Ommi Sandeep Vs ITO (ITAT Visakhapatnam)
Section 69 Addition Deleted: Section 271AAC Penalty Loses Its Foundation and Must Fall
Background of the Case
The Visakhapatnam Tribunal quashed a penalty of ₹51,480 under Section 271AAC(1) because the underlying addition under Section 69 had already been deleted in the quantum appeal.
The Tribunal held that once the addition forming the very basis of the penalty ceased to survive, the consequential penalty could not be sustained.
The assessee had filed his return for Assessment Year 2019–20 on 29 August 2019, declaring income of ₹5,15,830.
Subsequently, the Assessing Officer completed reassessment under Section 147 read with Section 144, making an addition towards alleged unexplained investment in the purchase of a flat.
Addition for Alleged Unexplained Investment
Through an assessment order dated 22 February 2024, the Assessing Officer added ₹6,60,000 under Section 69.
The assessee’s total income was consequently determined at ₹11,75,830.
The assessee challenged the reassessment before the CIT(A), who sustained the addition through an order dated 26 June 2025. The quantum dispute was thereafter carried to the Tribunal.
Meanwhile, the Assessing Officer proceeded separately with the penalty arising from the Section 69 addition.
Penalty Imposed and Confirmed
By an order dated 27 November 2025, the Assessing Officer imposed ₹51,480 under Section 271AAC(1) in respect of the ₹6,60,000 addition.
The assessee appealed against the penalty. However, the CIT(A), National Faceless Appeal Centre, dismissed that challenge through an order dated 20 April 2026.
Aggrieved, the assessee approached the Tribunal in the present penalty appeal.
The decisive development was the outcome of the separate quantum proceedings: the Tribunal had already vacated the Section 69 addition.
Quantum Relief Placed Before the Tribunal
At the hearing, the assessee’s representative produced the Tribunal’s order in ITA No. 507/VIZ/2025, demonstrating that the ₹6,60,000 addition had been deleted.
He submitted that the penalty rested entirely on that addition. Once the addition itself had been vacated, there was no surviving foundation for the penalty.
The Departmental Representative, when confronted with the quantum appellate outcome, did not rebut the factual position.
The issue therefore did not require a fresh examination of the original source of investment. The relevant question was whether a penalty founded on a deleted addition could continue.
Penalty Cannot Survive a Deleted Foundation
The Tribunal accepted the assessee’s submission.
It recorded that the ₹6,60,000 addition under Section 69 formed the very basis of the Section 271AAC(1) penalty.
Since that addition had already been vacated by the Tribunal in the quantum appeal, the penalty had to meet the same fate.
Accordingly, the Tribunal quashed the penalty of ₹51,480 and allowed the assessee’s appeal.
Final Deletion, Rather Than Remand
The operative relief was clear: the Tribunal did not restore the penalty proceedings for reconsideration or direct the Assessing Officer to await another assessment exercise.
It quashed the existing penalty, following deletion of the corresponding addition.
This distinction matters when describing the result. The order concerns a quantum addition that had been vacated, rather than an addition merely restored to the Assessing Officer for fresh examination.
The reasons for the earlier quantum deletion were not reproduced or independently examined in this penalty order. Its conclusion rested on the established fact that the addition no longer survived.
Author’s Comments
The decision illustrates the direct connection between an addition under Section 69 and a penalty imposed specifically on that addition under Section 271AAC(1).
Where the quantum addition has been deleted, the taxpayer should place the appellate order on record in the pending penalty proceedings and identify the precise correspondence between the deleted amount and the penalty base.
Here, that connection was undisputed: the penalty related to the same ₹6,60,000 addition that the Tribunal had vacated.
The ruling should nevertheless be described within its scope. It does not hold that every Section 69 addition necessarily warrants penalty, nor does it examine the other statutory conditions governing Section 271AAC. It decides the narrower proposition that this penalty could not survive after its entire quantum foundation had been removed.
For practitioners handling parallel quantum and penalty appeals, the case reinforces the importance of promptly bringing subsequent quantum relief to the attention of the authority hearing the penalty matter.
List of Cases Discussed
1. Ommi Sandeep v. ITO, Ward–1, Vizianagaram (ITAT Visakhapatnam), ITA No. 507/Viz/2025, quantum appeal:
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 20/04/2026, which in turn arises from the order passed by the Assessing Officer (for short “AO”) under section 271AAC(1) of the Income Tax Act, 1961 (for short “the Act”), dated 27/11/2025 for Assessment Year (AY) 2019-20.
2. Succinctly stated, the assessee had filed his return of income for AY 2019-20 on 29/08/2019, declaring an income of Rs.5,15,830/-.
3. Thereafter, the AO vide his order passed under section 147 r.w.s 144 fo the Act, dated 22/02/2024, after making an addition of Rs.6,60,000/- under section 69 of the Act regarding the unexplained investment made by the assessee towards purchase of a flat, determined his income at Rs.11,75,830/-.
4. Thereafter, the order passed by the AO under section 147 r.w.s 144 of the Act, dated 22/02/2024 was upheld by the CIT(A) vide his order, dated 26/06/2025.
5. Thereafter, the AO vide his order under section 271AAC(1) of the Act, dated 27/11/2025 as regards the addition made under section 69 of the Act of Rs.6,60,000/- imposed a penalty of Rs.51,480/-.
6. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.
7. The assessee, aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
8. We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.
9. Shri GVN Hari, Advocate, Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal submitted that the quantum addition of Rs.6,60,000/- made by the AO under section 69 of the Act, which thereafter had been sustained by the CIT(A), has been vacated by the Tribunal vide its order passed in ITA No. 507/Viz/2025, dated 25/02/2026. The Ld. AR to buttress his contention has taken us through the aforesaid order passed by the Tribunal, Page 35-41 of APB. It was submitted that now when the quantum addition based on which the impugned penalty has been imposed in itself has been vacated, the impugned penalty cannot be sustained and is liable to be quashed.
10. Per contra, Shri A.P. Babu, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) on being confronted with the aforesaid factual position did not rebut the same.
11. We have given thoughtful consideration and are of the view that now when the impugned addition made by the AO under section 69 of the Act of Rs.6,60,000/- which forms the very basis for the penalty imposed by the AO under section 271AAC(1) of the Act has itself been vacated by the Tribunal vide its order passed in ITA No.507/Viz/2025, dated 19/02/2026, therefore, the impugned penalty has to meet the same fate and is liable to be vacated.
12. We thus, quash the penalty imposed by the AO under section 271AAC(1) of the Act.
13. In the result, appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 14th October, 2026.
