Facts of the Case

The petitioner, Darpan Kohli, approached the High Court challenging a show-cause notice dated 11.07.2023 issued under Section 271F of the Income Tax Act for imposition of penalty for Assessment Year 2017–18.

The petitioner contended that the penalty notice was based on an assessment order dated 09.05.2023, which had already been set aside by the Delhi High Court in an earlier writ petition (W.P.(C) 7904/2023) vide order dated 31.05.2023.

Despite the assessment order being quashed, the revenue proceeded with the penalty notice, leading to the present writ petition.

Issues Involved

  1. Whether a penalty notice under Section 271F can survive when the underlying assessment order has already been set aside.
  2. Whether the issuance of such a notice amounts to non-application of mind by the Assessing Authority.

Petitioner’s Arguments

  • The penalty notice is invalid and unsustainable, as it is founded on an assessment order that has already been quashed by the High Court.
  • Once the foundation (assessment order) is removed, the superstructure (penalty proceedings) cannot stand.
  • The revenue failed to consider the binding judicial order setting aside the assessment.

Respondent’s Arguments

  • The respondent (Income Tax Department) did not dispute that the assessment order had been set aside.
  • The revenue chose to rely on documents already on record and did not file a counter-affidavit.

Court’s Findings / Order

  • The Court acknowledged that the assessment order dated 09.05.2023 had already been set aside by a coordinate bench.
  • Since the penalty notice was based on a non-existent assessment order, it cannot be sustained in law.
  • Accordingly, the impugned show-cause notice dated 11.07.2023 was set aside.
  • However, the Court granted liberty to the Assessing Officer to take appropriate steps in accordance with law.

Important Clarification

  • The Court clarified that while the penalty notice is quashed, the Assessing Officer is not barred from initiating fresh proceedings, if permissible under law.
  • This ensures that procedural legality is maintained without foreclosing lawful action by the department. 

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS09082023CW105212023_163028.pdf

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