Malla Appalaraju Vs ITO ( ITAT Visakhapatnam)
The Income Tax Appellate Tribunal (ITAT), Visakhapatnam, has ruled in favor of Malla Appalaraju, setting aside a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. The penalty of ₹12,23,211 was levied for an alleged unexplained investment under Section 69. The tribunal found that the penalty notice issued by the Assessing Officer (AO) was defective as it failed to specify whether the penalty was for “concealment of income” or for “furnishing inaccurate particulars of income.”
The case originated from an assessment order for AY 2011-12, where the AO had estimated the income of the assessee’s liquor business and added ₹39,58,613 under unexplained investments. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, leading to the imposition of a penalty under Section 271(1)(c). The assessee challenged the penalty order before the ITAT, arguing that the notice lacked clarity on the specific charge, thereby violating legal principles.
A vague or defective penalty notice invalidates the entire penalty proceedings. The tribunal observed that failure to specify the charge deprived the assessee of a fair opportunity to defend himself. It reaffirmed that a defective notice vitiates the entire penalty proceedings, making the order legally unsustainable.
