ITAT Sends Back Penalty Proceedings After Quantum Assessment Is Set Aside

The assessee challenged penalty orders passed for AY 2018-19 under Sections 270A and 271AAC of the Income-tax Act, which arose from additions made in a reassessment under Sections 144 read with 147. In an earlier case, the quantum assessment forming the very basis of these penalties had already been set aside by the ITAT in a separate appeal and remanded to the Assessing Officer for fresh consideration.

Despite this, the NFAC dismissed the assessee’s penalty appeals. The assessee argued that penalties could not stand once the quantum matter itself was unsettled and pending fresh adjudication.

Main Issue: Whether penalty proceedings under Sections 270A and 271AAC can be sustained when the underlying quantum assessment has been set aside and remanded by the Tribunal.

ITAT’s Ruling: The ITAT held that since the foundation of the penalty, namely, the quantum assessment, had already been set aside and remanded to the Assessing Officer, the penalty proceedings could not attain finality at this stage.

The Tribunal therefore restored the penalty issues to the file of the AO to be decided afresh in line with the outcome of the remanded quantum proceedings. Both appeals were partly allowed for statistical purposes.

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