Param Dairy Limited vs DCIT Delhi

“That the penalty proceedings are void ab initio as the show cause notice did not specify the applicable clause, charge and default for which penalty was proposed, thereby violating principles of natural justice”

“Whereas in the course of proceedings before me for the Assessment Year 2014-15, it appears to me that a search was conducted in your case and you were found to have undisclosed income.”

6.

ITA 6443: In this case allegedly bogus expenses of Rs.3,00,000/- were disallowed and added. Thereafter, the Ld.AO issued penalty notices dated 27.03.2025 and 26.07.2025. It is seen that the assessee did not respond to the notices issued and thereafter penalty was levied at 60% of the allegedly undisclosed income of Rs.3,00,000/-.

6.1

The assessee approached the CIT(A) with his grievance and challenged the penalty levied on him. It was also raised as a ground of appeal that the exact limb of the section which was purportedly violated by the assessee was not specified in the notice u/s 274 r.w.s. 271AAB of the Act. However, the Ld. CIT(A) dismissed this claim on the basis of finding on pages 14 & 15 of the impugned order by holding that the allegedly bogus expenses were unearthed during assessment proceedings only and therefore the assessee was aware as to which limb of the said section was applicable on him. 6.2 The assessee has now approached the ITAT with grounds challenging the penalty levied and also challenging the fact that the exact limb of the section was not specified in the notice issued.

6.3

Before us the Ld. AR again requested that the issue of not specifying the limb of the section which was proposed to be utilized for levying the penalty, needed to be taken up before proceeding any further in the matter. It was argued that the notice for the impugned penalty was extracted on pages 4 & 5 of the impugned order. It was pointed out that in neither of these two notices dated 27.03.2025 and 25.07.2025 was the exact limb of the penalty specified. The Ld. AR read out the first paragraph of the notice dated 25.07.2025 for the benefit of the Bench as under: -

“Whereas in the course of proceedings before me for the assessment year 2023-24, it appears to me that a search was conducted in your case and you were found to have undisclosed income”. The Ld. AR stated that the penalty notice was legally defective and therefore the consequential penalty was invalid in the eyes of law. 6.4 The Ld. DR relied on the orders of the authorities below.

6.5

We have considered the rival submissions and have gone through the records before us, including the notice issued by the Ld. AO for levying the impugned penalty. In this case, we can do no better than to rely on two coordinate bench orders as follows:

i.

In the case of Ethirajulu Vajravel Kumaran reported in 180 taxmann.com 11 (Chennai – Trib.) [2025], order dated 21.10.2025, the following paragraphs are relevant:

“104.

We observe that the provisions contained in Section 271AAB(1A) of the Act are structured into two distinct limbs. As per the said sub-section, the imposition of penalty is contemplated either under clause (a) or clause (b). Clause (a) prescribes a penalty at the rate of 30% of the undisclosed income, subject to the fulfilment of specific statutory conditions enumerated therein. Conversely, clause (b) provides for a more stringent penalty at the rate of 60% of the undisclosed income, which becomes applicable in the event of non-fulfilment of the conditions stipulated under clause (a). It necessarily follows that the AO, while initiating penalty proceedings u/s 271AAB(1A) of the Act, is legally bound to clearly specify, in the show-cause notice, the precise limb i.e., whether clause (a) or clause (b), under which the proposed penalty is sought to be levied. Such specification is essential, as the consequences of each clause differ both in terms of rate and the underlying conditions of applicability.

105.

In the present case, however, the AO has failed to discharge this mandatory obligation, inasmuch as the show cause notice dated 27.03.2022 issued to the assessee does not delineate whether the penalty is proposed under clause (a) or under clause (b) of Section 271AAB(1A) of the Act. This omission, in our considered view, renders the penalty proceedings fundamentally defective.”

ii.

In the case of Giriraj Enterprise reported in 176 taxmann.com 870 (Pune – Trib.), order dated 24.07.2025 [2025], the following paragraphs are relevant:

“27.

We find the Delhi Bench of the Tribunal in the case of Shri Naveen Goswami (supra) has also quashed the penalty proceedings, initiated u/s 271AAB of the Act on the ground that the failure on the part of the Assessing Officer in not pinpointing the relevant limb of section 271AAB(a) to (c) vitiates the entire proceedings. Therefore, in absence of non-mentioning of the relevant limb u/s 271AAB(a) to (c), the penalty proceedings initiated by the Assessing Officer are not in accordance with law and therefore, the same are liable to be quashed.

28.

So far as the order of the Ld. CIT(A) upholding the penalty notice by distinguishing the decision in the case of Mohd. Farhan A. Sheikh (supra) is concerned, we are of the considered opinion that the Ld.CIT(A) is not justified in doing so. Even though the said decision was in context of section 271(1)(c) of the Act, however, the Hon’ble Bombay High Court has observed that the two limbs prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the Act. We find the provisions of section 271AAB(1A) have also got two parts. As per the said sub-section, the penalty is either leviable under clause (a) or (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, the Ld. CIT(A) in our opinion was not justified in distinguishing the decision of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Sheikh (supra). Even otherwise also, since the Hon’ble Madras High Court has taken a view directly on this issue and no contrary decision of any other Hon’ble High Court was brought to our notice, therefore, the decision of the Hon’ble Madras High Court will be binding on the Revenue. We, therefore, hold that the failure on the part of the Assessing Officer to mention the specific limb which is applicable to the case of the assessee for levy of penalty u/s 271AAB(1A) vitiates the entire proceedings. We, therefore, quash the penalty proceedings initiated by the Assessing Officer and partly sustained by the Ld. CIT(A).”

6.6

Accordingly, the impugned penalty becomes untenable in the eyes of law considering that the exact limb of the section on which the penalty is supposed to be levied, has not been specified.

7.

In the result, this appeal is allowed.