Penalty Order of ₹101 Crores Stayed as Quantum Appeal Was Pending Before ITAT

By | November 19, 2025
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Penalty Order of ₹101 Crores Stayed as Quantum Appeal Was Pending Before ITAT

Issue

Can an Assessing Officer (AO) validly pass an order imposing a penalty under Section 271(1)(c) while the assessee’s appeal against the underlying quantum assessment (the tax demand) is still pending before the Income Tax Appellate Tribunal (ITAT), considering the provisions of Section 275 as they stood prior to April 1, 2025?

Facts

  • The Assessee: A State electricity transmission company.

  • The Dispute: The company was subjected to penalty proceedings arising from a quantum assessment (the calculation of income and tax).

  • Pending Appeal: The assessee had filed an appeal against the quantum assessment before the Income Tax Appellate Tribunal (ITAT). This appeal was active and pending adjudication.

  • The Penalty Order: Despite the pending appeal, the Assessing Officer passed an order on 26 September 2025, imposing a massive penalty of approximately ₹101 crores under Section 271(1)(c).

  • Assessee’s Argument: The assessee contended that under Section 275 (as it stood prior to the amendment effective 1 April 2025), the AO was barred from passing the penalty order while the quantum appeal was still pending before the ITAT.

Decision

  • The Court ruled in favour of the assessee at this interim stage.

  • It accepted the prima facie argument that, under the relevant legal framework of Section 275, the penalty order could not have been passed while the appeal against the quantum assessment was pending before the Tribunal.

  • Consequently, the Court granted ad-interim relief.

  • Restraint Order: The Revenue was restrained from taking any steps whatsoever pursuant to the impugned penalty order of ₹101 crores until further orders.

Key Takeaways

  • Dependency of Penalty on Quantum: Penalty proceedings are generally dependent on the outcome of the assessment (quantum) proceedings. If the additions made in the assessment are deleted by the Tribunal, the basis for the penalty disappears.

  • Section 275 Limitation: This section governs the time limit for imposing penalties. The ruling suggests that under the specific legal regime applicable to this case (pre-April 2025), the AO is required to await the decision of the appellate authority (ITAT) before crystallizing the penalty, to avoid infructuous demand raising.

  • Protection from Premature Recovery: The stay order protects the taxpayer from coercive recovery of a massive penalty amount that might be rendered null and void if they win the main tax appeal at the Tribunal.

  • Ad-Interim Relief: This is a temporary relief granted by the court to preserve the status quo while the legal question regarding the validity of the AO’s timing is fully adjudicated.

HIGH COURT OF BOMBAY
Maharashtra State Electricity Transmission Company Ltd.
v.
Assessment Unit*
B. P. COLABAWALLA and AMIT S. JAMSANDEKAR, JJ.
WRIT PETITION (L) NO.33458 OF 2025
OCTOBER  15, 2025
J.D. Mistri, Sr. Adv. and Gunjan Kakad, Adv. for the Petitioner. Ravi Rattesar, Adv. for the Respondent.
ORDER
1. The above Writ Petition challenges the impugned order dated 26th September 2025 passed under Section 271(1)(c) of the Income Tax Act, 1961. By the impugned order, a penalty of approximately Rs.101 Crores was levied on the Petitioner. One of the main grounds of challenge to the impugned penalty order is that the same could never have been passed because from the main quantum proceedings, the Petitioner has already filed an Appeal before the ITAT which is pending. Once this is the case, the penalty proceedings ought to have been kept in abeyance till a decision was rendered in the Appeal filed by the Petitioner, and pending before the ITAT.
2. In this regard, Mr.Mistri brought to our attention the provisions of Section 275(1)(a) of the Income Tax Act, 1962 as it stood prior to its amendment on 1st April 2025. Mr.Mistri also brought to our attention an order passed by this Court in R.B. Shreeram Durgaprasad v. CIT (Bombay) wherein this Court has taken a view that the order imposing a penalty cannot be passed if the Appeal against the basic order of assessment is pending before the Competent superior Authority. He, therefore, submitted that the Petition be allowed, the impugned order be set aside, and the matter be remanded back to the Assessing Officer with a direction that the penalty proceedings be kept in abeyance until the Appeal filed by the Petitioner against the main quantum proceedings is decided by the ITAT.
3. The learned advocate appearing on behalf of the Revenue sought time to file an affidavit-in-reply to the above Writ Petition.
4. Acceding to his request, we direct that the affidavit-in-reply, if any, shall be filed on or before 12th November 2025 and a copy of the same shall be served on the advocates for the Petitioner immediately thereafter.
5. As far as the ad-interim relief is concerned, we find considerable force in the argument canvassed on behalf of the Petitioner. Section 275(1)(a) stipulates that no order imposing a penalty under Chapter XXI shall be passed in a case where the relevant assessment or other order is the subject matter of an Appeal inter alia before the Appellate Tribunal, and the time to pass the penalty order is 6 months from the end of the month in which the order of the Appellate Tribunal is received by the Principal Commissioner or Commissioner.
6. In fact, the provisions of Section 275(1)(a) came up for consideration before a Division Bench of this Court in R.B. Shreeram Durgaprasad (supra). After analyzing the said provisions, this Court inter alia held that the language of Section 275(1)(a) clearly shows that the order imposing penalty cannot be passed if the Appeal against the basic order of assessment is pending before the Competent superior Authority. The relevant portion of this decision read thus:-
“9. The provisions of Section 275(1)(a) of the Act need to be looked into for considering the answer to second question. It is provided that no order imposing a penalty shall be passed where the assessment order is subject to appeal to the Commissioner (Appeals) or to further appeal to the Appellate Tribunal, after the expiry of period of two years from the end of financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or six months from the end of the month in which the order of the Appellate Assistant Commissioner or the Appellate Tribunal is received by the Commissioner, whichever period expires later. In the present facts, it is not in dispute that against the assessment order dated 18.3.1970, the assessee had filed an appeal and the Appellate Assistant Commissioner of Income Tax has decided that appeal on 2nd March 1971. The order of penalty has been passed on 24.2.1972. However, against this adjudication by 1st Appellate Authority, assessee had filed further appeal and that appeal before the ITAT was pending till 26.3.1974. These facts are not in dispute.
10. To point out the effect of adjudication of penalty under Section 271(1) (c) before adjudication by ITAT, the assessee invited our attention to the fact that addition of Rs.10 lacs in assessment year 1959-60 by assessing officer was upheld by 1st Appellate Authority in its order dated 2.3.1971. This addition was also a foundation for penalty proceedings and assessee pleaded that it is not a concealed income before the Authority in penalty proceedings. Though the Authority did not accept it, later on the ITAT vide its order dated 26.3.1974 deleted that addition. With the result the submission is, had the penalty imposing authority awaited outcome of further appeal to ITAT, as per scheme of Section 275(a), the penalty on amount of Rs.10 lacs could not have been levied. It is contended that thus, the notices issued for initiating penalty proceedings and the order dated 24.2.1972 are premature.
11. With reference to various precedents placed on record, learned Chartered Accountant invited our attention to the order imposing penalty to show that in paragraph 6, it has been observed that the I.T.O. has in its order for the assessment year 1954-55 given specific instances of suppression of receipts. Absence of such finding in addition to assessment year 1959-60, was brushed aside by pointing out the specific instances which were relevant for the assessment year 1954-55. The grievance about addition of Rs.10 lacs has also been similarly overlooked in paragraph 9 of the penalty order.
12. We have perused paragraphs 6, 9 and 10 of the penalty order. In the light of question referred to us, we have to appreciate the argument as advanced. However, we note that learned counsel for the Department has attempted to show that as penalty order was passed for several years, concealment in one of the assessment years has been referred to by way of illustration. He submitted that as finding of concealment was maintained by 1st Appellate Authority on 2.3.1971 and was only partly set aside by ITAT on 26.3.1974, contention that penalty order does not specifically record any finding about concealment, is misconceived.
13. The language of Section 275(1)(a) noted supra clearly shows that the order imposing penalty cannot be passed if the appeal against basic order of assessment is pending before the Competent superior Authority. Here, on 24.2.1972 though 1st Appellate Authority had disposed of the appeal, further appeal of assessee before the ITAT was very much pending. The order imposing penalty, therefore, appears to be premature and, therefore, illegal and without jurisdiction. The notices for initiation of those proceedings are, dated 12.1.1972, 3.2.1972 and 27.9.1972 i.e. during the pendency of appeal before the ITAT. Essential ingredients of Section 275(1) are clearly not in contemplation of notice issuing authority on these dates. The form or language of these notices shows clear non-application of mind in this respect. It is obvious that such notices initiating the penalty proceedings could not have been issued before 26.3.1974.”
7. In view of the aforesaid discussion, we are of the view that the Petitioner has made out a strong prima facie case for grant of ad-interim relief. Further, we are also of the view that the balance of convenience lies in favour of the Petitioner, especially considering that the penalty order seeks to recovery approximately Rs.101 Crores from the Petitioner who is a State Electricity Transmission Company. In these circumstances, there will be ad-interim relief in terms of prayer clause (d) which reads thus:-
“(d) that pending the hearing and final disposal of this petition, this Hon’ble Court be pleased to restrain the Respondents by an order and injunction from taking any steps whatsoever pursuant to the impugned order dated 26th September 2025 (Exhibit “Z”);”
8. We now place the above matter on 17th November 2025 under the caption for “ad-interim reliefs”.
9. We make it clear to the parties that we may dispose of the above Writ Petition at that stage itself, time permitting.
10. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.