Dwarka Prasad Tayal Vs ITO (ITAT Indore)
The appeal before the ITAT Indore concerned an assessee’s challenge to a penalty of Rs.30,00,000 imposed under Section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2011-12. The appeal was directed against the order of the First Appellate Authority dated 07.07.2014, arising from the penalty proceedings initiated by the Assessing Officer. The assessee raised a legal objection that the show-cause notice dated 07.07.2014 issued under Section 274 read with Section 271(1)(c) was defective because the Assessing Officer had not specified the particular charge against the assessee by striking off the inapplicable limb—whether concealment of particulars of income or furnishing of inaccurate particulars of income. The assessee relied on the decision of the jurisdictional High Court in CIT vs. Kulwant Singh Bhatia, ITA Nos. 910,11,12,13 & 14 of 2018, order dated 09.05.2018, and the ITAT decision in Dhanjraj Distributors Pvt. Ltd. vs. DCIT, ITA No. 950/Ind/2019 dated 22.06.2023.
The Departmental Representative supported the order of the CIT(A) and submitted that the Assessing Officer’s failure to strike off the inapplicable limb was merely clerical and should not invalidate the penalty proceedings.
The Tribunal noted that the assessee was an individual and that assessment under Section 143(3) for A.Y. 2011-12 had been completed on 07.07.2014, determining income at Rs.4,73,51,720. The Assessing Officer had assessed business income at 5% of turnover and made additions for undisclosed investment and undisclosed business. The assessee succeeded in the quantum proceedings. However, additional income offered through a revised computation was treated by the Assessing Officer as furnishing inaccurate particulars of income, leading to initiation of penalty proceedings under Section 271(1)(c).
On examining the Section 274 show-cause notice, the Tribunal found that it contained both charges—“concealed the particulars of income” and “furnished inaccurate particulars of income”—without striking off the charge that was not applicable. The Tribunal considered the issue in light of its earlier decision in Dhanjraj Distributors Pvt. Ltd. vs. DCIT, where, on similar facts and relying on the jurisdictional High Court’s decision in Kulwant Singh Bhatia, the penalty proceedings had been quashed.
The material reproduced from Dhanjraj Distributors Pvt. Ltd. records that the notice under Section 274 sets the penalty proceedings in motion and that a notice containing both limbs without specifying the particular default was considered vague. The decision relied upon the jurisdictional High Court’s discussion of CIT V/s. Manjunatha Cotton Ginning Factory, CIT V/s. SSA’S Emerald Meadows and CIT V/s. Suresh Chandra Mittal. The High Court had held, as recorded in the supplied material, that the notice should specify the ground that the assessee was required to meet and that a vague notice did not satisfy the requirement of law. On those facts, the penalty had been set aside.
Following the jurisdictional High Court decision in Kulwant Singh Bhatia, the ITAT Indore held that the impugned notice under Section 274 read with Section 271(1)(c) was invalid and bad in law. Consequently, the subsequent penalty proceedings were held liable to be quashed. The Tribunal reversed the finding of the CIT(A) and deleted the impugned penalty of Rs.30,00,000. Ground No. 1 raised by the assessee was allowed.
Since the penalty proceedings had already been quashed on the legal ground, the Tribunal held that consideration of the grounds concerning the merits of the penalty would be merely academic. Accordingly, Ground No. 2 was dismissed as infructuous. The assessee’s appeal was ultimately allowed in the terms stated in the order, which was pronounced in open court on 10.07.2026.
Cases Discussed
- Dhanjraj Distributors Pvt. Ltd. vs. DCIT (ITAT), ITA No. 950/Ind/2019 dated 22.06.2023
- CIT vs. Kulwant Singh Bhatia (Jurisdictional High Court), ITA Nos. 910,11,12,13 & 14 of 2018, order dated 09.05.2018
- CIT V/ s. SSA’S Emerald Meadows (SC), (2016) 73 taxman.com 248 (SC) / dated 23.11.2015 (ITA 380/2015)
- CIT V/ s. Manjunatha Cotton Ginning Factory (Karnataka High Court)
- CIT V/ s. Suresh Chandra Mittal (SC), (2000) 251 ITR 9 (SC)
FULL TEXT OF THE ORDER OF ITAT INDORE
This appeal of Assessee pertaining to A.Y. 2011-12 is directed against the order of First Appellate Authority dated 07.7.2014 which is arising out of the penalty order u/s 271(1)(c) of the Income Tax Act 1961 (hereinafter called as the ‘Act’) framed on 25.03.2019 by ITO, Sendhwa.
2. The sole grievance of the assessee revolves around the penalty u/s 271(1)(c) of the Act at Rs.30,00,000/-.
3. At the outset, Ld. Counsel for the assessee raising a legal issue referring ground no.1 submitted that show cause notice dated 07.07.2014 issued u/s 274 r.w.s 271(1) (c) of the Act is defective as the Ld. AO failed to specify the specific charge of default committed by the assessee by not striking off the limb which was not applicable to the facts of the case that whether the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. He submitted that in absence of initiating the penalty proceedings without levelling specific charge against the assessee, the penalty proceedings deserve to be quashed as void ab initio in light of the ratio laid down by the Hon’ble Jurisdictional High Court in the case of CIT vs. Kulwant Singh Bhatia IITANos.910,11,12,13 & 14 of 2018 order dated 09.05.2018. He further submitted that under similar set of facts and circumstances this Hon’ble Tribunal in the case of Dhanjraj Distributors Pvt. Ltd. vs. DCIT[ITA No. 950/Ind/ 2019 dated 22.06.2023 has quashed the penalty proceedings placing reliance on the judgment of Hon’ble jurisdictional High Court in the case of Kulwant Singh Bhatia (supra).
4. On the other hand, Ld. DR vehemently argued supporting the order of Ld. CIT(A) and further submitted that mistake committed by the Ld. AO is clerical in nature and should not be considered as fatal to the initiation of penalty proceedings u/s 271(1)(c) of the Act.
5. We have heard the rival contentions, perused the record placed before us. We observe that the assessee is an individual and assessment u/s 143(3) of the Act for A.Y.2011-12 framed on 07.07.2014 assessing income at Rs.4,73,51,720/-. Ld. AO assessed Business income @ 5% of the turnover and further the addition for undisclosed investment and undisclosed business were made. We further note that in the quantum addition the assessee succeeded however for the additional income offered by way of filing revised computation of income Ld. AO considered it as furnishing of inaccurate particulars of income and penalty proceedings u/s 271(1)(c) of the Act have been initiated. Ld. AO has issued following show cause notice u/s 274 of the Act placed as (paper book page 19):
6. On perusal of the above show cause notice we note that Ld. AO has referred to both the charges namely “concealed the particulars of income” or “furnished inaccurate particulars of income” and has failed to strike off one of the charge not applicable to the assessee namely “concealed the particular of income.”
7. Under similar set of facts, we note that this tribunal in the case of Dhanjraj Distributors Pvt. Ltd. vs. DCIT(supra) after duly examining the facts identical to the facts of the present case and placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of Kulwant Singh Bhatia (supra) has quashed the penalty proceedings observing as follows:
“3. Briefly stated facts are such that the assessee-company submitted return of relevant AY 2005-06 on 25.10.2005 declaring a total income of Rs. 2,33,750/ – which was subjected to scrutiny assessment. The AO framed assessment vide order dated 07.12.2007 after making a total addition of Rs. 6,09,500/ – consisting of (i) disallowance of Rs. 1,56,000/ – u/s 40A(2); (ii) addition of Rs. 4,05,500/ – u/s 68; (iii) disallowance of Rs. 28,000/ – out of telephone, vehicle maintenance and depreciation; and (iv) disallowance of Rs. 20,000/ – out of office, conveyance and travelling expenses. Aggrieved, the assessee carried matter in first-appeal wherein the CIT(A) granted part relief by deleting the addition of last item of Rs. 20,000/ -. Subsequently, vide penalty-order dated 30.03.2017, the AO imposed a penalty of Rs. 2,05,469/- u/s 27(1)(c)qua first two items. The assessee went in appeal against penalty-order too but could not succeed. Now, the assessee has come in this appeal before us assailing the imposition of penalty.
4. AR representing the assessee opened his arguments by carrying our attention to the show-notice dated 07.12.2007 issued by AO u/.s 274 read with section 271(1)(c), placed in the case-record. Referring to same, Ld. AR submitted that the AO has stated as under:
“Whereas in the course of proceedings before me for the assessment-year 2005-06 it appears to me that you have concealed the particulars of your income or furnished inaccurate particulars of such income”
5. Ld. AR submitted that the notice u/s 274 sets in motion the penalty- proceeding. According to Ld. AR, the notice dated 07.12.2007 issued by AO is very much vague in as much it contains stereotype language of section 271(1)(c). The Ld. AR contended that by saying that the assessee has “concealed the particulars of income” or ‘furnished inaccurate particulars of income”, the AO is himself not sure about the default committed by the assessee. According to Ld. AR, there are innumerable decisions of the Hon’ble Courts and ITAT where it has been loudly held that if the show- cause notice does not spell out the specific charge of default committed by assessee, the notice and subsequent proceeding founded thereon are invalid. In support of his contention, the Ld. AR placed strong reliance on the decision of Hon’ble Jurisdictional High Court of M.P. in the case of Pr. CIT-I, vs. Kulwant Singh Bhatia, ITA No. 9 to 14 of 208, order dated 9th May 2018, wherein it was held as under:
“8. In the case of CIT V/ s. Manjunatha Cotton Ginning Factory (supra), it was observed by the Karnataka High Court in para 59 that the practice of the Department in Section are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initiated presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the provisions have to be held to be strictly construed, notices issued under Section 274 should satisfy the grounds, which he has to meet specifically. Otherwise, principle of natural justice is offended if the show cause notice is vague. Even in the matter of search case where penalty is levied under Explanation 5A to Section 271(1)(c), it was held by the Karnataka High Court that the show-cause notice under Section 274 was defective as it does not spell out the ground on which the penalty is sought to be imposed and consequently penalty imposed was cancelled. The decision of CIT V/ s. Manjunatha Cotton Ginning Factory (supra) was further followed by the Karnataka High Court in the case of CIT V/ s. SSA’S Emerald Meadows, (2016) 73 taxman.com 248 (SC) / dated 23.11.2015 (ITA 380/2015), the High Court has dismissed the appeal of the revenue by observing that the Tribunal has allowed the appeal of the assessee holding that the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Act of 1961 was bad-in-law as it did not specify which limb of Section 271(1)(c) of the Act of 1961, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars. The Tribunal while allowing the appeal of the assessee, had relied on the decision of the Division Bench of Karnataka High Court decision in the case of CIT V/ s.Manjunatha Cotton Ginning Factory (supra). It is further pointed out that the SLP filed by the Deptt. before the Apex Court on 5.8.2016 in the matter of CIT V/ s. SSA’S Emerald Meadows (supra) was dismissed. In the case of CIT V/ s. Suresh Chandra Mittal, (2000) 251 ITR 9 (SC), the Apex Court has upheld the decision of M.P. High Court wherein, in similar circumstances, it was held that the initial burden lies on the revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. In the present case, in show-cause notice the Assessing Officer has not specified specifically charges, there was no such mention.
11. On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/ s. Manjunatha Cotton Ginning Factory (supra) and CIT V/ s. SSA’S Emerald Meadows (supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is arising in these appeals. ITA. No(s). 9/2018, 10/2018, 11/2018, 12/2018, 13/2018 and 14/2018, filed by the appellant have no merit and are hereby dismissed.”
6. Ld. AR submitted that the present case of assessee stands fully covered by this binding decision of Hon’ble jurisdictional High Court and in view of the same, the penalty-order passed by AO is totally invalid.
7. DR, though could not contradict the applicability of decision of Hon’ble jurisdictional High Court on facts and in law, strongly supported the penalty-order passed by AO.
8. We have considered rival submissions of both sides and perused the case-records including the show-cause notice and order of penalty made by AO in the light of decision of Hon’ble Jurisdictional High Court. On perusal of the show-cause notice issued by AO, we observe that the notice contains both of the charges viz. “concealed the particulars of income” or ‘furnished inaccurate particulars of income” and the AO has not stricken-off any one. Therefore, the whole proceeding of penalty conducted by the AO is illegal and unsustainable as per the decision of Hon’ble jurisdictional High Court in Kulwant Singh Bhatia (supra). The Ld. DR could not controvert the facts of the case or applicability of this judgement. Therefore, we are satisfied that the penalty imposed by AO is not valid on this very reasoning. Accordingly, without going into merits of penalty, we quash the penalty-proceeding at the very threshold on legality aspect itself as claimed by assessee in Ground No. 1. The assessee succeeds in this appeal.”
8. On going through above finding of this tribunal as well as other judgments referred and relied by the Ld. Counsel for the assessee placed in the case law paper book dealing with similar issue and that Ld. DR having failed to controvert the contention of the Ld. Counsel for the assessee by filing any other binding precedence in favour of the revenue, we therefore respectfully following ratio laid down by the Hon’ble jurisdictional High Court in the case of Kulwant Singh Bhatia (supra). We are of the considered view that the impugned notice u/s 274 r.w.s 271(1) (c) of the Act is invalid and bad in law and therefore the subsequent penalty proceedings carried out deserve to be quashed. Accordingly finding of the Ld. CIT(A) is reversed and impugned penalty is deleted. Ground no.1 raised by the assessee is allowed.
9. So far as grounds raised on the merits of the case are concerned since we have already quashed the penalty proceedings allowing the legal ground raised by the assessee, adjudication of merits of the case would be merely academic in nature. Therefore, ground no.2 is dismissed as infructuous.
10. In the result, the appeal of the assessee is allowed as per terms indicated hereinabove.
Order was pronounced in the open court on 10th July, 2026.
