Paresh Chopda Vs ITO (ITAT Rajkot)
Penalty Cannot Survive a Notice That Fails to Specify the Charge
Background of the Case
The assessee had deposited ₹11,45,000 in cash in his savings bank account with the State Bank of India during the financial year 2009–10. The Assessing Officer reopened the assessment under section 147 and issued a notice under section 148 on 28 March 2017 after obtaining the requisite approval.
The reassessment was completed on 19 December 2017 by treating the cash deposits as unexplained income. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) and issued a show-cause notice under section 274 on the same date. Following a change in the incumbent, another penalty notice was issued on 30 May 2018.
According to the Assessing Officer, the assessee neither disclosed the income by filing a return nor furnished details explaining the source of the deposits. There was also no compliance with the penalty notices. Consequently, the Assessing Officer imposed a penalty of ₹2,56,007, representing 100% of the tax sought to be evaded.
The assessee challenged the penalty before the CIT(A), but the appeal was unsuccessful. He thereafter approached the Tribunal.
The Controversy Before the Tribunal
The assessee contended that the notice initiating penalty proceedings was defective because it did not specify the precise charge against him.
Section 271(1)(c) contemplates two distinct defaults: concealment of particulars of income and furnishing inaccurate particulars of income. The assessee’s argument was that the notice did not identify which of these defaults he was required to answer.
The Revenue supported the penalty by reiterating the findings of the Assessing Officer concerning the unexplained deposits and the assessee’s failure to furnish an explanation.
Tribunal’s Findings
The Tribunal emphasised that an assessee is entitled to know the precise charge which he is required to meet. The two limbs of section 271(1)(c) are distinct, and the statutory notice must communicate the applicable limb.
Where a notice retains both expressions—concealment of particulars of income and furnishing inaccurate particulars of income—without striking off the inapplicable portion or otherwise specifying the applicable charge, it becomes vague and defective.
The Tribunal relied on CIT v. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka), which held that a notice under section 274 should specify the particular ground on which penalty proceedings are initiated.
It also referred to CIT v. SSA’s Emerald Meadows, which followed the same principle, and noted that the Revenue’s special leave petition against that decision had been dismissed by the Supreme Court.
Further reliance was placed on the Full Bench decision of the Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, 434 ITR 1, concerning the effect of failing to strike off the irrelevant limb in a penalty notice.
Applying these principles, the Tribunal found that there was no specific charge against the assessee in the notice under consideration. It therefore held that the penalty could not be sustained and deleted the entire penalty of ₹2,56,007. The assessee’s appeal was allowed.
Author’s Comments
An unexplained addition and a legally sustainable penalty are separate questions. The existence of cash deposits, the absence of an explanation, and even non-compliance with notices do not dispense with the requirement that the Department clearly communicate the charge on which it proposes to impose a penalty.
A taxpayer can meaningfully respond only when the alleged default is identified. Leaving both statutory alternatives in the notice makes the assessee guess whether the allegation concerns concealment or inaccurate particulars. The charge must come from the Assessing Officer; it cannot be left for the assessee to select.
The decision also highlights the importance of examining the actual penalty notice. The Tribunal’s formulation covers both striking off the irrelevant portion and otherwise specifying the applicable limb. Accordingly, the practical enquiry is whether the notice clearly communicates the charge, rather than merely whether a printed expression has been physically struck off.
A procedural feature of this order deserves attention. The assessee’s grounds stated that the CIT(A) had dismissed the appeal on account of delay without adjudicating the merits. However, the Tribunal’s reasoning subsequently described the CIT(A) as having sustained the penalty and proceeded directly to delete it. The order does not separately discuss the length of the delay, the explanation offered, or its condonation. This decision should therefore be cited for its finding on the defective penalty notice, rather than as a precedent on condonation of delay.
Finally, the relief granted concerns the penalty alone. The Tribunal did not delete the underlying addition of ₹11,45,000 in this appeal. The clear principle emerging from the order is that a penalty under section 271(1)(c) cannot survive where the statutory notice fails to identify the specific charge against the assessee.
Cases Discussed
- Farhan A. Shaikh Vs DCIT (Bombay High Court – Full Bench)– (2021) 434 ITR 1. Relied upon. The Full Bench considered the consequences of failure to strike off the irrelevant charge in a penalty notice and held that such failure can invalidate the penalty proceedings.
- CIT Vs SSA’s Emerald Meadows (Karnataka High Court)– (2016) 73 taxmann.com 241 (Karnataka); Revenue’s SLP dismissed, (2016) 73 taxmann.com 248 (SC). Relied upon. Applied the requirement that the applicable statutory charge must be identified in the notice initiating penalty proceedings.
- CIT Vs Manjunatha Cotton & Ginning Factory (Karnataka High Court)– (2013) 359 ITR 565. Relied upon. Held that a notice issued under Section 274 must specify whether penalty is proposed for concealment of income or furnishing inaccurate particulars.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2010-11, is directed against the order under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 15.07.2026, which in turn arises out of a penalty order u/s 271(1)(c) of the Act, dated 28.06.2018.
2. Grounds of appeal raised by the assessee, are as follows:
“1) The Learned Assessing Officer [“Ld. AO”] erred in law and on facts in initiating penalty proceedings and levying penalty of Rs. 2,56,007/- under section 271(1)(c) of the Income Tax Act, 1961. The assessment proceedings, the assessment order, the penalty proceedings, and the consequent penalty order are void ab initio, bad in law, and against the principles of natural justice, and therefore deserve to be quashed.
2) The Learned Commissioner of Income Tax (Appeals), NFAC [“Ld. CIT(A)”] erred in law and on facts in dismissing the appeal of your assessee solely on the ground of delay in filing the appeal, without condoning the said delay, despite sufficient cause having been shown by your assessee for the delay. The Ld. CIT(A) failed to appreciate the facts, submissions, and material available on record while doing so, and the order dismissing the appeal without adjudicating the matter on merits is bad in law, against the principles of natural justice and deserves to be quashed.
3) Assessee craves leave to add, amend, alter, modify or withdraw any ground of appeals.”
3. Brief facts of the case are that the assessee made cash deposits of Rs. 11,45,000/- in his savings bank account maintained with State bank of India during the financial year 2009-10 relevant to AY 2010-11. The case of the assessee was re-opened under section 147 of the Income tax Act, 1961, after obtaining approval from Principal CIT, Jamnagar and a notice under section 148 of the Act was issued on 28/03/2017, which was served upon to the assessee. The assessment was completed u/s. 147 on 19-12-2017 making additions Rs. 11,45,00/- on account of unexplained cash deposits in the savings bank account maintained with State bank of India during the financial year 2009-10 relevant to A Y 2010- 11. A show cause notice u/s 271(1)(c) r.w.s. 274 dated 19-12-2017 for levy of penalty was issued to the assessee. Thereafter, due to change of incumbent, another notice u/s 271(1)(c) r.w.s. 274 dated 30-05-2018 was issued to the assessee. Again there has been no compliance from the assessee. The reasonable opportunities have been given to the assessee but the assessee has not given any explanation that why penalty should not be levied. In this case, it is the fact that the assessee made cash deposits of Rs.11,45,000/- in the savings bank account maintained with State bank of India during the financial year 2009-10 relevant to A Y 2010- 11 but the assessee has not furnished such particulars of his income by way of filing a return of income nor furnished any details of sources of such cash deposits nor even furnished any explanation/details in lieu of notice u/s 271(1)(c) r.w.s. 274 of the Income-tax Act, 1961. Therefore, considering the facts of the case and under the circumstances of the case, the assessing officer imposed penalty u/s 271(1)(c) r.w.s. 274 of the Income-tax Act, 1961. Therefore it is directed that the assessee shall pay a sum of Rs.2,56,007/- which is 100% of the tax sought to be evaded by way of penalty u/s 271(1)(c) r.w.s. 274 of the Income-tax Act, 1961.
4. Being aggrieved by the said order of the Assessing Officer, the assessee filed an appeal before the Ld.CIT(A), but remained unsuccessful. Therefore, assessee is left with no other alternative but to knock on the doors of the Tribunal with this appeal praying for justice.
5. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee, argued that notice issued by the assessing officer under section 271 (1)( C )of the Act is defective, therefore, penalty should not be imposed on the assessee. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.
6. I have considered submissions of both the parties. The learned CIT(A) erred in sustaining the penalty without examining whether the statutory notice under section 274 read with section 271(1)(c) of the Act, specifically did not inform the assessee about the exact charge against the assessee. The section 271(1)(c) of the Act contains two distinct charges, viz: (i)concealment of particulars of income; and (ii) furnishing of inaccurate particulars of income. The assessee is entitled to know the precise charge which he is required to meet. If the notice contains both expressions: “concealed the particulars of your income” and “furnished inaccurate particulars of such income”, without striking off the inapplicable portion or otherwise specifying the applicable limb, the notice is vague and defective. The Hon’ble Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar.), held that the notice under section 274 should specify the particular ground/limb on which penalty proceedings are initiated. The decision in CIT v. SSA’s Emerald Meadows followed the same principle and the Revenue’s SLP was dismissed by the Hon’ble Supreme Court. The Full Bench decision of the Hon’ble Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, 434 ITR 1 (Bom.), has also held that failure to strike off the irrelevant limb can vitiate penalty proceedings. Therefore, I am of the view that notice issued by the AO under section 271(1) (c ) of the Act is defective. The notice under section 271 (1) (c ) of the Act, should specifically state as to whether penalty is being imposed for concealment of income or for furnishing inaccurate particulars of income. There is no any specific charge on the assessee in the case under consideration, therefore the penalty imposed by the AO and confirmed by the ld CIT(A) needs to be deleted. Accordingly, I delete the penalty.
7. In the result, the appeal filed by the assessee, is allowed.
Order is pronounced in the open Court Today on 09/10/2026.
