Visakhapatnam Industrial Water Supply Company Limited Vs DCIT (ITAT Visakhapatnam)
Vague 271(1)(c) Notice Fatal: Visakhapatnam ITAT Quashes ₹6.34 Cr Penalty
The Visakhapatnam “Division” Bench of the ITAT, in Visakhapatnam Industrial Water Supply Company Ltd. vs DCIT (ITA No. 657/Viz/2025, AY 2012-13), quashed the penalty of ₹6.34 crore levied u/s 271(1)(c) on the ground that the penalty notice u/s 274 was vague and invalid, as it failed to specify the exact charge—“concealment of income” or “furnishing of inaccurate particulars”.
The AO had disallowed unpaid interest of ₹19.54 crore to APIICL u/s 43B in quantum proceedings (ultimately upheld), and thereafter levied penalty alleging default under section 271(1)(c). In appeal, the Assessee specifically challenged the defective penalty notice dated 30.01.2015, wherein neither limb was struck off, resulting in an ambiguous charge. The CIT(A), however, sustained the penalty by relying on a non-jurisdictional ITAT decision and holding that both limbs could be invoked together.
The Tribunal rejected this approach and followed the binding jurisdictional High Court ruling in PCIT v. Smt. Baisetty Revathi, which mandates that the Revenue must clearly and unambiguously specify the precise limb while initiating penalty. Penal proceedings being quasi-criminal in nature, such ambiguity vitiates the very foundation of penalty. The ITAT noted that the CIT(A) erred in ignoring the jurisdictional HC decision and in relying on contrary non-binding precedent.
Accordingly, holding the notice u/s 274 to be invalid, the ITAT set aside and quashed the entire penalty u/s 271(1)(c), without going into merits of the disallowance. The appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
1. The assessee has filed the present appeal against the impugned order dated 13.08.2025, passed under section 250 of Income Tax Act, 1961 (in short ‘Act’) by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”], which in turn arose from the penalty order dated 26.12.2023 passed under section 271(1)(c) of the Act for the A.Y. 2012-13.
