The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) set aside the penalty imposed under Section 271AAB of the Income Tax Act,1961 and ordered fresh proceedings after the reconsideration of the quantum addition. Kamlesh Kumar Rathi,appellant-assessee,filed an appeal against the penalty order under Section 271 AAB of the Act, following an addition of Rs. 5,37,00,000 made by the Assessing Officer ( AO ) in the assessment for unexplained investment. This addition was based on the purchase of property and penalty proceedings were initiated. Get a Complete Kit of Essential Books for Daily Practice, Click Here The assessee appealed this addition before the Commissioner of Income Tax (Appeals)[CIT(A)], who, in November 2017, reduced the addition to Rs. 1,07,00,000, which related to excess cash paid for the property. Dissatisfied with this partial relief, the assessee further appealed to the Tribunal.

In July 2024, the bench remanded the case back to the AO for verification and fresh adjudication of the facts regarding the quantum of the addition. The assessee argued that since the matter was being reconsidered by the AO,the penalty proceedings, which were based on the earlier confirmed addition, should be suspended, as they no longer had a valid basis. The assessee therefore sought the cancellation of the penalty. Get a Complete Kit of Essential Books for Daily Practice, Click Here The Department’s Representative ( DR ), however, argued in favor of sustaining the penalty, relying on the CIT(A)’s order, and requested the dismissal of the appeal.

The Tribunal considered both parties’ arguments and concluded that, as the quantum addition was being reassessed by the AO, the penalty proceedings initiated in response to the original addition could not proceed. The two member bench comprising Yogesh Kumar U.S ( Judicial Member ) and S.Rifaur Rahman ( Accountant Member ) set aside both the penalty order and the CIT(A)’s decision, allowing the AO to initiate new penalty proceedings, if necessary, following the conclusion of the reassessment process. As a result, the tribunal allowed the assessee’s appeal