observed that penalty is computed with reference to tax sought to be evaded on additions made to income. Where such additions are extinguished by an appellate order, no penalty can be computed. The Tribunal held that penalty proceedings are dependent on the existence of a valid and subsisting addition. Once the assessment order forming the basis of the penalty is set aside, the penalty cannot stand independently.
