DY. COMMISSIONER OF INCOME TAX, MUMBAI V. KANAKIA SPACES REALTY PRIVATE LIMITED, MUMBAI

ITA 6133/MUM/2025

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The case involves the Revenue's appeal against the decision of the Commissioner of Income-tax (Appeals) which had deleted a penalty imposed on Kanakia Spaces Realty Private Limited for the assessment year 2011-12. The penalty was originally levied based on additions made to the company's income due to alleged bogus purchases. However, the Tribunal had previously quashed the entire assessment order, which was the basis for the penalty. The Revenue contended that the penalty should stand despite the quashing of the assessment, but the Tribunal upheld the Commissioner's decision to delete the penalty, emphasizing that penalty proceedings are consequential and cannot survive independently when the substantive assessment is set aside.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 831558 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 29-09-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: SHWETA VARDHAN
• Keywords: Set aside; Bogus purchase; Bogus
• Section: 147; 143(3); 271(1)(c)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 6133/MUM/2025 Assessment Year: 2011-12 DY. Commissioner of Income Tax Room No. 420, Kautilya Bhawan, G Block, Bandra Kurla Complex, Mumbai- 400051 Vs. Kanakia Spaces Realty Private Limited Plot No. 8, Vilco Centre, 3rd Floor, Subhash Road, Opp Garware House, Vile Parle East, Mumbai- 400057 PAN NO. AACCC 4199 F Appellant Respondent Assessee by : Ms. Shweta Vardhan Revenue by : Shri. Hemanshu Joshi, SR DR Date of Hearing : 25/11/2025 Date of pronouncement : 20/01/2026 ORDER PER OM PRAKASH KANT, AM This appeal has been filed by the Revenue challenging the order passed by the learned Commissioner of Income-tax (Appeals)– 52, Mumbai, whereby the penalty levied by the Assessing Officer for the assessment year 2011–12 has been deleted. 2. At the outset, the learned counsel for the assessee submitted that the very assessment proceedings, on the basis of which the impugned penalty was levied, have already been quashed by the Printed from counselvise.com Tribunal vide its order in ITA No. Objection No. 86/Mum/2024. It was, therefore, contended that once the foundation of the assessment itself no longer survives, the consequential penalty proceedings are rendered unsustainable in law. 3. We have heard the rival submissions and perused the material available on record. The learned Commissioner of Income (Appeals), while adjudicating the penalty appeal, has taken note of the fact that the assessment order passed under section 143(3) read with section 147 of the Income subjected to appellate proceedings. The learned Commissioner of Income-tax (Appeals) further recorded that, pursuant to the decision of the Tribunal in the quantum proceedings, the entire assessment order stood quashed. Consequently, the very basis on which the penalty under section 271(1)(c) was levied ceased to exist. The relevant finding of the Ld. CIT(A) “6.1 Ground No.1 raised by the appellant pertains to levy of u/s 271(1)(c) of the Act amounting to Rs. 1,69,950/ the facts of the case, submissions made by the appellant. In this case, the appellant has e income of Rs. 3,05,31,399/ opened on the basis of the information received from DGIT(Inv.), Mumbai that appellant had made bogus purchases amounting to Rs.13,52,010/- from the entities M/s Siddhivinayak Trading Company, M/s Subh Enterprises and M/s 31,149/-, 3,29,913/ assessment was completed on 21.03.2016 Rs. 7,27,77,186/ purchases of Rs. 13,52,010/ Kanakia Spaces Realty Private Limited ITA No. Tribunal vide its order in ITA No. 1639/Mum/2024 and Cross Objection No. 86/Mum/2024. It was, therefore, contended that once the foundation of the assessment itself no longer survives, the consequential penalty proceedings are rendered unsustainable in We have heard the rival submissions and perused the material available on record. The learned Commissioner of Income (Appeals), while adjudicating the penalty appeal, has taken note of the fact that the assessment order passed under section 143(3) read with section 147 of the Income-tax Act, 1961 had already been subjected to appellate proceedings. The learned Commissioner of tax (Appeals) further recorded that, pursuant to the decision of the Tribunal in the quantum proceedings, the entire sment order stood quashed. Consequently, the very basis on which the penalty under section 271(1)(c) was levied ceased to exist. The relevant finding of the Ld. CIT(A) is reproduced 6.1 Ground No.1 raised by the appellant pertains to levy of u/s 271(1)(c) of the Act amounting to Rs. 1,69,950/-. I have considered the facts of the case, submissions made by the appellant. In this case, the appellant has e-filed his return of income on 28.09.2011 declaring income of Rs. 3,05,31,399/-. Thereafter, the appellants case was re opened on the basis of the information received from DGIT(Inv.), Mumbai that appellant had made bogus purchases amounting to from the entities M/s Siddhivinayak Trading Company, M/s Subh Enterprises and M/s R B Enterprises amounting to Rs. , 3,29,913/- & 9,90,948/- respectively. Accordingly, assessment was completed on 21.03.2016 assessing total income at Rs. 7,27,77,186/-, The additions were made on account of bogus purchases of Rs. 13,52,010/- and accommodation entry donation of Kanakia Spaces Realty Private Limited 2 ITA No. 4099/MUM/2025 1639/Mum/2024 and Cross Objection No. 86/Mum/2024. It was, therefore, contended that once the foundation of the assessment itself no longer survives, the consequential penalty proceedings are rendered unsustainable in We have heard the rival submissions and perused the material available on record. The learned Commissioner of Income-tax (Appeals), while adjudicating the penalty appeal, has taken note of the fact that the assessment order passed under section 143(3) read tax Act, 1961 had already been subjected to appellate proceedings. The learned Commissioner of tax (Appeals) further recorded that, pursuant to the decision of the Tribunal in the quantum proceedings, the entire sment order stood quashed. Consequently, the very basis on which the penalty under section 271(1)(c) was levied ceased to exist. as below: 6.1 Ground No.1 raised by the appellant pertains to levy of penalty . I have considered the facts of the case, submissions made by the appellant. In this case, filed his return of income on 28.09.2011 declaring eafter, the appellants case was re- opened on the basis of the information received from DGIT(Inv.), Mumbai that appellant had made bogus purchases amounting to from the entities M/s Siddhivinayak Trading Company, R B Enterprises amounting to Rs. respectively. Accordingly, assessing total income at , The additions were made on account of bogus accommodation entry donation of Printed from counselvise.com Rs. 3,00,00,000/ the Act in assessment order for furnishing inaccurate particulars of income. Aggrieved by the assessment order, the appellant filed appeal before Ld.CIT(A). The Ld.CIT(A) vide his order dated 30.01.2024 has deleted the addition made on account of accommodation entry of donation amounting to Rs. 3,00,00,000/ bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. 1,69,001/- as against Rs. 13,52,010/ to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/ Bogus Purchase of Rs. 1,69,001/ 6.2 Thereafter, revenue as well as appellant preferred Hon'ble ITAT vide ITA No.1639/Mum/20224 & CO No.86/Mum2024 respectively. Further, the appellant submitted that the Hon'ble ITAT vide its pronouncement dated 20.12.2024 has quashed the assessment order and dismissed the appeal of the revenue a other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT has quashed the assessment order u/s 143(3) r.w.s 147 dated 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO become infructuous and unsustainable. Therefore delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/ 2011-12. Hence, the appeal of the appellant on Ground No.1 stands Allowed.” 4. The above findings recorded by the learned Commissioner of Income-tax (Appeals), clea levied solely with reference to the additions made in the assessment order. Once those additions and, indeed, the assessment itself have been annulled by the Tribunal, the penalty proceedings cannot independently surviv penalty proceedings are accessory and consequential in nature and cannot stand when the substantive assessment giving rise to the penalty is set aside or quashed. Kanakia Spaces Realty Private Limited ITA No. Rs. 3,00,00,000/-, The AO has also initiated penalty u/s 271(1)(c) of the Act in assessment order for furnishing inaccurate particulars of income. Aggrieved by the assessment order, the appellant filed appeal ). The Ld.CIT(A) vide his order dated 30.01.2024 has deleted the addition made on account of accommodation entry of donation amounting to Rs. 3,00,00,000/-. However, on the issue of the bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. as against Rs. 13,52,010/- as added by the AO. Pursuant to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/ Bogus Purchase of Rs. 1,69,001/- as determined by the Ld.CIT(A). 6.2 Thereafter, revenue as well as appellant preferred Hon'ble ITAT vide ITA No.1639/Mum/20224 & CO No.86/Mum2024 respectively. Further, the appellant submitted that the Hon'ble ITAT vide its pronouncement dated 20.12.2024 has quashed the assessment order and dismissed the appeal of the revenue a other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT has quashed the assessment order u/s 143(3) r.w.s 147 dated 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO become infructuous and unsustainable. Therefore, the AO is directed to delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/ 12. Hence, the appeal of the appellant on Ground No.1 stands The above findings recorded by the learned Commissioner of tax (Appeals), clearly demonstrate that the penalty was levied solely with reference to the additions made in the assessment order. Once those additions and, indeed, the assessment itself have been annulled by the Tribunal, the penalty proceedings cannot independently survive. It is a well-settled principle of law that penalty proceedings are accessory and consequential in nature and cannot stand when the substantive assessment giving rise to the penalty is set aside or quashed. Kanakia Spaces Realty Private Limited 3 ITA No. 4099/MUM/2025 , The AO has also initiated penalty u/s 271(1)(c) of the Act in assessment order for furnishing inaccurate particulars of income. Aggrieved by the assessment order, the appellant filed appeal ). The Ld.CIT(A) vide his order dated 30.01.2024 has deleted the addition made on account of accommodation entry of . However, on the issue of the bogus purchase, the Ld.CIT(A) restricted the addition amount to Rs. as added by the AO. Pursuant to the action of Ld.CIT(A), the AO imposed penalty of Rs. 56,140/- on as determined by the Ld.CIT(A). 6.2 Thereafter, revenue as well as appellant preferred appeal before Hon'ble ITAT vide ITA No.1639/Mum/20224 & CO No.86/Mum2024 respectively. Further, the appellant submitted that the Hon'ble ITAT vide its pronouncement dated 20.12.2024 has quashed the assessment order and dismissed the appeal of the revenue and on other hand allowed the appeal of the appellant. Since, the Hon'ble ITAT has quashed the assessment order u/s 143(3) r.w.s 147 dated 21.03.2016, then the penalty u/s 271(1)(c) of the Act levied by the AO , the AO is directed to delete the penalty u/s 271(1)(c) amounting to Rs. 56,137/- for A.Y 12. Hence, the appeal of the appellant on Ground No.1 stands The above findings recorded by the learned Commissioner of rly demonstrate that the penalty was levied solely with reference to the additions made in the assessment order. Once those additions and, indeed, the assessment itself have been annulled by the Tribunal, the penalty proceedings cannot settled principle of law that penalty proceedings are accessory and consequential in nature and cannot stand when the substantive assessment giving rise to the Printed from counselvise.com 5. In the present case, there is no dispute tha order dated 21.03.2016 has been quashed by the Tribunal in the quantum proceedings. In such circumstances, the learned Commissioner of Income that the penalty levied under section 271(1)(c) of t become infructuous and unsustainable. We find no infirmity, legal or factual, in the reasoning or the conclusion arrived at by the learned Commissioner of Income 6. Accordingly, the order of the learned Commissioner of Income tax (Appeals) deleting the penalty is upheld. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 20/01/2026 Disha Raut, Stenographer Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Kanakia Spaces Realty Private Limited ITA No. In the present case, there is no dispute that the assessment order dated 21.03.2016 has been quashed by the Tribunal in the quantum proceedings. In such circumstances, the learned Commissioner of Income-tax (Appeals) was fully justified in holding that the penalty levied under section 271(1)(c) of t become infructuous and unsustainable. We find no infirmity, legal or factual, in the reasoning or the conclusion arrived at by the learned Commissioner of Income-tax (Appeals). Accordingly, the order of the learned Commissioner of Income (Appeals) deleting the penalty is upheld. In the result, the appeal filed by the Revenue is dismissed. nounced in the open Court on 20/01/2026 Sd/ SANDEEP SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Kanakia Spaces Realty Private Limited 4 ITA No. 4099/MUM/2025 t the assessment order dated 21.03.2016 has been quashed by the Tribunal in the quantum proceedings. In such circumstances, the learned tax (Appeals) was fully justified in holding that the penalty levied under section 271(1)(c) of the Act had become infructuous and unsustainable. We find no infirmity, legal or factual, in the reasoning or the conclusion arrived at by the Accordingly, the order of the learned Commissioner of Income- In the result, the appeal filed by the Revenue is dismissed. 1/2026. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "