Anil Kumar Singhal vs ITO, Ward 63 (3)

PER S.RIFAUR RAHMAN,AM:

This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 09.01.2026 for the Assessment Year 2008-09.

At the time of hearing, ld. AR of the assessee brought to our notice the relevant facts of the case and submitted his submissions as under. He submitted that during the quantum assessment proceedings, the AO made an addition of Rs.16,92,270/- under section 69C of the Income-tax Act, 1961 (for short ‘the Act’) on account of alleged bogus purchases. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A), who set aside the assessment order and restored the matter to the file of the Assessing Officer for fresh assessment. He submitted that pursuant to the directions of the ld. CIT(A), the AO made a fresh assessment vide order dated 20.03.2026. He submitted that in the said order, after considering the submissions and evidences furnished by the assessee, the AO accepted the explanation of the assessee and deleted the entire addition of Rs.16,92,270/- made under section 69C of the Act.

He submitted that thus, the very addition forming the sole foundation for initiation and levy of penalty under section 271(1)(c) no longer survives. He submitted that once the quantum addition itself has been deleted on merits, there remains no basis for sustaining the consequential penalty proceedings. In this regard, he submitted that the above legal position has been authoritatively laid down by the Hon'ble Supreme Court in the case of Commissioner of Income-tax, Panchkula v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC) [2015 (11) TMl 1453), wherein the Hon'ble Court held as under:

He further submitted that the aforesaid principle has consistently been followed by various judicial forums and relied on various decisions. He submitted that in the present case, not only the original assessment order was set aside by the ld. CIT(A), but in the fresh assessment proceedings, the Assessing Officer himself accepted the explanation of the assessee and deleted the entire addition made under section 69C of the Act. Consequently, the very foundation on which the impugned penalty under section 271(1) (c) was levied has ceased to exist. He submitted that it is well settled that where the quantum addition itself has been deleted, no penalty under section 271(1)(c) can be sustained. He submitted that the penalty being merely consequential, it cannot survive independently in the absence of the addition on which it is founded.

On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities below.

Considered the rival submissions and material placed on record. We observed that the AO made an addition of Rs.16,92,270/- under section 69C of the Act on account of alleged bogus purchases and in appeal before the ld. CIT (A), ld. CIT (A) set aside the assessment order and restored the matter to the file of the Assessing Officer for fresh adjudication. Pursuant to the directions of ld. CIT(A), the AO made a fresh assessment and accepted the explanation of the assessee and deleted the entire addition of Rs.16,92,270/- made under section 69C of the Act. We observed that the very addition forming the sole foundation for initiation and levy of penalty under section 271(1)(c) no longer survives. Accordingly, relying on the decision of Hon'ble Supreme Court in the case of Commissioner of Income-tax, Panchkula v. Jai Laxmi Rice Mills (supra), we hold that since the quantum addition has been deleted, the penalty u/s 271(1)(c) on the said addition does not survive. Hence, we delete the penalty and the present penalty appeal is allowed in favour of the assessee.

In the result, the appeal filed by the assessee is allowed.