Penalty and Recovery Notices Issued on a Set-Aside Assessment Order Are Illegal and Invalid
Issue
Whether penalty and recovery notices issued on the basis of an original assessment order—which was set aside by an appellate authority with directions for fresh assessment—are legally valid when the fresh assessment proceedings are still pending.
Facts
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The Assessing Officer initially passed an assessment order against the assessee.
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On appeal, the appellate authority set aside the original assessment order and directed the Assessing Officer to conduct a fresh assessment.
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Pursuant to the appellate authority’s direction, fresh assessment proceedings were initiated and remained pending before the Assessing Officer.
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Despite the original assessment order being set aside and fresh assessment remaining pending, the Income Tax Department issued penalty notices under Section 271(1)(c) of the Income-tax Act, 1961 (corresponding to Section 439 of the Income-tax Act, 2025) and recovery notices under Section 220 (corresponding to Section 411 of the Income-tax Act, 2025) based on the original assessment order.
Decision
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The court/tribunal held that since the original assessment order was set aside by the appellate authority, it ceased to exist in the eyes of the law.
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Penalty and recovery proceedings cannot survive independently without a valid underlying assessment order.
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Consequently, the impugned penalty and recovery notices issued on the basis of the dead assessment order were held to be illegal and unmaintainable.
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The court/tribunal quashed and set aside the impugned penalty and recovery notices in favor of the assessee.
Key Takeaways
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No Underlying Order, No Penalty or Recovery: Penalty proceedings under Section 271(1)(c) / Section 439 and recovery proceedings under Section 220 / Section 411 are consequential to a valid assessment order. Once the primary order is set aside, all derived notices become non-est.
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Premature Action by Revenue: The Department cannot initiate or press for penalty and recovery until a fresh assessment order is formally passed pursuant to the appellate remand.
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Protection Against Illegal Demands: Assessees can challenge recovery and penalty proceedings directly if the tax authority attempts enforcement without completing the remanded reassessment.
HIGH COURT OF KERALA
Moly Jagatha
v.
National Faceless Assessment Centre Income-tax Department
ZIYAD RAHMAN A.A., J.
WP(C) NO. 29381 OF 2026
AUGUST 21, 2026
Smt.Ammu Charles, Adv. for the Petitioner. Christopher Abraham, Additional Standing Counsel and P.R. Ajith Kumar, Adv. for the Respondent.
JUDGMENT
1. This writ petition is submitted by the petitioner, challenging the recovery proceedings initiated against the petitioner. The petitioner is an assessee under the provisions of Income Tax Act and she is aggrieved by the show cause notice issued as part of the penalty proceedings proposed to be initiated as evidenced by Exts.P4 and P4(a), as well as recovery proceedings initiated as per Ext.P5, based on Ext.P1 assessment order.
2. The case of the petitioner is that, Ext.P1 assessment order is no longer in existence, as it was set aside by the appellate authority by Ext.P2 appellate order, directing the assessing authority to carry out fresh assessment. As part of the fresh assessment proceedings, Ext.P3 notice has been issued, and the same is now pending. In the meantime, Exts.P4 and P4(a) penalty notices and Ext.P5 recovery notice, based on the original assessment order have been issued, and this writ petition is filed challenging the same.
3. I have heard the learned counsel for the petitioner and the learned standing counsel for the respondents.
4. Evidently, Ext.P2 would indicate that, Ext.P1 is set aside with a direction to the assessment authority to conduct the assessment proceedings afresh. Thus, as of now, Ext.P1 is not in existence and no assessment order has been passed, based on the direction issued by the appellate authority as per Ext.P2. Therefore, no proceedings for penalty or recovery could have been issued by the authorities concerned, based on Ext.P1 order and thus,those are per se illegal.
5. In such circumstances, this writ petition is disposed of, quashing Exts.P4, P4(a) and P5, with a direction to the 1st respondent or any other competent authority to complete fresh assessment proceedings based on Ext.P3 as directed by Ext.P4, as expeditiously as possible, after giving the petitioner and opportunity of hearing.