ATN Infratech Private Limited Vs DCIT (ITAT Delhi Bench)
AO Kept Both Charges Alive, So the Penalty Died: Vague Notice u/s 274 Invalidates Penalty u/s 271(1)(c)
Summary:
Background
ATN Infratech Private Limited’s return for AY 2013-14 was selected for scrutiny under CASS. The AO completed assessment u/s 143(3) on 07.03.2016, determining total income at ₹55,37,870.
During assessment, expenditure aggregating to ₹7,13,859 was disallowed & added to the assessee’s income. The AO also initiated penalty proceedings u/s 271(1)(c).
A notice u/s 274 r.w.s. 271(1)(c) was issued to the assessee. However, the notice contained both possible charges prescribed by s.271(1)(c)—concealment of particulars of income & furnishing inaccurate particulars of income. The AO did not strike off the inapplicable portion or otherwise inform the assessee which specific allegation it was required to answer.
The penalty proceedings eventually culminated in an order dated 03.02.2022 imposing penalty of ₹2,20,583. The CIT(A)/NFAC confirmed the levy by order dated 30.05.2025.
The assessee challenged the penalty before the Delhi Tribunal.
Two Charges, One Uncertain Notice
The assessee’s principal contention was that the penalty notice did not disclose the precise charge for which proceedings had been initiated.
Section 271(1)(c) contained two separate defaults. An assessee may either conceal particulars of income or furnish inaccurate particulars of such income. Although both defaults may produce similar tax consequences, they operate in different factual fields & require different explanations.
A taxpayer accused of concealment may need to demonstrate that no income was hidden or omitted. A taxpayer accused of furnishing inaccurate particulars may instead have to establish that the particulars furnished were factually correct, supported by evidence or based upon a bona fide legal claim.
Unless the AO identifies the applicable limb, the assessee is left guessing about the case it must meet. The use of a standard printed notice retaining both alternatives does not provide the meaningful opportunity contemplated by s.274.
The Revenue defended the penalty by relying upon the orders of the lower authorities.
Reliance on Manjunatha Cotton
The Tribunal relied upon the Karnataka High Court’s landmark ruling in CIT v. Manjunatha Cotton & Ginning Factory, 359 ITR 565.
The Karnataka High Court had held that issuing a printed penalty notice without striking off the irrelevant portion is impermissible. The assessee must know the exact charge alleged against it before it can be expected to offer an effective defence.
The High Court had also explained that concealment of income & furnishing inaccurate particulars are distinct charges requiring separate consideration. Penalty proceedings initiated on one limb but concluded on another cannot be sustained.
The requirement to specify the charge is not an empty technical formality. It flows from the principles of natural justice & from the statutory obligation to provide the assessee a reasonable opportunity of hearing before imposing a civil penalty.
Defect Was Fatal, Not Curable
On examining the impugned notice, the ITAT found that the AO had mentioned both statutory charges without deleting either one.
The notice did not state whether the expenditure disallowance allegedly represented concealed income or whether the assessee had furnished inaccurate particulars concerning that expenditure. Thus, it failed to communicate the foundation of the proposed penalty.
The Tribunal reiterated the settled principle that where a notice u/s 274 r.w.s. 271(1)(c) does not specify the relevant limb, the notice is invalid. Since a valid notice is the jurisdictional starting point of penalty proceedings, the defect renders the subsequent penalty proceedings void ab initio.
The final penalty order could not cure the uncertainty embedded in the initiating notice. Jurisdiction must exist when the proceedings commence; it cannot be supplied retrospectively after the assessee has already been called upon to defend an unidentified allegation.
Quantum Addition Does Not Automatically Establish Penalty
Although the assessment included a disallowance of ₹7,13,859, the Tribunal’s decision did not depend upon whether that disallowance was correct on merits.
Assessment proceedings & penalty proceedings are distinct. Confirmation or acceptance of an addition does not dispense with the procedural requirements governing penalty. Before penalty can be imposed, the AO must clearly identify the statutory default, issue a valid notice & establish that the relevant ingredients are satisfied.
Since the notice itself was legally defective, the Tribunal did not find it necessary to decide whether the disallowed expenditure otherwise justified penalty.
Final Verdict
The Delhi ITAT held that the notice issued u/s 274 r.w.s. 271(1)(c) was bad in law because the AO had not struck off the irrelevant charge.
Consequently, the entire penalty proceedings were declared void ab initio & quashed. The penalty of ₹2,20,583 could not survive, & the assessee’s appeal was allowed.
Author’s Comments
The ruling reinforces the principle that an assessee cannot be penalised on a charge that the AO himself was unwilling to choose. A standard notice is permissible, but the AO must apply his mind & retain only the limb relevant to the facts.
The requirement is particularly important where an addition may support different inferences. A disallowed expense does not invariably amount to concealed income; nor does rejection of a claim automatically mean inaccurate particulars were furnished. The precise allegation determines the defence available to the assessee.
The order contains an apparent inconsistency regarding the notice date. An earlier paragraph refers to a notice dated 08.11.2021, while the adjudication discusses the impugned notice as dated 13.06.2016. This discrepancy does not affect the ratio because the Tribunal’s conclusion rests upon the absence of a specified charge in the notice examined by it.
The order also occasionally suggests that the “assessment” was void. Properly understood, it is the penalty notice & consequential penalty proceedings that were quashed; the quantum assessment was not annulled through this penalty appeal.
Section 274 demands notice of a charge-not a multiple-choice question in which the assessee must guess what the AO had in mind.
Cases Discussed
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH
The instant appeal filed by the Assessee is directed against the order dated 30.05.2025 passed by the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the Ld. CIT(A)/NFAC] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the Penalty Order dated 03.02.2022 under Section 271(1)(c) of the Income Tax Act, 1961 (‘Act’ for shot) for Assessment Year 2013-14.
2. The case of the Assessee was selected for scrutiny under CASS and an assessment order under Section 143(3) of the Act was completed on 07.03.2016 determining the total income at Rs. 55,37,870/-, claim of expenses to the tune of Rs. 7,13,859/- was added to the total income of the Assessee and penalty under Section 271(1)(c) of the Act was initiated. In-fact notice under Section 274 r.w. Section 271(1)(c) of the Act dated 08.11.2021 was issued, a copy whereof as appearing Page 15 of the Paper Book filed before us, the contents whereof is as follows:
3. The Assessee joints issue to this effect that since the notice under Section 271(1)(c) does not specify whether there is any concealment of income by the Assessee or furnishing of inaccurate particulars of such income, the said notice is not valid in the eyes of law and, therefore, liable to be quashed. Consequently, the assessment is void ab initio and thus, liable to be set aside.
4. The above was the crux of the submissions made by the Ld. AR at the time of hearing of the matter. On the other hand, the Ld. DR relied upon the order passed by the authorities below.
5. The proceeding initiated under Section 271(1)(c) of the Act was ultimately culminated in the order imposing penalty of Rs. 2,20,583/- which was further confirmed by the First Appellate authority and hence, the instant appeal before us.
6. In this regard, we have considered the Judgment relied upon by the Ld. AR in the matter of CIT Vs. Manjunatha Cotton and Ginning Factory, reported in 359 ITR 565 passed by the Hon’ble Karnataka High Court, wherein it has been held that sending a printed notice without striking off the relevant portion is impermissible; the Assessee should know the exact charge, and further that penalty proceeding initiated on one limb and imposed on another limb are invalid. It was categorically observed therein that concealment of income and furnishing of inaccurate particulars are different charges requiring separate consideration. Non specification of the charge in the notice is a fatal flaw.
7. It is the settled principal of law that if a notice under Section 274 r.w. Section 271(1)(c) does not specify the limb under which the penalty proceeding is initiated either for concealment of particulars of income or for furnishing inaccurate particulars of income, the same is invalid and renders the entire penalty proceeding void ab initio, and, thus, liable to be quashed. In that view of the matter, considering the entire aspect of the matter when the impugned Notice under Section 274 r.w. Section 271(1)(c) dated 13.06.2016 without specifying that the Assessee has concealed the particulars of income or furnished inaccurate particulars of income rather both of them has been mentioned without striking off any of the charges levelled against the Assessee, the impugned notice is found to be bad in law, invalid. The penalty proceeding is void ab initio and thus, quashed.
8. In the result, Appeal filed by the Assessee is allowed.
Order pronounced in the open court on 01/09/2026.
