Ambiguous Section 271AAB Penalty Notice Invalid: ITAT Visakhapatnam

Baddham Venkateswarlu Vs ACIT (ITAT Visakhapatnam)

Summary: ITAT Visakhapatnam allowed the assessee’s appeal for AY 2017-18 and deleted penalty of Rs.10,98,000 levied under section 271AAB of the Income Tax Act, 1961. The assessee challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 23.12.2025, principally contending that the notice issued under section 271AAB was invalid and ambiguous because the Assessing Officer had not struck off the inapplicable limb and had failed to specify which limb of section 271AAB was applicable for levy of penalty.

The assessee’s Authorized Representative argued that section 271AAB contemplated three different contingencies and, therefore, the AO was required to mention the specific limb under which penalty was proposed. Reliance was placed on Shri Kishan Kumar v. ACIT, ACIT v. Sri Maheswary Granites (P) Ltd, Shri Rajeswara Rao Anne v. DCIT and ACIT v. Marvel Associates. The Departmental Representative contended that the assessee was not aggrieved by non-specification of the limb and requested confirmation of the penalty.

After hearing both sides and considering the Coordinate Bench decisions, the Tribunal decided to delete the penalty. It specifically relied upon Shri Kishan Kumar Agarwal, Hyderabad v. ACIT, wherein the Coordinate Bench had relied upon the Madras High Court judgment in PCIT Shri R. Elangovan. The Madras High Court had held that failure of the AO to specify the charge and category under which penalty was proposed rendered the notice infirm and illegal. Consequently, initiation of penalty proceedings itself became invalid and penalty levied pursuant thereto could not survive. Applying the same principle, ITAT Visakhapatnam deleted the penalty and allowed the assessee’s appeal.