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Facts
The Assessing Officer determined the assessed income at Rs. 72,71,043/- after making additions for disallowance of capital expenditure and ad hoc expenses. Subsequently, penalty proceedings were initiated for concealing income or furnishing inaccurate particulars. The penalty levied was affirmed by the CIT(A), leading to the present appeal.
Held
The Tribunal held that the penalty notice issued by the Assessing Officer was defective as it used 'OR' between the charges of concealment and furnishing inaccurate particulars, failing to specify the exact limb under which the penalty was being levied. Relying on High Court judgments, the Tribunal found this defect to be fatal to the penalty.
Key Issues
Whether the penalty levied is sustainable when the notice under section 274 r.w.s 271(1)(c) does not specifically mention the limb (concealment of income OR furnishing inaccurate particulars) for which penalty proceedings are initiated.
Sections Cited
271(1)(c), 274
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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI JAGADISH
O R D E R
Per :Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 14.10.2025 impugned herein, passed by the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2010-11.
In this case, the Assessing Officer vide Assessment Order dated 13.03.2013 determined the assessed income of the assessee at Rs.72,71,043/- after making two additions detailed below:
1. Rs.3,75,000/- on account of disallowance of capital expenditure.
2. Rs.53,273/- on account of ad hoc expenses disallowance.
The Assessing Officer in the Assessment order also initiated the penalty proceeding for concealing the income by way of furnishing inaccurate particulars of income, and thereafter issued a notice dated 13.03.2013 u/s 274 r.w.s. 271(1)(c) of the Act, for concealment of the particulars of income ‘OR’ furnishing inaccurate particulars of such income, and vide penalty order dated 29.03.2018 u/s. 271(1)(c) of the Act, ultimately levied the penalty to the tune of Rs.1,15,875/- being 100% of the tax sought to be evaded on the addition of Rs.3,75,000/- for furnishing inaccurate particulars of income u/s. 271(1)(c) of the Act.
Though the assessee challenged the said penalty levied, by filing First Appeal before the Ld. Commissioner, however could not get any relief, as the Ld. Commissioner vide impugned order ultimately affirmed the aforesaid penalty by dismissing Appeal of the Assessee. Thus, the Assessee being aggrieved has preferred instant Appeal on various grounds.
The Assessee at the outset claimed that notice issued u/s 274 r.w.s 271(1)(c) of the Act dated 13.03.2013 appears to be defective, as in the notice both the limbs have been prescribed such as concealment of the particulars of the income OR furnishing of inaccurate particulars of such income. On the contrary, the Ld. DR. supported the impugned order.
We have heard the parties and considered the rival submissions of the parties and perused the relevant material on record. Admittedly the Assessing Officer issued a notice dated 13.03.2013 by using OR in between the limbs. For brevity and ready reference, the aforesaid notice is reproduced herein below:
NOTICE UNDER SECTION 274 READ WITH SECTION 271[][] OF THE INCOME TAX ACT, 1961. PAN-AAIFA6148D Date: 13/03/2013 M/s Amber Corporation 8-9, Amber Jyot, RetiBunder Cross Road DevichaPada, Dombivli (w) - 421202 Whereas in the course of proceedings before me for the Assessment Year 2010-11 it appears to me that you have concealed the particulars of your income or furnished inaccurate particulars of such income. You are hereby requested to appear before the undersigned to show why an order imposing a penalty on you should not be made under section 271(1)(c) of the 1.T. Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person on through authorized representative, you may show cause in writing within seven days from the date of receipt of this notice, which will be considered before any such is made under section 271(1)(c). (SHIVAJI B. GHODE) Dy. Commissioner of Income-tax Circle-3, Kalyan.
7. The validity/legality of such kind of notice as involved in this case has been examined by the Hon’ble Coordinate Bench of the Tribunal recently in the case of ChiragkumarRajendrabhai Shah Vs ITO, Ward 30(1)(2), [now] ITO Ward 41(3)(1) {ITA Nos.7130,7131 & 7132/M/2025 decided on 05.02.2026 and ultimately deleted the identical penalty levied, on the basis of similar kind of notice u/s 274 r.w.s. 271(i)(c) of the Act, by observing and holding as under:
“7. We have heard the parties and perused the material available on record. As observed above, the Assessing Officer, vide assessment order dated 30.03.2014, made an addition of Rs.8,23,49,198/-, which was sustained by the then CIT(Appeals), vide order dated 09.04.2014 to the extent of 25%, i.e., Rs.2,05,87,299/-. The Hon’ble Tribunal, by order dated 03.04.2018 in to 4088/M/2016, subsequently restricted the said addition to 12.5% of the total disallowance made by the Assessing Officer.
8. As, the Assessee has raised a legal point/ground, which goes to the root of the case, therefore, before delving into the merits of the case, we deem it appropriate to decide the legal ground first.
9. Coming to the legal ground raised by the Assessee, we observe that the Assessing Officer, in the assessment order dated 30.03.2014 passed under section 143(3) read with section 147 of the Act, simultaneously initiated penalty proceedings under section 274 read with section 271(1)(c) of the Act for concealment of particulars of income and subsequently issued a notice dated 30.03.2014 under section 274 read with section 271(1)(c) of the Act for concealment of particulars of income or furnishing of inaccurate particulars of income and on the basis of such notice, ultimately levied the penalty of Rs.70,00,000/- under section 271(1)(c) of the Act for concealment of income.
10. Admittedly, in the notice dated 30.03.2014 issued under section 274 read with section 271(1)(c) of the Act, the Assessing Officer has not specified the specific limb / charge for initiating the penalty proceedings, so as to make the Assessee aware “as on what charge/limb penalty proceedings have been initiated and/or on what charge the Assessee has to defend the case.
11. Though the Ld. DR drew attention of this Court to the notice dated 28.03.2018 issued under section 274 read with section 271(1)(c) of the Act, whereby the specific charge of concealment of particulars of income was communicated to the Assessee and the Assessee was show-caused to appear on 13.04.2018, either personally or through a duly authorised representative, to reply as to why an order imposing a penalty should not be made under section 271(1)(c) of the Act. Therefore, it is a fact that, in such notice, the date for compliance was given as 13.04.2018. but the Assessing Officer, prior to the said date, passed the penalty order on 30.03.2018 itself, i.e., anti-date, as prescribed in the notice. Thus, such notice lost its sanctity and would be of no help to the Revenue.
12. We observe from the impugned order that though the Ld. Commissioner has also considered the aspect qua non-specification of the limb/charge for initiating penalty proceedings by issuing a notice dated 30.03.2014 under section 274 read with section 271(1)(c) of the Act, by relying on various judgments, however, it is a fact that the Ld. Commissioner has not considered the judgment of the Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB) and various other judgments of the jurisdictional Benches of the Tribunal, including in the case of KorbusierKinema Private Limited, Juhu vs. NFAC ACIT, Circle-15(1)(2), decided on 01.05.2025 wherein, the Hon’ble Coordinate Bench of the Tribunal not only considered the judgment of the Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh(supra), but also in the case of Veena Estate (P) Ltd. vs. CIT (2024) 461 ITR 483 (Bom.), which was delivered in favour of the Revenue, and held as under : 5. Thereafter, the AO issued a show cause notice dated 27.12.2008 for concealment of the particular of income or/and furnishing of inaccurate particulars of such income and ultimately vide penalty order dated 18.01.2022 u/s 271(1)(c) of the Act imposed the penalty to the tune of Rs.9.97.234/being 200% of the tax sought to be evaded on the income of Rs.14.95.851/-. M/s. KorbusierKinema Private Limited 6. The Assessee, being aggrieved, challenged the said levy of penalty before the Ld. Commissioner, however, of no avail, as the Ld. Commissioner vide impugned order dated 17.12.2024 affirmed the levy of penalty.
The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner on various aspects including notice issued u/s 274 of the Act dated 27.12.2018 and by relying on the judgment passed by the Hon'ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB).
On the contrary, the Ld. D.R. refuted the claim of the Assessee by placing reliance on the judgment in the case of Veena Estate (P.) Ltd. vs. CIT (2024) 461 ITR 483 (Bom.) passed by the Hon'ble Jurisdictional High Court, concerning the identical issue, wherein it was held that if an Assessee does not challenge the validity of notice during the penalty or appellate proceedings but instead responds substantially to the allegations, such objections are barred at a later stage.
We have heard the parties and perused the material available on record. As the issue/ground raised by the Assessee qua notice u/s 274 of the Act, goes to the root of the case, hence for the sake of brevity, we are inclined to decide this ground first. Admittedly, the AO issued the penalty notice dated 27.12.2018 u/s 274 of the Act which is reproduced herein below:
From the notice, it clearly appears that the AO has used or/and in between both of the limbs, which goes to show that the AO was not sure under which limb the penalty proceedings have been initiated and to be carried out. Therefore, issue emerges "as to whether the defective notice and/or not mentioning the charge/limb specifically in the notice u/s 274 r.w.s. 271(1)(c) of the Act can justify the levy of penalty". The Hon'ble Jurisdictional High Court in the case of Md. Farhan A Shaikh (supra) has dealt with the identical issue and considered various judgments in this respect and ultimately held "mere defect in the notice non striking of the irrelevant matter - vitiate the proceedings" and therefore respectfully following the dictum laid down by the Hon'ble Jurisdictional High Court, in our considered view, the penalty under consideration is liable to be deleted.
Coming to the judgment relied on by the Ld. D.R. in the case of Veena Estate (P.) Ltd. (supra), we observe that in that particular case the notice u/s 274 of the Act was challenged after 23 years for the first time before the Hon'ble High Court by raising additional ground, which was not admitted and rejected by the Hon'ble High Court by interim order. Here it is not the case so, as in the instant case the Assessee has challenged the notice u/s 274 r.w.s. 271 of the Act before the second appellate authority and within a reasonable time and therefore the judgment referred to by the Ld. D.R. is factually dissimilar.
Even otherwise, the Hon'ble Jurisdictional High Court in the Full Bench case in the case of Md. Farhan A Shaikh (supra) has elaborately dealt with the issue and the relevant judgments and therefore respectfully following the said judgment, we are inclined to delete the penalty imposed by the AO and affirmed by the Ld. Commissioner. Thus, the penalty is deleted.
We further observe that the Hon’ble Jurisdictional High Court, recently in the case of Principal Commissioner of Income Tax -6 vs. Colo Colour Private Limited (Income Tax Appeal No. 48 of 2022), decided on 16.09.2025, also dealt with an identical issue, qua not specifying the relevant limb/charge for initiating the penalty proceedings and held as under: 16. It is well settled that the condition precedent for levy of penalty under Section 271(1)(c) is only when the Assessing Officer, in the course of proceedings, is satisfied that an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Thus, in applying the penalty provisions under Section 271(1)(c), it was necessary for the Assessing Officer to reached to a conclusion, that the assessee had consciously concealed the particulars of his income and/or had deliberately furnished inaccurate particulars of income to gain an undue advantage of not offering the real income to tax. A clear subjective satisfaction of these essentials is a sine qua non for the Assessing Officer to levy a penalty.
Penalty proceedings are penal in nature, as the intention of such provisions is to create an effective deterrent, which will restrain the assessee from adopting any practices detrimental to the fair and realistic assessment as the law would mandate.
The Hon’ble High Court has held that there cannot be two opinions that section 271(1)(c) of the Act is required to be strictly construed. Hence, in the absence of a clear position regarding concealment of particulars of income or furnishing of inaccurate particulars of income in the facts of the present case, penalty proceedings could not have been initiated.
The Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar), has also dealt with identical notice and held as under: 7.2. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind.
The Hon'ble High Court of Delhi in the case of M/s. Sahara India Life Insurance Company Ltd. 432 ITR 84 (Del.) while following the above judgement in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar), held as under: "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 359 ITR 565 (Kar) and observed that the notice issued by the AO would be 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 hesitation to delete the penalty levied by the AO and affirmed by the Ld. Commissioner.
Thus, on the aforesaid analyzations, we are unable to sustain the penalty levied under section 271(1)(c) of the Act. Hence, the same is deleted.
8. Thus, respectfully following the aforesaid judgment, we are inclined to delete the penalty under consideration, hence the same is deleted.
9. In the result the Assessee’s Appeal is allowed.
Order pronounced in the open court on 26.02.2026.