2025 (9) TMI 41 - HC - Income Tax

Penalty under Section 271(1)(c) quashed where NFAC wrongly confirmed penalty under Section 250 without adjudicating Section 246A appeal

Swapn Developers Versus National Faceless Appeal Centre (NFAC) & Anr.

HC held the penalty under section 271(1)(c) was unsustainably imposed where the appeal under section 246A was transferred to NFAC and the NFAC confirmed ... Penalty u/s 271(1)(c) - cash deposit - case of the petitioner that the said appeal u/s 246A was transferred to the NFAC who passed an order u/s 250 confirming the penalty u/s 271(1)(c) on incorrect facts instead of adjudication in appeal u/s 246A against the assessment order u/s 143(3) - petitioner preferred a rectification application u/s 154 HELD THAT:- Having heard the learned advocates for the respective parties and in view of the submissions recorded here-in-above, insofar as facts of the case are concerned it can be said res ipsa loquitur. When facts are not in dispute as narrated here-in-above, it is apparent that the impugned order passed u/s 271(1)(c) of the Act is liable to be quashed and set aside and is accordingly quashed and set aside. 1. ISSUES PRESENTED AND CONSIDERED Whether the impugned rectification order dated 21.11.2024, issued purportedly under section 154 of the Income Tax Act to restore/confirm a penalty under section 271(1)(c), is legally sustainable where the original order sought to be rectified/confirmed related to a different assessee and had earlier been rectified and/or was the subject-matter of a pending appeal. Whether, in the factual matrix of this petition, the impugned order can be maintained when (a) the incorrect order was uploaded by the National Faceless Assessment Centre (NFAC) and (b) the corrected order relevant to the petitioner was made available only after substantial delay. Whether the facts as disclosed in the record admit of summary disposal by quashing the impugned order as being without consequence to the petitioner. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of rectification under section 154 where original order pertained to a different assessee and had been rectified/was under appeal Legal framework: Section 154 empowers rectification of mistakes apparent on the face of the record in orders. Section 271(1)(c) authorises imposition of penalty for concealment or furnishing inaccurate particulars of income. Provisions for assessment (section 143(3)), appellate remedy (section 246A, section 250 orders by appellate authority), and notices of demand (section 156) govern assessment and penalty processes. Precedent Treatment: No prior judicial precedents are cited in the record; the Court proceeds on statutory construction and factual matrix rather than following or distinguishing specific case law. Interpretation and reasoning: The record shows that NFAC uploaded an order relating to a different assessee and thereby initiated proceedings/penalty for an amount not relating to the petitioner. A rectification order dated 16.10.2023 was issued to correct that mistake; the corrected order relevant to the petitioner was only made available on 11.07.2024. Meanwhile a penalty order (dated 26.07.2024) for the petitioner was in challenge before appellate fora. The impugned order of 21.11.2024 is characterised in the record as an order that seeks to give effect to or restore a penalty traceable to the wrong/uploaded order. Given these undisputed facts, the impugned rectification cannot sustain effect insofar as it purports to revive or confirm a penalty that had no nexus to the petitioner because the original instrument was mistakenly uploaded for a different assessee. Ratio vs. Obiter: Ratio - where an order sought to be rectified or relied on was mistakenly uploaded for a different assessee and subsequently rectified, a later rectification that seeks to restore or give effect to the wrong order cannot be sustained against the affected assessee in the absence of a valid nexus. Obiter - observations regarding timing/delay in uploading corrected order and procedural propriety of NFAC actions beyond their application to the facts. Conclusion: The impugned rectification order dated 21.11.2024, insofar as it confirms or gives effect to a penalty traceable to the wrong/uploaded order, is not tenable and is liable to be quashed. Issue 2 - Effect of appellate challenge and earlier rectification on subsequent rectification/penalty orders Legal framework: Appeals lie against assessment and penalty orders under the relevant provisions (appeal to CIT(A), Tribunal). A pending appeal and an already effected rectification alter the legal status of the impugned instrument and affect the legitimacy of subsequent administrative acts that attempt to restore or re-impose liability. Precedent Treatment: No authorities are cited addressing interplay of pending appeals with later rectifications; the Court adjudicates on the admitted record. Interpretation and reasoning: The petitioner had challenged the assessment order and the rectification by resort to appellate remedy (Form 36 to the Tribunal and appeal to CIT(A)). The penalty order of 26.07.2024 was passed in the milieu of an ongoing rectification/appeal process. The impugned rectification of 21.11.2024, passed after these events, sought to validate/confirm penalty consequences already shown by the record to be wrongly attributed. Where the appellate authority has earlier rectified the mistake and the matter is under appeal, a subsequent administrative step that ignores the corrective action and appellate process cannot bind the petitioner. The admitted facts establish that the penalty order which the impugned rectification endeavours to restore was not properly attributable to the petitioner. Ratio vs. Obiter: Ratio - an administrative rectification which purports to revive or confirm a penalty already rectified or substantially affected by a pending appeal and which originally concerned a different assessee is unsustainable against the petitioner. Obiter - the Court's remarks on the sequence and timing of NFAC uploads and corrections for assessing administrative conduct. Conclusion: The existence of earlier rectification and pending appellate challenge renders the subsequent rectification order ineffective to impose or restore the contested penalty on the petitioner; the impugned order is therefore liable to be quashed. Issue 3 - Whether summary relief by quashing is appropriate where facts are undisputed Legal framework: Writ jurisdiction under Article 226 permits quashing of administrative orders where they are without jurisdiction, violative of statutory scheme, or where facts are not in dispute and legal wrong is manifest. Precedent Treatment: No case law cited; Court applies settled principles of judicial review to undisputed factual matrix. Interpretation and reasoning: The parties do not dispute the material facts: (a) wrong order uploaded by NFAC, (b) rectification dated 16.10.2023 correcting the mis-upload, (c) corrected order relevant to petitioner only made available on 11.07.2024 after delay, and (d) subsequent orders including the impugned rectification and challenged penalty. Given that the factual foundation for the impugned order is shown on the record to be erroneous and unrelated to the petitioner, and there is no factual controversy for trial, exercise of writ power to quash is appropriate. Ratio vs. Obiter: Ratio - where material facts are undisputed and show that an administrative order is based on a mistake manifest on the face of the record (wrong assessee/upload), the Court may quash the order summarily. Obiter - comments on administrative delay and the propriety of NFAC processes. Conclusion: Summary quashing of the impugned order is appropriate and justified on the admitted facts; the rule is made absolute and the petition disposed of without costs.