SHRINARAYAN YADAV (HUF),VARANASI vs. DEPUTY/ASSTT. COMMISSIONER OF INCOME TAX, CIR. - 1, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.28/VNS/2024 A.Y.-2015-16 Shrinarayan Yadav (HUF), vs. The Deputy/Asstt. Byasbagh, Bhelkhan, Harhaua, Commissioner of Income Tax, Varanasi, U.P. Circle-1, Varanasi PAN: AAQHS4211K (Appellant) (Respondent) Assessee by: Sh. Subhash Chand, Advocate Revenue by: Sh. Sabyasachi Chakraborty, Sr. DR Date of hearing: 21.01.2026 Date of pronouncement: 17.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961 on 2.02.2024, wherein the ld. CIT(A) has dismissed the appeals filed by the assessee against the order under section 271(1)(c) for the A.Y. 2015-16, that was passed by the Assessing Officer on 21.01.2022. The grounds of appeal are as under:- “1. Because the ld. Assessing Officer has erred and acted illegally in imposing the penalty to the tune of Rs. 27,26,994/-. The Ld. National Faceless Appeal Centre (Delhi) has also erred and acted illegally in confirming the same. 2. Because the penalty order is bad both on facts & in law and not maintainable.” 2. The facts of the case are that, the assessee HUF filed its return of income declaring a total income of Rs. 6,55,670/-. The assessment was completed under section 143(3) on 25.12.2017 determining total income of the assessee at Rs. 95,95,670/-. Penalty proceedings under section 271(1)(c) were initiated and the AO records that show cause notice was issued on 25.12.2017 for concealment of 1

ITA No.28/VNS/2024 Shrinarayan Yadav (HUF) A.Y. 2015-16 the particulars of income. In the penalty order, it is recorded that the assessee failed to substantiate the cash deposit made during the year under consideration amounting to Rs. 89,40,000/- in his Axis Bank account. The addition was made following the peak cash method under section 68 of the Income Tax Act. 3. Being aggrieved by the said addition, the assessee filed an appeal before the ld. CIT(A), but subsequently vide an application dated 1.10.2018, the assessee withdrew the appeal filed before the ld. CIT(A). Subsequently, the assessee filed an application before the ld. AO pointing out that he had had withdrawn the said appeal as he wished to file an application under section 273A of the Income Tax Act before the PCIT, Varanasi. However, the assessee had suffered a stroke and had undergone surgery of the heart and therefore, the application before the PCIT, Varanasi could not be filed. Therefore, the assessee had surrendered the amount in question and paid the taxes. He claimed that the case was covered under the new provisions of section 270AA of the Act, 1961. It was submitted that the assessee could not explain the source of deposits in the bank account due to his ill health but he had accepted the assessment order and deposited the total demand within one month of the service of the order. Therefore, he was fully covered under the provisions of section 270AA of the Act, even though it was not applicable for the relevant assessment year. The assessee submitted that the provision of section 271AA explains the objective of Parliament and therefore, in view of that objective, the assessee could not be held liable for penal action under section 271(1)(c). The ld. AO noted that the assessee had filed an application for immunity from penalty on 13.09.2021 in Form No. 68 as per the provisions of section 270AA(2) but the same provision was inserted by Finance Act, 2016 w.e.f. 1.04.2017 and only applied to immunity from imposition of penalty under section 270A. In this case, since the AO had initiated the penalty proceedings under section 271(1)(c) (and this pertained to the assessment year 2015-16) therefore, the application filed by the assessee was not tenable. The assessee did not submit a reply to the show cause notice issued by the AO on the aforesaid grounds. Therefore, the ld. AO levied

ITA No.28/VNS/2024 Shrinarayan Yadav (HUF) A.Y. 2015-16 the penalty under section 271(1)(c) for concealing the particulars of income for the A.Y. 2015-16. 4. Aggrieved with the said assessment order, the assessee went in appeal before the ld. CIT(A), NFAC. Before the ld. CIT(A), NFAC, it was submitted that the penalty levied by the AO was bad in law as it had been initiated on the basis of an invalid notice and was therefore, not maintainable. It was submitted that the assessee had been served a notice where the AO had not struck out one of the two limbs and therefore the notice, as per various decisions of the Courts had been held to be invalid and illegal in such cases. It was further submitted that the assessee had replied to this show cause notice and referred to the aforesaid defects in his reply before the AO, but the AO had not taken cognizance of the same and this is how the assessee came to be visited with a penalty of Rs. 27,26,994/- under section 271(1)(c). Before the ld. CIT(A), it was submitted that a similar question that had arisen before the ITAT, Circuit Bench, Varanasi in ITA No. 155/ALLD/2018 and the ITAT had held, following the order of the Hon’ble Karnatak High Court in the case of CIT vs. SSA Emerald Meadows 73 taxman.com 241, that the said notice was bad in law and this rendered the notice invalid and the subsequent penalty proceedings levied on the basis of such a notice to be vitiated. Accordingly, it had quashed the penalty. The assessee further pointed out that the Hon’ble Delhi High Court in the case of PCIT vs. Sahara India Life Insurance Company Limited (2021) 432 ITR 84 (Delhi) had held that a similar notice issued by the AO was bad in law if it did not specify under which limb of section 271(1)(c), the penalty proceedings have been initiated. The assessee also referred to the decision of the Hon’ble Madras High Court in the case of Shri Babuji Jacob vs. ITO (2021) 430 ITR 250 (Madras), wherein the Hon’ble Madras High Court had held that a similar notice issued by the Department initiating the penalty proceedings, was defective and invalid. The assessee also quoted from the decision of the Hon’ble Karnataka High Court in the case of Kaveri Associates vs. ACIT (2020) 429 ITR 40 (Kar), to show that the defective notice was one of the grounds on which the Hon’ble Karnataka High Court had quashed the penalty proceedings against the assessee in that case. 3

ITA No.28/VNS/2024 Shrinarayan Yadav (HUF) A.Y. 2015-16 The ld. CIT(A) considered the issue and pointed out that in the course of appellate proceedings, the assessee had relied entirely on case laws without mentioning anything on the merits of the addition. These case laws relied on spoke only about the validity of the notice. The ld. CIT(A) pointed out that all these decisions that had been relied upon by the assessee had been passed before the passing of the penalty order and therefore, nothing prevented the assessee from relying upon these judgments before the AO. He referred to section 292BB(C) to say that wherever the assessee had appeared or cooperated in an assessment, it shall be deemed that any notice under the provisions of Income Tax Act had been duly served and the assessee could be precluded from taking any objection that the notice was served upon him in an improper manner. Furthermore, the assessee had not elaborated upon what prejudice had been caused to him by not striking out one of the one of the limbs in the 271(1)(c) notice. In the opinion of the CIT(A), the two limbs of section 271(1)(c) were not separable at the stage of initiation of penalty proceedings because what was thought to be a case of, “furnishing of inaccurate particulars of income” may later in the course of penalty proceedings become a case of, “concealing the particulars of income” and vice-versa and also in a particular addition, both the limbs could be involved. He held that since the notice under section 271(1)(c) was not a statutory form but a standard form prepared for administrative convenience, it could not be the sole basis to quash the penalty. Since the assessee had not advanced any arguments on the merits of the case, the ld. CIT(A) confirmed the order of the AO. 5. The assessee is aggrieved by this order passed by the ld. CIT(A) and has come before us in appeal. Sh. Subhash Chand, Advocate (hereinafter referred to as the ld. AR) appearing on behalf of the assessee drew our attention to the paper book filed by him which contained a copy of the show cause notice issued under section 274, r.w.s. 271(1)(c) of the Income Tax Act, 1961 dated 12.05.2017, to demonstrate that in the said notice, the ld. AO had not struck of one of the two limbs before asking the assessee to show cause, as to why the penalty should not be levied upon him. The ld. AR, thereafter, drew our attention to the decision of the 4

ITA No.28/VNS/2024 Shrinarayan Yadav (HUF) A.Y. 2015-16 coordinate Bench at Varanasi in ITA No. 155/ALLD/2018 in the case of Shri Chamru Ram vs. ITO wherein ITAT had held that such a notice was bad in law and would result in the penalty proceedings being vitiated. The ld. AR also invited our attention to the decision of the Hon’ble Delhi High Court in PCIT vs. Sahara Life Insurance Company Ltd. (supra) where the Hon’ble Delhi High Court had categorically held that the notice issued by the AO was bad in law if it did not specify under which limb of section 271(1)(c), the penalty proceedings had been initiated. The ld. AR also took us through the judgments of the Hon’ble Madras High Court in the case of Babuji Jacob vs. ITO (supra) and that of the Hon’ble Karnataka High Court in the case of Kaveri Associates vs. ACIT (supra) and on the basis of the judicial precedents, he prayed that the penalty levied against the assessee may be quashed. 6. On the other hand, Sh. Sabyasachi Chakraborty, Addl CIT DR (hereinafter referred to as the ld. DR) pointed out that the assessee had not raised the issue before the AO and in fact made a completely different plea before him. As the ld. CIT(A) pointed out, that since the assessee had participated in the penalty proceedings, he could not raise the issue of defective notice. It was further argued that the assessee had no explanation for the amounts credited to his bank account and for this reason, he had surrendered the same under section 68 and paid taxes thereon. Therefore, it was a fit case for the imposition of penalty and the penalty should be levied. 7. We have duly considered the facts and circumstances of the case. The law is fairly settled that if the AO issues a notice to the assessee which is vague and non-specific then any subsequent action based on a vague and non-specific notice cannot be held to be valid in law. The Courts have interpreted that the failure to strike out one of the two limbs in the notice under section 274 r.w.s. 271(1)(c), amounts to issuing a vague and unspecific notice that does not clearly spell out the charge for which the assessee is obliged to give his defence. Accordingly, it has been held by various benches of the Tribunals and by Hon’ble High Courts, the decision of which had been cited by the ld. AR, that a penalty issued on the basis of 5

ITA No.28/VNS/2024 Shrinarayan Yadav (HUF) A.Y. 2015-16 such a defective notice is vitiated as the notice itself is invalid in the eyes of law. Therefore, the following precedents cited by the assessee’s ld. AR, we hold the penalty order that was passed after the issue of the invalid notice to be vitiated in the eyes of law and accordingly quash the same. 8. In the result, the appeal of the assessee is allowed. Order pronounced on 17.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.