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.
Cases Discussed
- Shri Kishan Kumar Agarwal, Hyderabad v. ACIT, ITA No. 2107/HYD/2025, dated 17.06.2026 — Relied upon by the Tribunal. The Hyderabad Bench had applied the Madras High Court ruling in PCIT v. Shri R. Elangovan on failure to specify the charge and applicable category of Section 271AAB penalty. The order uses “Shri Kishan kumar” in its list of the assessee’s citations and “Shri Kishan Kumar Agarwal” when discussing the decision relied upon.
- ACIT v. Sri Maheswary Granites (P) Ltd., ITA No. 3054/CHNY/2025, dated 20.02.2026 — Cited by the assessee on the validity of an ambiguous Section 271AAB penalty notice. The Tribunal did not separately analyse its reasoning in this order.
- Shri Rajeswara Rao Anne v. DCIT, ITA No. 1438/HYD/2025, dated 19.12.2025 — Cited by the assessee. That decision concerned whether the disclosed amount qualified as “undisclosed income” for Section 271AAB; this order does not separately apply it to the defective-notice issue.
- ACIT v. Marvel Associates, ITA No. 147/VIZ/2017, dated 16.03.2018, [2018] 92 taxmann.com 109 (Visakhapatnam) — Cited by the assessee. The decision addresses the requirements for imposing Section 271AAB penalty; the Tribunal did not separately discuss its ratio in this order.
- PCIT v. Shri R. Elangovan, Tax Case Appeal Nos. 770 and 771 of 2018 and CMP No. 18581 of 2018, dated 30.03.2021 — Madras High Court decision applied through Shri Kishan Kumar Agarwal. The Tribunal recorded that failure to specify the charge and category under which penalty was proposed made the notice infirm and the resulting penalty unsustainable.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN: ITBA/NFAC/S/250/2025-26/1084007967(1) dated 23-Dec-2025 for the Assessment Year 2017-18.
2. The Assessee has raised the following grounds of appeal:
“1. The order of learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.
2. The learned Commissioner of Income Tax (Appeals) is not justified in not quashing the notice issued u/s 271AAB as invalid as the notice is ambiguous and in not quashing the penalty order passed u/s 271AAB as void ab initio.
3. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) is not justified in sustaining the penalty of Rs.10,98,000 levied u/s 271AAB of the Act.
4. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) ought to have held that the penalty is leviable at lower rate of 30% as provided in clause (a) u/s 271AAAB of the Act.
30% as provided in clause (a) u/s 271AAAB of the Act.
Any other ground that may be urged at the time of appeal hearing.”
3. From the above, it can be seen that, the appellant has taken a legal ground stating that the notice issued under section 271AAB of Income Tax Act, 1961 [hereinafter in short “the Act”] is invalid as the notice is ambiguous, because, the Ld. Assessing Officer [hereinafter in short “Ld.AO”] has not quashed the inapplicable limb of section 271AAB of the Act. In other words, the Ld.AO did not specify which limb of section 271AAB is applicable in case of the assessee to levy the penalty.
4. Initiating the arguments, the Learned Authorized Representative (for short “Ld.AR”) of the appellant has argued that the Ld.AO should have mentioned the specific limb of section 271AAB of the Act, because this penalty can be levied in three different contingencies. Ld.AR of the appellant, further stated that, this issue is squarely covered by the following coordinate Bench decisions: –
i. Shri Kishan kumar v. ACIT in ITA No. 2107/HYD/2025 dated 17.06.2026.
ii. ACIT v. Sri Maheswary Granites (P) Ltd in ITA No. 3054/CHNY/2025 dated 20.02.2026.
iii. Shri Rajeswara Rao Anne v. DCIT in ITA No. 1438/HYD/2025 dated 19.12.2025
iv. ACIT v. Marvel Associates in ITA No. 147/VIZ/2017 dated 16.03.2018, [2018] 92 com 109 (Visakhapatnam).
5. The Ld. Departmental Representative (hereinafter in short “Ld. DR”) has stated that the assessee is not aggrieved by non-specification of the limb of section 271AAB of the Act and hence there cannot be any grievance to appellant on this ground and requested the Bench to confirm the penalty levied by the Ld.AO and confirmed by the Ld. CIT(A).
6. After hearing both sides, and perusal of the decisions of the Coordinate Benches, the Bench decides to delete the penalty levied by the Ld.AO. In the case of Shri Kishan Kumar Agarwal, Hyderabad v. ACIT in ITA No. 2107/HYD/2025 dated 17.06.2026, the Coordinate Bench has in fact relied on the decision of Hon’ble Madras High Court in the case of PCIT Shri R.Elangovan in Tax Case Appeal Nos. 770 & 771 of 2018 and CMP No. 18581 of 2018 dated 30.03.2021, where it was held that if the Ld.AO has failed to specify the charge and the category under which the penalty is proposed to be levied, the notice suffers from infirmity and illegality. It was also held that the initiation of penalty proceedings itself becomes invalid and consequently the penalty levied pursuant thereto cannot survive. In view of the above, the penalty levied by the Ld.AO is deleted.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 24.07.2026
