Penalties under Sections 271(1)(b), 271(1)(c), 271B, and 271F

Penalties under Sections 271(1)(b), 271(1)(c), 271B, and 271F cannot survive if quantum additions are deleted.

Issue

Whether penalty under Section 271(1)(b) for non-compliance with notices can be sustained when the underlying quantum additions made in reassessment proceedings have been deleted by the ITAT.
Whether penalty under Section 271(1)(c) for concealment or furnishing inaccurate particulars survives after the quantum additions forming the basis of the levy are deleted on merits.
Whether penalty under Section 271B for failure to get accounts audited can be levied under an old PAN when the assessee had already audited its accounts and reported the turnover under its correct, newly allotted PAN.
Whether penalty under Section 271F for failure to furnish a return of income can be imposed under an old PAN when the return was duly filed and assessed under the correct PAN.

Facts

Entity & PAN Issue: The assessee, a private limited company, was erroneously allotted an old PAN displaying the status of a partnership firm. It subsequently obtained a fresh PAN reflecting its correct status as a company, filed its return of income under the correct PAN, and completed its original assessment thereunder.
Reassessment & Issue I (Section 271(1)(b)): Based on ITS information showing receipts under the old PAN, the AO initiated reassessment proceedings and issued notices under Section 142(1). Treating non-compliance as deliberate, the AO imposed a penalty under Section 271(1)(b). However, the underlying additions made in reassessment were later deleted by the Tribunal on merits.
Issue II (Section 271(1)(c)): The AO levied a penalty of ₹6.62 lakhs (100% of tax sought to be evaded) under Section 271(1)(c). In quantum appeal, the Tribunal verified Form 26AS and audited financial statements, finding that the contract receipts and expenditures were already accounted for and offered to tax under the correct PAN, and thus deleted the additions.
Issue III (Section 271B): The AO imposed a penalty under Section 271B, alleging non-compliance with Section 44AB under the old PAN. The assessee submitted that its books were fully audited and the tax audit report was duly filed with the return under the correct PAN.
Issue IV (Section 271F): The AO levied a penalty under Section 271F solely because the assessee failed to file a return of income under the old, incorrect PAN.

Decision

Issue I (In favor of Assessee): Penalty under Section 271(1)(b) is not automatic; the Revenue must establish a lack of reasonable cause. Once the underlying quantum additions are deleted by the Tribunal on the finding that receipts were fully disclosed under the correct PAN, the very basis for drawing an adverse inference disappears. Penalty deleted.
Issue II (In favor of Assessee): Once the quantum additions on the basis of which the Section 271(1)(c) penalty was levied are deleted on merits, the substratum of the penalty no longer survives. Penalty deleted.
Issue III (In favor of Assessee): Since the assessee got its accounts audited and submitted the tax audit report alongside the return filed under the correct PAN under which income was assessed, the levy of penalty under Section 271B is unsustainable. Penalty deleted.
Issue IV (In favor of Assessee): As the return of income was already filed and assessed under the correct PAN, penalty under Section 271F for non-filing under an erroneous old PAN cannot be sustained. Penalty deleted.

Key Takeaways

Deletion of Quantum Deletes Penalties: Penalties levied under Section 271(1)(b) and Section 271(1)(c) automatically fail when the underlying quantum additions on which they are based are struck down on merits by appellate authorities.
Technical PAN Mismatch Is Not Default: When income is fully declared, audited, and assessed under a correct PAN, the Revenue cannot penalize the assessee under Sections 271B or 271F for failing to file returns or audit reports under an erroneously issued second/old PAN.
Requirement of Reasonable Cause: Section 271(1)(b) penalties require proof that the assessee lacked reasonable cause for non-compliance; procedural confusion arising from duplicate or mismatched PANs constitutes reasonable cause.

IN THE ITAT MUMBAI BENCH ‘E’

High Voit Electicals P. Ltd.

Income-tax officer

Siddhartha Nautiyal, Judicial Member
and Vikram Singh Yadav, Accountant Member

IT Appeal No. 4462, 4463, 446 and 465 (MUM) OF 2025
[Assessment year 2013-14]

JULY 29, 2026

Prateek Jain for the Appellant. Ashok Charan, Sr. DR for the Respondent.

ORDER

1. These appeal are filed by the Assessee against the separate orders of Ld. NFAC evenly dated 20-Jun-2025 for the Assessment Year 2013-14.

ITA Number 4462/Mum/2026

2. The brief facts of the case are during the reassessment proceedings under sections 147/148 of the Act for Assessment Year 2013-14, the Assessing Officer issued notices under section 142(1) of the Act dated 19.10.2020 and 25.10.2020 asking for specified information from the assessee. According to the Assessing Officer, the assessee failed to comply with these notices within the prescribed time. The Assessing Officer held that although the assessee had furnished a reply on one occasion after service of notice through the Verification Unit, the reply did not explain any reasonable cause for the non-compliance by the assessee in response to earlier notices issued under section 142(1) of the Act. The Assessing Officer held that the assessee had deliberately failed to comply with the statutory notices without any sufficient cause and levied penalty under section 271(1)(b) of the Act amounting to Rs. 10,000 for each of the two defaults, aggregating to Rs. 20,000.

3. Before the Commissioner of Income-tax (Appeals), the assessee challenged the penalty primarily on legal as well as factual grounds. The assessee contended that the reassessment order had already been challenged before the CIT(A) by filing Form No. 35 on 06.01.2022 and, therefore, in view of section 275(1)(a), the Assessing Officer ought not to have passed the penalty order while the quantum appeal was pending. On merits, the assessee explained that the assessee had originally been allotted PAN AABFH1723L with the incorrect status of a partnership firm instead of a company, making electronic filing of its return impossible after e-filing became mandatory. According to the assessee, it was compelled to obtain a fresh PAN Viz. AABCH7678H, under which it had duly filed its return of income for Assessment Year 2013-14 declaring total income of Rs. 2,23,68,227 and the assessment under that PAN had already been completed. The assessee further submitted that the income sought to be assessed in the reassessment proceedings had already been offered to tax under the correct PAN and an application for cancellation of the earlier PAN had been made as far back as 15.10.2012 but no action had been taken by the Department. The assessee, therefore, submitted that the penalty was unjustified because there was no deliberate default and the income had already been subjected to tax.

4. The Commissioner of Income-tax (Appeals), after examining the assessment records and the submissions, rejected the assessee’s contentions and upheld the levy of penalty. The CIT(A) accepted that there had been double allotment of PAN and there was indeed a mismatch in the status of the original PAN. However, according to the CIT(A), the surrounding facts showed that the assessee had intentionally continued using the incorrect PAN with third parties from whom transaction-related information was subsequently received by the Department, while simultaneously filing its return under the newly obtained PAN. The CIT(A) held that the Assessing Officer was justified in invoking section 271(1)(b) of the Act.

5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

6. We have heard the rival submissions and perused the material available on record. The only issue for consideration is whether the penalty of Rs. 20,000 levied under section 271(1)(b) of the Income-tax Act is sustainable on the facts of the present case.

7. The undisputed factual position is that the assessee is a private limited company. It is also not in dispute that, due to an error committed at the time of allotment of PAN by the Department, the assessee was originally allotted PAN AABFH1723L in the status of a “Partnership Firm” instead of a “Company”. Since a company could not file its return using a PAN in an incorrect status, the assessee obtained a fresh PAN being AABCH7678H, under the correct status as a “company” and filed its return of income there under. The assessee has always submitted that it had also applied for cancellation of the earlier PAN much before the year under consideration. Both the Assessing Officer in the remand proceedings and the learned CIT(A) have accepted the fact that there was a double allotment of PAN and the original PAN gave an incorrect status. Thus, the basic explanation furnished by the assessee regarding the existence of two PANs is not in dispute.

8. The learned CIT(A.), however upheld the penalty u/s 271(1)(b) of the Act. In our considered opinion, this finding cannot be seen in isolation. It is important to note that the very additions made in the reassessment proceedings, which formed the background for initiation of the present penalty proceedings, have subsequently been deleted by the Coordinate Bench of the Tribunal in the assessee’s own case for the same assessment year in ITA No. 4461/Mum/2025 vide order dated 14.08.2025. After examining Form 26AS, ledger accounts, audited financial statements and other documentary evidence, the Coordinate Bench held that the contract receipts and service charges against the old PAN had already been accounted for and offered to tax under the correct PAN. The Tribunal further held that making a separate addition on the basis of the old PAN would result in double taxation, which is impermissible in law. The addition relating to credit card expenditure was also deleted after finding that the expenditure had been incurred through the regular bank account of the assessee and was included in the business accounts.

9. In view of the these findings of the ITAT in the assessee’s own case, we are of the considered view that the basis on which the present penalty has upheld, cannot be sustained. The allegation of the Revenue that the assessee had deliberately used the old PAN to suppress income and, therefore, failed to comply with the statutory notices. However, once the Tribunal has held that the receipts appearing under the old PAN had already been disclosed under the correct PAN and that no addition was legally sustainable, the very basis for drawing an adverse inference against the assessee cannot be sustained. The subsequent findings in the quantum proceedings by the ITAT lend support to the assessee’s explanation that the dispute had arisen because of the existence of two PANs and not because of any deliberate attempt to conceal income.

10. It is a well settled law that levy of penalty under section 271(1)(b) is not automatic. Before imposing penalty, the Revenue must establish that the assessee failed to comply with the notices without any reasonable cause. The expression “reasonable cause” has to be interpreted keeping in view the surrounding circumstances of the case. In the present case, the explanation offered by the assessee regarding the incorrect PAN, the subsequent allotment of the correct PAN, the filing of the return under the correct PAN and the finding of the Tribunal that the impugned receipts had already been subjected to tax in the correct PAN are required to be taken into consideration.

11. In light of the above observations, we are of the considered opinion that this is not a fit case for sustaining the penalty levied under section 271(1)(b) of the Act.

12. In the result, the appeal of the assessee is allowed.

ITA Number 4463 /Mum/2026

13. The brief facts of the case are that the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act consequent to the reassessment completed under sections 147 of the Act. During the reassessment proceedings, the Assessing Officer observed that on the basis of information available in the ITS system, that receipts in the form of service tax turnover, contract receipts and credit card expenditure were reflected against the assessee’s old PAN. Since the assessee did not make compliance during the reassessment proceedings, the Assessing Officer completed the assessment under section 144 of the Act and assessed the total income at Rs. 21,40,940/-. The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act and then levied penalty of Rs. 6,61,550/-, being 100% of the tax sought to be evaded.

14. In appeal, the learned CIT(A) dismissed the appeal of the assessee. The learned CIT(A) observed that although the assessee’s contention regarding allotment of two PANs and the status mismatch was factually correct, the assessee had continued to use the old PAN with third parties and had failed to establish that the receipts reflected under the old PAN had already been offered to tax under the new PAN. Accordingly, the CIT(A) held that the assessee had concealed its income and the Assessing Officer was justified in levying penalty under section 271(1)(c) of the Act. Accordingly, the penalty of Rs. 6,61,550/- was confirmed.

15. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

16. The issue before us is whether the penalty levied under section 271(1)(c) of the Act can survive in the facts of the present case.

17. We find that the penalty has been levied on the basis of the additions made in the reassessment order passed under section 147 of the Act. It is an admitted position that the Coordinate Bench of the Tribunal, in the assessee’s own case in ITA No. 4461/Mum/2025 vide order dated 14.08.2025 for the very same assessment year, has subsequently allowed the quantum appeal after examining the documentary evidence viz. Form 26AS, ledger accounts and audited financial statements. The Tribunal held that the contract receipts, service charges and credit card expenditure on which additions were made had already been accounted for and offered to tax by the assessee under the correct PAN allotted to the assessee. The ITAT further held that any separate addition on the basis of the old PAN would result in double taxation and, accordingly, deleted the additions.

18. Once the additions on the basis of which the penalty was levied have themselves been deleted by the Coordinate Bench on merits, the very basis of the levy of penalty no longer survives. It is well settled that where the quantum additions are deleted on merits and the income is held not to be taxable, the consequential penalty under section 271(1)(c) cannot be sustained, as there remains neither any concealment of income nor furnishing of inaccurate particulars in respect of the deleted additions.

19. Accordingly, respectfully following the decision of the Coordinate Bench in the assessee’s own case for the same assessment year, we hold that the penalty levied under section 271(1)(c) of the Act is unsustainable.

20. In the result, the appeal of the assessee is allowed.

ITA Number 4464/Mum/2026

21. The brief facts of the case are that the Assessing Officer passed a penalty order under section 271B of the Act on the ground that the assessee had failed to comply with the provisions of section 44AB of the Act for Assessment Year 2013-14. According to the Assessing Officer, the assessee had not filed a return of income in response to the notice issued under section 148 of the Act and had also failed to disclose contract receipts and turnover amounting to Rs. 2,22,33,070/-, comprising of service tax turnover and contract receipts. Since the turnover of the assessee exceeded the monetary threshold prescribed under section 44AB of the Act, the Assessing Officer held that the assessee was required to get its accounts audited and furnish the tax audit report before the prescribed due date. Since the assessee did not file tax audit report for the PAN under which the reassessment proceedings were initiated, the Assessing Officer issued show-cause notices under section 271B of the Act. The Assessing Officer levied penalty of Rs. 1,11,165/- under section 271B of the Act.

22. The CIT(Appeals) held that since the additions had also been sustained by the first appellate authority, the Assessing Officer was justified in holding that the assessee had failed to obtain and furnish the tax audit report as required under section 44AB of the Act and accordingly confirmed the penalty levied under section 271B of the Act.

23. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

24. The issue for our consideration is whether the penalty levied under section 271B of the Act for failure furnish tax audit report under section 44AB of the Act, is sustainable in the facts of the present case.

25. The undisputed factual position is that the assessee is a private limited company. It is also not disputed that the Department had originally allotted PAN AABFH1723L in the status of a partnership firm, although the assessee was in fact a company. Owing to this mismatch, the assessee was unable to file its return of income under the incorrect PAN and was, therefore, compelled to obtain a fresh PAN AABCH7678H reflecting its correct legal status. The return of income for the year under consideration was thereafter filed by the assessee under the correct PAN, and the assessment was also completed under the said PAN.

26. Therefore, the very basis of the penalty is that no tax audit report was furnished under the old PAN. In our considered opinion, such an approach ignores the undisputed factual position that the old PAN did not correctly reflect the legal status of the assessee. Once the Department itself had allotted an incorrect PAN and the assessee had obtained the correct PAN for complying with its statutory obligations, the requirement of section 44AB of the Act had necessarily to be satisfied with reference to the correct PAN under which the return of income was legally filed. The Act does not contemplate furnishing two separate tax audit reports for the same business merely because two PANs had been allotted to the assessee, due to an error in allotment.

27. We further find that the assessee has submitted that its books of account were duly audited and the tax audit report was furnished while filing the return of income under the correct PAN AABCH7678H, under which the income of the assessee was assessed. Thus, the substantive requirement of section 44AB was duly complied with.

28. In these circumstances, we are of the considered view that penalty levied under section 271B of the Act is not sustainable.

29. In the result, the appeal of the assessee is allowed.

ITA Number 4465/Mum/2026

30. The brief facts of the case are that the Assessing Officer levied penalty under section 271F of the Act on the ground that the assessee had failed to furnish its return of income for Assessment Year 2013-14 within the prescribed time. According to the Assessing Officer, reassessment proceedings showed that the assessee had substantial contract receipts and turnover but had not filed its return under the PAN against which the reassessment proceedings were initiated. The Assessing Officer held that since the assessee had failed to comply with the requirement of filing the return of income, the Assessing Officer imposed penalty under section 271F of the Act.

31. In appeal, the learned CIT(A) upheld the levy of penalty. The learned CIT(A) accepted that there was a double allotment of PAN and the original PAN had been allotted in an incorrect status. However, CIT(Appeals) held that the assessee had continued to use the old PAN with third parties and had failed to prove that the income duly reflected under the old PAN had already been disclosed under the correct PAN. The learned CIT(A), therefore, held that the Assessing Officer was justified in levying penalty under section 271F of the Act and dismissed the appeal filed by the assessee.

32. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

33. We find that the penalty under section 271F of the Act has been levied solely on the premise that the assessee had failed to file its return of income under PAN AABFH1723L. However, the undisputed factual position is that the said PAN had been incorrectly allotted in the status of a partnership firm, whereas the assessee is a private limited company. Since the return of income could not be filed under the incorrect PAN, the assessee obtained a fresh PAN AABCH7678H in the correct status and duly filed its return of income there under, declaring the income of the business.

34. We further find that the Coordinate Bench of the Tribunal, in ITA No. 4461/Mum/2025 for the same assessment year, has already held that the receipts reflected under the old PAN had been duly accounted for and offered to tax under the correct PAN and, therefore, the additions made in the reassessment proceedings under incorrect PAN were liable to be deleted. Once it is accepted that the assessee had already filed its return under the correct PAN and the income was assessed there under, the allegation that the assessee failed to furnish its return of income cannot be sustained merely because no return was filed under an incorrect PAN. The default, if any, is purely technical because of the erroneous allotment of PAN by the Department itself.

34. In these facts, we are of the considered opinion that the assessee had complied with its statutory obligation of filing the return of income. Accordingly, the penalty levied under section 271F of the Act is unsustainable.

35. In the result, the appeal of the assessee is allowed.

36. In the combined result, all the appeals filed by the assessee are allowed.