Premature s.271(1)(c) tax penalty issued during pending quantum appeal; writ entertained and penalty order quashed as jurisdictional error

A penalty order under s.271(1)(c) was challenged as premature and without jurisdiction pending disposal of the quantum appeal before the ITAT. Relying on binding HC precedents holding that such penalty orders cannot be passed before appellate culmination, the HC held the assessing authority ought to have kept penalty proceedings in abeyance until the ITAT's decision; consequently, the impugned penalty order was quashed. On maintainability, despite an objection of alternate remedy, the HC exercised Art.226 discretion because the order was ex facie illegal/lacking jurisdiction, consistent with SC principles on exceptions to the alternate-remedy rule; the writ was entertained. The HC also held the Finance Act, 2025 amendment to s.275 applies prospectively from 1 April 2025 to pending matters, without reviving time-barred cases, but would not validate the premature order.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the writ petition under Article 226 was maintainable against the penalty order under Section 271(1)(c) of the Income-tax Act, 1961, despite the availability of an appellate remedy under the Act.

(2) Whether the Assessing Officer had jurisdiction to pass the penalty order under Section 271(1)(c) on 26 September 2025 when the quantum appeal against the assessment order was pending before the Appellate Tribunal, in the context of Section 275 (both unamended and as amended by the Finance Act, 2025) and the binding precedents on prematurity of penalty orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Maintainability of writ petition despite alternate remedy

(a) Interpretation and reasoning

The Court noted that the challenge went to the very jurisdiction of the Assessing Officer to pass the impugned penalty order, as it was alleged to be premature and contrary to binding decisions of the Court. The rule of alternative remedy was characterised as a self-imposed restraint, not an absolute bar.

The Court referred to the principles laid down by the Supreme Court in Whirlpool Corporation vs. Registrar of Trademarks and Ghanashyam Mishra & Sons (P) Ltd vs. Edelweiss Asset Reconstruction Co. Ltd, holding that writ jurisdiction can be exercised, notwithstanding an alternate remedy, where there is a jurisdictional error or an order is patently without authority of law.

Since the impugned order was alleged, on the face of it, to contravene binding precedents (particularly R.B. Shreeram Durgaprasad and Kellogg India Private Limited) which held that penalty orders passed during pendency of appeals on the quantum are premature, illegal and without jurisdiction, the Court held that this was an appropriate case to exercise powers under Article 226 rather than relegating the petitioner to the statutory appeal.

(b) Conclusion

The objection based on availability of an alternate remedy was rejected. The writ petition was held to be maintainable, as the impugned penalty order involved a clear jurisdictional error and violation of binding precedent.

Issue (2): Jurisdiction to levy penalty under Section 271(1)(c) during pendency of quantum appeal; effect of Section 275 and its amendment by Finance Act, 2025

(a) Legal framework as discussed

The Court considered Section 275 of the Income-tax Act, which prescribes the period and scheme of limitation for passing penalty orders under Chapter XXI. It examined:

(i) Section 275(1)(a) as it stood prior to 1 April 2025, which linked the limitation for passing penalty orders to the receipt of orders of appellate authorities, including the Appellate Tribunal.

(ii) The amended Section 275 (including sub-clause (1)(d)), as introduced by the Finance Act, 2025 with effect from 1 April 2025, and whether the amended provision applies to penalty proceedings already initiated and pending as on that date.

(iii) The binding judgment of this Court in R.B. Shreeram Durgaprasad, which held that the language of Section 275(1)(a) "clearly shows that the order imposing penalty cannot be passed if the appeal against the basic order of assessment is pending before the competent superior authority", and characterised such premature penalty orders as "illegal and without jurisdiction".

(iv) The decision in Kellogg India Private Limited (following R.B. Shreeram Durgaprasad) quashing penalty orders passed when quantum appeals were pending before appellate authorities.

The Court also examined several authorities on limitation and procedural law to decide whether the amended Section 275 applies to pending proceedings:

- CIT vs. Royal Motor Car Co. (Gujarat High Court);

- CIT vs. Bhikari Charan Panda (Orissa High Court);

- Addl. CIT vs. Watan Mechanical and Turning Works (Full Bench, Andhra Pradesh High Court);

- S.C. Prashar vs. Vasantsen Dwarkadas (Supreme Court);

- S.S. Gadgil vs. Lal & Co. (Supreme Court);

- C.B. Richards Ellis Mauritius Ltd vs. Assistant Director of Income-tax (Delhi High Court).

These decisions were considered on the nature of limitation as procedural, the application of amended limitation provisions to pending proceedings, and the non-revival of time-barred actions unless expressly provided.

(b) Interpretation and reasoning

(i) Existence and pendency of appeal before ITAT

The Revenue argued that there was no "valid" appeal pending before the Appellate Tribunal because the appeal filed on 8 April 2025 was beyond the prescribed limitation and there was, as yet, no order of condonation of delay by the Tribunal. On this basis, it was contended that Section 275(1) could not operate to defer jurisdiction to pass penalty.

The Court noted:

- The original appeal against the order of the Commissioner (Appeals) was filed before the Tribunal on 28 March 2025 within limitation and registered as ITA No. 2188/M/2025.

- To cure a defect (Form No. 36 not signed by the Managing Director), a fresh set of papers, including Form No. 36 duly signed, was filed on 8 April 2025, along with an application for condonation of delay, and registered as ITA No. 2552/M/2025.

- The first appeal was subsequently withdrawn as a duplicate, with the Tribunal dismissing it as withdrawn on 7 July 2025, whereas the second appeal (ITA No. 2552/M/2025), accompanied by a condonation application, remained pending before the Tribunal.

- As on the date of the impugned penalty order (26 September 2025), both the assessee's and the Revenue's appeals on the quantum were pending adjudication before the Tribunal.

The Court proceeded on the factual position that the order of the Commissioner (Appeals) was "the subject matter of an appeal" before the Tribunal within the meaning of Section 275.

(ii) Principle from R.B. Shreeram Durgaprasad and Kellogg India Private Limited

The Court reaffirmed that under Section 275(1)(a), as interpreted in R.B. Shreeram Durgaprasad and followed in Kellogg India Private Limited, an order imposing penalty "cannot be passed if the appeal against the basic order of assessment is pending before the competent superior authority", and that penalty orders passed during such pendency are "premature, and therefore illegal and without jurisdiction".

The Court held that these decisions directly governed the present case, as the assessment order forming the basis of penalty was under challenge before the Tribunal at the time the penalty order was passed.

(iii) Applicability of amended Section 275 to pending proceedings

The Court addressed whether the amendments to Section 275 by the Finance Act, 2025 (effective 1 April 2025) governed the limitation and jurisdiction for passing the impugned penalty order when penalty proceedings had been initiated earlier (notice dated 27 December 2019), but were still pending within limitation on 1 April 2025.

Relying on Royal Motor Car Co., Bhikari Charan Panda and Watan Mechanical and Turning Works, as well as the Supreme Court's discussion in S.C. Prashar, the Court applied the following principles:

- Limitation provisions are generally procedural; no vested right exists in a particular period of limitation so long as the earlier limitation has not expired.

- Where an amending Act substitutes the limitation provision and the old limitation period has not yet expired on the date of amendment, the new (amended) period of limitation applies to pending proceedings, unless the statute clearly indicates otherwise.

- Only where the earlier limitation period has already expired before the amendment comes into force, a right of immunity from proceedings accrues, and such immunity is not taken away unless the legislature gives the amendment genuine retrospective effect reviving time-barred matters (as illustrated in S.S. Gadgil).

The Court held that, in the present case, as on 1 April 2025, the penalty proceedings initiated in December 2019 were pending and within limitation. Therefore:

- The amended Section 275 applied prospectively to all such pending cases.

- Only cases where the time limit had already expired on or before 31 March 2025 would not be revived by the amendment.

(iv) Consequence under amended Section 275 in the present case

On application of the above principles, the Court concluded that under the amended Section 275 (including Section 275(1)(d)), where the order of the Commissioner (Appeals) is the subject matter of an appeal, the Assessing Officer's jurisdiction to pass a penalty order arises only after receipt of the order of the Appellate Tribunal. This is consistent with the ratio of R.B. Shreeram Durgaprasad and Kellogg India Private Limited as to prematurity of penalty orders when appellate proceedings in quantum are pending.

The Court further observed that even assuming, arguendo, that the Tribunal were ultimately to reject the assessee's condonation application and dismiss the appeal as time-barred, such an order would still constitute an order for the purposes of Section 275(1)(d), and jurisdiction to consider penalty would arise only upon receipt of that order.

(v) Position under unamended Section 275

Independently of the amendment, the Court held that even under the unamended Section 275(1)(a), the result would be the same. Applying the binding interpretation in R.B. Shreeram Durgaprasad and Kellogg India Private Limited, any order imposing penalty while the quantum appeal is pending before the Appellate Tribunal is premature, illegal and without jurisdiction.

(vi) Rejection of Revenue's contentions

The Court rejected the Revenue's submission that, absent an order condoning delay, there was no "appeal in the eyes of law" before the Tribunal, and therefore the Assessing Officer was compelled to pass the penalty order to protect revenue and avoid limitation. The Court held that:

- On the facts, the order of the Commissioner (Appeals) was "the subject matter of an appeal" before the Tribunal, and the pendency of that appeal attracted the principle in R.B. Shreeram Durgaprasad.

- Proper application of Section 275 (as amended) required that jurisdiction to pass a penalty order be exercised only after disposal of the appeal before the Tribunal; hence, the concern that Revenue would be "denuded" of its power to impose penalty was misplaced.

The Court also found it unnecessary, in view of its conclusion on jurisdiction and prematurity, to examine the Revenue's reliance on Section 275(1A), which deals with modification of penalty consequent upon appellate orders.

(c) Conclusions

(i) The amendment to Section 275 by the Finance Act, 2025 is procedural, applies prospectively to all penalty proceedings that were pending and within limitation as on 1 April 2025, and does not revive proceedings already time-barred as of 31 March 2025.

(ii) In cases where the order of the Commissioner (Appeals) is the subject matter of an appeal before the Appellate Tribunal, the Assessing Officer's jurisdiction to pass a penalty order under Section 271(1)(c) arises only after receipt of the Tribunal's order in appeal.

(iii) Whether under the amended Section 275 or the unamended Section 275(1)(a), and in light of the binding decisions in R.B. Shreeram Durgaprasad and Kellogg India Private Limited, a penalty order passed while the quantum appeal is pending before the Appellate Tribunal is premature, illegal and without jurisdiction.

(iv) On the facts of the present case, as the assessment order was under challenge before the Tribunal on the date of the impugned penalty order, Respondent No. 1 was bound to keep the penalty proceedings in abeyance and lacked jurisdiction to pass the penalty order dated 26 September 2025.

(v) Consequently, the impugned penalty order under Section 271(1)(c) was quashed and set aside, with the clarification that jurisdiction to consider penalty would vest only pursuant to disposal of the appeals by the Tribunal. The Revenue's apprehension of losing the power to levy penalty if the order were quashed was rejected.

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