Defective Penalty Notice Under Section 271(1)(c) Held Void: Key Takeaways from ITAT Raipur in Nilima Agrawal Vs ITO

The Income Tax Appellate Tribunal, Raipur Bench, in the case of Nilima Agrawal Vs ITO, examined the legality of penalty proceedings initiated under Section 271(1)(c) read with Section 274 of the Income Tax Act 1961 for Assessment Year 2015–16. The core issue was not the quantum or the nature of additions but the very validity of the penalty notice that triggered the proceedings.

The Tribunal ultimately held that where a penalty notice under Section 274 r.w.s. Section 271(1)(c) does not clearly spell out the precise charge—whether it is for “concealment of particulars of income” or for “furnishing inaccurate particulars of such income”—such notice is ambiguous, contrary to principles of natural justice, and void ab initio. Consequently, all subsequent penalty proceedings and the appellate order sustaining such penalty were treated as non-est.

Background of the Appeal

Proceedings Before CIT(Appeals)/NFAC

The assessee had filed an appeal against the order dated 08.01.2025 passed by the CIT(Appeals)/NFAC, Delhi for AY 2015–16. The penalty had been levied under Section 271(1)(c) on the premise that the assessee had either concealed income or furnished inaccurate particulars.

Instead of contesting the penalty on factual grounds, the assessee raised a pure legal challenge to the initiation of penalty, asserting that the very notice issued under Section 274 r.w.s. Section 271(1)(c) was legally untenable.

Assessee’s Core Contention

The learned counsel appearing for the assessee contended that:

  • The show-cause notice issued under Section 274 read with Section 271(1)(c) did not clearly specify the particular limb under which the penalty was being proposed.
  • The standard printed format of the notice contained both expressions:
    • “concealed the particulars of your income”, and
    • “furnished inaccurate particulars of such income”
  • The Assessing Officer (AO) failed to strike off the inapplicable portion, resulting in both limbs being retained in the notice.
  • This failure reflected absence of requisite satisfaction on the part of the AO as to the exact nature of the default and amounted to non-application of mind at the stage of initiation of penalty.

On this basis, the assessee argued that the penalty proceedings were vitiated at inception and the levy of penalty was invalid in law.

Stand of the Departmental Representative

The learned CIT–DR supported the orders of the lower authorities on merits. However, he conceded an important fact:

  • The notice issued under Section 274 r.w.s. Section 271(1)(c) was indeed vague and
  • It did not specify which limb of Section 271(1)(c)—concealment of income or furnishing inaccurate particulars—was actually being invoked.

Thus, even the Revenue’s representative accepted that the notice suffered from ambiguity.

Judicial Precedents Relied Upon by ITAT Raipur

In deciding the issue, the Tribunal drew extensively from recent and authoritative High Court judgments that have clarified the legal requirements relating to penalty notices under Section 271(1)(c).

CIT Vs. Gragerious Projects (P) Ltd. – Delhi High Court

The Tribunal first referred to CIT Vs. Gragerious Projects (P) Ltd. (2024) 169 taxmann.com 291 (Del.), where the Delhi High Court had upheld the Tribunal’s view on two critical aspects:

  1. Obligation to Specify the Exact Limb
    • When the charge is either for concealment of particulars of income or for furnishing inaccurate particulars, the Revenue must clearly state which of the two grounds is being invoked.
    • The Department cannot club both charges together in an omnibus manner while initiating penalty.