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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 20.03.2026, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by NFAC.
In this case a loss of Rs.4,54,97,000/- was disallowed by the AO on the ground that the assessee failed to substantiate this claim with proper documentary evidence. Several other additions were also made pertaining to balances written off, interest/rebate/delay charges of Rs.163,99,917/-, and disallowance u/s 40(a)(ia) of Rs.10,81,933/-. Thereafter, the Ld. AO levied a penalty u/s 271(1)(c) of the Act at Rs.267,54,868/-.
The assessee approached the Ld. CIT(A) where a clear finding has been given that the assessee furnished inaccurate particulars of income by tendering claims which were not supported by evidences and thus, penalty was clearly exigible in this case.
The assessee has approached the ITAT with grounds protesting denial of opportunity and also pointing out an allegedly fatal defect in the initiation of proceedings.
Before us the Ld. AR took us through the notice of penalty dated 28.03.2014 and read out the following:
“Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of Explanation 1, 2, 3, 4 & 5”.
It was the submission that by not specifying whether the assessee was to be penalized for furnishing inaccurate particulars of income or concealment of income, the assessee was put at a severe legal disadvantage. It was the submission that this was not legally tenable and therefore the penalty proceedings were vitiated.
The Ld. DR relied on the orders of the authorities below and pointed out that whatever may have been the case regarding the initiation but in para 5 of the Ld. AO’s order it is clearly written that the penalty was being levied for filing inaccurate particulars of income which amounted to concealment of tax. It was further pointed out that the Ld. CIT(A) has given a clear finding in para 5 of the impugned order that the assessee was rightly subjected to penalty u/s 271(1)(c) of the Act due to furnishing inaccurate particulars of income.
We have considered the rival submissions and have gone through the records before us. It is now a well settled principle of law that the initiation of penalty proceedings u/s 271(1)(c) of the Act have to spell out exactly whether the assessee was proposed to be penalized for furnishing inaccurate particulars of income or for concealment of the same thereon. The Ld. AO is supposed to “strike of” the provision out of the two which he does not propose to refer to. There are a number of coordinate bench decisions and even High Court decisions on this proposition and we can do no better than to cite the case of Chetan Gupta reported in 181 taxmann.com 946 (Del.), order dated 15.12.2025. The head notes from this case clinch the issue in favour of the assessee as under:
“A perusal of the notice issued to the assessee would reveal that notice was not confined to the ground that the assessee has concealed the income with respect to the addition made. It also incorporate ‘or furnished inaccurate particulars of such income’. In other words, the notice does not state the specific ground on which notice has been issued nor a tick (?) has been put on the specific ground on which the notice was required to be issued. [Para 7]”
Accordingly, there is no hesitation in holding that the initiation of proceedings were bad in law and therefore the penalty proceedings are also untenable, deserving to be quashed.
In the result, appeal of the assessee is allowed.