Penalty proceedings stayed following Supreme Court stay on Reassessment regarding alleged Round-Tripping
Issue
Whether a penalty notice issued under Section 272A is sustainable and should be enforced when the underlying High Court order (which validated the reopening of assessment based on allegations of round-tripping and non-disclosure) has already been stayed by the Supreme Court.
Facts
The Transaction: In Assessment Year 2011-12, the assessee-company received an investment of Rs. 500 crores from KKR Mauritius, allotting 3.79 crore equity shares.
The Exit: Subsequently, these shares were bought back by the assessee’s holding company (DBL) for a significantly higher sum of Rs. 1218 crores.
The Reopening: The Assessing Officer (AO) received information from the Investigation Wing suggesting that the funds from KKR were actually the assessee’s own black money routed back (“round-tripping”). The AO issued a reopening notice under Section 148.
High Court’s View: The High Court upheld the reopening, noting that while the Audit Report mentioned agreements, the actual Share Subscription Agreement and Shareholders Agreement were never placed before the AO during the original assessment. The HC concluded there was a failure to “fully and truly disclose material facts.”
Supreme Court Intervention: The assessee appealed to the Supreme Court, which granted a stay on the High Court’s order vide order dated 30.05.2025.
Current Dispute: Despite the SC stay, the Revenue issued a notice for penalty under Section 272A.
Decision
Dependent Proceedings: The Tribunal/Court held that the penalty proceedings are consequential to the assessment/reassessment proceedings.
Effect of Stay: Since the Supreme Court has stayed the operation of the High Court’s order (which validated the jurisdiction to reopen the case), the very foundation of the current action is in abeyance.
Penalty Stayed: Consequently, it would be legally improper to proceed with penalty adjudication while the substantive validity of the reopening is sub-judice and stayed.
Ruling: The impugned penalty notice was stayed.
Key Takeaways
Stay on Substantive Order: If the Supreme Court or a Higher Court stays the operation of an Assessment Order or a High Court judgment regarding jurisdiction (Section 147), all consequential proceedings, including penalty (Section 270A/271(1)(c)/272A) and recovery demands, typically must be kept in abeyance.
Material Facts Disclosure: Merely mentioning an agreement in an Audit Report is not enough. To claim “full and true disclosure” and protect against reopening after 4 years, the actual copies of critical documents (like Shareholder Agreements) must be placed on the record of the AO.