ITAT sets aside Rs. 30,000 penalty under section 271(1)(b) as underlying assessment order was quashed

ITAT Kolkata allowed the appeal and set aside the Rs. 30,000 penalty imposed under section 271(1)(b) for AY 2013-14. The penalty arose from reassessment proceedings under sections 144/147 with additions under section 69A for unexplained unsecured loans. CIT(A) had previously quashed the underlying assessment order on 13.05.2024, finding patent illegality due to non-issuance of notice under section 143(2) prior to assessment completion. ITAT held that penalty orders cannot survive when the foundational assessment order is invalidated due to procedural defects.

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This appeal before the ITAT Kolkata challenges the penalty order of Rs. 30,000/- imposed under section 271(1)(b) of the Income Tax Act for AY 2013-14. The penalty arose following a reassessment under sections 144/147 and addition under section 69A for unexplained unsecured loans. The assessee had earlier contested the assessment order, and the CIT(A) quashed the assessment order on 13.05.2024, holding that "non-issue of notice u/s 143(2) of the Act prior to completion of assessment constituted a fatal error, for which the assessment order suffered patent illegality and deserved to be quashed." The ITAT held that since the assessment order was quashed due to this patent illegality, the penalty order based on that assessment could not stand. Consequently, the penalty order confirmed by the CIT(A) was set aside and the appeal was allowed. The tribunal emphasized the principle that a penalty cannot survive where the foundational assessment order is invalidated.

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