No penalty under Section 271E when quantum addition does not survive: ITAT Agra in ACIT Vs Saurabh Gupta

Background of the dispute

In ACIT Vs Saurabh Gupta, the Income Tax Appellate Tribunal, Agra Bench, examined whether a penalty under Section 271E of the Income Tax Act 1961 can be sustained when the corresponding addition, which formed the very foundation for such penalty, has already been deleted at the quantum stage.

The matter pertained to Assessment Year 2017–18. The assessee had filed his original return of income on 14.12.2017, declaring total income of Rs. 23,99,800/-. This return was processed under Section 143(1). Subsequently, a search under Section 132 was carried out on 26.09.2017 in the BNR Group cases, and documents were seized from the premises of one Shri Amit Shukla, which later became central to the controversy.

Based on the seized material, the assessment of the assessee was completed under Section 143(3) read with Section 153C on 31.12.2022. In this assessment, the Assessing Officer treated a sum of Rs. 91,10,400/- as unexplained money under Section 69A read with Section 115BBE. Consequentially, the Assessing Officer initiated separate penalty proceedings and imposed penalty of Rs. 91,10,400/- under Section 271E for alleged contravention of Section 269T, on the reasoning that the assessee had repaid a loan in cash.

The assessee challenged the penalty before the CIT(A), who deleted it, taking note that the very addition of Rs. 91,10,400/- made in the assessment order dated 31.12.2022 had already been deleted by an earlier appellate order dated 30.11.2023. The Revenue carried the matter in appeal before the ITAT, contesting this deletion of penalty.

Chronology of key events

  1. Return filing and processing

    • Original return for A.Y. 2017–18 filed on 14.12.2017 declaring income of Rs. 23,99,800/-.
    • Return processed under Section 143(1).

  2. Search and assessment

    • Search and seizure under Section 132 on 26.09.2017 in BNR Group.
    • Documents seized from residence of Shri Amit Shukla, including pages 142–145 of bundle LP-3, allegedly referring to “Saurabh”.
    • Assessment framed under Section 143(3) read with Section 153C on 31.12.2022.
    • Addition of Rs. 91,10,400/- made under Section 69A read with Section 115BBE on account of unexplained money.

  3. Penalty proceedings

    • Separate penalty proceedings initiated under Section 271E for alleged breach of Section 269T.
    • Penalty of Rs. 91,10,400/- levied vide order dated 29.05.2023 on the footing that the assessee repaid a loan in cash.

  4. First appeal before CIT(A)

    • CIT(A) deleted the quantum addition by order dated 30.11.2023 in Appeal No. CIT(A)/KNP/12059/2016-17.
    • Subsequently, in penalty appeal, CIT(A)-IV, Kanpur deleted the penalty imposed under Section 271E by order dated 24.01.2025, primarily because the underlying addition no longer existed.

  5. Appeal before ITAT

    • Revenue filed appeal before ITAT Agra against deletion of penalty.
    • The Tribunal noted that deletion of the quantum addition had already been affirmed by ITAT itself in an earlier appeal dated 13.02.2025.
    • Further reliance was placed on ITAT’s own order dated 15.01.2026 in ITA No. 165/166/Agr/2025 in assessee’s own case, which dealt with similar penalty issues.

The order of the ITAT in the present penalty matter was pronounced on 17.04.2026.

Revenue’s arguments before the Tribunal

The Revenue challenged the CIT(A)’s decision on multiple grounds:

1. Penalty not automatically linked to quantum deletion

The Revenue contended that penalty for violation of Section 269T is a separate and distinct proceeding. According to the department, such penalty under Section 271E should not be treated as automatically invalid merely because the quantum addition has been deleted. It was argued that:

  • The penalty order stands on its own footing.
  • Deletion of addition by CIT(A) does not, by itself, nullify the independent finding that the assessee violated Section 269T.

2. Alleged erroneous deletion of quantum addition