Ruby Singh Vs DCIT (ITAT Delhi)
High Court Admits Question on Validity of Reassessment: Section 271(1)(c) Penalty Deleted
Confirmation of an addition by the Tribunal does not make concealment penalty automatic. Where the High Court has admitted substantial questions of law challenging the very jurisdiction to reopen the assessment, the foundation of the penalty remains in dispute. Applying this principle, the Delhi ITAT deleted penalties under Section 271(1)(c) for seven assessment years in Ruby Singh v. DCIT, ITA Nos. 2821 to 2827/Del/2026, decided on 29 September 2026.
Additions Sustained, Penalties Imposed
The assessee’s assessments for AYs 2013–14 to 2019–20 were reopened. Taking AY 2013–14 as the lead appeal, the Assessing Officer examined amounts of ₹25 lakh and ₹50 lakh received through bank transfers from accounts associated with two persons. The assessee furnished their bank statements, confirmations and details of their income-tax assessments. The AO also issued summons to them under Section 131, but received no response. He added the ₹75 lakh.
The AO further examined a credit entry in the assessee’s Standard Chartered Bank account and added ₹2.05 lakh as unexplained under Section 68. The assessee’s challenge to the additions failed before the Tribunal in the quantum proceedings.
The AO thereafter imposed penalty under Section 271(1)(c). In the lead year, the penalty was ₹23,11,500, levied at 100% of the tax sought to be evaded. His reasoning was substantially that the Tribunal had confirmed the additions and that the assessee had therefore furnished inaccurate particulars of income. The CIT(A) upheld the penalty, bringing the assessee back before the ITAT in seven penalty appeals.
The Quantum Appeals Had Reached the High Court
The decisive development was that the Delhi High Court had admitted substantial questions of law in the assessee’s quantum appeals. Those questions concerned whether reassessment had been initiated without tangible material and without a valid “reason to believe”, as opposed to a mere reason to suspect.
The High Court had also considered the effect of that challenge on the penalty. In an order dated 24 February 2026, it observed that if the AO’s assumption of jurisdiction were ultimately found unlawful, the reassessment orders would fall and the findings of concealment recorded in them would lose their basis. In the circumstances, particularly as the assessee had deposited the tax, the High Court stayed recovery of the penalty and prosecution arising from the reassessments.
A stay is not a final decision on the validity of the reassessments. It did, however, show that the jurisdictional challenge was substantial and directly affected the basis on which the penalties had been imposed.
Penalty Requires Its Own Justification
Before the ITAT, the assessee raised several objections. These included uncertainty over whether the charge was concealment of income or furnishing inaccurate particulars, the admission of the quantum appeals by the High Court, and the AO’s reliance on the confirmed additions as though penalty followed automatically.
The Tribunal resolved the appeals on the effect of the admitted substantial questions of law. It relied on the Delhi High Court’s decisions in CIT v. Liquid Investment and Trading Co. and PCIT v. Harsh International (P.) Ltd. Those decisions recognise that penalty cannot be levied as a matter of course merely because an assessment addition has survived at an earlier appellate stage. Where the High Court has admitted a substantial question concerning the underlying assessment, the issue may remain sufficiently disputable to defeat the penalty.
In Harsh International, the High Court had emphasised that an admitted quantum appeal meant the alleged concealment was not final. The ITAT found that principle applicable here. The questions admitted in Ruby Singh’s quantum appeals went even further: they challenged the AO’s jurisdiction to reopen. If that challenge succeeds, the reassessments themselves cannot stand.
All Seven Penalties Deleted
The ITAT held that, with the substantial questions of law admitted by the Delhi High Court in the quantum appeals, the penalties were untenable in law. It deleted the penalty in the lead appeal for AY 2013–14. As both sides agreed that the remaining six appeals involved identical facts, it directed deletion of those penalties as well.
The result must be understood precisely. The ITAT deleted the penalties; it did not decide the pending quantum appeals before the High Court or erase the additions. Nor did it separately adjudicate every objection raised about the wording of the penalty charge or opportunity of hearing. Its decision rests on the admitted legal challenge to the reassessments and the Delhi High Court authorities governing penalty in such circumstances.
Author’s Comment
This order is particularly useful where an assessee has lost the quantum appeal before the ITAT but has secured admission of a substantial question of law before the High Court. The Department cannot simply treat the confirmed addition as conclusive proof of concealment and impose penalty mechanically. The penalty proceeding requires independent legal justification.
At the same time, the proposition should not be stated as a universal rule that admission of any High Court appeal automatically cancels every penalty. The nature of the admitted question matters. Here, the questions attacked the very basis of reassessment, and the High Court had expressly observed that an unlawful assumption of jurisdiction would also undermine the recorded finding of concealment. That link between the pending challenge and the penalty is what makes the decision significant.
Cases Discussed
- Principal Commissioner of Income Tax (Central)-2 v. Harsh International (P.) Ltd. (2021) 128 taxmann.com 88 (Delhi High Court) — Relied upon for the proposition that penalty cannot be a matter of course and, where the High Court has framed substantial questions of law in the quantum appeal, the alleged concealment is not final and the issue remains disputable.
- CIT v. Liquid Investment and Trading Co., ITA No. 240/2009, order dated 05.10.2010 (Delhi High Court) — Relied upon for holding that admission of the quantum appeal and framing of a substantial question of law demonstrated that the underlying issue was debatable.
- CIT v. Advaita Estate Development Private Limited, ITA No. 1498 of 2014, order dated 17.02.2017 (Bombay High Court) — Referred to in Harsh International while considering whether penalty can survive when the underlying quantum issue is debatable.
- CIT v. H B Leasing & Finance Co. Ltd., ITA No. 1612/2010 (Delhi High Court) — Referred to by the Delhi High Court in Harsh International among decisions upholding deletion of penalty where the quantum appeal had been admitted.
- CIT v. Thomson Press India Ltd., ITA Nos. 426 & 440/2013, order dated 03.03.2014 (Delhi High Court) — Referred to for the principle that, where the question of law raised by the assessee has been framed and admitted, imposition of penalty was not justified in the circumstances of that case.
FULL TEXT OF THE ORDER OF ITAT DELHI
These seven appeals by the assessee are arising out of different orders of CIT(A)-24, New Delhi, all dated 6th January, 2026. Assessments were framed by the ACIT, Central Circle-8, Delhi for the assessment years 2013-14 to 2018-19 under Section 147 read with Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), vide orders dated 8th February, 2022. The penalties under dispute were levied by the ACIT, Central Circle-8, Delhi for all the assessment years from 2013-14 to 2018-19 vide orders under Section 271(1)(c) of the Act, all dated 29th November, 2023.
2. A common issue is involved in all the seven appeals. Hence, we are disposing of these appeals vide this common order, and will take up the facts and grounds from ITA No.2827/Del/2026 for the assessment year 2013-14.
3. The only issue in this appeal of the assessee is as regards the levy of penalty confirmed by the learned CIT(A) under Section 271(1)(c) of the Act read with Section 274 of the Act, which is unsustainable and untenable in law. For this, the assessee has raised the following propositions:-
(i) that there is no precise charge viz., whether the penalty was levied for concealment of income or furnishing inaccurate particulars of income.
(ii) whether the penalty can be levied when the question of law has been admitted by the Hon’ble High Court.
(iii) whether when the assessment proceedings are challenged but quantum is sustained by the Tribunal, the penalty is automatic or it can be decided independently.
(iv) that the Assessing Officer has not allowed proper opportunity of being heard and thereby violated principles of natural justice.
4. The brief facts are that the Assessing Officer framed assessment under Section 147 read with Section 143(3) of the Act and noted that the assessee has received an amount of ₹25 lakhs and ₹50 lakhs on transfer of joint account of Shri Dalpat Singh and Shri Ummed Singh from their bank account maintained with Bank of Baroda and State Bank of Bikaner & Jaipur. The assessee filed bank statements of Shri Dalpat Singh and Shri Ummed Singh from where the assessee has received the amounts on transfer and also the details of income tax assessments of these two persons and confirmation. The Assessing Officer issued summons under Section 131 of the Act to the creditors viz., Shri Dalpat Singh and Shri Ummed Singh but, there was no response. Therefore, the Assessing Officer added this amount of ₹75 lakhs. Similarly, the assessee was having credit entry of ₹2,96,000/- in Standard Chartered Bank and out of that, the Assessing Officer added a sum of ₹2,05,000/- which remained unexplained under Section 68 of the Act. The quantum appeal up to the Tribunal was dismissed. In the meantime, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) read with Section 274 of the Act and levied the penalty on the premise that the quantum addition has been confirmed by the Tribunal and therefore, the assessee has furnished inaccurate particulars of her income and therefore, levied the penalty at 100% amounting to ₹23,11,500/-. Aggrieved, the assessee preferred appeal before the learned CIT(A).
5. Learned CIT(A) also confirmed the action of the Assessing Officer by observing in paragraph Nos.6.3.2 and 6.4 as under:-
“6.3.2 Furthermore, the penalty order dated 29.11.2023 has been passed with prior approval of Additional Commissioner of Income Tax, Central Range-2, New Delhi under section 274(2) of the Income Tax Act, 1961, which is duly mentioned in paragraph 10 of the penalty order. The appellant was provided opportunities at appellate stage to substantiate this ground with evidence and arguments, but failed to respond to any of the notices issued by this office, except for filing adjournment request. In absence of any submission or material from the appellant’s side to demonstrate that satisfaction was not recorded or that the penalty was levied without jurisdiction, I find this ground to be devoid of merit. The Ground No.4 is therefore dismissed and the order of the AO is upheld.
6.4 In Ground No.5, the appellant has contended that the furthermore the learned Assistant Commissioner of Income Tax has erred both in law and on facts in mechanically imposing the penalty on the basis of findings in the order of assessment dated 8.2.2022 under section 147/143(3) of the Act. In Ground No.6, the appellant has contended that the Assistant Commissioner of Income Tax has failed to appreciate that, mere fact that certain addition made have been confirmed in appeal by the Hon’ble Income Tax Appellate Tribunal could not automatically warrant the levy of penalty under section 271(1)(c) of the Act. In Ground No.7, the appellant has contended that the Assistant Commissioner of Income Tax has failed to appreciate the factual matrix of the case of the appellant and evidence on record and conclusions thus drawn mechanically are wholly unjustified. It is therefore, prayed that it be held that penalty so levied is invalid and therefore, may kindly be deleted and appeal of the appellant be allowed.”
Aggrieved, now the assessee is in appeal before the Tribunal.
6. At the outset, learned Counsel before us filed copy of order dated 27th March, 2025 of Hon’ble Delhi High Court, wherein, in quantum appeals in ITA 154/2024 and CM Appl.13590/2024 and others, Hon’ble Delhi High Court has admitted substantial question of law, as under:-
“ITA 154/2024
“B. Whether the Tribunal was justified in dismissing the appeal of the Appellant when reassessment proceedings were initiated on the basis of no tangible material against the Appellant available with the Assessing Officer?
C. Whether the Tribunal was justified in dismissing the appeal of the Appellant when the reassessment proceedings were initiated by the Assessing Officer under section 147 of the Income Tax Act on the basis of no valid ‘reason to believe’ and more so on the basis of the ‘reason to suspect’?”
ITA 155/2024
ITA 156/2024
ITA 157/2024
ITA 158/2024
ITA 159/2024
ITA 161/2024
“A. Whether the Tribunal was justified in dismissing the appeal of the Appellant when reassessment proceedings were initiated on the basis of no tangible or intangible material available against the Appellant with the Assessing Officer?
B. Whether the Tribunal was justified in dismissing the appeal of the Appellant when the reassessment proceedings were initiated by the Assessing Officer under section 147 of the Income Tax Act on the basis of no valid ‘reason to believe’ and more so on the basis of the ‘reason to suspect’?”
2. List for hearing on 08.05.2025.”
7. Learned Counsel for the assessee stated that further Hon’ble Delhi High Court, vide order dated 24th February, 2026 in ITA No.154/2024 & CM Appl. 13590/2024 and others, has given a finding that in regard to assumption of jurisdiction by the Assessing Officer on impugned additions, if assessment order would go, even the finding of concealment recorded by the Assessing Officer in the assessment order too shall be without basis. Hon’ble Delhi High Court has recorded its finding in paragraph Nos.4 to 6, as under:-
“4. Having heard learned counsel for the parties, we are of the view that in case the assumption of jurisdiction by the AO is found to be not in accordance with law, not only the impugned assessment orders dated 08.02.2022 passed under Section 147 of the Act of 1961 in furtherance of the notice dated 01.01.2021 under section 148 of the Act of 1961 would go, even the finding of concealment recorded by the Assessing Officer (AO) in the assessment order too would be without basis.
5. In the instant factual backdrop when the appeals have been admitted, it will be iniquitous to proceed against the appellant on the allegation of concealment of income, more particularly, when the entire tax amount has been deposited by the appellant.
6. Such being the position, we hereby stay the recovery of the penalty so also the prosecution in furtherance of the impugned assessment orders.”
8. In terms of the above, learned Counsel for the assessee argued that when the substantial question of law is admitted by Hon’ble Delhi High Court in regard to quantum additions, the penalty will not survive because the issue becomes debatable. Learned Counsel relied on the decision of Hon’ble Delhi High Court in the case of The Commissioner of Income Tax II Vs. Liquid Investment and Trading Co. in ITA 240/2009, order dated 5th October, 2010, wherein it is held as under:-
“Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction under Section 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case.”
9. Further, Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax, (Central)-2 Vs. Harsh International (P.) Ltd. – (2021) 128 taxmann.com 88 (Delhi) has also considered the issue that once the High Court has framed substantial question of law in appeal preferred by the assessee challenging addition itself, alleged concealment was not final and the issue became debatable and therefore, penalty under Section 271(1)(c) of the Act will not survive. Hon’ble Delhi High Court, relying on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Advaita Estate Development Private Limited in ITA No.1498 of 2014 dated 17th February, 2017, has held as under:-
“9. Having heard the learned counsel for the appellant and having perused the impugned order, this Court is of the view that the ITAT was right in deleting the penalty levied under Section 271(1)(c) of the Act. It has to be noted that penalty proceedings are an outcome of assessment and if the assessment itself is debatable, the penalty proceedings cannot survive.
“10. This court is also of the opinion that levy of penalty cannot be a matter of course, as sought to be contended by the Revenue. It can only be levied in cases where the concealment of income has been proven. If the quantum order itself has been challenged and this Court has framed substantial questions of law in the appeal preferred by the respondent-assessee, it shows that the alleged concealment is not final and the issue is disputable. Consequently, the penalty levied by the assessing officer cannot survive in such a case.
“11. It is pertinent to note that this Court in similar cases [CIT Vs. Liquid Investment Ltd, ITA 240/2009, CIT Vs H B Leasing & Finance Co. Ltd. I.T.A. No. 1612/2010 and CIT Vs. Thomson Press India Ltd, ITA 426,440/2013] has upheld the deletion of the penalty on the same ground i.e. the fact that appeals were admitted proved that the issue was debatable. The relevant portion of the orders in CIT Vs. Liquid Investment Ltd (supra) and CIT Vs. Thomson Press India Ltd(supra) is reproduced hereinbelow:-
A) Order dated 5th October, 2010 passed by this Court in CIT Vs. Liquid Investment Ltd (supra) :-
“Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction under Section 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case.”
B) Order dated 3rd March, 2014 passed by this Court in CIT Vs. Thomson Press India Ltd(supra) :-
“This Court is of the opinion that where the question of law as raised by the assessee has been framed and admitted in the circumstances of this case, imposition of penalty cannot be justified. The appeals being bereft of substantial question of law are dismissed.”
“12. Keeping in view the aforesaid, this Court finds that no question of law arises in the present appeals for consideration of this Court.”
10. In the present case also, the facts are identical that Hon’ble Delhi High Court has admitted the substantial question of law against quantum addition in all these seven assessment years, hence, the penalty levied by the Assessing Officer has become debatable and once it has become debatable, the penalty cannot survive. Accordingly, we hold that the penalty levied is untenable in law and hence, deleted.
11. As regards remaining six appeals of the assessee, both the sides agreed that the facts in these appeals are identical to the facts in ITA No.2827/Del/2026. Therefore, the findings given by us while deciding the said appeal of the assessee in ITA No.2827/Del/2026 would mutatis mutandis apply to these appeals as well. As we have already deleted the penalty levied in ITA No.2827/Del/2026, the penalties levied in remaining six appeals are also directed to be deleted, being not sustainable in law.
12. In the result, all the appeals of the assessee are allowed.
Decision pronounced in the open Court on 29th September, 2026.
