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Facts
A search action was conducted against the assessee, leading to an assessment where an addition of Rs. 20,08,170/- was made for unaccounted cash purchase of property. Penalty proceedings were initiated under Section 271(1)(c), with the notice striking off "concealment of income" and ticking "furnishing inaccurate particulars". However, the Assessing Officer ultimately levied the penalty for "concealment of income," which the CIT(A) confirmed.
Held
The Tribunal, relying on jurisdictional High Court precedents, ruled that a penalty order under Section 271(1)(c) is unsustainable if the show-cause notice under Section 274 specifies a different default (e.g., "inaccurate particulars") than the one for which the penalty is finally imposed (e.g., "concealment"). The lower authorities erred by not adhering to this principle, rendering the penalty order invalid.
Key Issues
Whether a penalty levied u/s 271(1)(c) for "concealment of income" is valid when the show-cause notice u/s 274 specified "furnishing inaccurate particulars of income".
Sections Cited
271(1)(c), 274, 132, 153A, 139(1), 69, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Amish Pravinchandra Vyas Vs The Dy.CIT, 89/400, Saraswatinagar, Central Circle-2(1), Nr. Azad Society, Ahmedabad Ambawadi, Ahmedabad Gujarat-380015 PAN: AAKPV3987B (Appellant) (Respondent) Assessee Represented: Shri Parimalsinh B. Parmar, A.R. Revenue Represented: Shri Rameshwar P Meena, Sr.D.R. Date of hearing : 05-03-2026 Date of pronouncement : 10-03-2026 आदेश/ORDER PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER
This appeal is filed by the Assessee as against appellate order dated 19-08-2025 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad arising out of the penalty order levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14.
Brief facts of the case is that the assessee is an individual having salary income. There was a search action u/s. 132 of the Act in the premises of the assessee on 04-08-2015 wherein documents and hard- disks seized. Pursuant to the same notice u/s. 153A was issued to the assessee on 08-01-2016. In compliance, the assesse filed a Return of Income on 06-02-2016 declaring total income of Rs.30,90,401/-, the same income declared in the original return of income filed u/s. 139(1) of the Act. The assessment was completed by making addition of Rs.20,08,170/- being unaccounted cash purchase of property and therefore penalty proceedings u/s. 271(1)(c) of the Act was initiated for “concealment of income” in the assessment order. However in the penalty notice dated 29-11-2017, the Ld. A.O. striked off “concealed particulars of income” but ticked “furnished inaccurate particulars of such income”. However the Assessing Officer passed penalty order u/s. 271(1)(c) dated 17-08-2020 imposing penalty of Rs.6,20,524/- for the alleged default of “concealment of income”, not for “furnishing inaccurate particulars of income”.
3. Aggrieved against the penalty order, assessee filed an appeal before Ld. CIT(A) who has confirmed the levy of penalty u/s. 271(1)(c) of the Act and dismissed the assessee appeal.
Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. The learned Commissioner of Income Tax (Appeals)-12, Ahmedabad has grossly erred in law and on facts of the case in confirming the order u/s. 271(1)(c) passed by the Deputy Commissioner of Income Tax, Central Circle 2(1), Ahmedabad Imposing penalty of Rs. 6,20,524/- for the alleged default of concealment of Income / furnishing inaccurate particulars of income in utter disregard to the fact that the order so passed by the learned AO is bad in law, contrary to the provisions of the Income Tax Act, facts of the case and evidence on record. It is therefore prayed that the penalty order u/s. 271(1)(c) passed by the learned AO and confirmed by the learned CIT(A) may please be cancelled.
2. The learned Commissioner of Income Tax (A) grossly erred in law and on facts of the case in confirming the order u/s. 271(1)(c) passed by the Deputy Commissioner of Income Tax, Central Circle 2(1), Ahmedabad imposing penalty of Rs. 6,20,524/- with respect to the addition of Rs.20,08,170/- made by the AO in the assessment order by invoking the deeming provisions of Section 69 of the I.T. Act. It is therefore prayed that the penalty order u/s. 271(1)(c) passed by the learned AO and confirmed by the learned CIT(A) may please be cancelled.
The learned Commissioner of Income Tax (A) grossly erred in law and on facts of the case in confirming the order u/s. 271(1)(c) passed by the Deputy Commissioner of Income Tax, Central Circle 2(1), Ahmedabad imposing the Impugned penalty for the alleged default of concealment of particulars of income in utter disregard to the fact that as per the show cause notice issued on 29/11/2017 by the AO u/s. 274 r.w.s. 271 the default for which penalty was sought to be levied was 'furnishing inaccurate particulars of income' and not for the default of concealment of income. The impugned penalty is therefore illegal In view of the judgment of the Hon'ble High Court of Gujarat in the case of New Sorathia Engineering Company.
4. The learned Commissioner of Income Tax (A) grossly erred in law and on facts of the case in confirming the order u/s. 271(1)(c) passed by the learned AO in utter disregard to the settled position of law as laid down by the Gujarat High Court in the case of National Textiles 249 ITR 125 and Baroda Tin Works (1996) 221 ITR 691 (Guj) wherein it was held that deeming provision contained in Section 68, 69, etc. has limited applicability only for the purpose of computation of total income and the deeming provisions cannot be and should not be further enlarged and extended for the purpose of levy of penalty u/s. 271(1)(c).
5. It is therefore prayed that impugned order u/s. 271(1)(c) imposing penalty of Rs.6,20,524/- with respect to the addition made in the assessment order by invoking the deeming provisions of Section 69 of the I.T. Act may please be cancelled.
6. The appellant prays liberty to add or alter any ground at the time of hearing.
Ld. Counsel appearing for the assessee submits that If the AO wants to levy penalty u/s. 271(1)(c), the statutory notice issued u/s. 274 should specify the exact nature of the default for which penalty is sought to be levied i.e. whether penalty is to be levied for the default of “concealing the particulars of income” or for the default of furnishing “inaccurate particulars of income”. Once, in statutory show-cause notice u/s.274 is issued specifying the default of furnishing “inaccurate particulars of income”, penalty can be levied for the that specified default only and no penalty can be levied for “concealing the particulars of income”, which is not mentioned or specified in the statutory show-cause notice and strongly relied upon Jurisdictional High Court Judgment in the case of M/s. New Sorathia Engineering Co. Vs. CIT reported in [2006] 155 Taxmann.com 513 (Gujarat).
Heard rival submissions and perused the materials available on record. For ready reference, the statutory notice issued u/s. 274 by the Assessing Officer is reproduced as follows:
The Assessing Officer has striked off “concealed the particulars of income” and ticked furnished “inaccurate particulars of income” in the penalty notice. However while passing the penalty order, imposed the penalty of Rs.6,20,524/- for “concealment of income”.
This issue of wrong mentioning in penalty notice is no more res integra by the Hon’ble Gujarat High Court Judgment in the case of M/s. New Sorathia Engineering Co. (cited supra) wherein it is held as follows: 9. It is an admitted position that the decision of this court in the case of CIT v. Manu Engg. Works [1980] 122 ITR 306 had been pressed into service on behalf of the applicant-Revenue (assessee ?) before the Tribunal. As can be seen from the impugned order of the Tribunal dated 28-4-1994, though the Tribunal had set out the citation in the list of authorities reproduced in paragraph No. 5 of its impugned order no finding as such is recorded on the said issue. In such circumstances, it could be stated that the Tribunal has not adjudicated upon the said contention, or it could be stated that once the contention was raised and recorded by the Tribunal it is deemed to have been rejected in the absence of any specific finding.
10. In the facts of the present case the subtle difference between the two stages would not matter. It is nobody’s case and it is not possible to contend, that the Tribunal was not bound by a decision of the jurisdictional High Court, especially when its attention was invited to the said decision. Therefore, whether the Tribunal has recorded any finding or not becomes immaterial. In the facts as are available on the record it is apparent that the ratio of a decision of this court in the case of CIT v. Manu Engg. Works [1980] 122 ITR 306 , applies on all fours.
In the case of CIT v. Manu Engg. Works [1980] 122 ITR 306, this is what is laid down by this court :
"...We find from the order of the Inspecting Assistant Commissioner, in the penalty proceedings, that is, the final conclusion as expressed in para 4 of the order : ‘I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income’. Now, the language of ‘and/or’ may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the Inspecting Assistant Commissioner to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the Inspecting Assistant Commissioner and, on that ground alone, the order of penalty passed by the Inspecting Assistant Commissioner was liable to be struck down." (p. 310)
The penalty order and the order of the Commissioner (Appeals) show that no clear-cut finding has been reached. The Tribunal has failed to appreciate this legal issue. Applying the ratio to the facts of the case it is apparent that the order of penalty cannot be sustained and the Tribunal could not have sustained the same. The Tribunal having failed to take into consideration and deal with the decision of the jurisdictional High Court it would constitute an error in law which goes to the very basis of the controversy involved and hence, the impugned order of the Tribunal cannot be upheld.
In the view that the court has taken it is not necessary to reproduce and deal with the other contentions raised by learned counsel on the facts and merits of the matter in the fact situation.
In the result, the question is answered in the negative, i.e., in favour of the assessee and against the Revenue. The Tribunal was not right in upholding the penalty under section 271(1)(c) of the Act, for the reasons stated hereinbefore.
The reference stands disposed of accordingly. There shall be no order as to costs.
Though the assessee cited the above judgment before Ld. CIT(A) who has not considered the same and dismissed the assessee appeal. Thus the order passed by the lower authorities are against the provisions of law and judicial precedents from the High Court of Gujarat. Therefore the order passed by the lower authorities are liable to be quashed.
In the result, the appeal filed by the Assessee is hereby allowed.