2025 (6) TMI 1766 - AT - Income Tax

Penalty u/s 271(1)(b) - reassessment u/s 144/147 - illegality of the assessment as no notice u/s 143(2) was issued while framing the assessment order - HELD 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. Keeping in view the above facts the order levying penalty are hereby cancelled. The order passed by the ld. AO confirmed by the ld. CIT (A) are hereby set aside. The appeal of the assessee is allowed.

Summary

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.