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Judgment
PER AMITABH SHUKLA, AM,
These two appeals filed by the same assessee are directed against separate orders both dated 16.10.2026 of the Learned Commissioner of Income Tax(Appeals)-24, Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of penalty orders both dated 01.01.2025 for Assessment Years 2020-21 and 2021-22 passed u/s 221(1) of the Income Tax Act, 1961. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
Both appeals are of the same assessee containing common grounds of appeal and therefore the same were heard together and for the purposes of convenience are being adjudicated by this common order. The decision taken upon common grounds in ITA No.4748/Del/2026 shall apply mutatis mutandis to ITA No.4749/Del/2026 also.
The only issue arising in the aforesaid appeals of the assessee is regarding the imposition of penalty of Rs.74,66,283/- levied u/s 221(1) of the Act for AY 2020-21. The ld. Counsel took us through the following brief factual matrix of the case. The assessee is an individual and had filed the return of income declaring total income of Rs 11,67,920/- for AY 2020-21. The case of the assessee was selected for assessment pursuant to search and seizure operation under section 132 of the Act conducted on the premises of the M/s Prizm Holography and Security Films Pvt. Ltd., Navneet Gupta, Anwar Debar, Debar Buildcon including the assessee company on 02.05.2024. The Ld. Assessing Officer completed the assessment proceedings by making additions of Rs. 3,00,00,000/- for AY 2020-21 vide order dt.31.12.2022. The impugned assessment order was contested in appeal before CIT (A) on 27.01.2023. Meanwhile, the assessee also filed an application seeking stay of demand before the Ld DCIT/Assessing Officer vide email dated 02.02.2023 for AY 2020-21. However, pending the aforesaid stay application filed by the assessee, the Ld. Assessing Officer proceeded to levy penalty under section 221 of the Act amounting to Rs. 74,66,283/- for AY 2020-21 vide his order dated 01.01.2025. In appeal, the ld. CIT(A) concurred with the findings of ld. AO and confirmed the penalty order.
It is the case of the assessee that the penalty order passed in its case is totally unwarranted and deserves to be quashed. The ld. Counsel for the assessee has argued that no penalty was leviable during the pendency of assessee’s stay petition. The ld. Counsel submitted that in response to AO’s show cause letter, the assessee had also tendered a concurrence letter that 20% of the demand be adjusted against cash seized during search and stay be granted. In support of its contentions, the ld. Counsel placed reliance on the decision of the HON"BLE DELHI HIGH COURT in the case of CIT V. SUPERNOVA SYSTEMS (P.) LTD., [2008] 166 taxman 14) wherein the Court upheld the Tribunal's order deleting penalty under Section 221 on the ground that the Assessing Officer had imposed the penalty without first disposing of the assessee's stay applications. The Court observed that the Assessing Officer should have applied his mind to the stay applications before taking steps prejudicial to the assessee and that the assessee's conduct was not contumacious so as to justify levy of penalty. Thus, it was held
“…..7. The Tribunal has observed that the Assessing Officer was not justified in imposing the penalties without first disposing of the stay applications of the assessee. It has also been observed by the Tribunal that the conduct of the assessee does not appear to be contumacious so as to justify the imposition of penalty. Accordingly, the Tribunal cancelled the penalty imposed upon the assessee.
8.We are of the view that there is no error that has been committed by the Tribunal. It goes without saying that the Assessing Officer should have at least applied his mind to the stay applications filed by the assessee before taking any steps prejudicial to the interests of the assessee. The Assessing Officer is a quasi-judicial authority and should have acted in accordance with law rather than keeping only the interest of the revenue in mind without bothering about the interest of the assessee. Even if, as contended by learned counsel for the revenue, no rectification application was filed for the assessment year in question by the assessee, the fact remains that had the Assessing Officer considered the stay applications, which admittedly were filed, he may not have initiated any penalty proceedings….” The ld. Counsel also invited our attention to decision of Hon’ble Punjab & Haryana High Court in the case of Commissioner of Income-Tax vs Leader Valves (p.) ltd. [1996] 220 ITR 591, echoing similar views on the subject.
The ld. Counsel further drew our attention to the solitary notice u/s 221 dated 31.12.2024 issued to the assessee. It was stated that the impugned notice is totally blank and neither contains any details of proceedings nor any dates of compliance etc. The ld. Counsel invited our attention to decision of Hon’ble Calcutta High Court int the case of principal commissioner of income-tax vs industrial safety products (p.) ltd, (2023) 154 taxmann.com 433 (calcutta), [03-07-2023] where, it was held that where the relevant portions of the notice were left blank, the show-cause notice was bad in law and consequently the initiation of penalty proceedings stood vitiated. The ld. Counsel submitted that penalty was also untenable in view of CBDT Instruction No.1914 dated 29.02.2016 mandating consideration of grant of stay where the assessee agrees to pay 20% of the demand. It was also argued that the alleged penalty notice u/s 221 was dated 31.12.2024 and the penalty order was passed on 01.01.2025 without giving any opportunity to the assessee to comply. In support of its contentions, The ld. Counsel accordingly requested for quashing the impugned penalty order.
The ld. DR placed reliance upon the orders of the lower authorities. The ld. DR however could not controvert the arguments taken by the ld. Counsel for the assessee qua infirmities of the notice per se as well as action of the AO in imposing penalty during pendency of stay applications of the assessee.
We have heard rival submissions in the light of material placed on record. The undisputed facts on record is that the penalty u/s 221 has been levied upon the assessee during the pendency of its stay application. We have also noted that in terms of CBDT Instruction no.1914 (supra), the assessee was entitled for grant of stay upon payment of 20% of the demand, for which it had tendered its concurrence to the ld. AO. We have also noted the undisputed facts on record regarding the notice u/s 221 dated 31.12.2024 being a blank notice and bereft of any comprehensive understanding. We have noted that the ld. CIT(A) has not considered these peculiar facts of the case while confirming the action of the Ld. AO. Accordingly, we are of the considered view that there is no case for levy of penalty u/s 221 of the Act. Accordingly, we quash the penalty order u/s 221 dated 01.01.2025 for AY 2020-21 and allow the appeal of the assessee.
As the facts of the case in assessee’s appeal in ITA No.4748/Del/2026 for AY 2020-21 are identical to those in ITA No.4749/DEL/2026 for Assessment Year 2021-22, the decision taken therein shall apply mutatis mutandis to this appeal also. The penalty order u/s 221 dated 01.01.2025 for AY 2021-22 is also quashed.
In the result, assessee’s appeal in ITA No.4748/Del/2026 for AY 2020-21 and in ITA No.4749/DEL/2026 for Assessment Year 2021-22 are allowed.