Rajni Bala Vs ITO (ITAT Jaipur)
Penalty Appeal Cannot Be Decided Before Pending Quantum Appeal: ITAT Jaipur
Summary: The Income Tax Appellate Tribunal (ITAT), Jaipur, in Rajni Bala vs. ITO, held that an appeal against a consequential penalty could not be decided while the underlying quantum appeal remained pending before the Commissioner of Income Tax (Appeals).
The Tribunal set aside the appellate order confirming a penalty of ₹2,71,772 under Section 271(1)(c) of the Income Tax Act, 1961. It remanded the matter for a fresh decision after disposal of the quantum appeal, with adequate opportunity of hearing to the assessee. The appeal was allowed for statistical purposes.
The dispute arose from an assessment completed under Sections 147 read with 144, in which the Assessing Officer made an addition of ₹12,09,516 concerning a time deposit in the assessee’s bank account.
According to the assessment findings recorded in the Tribunal’s order, the assessee failed to furnish corroborative evidence explaining the source of the deposit. The amount was consequently treated as concealed income, and penalty proceedings under Section 271(1)(c) were initiated.
The Assessing Officer subsequently levied a penalty of ₹2,71,772. The penalty order was dated 29 May 2018.
The assessee challenged both the assessment addition and the penalty by filing separate appeals before the CIT(A). However, the penalty appeal was disposed of while the appeal concerning the underlying addition was still awaiting adjudication.
CIT(A) Confirmed Penalty Despite Pending Quantum Appeal
The National Faceless Appeal Centre (NFAC), Delhi, acting as the CIT(A), dismissed the assessee’s penalty appeal through an order dated 26 March 2026, thereby confirming the penalty imposed by the Assessing Officer.
Aggrieved by this decision, the assessee approached the Tribunal. Her principal objection was that the appellate authority had decided the penalty dispute without first deciding the quantum appeal, which concerned the very addition forming the basis of the penalty.
This sequence of adjudication became the decisive issue before the Tribunal.
Assessee’s Grounds of Challenge
The assessee contended that confirmation of the penalty was premature and unjustified because the underlying addition remained disputed in the pending assessment appeal.
She also challenged the penalty on several other grounds. These included the alleged absence of established concealment or furnishing of inaccurate particulars, failure to record proper satisfaction, and inadequate consideration of her explanation and submissions.
Another ground asserted that an addition or disallowance in assessment proceedings does not automatically justify a penalty.
These were grounds raised by the assessee. The Tribunal’s decision, however, rested on the pending quantum appeal and the need to reconsider the consequential penalty appeal after that appeal was decided.
Pendency of Quantum Appeal Was Undisputed
During the hearing, the assessee’s authorised representative specifically submitted that the CIT(A) had proceeded to dismiss the penalty appeal even though the quantum appeal remained pending before the same appellate authority.
The Tribunal recorded that this factual position was not controverted by the Revenue’s representative.
It was therefore undisputed that two separate appeals had been filed: one challenging the assessment addition and the other challenging the penalty arising from that addition. The underlying assessment dispute had not reached a decision at the first appellate stage when the penalty appeal was dismissed.
Tribunal’s Findings
The Tribunal held that, where the quantum appeal remained pending before the CIT(A), the consequential penalty appeal could not be decided, since it depended on the outcome of the quantum proceedings.
The relationship between the two proceedings was central to its reasoning. The penalty had arisen from the treatment of the bank deposit in the assessment. The appellate determination of that addition was therefore relevant to the subsequent consideration of the penalty.
On these facts, the Tribunal concluded that the order confirming the penalty was not sustainable and required interference.
Matter Remanded for Fresh Decision
The Tribunal set aside the impugned CIT(A) order and remanded the penalty matter for fresh adjudication after the quantum appeal was decided.
It expressly directed that the assessee be provided an adequate opportunity of being heard during the fresh proceedings.
Accordingly, the assessee’s appeal was allowed for statistical purposes. The Tribunal did not finally adjudicate whether concealment had occurred, whether the bank deposit stood satisfactorily explained, or whether the penalty was otherwise justified on merits.
Significance of the Ruling
The ruling highlights the importance of deciding the underlying assessment dispute before adjudicating the consequential penalty appeal in the circumstances considered by the Tribunal.
The relief granted was a remand for reconsideration, rather than a final deletion of the penalty on merits. The CIT(A) must decide the quantum appeal and thereafter examine the penalty appeal afresh, while giving the assessee a proper hearing.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The Appellant, Rajni Bala (hereinafter referred to as the ‘assessee’) by filing the present appeal, sought to set aside the impugned order dated 26.03.2026 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”] confirming the penalty levied by the Assessing Officer to the tune of Rs. 2,71,772/- u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) qua assessment year 2010-11 on the grounds inter-alia that:-
“ 01. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) has erred in confirming the penalty order passed by the Learned Assessing Officer, which is bad in law and against the facts of the case.
02. That the Learned Authorities below have failed to appreciate that quantum addition/disallowance on the basis of which penalty has been levied is itself disputed and the appeal against the assessment order is pending adjudication before the Learned CIT(A), therefore the penalty levied is, premature, unjustified and liable to be deleted.
03. That the Learned Assessing Officer has erred in levying penalty without establishing any concealment of income or furnishing of inaccurate particulars by the assessee.
04. That the penalty order passed by the Learned Assessing Officer is illegal, arbitrary, excessive and contrary to the provisions of the Income-tax Act, 1961.
05. That the Learned Authorities below have failed to appreciate that mere addition/disallowance in assessment proceedings does not automatically justify levy of penalty.
06. That the Learned Assessing Officer has failed to record proper satisfaction as required under law before initiation and levy of penalty and therefore the impugned penalty order deserves to be quashed.
07. That the impugned penalty order has been passed without properly considering the explanation and submissions furnished by the assessee and hence is liable to be deleted.
08. That the appellant craves leave to add, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing.”
2. Briefly stated, facts necessary for consideration and adjudication of the issues at hand are: On the basis of assessment framed u/s 147/144 of the Act making addition of Rs. 12,09,516/-. On failure of the assessee to explain the source of such deposit, penalty proceedings u/s 271(1)(c) of the Act were initiated for concealment of income.
3. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal, who has confirmed the penalty levied by the AO by dismissing the appeal. Being aggrieved with the impugned order passed by the Ld. CIT(A), assessee has come up before the Tribunal by way of filing the present appeal.
3. We have heard Ld. ARs for the assessee and Ld. DR for the Revenue and perused the record available on file.
4. Undisputedly, penalty u/s 271(1)(c) of the Act has been levied on the assessee on the basis of assessment framed u/s 147/144 of the Act, on failure of the assessee to furnish corroborative evidence to explain the time deposit of Rs. 12,09,516/- in her bank account, held to be concealed income, assessment was framed u/s 147/144 of the Act. It is also not in dispute that the assessee has filed two appeals one quantum appeal and second appeal challenging the penalty order u/s 271(1)(c) of the Act dated 29.05.2018 before the Ld CIT(A).
5. Ld. AR for the assessee at the very outset contended that Ld. CIT(A) has proceeded to decide/dismiss the penalty appeal without deciding the quantum appeal still pending before the Ld. CIT(A). These facts have not been controverted by the Ld. DR for the Revenue.
6. We are of the considered view that when the quantum appeal is pending before the Ld. CIT(A) consequential penalty appeal cannot be decided, as it is based upon the outcome of the quantum appeal. It may be result of some mistake due to over work. Be that as it may, the impugned order passed by Ld. CIT(A) is not sustainable and as such is liable to be set aside to remand back for afresh decision by providing adequate opportunity of being heard to the assessee on decision of the quantum appeal.
7. Resultantly, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 02/11/2026.
