Sarthav Projects Vs ITO (ITAT Ahmedabad)
Vague Penalty Notice Invalidates Rs. 14.76 Lakh Penalty Under Section 271(1)(c): ITAT Ahmedabad
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) deleted a penalty of Rs. 14,76,538 imposed under Section 271(1)(c) after finding that the penalty notice failed to specify the charge against the assessee. The Tribunal also observed that mere delay in filing a return, without material establishing concealment of income or furnishing of inaccurate particulars, did not justify the penalty.
The ruling was delivered in Sarthav Projects v. Income Tax Officer, Ward 3(3)(5), Ahmedabad, ITA No. 2559/AHD/2026, concerning Assessment Year 2011-12. The Bench comprised Vice-President Dr. B.R.R. Kumar and Judicial Member Shri Tapas Ram Misra. The order was pronounced on October 15, 2026.
Background of the dispute
The assessee challenged the order dated May 14, 2026, passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, confirming the penalty imposed by the Assessing Officer.
According to the grounds of appeal reproduced in the order, the assessee filed its return on December 18, 2018, in response to a notice issued under Section 148. It submitted that the entire income had been disclosed and that self-assessment tax, along with interest under Sections 234A and 234B, had been paid up to the date of filing.
The reassessment was completed by accepting the income declared in that return. The Assessing Officer made no addition or disallowance. Nevertheless, penalty proceedings under Section 271(1)(c) were initiated, resulting in a penalty of Rs. 14,76,538.
The assessee disputed both the basis for imposing the penalty and the validity of the notice through which the proceedings were initiated.
Assessee challenges the unspecified charge
The assessee pointed out that the assessment order recorded initiation of penalty proceedings for concealment of income. However, the notice dated December 31, 2018, issued under Section 274 read with Section 271(1)(c), referred to both concealment of particulars of income and furnishing of inaccurate particulars.
The inapplicable limb had not been struck off. Consequently, the assessee argued, the notice did not identify the specific default for which a penalty was proposed.
The assessee also submitted that the returned income had been accepted in full. In its view, filing the return after issuance of a reassessment notice could not, by itself, establish either concealment or furnishing of inaccurate particulars.
It maintained that the penalty could not be sustained merely because the return had not been filed within the prescribed time.
Judicial precedents cited
At the hearing, the assessee relied on judicial precedents supporting its contention that a penalty notice must specify the applicable limb of Section 271(1)(c).
The decisions cited included Principal Commissioner of Income Tax v. Unitech Reliable Projects (P) Ltd. [2024] 166 taxmann.com 135 (SC), Archana Achut Sail v. ITO [2025] 173 taxmann.com 52 (Mumbai-Trib.), and Hitesha Sachin Taku v. Income Tax Officer [2026] 189 taxmann.com 493 (Mumbai-Trib.).
The Tribunal considered these authorities while examining whether the notice gave the assessee a clear understanding of the allegation it had to answer.
Tribunal finds penalty notice defective
After hearing both sides and examining the record, the Tribunal found that the notice had been issued in a standard format without deleting the inapplicable charge.
Although the assessment order referred to concealment of income, the notice retained both alternatives. It therefore failed to clearly communicate the particular charge on which the assessee was required to explain why a penalty should not be imposed.
The Bench emphasised that concealment of particulars of income and furnishing of inaccurate particulars constitute distinct limbs of Section 271(1)(c). An assessee must know the specific allegation to provide an effective response.
Where the applicable limb remains unspecified, the assessee is deprived of a clear understanding of the charge. Applying this reasoning and the judicial position relied upon by the assessee, the Tribunal held that the penalty arising from the defective notice could not be sustained.
Delay in filing return insufficient by itself
The Tribunal further noted that the income assessed in the reassessment proceedings was identical to the income disclosed in the return filed in response to the Section 148 notice.
No addition or disallowance had been made. The Bench recorded that penalty proceedings had been initiated solely because of the delay in filing the return.
It held that mere delay, in the absence of material establishing concealment or furnishing of inaccurate particulars, did not justify a penalty under Section 271(1)(c). The Revenue had brought no material on record establishing either default.
Appeal allowed
The Tribunal deleted the penalty of Rs. 14,76,538 and allowed the appeal. Having decided the matter in the assessee’s favour on the defective-notice ground, it left the remaining contentions open as academic.
The decision highlights the requirement to communicate a specific charge in a penalty notice and distinguishes delayed filing from proven concealment or furnishing of inaccurate particulars on the facts before the Tribunal.
Cases Discussed
1. Principal Commissioner of Income Tax Vs Unitech Reliable Projects (P) Ltd. — Supreme Court; [2024] 166 taxmann.com 135; 14/08/2024. Cited by the assessee in support of the requirement that a penalty notice identify the applicable charge under Section 271(1)(c).
2. Archana Achut Sail Vs ITO — ITAT Mumbai; [2025] 173 taxmann.com 52; 25/03/2025. Relied upon by the assessee concerning the validity of a penalty notice that does not specify the applicable limb.
3. Hitesha Sachin Taku Vs Income Tax Officer — ITAT Mumbai; [2026] 189 taxmann.com 493; 30/07/2026. Cited in support of the requirement to communicate the specific charge in proceedings under Section 271(1)(c).
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
1. This appeal has been filed by the Assessee against the order dated 14.05.2026 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2011-2012.
2. The Assessee has raised the following grounds of Appeal:-
I. Levy of penalty u/s.271(1)(c) of the Act-Rs.14,76,538/-
1. 1. The Ld. CIT(A) has erred both legally and factually in upholding the penalty levied under section 271(1)(c) of the Income-tax Act of Rs. 14,76,538/-. The levy of penalty by the Ld.AO, which was affirmed by the Ld. CIT(A), is contrary to law and not supported by the factual matrix of the case. Hence, the penalty imposed by the Ld.AO and confirmed by the Ld. CIT(A) should be quashed in its entirety.
2. The Ld. CIT(A) has erred both in law and on facts by failing to appreciate that the appellant firm, in response to the notice issued under section 148 of the Income-tax Act, voluntarily and bona fide disclosed the entire income and filed its return of income on 18.12.2018. Further, in order to avoid protracted litigation and for the purpose of compliance, the appellant paid the self-assessment tax and interest under sections 234A and 234B of the Act up to the date of filing the return. These facts demonstrate the appellant’s bona fide intention to regularize its tax position. Therefore, there was neither concealment of income nor furnishing of inaccurate particulars of income in the return filed by the appellant.
3. The Ld. CIT(A) has erred both in law and on facts in failing to appreciate that penalty under section 271(1)(c) can be levied only when there is concealment of particulars of income or furnishing of inaccurate particulars of income. In the present case, when the Ld.AO himself has accepted the returned income without making any addition /disallowance while completing the reassessment. Thus, the income declared by the appellant in the return filed in response to the notice u/s. 148 of the Act stands accepted in toto and hence the question of concealment of income or furnishing of inaccurate particulars does not arise.
4. The Ld. CIT(A) has erred in law and on facts in not considering that the sole basis adopted by the Ld.AO for initiating penalty proceedings is that the appellant had not filed the return of income within the due date and had filed the return only after issuance of notice under section 148. Such reasoning by itself cannot form the basis for levy of penalty under section 271(1)(c) when the income returned by the appellant has been accepted without any variation.
5. The Ld. CIT(A) erred in failing to appreciate that in the assessment order passed under section 143(3) read with section 147 of the Act, the Ld. AO merely stated that “penalty proceedings under section 271(1)(c) of the Act are being initiated for concealment of income.” However, the show-cause notice dated 31.12.2018 issued under section 274 read with section 271(1)(c) alleges that “you have concealed the particulars of income or furnished inaccurate particulars of such income.” The notice, therefore, is vague and does not identify which limb of section 271(1)(c) concealment of particulars of income or furnishing of inaccurate particulars of income, the penalty proceedings were directed against. In view of this fundamental ambiguity and lack of specification, the impugned malty order is contrary to settled legal principles and deserves to be quashed.
6. The Ld. CIT(A) has erred in law and on facts in not considering the written submission filed by the appellant along with various judicial pronouncements in a proper perspective.
The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing.
3. At the time of hearing, the Ld. Counsel for the assessee relied upon the following judicial precedents in support of the contention that penalty under section 271(1)(c) of the Income-tax Act, 1961, cannot be sustained where the notice issued under section 274 does not specify the particular limb under which the penalty is proposed to be levied:
1. Principal Commissioner of Income Tax vs. Unitech Reliable Projects (P) Ltd., [2024] 166 taxmann.com 135 (SC), dated 14.08.2024.
2. Archana Achut Sail vs. ITO, [2025] 173 taxmann.com 52 (Mumbai-Trib.), dated 25.03.2025.
3. Hitesha Sachin Taku vs. Income Tax Officer, [2026] 189 taxmann.com 493 (Mumbai-Trib.), dated 30.07.2026.
4. We have heard both sides and perused the material available on record. We find that the notice dated 31.12.2018, issued under section 274 read with section 271(1)(c) of the Act, was in a standard format and stated that the assessee had “concealed the particulars of income or furnished inaccurate particulars of such income”, without striking off the inapplicable limb. However, the assessment order records that the penalty proceedings were initiated for “concealment of income”. Thus, the notice did not clearly specify the particular charge under which the assessee was required to explain why penalty should not be imposed.
5. Concealment of particulars of income and furnishing of inaccurate particulars of income constitute distinct limbs of section 271(1)(c) of the Act. The assessee must be made aware of the specific charge to enable an effective response. Where the notice does not specify the applicable limb, the assessee is deprived of a clear understanding of the charge to be answered. The judicial precedents relied upon by the Ld. AR support the requirement of specifying the charge in the penalty notice. In view of the facts of the present case and the judicial position relied upon by the assessee, we hold that the penalty imposed pursuant to the defective notice cannot be sustained.
6. We further note that the income assessed pursuant to the reassessment proceedings was the same as the income declared by the assessee in the return filed in response to the notice issued under section 148 of the Act. No addition or disallowance was made by the AO. The penalty proceedings were initiated solely on account of the delay in filing the return of income. Mere delay in filing the return, in the absence of any material establishing concealment of income or furnishing of inaccurate particulars of income, does not justify the imposition of penalty under section 271(1)(c) of the Act. The Revenue has not brought any material on record to establish otherwise.
7. In view of the foregoing discussion, we hold that the penalty notice issued under section 274 read with section 271(1)(c) of the Act was defective and that the consequential penalty of Rs. 14,76,538/- is not sustainable. Accordingly, the penalty is deleted. Since the appeal is decided in favour of the assessee on this ground, the other contentions raised by the assessee are left open and are not adjudicated, being academic in nature.
8. In the result, the appeal of the assessee is allowed.
The order pronounced in the open Court on 15.10.2026.
