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Facts
The Assessing Officer (AO) imposed a penalty of Rs. 16,28,424/- on the assessee under Section 271(1)(c) for debiting huge expenses not supported by proper evidence. The assessee's explanation was rejected, and books of accounts were rejected under Section 145(3), with a net profit rate applied. The NFAC upheld the penalty, and the assessee appealed to the tribunal.
Held
The Tribunal found that the penalty notice issued under Section 271(1)(c) did not specify which limb (concealment or furnishing inaccurate particulars) was invoked and did not strike off the inapplicable portion. Following the ratio of the judgment in CIT v. SSA's Emerald Meadows, the Tribunal quashed the penalty order.
Key Issues
Whether the penalty under Section 271(1)(c) is valid when the notice issued under Section 274 does not specify which limb of Section 271(1)(c) is invoked and the inapplicable portion is not struck off.
Sections Cited
271(1)(c), 274, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SH. S. RIFAUR RAHMAN & SH. SUDHIR KUMAR
Date of hearing: 25/02/2026 Date of Pronouncement: 13/03/2026 ORDER
PER SUDHIR KUMAR, JM:
This appeal by the assessee is directed against the order of Ld. National Faceless Appeal Centre (NFAC), Delhi dated 13.08.2025 pertaining to A.Y. 2013-14 and arises out of the penalty order dated 12-03-2018 passed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’].
The assessee has raised the following grounds of appeal :
1. That, the notice issued u/s. 271(1)(c) and order imposing penalty of Rs. 16,28,424/- under said section are illegal, bad in law and without jurisdiction. The NFAC has also erred in confirming the same.
2. That, the NFAC has failed to appreciate, that, the notice issued u/s. 271(1)(c) is illegal, bad in law and without jurisdiction as the same is issued without any specific charge, for which the AO has initiated the penalty proceedings u/s. 271(1)(c).
3. That, the NFAC has erred in law and on facts in confirming the action of AO of imposing the penalty of Rs. 16,28,424/- u/s. 271(1)(c), which is highly arbitrary and unjustified.
4. That, the NFAC has failed to appreciate, that, the AO has erred in imposing the penalty u/s. 271(1)(c) on account of additions / disallowances made in the quantum on account of estimation of gross profit at Rs. 91,59,170/- @5%, has been reduced by ITAT @ 3.5%, which is highly presumptive, arbitrary and purely based on surmises and conjecture.
5. The addition / disallowance has been made merely on the basis of rejection of explanation of the appellant and no material has been brought on record by the AO in support of said addition / disallowance hence, no penalty u/s. 271(1)© could be levied on the basis of such a disallowance.
6. That the appellant had neither concealed particulars of income nor had not filed inaccurate particulars of income and the NFAC has failed to appreciate that the additions are made mere on disallowance of expense/claims.
7. That, in view of the facts and circumstances of the case, the NFAC has erred in law and on facts in not providing the proper opportunity of hearing, which is bad in law and against the principle of natural justice.
8. The additions made and the observations made are unjust, unlawful and based on mere surmises and conjectures. The additions made cannot be justified by any material on record and also excessive.
The explanation given in the evidence produced, material placed that has been made available on record has not been properly considered and judicially interpreted and the same do not justify the additions / allowances made.
The brief facts of the case noted by the AO are that the assessee had debited huge expense in the books of account which were not supported by proper supporting evidence. The assessee was asked to produce books of accounts alongwith bills, vouchers and bank accounts to substantiate the huge debits noticed. In compliance to that the assessee produced only cash book, ledger and some vouchers and bank accounts. Other than expenses under the head of telephone expenses, car maintenance, miscellaneous expenses, the appellant also clamed huge expenses under the head labour charges and earth works. It was to the tune of Rs. 17,46,42,737/- against the total labour receipt of Rs. 18,18,99,381/-. The assessee was asked to produce the labour and earthwork register and also must rules to whom the payments of Rs. 17,00,46,042/-. The assessee denied having maintenance and maintenance of any labour register or muster roll of payments. Towards this only some vouchers of payments made to labour to the extent of Rs. 11,90,000/- has been filed and going through the same, it was also noticed by the AO that the name of persons, right amount per day etc. were not mentioned. Only few handmade vouchers for labour expenses showing amount has been filed. It was also noticed that, against the total receipt of Rs. 18,18,99,381/-, the assessee had claimed payments made to the labour and earthworks at R. 17,46,42,737/- which were on a very high side, especially when the evidence of payment for labour has been filed only for Rs. 1190000. The evidence submitted too were not acceptable in the absence of name and address of the persons and nature of work assigned to them has been given. Considering all these facts, books of accounts were rejected by the provision of section 145(3) of the I.T. Act, 1961 and a net profit rate of 5% was applied on the contract receipts at Rs. 18,18,99,381/- and sales shown at Rs. 8,54,224/-, which came to around Rs. 91,37,680/-. Considering this, the AO imposed the penalty amounting to Rs. 16,28,424/- u/s. 271(1)(c) of the Act. Aggrieved the penalty order the assessee preferred the appeal before the Ld. CIT(A), who vide his order dated 13-08-2025 dismissed the appeal, against which the assessee is in appeal before the tribunal.
The Ld. AR has submitted that the penalty order passed by AO is bad in law and without jurisdiction void ab initio and imposed in violation of the principles of natural justice. He also submitted that notice under section 274 r.w.s. 271(1) (c ) of the Act was issued on the both limbs and the inapplicable portion has not been struck off. Reliance is placed on the following cases: (i) CIT v. SSA’s Emerald Meadows (2016) 73 taxmann.com 241 (SC) (ii) PCIT v. Gragerious Projects (P.) Ltd. [2025] 475 ITR 546 ( DELHI ) (iii)PCIT v. Blackrock Securities (P.) Ltd. [2023] 157 taxmann.com 564 (Delhi) (iv) PCIT v. Smt. Baisetty Revathi [2017] 398 ITR 88( AP & Telanganna) (v) Nilima Agarwal v. ITO [2025] taxmann.com 59 (Raipur trib) (vi)In the case of Pr. Commissioner of Income –tax v. Sahara India Life Insurance Co. Ltd. [2019] 108 taxmann.com 597 (Delhi) the Hon’ble Delhi High Court held that:
21. The respondent had challenged the upholding of the penalty imposed under section 271(1) (c ) of the Act which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/218 Taxman 423/359 ITR 564 and observed that the notice issued by the AO would bad in law if it did not specify which limb of section 271(1) (c ) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in CIT v. SSA’s Emerald Meadows [2016] 73 taxmann.com 241, the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August,2016.
The Ld. Sr. DR relied upon the orders of the authorities below.
We have heard the revival contention of the parties and gone through the material available on record. We find that the AO has mentioned both limbs in the notice dated 29-03-2016 issued under section 271(1) (c) of the Act (copy placed on record) has not struck off the inapplicable portion viz. “have concealed the particulars of your income or furnished inaccurate particulars of such income.” The, AO in the penalty order has mentioned the facts that the penalty levied u/s 271(1) (c) of the Act for furnishing of inaccurate particulars of income. Since the instant issue is covered by the judgment of the Hon’ble Delhi High Court, as referred above, accordingly, respectfully follow the ratio of the same, we quash the penalty order of the AO and allow the ground no. 2 raised by the assessee.