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Appeal Against Penalty Proceedings U/s 271AAC: What Taxpayers Need to Know
Facing a penalty notice under Section 271AAC of the Income Tax Act, 1961? You're not alone. This provision targets penalties on unexplained income added under sections like 69A, 115BBE, or others, often at 10% of the tax evaded. But what if the underlying assessment is flawed? Recent court rulings offer hope for taxpayers appealing these penalties. This post breaks down key judgments, strategies, and considerations for appeal against penalty proceedings u/s 271AAC.
Disclaimer: This article provides general information based on judicial precedents. It is not legal advice. Consult a qualified tax professional for your specific situation, as outcomes depend on individual facts.
Understanding Section 271AAC: The Penalty Provision
Section 271AAC(1) imposes a penalty where income is determined as unexplained under sections such as 68, 69, or 69A, and taxed at higher rates under Section 115BBE. Typically, the penalty is the higher of 10% of tax payable or 83% of such tax. Penalty proceedings are initiated separately from assessment but rely on its findings. Commissioner of Income-tax, New Delhi VS Eli Lilly & Company (India) Pvt. Ltd. - 2009 4 Supreme 602
However, courts have repeatedly quashed such penalties when:
- The jurisdictional Assessing Officer (JAO) lacks authority post-Faceless Scheme.
- Assessment orders are under appeal.
- Additions are deleted or not substantiated.
Jurisdictional Challenges: Faceless Scheme's Impact
A major theme in recent cases is the Faceless Assessment Scheme introduced via Section 151A, effective March 29, 2022. Post this date, only faceless authorities can issue notices under Sections 147, 148, and 148A—not JAOs. Violations render entire proceedings, including penalties under 271AAC, void.
Key Rulings on Lack of Jurisdiction
- In multiple writ petitions, courts quashed notices under Sections 148, 148A, 147, and consequential penalties under 271AAC(1). The court held that initiation of proceedings must adhere to established legal frameworks, thus quashing all impugned notices due to jurisdictional violations. Amritlal Nitesh Kumar, Son Of Amritlal Jain vs Assessment Unit Income Tax Department - 2025 Supreme(Kar) 2274
- For AY 2021-22, assessment and demand notices were invalidated: Writ petition allowed based on precedent ruling that the Assessing Officer lacked jurisdiction to issue notice post-Faceless Scheme implementation. K.B. Bhojamma vs Assistant Commissioner Of Income Tax Circle - 2(4) - 2025 Supreme(Kar) 2044
- Similar outcomes for multiple years (2015-2021): Proceedings initiated under Section 148 by the Jurisdictional Assessing Officer after the Faceless Scheme became effective were lacking jurisdiction. Ameerul Shabaz vs Deputy Commissioner Of Income Tax - 2025 Supreme(Kar) 2357
Pro Tip: If your penalty stems from a post-March 2022 notice by a JAO, cite these precedents in your writ petition or appeal. Courts consistently follow coordinate bench decisions, quashing orders and treating appeals as academic Charoen Pokphand Seeds India Private Limited vs Deputy Commissioner of Income Tax, Bengaluru - 2025 Supreme(Kar) 1937.
Penalties During Pending Appeals: Section 275 Bar
Section 275 prohibits penalties if the assessment order is under appeal. Courts have struck down violations:
- Penalty under the Income Tax Act cannot be imposed while the assessment order is under appeal, as per Section 275. Writ allowed; penalty and demand notices quashed. AKBAR HASSAN v/s ASSESSMENT UNIT - 2025 Supreme(Online)(KAR) 5283
- In another case, penalty u/s 271AAC was levied despite pending appeal: The imposition of penalty was not permissible under Section 275 of the Act. AKBAR HASSAN v/s ASSESSMENT UNIT - 2025 Supreme(Online)(KAR) 5283
This principle holds even if quantum proceedings are distinct—pendency stays penalty action. Commissioner of Income-tax, New Delhi VS Eli Lilly & Company (India) Pvt. Ltd. - 2009 4 Supreme 602
ITAT Appeals: Restorations and Deletions
The Income Tax Appellate Tribunal (ITAT) frequently restores or deletes penalties u/s 271AAC for procedural lapses or lack of evidence:
Successful Taxpayer Appeals
- Deletion of Additions: Cash deposits explained as legitimate (e.g., E-Mitra kiosk collections) led to deletion: The addition to income was deleted and the appeal allowed as the appellant justified the source of deposits. GOVIND SAINI JAIPUR vs ITO JAIPUR - 2024 Supreme(Online)(ITAT) 2524
- Genuine Sales: The court affirmed that genuine cash sales, adequately supported by documentation, cannot be classified as unexplained income under Section 68. Addition deleted. Nandish Madhukar Shah (HUF) vs Deputy Commissioner of Income Tax - 2025 Supreme(Online)(ITAT) 4289
Restorations for Natural Justice
- Ex-parte dismissals reversed: The court emphasized the necessity of providing a fair opportunity for the assessee to present her case. Appeal restored. SARALA SINGH LUCKNOW vs INCOME TAX OFFICER- 4(3) LUCKNOW - 2025 Supreme(Online)(ITAT) 507
- Delay condoned, matter remitted: Substantial justice over technicalities. GOMTIDAS GOVINDRAM SADHU RAMJI MANDIR SHERTHA GANDHINAGAR vs INCOME TAX OFFICER WARD 2 GANDHINAGAR UDYOG BHAWAN GANDHINAGAR - 2025 Supreme(Online)(ITAT) 3157
- NFAC erred without remand reports on unexplained cash u/s 69A: Restored for fresh adjudication. Income Tax Officer, Ward-4(1)(1), Ahmedabad vs S3 Tradecom Pvt. Ltd. - 2025 Supreme(Online)(ITAT) 4064
Upheld Penalties (Cautionary Tales)
- Failure to explain cash deposits during demonetization: Appeal dismissed. ARUN KUMAR TANDON LUCKNOW vs COMMISSIONER OF INCOME TAX APPEALS LUCKNOW - 2025 Supreme(Online)(ITAT) 1858
- Penalty sustained where merits not contested. SRINIVAS CHOWDARY VALLABANENI SECUNDERAB vs DCIT. CENTRAL CIRCLE -1(4) HYDERABAD - 2025 Supreme(Online)(ITAT) 6456
Penalty Validity Tied to Quantum Proceedings
Courts and tribunals stress: No surviving addition = no penalty basis.
- Where the addition so made u/s. 69 of the Act no more survives... there is no basis for levy of penalty u/s.271AAC. RISHIRAJ HITENDRA BHANDARI MUMBAI vs INCOME TAX OFFICER WARD 24(3)(1) MUMBAI - 2026 Supreme(Online)(ITAT) 903
- Post-remand, fresh penalty initiation allowed only if warranted. ZEBRA NETWORKS PRIVATE LIMITED MUMBAI vs INCOME TAX OFFICER MUMBAI - 2026 Supreme(Online)(ITAT) 2389
- Pendency of quantum appeal doesn't auto-stay penalty but provides strong grounds. ANIL KANTILAL SHAH MUMBAI vs ASST. CIT CENTRAL CIRCLE 3(1) MUMBAI - 2026 Supreme(Online)(ITAT) 9442
Strategic Tips for Appealing U/s 271AAC Penalties
- File Promptly: Appeals to CIT(A) or NFAC within 30 days; condone delays with cause (e.g., notice issues).
- Gather Evidence: Bank statements, affidavits, sales records for cash sources.
- Challenge Jurisdiction: Pre-March 2022? Verify. Post? Invoke Faceless Scheme.
- Leverage Precedents: Bind courts to similar rulings.
- Seek Stay: On recovery during appeal.
- Writ Route: For glaring jurisdictional errors.
Conclusion: Key Takeaways
Appeals against penalty proceedings u/s 271AAC succeed when rooted in jurisdictional defects, procedural violations, or evidentiary gaps. The Faceless Scheme has invalidated countless JAO-initiated actions, while Section 275 protects against premature penalties. ITAT prioritizes natural justice, often restoring cases for fair hearings. Ameerul Murthuza vs deputy commissioner of income tax - 2025 Supreme(Kar) 2462 UMA SHANKAR AWASTHI UNNAO vs INCOME TAX OFFICER- 2(4) UNNAO - 2025 Supreme(Online)(ITAT) 1861
Taxpayers: Act swiftly, document thoroughly, and cite these precedents. Revenue faces hurdles if processes falter. Stay informed on Supreme Court developments, as some rulings reserve revival rights post-pending matters. K.B. Bhojamma vs Assistant Commissioner Of Income Tax - 2025 Supreme(Kar) 2188
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Search Results for "Appeal Against Penalty u/s 271AAC: Key Insights"
2025 0 Supreme(Kar) 2274 • India - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S.R.KRISHNA KUMAR
subsequent related proceedings. ... (A) Income Tax Act, 1961 - Sections 148, 148A, 147, 144, 144B, 156, 271A, 272A(1)(d), and 271AAC(1) - Jurisdiction of Assessing Authority ... href='#19'>19) (G) ... ... Result: The writ petition was allowed; all notices and orders issued were quashed, rendering the appeal ... the Penalty Order passed under section 271AAC(1) of the Act dated 16.07.2025, bearing DIN No. ... the Penalty#H....
2025 0 Supreme(Kar) 2044 • India - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S.R.KRISHNA KUMAR
... ... Issues: The issue addressed was the jurisdiction of the Assessing Officer to initiate proceedings post-Faceless Scheme implementation ... href='#5'>5 and 14) ... ... (B) Jurisdiction - The court emphasized that actions not within the authority of ... The petitioner argued that these notices were issued without jurisdiction following the implementation of the Faceless Scheme. ... penalty notice dated 21.03.2025 issued under Section 274 r.w.s 270A o....
2025 0 Supreme(Kar) 1795 • India - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S.R. KRISHNA KUMAR
years claimed by the petitioner due to lack of jurisdiction by the Assessing Officer under Section 151A - Court notes that the authority ... notices and orders issued by the revenue department from 2017 to 2022, including assessment orders and penalty notices, alleging ... to issue notices lies with the faceless authority post 29.03.2022 - Whereinafter, the court ruled that the impugned notices and proceedings ... impugned proceedings under <a href="./.. ... revival/....
2025 0 Supreme(Kar) 2188 • India - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S.R.KRISHNA KUMAR
(A) Income Tax Act, 1961 - Sections 147, 148, 148A, 156, and 274 r.w.s 270A - Writ petition challenging assessment, demand, and penalty ... (Paras 13 and 19) ... ... Facts of the case: ... The petitioner sought relief against assessment ... and notices under various sections of the Income Tax Act, with assessments conducted based on notices issued after the faceless ... penalty notice dated 21.03.2025 issued under Section 274 r.w.s 270A ....
2025 0 Supreme(Kar) 2350 • India - IN THE HIGH COURT OF KARNATAKA AT BENGALURU
S.R.KRISHNA KUMAR
established that such proceedings were legally untenable - (Para 12) - Resulting quashing of orders issued under ... (A) Income Tax Act, 1961 - Sections 147, 148, 148A, and 274 r.w.s. 271AAC(1) - Writ petition seeking quashing of assessment order ... , computation sheet, notice of demand and penalty notices for the assessment year 2020-21 - Jurisdictional issue raised regarding ... dated 25.03.2025 issued under section 274 r.w.s. #H....
2025 Supreme(Online)(KAR) 5283 • India - High Court of Karnataka
MR JUSTICE S.G.PANDIT, J
(A) Income Tax Act, 1961 - Sections 270A, 271AAC, and 275 - Penalty proceedings - Petitioner challenged penalty order passed during ... the pendency of an appeal against the assessment order - Court found that penalty could not be imposed as per Section 275 when the ... ... ... Ratio Decidendi: The court ruled that the imposition of penalty was not permissible under#H....
2025 Supreme(Online)(ITAT) 4064 • India - Income Tax Appellate Tribunal (Ahmedabad Bench)
Siddhartha Nautiyal, J, Annapurna Gupta, ACJ
This judgment concerns an appeal filed by the Income Tax Officer against the decision of the CIT(A) that deleted an addition of ₹99,50,160 ... under section 69A for unexplained cash deposits. ... The appeal of the Department is allowed for statistical purposes and the matter is restored to the CIT(A) for fresh adjudication. ... Penalty proceedings under #HL_STA....
2025 Supreme(Online)(ITAT) 1946 • India - Income Tax Appellate Tribunal (Lucknow Bench)
Shri. Sudhanshu Srivastava, Shri Anadee Nath Misshra, JJ
(A) Income Tax Act, 1961 - Sections 69A, 133(6), 142(1), and 271AAC - Appeal against assessment order - Assessee's income was assessed ... the delay in filing the appeal, reinforcing the principle of fair opportunity in legal proceedings. ... The NFAC dismissed the appeal for a delay of 198 days. ... proceedings under section 271AAC o....
2025 Supreme(Online)(ITAT) 507 • India - Income Tax Appellate Tribunal (Lucknow Bench)
SHRI. SUDHANSHU SRIVASTAVA, J
(A) Income Tax Act, 1961 - Sections 69A and 115BBE - Appeal against order of National Faceless Appeal Centre dismissed ex-parte - ... The AO added Rs.33,00,000/- as unexplained income under section 69A. The NFAC dismissed the appeal ex-parte. ... ... ... Findings of Court: ... The court found merit in the assessee's claim for a fair hearing and restored the appeal to the NFAC ... unde....
2025 Supreme(Online)(ITAT) 1858 • India - Income Tax Appellate Tribunal (Lucknow Bench)
Shri. Sudhanshu Srivastava, J
(A) Income Tax Act, 1961 - Sections 69A, 143(3), 115BBE, and 271AAC - Appeal against order of CIT(A) dismissing the appeal of the ... (Paras 6, 7) ... ... Result: Appeal of the assessee stands dismissed. ... (Paras 6, 7) ... ... Issues: The main issues were whether the CIT(A) erred in dismissing the appeal ... /-2.3 The AO also invoked the provisions of #HL_....
2025 Supreme(Online)(ITAT) 9412 • India - Income Tax Appellate Tribunal (Patna Bench)
Penalty proceedings u/s. 271AAC(1) were initiated. It was the submission of the Ld. ... On appeal, the Ld. CIT(A) confirmed the penalty levied. It was the submission that for the Assessment Year was 2021-22, the financial year ending was on 31.03.2021. Accordingly, the time limit for filing the return u/s. 139(1) is 31.07.2021. Notice u/s. 142(1) had been issued on 25.01.2022. ... AR of the assessee that as per the proviso to section 271AAC(1), penalty was not leviabl....
2025 Supreme(Online)(ITAT) 26165 • India - Income Tax Appellate Tribunal (Ahmedabad Bench)
Having already escaped an untenable penalty u/s 271AAB, the appellant immediately subjected to another penalty provision (271AAC) by way of rectification. ... to 271AAC. ... In the present case, the AO had admittedly initiated penalty proceedings wrongly, which the Ld. CIT(A) has wrongly attributed to be a "clerical error." ... However, soon thereafter, the AO invoked section 154 and substituted penalty u/s 271AAB with penalty u/s 271AAC#HL....
2025 Supreme(Online)(ITAT) 6456 • India - Income Tax Appellate Tribunal (Hyderabad Bench)
AO initiated penalty proceedings under section 271AAC of the Act and passed penalty order dated 27.03.2024, levying penalty of Rs.54,600/- on the assessee.4. Aggrieved with the penalty order of the Ld. ... CIT(A) in confirming the said penalty. Accordingly, the penalty imposed under section 271AAC of the Act is upheld.11. In the result, the appeal of the assessee is dismissed. ... AR”) submitted that the solitary i....
2026 Supreme(Online)(ITAT) 1827 • India - Income Tax Appellate Tribunal (Mumbai Bench)
AO also initiated penalty proceedings u/s 270A and 271AAC(1) of the Act. The Ld. ... thereby attracting penalty u/s 271AAC of the Act. ... Even on the merits of the case, penalty u/s 271AAC of the Act may be levied by the Ld. ... -20 and Levied Penalty U/s. 271AAC(1) Without giving proper opportunity and levied penalty of Rs.90,714/- Being 10% of the Tax on the purchase of securities. ... It is further observed tha....
2025 Supreme(Online)(ITAT) 21476 • India - Income Tax Appellate Tribunal (Jaipur Bench)
The law is settled that penalty proceedings under Section 271AAC(1) should not be initiated or concluded if the additions are dropped or the issue is still under appeal. ... Given the above circumstances, we hereby request you to relief may be granted by deleting the penalty levied under Section 271AAC(1) for A.Y. 2017-18 and drop the proceedings in view of the fact that the penalty order has been passed even though the appeal is pe....
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