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Facts
The assessee's income was reassessed, leading to significant additions, including under Section 56(2)(vii). Consequently, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) and imposed a penalty of Rs. 83,45,158. The CIT(A) confirmed the penalty, leading the assessee to appeal to the ITAT.
Held
The ITAT held that the penalty notice issued under Section 271(1)(c) read with Section 274 was defective as it failed to specify the exact charge (concealment or furnishing inaccurate particulars) against the assessee. Citing binding precedents, the Tribunal ruled that such a fundamental infirmity in the notice vitiated the entire penalty proceedings. Therefore, the penalty imposed was set aside.
Key Issues
The key legal issue was the validity of the penalty notice issued under Section 271(1)(c) read with Section 274, specifically whether the failure to strike out the inapplicable limb of the charge rendered the notice defective and the penalty proceedings void ab initio.
Sections Cited
Section 271(1)(c), Section 274, Section 56(2)(vii), Section 143(3), Section 250, Section 147, Section 292B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
ORDER PER : SUNIL KUMAR SINGH, JUDICIAL MEMBER:
This appeal has been preferred by assessee against the impugned order dated 13.08.2025 passed in Appeal No. CIT(Appeal) 2, Agra/10023/2019-20 by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2014-15, wherein learned CIT(A)has dismissed assessee first appeal, confirming the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act, vide penalty order dated 16.03.2019.
2. Brief facts of the case are that the assessee is engaged in whole- sale trading of handloom textile material and e-filed his return of income on 17.09.2014, declaring an income of Rs.5,32,240/-. The assessment in the case of assessee was completed on 24.11.2016 u/s. 143(3) of the Act, assessing total income of assessee at Rs.1,03,53,019/- as against declared income of Rs.5,32,240/-, by making disallowance of Rs.39,779/- towards share purchase expenses, adhoc disallowance of various other expenses amounting to Rs.50,000/- and addition of Rs.97,31,000/- u/s. 56(2)(vii) of the Act. Based on the above additions, the Assessing Officer initiated penalty proceedings and imposed penalty of Rs.83,45,158/- u/s. 271(1)(c) of the Act. The aforesaid additions made by the Assessing Officer stood confirmed by learned CIT(A) in assessee’s quantum appeal and in second appeal filed by the Assessee, the Tribunal, vide order dated 11.09.2019, remitted the matter back to the file of learned CIT(A) for decision afresh.
The assessee preferred first appeal against the penalty order dated 16.03.2019 before the learned CIT(Appeals). Before the first appellate authority, the assessee raised legal contention that the notice issued under section 271(1)(c) read with section 274 of the Act was defective, as it failed to specify the exact charge for which the penalty was proposed to be levied. It was contended that in the absence of such 2 | P a g e specific charge, no penalty could be validly imposed. In support of this proposition, the assessee placed reliance on several judicial precedents, including the decision of the Hon’ble Karnataka High Court in CIT v. SSA Emerald Meadows (2016) 73 taxmann.com 241 (Karnataka). In the said decision, the Hon’ble High Court, following its earlier decision in CIT v.
Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karnataka), upheld the order of the ITAT deleting the penalty on the ground that the penalty notice did not specify the precise charge. It was further pointed out that the Special Leave Petition filed by the Revenue against the decision in SSA Emerald Meadows (supra) was dismissed by the Hon’ble Supreme Court (2016) 73 taxmann.com 248 (SC), thereby affirming the legal position. However, the learned CIT(Appeals) dismissed the assessee’s first appeal by placing reliance on the decision of the Hon’ble Karnataka High Court in CIT v. Sri Durga Enterprises and the judgment of the Hon’ble Bombay High Court in Maharaj Garage & Co. v. CIT (2017).
Aggrieved, the assessee has preferred this second appeal on the following grounds :
“1. BECAUSE, Penalty order as had been passed by the 'AO' and as sustained by the 'CIT(A)' is void ab-initio in view of the fact that the Notice dated 24.11.2016 as was issued to the 'appellant' was not in conformity with the law as laid down by the Hon'ble Courts in this regard.
BECAUSE, penalty order itself being void ab initio in as much as the show cause notice issued under section 274 r.w.s. 271(1)(c) of the 'Act was vague, non-specific and did not indicate the exact charge. Thus, the notice was invalid in law and consequently the penalty levied thereunder deserves to be quashed.
3. BECAUSE, Ld. CIT(A) failed to appreciate that non-striking of the irrelevant limb in the notice under section 274 reflects non- application of mind by the AO, rendering the entire penalty proceedings void as held in various judicial pronouncements.
4. BECAUSE, the Ld. CIT(A) erred in law in holding that section 292B cured the defect in the penalty notice; whereas, the said section cannot cure a jurisdictional defect which goes to the root of the matter and affects the validity of the proceedings.
5. BECAUSE, the Ld. 'CIT(A)' grossly erred in upholding the levy of penalty of Rs.83,45,158/- under section 271(1)(c) of the Act, ignoring the settled position of law that penalty proceedings are quasi-criminal in nature and cannot be sustained merely on the basis of additions or disallowances made in the assessment order.
6. BECAUSE, the Ld. CIT(A) erred in not appreciating that the major addition of Rs.97,31,000/- made under section 56(2)(vii) of the 'Act' being on account of deeming fiction cannot be a valid foundation for levy of penalty under section 271(1)(c) of the 'Act, as such addition is purely notional and involves no element of concealment or furnishing of inaccurate particulars.
7. BECAUSE, the Ld. CIT(A) erred in sustaining penalty in respect of enhancement of Rs.26,00,000/- made by the CIT(A) in the quantum appeal, whereas penalty on such enhanced income could only be initiated and imposed by the Assessing Officer.
8. BECAUSE, the learned CIT(A) erred in not appreciating that the alleged cash credits were duly explained, supported by PAN, confirmations and ledger accounts, and hence there was neither concealment nor furnishing of inaccurate particulars on the part of the appellant.
9. BECAUSE, the learned CIT(A) erred in sustaining penalty even on ad hoc disallowances of Rs.39,779/- and Rs.50,000/-, which being estimated disallowances cannot invite penalty under section 271(1)(c) of the 'Act' as per settled judicial position.
10. BECAUSE, the learned CIT(A) erred in confirming levy of penalty at 200% of the tax sought to be evaded, which is highly excessive, unjustified, and disproportionate to the alleged default, particularly when no deliberate concealment or malafide conduct was established, only on the reason that the appellant had been non-cooperative during the assessment, appellate and penalty proceedings.
BECAUSE, the Ld. CIT(A) has erred in deciding the appeal without considering the facts and judgments placed on record.”
Perused the records. Heard learned authorized representative for assessee and learned DR for revenue.
Learned AR for assessee has submitted that the learned CIT(A), while dismissing assessee’s first appeal, has not considered the decisions relied upon by the assessee in support of the legal contention that once the penalty notice issued without specifying any particular charge labeled against assessee was invalid, the penalty proceedings stand vitiated, being void ab initio, and penalty imposed in pursuance thereof, is liable to be quashed. He has also submitted that adhoc disallowances or the disallowances made on estimate basis do not warrant any penalty u/s. 271(1)(c) of the Act. In support, he has relied upon following decisions of various High Courts and ITAT :
(i). M/s. Toshiba Water Solutions (P) Ltd. vs. ACIT 2025(9) TMI 511(ITAT Delhi – order dated 29.08.2025) (ii). M/s. Vijay Power Generators Ltd. vs. ITO, 2025(4) TMI 604 (ITAT Delhi – order dated 09.04.2025). (iii). PCIT vs. M/s. Gragerious Projects Pvt. , (2025) 475 ITR 546 (Del) ( order dated 22.11.2024. (iv). PCIT vs. M/s. Modi Rubbers Ltd. (2024) 462 ITR 319 (Del) (order dated 06.10.2023);
(v). PCIT vs. Jehangir H.C. Jehangir, 2023 (9) TMI 499 (Bombay High Court – order dated 06.09.2023). (vi). PCIT vs. Gopal Kumar Goyal (2024) 462 ITR 313(Del) (order dated 06.07.2023); (vii). PCIT vs. Blackrock Securities Pvt. Ltd., 2023(12) TMI 714 (Delhi High Court order dated 24.11.2023); (viii). PCIT vs. Times Global Broadcasting Ltd. 2025(3) TMI 229 (Bombay High Court – order dated 27.02.2025 (ix). Mr. Mohd. Farhan A. Shaikh vs. ACIT [2021] 434 ITR 1 (Bombay H.C.) (Full Bench - order dated 11.03.2021). (x). CIT vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bombay HC – order dated 05.01.2017).
Learned DR for revenue has supported the orders of the authorities below.
We have gone through the penalty notice dated 24.11.2016 issued u/s. 271(1)(c) read with section 274 of the Act, as placed at page 16 of the paper book. On perusal of the said notice, it is evident that the assessee was called upon to show cause as to why penalty under section 271(1)(c) of the Act should not be levied on the allegation that the assessee had either concealed the particulars of income or furnished inaccurate particulars of such income. It is an undisputed fact that the impugned notice does not specify the precise charge for which the penalty was proposed to be levied. The notice, in a mechanical manner, retains both the limbs of section 271(1)(c) of the Act without striking off the inapplicable portion, thereby failing to clearly inform the assessee of the exact allegation against him. Such a defect in the penalty notice has been consistently held to be fatal to the penalty proceedings. The 6 | P a g e Hon’ble Supreme Court, in the case of CIT v. SSA’s Emerald Meadows (supra), and the Hon’ble Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory (supra), have categorically held that failure to specify the particular charge in the notice issued under section 274 vitiates the entire penalty proceedings. Various other judicial precedents relied upon by the learned Authorized Representative, including the decision dated 11.03.2021 rendered by full bench of Bombay High Court in the case of Mr. Mohd. Farhan A. Shaikh (supra), which has been followed in various recent decisions, as noted above, further reinforce the settled legal position that no penalty under section 271(1)(c) can be sustained when the foundational notice itself is invalid or defective. The decision relied upon by the learned CIT(A) in Sri Durga Enterprises(supra) pertains to proceedings under section 147 of the Act and is distinguishable on facts. Further, the reliance on Maharaj Garage & Co. (supra) no longer holds the field in view of the decision of Hon’ble Supreme Court in SSA Emerald Meadows (supra), subsequent Full Bench decision of the Hon’ble Bombay High Court in Mohd. Farhan A.
Shaikh (supra) and other recent judicial pronouncements. Respectfully following the binding precedents, we hold that the penalty notice issued in the present case suffers from a fundamental infirmity and the penalty imposed pursuant thereto cannot be sustained. Accordingly, the 7 | P a g e impugned order confirming the levy of penalty is set aside and the appeal filed by the assessee is liable to be allowed.
Since the appeal of the assessee has been allowed on the aforesaid legal aspect, the other grounds raised on merits are rendered academic and we need not to adjudicate the same.
In the result, assessee’s appeal is allowed.
Order pronounced in the open court on 15.01.2026.