Mixpanel INC Vs DCIT (Delhi High Court)
The Delhi High Court considered writ petitions challenging an order dated 31.03.2026 imposing a penalty of Rs. 9,30,24,492 under Section 270A of the Income-tax Act, 1961 for alleged misreporting of income. The petitioner contended that the penalty arose from an assessment order dated 27.01.2025, which had already been set aside by the Income Tax Appellate Tribunal by its order dated 21.05.2025, including the adjustment relating to fee for technical services. It was submitted that the petitioner had informed the Assessing Officer of the Tribunal’s order during the penalty proceedings and requested that the proceedings be dropped, but the request was not accepted.
The Revenue objected to the maintainability of the writ petition on the ground that the petitioner had an appellate remedy before the Commissioner of Income Tax (Appeals). It was further submitted that, when the penalty order was passed, the Department was in the process of filing an appeal against the Tribunal’s order and the Assessing Officer was justified in proceeding with the penalty in anticipation of obtaining a stay.
The petitioner, in rejoinder, submitted that although the Department had filed an appeal, no interim order had been passed and no stay application had been moved.
The High Court held that the case warranted exercise of writ jurisdiction despite the availability of an appellate remedy, observing that the Assessing Officer had acted arbitrarily. The Court noted that, during the penalty proceedings, the ITAT had already set aside the assessment order and the fee for technical services adjustment. Consequently, the basis for the demand had ceased to exist by virtue of the findings of the superior fact-finding authority, which were binding on the Assessing Officer. The Court held that once the basis of the assessment had gone, the foundation for the allegation of misrepresentation or misreporting of income also disappeared.
The Court further observed that Section 275(1A) provides that penalty proceedings should not be finalised until the appeal proceedings are pending and that, once the appeal is allowed, effect should be given to the appellate order. According to the Court, the penalty proceedings ought to have been dropped.
Accordingly, the High Court allowed the writ petitions and set aside the penalty order dated 31.03.2026 and the consequential demand notice. The Court also observed that, if the Department’s appeal against the ITAT order is allowed, the respondents would be free to take appropriate proceedings in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of the present writ petitions, the petitioner has challenged the order dated 31.03.2026 passed by the Assistant Commissioner, Income Tax, New Delhi (2)(2)(1) [hereinafter referred to as ‘the Assessing Authority’], whereby a penalty under Section 270A of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] of 1961 to the tune of Rs. 9,30,24,492/- has been imposed on account of the alleged misreporting of income.
2. Mr. Kamal Sawhney, learned counsel for the petitioner, submitted that the impugned penalty order is per se illegal and without jurisdiction, in asmuchas it emanates from an assessment order passed by the Assessing Officer [hereinafter referred to as ‘the AO’] on 27.01.2025, against which the assessee had preferred an appeal before the Income Tax Appellate Tribunal [hereinafter referred to as ‘the ITAT’], which had been allowed by the Tribunal vide its order dated 21.05.2025.
3. He argued that, though the Tribunal vide its order dated 21.05.2025 had set aside the assessment order and decided the issue relating to fee for technical services in favour of the assessee, and the assessment order had been set aside by the Tribunal vide order dated 21.05.2025, the petitioner had brought the said fact to the notice of the AO during the penalty proceedings and had requested him to drop the penalty proceedings. However, the AO did not accede to the petitioner’s request and proceeded to pass the impugned penalty order.
4. He argued that once the findings of the AO on merits had been set aside, the imposition of penalty is not only illegal but also an arbitrary exercise of power.
5. Mr. Gaurav Gupta, learned Senior Standing Counsel, on the other hand, submitted that the petitioner ought to have preferred an appeal against the order impugned instead of directly assailing the same before this Court.
6. He argued that the grounds raised by the petitioner before this Court can very well be raised before the Appellate Authority and that the present case is not a fit one for this Court to exercise its extra-ordinary writ jurisdiction under Article 226/227 of the Constitution of India.
7. He further submitted that, when the impugned order was passed, the Department was in the process of filing an appeal against the order of the Tribunal and thus, the Assessing Officer was justified in passing the impugned penalty order, as he was hopeful of getting a stay on the operation of the Tribunal’s order.
8. Mr. Kamal Sawhney, learned counsel for the petitioner in rejoinder, submitted that although the Department had preferred an appeal against the order of the Tribunal, neither has any interim order been passed, nor has any stay application even been moved by the Department. Therefore, the plea taken by the AO is absolutely misconceived and misplaced.
9. Having heard the learned counsel for the parties, we are of the view that, in spite of the fact that a remedy of appeal is available to the petitioner before the Commissioner of Income Tax (Appeals), the present case warrants exercise of writ jurisdiction, as the AO has proceeded arbitrarily in passing the impugned penalty order.
10. There is no gainsaying the fact that, during the course of the penalty proceedings, the ITAT had already set aside the assessment order as well as the adjustment towards FTS made by the AO. Therefore, the basis for the creation of demand had ceased to exist by virtue of findings returned by the superior fact-finding Authority, which were binding upon the AO. Once the basis of assessment had gone, the very foundation of misrepresentation or misreporting of the income also vanished.
11. That apart, the provision imposing the penalty, namely Section 275 (1A), unequivocally provides that, until the proceedings of appeal are pending, the penalty proceedings shall not be finalized. The said provision as a necessary corollary implies that the AO should await the outcome of the appeal, and once the appeal is allowed, give respect and effect to the Appellate order. The penalty proceedings, thus, ought to have been dropped.
12. The writ petition is therefore, allowed. The impugned penalty order dated 31.03.2026, along with consequential demand notice of even date is hereby set aside.
13. Needless to observe that, in case, the appeal filed by the Department is allowed, the respondents shall be free to take appropriate proceedings, in accordance with law, if so desired.
