Param Dairy Limited Vs DCIT (ITAT Delhi)
A Penalty Notice Must Tell the Assessee the Exact Charge: Delhi ITAT Quashes ₹79.56 Lakh Search Penalty
Search Assessment and Penalty
In Param Dairy Limited v. DCIT (ITA No. 6196/Del/2026), the Delhi Income Tax Appellate Tribunal quashed a penalty of ₹79,56,220 levied under section 271AAB for assessment year 2014–15. The reason was a defect in the show-cause notices: the Assessing Officer had not identified the specific clause and charge under which penalty was proposed.
The case arose from a search of the Rama and Param Group on 28 February 2014. Param Dairy had declared income of ₹2,84,44,386 in its return. Following the search assessment, its income was determined at ₹26,94,56,120. The assessment additions were confirmed in appeal, and the Assessing Officer subsequently levied the penalty. The NFAC upheld it, bringing the company before the Tribunal.
Although the assessee had raised several grounds, it argued the appeal before the Tribunal on one central point: could a section 271AAB penalty survive when the notices did not specify the applicable limb of the provision or the default alleged?
Three Notices, but No Precise Charge
The assessee pointed to notices issued on 7 June 2018, 13 February 2021 and 31 January 2022. The first referred to section 271AAB, while the later notices referred to section 271AAB(1). A corrigendum was also issued in relation to the January 2022 notice. According to the assessee, none of these communications identified the exact clause under which penalty was sought.
One notice told the company, in general terms, that a search had been conducted and that it had been found to have undisclosed income. That description did not tell the assessee which statutory conditions the Assessing Officer considered satisfied, or which particular basis for penalty it had to answer.
The Department relied on the orders of the lower authorities. The Tribunal, however, examined the notices themselves. It found that they did not mention the different conditions under section 271AAB and that the Assessing Officer had issued multiple notices without specifying the relevant limb.
Why Identifying the Limb Matters
A show-cause notice starts the penalty proceedings and gives the assessee an opportunity to respond. That opportunity is meaningful only when the assessee knows the case it must meet. Merely naming section 271AAB does not necessarily communicate the particular statutory charge, because the provision contains different clauses with different conditions and consequences.
The Tribunal referred to decisions cited before it, including PCIT v. R. Elangovan and coordinate bench rulings on defective section 271AAB notices. It also relied on the reasoning reproduced from Assam Hire Purchase Company P. Ltd. v. DCIT, where a penalty notice had similarly failed to identify the applicable clause. Those decisions treated the absence of a precise charge as a defect affecting the validity of the proceedings, rather than a minor error in the notice’s wording.
Applying that reasoning, the Bench held that the omission in Param Dairy’s notices was fatal. The later notices and the corrigendum did not supply the missing specificity. The Tribunal therefore quashed the penalty order and allowed the assessee’s appeal.
The Scope of the Decision
The Tribunal decided the matter on the validity of the penalty notices. It did not reverse the assessment additions or independently determine whether the income assessed after the search was “undisclosed income” for section 271AAB purposes. The penalty failed because the proceedings used to impose it did not clearly communicate the proposed statutory charge.
That distinction is important. Confirmation of additions in the assessment appeal does not, by itself, cure a defective penalty notice. Assessment and penalty proceedings address related facts, but an assessee facing penalty must still receive a notice that identifies the applicable ground with sufficient clarity to permit a proper response.
Author’s Comment
This order reinforces a straightforward principle of natural justice: the taxpayer should not have to guess the clause under which a search penalty is proposed. Where a provision offers different routes to penalty, the notice must identify the route the Assessing Officer intends to invoke. Sending several broadly worded notices does not resolve the problem if none states the precise charge.
For practitioners, the first document to examine in a section 271AAB penalty appeal is therefore the show-cause notice, including any subsequent notice or corrigendum. The issue is not simply whether the section number appears. It is whether the communication tells the assessee which clause applies and why the alleged default attracts it. In Param Dairy’s case, that essential step was missing, and the ₹79.56 lakh penalty could not stand.
Delhi ITAT, order pronounced on 29 September 2026.
Cases Discussed
- PCIT Vs Shri R. Elangovan, Tax Case Appeal Nos. 770 & 771 of 2018, dated 30.03.2021 (Madras High Court) — Relied upon on the requirement that the penalty notice communicate the specific charge/category under Section 271AAB; failure to identify the applicable statutory basis vitiates the penalty proceedings.
- Manchukonda Yethiraja Subrahmanyam Vs ACIT, ITA No. 724 of 2025, dated 09.09.2026 — Cited before the Tribunal in support of the assessee’s challenge to the defective Section 271AAB notice.
- Amrit Bottlers Private Limited Vs DCIT, ITA No. 8941 of 2025, dated 17.08.2026 — Cited before the Tribunal on the validity of penalty proceedings where the applicable statutory limb was not specified.
- Laxmi Naryan Agarwal Vs ACIT, ITA No. 8367 of 2025, dated 04.06.2026 — Cited before the Tribunal in support of the defective-notice ground.
- Jaina Marketing & Associates Vs DCIT, [2024] 162 taxmann.com 439 (ITAT Delhi), dated 20.03.2024 — Cited before the Tribunal on the requirement of a specific charge in penalty proceedings.
- Yogender Mohan Rustagi Vs ACIT, ITA No. 461 of 2024, dated 28.10.2024 — Cited before the Tribunal in support of the challenge to the penalty notice.
- Assam Hire Purchase Company P. Ltd. Vs DCIT, ITA Nos. 2997/Del/2026 & 6443/Del/2026 — Followed. The Tribunal reproduced the coordinate Bench’s reasoning holding a Section 271AAB penalty untenable where the exact statutory limb proposed to be invoked was not specified in the notice.
- Ethirajulu Vajravel Kumaran, 180 taxmann.com 11 (ITAT Chennai), order dated 21.10.2025 — Relied upon in the reproduced decision in Assam Hire Purchase Company P. Ltd. for the proposition that the AO must identify the precise limb under Section 271AAB(1A) because its clauses prescribe different conditions and penalty consequences.
- Giriraj Enterprise, 176 taxmann.com 870 (ITAT Pune), order dated 24.07.2025 — Relied upon in the reproduced coordinate Bench decision for holding that failure to identify the applicable limb of Section 271AAB vitiates the penalty proceedings.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is appeal filed by the assessee against the order dated 25-03-2026 of the Commissioner of Income Tax, Appeal Delhi N [hereinafter referred to as “Ld. CIT(A)”] relevant to penalty order dated 26-03-2022 for the assessment year 2014-15.
2. The assessee has raised as many as 11 grounds of appeal, but he however, argued the ground no. 3 which read as under:-
“That the penalty proceedings are void ab initio as the show cause notice did not specify the applicable clause, charge and default for which penalty was proposed, thereby violating principles of natural justice”
3. The brief facts of the case are that assessee is a company incorporated under Companies Act,1956. The assessee company filed the return of income for the year under consideration on 28-11-2014 declaring a total income of RS.2,84,44,386/- under the normal provisions of the Act. A search and seizure action under section 132 of the Act was carried out on M/s Rama and Param Group and other related cases on 28-02-2014 at the various residential and business premises. During the search and Seizure action under section 132 of the Act various incriminating documents had been found and seized which pertains to the Assessment Year 2014-15. The Assessing Officer completed the assessment proceedings and assessed the total income at Rs.26,94,56,120/- against the income of Rs.2,84,44,386/-. The penalty proceedings also initiated against the assessee. The assessee filed the appeal before the Ld. CIT(A) who dismissed the appeal and confirmed the additions. The Assessing Officer levied the penalty of Rs.79,56,220/- against the assessee. Aggrieved the order of the Assessing Officer the assessee filed the appeal before the Ld. NFAC, who dismissed the appeal of the assessee. Being aggrieved the order of the Ld. NFAC the assessee is in appeal before the tribunal.
4. Before us the Ld. AR submitted that in the notices no exact limb of the penalty specified. He further stated that in the first notice dated 07-06-2018 the Assessing Officer specified the section 271AAB of the Act. In the second notice dated 13-02-2021 the Assessing Officer specified the section 271AAB(1)of the Act, while in the third notice dated 31-01-2022 (Notices 1-5 of the paper book) the Assessing Officer mentioned the section 271AAB(1) of the Act. He also submitted that the Assessing Officer passed the corrigendum in the regard of the notice dated 31-01-2022 but have failed to specified the exact limb. The Ld. AR read out the first paragraph of the notice dated 13-02-2021 for the benefit of the Bench as under:-
“Whereas in the course of proceedings before me for the Assessment Year 2014-15, it appears to me that a search was conducted in your case and you were found to have undisclosed income.”
5. The Ld. AR stated that the penalty notices were legally defective and therefore the consequential penalty was invalid in the eye of law.
6. The Ld. DR relied on the orders of the authorities.
7. We have heard both parties and gone through the material available on record. Reliance is placed on the following decisions;-
(i) PCIT v. Shri R. Elangovan IN tax Appeal No. 770& 771 of 2018 dated 30-03-2021(Madras)
(ii) Manchukonda Yethiraja Subrahmanyam V ACIT in ITA No.724 of 2025 dated 09-09-2026
(iii) Amrit Bottlers Private Limited v DCIT in ITA No. 8941 Of 2025 dated 17-08-2026
(iv) Laxmi Naryan Agarwal v ACIT in ITA No 8367 of 2025 dated 04-06-2026
(v) Jaina Marketing & Associates v. DCIT [2024]162 taxmann.com 439(Del-ITAT dated 20-03-2024
(vi) Yogender Mohan Rustagi v ACIT in ITA No. 461 of 2024 dated 28-10-2024
8. The Ld. AR also relied the judgement in the ITA No. 2997/Del/2026 & ITA No.6443/Del/2026 Assam Hire Purchase Company P. Ltd v DCIT, in this case the co-ordinate bench held as under:-
6. ITA 6443:
In this case allegedly bogus expenses of Rs.3,00,000/- were disallowed and added. Thereafter, the Ld.AO issued penalty notices dated 27.03.2025 and 26.07.2025. It is seen that the assessee did not respond to the notices issued and thereafter penalty was levied at 60% of the allegedly undisclosed income of Rs.3,00,000/-.
6.1 The assessee approached the CIT(A) with his grievance and challenged the penalty levied on him. It was also raised as a ground of appeal that the exact limb of the section which was purportedly violated by the assessee was not specified in the notice u/s 274 r.w.s. 271AAB of the Act. However, the Ld. CIT(A) dismissed this claim on the basis of finding on pages 14 & 15 of the impugned order by holding that the allegedly bogus expenses were unearthed during assessment proceedings only and therefore the assessee was aware as to which limb of the said section was applicable on him. 6.2 The assessee has now approached the ITAT with grounds challenging the penalty levied and also challenging the fact that the exact limb of the section was not specified in the notice issued.
6.3 Before us the Ld. AR again requested that the issue of not specifying the limb of the section which was proposed to be utilized for levying the penalty, needed to be taken up before proceeding any further in the matter. It was argued that the notice for the impugned penalty was extracted on pages 4 & 5 of the impugned order. It was pointed out that in neither of these two notices dated 27.03.2025 and 25.07.2025 was the exact limb of the penalty specified. The Ld. AR read out the first paragraph of the notice dated 25.07.2025 for the benefit of the Bench as under: –
“Whereas in the course of proceedings before me for the assessment year 2023-24, it appears to me that a search was conducted in your case and you were found to have undisclosed income”.
The Ld. AR stated that the penalty notice was legally defective and therefore the consequential penalty was invalid in the eyes of law. 6.4 The Ld. DR relied on the orders of the authorities below.
6.5 We have considered the rival submissions and have gone through the records before us, including the notice issued by the Ld. AO for levying the impugned penalty. In this case, we can do no better than to rely on two coordinate bench orders as follows:
i. In the case of Ethirajulu Vajravel Kumaran reported in 180 taxmann.com 11 (Chennai – Trib.) [2025], order dated 21.10.2025, the following paragraphs are relevant:
“104. We observe that the provisions contained in Section 271AAB(1A) of the Act are structured into two distinct limbs. As per the said sub-section, the imposition of penalty is contemplated either under clause (a) or clause (b). Clause (a) prescribes a penalty at the rate of 30% of the undisclosed income, subject to the fulfilment of specific statutory conditions enumerated therein. Conversely, clause (b) provides for a more stringent penalty at the rate of 60% of the undisclosed income, which becomes applicable in the event of non-fulfilment of the conditions stipulated under clause (a). It necessarily follows that the AO, while initiating penalty proceedings u/s 271AAB(1A) of the Act, is legally bound to clearly specify, in the show-cause notice, the precise limb i.e., whether clause (a) or clause (b), under which the proposed penalty is sought to be levied. Such specification is essential, as the consequences of each clause differ both in terms of rate and the underlying conditions of applicability.
105. In the present case, however, the AO has failed to discharge this mandatory obligation, inasmuch as the show cause notice dated 27.03.2022 issued to the assessee does not delineate whether the penalty is proposed under clause (a) or under clause (b) of Section 271AAB(1A) of the Act. This omission, in our considered view, renders the penalty proceedings fundamentally defective.”
ii. In the case of Giriraj Enterprise reported in 176 taxmann.com 870 (Pune – Trib.), order dated 24.07.2025 [2025], the following paragraphs are relevant:
“27. We find the Delhi Bench of the Tribunal in the case of Shri Naveen Goswami (supra) has also quashed the penalty proceedings, initiated u/s 271AAB of the Act on the ground that the failure on the part of the Assessing Officer in not pinpointing the relevant limb of section 271AAB(a) to (c) vitiates the entire proceedings. Therefore, in absence of non-mentioning of the relevant limb u/s 271AAB(a) to (c), the penalty proceedings initiated by the Assessing Officer are not in accordance with law and therefore, the same are liable to be quashed.
28. So far as the order of the Ld. CIT(A) upholding the penalty notice by distinguishing the decision in the case of Mohd. Farhan A. Sheikh (supra) is concerned, we are of the considered opinion that the Ld.CIT(A) is not justified in doing so. Even though the said decision was in context of section 271(1)(c) of the Act, however, the Hon’ble Bombay High Court has observed that the two limbs prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the Act. We find the provisions of section 271AAB(1A) have also got two parts. As per the said sub-section, the penalty is either leviable under clause (a) or (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, the Ld. CIT(A) in our opinion was not justified in distinguishing the decision of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Sheikh (supra). Even otherwise also, since the Hon’ble Madras High Court has taken a view directly on this issue and no contrary decision of any other Hon’ble High Court was brought to our notice, therefore, the decision of the Hon’ble Madras High Court will be binding on the Revenue. We, therefore, hold that the failure on the part of the Assessing Officer to mention the specific limb which is applicable to the case of the assessee for levy of penalty u/s 271AAB(1A) vitiates the entire proceedings. We, therefore, quash the penalty proceedings initiated by the Assessing Officer and partly sustained by the Ld. CIT(A).”
6.6 Accordingly, the impugned penalty becomes untenable in the eyes of law considering that the exact limb of the section on which the penalty is supposed to be levied, has not been specified.
7. In the result, this appeal is allowed.
9. From going through the notices and provisions, we find that there is no mention about the various conditions provided under section 271AAB of the Act. The Assessing Officer issued three notices on different date mentioning different section of the Act, without specified the limb. The notices issued by the Assessing Officer has a fatal error and not a technically correct notice in the eye of law. We, therefore, respectfully following the Co-ordinate Bench decision and on the basis of the defective notice quashed the impugned penalty order. The ground raised by the assessee are allowed
10. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 29.09.2026.
