Penalty proceedings must be remanded if the underlying quantum

Penalty proceedings must be remanded if the underlying quantum appeal is pending before appellate authorities.

Issue

Whether a penalty levied under Section 270A for under-reporting or misreporting of income can be adjudicated independently by the Tribunal while the main quantum appeal for the same assessment year is still pending disposal before the first appellate authority.

Facts

Penalty Levy: The Assessing Officer (AO) passed an ex parte order levying a penalty under Section 270A for the assessment year 2021-22 due to the assessee’s non-compliance with the penalty notices.
First Appeal Outcome: The Commissioner of Income-tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC) partly allowed the assessee’s appeal, sustaining a penalty of approximately Rs. 4.66 lakhs and deleting a penalty of roughly Rs. 73.47 lakhs.
Revenue’s Appeal: Aggrieved by the deletion, the Revenue department preferred an appeal before the Income Tax Appellate Tribunal.
Pending Quantum Dispute: During the Tribunal proceedings, the assessee demonstrated that the primary quantum appeal challenging the tax assessment itself for the exact same assessment year was still pending adjudication before the CIT(A), NFAC.

Decision

Interdependence of Proceedings: The Tribunal held that penalty proceedings are inherently linked to the assessment of income, meaning the penalty will survive or fall depending entirely on the ultimate outcome of the quantum proceedings.
Order Set Aside: The impugned order passed by the CIT(A), NFAC regarding the penalty was set aside by the Tribunal due to the premature nature of handling the penalty in isolation.
Remand for Joint Adjudication: The matter was remanded back to the file of the CIT(A), NFAC for a fresh, de novo determination alongside the pending quantum appeal to ensure both aspects are decided cohesively.

Key Takeaways

Derivative Nature of Penalties: A penalty under Section 270A cannot be conclusively finalized while the foundational tax assessment (quantum) is actively being disputed at the first appellate stage.

Administrative Efficiency via Remand: To avoid contradictory legal positions and unnecessary litigation, appellate tribunals routinely remand penalty disputes back to lower authorities so they can be heard and decided together with the main tax appeal.

IN THE ITAT KOLKATA BENCH ”A”

Income-tax Officer

v.

Dipali Singha Roy^*

George Mathan, Judicial Member
and Sanjay Awasthi, Accountant Member

IT Appeal No. 1331 (KO1) OF 2025
[Assessment year 2021-22]

NOVEMBER 27, 2025

Bonnie Debbarma, Addl. CIT for the Appellant. Himangshu Kumar Ray, Paban Kumar Ray and Subhasis Podder, Advs. for the Respondent.

ORDER

Sanjay Awasthi, Accountant Member. – This appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”), dated 30.04.2025, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)”].

1.1 In this case, the penalty under Section 270A of the Act has been levied by the AO vide his order dated 12.06.2023. It is pertinent to note that the said order has been passed in an exparte manner as has been clearly mentioned on page 2 of the Ld. AO’s order. Thereafter, this matter travelled up to the Ld. CIT(A) where also, as per the noting in paragraph 3 at page 2 of the impugned order, the assessee never complied to any of the notices issued from the Ld. CIT(A)’s office. However, the assessee could succeed in part and only a penalty of Rs. 4,66,462/- was confirmed and the other penalty of Rs. 73,47,400/- was deleted.

1.2 Aggrieved with this action, the Revenue has approached the ITAT with the two grounds as under:

“1. The Ld. CIT(A), NFAC Delhi has erred in deleting the penalty amount of Rs. 73,47,400/-which is the 200% of the Tax Amount of Rs.36,73,700/- derived from the under reporting of income which is also consequent of mis-reporting of Rs. 1,00,00,000/- (received as prize money from Sikkim State Lottery and the same has not been offered for tax under the head of Income from the other sources.

2. The Ld. CTT(A), NFAC Delhi has erred to treat the prize money of Rs. 1,00,00,000/- as turnover i.e. the turnover of the assessee while the assessee remain non-compliance throughout the assessment proceedings never complied to any notice of the FAO and also when the FAO has rejected the books of account of the assessee as per the provision of the section 145(3) of the I. T. Act, 1961.”

2. Before us, the Ld. DR pointed out the finding in paragraph 2 of the assessment order dated 26.12.2022 and the relevant portion from the Ld. AO’s order under Section 270A of the Act (dated 12.06.2023). It was the submission that the Ld. AO’s order in levying penalty should be confirmed.

2.1 The Ld. AR made a statement at the Bar and filed a notice issued by CIT(A), NFAC in the quantum matter for this very same assessment year. It was the submission that the assessee was made aware of the assessment order at a much later stage and thereafter has filed an appeal in the quantum matter before the Ld. CIT(A). As evidence of this the notice fixing the date of hearing issued by the Ld. CIT(A), NFAC was placed on record for our perusal. It was the submission that the quantum matter is pending and hence there is no reason why the penalty matter should continue to be heard by the ITAT.

3. We have carefully considered the rival submissions and have gone through the records before us. It is obvious that the quantum matter is pending as of now at first appeal stage and hence the impugned order is set aside and this issue is remanded back to the file of Ld. CIT(A) for fresh adjudication, along with quantum matter. Needless to say, depending on the fate in the quantum matter, this penalty would either survive or fall as per the outcome thereon.

4. In result, appeal of the Revenue is partly allowed for statistical purposes.