Karia Builders Vs ITO (ITAT Pune)
The Income Tax Appellate Tribunal (ITAT), Pune Bench, has nullified a Rs 1 crore penalty imposed on Karia Builders, ruling that the penalty proceedings were invalid due to fundamental legal flaws in the underlying assessment. The decision, dated July 23, 2025, in the case of Karia Builders v. Income Tax Officer (ITA No. 2401/PUNE/2024), underscores two key legal principles: a penalty cannot stand if the assessment order it is based on is itself bad in law, and the validity of assessment proceedings can be challenged during the penalty appeal.
The case arose from a reassessment notice issued to Karia Builders for the Assessment Year (AY) 2017-18. The Income Tax Department had initiated proceedings on the grounds that the firm had allegedly taken a Rs 1 crore cash loan from M/s. Niyati Builders Pvt. Ltd., which had not been disclosed in its returns. This information was reportedly gathered during a survey action against M/s. Niyati Builders Pvt. Ltd. Based on this, the Assessing Officer (AO) levied a penalty of Rs 1 crore under Section 271D of the Income Tax Act, 1961, for a purported violation of Section 269SS, which prohibits cash loans exceeding Rs 20,000.
