The Income Tax Appellate Tribunal, Delhi, has clarified that a penalty imposed for non-compliance with a notice under Section 272A(1)(d) of the Income Tax Act, 1961, cannot survive when the underlying quantum assessment is set aside and remanded for fresh adjudication. This ruling reinforces the principle that procedural defaults in a voided assessment cannot justify punitive action in a new proceeding.
Background & Facts
The Dispute
The appellant, Amit Kumar, was assessed for the Assessment Year 2018-19. The Assessing Officer (A.O.) issued a notice under Section 142(1) of the Income Tax Act, 1961, seeking additional information. The appellant allegedly failed to comply with the notice. Based on this non-compliance, the A.O. initiated penalty proceedings under Section 272A(1)(d) and imposed a penalty of Rs. 10,000 on 27.07.2023.
Key Facts
- The penalty was imposed solely for non-compliance with the notice under Section 142(1)
- No separate inquiry or evidence was recorded to establish wilful default or mala fide intent
- The quantum assessment for A.Y. 2018-19 was under appeal before the Income Tax Appellate Tribunal (ITAT)
- The ITAT, in a separate proceeding, remanded the quantum assessment to the A.O. for de-novo adjudication
- The appellant challenged the penalty before the Commissioner of Income Tax (Appeals) [CIT(A)]
Procedural History
- 27.07.2023: Assessing Officer imposed penalty of Rs. 10,000 under Section 272A(1)(d)
- 05.08.2023: Appeal filed by the appellant before the CIT(A)
- 24.09.2025: CIT(A) dismissed the appeal, upholding the penalty
- 15.10.2025: Appeal filed before ITAT Delhi (ITA No. 7171/Del/2025)
- 02.03.2026: Hearing conducted before ITAT Delhi
- 15.04.2026: Judgment pronounced by ITAT Delhi
The Parties' Positions
For the Appellant
The appellant’s counsel, Sh. Achin Garg and Sh. Sachin Kumar, argued that the penalty proceedings were contingent on the validity of the original assessment. Since the quantum assessment had been remanded by a coordinate bench of the ITAT for fresh adjudication, any default in the prior proceedings ceased to have legal consequence. Reliance was placed on Rajesh Mehta v. ITO (ITA No. 6121/Del/2024) and R.K. Rana v. ACIT (ITA Nos. 178, 179, 180/PAT/2017).
For the Respondent
The Departmental Representative, Sh. Rajesh Mahajan, contended that the penalty was independent of the quantum outcome. Non-compliance with a statutory notice under Section 142(1) was a standalone offence, and the remand of the assessment did not nullify the penalty. The penalty, he argued, was a deterrent for procedural non-compliance and must be upheld regardless of the quantum outcome.
Relief Sought
The appellant sought deletion of the penalty of Rs. 10,000 imposed under Section 272A(1)(d), and setting aside of the CIT(A)’s order dated 24.09.2025.
The Legal Issue
Whether a penalty imposed under Section 272A(1)(d) for non-compliance with a notice under Section 142(1) remains valid when the underlying quantum assessment has been remanded by the Tribunal for de-novo adjudication.
Arguments Presented
For the Appellant
The appellant’s counsel relied on two binding precedents: Rajesh Mehta v. ITO and R.K. Rana v. ACIT. In both cases, the ITAT held that when the entire assessment is remanded for fresh consideration, any procedural default in the original proceedings is rendered irrelevant. The default, if any, was part of a process that no longer exists. The penalty, being ancillary to the assessment, cannot stand in isolation when the assessment itself is set aside. The counsel emphasized that Section 272A(1)(d) is not a punitive provision for wilful evasion but a procedural sanction, and its application must be contextual.
For the Respondent
The Departmental Representative argued that non-compliance with a statutory notice is a distinct violation, irrespective of the outcome of the assessment. He contended that the penalty serves as a deterrent to ensure compliance with procedural obligations under the Act. He cited no precedent to support the proposition that remand nullifies penalty, and insisted that the two proceedings - quantum and penalty - are independent.
The Court's Analysis
The Tribunal examined the nature of penalty proceedings under Section 272A(1)(d) and its relationship with the quantum assessment. It noted that while the penalty is technically a separate proceeding, its foundation lies in the assessment process. The Tribunal observed that the penalty was levied solely on the ground of non-compliance with a notice issued during the course of an assessment that has since been remanded.
"Whatever default was there for non-compliance, in the course of assessment proceedings, stands relegated back, because the matter has to be decided afresh in the remand proceedings."
The Tribunal relied on the reasoning in Rajesh Mehta v. ITO, where a coordinate bench had held that a remand order effectively wipes the slate clean. The original proceedings, including any alleged defaults, are no longer operative. The Tribunal emphasized that the purpose of remand is to allow a fresh, unbiased assessment. To uphold a penalty based on a process that has been declared invalid would defeat the very object of remand.
The Tribunal further noted that Section 272A(1)(d) does not require proof of mens rea, but it also does not contemplate the imposition of penalty on the basis of a procedural lapse that is rendered moot by the subsequent setting aside of the assessment. The penalty, in such circumstances, becomes a mechanical application of law without substantive justification.
The Department’s argument that penalty is independent was rejected as legally unsound. The Tribunal held that while penalty proceedings may be initiated independently, their validity cannot be sustained if the underlying assessment process is annulled and remanded. To hold otherwise would lead to unjust outcomes where a taxpayer is penalized for a default that no longer has legal consequence.
The Verdict
The appeal of the assessee is allowed. The penalty of Rs. 10,000 imposed under Section 272A(1)(d) is deleted. The order of the CIT(A) dated 24.09.2025 is set aside. The penalty order dated 27.07.2023 is also quashed. No costs are awarded.
What This Means For Similar Cases
Penalty Cannot Survive a Remanded Assessment
- Practitioners must now argue that any penalty under Section 272A(1)(d) linked to a notice issued during a remanded assessment is legally unsustainable
- The burden shifts to the Department to prove that the non-compliance was wilful and independent of the assessment process
- Merely citing non-compliance without establishing continuing relevance post-remand is insufficient
Remand Nullifies Procedural Defaults
- A remand order effectively resets the assessment timeline
- Any procedural lapse during the original proceedings, including failure to respond to notices, is extinguished
- This applies even if the taxpayer did not file a reply during the remand proceedings
- Practitioners should immediately move to delete penalties in pending cases where quantum assessment has been remanded
Strategic Implication for Appeals
- In cases where quantum assessment is under appeal and likely to be remanded, taxpayers should file a parallel application for deletion of penalty
- The ITAT’s reliance on Rajesh Mehta establishes a binding precedent within Delhi Bench
- This judgment strengthens the position of taxpayers in cases where penalties are imposed as a routine measure without substantive inquiry
