Joseph Abraham Peter Joseph Vs ITO (ITAT Chennai)
Summary: The Income Tax Appellate Tribunal, Chennai ‘D’ Bench, in Joseph Abraham Peter Joseph Vs ITO, allowed the assessee’s appeal for Assessment Year 2014-15 and directed deletion of a penalty of ₹4,47,806 imposed under Section 271(1)(c) of the Income-tax Act, 1961. The Bench comprising Shri Aby T. Varkey, Judicial Member, and Shri Jagadish, Accountant Member, held that penalty proceedings were legally defective because the Assessing Officer had issued a show-cause notice under Section 274 read with Section 271(1)(c) on 27 December 2019 alleging furnishing of inaccurate particulars of income, but subsequently imposed the penalty on the distinct charge of concealment of particulars of income. The Tribunal observed that the assessee had been called upon to defend one specified allegation but ultimately penalised for another, depriving him of an adequate opportunity to answer the charge actually invoked. The resulting defect went to the validity of the penalty proceedings themselves.
The appeal arose from the order dated 30 July 2025 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, confirming the penalty. At the outset, the assessee’s authorised representative raised a legal challenge to the validity of the statutory penalty notice and placed a copy of the notice dated 27 December 2019 before the Tribunal. The notice specifically referred to furnishing inaccurate particulars of income, whereas the penalty order recorded concealment of income involving ₹8,57,905 and imposed a penalty of ₹4,47,806. The Tribunal considered this difference material because the two limbs of Section 271(1)(c) identify separate statutory defaults. A notice concerning one charge cannot automatically provide an adequate opportunity of defence against the other charge.
The Tribunal relied on the jurisdictional Madras High Court decision in Babuji Jacob Vs ITO, (2021) 430 ITR 259, and the Full Bench decision of the Bombay High Court in Mohd. Farhan A. Shaikh Vs DCIT, [2021] 434 ITR 1. The Bombay High Court had held that failure to identify the relevant charge in a penalty notice is a substantive defect capable of vitiating the penalty. The Tribunal also referred to PCIT Vs Goa Dourado Promotions (P.) Ltd., which supported the requirement of a specific charge, while noting that the Full Bench had disapproved the contrary position in CIT Vs Smt. Kaushalya, (1995) 216 ITR 660. The Tribunal further followed the Karnataka High Court decisions in CIT Vs Manjunatha Cotton and Ginning Factory, (2013) 359 ITR 565, and CIT Vs SSA’s Emerald Meadows, (2016) 73 taxmann.com 241, which addressed the invalidity of penalty notices that failed to identify the relevant statutory limb.
The Revenue relied upon the Supreme Court’s dismissal of the special leave petition in Gangotri Textiles Ltd. Vs DCIT, [2022] 137 taxmann.com 198 (SC), concerning a challenge to a penalty notice referring to both limbs of Section 271(1)(c). The Tribunal examined the factual background of that case and distinguished it. In Gangotri Textiles, the assessee had not originally disclosed capital gains arising from the sale of land and a windmill, subsequently acknowledged the omission, and raised the notice-defect argument for the first time before the High Court. The Madras High Court had found that both concealment and furnishing of inaccurate particulars were implicated by the facts and had declined to entertain the challenge. The Chennai Tribunal held that the dismissal of the special leave petition in those circumstances did not displace the binding jurisdictional precedent in Babuji Jacob.
Accordingly, the Tribunal held the show-cause notice dated 27 December 2019 to be defective and invalid for the penalty imposed in the present case. It directed deletion of the entire penalty of ₹4,47,806 and allowed the assessee’s appeal. The ruling is significant because the notice in this case was not merely criticised for retaining both alternatives in a standard form. Rather, the notice identified one statutory charge, while the final penalty order proceeded on the other charge. The decision reinforces that an assessee must receive clear notice of the specific default for which the tax authority proposes to impose penalty and must have a meaningful opportunity to respond. The Tribunal disposed of the appeal on this legal ground without independently deciding the underlying merits of the income addition.
Cases Discussed
1. CIT Vs Smt. Kaushalya (Bombay High Court); (1995) 216 ITR 660 — The Tribunal noted that the Bombay High Court Full Bench in Mohd. Farhan A. Shaikh had held that the contrary proposition in this earlier Division Bench decision did not represent the correct law concerning an unspecified penalty charge.
2. CIT Vs Manjunatha Cotton and Ginning Factory (Karnataka High Court); (2013) 359 ITR 565 — Relied upon for the principle that the assessee must be informed whether proceedings concern concealment of income or furnishing of inaccurate particulars. The Tribunal also recorded that the Revenue’s special leave petition against this judgment had been dismissed.
3. CIT Vs SSA’s Emerald Meadows (Karnataka High Court); (2016) 73 taxmann.com 241 — Followed for invalidation of a penalty notice that did not specify which limb of Section 271(1)(c) was invoked. The Tribunal reproduced paragraphs 3 and 4 of this decision.
4. PCIT Vs Goa Dourado Promotions (P.) Ltd. (Bombay High Court); Tax Appeal No. 18 of 2019; 26/11/2019 — Referred to as a decision whose approach to identifying the penalty charge was upheld by the Bombay High Court Full Bench.
5. Babuji Jacob Vs ITO (Madras High Court); (2021) 430 ITR 259 — The binding jurisdictional precedent followed by the Chennai Tribunal for holding that the defective penalty notice vitiated the penalty proceedings.
6. Mohd. Farhan A. Shaikh Vs DCIT (Bombay High Court, Full Bench); [2021] 434 ITR 1; 11/03/2021 — Relied upon for the proposition that a defective notice not identifying the relevant statutory charge vitiates the penalty, and that the contrary approach in Kaushalya was not the correct proposition of law.
7. Gangotri Textiles Ltd. Vs DCIT (Supreme Court); [2022] 137 taxmann.com 198 — Relied upon by the Revenue. The Tribunal distinguished the case on its factual and procedural background and held that the dismissal of the special leave petition did not displace the binding Madras High Court precedent.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter in short “the Ld.CIT(A)”), Delhi, dated 30.07.2025 for the Assessment Year (hereinafter in short “AY”) 2014-15 against the penalty of ₹4,47,806/- confirmed u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter in short “the Act”).
2. At the outset, the Ld.AR of the assessee raised a legal issue that the penalty levied u/s.271(1)(c) of the Act is not sustainable, since the notice issued by the AO before imposing of penalty was invalid, because, it didn’t specify the exact fault on which the penalty is proposed to be levied and drew our attention to the impugned show cause notice issued by the AO u/s.271(1)(c) r.w.s.274 of the Act dated 27.12.2019 for AY 2014-15, [a copy which has been placed before us]. Since it is a legal issue, we will adjudicate this legal issue first.
3. According to assessee, the Ld.CIT(A) while passing the impugned order has not considered the fact that the notice issued by the AO before imposition of the penalty, specified the fault on which the penalty u/s.271(1)(c) was proposed to be levied i.e. ‘For furnishing inaccurate particulars of income’, and undisputedly didn’t put the assessee on notice for the other fault u/s.271(1)(c) i.e ‘For concealing the particulars of income’; and hence, the Ld AR asserts that the penalty imposed for concealing the particulars of income, is bad in law which vitiates levy of penalty.
4. In respect of the aforesaid legal issue, first of all we perused the impugned show cause notice (SCN) issued by the AO u/s 271(1)(c) r.w.s. 274 of the Act dated 27.12.2019 for AY 2014-15 by virtue of which the AO gave notice to the assessee ‘as to why’ the penalty should not be levied u/s.271(1)(c) of the Act ‘for furnishing inaccurate particulars of income’. However, the AO while passing the penalty order is noted to have found the assessee liable to penalty for “concealment of income for an amount of ₹8,57,905/- and levied penalty of ₹4,47,806/-. Thus, we find substance in the assertion made by assessee that the assessee was put on notice for a specific fault u/s.271(1)(c) viz “furnishing of inaccurate particulars of income” but the AO while passing the penalty order has found the assessee at fault for another fault stated u/s.271(1)(c) i.e. “concealing the particulars of income”. Therefore, the impugned action of the AO issuing notice for furnishing inaccurate particulars in the facts stated supra is found to be bad in law. The reason being, the assessee was not put on notice for the fault on which he was ultimately found to have been penalized, which resulted in him not able to defend properly the charge/fault, against which the AO was proposing to levy penalty. In such factual background, the Tribunal has consistently held such notices to be bad in law for not specifying the specific fault for which the assessee was being proceeded against for levy of penalty. And such actions of the Tribunal has been upheld by several judgments of the various High Courts including the Hon’ble jurisdictional High Court of Madras in the case of Babuji Jacob v. ITO reported in (2021) 430 ITR 259 (Mad). We also note that the Full bench of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shaikh v. DCIT reported in [2021] 434 ITR 1 (Bombay) dated 11.03.2021 held that the show cause notice issued prior to levy of penalty without specifying the fault/charge against which the assessee is being proceeded, would vitiate the penalty itself. And thus, the Hon’ble High Court upheld the view of the division bench order in the case of PCIT Vs. Goa Dourado Promotions (P.) Ltd. (Tax Appeal No.18 of 2019, dated 26.11.2019) and held that the contrary view taken by another division bench in the case of CIT Vs. Smt. Kaushalya (1995) 216 ITR 660 (Bom) does not lay down the correct proposition of law.
5. As noted earlier, we find that the penalty notice dated 27.12.2019 didn’t explicitly convey to the assessee, the specific fault/charge the assessee is being proceeded for levy of penalty. Resultantly, the show cause notice is found to be defective/invalid, and therefore, it is held to be bad in law. For doing that we also rely on the decision of the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) and the Department’s SLP against it has been dismissed by the Hon’ble Supreme Court. We also find that Hon’ble Karnataka High Court in the case of CIT v. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory (supra) and held as under:-
“3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar).
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”
6. Respectfully following the judicial precedents as well as the binding decision of the Hon’ble jurisdictional High Court in the case of Babuji Jacob (supra), the Full bench of the Hon’ble Bombay High Court’s in the case of Mohd. Farhan A. Shaikh (supra), we hold the impugned notice issued dated 27.12.2019 for AY 2014-15 to be bad in law and consequently, direct the deletion of the penalty levied in this case.
7. Before we part, we would like to deal with the Ld DR’s cited decision of the Hon’ble Supreme Court in the case of Gangotri Textiles Ltd. v. DCIT reported in [2022] 137 taxmann.com 198 (SC), wherein the Hon’ble Apex Court confirmed the action of the Hon’ble Madras High Court repelling similar grounds raised by the assessee that notice issued before penalty was levied u/s.271(1)(c) of the Act was invalid since the notice issued by the AO [u/s.274 r.w.s.271(1)(c) of the Act] had reflected both the two (2) limbs of Clause (c) of Section 271(1) of the Act. However, we find the decision in Gangotri Textiles (supra) is distinguishable, since it was on the peculiar facts of that case. In the case of Gangotri Textiles, it is noted that the defect in the notice was raised for the first time before the Hon’ble Madras High Court, which was also a fact, the Hon’ble High Court noted to refuse admission of the same; and secondly, the Hon’ble High Court took note of the distinguishing facts of the case, wherein the assessee didn’t disclose about the sale of its land & windmill in its RoI filed u/s.139(1) of the Act on 26.09.2012 and after ‘13’ months of issuance of statutory notice u/s.143(2) of the Act, the assessee by letter dated 03.03.2015, admitted that due to oversight, it didn’t offer the capital gains in its return and attached a summary of total income adjusting profit on the LTCG & STCG; and even at that stage, didn’t bother to file revised return. Considering the aforesaid facts, the Hon’ble High Court wondered as to how the assessee while responding to the penalty notice dated 12.03.2015, could have asserted that there was no concealment of income or furnishing of inaccurate particulars of income as envisaged, sec.271(1)(c) of the Act. The Hon’ble High Court took note of the fact that, the assessee [Gangotri Textiles] first of all didn’t disclose about the sale of the land & windmill in its return which fact/omission was clearly discernable from the perusal of the RoI/ITR, wherein, at the relevant column, it is stated as ‘nil’. In such factual back ground, the Hon’ble High Court held that “it will not only be a case of filing of inaccurate particulars, but also a case of concealment of income” meaning in the peculiar facts both faults are attracted. Therefore, in the aforesaid factual back ground, the assessee having understood the ingredients of the penalty proposed to be levied against it, coupled with the omission on the part of the assessee of not raising the invalidity/legal issue pertaining to the notice before the Ld.CIT(A)/Tribunal, refused to entertain the legal issue regarding defect in the notice, and was of the view that there was no substantial question of law against the action of the Tribunal confirming the penalty u/s.271(1)(c) of the Act. Therefore, the decision rendered in Gangotri Textiles Ltd., is noted to be distinguishable on the peculiar facts of that case and therefore, dismissal of the SLP refusing leave to appeal, would not come to the aid of the Revenue to wipe out the stare-decisis/judicial precedent of ratio laid down by the Hon’ble jurisdictional High Court in the case of Babuji Jacob (supra). Therefore, we don’t find any merits in the contention of the Ld DR for Revenue and respectfully following the binding decision of the Hon’ble jurisdictional High Court in the case of Babuji Jacob (supra) and a host of other decisions cited supra, we hold the impugned notice issued dated 27.12.2019 for AY 2014-15 to be bad in law and consequently, direct the deletion of the penalty levied in this case.
8. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 05th day of December, 2025, in Chennai.
