2026 (2) TMI 370 - HC - Income Tax

Penalty under section 271D imposed during pending quantum appeal - HC rules penalty cannot be passed and quashes order.

A penalty under section 271D was imposed while the assessment's quantum was under challenge before the ITAT; the HC held that established Bombay HC ... Penalty u/s 271D - penalty proceedings pending quantum appeal - HELD THAT:- As challenge to the quantum proceedings is pending before the ITAT. This was specifically brought to the notice of the Income Tax Department in the penalty proceedings initiated by it. Despite this, the impugned penalty order came to be passed on 9th December 2025. We are clearly of the view that as per the law laid down by this Court in the cases of R.B. Shreeram Durgaprasad [2015 (12) TMI 569 - BOMBAY HIGH COURT], Kellogg India Private Limited [2022 (5) TMI 1700 - BOMBAY HIGH COURT] and Maharashtra State Electricity Transmission Company Limited [2025 (12) TMI 1358 - BOMBAY HIGH COURT] no penalty order could have been passed while the challenge to the Assessment Order itself was pending before the ITAT. The penalty proceedings ought to have been kept in abeyance till the decision was rendered in the quantum proceedings. WP allowed. Issues: Whether a penalty order under Section 271D of the Income-tax Act, 1961 can be validly passed while the assessment/quantum order (Section 147 assessment upheld by CIT(A)) is under challenge before the Income-tax Appellate Tribunal (ITAT), and whether the impugned penalty order dated 9th December 2025 should be quashed.Analysis: The Court examined prior decisions of this Court establishing that penalty proceedings should be kept in abeyance while the challenge to the underlying assessment/quantum is pending before the appellate forum. The petitioner had filed an appeal before the ITAT against the assessment order for A.Y. 2016-2017 and had informed the department during penalty proceedings; notwithstanding this, the penalty order under Section 271D was passed on 9th December 2025. The respondents have not demonstrated that the assessment appeal was considered and decided against the petitioner before passing the penalty, and no satisfactory explanation was provided for non-consideration of the petitioner's submission placed on record during penalty proceedings. In view of the binding precedents and the factual position that the quantum challenge was pending, the Court held that continuation of penalty proceedings at that stage was impermissible and the appropriate course was to keep penalty proceedings in abeyance until the ITAT decides the appeal.Conclusion: The impugned penalty order dated 9th December 2025 is quashed and set aside. Penalty proceedings are to be kept in abeyance until the ITAT disposes of the appeal against the assessment order; only if the ITAT's decision is favourable to the Revenue may the Revenue resume and conclude penalty proceedings. The writ petition succeeds in favour of the petitioner (assessee).