Defective Penalty Notice Under Section 274 Nullifies Section 271(1)(c) Penalty: Analysis of ATN Infratech Private Limited Vs DCIT (ITAT Delhi)

1. Introduction

The decision of the ITAT Delhi Bench in ATN Infratech Private Limited Vs DCIT reiterates a crucial procedural safeguard in penalty proceedings under Section 271(1)(c) of the Income Tax Act 1961: the assessee must be clearly informed of the exact charge—whether it is concealment of particulars of income or furnishing inaccurate particulars of income.

Where the Assessing Officer issues a standard printed notice under Section 274 read with Section 271(1)(c) without deleting the inapplicable limb, such ambiguity vitiates the very initiation of the penalty proceedings. The Tribunal, relying on the ratio of CIT Vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karnataka High Court), held that this defect is not curable at a later stage and renders the penalty order void ab initio.

This article explains the background facts, legal reasoning, and practical implications of the ruling for penalty proceedings under Section 271(1)(c).

2. Factual Background of the Case

2.1 Assessment Proceedings

  • The assessee, ATN Infratech Private Limited, faced scrutiny assessment for Assessment Year 2013-14 under CASS.
  • The Assessing Officer completed assessment under Section 143(3) on 07.03.2016.
  • Total income was determined at Rs. 55,37,870/-.
  • During the assessment, expenditure amounting to Rs. 7,13,859/- was disallowed and added back to the assessee’s income.
  • Simultaneously, the AO initiated penalty proceedings under Section 271(1)(c) for this disallowance.

2.2 Penalty Initiation and Notice

  • A notice under Section 274 read with Section 271(1)(c) was issued to the assessee.
  • The notice reflected both statutory defaults contemplated under Section 271(1)(c):
    • Concealment of particulars of income, and
    • Furnishing inaccurate particulars of such income.
  • The AO did not strike off the irrelevant portion or specify which precise limb was being invoked.
  • This generic printed format left the assessee without clarity on whether it was being accused of:
    • Hiding income, or
    • Providing incorrect details about income or claims.

2.3 Penalty Order and First Appeal

  • Penalty proceedings culminated in a penalty order dated 03.02.2022 under Section 271(1)(c), imposing a penalty of **Rs. 2,20,583/-`.
  • The assessee carried the matter before the CIT(A)/NFAC.
  • By order dated 30.05.2025, the CIT(A)/NFAC upheld the levy of penalty.
  • Aggrieved, the assessee preferred an appeal before the ITAT Delhi Bench.

The central question before the Tribunal was whether a penalty under Section 271(1)(c) can lawfully survive when the initiating notice under Section 274:

  • Does not specify which of the two limbs—concealment of income or furnishing inaccurate particulars of income—is actually invoked, and
  • Retains both alternatives in a printed proforma without any application of mind by the AO.

3.1 Distinct Nature of the Two Limbs Under Section 271(1)(c)

The assessee’s argument turned on the distinction between the two defaults covered by Section 271(1)(c):

  • Concealment of particulars of income:

    • Allegation that income has been hidden, omitted, or not disclosed.
    • Defence typically focuses on demonstrating that no income was suppressed and all material facts were fully and truly disclosed.

  • Furnishing inaccurate particulars of income:

    • Allegation that particulars provided are factually incorrect, misleading, or unsustainable.
    • Defence revolves around showing that the claim was bona fide, supported by evidence or legal interpretation, or that the particulars were otherwise accurate.

Because these two defaults rest on different factual and legal foundations, an assessee must be informed which charge it must answer.