Penalty u/s 271(1)(c) Deleted; Voluntary Disclosure in Return Filed Post-Search/Notice Accepted by AO.

By | November 25, 2025
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Penalty u/s 271(1)(c) Deleted; Voluntary Disclosure in Return Filed Post-Search/Notice Accepted by AO.

Issue

Whether a penalty for concealment of income under Section 271(1)(c) can be levied when the assessee, following a search or notice under Section 148, voluntarily includes the unrecorded cash income in their return of income, and the Assessing Officer (AO) accepts this returned income without further investigation or addition.

Facts

  • Context: Search and seizure operations (Section 132) were conducted.

  • Filing: The assessee-company filed its return of income in response to a notice under Section 148 for Assessment Year 2016-17.

  • Disclosure: In this return, the assessee voluntarily included unrecorded cash income which was purportedly disclosed during the search (under Section 132(4)).

  • Assessment: The AO accepted the income returned by the assessee. However, the AO initiated penalty proceedings under Section 271(1)(c) alleging concealment of particulars of income.

  • Defense: The assessee argued that since the income was voluntarily disclosed in the return and accepted, there was no “concealment” in the assessment proceedings.

Decision

  • The Tribunal/High Court ruled in favour of the assessee.

  • No Concealment in Assessment: The penalty under Section 271(1)(c) is levied with reference to the return of income filed for the assessment. Since the assessee had already included the impugned income in the return filed in response to the Section 148 notice, there was no concealment qua that return.

  • Voluntary Disclosure: Relying on High Court precedents (such as PCIT v. Neeraj Jindal or SAS Pharmaceuticals), it was held that mere disclosure during Section 132(4) proceedings does not automatically trigger a penalty if the assessee follows through by offering it to tax in the return, and the AO accepts it without having to dig out further evidence.

  • Conclusion: The AO was directed to delete the penalty.

Key Takeaways

  • Return is the Basis: The primary document for gauging concealment is the return of income. If the income is disclosed therein (even if filed late or after a notice), the charge of “concealment” or “furnishing inaccurate particulars” becomes difficult to sustain unless the explanation is found to be false.

  • Immunity in Search Cases: While specific penalty provisions like Section 271AAB apply to search cases, the general penalty under Section 271(1)(c) requires specific “concealment” in the assessment proceedings.

Penalty u/s 270A Quashed; Notice Must Specify Specific Limb (Under-reporting vs. Misreporting).

Issue

Whether a penalty order under Section 270A is valid if the Assessing Officer fails to specify in the notice and the order whether the penalty is being initiated for “under-reporting of income” (Section 270A(2)) or for “misreporting of income” (Section 270A(9)), which attract vastly different penalty rates (50% vs 200%).

Facts

  • Assessment Years: 2017-18, 2018-19, and 2019-20.

  • The Default: The AO initiated penalty proceedings under Section 270A against the assessee.

  • The Defect:

    1. The AO did not specify under which “limb” the proceedings were initiated—whether for Under-reporting (50% penalty) or Misreporting (200% penalty).

    2. The show-cause notice issued under Section 274 read with Section 270A was vague and did not identify the specific transgression or sub-section (e.g., 270A(9)(a) for misrepresentation) that the assessee was guilty of.

  • Assessee’s Plea: The assessee argued that the failure to specify the charge denied them a fair opportunity to defend themselves, rendering the notice and penalty void.

Decison

  • The Tribunal/High Court ruled in favour of the assessee and quashed the penalty.

  • Specific Charge is Mandatory: The legal principle established (notably in GE Capital US Holdings Inc. v. Dy. CIT and Schneider Electric) is that “Under-reporting” and “Misreporting” are distinct charges with different consequences. The AO must apply their mind and specifically communicate which charge the assessee is facing.

  • Vague Notice is Void: A notice that fails to strike off the inapplicable portion or fails to mention the specific limb of Section 270A suffers from the vice of non-application of mind and violates the principles of natural justice.

  • Outcome: The penalty orders for all three years were held to be unsustainable.

Key Takeaways

  • 50% vs 200%: The distinction is critical. Under-reporting (50%) allows for immunity under Section 270AA if tax is paid, whereas Misreporting (200%) denies such immunity. The AO cannot leave this choice open-ended in the notice.

  • Standard Template Errors: Tax authorities often use standard templates for notices without customizing them to the specific facts (striking out irrelevant clauses). This procedural lapse remains a potent defense for taxpayers in penalty proceedings.

 

IN THE ITAT DELHI BENCH ‘G’
Deputy Commissioner of Income-tax
v.
Ajay Vision Education (P.) Ltd*
SATBEER SINGH GODARA, Judicial Member
and Naveen Chandra, Accountant Member
IT Appeal No. 4172, 4173, 4174 and 4175 (DEL) of 2025
[Assessment years 2016-17, 2017-18, 2018-19 and 2019-20]
NOVEMBER  10, 2025
Manish Gupta, Sr. DR for the Appellant. Himanshu Gupta, CA for the Respondent.
ORDER
Naveen Chandra, Accountant Member.- The above captioned four appeals by the Revenue are directed against four separate orders of the ld. CIT(A), Delhi dated 30.03.2025 for A.Y 2016-17 u/s 271(1)(c) of the Income-tax Act, 1961 [the Act, for short] and u/s 270A for A.Ys u/s 2018-19, 2017-18 and 2019-20 respectively.
2. Since these appeals pertain to same assessee and involve common issues, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
ITA No. 4172/DEL/2025 [A.Y 2016-17]
3. The sum and substance of the grievance of the Revenue is that the ld. CIT(A) erred in deleting the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act on the ground that the Assessing Officer has not specified the charge in the show cause notice issued u/s 274 r.w.s 271 of the Act.
4. The roots for levy of penalty lie in the assessment order dated 30.03.2023 for AY 2016-17 framed u/s 147 r.w.s 143(3) of the Act by which the unrecorded cash income to the tune of Rs. 98,59,655/- was disallowed for penalty purpose and added to the income of the assessee.
5. The entire quarrel in all these four appeals of the Revenue revolves around the penalty notice, which according to the assessee, does not specify the limb under which the penalty is levied. The penalty orders were challenged by the assessee before the ld. CIT(A) and the ld. CIT(A), vide appellate order dated 30.03.2025 came to the conclusion that the penalty levied by the Assessing Officer cannot be sustained either on legal grounds, jurisdictional grounds or on merits and allowed the appeal of the assessee.
6. The Id. counsel for the assessee relied upon the orders of the Id. CIT(A) whereas the Id. DR relied upon the penalty order and contended that the additions were made on the basis of search and relied on the decision of the Hon’ble Supreme Court in the case of Prasanna Dugar v. CIT (SC)/[2015] 373 ITR 681 (SC) wherein the hon’ble court dismissed the SLP filed against the Calcutta High Court in CIT v. Prasanna Dugar (Calcutta)/[2015] 371 ITR 19 (Calcutta).
7. The representatives of both the sides were heard at length, the case records carefully perused. We find that the notice u/s 274 r.w.s 271(1)(c) of the Act which was issued and served upon the assessee read as under:
“Notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961
Sir Madam
Whereas in the course of proceedings before me for the Assessment Year 2016-17, It appears to me that you have concealed the particulars of income. You are hereby requested to appear before me either personally or through a duly authorised representative at 11:00 AM on 05/05/2023 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through athorised representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c) of the Income Tax Act, 1961.
8. On such facts the CIT(A) deleted the penalty holding as under:
4.2. 12 Issue of Notice:
4.2. 12. 1 The Assessing Officer has issued notice u/s 274 proposing for levy of penalty for concealment of particulars of income. From the reading of the assessment order paragraph No. 15, the Assessing Officer disallowed the amount which is already been a part of the returned income. For the immediate reference, the relevant paragraph is reproduced below:-

“15. “The assessee company filed its reply and stated that the unrecorded cash income to the tune of Rs, 98,59,655/-has already included in its ITR in response to notice u/s 148 of the IT Act, 1961. Therefore, the said income amounting to Rs. 98,59,655/- are hereby disallowed for penalty purpose as the assessee added the same in its total income for the year under consideration ie. AY 2016-17.

16. In view of the above facts, I am also satisfied that the assessee has concealed his income to the tune of Rs. 98,59,655/- within the meaning of section 271(1)(c) of the Income Tax Act. 1961. Accordingly, penalty proceedings w/s 271(1)(c) are being initiated separately”.

4.2. 12.2 The fascinating fact is that the Assessing Officer has disallowed the taxable amount included in the return for the purpose of penalty is a new beginning for the strangest interpretation of the tax jurisprudence in invoking the penal provisions. Be that as it may, the Assessing Officer after “disallowing” the amount, initiated proceedings for concealment. If at all, any amount disallowed, at the most invite penalty for furnishing inaccurate particulars of income. To that extent, the notice issued by the Assessing Officer suffers from insufficiency of charge proposed and leviable. The difference between ‘concealment’ and ‘furnishing of inaccurate particulars of income has been well analysed in the case of CIT v. Indian Metals and Ferro Alloys Ltd. by the Hon’ble High Court of Orissa, ITA no. 211/Orissa/1995. It was held that the expression “concealed the particulars of income” and ‘has furnished inaccurate particulars of income have not been defined either in Section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in detail although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its execution. The word “conceal ” is derived from the Latin concelare which implies to hide. It was held that the Webster in his New International Dictionary equates its meaning to hide or withdraw from observation, to cover or to keep from sight, to prevent the discovery of; to withhold knowledge of. The offence of ‘concealment’ is thus a direct attempt to hide an item of income or portion thereof from the knowledge of income-tax authorities. In furnishing its return of income an assessee is required to furnish particulars and accounts on which the return income has been arrived at. These may be particulars as per its books of account, if he has maintained them, or any other basis upon which it had arrived at the returned figure of income. Any ‘inaccuracy” made in such books of account or otherwise which resulted in keeping off or hiding a portion of its income is punishable as “furnishing inaccurate particulars of its income”
9. The CIT(A) relied on the decision of Delhi High Court in the case of Pr. CIT. Neeraj Jindal (2022) wherein it held that penalty under section 271(1)(c) cannot be levied simply because income was disclosed in a 132(4) proceeding if the assessee voluntarily discloses it during the assessment The court emphasized that for a penalty, there must be clear evidence of an attempt to conceal. The CIT(A) also relied on the decision ofCIT v. Mahendra C. Shah (Gujarat)of Gujarat High Court wherein it was held that penalty cannot levied if income offered under section 148/153A. The Gujarat High Court held that where an assessee voluntarily discloses income during search and the income is accepted without further investigation, it cannot be concluded that there was concealment. The court opined that the purpose of disclosure in response to section 153A notice is to provide a fair opportunity to the assessee, and if income is voluntarily disclosed, penalties should not apply.
10. We are of the considered view that in the given factual matrix, there is no reason to interfere with the decision of the CIT(A). Accordingly, we direct the AO to delete the penalty. The grounds of appeal are dismissed.
ITA No. 4173/DEL/2025 [A.Y 2018-19]
ITA No. 4174/DEL/2025 [A.Y 2017-18]
ITA No. 4175/DEL/2025 [A.Y 2019-20]
11. The above three appeals are against the penalty order u/s 270A of the Income Tax Act. The CIT(A) has dealt with issue as under:
4.2.7 At the outset, it was submitted that notice issued u/s 274 r.w.s. 270A of the Act was defective as the Assessing Officer has not specified correct limb of section as to whether it is “under reporting or mis-reporting’ of income.
The notice dated 10.01.2023 issued by the Assessing Officer reads as under:-

“Whereas in the course of proceedings before me for the Assessment Year 2018-19, it appears to me that you have under-reported income which is in consequence of misreporting thereof.

You are hereby requested to appear before me either personally or through a duly authorised representative at 11:00 AM on 31/01/2023 und show cause why an order imposing a penalty on you should not be made under section 270A of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 270A of the Income Tax Act, 1961”

4.2.8 It is also found that the Assessing Officer has not specified relevant limb of the section even in the Assessment Order. The Assessment Order reads as under:
“Penalty proceedings u/s 270A are initiated separately by issue of statutory notice.”
12. A perusal of the aforementioned notice u/s 270A clearly shows that the Assessing Officer did not specify under which limb of the provision he has initiated the proceedings, whether for mis-reporting or under-reporting. This is a legal requirement as the penal proceedings being separate from assessment proceedings, it is incumbent upon the Assessing Officer to demonstrate under which limb he is proposing to levy of penalty while initiating penalty proceedings u/s 270A of the Act. We find in the instant case, the notice u/s 270A also does not specify the transgression of specific provisions u/s 270A (2) or 270A(9). We are of the considered view that there is no reason to interfere with the decision of the CIT(A).
13. On identical circumstances, the Hon’ble High Court of Delhi in the case of Pr. CIT v. Sahara India Life Insurance Co. Ltd.  (Delhi)/ITA No. 475 of 2019 order dated 02.08.2019 has, though in the context of penalty provisions u/s 271(1)(c), held as under:
“21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of inc me or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016)  (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of2016 by order dated 5th August, 2016.”
14. When the notice u/s 270A is read with the decision of the Hon’ble High Court of Delhi [supra], in our considered opinion, the penalty will not survive. It would not be out of place to refer to the decision of the Hon’ble High Court of Delhi in the case of CIT v. Virgo Marketing (P.) Ltd. [2008]   (Delhi) wherein the Hon’ble High Court held as under:
“We are unable to discern from a reading of the assessment order why the Assessing Officer chose to initiate penalty proceedings against the assessed and under which part of Section 271(1)(c) of the Act. In other words, we are unable to discern from the assessment order the reason for initiating penalty proceedings. Therefore, the concurrent view held by both the authorities below must be accepted.”
15. Further, the Hon’ble Supreme Court in the case of CIT v. SSA’S Emerald Meadows   (SC)/[2016] 8 TMI 1145, while confirming the Karnataka High Court order in CIT v. SSA’S Emerald Meadows  (Karnataka)/[2015] (11) TMI 1620, has held that notice issued by the Assessing Officer u/s 274 r.w.s 271(1)(c) of the Act to be bad in law as it did not specify which limb of section 271(1)(c) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income.
16. Considering the facts of the case in totality, in the light of judicial decisions referred to hereinabove, we uphold the findings of the ld. CIT(A) and direct the Assessing Officer to delete the penalty for all the three years. The grounds of appeal are dismissed.
17. In the result, all the appeals of the Revenue in ITA Nos. 4172 to 4175/DEL/2025 are dismissed.