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Facts
The assessee, Dredging Corporation of India, appealed against a penalty confirmed by the Ld.CIT(A), which was initially levied by the Ld.AO under Section 271(1)(c) of the Income Tax Act for the Assessment Year 2015-16. The assessee raised an additional ground challenging the validity of the penalty notice itself due to ambiguity.
Held
The Tribunal held that the penalty notice issued by the Ld.AO was invalid because it did not clearly specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This ambiguity, coupled with a confused finding by the AO that the assessee was guilty of both, rendered the notice defective.
Key Issues
Whether the penalty notice issued by the Assessing Officer was valid and specific enough to initiate penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
Sections Cited
271(1)(c), 143(3)
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Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam
सुिवाई समाप्त होिे की ततति/ : 22.01.2026 Date of Conclusion of Hearing घोर्णध की तधरीख/ : 13.02.2026 Date of Pronouncement O R D E R PER OMKARESHWAR CHIDARA, A.M : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No.ITBA/NFAC/S/250/ 2025-26/1079619164(1) dated 14.08.2025, arising out of penalty order passed by the Ld.AO u/s 271(1)(c) of the Income Tax Act, 1961 (“the Act”), pertaining to the assessment year 2015-16.
In the above cited assessee’s appeal, the appellant company is aggrieved, because the penalty levied by Ld.AO was confirmed by Ld.CIT(A).
From the appeal order of Ld.CIT(A) on penalty, it is observed that additions made by Ld.AO in assessment order were confirmed as under :
“3.1. Aggrieved by the assessment order u/s 143(3) dated 18.12.2017, the assessee filed an appeal before the CIT(A), Visakhapatnam on the following grounds : (i) Sale of scrap amounting to Rs.3,49,99,784/- (ii) Sale of empties amounting to Rs.8,65,345/- (iii) Sale of waste oil amounting to Rs.17,03,358/- (iv) Recovery towards leased quarter amounting to Rs.3,30,665/- (v) Exchange differences amounting to Rs.58,96,009/- (vi) Condemned machinery scrapped sale amounting to Rs.2,69,23,862/- (vii) Staff car recoveries amounting to Rs.61,560/- (viii) Sale of tender documents amounting to Rs.2,94,250/- (ix) Rec.for liquidated damages amounting to Rs.2,21,31,709/- (x) Rent of hiring quarters/offices amounting to Rs.1,49,292/-
(xi) Others amounting to Rs.10,09,087/- 3.2. Ld.CIT(A) vide order dated 21.08.2020 has partly allowed the appeal of the assessee on the point (i),(ii), (iii), (v and (vi) to e and treated this income as income from core activities of shipping. The Ld.CIT(A) on ground nos. (iv), (vii), (viii), (ix), (x) and (xi) has dismissed the appeal of the assessee and confirmed the addition made by the AO in the assessment order, which are as under :- (iv) Recovery towards leased quarter amounting to Rs.3,30,665/- (vii) Staff car recoveries amounting to Rs.61,560/- (viii) Sale of tender documents amounting to Rs.2,94,250/- (ix) Rec.for liquidated damages amounting to Rs.2,21,31,709/- (x) Rent of hiring quarters/offices amounting to Rs.1,49,292/- (xi) Miscellaneous income- Rs.10,09,087/- ”
The Ld.CIT(A) held that the assessee company did not disclose the correct income voluntarily, and, but for the scrutiny, the above cited incomes would not have been brought to tax net. Since there is leakage of Revenue to national exchequer, the Ld.CIT(A) held that the appellant company had concealed the particulars of income and also furnished inaccurate particulars of income. Hence, the penalty levied by the Ld.AO was confirmed.
Aggrieved by the above order of Ld.CIT(A), the present appeal is filed by appellant company with the sole ground stating that the order of Ld.CIT(A) is not justified. Subsequently, the appellant company filed an additional ground, stating that the notice issued by the Revenue is ambiguous, hence not valid, because the relevant limb for which penalty was proposed to be levied, i.e. whether for “concealment of income” or for “furnishing of inaccurate particulars of income” was not specified by ticking the appropriate limb or by striking off the irrelevant limb. During the hearing proceedings before ITAT, the Ld.AR of appellant company has argued that before going into the merits of the case, the point to be adjudicated is, whether the notice issued relating to penalty itself is valid or not. The Ld.AR of appellant company has also filed a copy of penalty notice issued by the ACIT-3(1), Visakhapatnam to demonstrate that the AO has not cancelled the irrelevant limb, which created confusion, as to which irregularity was committed by the appellant. The Ld.AR of appellant has filed a paper book, containing copy of assessment order, copy of penalty order, copy of show cause notice dated 01/02/2022, reply filed by appellant before the AO and copy of ITAT order, which confirmed additions made by AO. Reliance was placed by him on the decision of PCIT Vs. Baisetty Revathi, 398 ITR 88(AP) and 3 decisions of coordinate Bench (Visakhapatnam) for the proposition that, non- striking the irrelevant limb will go to the root of the matter and this ambiguity in show cause notice was further compounded presently by confused finding of the officer that he was satisfied that the appellant was guilty of both. The jurisdictional High Court in the case of Baisetty Revathi (supra) has categorically held that the AO should form an opinion as to which limb of the notice is going to be pressed into service to levy penalty. The operative portion of the same is reproduced :
The above decision of jurisdictional Bench was followed by below mentioned co-ordinate Bench decisions also :
(i) Visakhapatnam Industrial Water Supply Company Ltd. Vs. Dy.CIT-Circle 5(1) in dated 19.12.2025 (ii) Saradambika Power Plant Pvt.Ltd. Vs.ACIT in dated 27.102.2025 (iii) Konchada Sreeram Vs. ITO in dated 06.10.2017
In view of the above, it is held that the penalty notice issued by Ld.AO is invalid and the appeal of the appellant company is allowed. Since the penalty notice itself is held invalid, all the consequent proceedings like adjudicating the issues on merits is academic.
In the result, the appeal of the appellant company is allowed.
Order pronounced in the Open Court on 13th February, 2026.