Consequential penalty cannot survive when the underlying assessment is quashed for lack of valid notice under section 143(2).

A penalty under section 271(1)(b) of the Income-tax Act could not survive once the underlying assessment was quashed for a jurisdictional defect arising from non-issuance of notice under section 143(2). The appellate authority treated the omitted notice as fatal to the validity of the assessment, rendering the assessment order illegal and void. Because the penalty was wholly consequential to that assessment proceeding and had no independent footing, it was held unsustainable and cancelled.

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Issues: Whether the penalty imposed under section 271(1)(b) of the Income-tax Act, 1961 could survive after the assessment was held to be vitiated and quashed for non-issuance of notice under section 143(2) of the Income-tax Act, 1961.

Analysis: The assessment for the relevant assessment year had already been found by the appellate authority to suffer from a fatal jurisdictional defect because notice under section 143(2) was not issued before completion of assessment. That finding rendered the assessment order patently illegal and liable to be quashed. Since the penalty under section 271(1)(b) was founded on the same assessment proceedings, the penalty ceased to have an independent footing and could not be sustained.

Conclusion: The penalty under section 271(1)(b) of the Income-tax Act, 1961 was not sustainable and was cancelled; this issue was decided in favour of the assessee.

Final Conclusion: The levy of penalty was set aside and the assessee's appeal succeeded.

Ratio Decidendi: A penalty that is purely consequential to an assessment order cannot survive where the underlying assessment is quashed for a jurisdictional defect.

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