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Cadence Design Systems -India- Private Limited v. National Faceless Assessment Centre

Delhi HC7 May 2025W.P.(C)/4986/2024

Case brief

AI extract

What is this about?

Delhi High Court writ petition allowed: Section 270A penalty order dated 04.03.2024 for AY 2018-19 set aside along with consequential demand; underlying Section 40(a)(ia) rental-expenditure disallowance (₹6,40,41,000, reduced by CIT(A) to ₹18,52,28,719) deleted by ITAT in ITA No.1489/Del/2023 (order dated 12.03.2024); Revenue confirmed no appeal filed/recommended and that the appeal-effect order was delayed by technical glitches; penalty computed at 200% of tax payable (₹1,83,37,642) on alleged misreporting.

What did the court decide?

Setting aside of the penalty order dated 04.03.2024 under Section 270A of the Act and of any demand raised pursuant thereto; pending application disposed of. ¶30

Cadence Design Systems -India- Private Limited Vs National Faceless… — Income Tax | Delhi HC (2025)

What the court decided

AI extract

Outcome

Setting aside of the penalty order dated 04.03.2024 under Section 270A of the Act and of any demand raised pursuant thereto; pending application disposed of.

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Issue for consideration

Whether the penalty order dated 04.03.2024 imposed under Section 270A of the Act for AY 2018-19 (computed at 200% of tax payable on account of alleged misreporting) can survive when the underlying addition under Section 40(a)(ia) has been deleted by the ITAT and the Revenue has accepted that order.

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Court's answer

Since the ITAT order dated 12.03.2024 deleting the additions made by the AO has been accepted by the Revenue and has attained finality, the penalty imposed by the AO would not survive.

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Ratio / Principle

Because the addition on the basis of which the allegation of misreporting was made has been deleted by the learned ITAT, no penalty can be imposed on the petitioner.

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Key takeaways

Consequent upon the above, the penalty order dated 04.03.2024 impugned in the petition is set aside, and any demand raised pursuant to that penalty order is likewise set aside.ratio¶29

Detailed headnote1 paragraphs

Cadence Design Systems India Pvt. Ltd. v. National Faceless Assessment Centre, W.P.(C) 4986/2024 (High Court of Delhi, decided 07.05.2025; Bench: Vibhu Bakhru & Tejas Karia, JJ.; judgment authored by Vibhu Bakhru, J.). The petition challenged a penalty of ₹3,66,75,284 (200% of tax payable of ₹1,83,37,642) imposed on 04.03.2024 under Section 270A of the Income Tax Act, 1961 for AY 2018-19, arising from an assessment-order disallowance of ₹6,40,41,000 (30% of rental expenditure of ₹21,34,70,000) under Section 40(a)(ia), reduced by the CIT(A) to ₹18,52,28,719. The ITAT (ITA No.1489/Del/2023) had deleted the addition by order dated 12.03.2024, which the Revenue accepted without filing any appeal. Holding that the accepted, final ITAT order meant no penalty for alleged misreporting could be imposed, the Court set aside the penalty order dated 04.03.2024 and the consequential demand, allowed the petition, and disposed of the pending application.

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$~9

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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% Date of Decision: 07.05.2025

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- W.P.(C) 4986/2024 & CM No.20395/2024

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CADENCE DESIGN SYSTEMS -INDIA-PVT. LTD......Petitioner Through: Ms Ananaya Kapoor and Mr Tarun Chanana, Advocates.

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Versus

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NATIONAL FACELESS ASSESSMENT CENTRE.....Respondent Through: Mr. Sanjay Kumar, Ms. Monica Benjamin & Ms. Easha Kadian, Advs.

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CORAM: HON'BLE MR. JUSTICE VIBHU BAKHRU HON'BLE MR. JUSTICE TEJAS KARIA

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VIBHU BAKHRU, J. ( Oral )

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The petitioner has filed the present petition impugning the penalty order dated 04.03.2024 [ impugned order ] passed under Section 270A of the Income Tax Act, 1961 [ Act ] in respect of Assessment Year [ AY ] 201819. The petitioner also impugns the demand notice dated 04.03.2024 issued in respect of AY 2018-19.

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The petitioner filed its return for AY 2018-19 on 26.11.2018, declaring a total income of ₹1,85,15,56,720/-. The petitioner’s return was picked up for scrutiny and the Assessing Officer [ AO ] passed an assessment order dated 29.09.2021, inter alia , disallowing a sum of ₹6,40,41,000/-, being 30% of the total rental expenditure of ₹21,34,70,000/- under Section

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Signature Not Verified

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Digitally Signed By:TARUN RANA Signing Da te:1 9.05.2025 17:06:50

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Page 1 of 3

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W.P.(C) 4986/2024

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40(a)(ia) of the Act. The AO also issued a notice under Section 274 read with Section 270A of the Act, initiating proceedings for levy of penalty.

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The petitioner appealed against the assessment order dated 29.09.2021 before the Commissioner of Income Tax (Appeals) [ CIT(A) ], which was disposed of by an order dated 16.03.2023. The learned CIT(A) granted partial relief to the petitioner by limiting the disallowance to the rental expenditure to ₹18,52,28,719/- instead of ₹21,34,70,000/-.

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Aggrieved by the order dated 16.03.2023, the petitioner preferred an appeal before the learned Income Tax Appellate Tribunal [ ITAT ], being ITA No.1489/Del/2023. The same was allowed by an order dated 12.03.2024 and the addition made on account of disallowance under Section 40(a)(ia) of the Act was set aside.

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The petitioner had also raised a ground regarding initiation of penalty proceedings under Section 270A of the Act, which the learned ITAT considered premature for adjudication at that stage.

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In the meanwhile, the AO proceeded with the penalty proceedings and did not accede to the petitioner’s request to keep the said proceedings in abeyance. Pursuant to the said proceedings, the AO passed an order dated 04.03.2024 imposing penalty of ₹3,66,75,284/- under Section 270A of the Act, being 200 percent of the tax payable [200% of ₹1,83,37,642].

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The learned counsel appearing for the Revenue states, on instructions, that the Revenue has not filed any appeal against the order dated 12.03.2024 passed by the learned ITAT deleting the additions made by the AO. She

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Signature Not Verified

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Digitally Signed By:TARUN RANA Signing Da te:1 9.05.2025 17:06:50

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W.P.(C) 4986/2024

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also submits that it has been recommended that no appeal be filed. She further states that the appeal effect order could not be issued on account of certain technical glitches, which are in the process of being resolved.

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In view of the fact that the order dated 12.03.2024 has been accepted by the Revenue and has attained finality, the penalty imposed by the AO would not survive. As noted above, the penalty has been computed at 200% of the tax payable. Since the addition, on the basis of which an allegation of misreporting was made, has been deleted by the learned ITAT, no penalty can be imposed on the petitioner.

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In view of the above, the penalty order dated 04.03.2024 impugned in the present petition is set aside. Consequently, any demand raised pursuant to the said penalty order is also set aside.

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