Facts of the Case

The assessee, Chudaji Thakor, filed two appeals before the Income Tax Appellate Tribunal against orders dated 25.08.2025 and 06.08.2025 passed by the National Faceless Appeal Centre, Delhi for Assessment Year 2018-19. The appeals related to confirmation of penalties levied under Sections 270A and 271AAC of the Income-tax Act.

The penalties were levied pursuant to an assessment completed under Section 144 read with Section 147, wherein the Assessing Officer treated sale of rural agricultural land as under-reported income and brought the same to tax. The assessee contended that the land sold was rural agricultural land not constituting a capital asset under Section 2(14) and further submitted that the sale pertained to Assessment Year 2019-20 and not Assessment Year 2018-19.

Importantly, the quantum assessment itself had already been set aside by the ITAT vide order dated 22.05.2025 in ITA No. 301/Ahd/2025, with the matter remanded to the Assessing Officer for fresh adjudication.

Issues Involved

Whether penalties under Sections 270A and 271AAC could survive when the underlying quantum assessment had already been set aside by the Tribunal, whether the CIT(A), NFAC erred in confirming penalties without considering the remand of quantum proceedings, and whether penalty proceedings should be restored to follow the outcome of fresh assessment.

Petitioner’s Arguments

The assessee submitted that the very foundation of the penalty proceedings stood vitiated since the quantum assessment had been set aside by the ITAT and remanded to the Assessing Officer. It was argued that the CIT(A), NFAC failed to consider the assessee’s reply dated 25.08.2025 wherein the ITAT order setting aside the quantum assessment was specifically brought to notice. The assessee further contended that sale of rural agricultural land does not give rise to taxable capital gains under Section 2(14) and therefore there was no question of levy of penalty.

Respondent’s Arguments

The Revenue relied upon the orders of the Assessing Officer and the CIT(A), NFAC and supported the levy and confirmation of penalties under Sections 270A and 271AAC.

Court Order / Findings

The ITAT Ahmedabad observed that the quantum assessment forming the basis for initiation and levy of penalties under Sections 270A and 271AAC had already been set aside by the Tribunal vide order dated 22.05.2025 and the matter had been remanded to the Assessing Officer for fresh assessment. The Tribunal held that when the very basis of penalty proceedings does not survive, the penalties cannot be sustained at that stage.

The Tribunal further held that penalty proceedings must necessarily follow the fate of the quantum proceedings and therefore it was appropriate to remand the penalty issues back to the file of the Assessing Officer to be decided afresh in consonance with the outcome of the reassessment proceedings.

Important Clarification

The Tribunal clarified that penalties under Sections 270A and 271AAC are consequential in nature. Where the underlying quantum assessment is set aside and remanded, penalty proceedings cannot be finalized independently and must await the outcome of fresh assessment proceedings.

Final Outcome

Both appeals filed by the assessee were partly allowed for statistical purposes. The issues relating to penalties under Sections 270A and 271AAC were remanded back to the file of the Assessing Officer to be decided afresh in accordance with law after completion of the reassessment proceedings pursuant to the Tribunal’s earlier quantum order.

Link to Download Order-https://www.mytaxexpert.co.in/uploads/1769062504_CHUDAJITHAKORVASAJADAVS.INCOMETAXOFFICERWARD1GANDHINAGARGANDHINAGAR.pdf

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