Kerala HC Quashes Penalty & Recovery Proceedings Based on Set-Aside Assessment Order

Moly Jagatha Vs National Faceless Assessment Centre Income Tax Department (Kerala High Court)

Summary: The Kerala High Court considered a writ petition filed by Moly Jagatha challenging penalty and recovery proceedings founded on an earlier assessment order. The petitioner was an assessee under the Income Tax Act and challenged penalty show-cause notices, including proceedings under section 271AAC(1) and section 270A, as well as recovery proceedings based on the original assessment order. The original assessment order, Ext.P1, had been dated 12.02.2025. According to the petitioner, that assessment order had subsequently been set aside by the appellate authority through Ext.P2 dated 19.05.2026, with a direction to the assessment authority to conduct the assessment afresh. Pursuant to that direction, Ext.P3 communication dated 05.06.2026 had been issued and fresh assessment proceedings were pending.

The petitioner contended that notwithstanding the setting aside of Ext.P1, the authorities proceeded to issue the penalty notices and recovery notice on the basis of that assessment order. The Court heard both the petitioner’s counsel and the standing counsel for the respondents. It found that Ext.P2 clearly indicated that Ext.P1 had been set aside with a direction for fresh assessment. Consequently, Ext.P1 was no longer in existence and no fresh assessment order had yet been passed pursuant to the appellate direction. On that basis, the Court held that proceedings for penalty or recovery could not have been issued based on Ext.P1 and were therefore per se illegal.