Sunil Trading Company Vs ITO (ITAT Mumbai)
“Concealment or Inaccurate Particulars?” Vague Penalty Notice Cannot Be Cured by the Assessment Order
Summary: The Mumbai ITAT has quashed a penalty under section 271(1)(c) because the notice commencing penalty proceedings did not tell the assessee which charge it had to answer. The notice referred to both concealment of particulars of income and furnishing inaccurate particulars of income, without identifying the applicable ground. Following the Full Bench decision of the Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, the Tribunal held that the defect went to the validity of the penalty proceedings.
The additional ground that decided the appeal
Sunil Trading Company had appealed against the CIT(A)’s order sustaining the penalty for AY 2015–16. Apart from its original objections, it raised an additional legal ground challenging the notice dated 25 June 2018, issued under section 274 read with section 271(1)(c).
The company pointed out that the notice used the alternative formulation: it alleged that the assessee had concealed particulars of income or furnished inaccurate particulars of income. The Assessing Officer had not struck off the inapplicable limb or otherwise specified the charge. The company argued that these are distinct statutory allegations and that it could not be expected to defend itself effectively against a notice leaving both possibilities open.
The Tribunal admitted the additional ground because it was a pure question of law concerning the validity of the notice and the resulting penalty order. It then examined the notice itself and found that the Assessing Officer had indeed left both limbs in place.
Why the assessment order could not supply the missing charge
The Tribunal relied on the Bombay High Court’s Full Bench ruling in Mohd. Farhan A. Shaikh. The High Court held that penalty proceedings, though they may originate from an assessment, must stand on their own statutory notice. The assessee should learn the precise penalty charge from that notice. An assessment order cannot be used later to resolve an ambiguity left in an omnibus notice.
That distinction mattered here. Concealment and furnishing inaccurate particulars call for a response to different allegations. A notice stating both in the alternative, without choosing the ground on which proceedings are initiated, leaves the assessee to infer the Department’s case. The defect is not answered merely by pointing to what may have been discussed during assessment.
Applying the jurisdictional High Court decision, the ITAT held that the section 274 notice was bad in law. The penalty order founded on that notice was consequently unsustainable and was quashed. Since the additional ground disposed of the penalty, the Tribunal left the company’s other grounds open. Its appeal was partly allowed in those terms.
Author’s comment
The practical question raised by this decision is simple: what charge did the penalty notice actually communicate? It is not enough to find a general direction to initiate penalty in the assessment order or to reconstruct the Assessing Officer’s intention from the addition made. Under the Full Bench ruling applied by the ITAT, the notice commencing section 271(1)(c) proceedings must itself convey the ground with clarity.
This is why the copy of the original notice is often decisive in a penalty appeal. The exact language, any portion struck off, and any clear indication that one or both grounds are alleged should be checked before arguing the merits of the addition. In Sunil Trading Company, the notice retained the two alternatives and the Tribunal quashed the penalty on that ground alone. It made no finding on whether the underlying tax claim involved concealment or inaccurate particulars.
Cases Discussed
- Mohd. Farhan A. Shaikh v. DCIT (Bombay High Court, Full Bench) — Tax Appeal Nos. 51 & 57 of 2012, dated 11.03.2021 — applied on the requirement of a clear and unambiguous statutory penalty notice.
- CIT v. Samson Perinchery — discussed on failure to identify the applicable limb of section 271(1)(c).
- CIT v. Manjunatha Cotton & Ginning Factory — discussed regarding standard penalty notices and non-application of mind.
- Goa Dourado Promotions — discussed in the Full Bench extract concerning the requirement that the charge be gathered from the statutory notice.
- Principal Commissioner of Income Tax (Central) v. Goa Coastal Resorts and Recreation Pvt. Ltd. — discussed on failure to strike off inapplicable portions of the notice.
- New Era Sova Mine — discussed on penalty notices not specifying a particular charge.
- Kaushalya — discussed and distinguished by the Full Bench while considering whether assessment proceedings can supplement a defective notice.
- SSA’s Emerald Meadows — referred to in the Full Bench discussion through Samson Perinchery and Manjunatha.
- CIT v. Atul Mohan Bindal — discussed regarding the scope of section 271(1)(c) and Explanation
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee company against the order of the learned CIT (Appeals), NFAC, Delhi, dated 31.12.2025 for Assessment Year 2015-16, in sustaining the penalty levied under section 271(1)(c) of the Act.
2. The assessee company in its appeal raised the following grounds of appeal:
“1. THE ORDER BAD. ILLEGAL AND WITHOUT JURISDICTION
1.1 In the facts and the circumstances of the case, and in law, the appellate order framed by the Commissioner of Income tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [‘Ld. CIT (A)’] be held as bad, illegal and without jurisdiction, as the same is framed in breach of the statutory provisions and the scheme and as otherwise also is not in accordance with the law.
1.2 Otherwise also, in the facts and the circumstances of the case, and in law, the appellate order so framed by the Ld. CIT (A) is bad and illegal void as the same is utterly cryptic, arbitrary and perverse.
2 NATURAL JUSTICE
2.1 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as:
(i) The same is framed in gross breach of the principles of natural justice; and
(ii) The same is passed without application of mind to the facts and the submissions brought on record by the Appellant.
2.2 Without prejudice to the generality of the above ground, in the facts and the circumstances of the case, the appellate order so passed is bad and illegal as the L.d. CIT (A) erred in-
(i) Not granting proper, sufficient and adequate opportunity of being heard; and
(ii) Not providing an opportunity of personal hearing to the Appellant.
2.3 It is submitted that in the facts and the circumstances of the case, and in law, no such action was called for.
WITHOUT PREJUDICE TO THE ABOVE
PENALTY ASSESSMENT
3.1 The Ld. CIT (A) erred in confirming the action of the A.O. in initiating penalty proceedings and framing the assessment of the Appellant by invoking the provisions of section 271(1) (C) of the Income tax Act, 1961 [“the Act”].
3.2 While doing so, the Ld. CIT (A) failed to appreciate that:
(i) The case of the appellant did not fall within the parameters laid down by section 271(1) (C) of the Act; and
(ii) The necessary preconditions for initiating and completion thereof were not satisfied.
3.3 It is submitted that in the facts and the circumstances of the case, and in law, the reassessment framed was bad, illegal and void.
WITHOUT PREJUDICE TO THE ABOVE
4. PENALTY ASSESSMENT
4.1 The Ld. CIT (A) erred in confirming the action of the A.O. in levy of penalty under section 271(1) (c) of the Act to the income of the Appellant.
4.2 While doing so, the Ld. CIT (A) erred in:
(i) Basing his action only on surmises, suspicion and conjecture;
(ii) Taking into account irrelevant and extraneous consideration; and
(iii) Ignoring relevant material and consideration as submitted by the Appellant
4.3 It is submitted that in the facts and circumstances of the case, and in law, no such addition was called for.”
3. Learned counsel for the assessee further submitted that the assessee had filed additional grounds of appeal, challenging the validity of the notice issued under section 274 read with section 271(1)(c) of the Act and the consequential penalty order passed under section 271(1)(c) of the Act as bad in law. Referring to the additional grounds of appeal, learned counsel submitted that the notice issued under section 271(1)(c) of the Act fails to specify whether penalty proceedings have been initiated for concealment of particulars of income or furnishing inaccurate particulars of such income. The learned counsel, in other words, submitted that the charge for which the penalty notice was issued was not specified, rendering the notice bad in law and, the consequently the penalty order passed under section 271(1)(c) of the Act as bad in law.
4. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Mr. Md. Farhan A Shaikh vs DCIT in ITA (in Tax Appeals) Nos. 51 and 57 of 2012, dated 11.03.2021.
5. Heard rival contentions and perused the additional grounds raised by the assessee. The assessee raised the following additional grounds contending that the notice issued under section 271(1)(c) of the Act is bad in law.
“ADDITIONAL GROUNDS OF APPEAL
1. Vague and Non-Specific Allegation
The notice fails to specify whether penalty proceedings have been initiated for:
- concealment of particulars of income, OR
- furnishing inaccurate particulars of income. Concealment of income and furnishing inaccurate particulars carry different legal connotations and therefore absence of a specific charge renders the impugned notice defective and invalid in law.
Reliance Placed Upon:
i. Mohd. Farhan A. Shaikh v. DCIT – omnibus and vague notice under Section 274 reflects non-application of mind and renders penalty proceedings invalid.
ii. CIT v. Samson Perinchery – penalty proceedings cannot survive where exact limb under Section 271(1)(c) is not specified.
iii CIT v. Manjunatha Cotton & Ginning Factory – standard proforma notice without striking off irrelevant clauses leads to inference of non-application of mind.”
6. On perusal of the additional grounds raised by the assessee, we observed that the same is purely a legal ground going to the root of the matter and very validity of the notice issued u/s 271(1)(c) and the consequential levy of penalty under section 271(1)(c) of the Act. Thus, the same is admitted for adjudication.
7. The learned counsel, referring to the notice issued under section 274 read with section 271(1)(c) of the Act dated 25.06.2018, submitted that the Assessing Officer did not specify the limb for which the notice was issued, that is, whether for concealment of particulars of income or for furnishing inaccurate particulars of such income. In other words, the Assessing Officer did not strike off the irrelevant limb in the notice, rendering the notice bad in law.
8. We have heard the contentions and perused the material placed before us, and the decisions relied on. On perusal of the notice issued under section 274 read with section 271(1)(c) dated 25.06.2018 for the Assessment Year 2015-16, we observed that the Assessing Officer issued notice stating that for Assessment Year 2015-16 it appeared that assessee had concealed the particulars of income or furnishing inaccurate particulars of such income. The Assessing Officer did not specify the limb for which the notice was issued rather the notice refers to both the limbs, that is, “concealment of particulars of income or furnishing inaccurate particulars of such income”. The Honorable Jurisdictional High Court, in the case of Mohd. Farhan A. Shaikh v. DCIT (Tax Appeal Nos. 51 & 57 of 2012, dated 11/03/2021), had considered various decisions and answered the question raised in favor of the assessee observing as under:
“168. As we have seen Goa Dourado Promotions concludes the case based on the reasoning given in Tax Appeal No.24/2019 (decided on 11.11.2019), Samson Perincherry, and New Era Sova Mine.
169. The Tax Appeal No.24/2019, decided on 11.11.2019, relates to The Principal Commissioner of Income Tax (Central) v. Goa Coastal Resorts and Recreation Pvt. Ltd. In that one, the learned Division Bench has held:
6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine, the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in a matter of initiation of penalty proceedings.
7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine and therefore, warrant no interference.
170. Samson Perinchery, too, has held that the notice issued under Section 274 of the Act should strike off irrelevant clauses. And New Era Sova Mine has endorsed the Tribunal’s view that “the penalty notices in these cases were not issued for any specific charge, that is to say, for concealment of particulars of income or furnishing of inaccurate particulars”. In fact, Samson Perincherry relies on Karnataka High Court’s SSA’s Emerald Meadows, which, as we have already seen, has followed Manjunatha. So, in a sense, it is a conflict between Kaushalya and Manjunatha if we take comity, rather than stare decisis, as the reckoning factor.
171. That said, as Mavilayi found distinguishing features in Citizen Cooperative; here, too, the fact situation as obtained in Kaushalya has been seen in none of these decisions: Goa Dourado Promotions, Goa CoastalResorts and Recreation, Samson Perinchery, New Era Sova Mine-not even in Manjunatha. Granted, in both sets of cases, the proposition is this: To an assessee facing penalty proceedings, the Revenue must supply complete, unambiguous information so that he may defend himself effectually. This proposition has given rise to this question: Where should the assessee gather the required information from?
172. Goa Dourado Promotions and other cases have held that the information must be gathered from the notice under section 271(1)(c) read with section 274 of the IT Act. No other source was in the Court’s contemplation. In Kaushalya, both the proposition and the question were the same. But it has one extra input: the order in assessment proceedings. So it has held that the notice alone is not the sole source of information; the assessment proceedings, too, may shed light on the issue and inform the assessee on the scope of penalty proceedings. Whether assessment proceedings can be a source of information and whether it can complement the notice have not been considered in Goa Dourado Promotions and other cases.
173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well-versed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical methods the Revenue adopts in sending a statutory notice to the assessee under section 271 (1) (c) read with section 274 of the Act? Pragmatically speaking Kaushalya casts an extra burden on the assessee and assumes expertise on his part. It wants the assessee to make up for the Revenue’s lapses.
Ex Post and Ex Ante Approaches of Adjudication:
174. In ex-post adjudication, the Court looks back at a disaster or other event after it has occurred and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future on parties who are entering similar situations and have not yet decided what to do, and whose choices may be influenced by the consequences the law says will follow from them. The first perspective also might be called static since it accepts the parties’ positions as given and fixed; the second perspective is dynamic since it assumes their behaviour may change in response to what others do, including judges. (for a detailed discussion, see Ward Farnsworth’s Legal Analyst: A Toolkit for Thinking about the Law)[]
175. Kaushalya has adopted an ex-post approach to the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushalya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Kaushalya’s approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty.
176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal, has explained the scope of section 271(1)(c) thus:
“[Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income.”
177. That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). In other words, the Assessing Officer’s satisfaction as to be spelt out in the assessment order is only prima facie. Even if the assessment order gives no reason, a mere direction for penalty proceedings triggers the legal fiction as contained in the Explanation (1).
178. Therefore, in every instance, it is a question of inference whether the assessment order contained any grounds for initiating the penalty proceedings. Then, whenever the notice is vague or imprecise, the assessee assails it as bad; the Revenue defends it by saying that the assessment order contains the precise charge. Thus, it becomes a matter of adjudication, opening litigious floodgates. The solution is a tick mark in the printed notice the Revenue is used to serving on the assessees.
179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty.
180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice and that prevention takes just a tick mark. Prudence demands prevention is better than cure.
Answers:
Question No.1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings?
181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other’s defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee’s favour.
183. Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law.”
9. The ratio of the Full Bench decision of the Hon’ble Bombay High Court squarely applies to the facts of the present case. Respectfully following the decision, we hold that the notice issued under section 274 read with section 271(1)(c) of the Act for Assessment Year 2015-16, is bad in law, and consequently, the penalty order passed under section 271(1)(c) for Assessment Year 2015-16 is also bad in law. Hence the same is unsustainable and hereby quashed. Accordingly, the additional ground raised by the assessee is allowed.
10. Since we have deleted the penalty by allowing additional grounds, the other grounds of appeal need not be adjudicated at this stage and are left open.
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 21-09-2026.
