Penalty Under Section 271AAC(1) Cannot Be Initiated

Penalty Under Section 271AAC(1) Cannot Be Initiated by Converting Conscious Satisfaction Recorded Under Section 270A

Issue

Whether a penalty levied under Section 271AAC(1) is legally sustainable when the Assessing Officer consciously recorded satisfaction and initiated penalty under Section 270A in the assessment order, later attempting to substitute it as Section 271AAC(1) by terming it a typographical error.

Facts

Non-Filing & Property Information: The assessee, a non-resident, did not file a tax return for AY 2018-19. Based on Sub-Registrar data regarding an immovable property transaction, reassessment proceedings were initiated.
Ex-Parte Assessment: Due to non-compliance with statutory notices, an ex-parte assessment was completed under Section 144 read with Section 147, making an addition of Rs. 35.83 lakhs as unexplained investment under Section 69.
Satisfaction Recorded Under Section 270A: In the assessment order, the AO repeatedly recorded satisfaction regarding misreporting of income and specifically initiated penalty proceedings under Section 270A (along with Section 272A(1)(d)), without making any reference to Section 271AAC(1).
Levy of Penalty Under Section 271AAC(1): Subsequently, the AO passed a penalty order under Section 271AAC(1), treating the original reference to Section 270A in the assessment order as a mere typographical/clerical error.
Notice Delivery & Portal Issues: Notices were merely uploaded on the portal alongside unsuccessful postal communication and affixture. The assessee’s explanation regarding non-registration on the e-filing portal was accepted when condoning the delay in filing the appeal.

Decision

Provisions Are Not Interchangeable: Section 271AAC(2) expressly prohibits the levy of penalty under Section 270A in respect of income subject to Section 271AAC(1). Hence, initiation under these two distinct provisions cannot be treated as interchangeable.
Conscious Satisfaction Cannot Be Altered: Once the AO consciously records satisfaction and initiates proceedings under Section 270A in the assessment order, it cannot later be converted into an initiation under Section 271AAC(1) under the guise of correcting a clerical or typographical error.
Violation of Natural Justice: Mere portal uploading, combined with failed postal service and affixture, did not afford a meaningful opportunity of being heard to the non-resident assessee.
Penalty Quashed: The penalty levied under Section 271AAC(1) was held to be legally unsustainable and was quashed in favour of the assessee.

Key Takeaways

Strict Statutory Separation: Penalty under Section 270A and penalty under Section 271AAC(1) are mutually exclusive by virtue of Section 271AAC(2) and cannot be substituted interchangeably.
Invalidity of Retrospective “Clerical Error” Corrections: A specific recording of satisfaction under one penalty provision in the assessment order cannot be retrospectively converted to another provision by labeling it a typographical mistake.
Effective Opportunity Required: Procedural service via portal uploads without proper receipt by non-registered/non-resident taxpayers violates principles of natural justice, invalidating consequential penalty proceedings.

IN THE ITAT MUMBAI BENCH ‘A’

Amita Suresh Shah

Income-tax Officer

SMT. BEENA PILLAI, Judicial Member
and Jagadish, Accountant Member

IT Appeal No. 1694 (MUM) of 2026
[Assessment year 2018-19]

SEPTEMBER 18, 2026

Nihar H. Mehta, CA for the Appellant. Surendra Mohan, Sr. DR for the Respondent.

ORDER

Smt. Beena Pillai, Judicial Member.- Present appeal is filed by the assessee against the order dated 30/01/2026 passed by the National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], for Assessment Year 2018-19, arising out of penalty levied u/s. 271AAC(1) of the Income-tax Act, 1961 (“the Act”) amounting to Rs.2,76,825/-.

2. The solitary grievance of the assessee in the present appeal is against the confirmation of penalty of Rs.2,76,825/- levied by the Ld. AO u/s. 271AAC(1) of the Act. The assessee has, inter alia, challenged the levy on the ground that, while passing the assessment order, the Ld. AO had specifically initiated penalty proceedings u/s. 270A of the Act and no proceedings u/s. 271AAC(1) were initiated.

2.1. Brief facts of the case are as under:-

Assessee is a non-resident Indian and had not filed return of income for the year under consideration. Information was received from the Sub-Registrar regarding an immovable property having stamp duty value of Rs.35,83,500/-. Based upon such information, proceedings u/s. 147 were initiated and notice u/s. 148 was issued on 13/04/2022.

2.2. During the reassessment proceedings, notices u/s. 142(1) dated 01/11/2023 and 11/12/2023 were issued. As there was no compliance, the assessment was completed ex parte u/s. 144 r.w.s. 147 of the Act vide order dated 09/02/2024 determining the total income at Rs.35,83,500/-. Though at the initial stage the Ld. AO referred to the provisions of section 56(2)(x) of the Act, while completing the assessment the amount of Rs.35,83,500/- was ultimately added as unexplained investment u/s. 69 of the Act.

2.3. It is relevant to note that while making the aforesaid addition, the Ld. AO recorded the following satisfaction in paragraph 7.1 of the assessment order:

“I am satisfied that the assessee has misreported her income to the tune of Rs. 35,83,500/- as the assessee has failed to record the receipt in the books of account having bearing on the total income of the assessee. Therefore, penalty proceedings under section 270A of the Act for mis-reporting of income to the extent of Rs. 35,83,500/-are being initiated separately.”

Thereafter, while concluding the assessment in paragraph 9, the Ld.AO once again specifically recorded that penalty proceedings u/s.270A were being initiated for misreporting of income. Penalty proceedings u/s.272A(1)(d) were also directed to be initiated for non-compliance with notices u/s.142(1).

2.4. Even the concluding direction contained in the assessment order reads as under:

“Issue Demand notice, computation sheet. Issue penalty notices u/s 270A and 272A(1)(d) of the Act.”

Thus, admittedly, there is no direction in the assessment order for initiation of penalty proceedings u/s. 271AAC(1) of the Act.

3. Subsequently, penalty proceedings u/s.271AAC(1) came to be proceeded with and penalty of Rs.2,76,825/- was levied. In the penalty order, the Ld.AO sought to explain that mention of section 270A in the assessment order was merely a typographical error and that the proceedings were actually intended to be initiated u/s. 271AAC(1). The Ld.AO accordingly computed penalty at 10% of the tax payable u/s. 115BBE on the addition of Rs.35,83,500/-.

Aggrieved by the penalty order, the assessee preferred appeal before the Ld. CIT(A).

4. It was submitted that the assessee is a non-resident Indian and, there being no taxable income requiring filing of return, she did not register herself on the income-tax e-filing portal. It was submitted that the assessee registered herself on the portal only on 05/01/2025 and, therefore, the notices uploaded on the portal during reassessment proceedings never came to her knowledge.

4.1. The assessee further challenged the penalty on the ground that the Ld.AO had consciously initiated proceedings u/s. 270A while passing the assessment order and, therefore, subsequent levy of penalty under a different provision, namely section 271AAC(1), could not be sustained. The assessee had also raised an alternative contention regarding limitation u/s. 275(1)(c) of the Act.

4.2. The Ld.CIT(A), however, rejected the aforesaid contentions. According to the Ld.CIT(A), reference to section 270A in the assessment order was merely clerical in nature and the subsequent notices issued u/s. 274 r.w.s. 271AAC(1) constituted valid initiation of penalty proceedings. The Ld. CIT(A) accordingly upheld the penalty of Rs.2,76,825/-.

We have perused the submissions advanced by both sides in light of the record placed before us.

5. At the outset, we note that the controversy before us lies in a narrow compass. The addition of Rs.35,83,500/- was ultimately made u/s. 69 of the Act. We are presently concerned only with the validity of penalty levied u/s. 271AAC(1) of the Act.

5.1. Section 271AAC(1), insofar as relevant, empowers the Ld.AO to direct levy of penalty where the income determined includes income referred to, inter alia, in section 69 of the Act. Sub-section (2) of section 271AAC, however, specifically provides that no penalty u/s. 270A shall be imposed in respect of income referred to in section 271AAC(1).

5.2. In the present case, the assessment order assumes significance. The Ld.AO has not merely mentioned section 270A once in passing. In paragraph 7.1, the Ld. AO consciously recorded satisfaction that the assessee had “misreported” her income and expressly directed initiation of penalty proceedings u/s. 270A. The same direction was repeated in paragraph 9 of the assessment order and again in the concluding direction to issue penalty notices. On the other hand, section 271AAC(1) does not find mention anywhere in the assessment order while recording satisfaction for initiation of penalty.

5.3. In our considered opinion, such repeated and specific reference to section 270A cannot, in the peculiar facts of the present case, be brushed aside as a mere typographical mistake. A typographical error ordinarily denotes an accidental error in transcription. In the present case, however, the Ld. AO has not merely written an incorrect section number; he has specifically recorded that the assessee had misreported her income, which is terminology germane to section 270A, and thereafter directed initiation under that very provision. The intention recorded contemporaneously in the assessment order is therefore clear and unambiguous.

5.4. This assumes further significance in view of section 271AAC(2), which expressly excludes levy of penalty u/s. 270A in respect of income falling within section 271AAC(1). Therefore, proceedings under the two provisions cannot simply be treated as interchangeable. Once the Ld.AO consciously recorded satisfaction under one penal provision, which the statute itself excludes in relation to the income in question, the same cannot subsequently be converted into an initiation under another provision merely by describing the former as a clerical error.

5.5. We also find that the Ld.CIT(A) proceeded on the basis that penalty proceedings u/s. 271AAC(1) were subsequently initiated by issuance of a notice u/s. 274. This itself does not alter the fact that, at the stage of completion of assessment, the Ld.AO had consciously initiated proceedings only u/s. 270A. The subsequent proceedings cannot retrospectively rewrite the satisfaction recorded in the assessment order.

5.6. We further take note of the peculiar facts surrounding service of notices upon the assessee. The assessment order itself records that notices dated 13/04/2022, 01/11/2023 and 11/12/2023 were uploaded in the e-filing account of the assessee and remained uncomplied with. The assessee has consistently explained that she was a non-resident Indian and had not registered herself on the income-tax e-filing portal during the relevant period and that registration on the portal took place only on 05/01/2025. The Ld.CIT(A) himself accepted this explanation while condoning the delay in filing the first appeal.

5.7. It is also recorded in the impugned order that the postal communication sent during penalty proceedings was returned with remarks indicating that the assessee was not available at the address and thereafter service was stated to have been effected by affixture. In the circumstances peculiar to the present case, the fact that the assessee was not registered on the portal and was residing outside India cannot altogether be ignored while examining whether she had an effective opportunity to respond to the penalty proceedings.

5.8. Section 271AAC(3) makes sections 274 and 275 applicable to proceedings under section 271AAC. Section 274 mandates that no penalty shall be imposed unless the assessee has been heard or has been afforded a reasonable opportunity of being heard. Having regard to the manner in which the proceedings were conducted and the explanation consistently furnished by the assessee regarding her non-registration on the portal, we are not persuaded that the mere uploading of notices, coupled with an unsuccessful postal communication followed by affixture, on the facts of the present case, effectively afforded the assessee a meaningful opportunity to explain her case.

5.9. We have also considered the reliance placed by the Ld. CIT(A) upon the decision of the Hon’ble Supreme Court in Union of India v. Dharmendra Textile Processors and the observations relating to mens rea. In our view, the said proposition does not address the controversy before us. We are not deleting the penalty on the ground that mens rea has not been established. The issue before us is whether, having consciously and repeatedly initiated proceedings under section 270A in the assessment order, the Ld. AO could subsequently treat the said initiation as a typographical error and proceed under section 271AAC(1), coupled with the peculiar circumstances relating to opportunity of hearing. Therefore, the discussion regarding strict civil liability does not resolve the defect arising in the present case.

5.10. Similarly, the observations of the Ld.CIT(A) regarding culpability on account of non-compliance do not alter our conclusion. The assessee’s explanation regarding absence of registration on the e-filing portal has not been found to be false; on the contrary, the said explanation was accepted for the purpose of condoning the delay. In such circumstances, non-response to electronically generated communications by itself cannot justify overlooking the fundamental inconsistency in initiation of penalty proceedings.

5.11. Considering the totality of the facts and circumstances, we are of the opinion that the penalty levied u/s. 271AAC(1) cannot be sustained. The assessment order specifically and repeatedly records initiation of penalty proceedings u/s. 270A for misreporting of income and contains no initiation whatsoever u/s. 271AAC(1). The subsequent attempt to substitute section 271AAC(1) by treating the conscious initiation u/s. 270A as a typographical error cannot be accepted in the peculiar facts before us. We set aside the finding of the authorities below and delete the penalty levied u/s. 271AAC(1) of the Act.

Accordingly, grounds raised by the assessee stands allowed.

In the result, the appeal filed by the assessee stands allowed.