RishirajHitendra Bhandari Vs ITO (ITAT Mumbai)
The Mumbai ITAT allowed the assessee’s appeal for AY 2017-18 and deleted the penalty levied under section 271AAC, holding that the penalty was purely consequential to the addition made under section 69 of the Income-tax Act.
In the quantum proceedings, the CIT(A) had entirely deleted the adition under section 69 relating to alleged unexplained investment in an immovable property (which was primarily in the name of the assessee’s father, with the assessee as a joint owner). The Revenue did not challenge this quantum relief.
The Tribunal observed that section 271AAC applies only where income referred to in sections 68, 69, 69A, 69B, 69C or 69D is determined and taxed under section 115BBE. Once the very foundation of such income ceased to exist, the penalty could not be sustained.
Accordingly, the Tribunal held that when the quantum addition under section 69 is deleted, penalty under section 271AAC automatically fails, and directed deletion of the penalty. The assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the assesseeemanates from the order passed under Section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the learned Commissioner of Income-Tax, National Faceless Appeal Centre*in short, ‘CIT(A), NFAC’+, Delhi, dated 22.09.2025 for the Assessment Year 2017-18, wherein the assessee has challenged the sustenance of levy of penalty u/s. 271AAC of the Act.
2. During the course of hearing, the ld. AR submitted that the addition has been made by the AO u/s. 69 of the Act in respect of investment made in an immovable property primarily in the name of the assessee’s father and the assessee name was also added as a joint owner of the said property. It was submitted that in the quantum proceedings, the addition so made u/s. 69 of the Act have been deleted by the ld. CIT(A) and in this regard, our reference was drawn to the order passed u/s. 250 of the Act dated 21.07.2025 which is available as part of the assessee’s paper book at pages 63-103. It was accordingly submitted that where the addition so made u/s. 69 of the Act no more survives in light of the order in the quantum proceedings and against which, the Revenue is not in appeal, there is no basis for levy of penalty u/s. 271AAC of the Act.
3. The ld. DR has been heard who has relied on the penalty order so passed by the AO.
4. We have heard the rival contentions and perused the material available on record. It is a case where the penalty has been levied u/s. 271AAC of the Act. Sub-section (1) of 271AAC of the Act provides that the AO may, notwithstanding anything contained in this Act other than the provisions of section 271AAB, direct that in a case where the income determined includes any income referred to inter-alia section 69 for any previous year, the assessee shall pay by way of penalty, in addition of tax payable u/s. 115BBE of the Act, computed @10% of the tax payable under clause (i) of sub-section (1) of section 115BBE of the Act. The penalty is thus consequential to income determined u/s 69 of the Act. In the instant case, where the addition so made by the AO u/s. 69 stand deleted by virtue of the order passed by the ld. CIT(A) in the quantum proceedings, we find merit in the contention advanced by the ld. AR that the very foundation for levy of penalty no more survives and there is thus no basis left for sustenance of levy of penalty u/s. 271AAC of the Act. In view of the same, the penalty so levied and sustained by the ld. CIT(A) is hereby deleted.
5. In the result, appeal of the assessee is allowed.
Order is pronounced on 19.01.2026
