ITAT Mumbai Deletes ₹17,18,658 Penalty: Proceedings Initiated Under Section 271AAC Cannot Culminate in Levy Under Section 271(1)(c)
Background and Context
A significant ruling has emerged from the Mumbai bench of the Income Tax Appellate Tribunal in the matter of Joseph Domnic Dsouza Vs ITO (ITAT Mumbai), bearing ITA No. 7483/Mum/2026, decided on 23rd September 2026 for Assessment Year 2016–17. The Tribunal has laid down a clear jurisdictional principle: where an Assessing Officer explicitly records satisfaction for initiating penalty under Section 271AAC of the Income Tax Act, 1961, a subsequent penalty order passed under Section 271(1)(c) of the same Act is void for want of jurisdiction.
The penalty of ₹17,18,658 that had been confirmed by the Commissioner (Appeals) was directed to be deleted in its entirety on this ground alone, without the Tribunal needing to await the outcome of the still-pending quantum appeal before the First Appellate Authority.
Facts of the Case
The Assessee and the Reassessment Proceedings
The assessee, an individual, had not filed a return of income for Assessment Year 2016–17. The Assessing Officer initiated reassessment proceedings under Section 147 read with Section 144 and Section 144B of the Income Tax Act, 1961 on the basis of certain information available with the department. In the absence of any compliance by the assessee, an ex parte order was passed on 15 February 2024, determining the total income at ₹55,62,000.
The assessed amount was attributed to unexplained cash deposits in a Bank of Baroda account allegedly belonging to the assessee.
Internal Inconsistencies in the Assessment Order
Notably, the assessment order itself was not free from internal contradictions:
- It initially characterised the addition as falling under
Section 68of the Income Tax Act, 1961. - The subsequent discussion described the same amount as "unexplained money" referable to
Section 69. - The order directed that taxation be computed in accordance with
Section 115BBE. - Additionally, the order made repeated references to Assessment Year 2019–20 and Financial Year 2018–19, even though the assessment being framed pertained to Assessment Year 2016–17.
The Critical Penalty Direction in the Assessment Order
What became the focal point of this appeal was the specific direction recorded at the conclusion of the assessment order regarding penalty initiation. The relevant extract from the assessment order reads:
"The penalty proceedings u/s 271AAC, 272A(1)(d) mentioned in the paragraph above, are being initiated."
There was no mention anywhere in the assessment order of Section 271(1)(c). No satisfaction was recorded regarding concealment of income or furnishing of inaccurate particulars — the twin conditions that must precede any valid initiation under Section 271(1)(c).
The Conflicting Penalty Order
Despite the above direction, the Assessing Officer subsequently issued a penalty order dated 21 August 2024 under Section 271(1)(c), imposing ₹17,18,658 — being 100% of the tax allegedly sought to be evaded. The penalty order proceeded on the premise that proceedings under Section 271(1)(c) had been initiated during the course of the assessment, a statement that was demonstrably inconsistent with the assessment order on record.
The Commissioner (Appeals) confirmed this penalty through an order dated 23 January 2026, primarily on the ground that the assessee had not furnished adequate supporting material during appellate proceedings. Critically, the Commissioner (Appeals) did not address the jurisdictional objection raised by the assessee regarding the mismatch between the provision under which proceedings were initiated and the provision under which the penalty was ultimately levied.