ARUSUVAI FOOD PROCESSORS PVT. LTD.,SALEM V. DCIT, CIRCLE-1(1), SALEM

ITA 416/CHNY/2025

AI Insights

The case involves Arusuvai Food Processors Pvt. Ltd., which appealed against the penalty imposed by the AO under Section 270A of the Income Tax Act, 1961, for underreporting of income. The penalty was based on the reassessment order which did not explicitly direct the imposition of a penalty under Section 270A. The Tribunal examined the procedural validity of the penalty, focusing on the lack of specific direction in the reassessment order and the vagueness of the show cause notice. The Tribunal referenced several precedents, including decisions from the Supreme Court and various High Courts, which emphasized the necessity of clear communication regarding the specific grounds for any penalty imposed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772699 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: PCIT v. Golden Peace Hotel & Resorts, CIT v. Jai Laxmi Rice Mills, Enrica Enterprises Pvt. Ltd., Prem Brothers Infrastructure LLP, Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, International Taxation, Babuji Jacob v. ITO, CIT v. Manjunatha Cotton & Ginning Factory, CIT v. SSA's Emerald Meadows
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M. MOHAN BABU
• Assessee Lawyers: D.ANAND
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Invalid notice; Transfer pricing; International transaction; Reassessment proceedings; Gift; Principle of natural justice; Initiation of penalty proceedings; Revision of order
• Section: 143(3); 142(1); 271(1)(c); 11; 68; 133(6); 14A; 270AA

Judgement Text

"आयकर अपीलीय अिधकरण, ‘ए’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी जगदीश, लेखा सद क े सम\u0015 BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.416/Chny/2025 िनधा\u000eरणवष\u000e/Assessment Year: 2017-18 M/s. Arusuvai Food – Processors Pvt. Ltd., No.352, Sooramangalam Main Road, Manipuram, Salem-636 009. v. The DCIT, Circle-1(1), Salem. [PAN: AAHCA 6759 L] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.D. Anand, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr.M. Mohan Babu, Addl.CIT सुनवाईक\u001aतारीख/Date of Hearing : 03.07.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 28.08.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee company against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 21.01.2025 for the Assessment Year (hereinafter referred to as ‘AY‘) 2017-18 confirming the penalty u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) levied by the Assessing Officer (hereinafter referred to as ‘the AO‘) dated 26.09.2022. Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 2 :: 2. At the outset, the Ld.AR submitted that levy of penalty u/s.270A(9)(a) of the Act is bad in law, since the AO failed to record his satisfaction in the body of the assessment order that the assessee has misreported consequent to underreporting of income u/s.270A(9)(c) of the Act nor has given any direction indicating initiation of penalty for underreporting of income/misreporting of income u/s.270A of the Act. Therefore, the foundational jurisdictional requirement for imposing penalty u/s.270A of the Act is bad in law and drew our attention to Section 270A(1) which reads as under: Section 270A “(1)The Assessing Officer, Commissioner (Appeals), Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his income shall be liable to pay penalty in accordance with the provisions of this section.”[emphasis given] 3. According to the Ld.AR, it is explicit from a reading of Section 270A(1) of the Act that it is imperative for the “AO to give direction” in the course of assessment proceedings that the assessee has underreported his income, which is absent in this case and which omission is evident on perusal of assessment order passed on 31.03.2022, which contention of the assessee, we find to be factually correct; and the Ld.DR couldn’t rebut the aforesaid assertion made by the Ld.AR. Before we go further, it would be gainful to take note of the brief facts of the case. The assessee is a company engaged in trading of agricultural commodities for the Assessment Year 2017–18, the assessee Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 3 :: filed its return of income on 31.10.2017 declaring total income of ₹61,371/-. The appellant’s case was originally selected for scrutiny under CASS and an assessment was completed under Section 143(3) of the Act. Several additions were made totaling to ₹32,72,39,122/- and total income of the appellant was assessed at ₹32,72,39,122/- and the AO endorsed his satisfaction to initiate penalty u/s.271(A)(A)(C) of the Act. 4. Aggrieved by the said assessment order, the appellant filed a revision petition before the Ld.Principal Commissioner of Income Tax–1, under Section 264. Pursuant to it, vide order dated 13.01.2021, the Ld PCIT, directed deletion of Rs 21,78,65,048/- and set-aside the assessment back to the file of AO for verification of Rs 10,93,74,074/-and pass order accordingly. 5. Pursuant to the Ld.PCIT’s directions, reassessment proceedings under Section 143(3) read with Section 264 were initiated. And notice under Section 142(1) was issued, calling for detailed information and evidence. With respect to cash Sales, the assessee submitted VAT returns, purchase confirmations, ledgers, and exemption details under TNVAT Act for the sale of pulses and grams. In the reassessment proceedings under Section 143(3) read with Section 264, the AO accepted the appellant’s explanations regarding cash sales and dropped the corresponding addition of ₹5,76,74,074/-. Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 4 :: 6. Regarding trade advances, the assessee submitted confirmations, ledger accounts, and details of advances received from 36 parties during FY 2016–17. Notices under Section 133(6) were issued to these parties. 32 parties responded with confirmations and ledgers. In 4 cases, either balance was NIL or confirmations were not received. However, in respect of 12 parties, trade advances aggregating to ₹1,70,16,220/- remained unsettled for more than 5 years. Based on the prolonged non-settlement of trade advances received in FY 2016–17, the AO invoked Section 41(1) and treated the amount of ₹1,70,16,220/- as deemed profits chargeable to tax under the head “Profits and Gains of Business or Profession. 7. Pursuant to the directions issued under Section 264, the Assessing Officer completed the reassessment under Section 143(3) read with Section 264 of the Act on 31.03.2022, determining the total assessed income at ₹1,70,77,591/- as against the returned income of ₹61,371/-. And as noted supra, the ibid assessment order didn’t contain any finding or direction regarding the initiation of penalty proceedings in respect of the additions made, which omission according to the assessee vitiates the impugned penalty levied by the AO, u/s.270A of the Act. 8. According to the Ld.AR, before levying penalty u/s.270A of the Act, the AO ought to have given direction in the course of assessment proceedings that the assessee shall be liable to pay penalty u/s.270A of Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 5 :: the Act for having underreported his income which is foundational requirement of law, without which, levy of penalty is legally untenable and relied on the ratio laid down by the Hon’ble Supreme Court decision in the case of PCIT v. Golden Peace Hotel & Resorts reported in [2021] 124 taxmann.com 249 (SC). Hence, assessee pleads that the impugned penalty levied by the AO of ₹1,70,77,591/- need to be deleted. Per contra, the Ld.DR couldn’t controvert the fact that the AO in the assessment order dated 31.03.2022 passed u/s.143(3)/264 of the Act didn’t made any endorsement to the effect showing the AO’s satisfaction to proceed to levy penalty u/s.270A of the Act. However, he pointed out that in the assessment order dated 27.12.2019 u/s.143(3) of the Act, the AO made endorsement to levy penalty u/s.271(A)(A)(C) of the Act and therefore doesn’t want us to interfere. 9. Having heard both parties, we note that the AO while passing the assessment order on 27.12.2019 u/s.143(3) of the Act [in the first round] made an addition of ₹32,72,39,122/- and had given direction in the assessment order to initiate levy of penalty u/s.271(A)(A)(C) of the Act. However, the Ld.PCIT by order u/s.264 of the Act dated 13.01.2021 deleted partly the additions to the tune of Rs 21,78,65,048/- and thus partly set aside the assessment order dated 27.12.2019 & directed the AO to pass assessment order after verification of addition Rs 10,93,74,074/-; Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 6 :: and pursuant to it, the AO passed the assessment order dated 31.03.2022 u/s.143/264 of the Act wherein he accepted the appellant’s explanation and sustained only ₹1,70,77,591/- [trade advance] by invoking Sec.41(1) and treated the amount of ₹1,70,16,220/- as deemed profits chargeable to tax under the head “Profits and Gains of Business or Profession, without giving any direction for levy of penalty u/s.270A of the Act. We find that the AO has not recorded his satisfaction/direction in the course of assessment proceedings or in the assessment order dated 31.03.2022 that he was satisfied that the assessee has underreported his income and therefore, liable to pay penalty in accordance with Section 270A of the Act. Omission to record his satisfaction / direction about assessee having committed the fault as given in clause (a) of sub-section (9) of Sec.270A of the Act vitiates penalty levied on the assessee dated 26.09.2022 u/s.270A(9)(a) of the Act [refer the Hon’ble Supreme Court decision in the case of PCIT v. Golden Peace Hotel & Resorts reported in [2021] 124 taxmann.com 249 (SC), though passed in the context of levy of penalty u/s.271(1)(c) of the Act. But the requirement of law as given in section 271(1) & 270A(1) of the Act is noted to be pari-materia. As far as Section 271(1) is concerned, the AO to record ‘satisfaction’ to levy penalty whereas in section 270A(1), the AO to give ‘direction’ for levy of penalty u/s.270A of the Act.] In this case, the AO has not given any such direction while passing the assessment order on Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 7 :: 31.03.2022, pursuant to which, he levied penalty u/s.270A(a)(a) of the Act on 26.09.2022. The Ld.DR’s assertion that the AO while framing the assessment order on 27.12.2019 [in the first round] had made endorsement to initiate penalty, therefore, the non-recording of satisfaction in the second round assessment (post-revision u/s 264), will not vitiate the penalty levied u/s 270A, we don’t agree and note in this regard that the AO has recorded in the first round assessment order that penalty proceedings u/s.271(A)(A)(C) of the Act be initiated, [when AO made total addition of Rs 32 crores, which inter-alia consisted of addition made u/s 68 also]. However, when assessee moved revision application u/s 264, the Ld.PCIT is noted to have granted relief to assessee by deleting ₹21,78,65,048/- and thus, partly had set aside the assessment order for verification of addition made to the extent of ₹10,93,74,074. Pursuant to it, the AO had sustained only the addition of ₹1,70,77,591/- u/s.41(1) [cessation of liability from four (4) parties and treated it as deemed profit (business income)]. Thus, we note that the AO in the assessment order dated 31.03.2022 passed u/s.143/264 of the Act has not given his direction for levy of penalty u/s.270A of the Act, which order was the foundation on the basis of which penalty was levied u/s.270A of the Act, which omission, according to us, is fatal and vitiates the penalty levied u/s.270A((9)(a) of the Act dated 26.09.2022. Therefore, penalty levied by the AO of ₹1,12,92,726/- is unsustainable by relying on the Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 8 :: decision of the Hon’ble Supreme Court in the case of CIT v. Jai Laxmi Rice Mills wherein the Hon’ble Supreme Court while examining the similar contention/levy of penalty albeit u/s.271E held as under: 5. As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271 (l)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed. 10. Therefore, penalty levied by the AO of ₹1,12,92,726/- is directed to be deleted. 11. Further, the Ld.AR also brought to our notice that before levying penalty, the AO issued notice u/s.274 r.w.s.270A of the Act proposing to levy penalty on both the grounds of underreporting of income and misreporting of income without specifying exactly the fault spelled out in sub-section (9) of Section 270A of the Act. 12. According to the Ld.AR, the AO erred in levy of penalty without specifying in the notice itself the specific clause under sub-section 9 of section 270A and drew our attention to the impugned penalty notice dated 31.03.2022 issued by the AO which notice reads as under: Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me under-reporting and misreporting of income. You are hereby requested to appear before me either personally or through a duly authorized representative at 03:59 PM on 27/04/2022 and show cause why an order imposing a penalty on you should not be made under section 270A of the Income Tax Act, 1961. Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 9 :: If you do not wish to avail yourself of this opportunity of being heard in person or through authorized 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. 13. The Ld.AR drawing our attention to the show cause notice (supra) especially pointed out the first sentence given in the said notice, wherein the AO has put the assessee on notice stated ‘whereas in the course of the proceedings before me for AY 2017-18, it appears to me under- reporting of income & misreporting of income.’’ Such a notice, according to Ld AR, was bad in law since it doesn’t spelling out which limb of the sub-section (9) has been violated. In this regard, he drew our attention to sub-section (9) of section 270A of the Act, and submitted that there are six (6) different clauses/limbs which would qualify to attract the penalty of misreporting, which reads as under: (9) The cases of misreporting of income referred to in sub-section (8) shall be the following, namely:— (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure not substantiated by any evidence; (d) recording of any false entry in the books of account; (e) failure to record any receipt in books of account having a bearing on total income; and (f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. 14. The Ld.AR submitted that the AO was bound by law to specify in the notice, which clause of sub-section (9) of section 270A has been attracted Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 10 :: for levying of the penalty under misreporting of income. According to the Ld.AR, in the present case, it can be seen that the notice issued (supra) before levying penalty u/s.270A is vague, because of which, the assessee was confused and couldn’t comprehend as to what fault assessee committed to attract such a penalty. In other words, the assessee was in the dark and wondered as to what kind of violation/fault, assessee has committed which assessee needs to defend while answering the show- cause notice issued by the AO. 15. We find force in the submissions of the assessee and note that the notice of penalty issued by the AO is vague and doesn’t spell out the specific fault for which assessee has been called upon to defend the proposed penalty viz ‘underreporting and misreporting of income’ which the AO might have proposed as “under-reporting of income its income in consequent of misreporting of income” which falls under sub-section (9) of section 270A of the Act. For easy reference, we again reproduce the charge against the assessee as noted under;- Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me Under-reporting and misreporting of income. 16. According to us, the assessee should be informed in the show-cause notice with certainty and accuracy of the exact nature of the fault alleged against him. In this case, it has been noted that the impugned notice issued by the AO is silent about which limb/clause of sub-section (9) of Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 11 :: section 270A of the Act has been attracted in the facts of the case, to deserve levy of penalty and how the ingredient of sub-section (9) of Section 270A is satisfied. Therefore, show-cause notice proposing penalty is found to be vague and doesn’t muster the requirement of law to legally impose penalty and therefore, consequent levy of penalty is fragile in eyes of law and is held to be ab-initio bad in law. 17. We find that similar issue had come up for consideration before the co-ordinate bench of this Tribunal in the case of Enrica Enterprises Pvt. Ltd. in ITA Nos.1166 & 1167/Chny/2023 dated 06.06.2024, and it was held, as under: - 12. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO levied penalty u/s.270A of the Act, for both the assessment years on the ground that the assessee has ‘under reporting of income and under reporting as a consequence of misreporting of income’. The AO invoked provisions of clauses (c) & (d) of Sec. 270A(9) of the Act, which deals with claim of expenditure not substantiated by any evidence and recording of any false entry in the books of accounts. The AO has arrived at the above conclusion on the basis of findings in the assessment order, where income admitted by the assessee in the return of income filed in response to notice u/s.153A of the Act, has been accepted. In the revised return filed u/s.153A of the Act, the assessee has admitted taxable income of Rs.2,55,35,485/- which is higher than the last return filed u/s.139(1) of the Act. According to the AO, the assessee has ‘under reporting of income and under reporting as a consequence of misreporting of income’ in respect of marketing expenses, which is clearly evident from information gathered during the course of search coupled with statement recorded from the Director of the assessee company and also enquiries conducted with suppliers of ‘gift articles’ during the course of assessment proceedings. The AO further observed that had search was not taken place u/s.132 of the Act, ‘under reporting of income and under reporting as a consequence of misreporting of income’ would not have come to light. Therefore, the AO opined that it is a clear case of ‘under reporting of income and under reporting as a consequence of misreporting of income’ which attracts provisions of Sec.270A(9) of the Act, and thus, levied Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 12 :: penalty for both the assessment years for ‘under reporting of income and under reporting as a consequence of misreporting of income’. 13. The fact with regard to seizure of huge unaccounted cash during the course of search on 6-12-1018 was not disputed. It is also an admitted fact that the assessee company has offered additional income of Rs.16.39 Crs. & Rs.23.62 Crs. towards disallowance of estimated marketing expenses @ 1/3rd of total expenses incurred under the head ‘marketing expenses’ for both the assessment years. The cash seized during the course of search was telescoped against additional income offered by the assessee towards estimated disallowance of marketing expenses. The assessee has filed return of income in response to notice u/s.153A of the Act, for both the assessment years and offered additional income admitted during the course of search in respect of disallowance of marketing expenses and paid taxes. The AO has also accepted return of income filed by the assessee in response to notice u/s.153A of the Act, without any further addition and also recorded a clear finding in the assessment order that after going through the circumstances in its entirety, the income offered by the assessee, including estimated disallowance of portion of marketing expenses, is found to be in order and accepted. In other words, there is no separate addition towards marketing expenses, but the assessment has been completed by accepting additional income offered by the assessee towards estimated disallowance of marketing expenses for both the assessment years. 14. In light of above factual back ground, if we examine the order passed by the AO imposing penalty u/s.270A(9) of the Act, it is necessary to refer to provisions of Sec.270A of the Act, and the reasons given by the AO to impose penalty u/s.270A(9) of the Act. The provisions of Sec.270A of the Act, deals with penalty for ‘under reporting of income and under reporting as a consequence of misreporting of income’. Sub-section 1 to 6 of Sec.270A of the Act, deals with ‘under reporting of income and under reporting as a consequence of misreporting of income’, has been specified in sub-section 7 of Sec.270A of the Act. Sub-section 8 & 9 deals with ‘under reporting of income and under reporting as a consequence of misreporting of income’ thereof by any person and such cases of ‘misreporting of income’ referred to in sub-sec.8 has been specified in sub sec.9 of Sec.270A of the Act. From the above, it is manifestly clear that provisions of Sec.270A of the Act, has two limbs or two charges for which penalty can be levied. The first limb or first charge is ‘under reporting of income and such under reporting of income’ has been specifically referred to in sub-section 2 to 6 of Sec.270A of the Act. In the present case, these provisions are not relevant, because, the AO has not invoked under reporting of income. The second limb or charge is ‘under reporting of income as consequence of misreporting of income’ thereof and in the present case, the AO invoked second limb of provisions of Sec.270A of the Act. Admittedly, these provisions have been substituted by the Finance Act, 2016 w.e.f.01.04.2017 and applicable for AY 2017-18 onwards. Prior to insertion of Sec.270A of the Act, a similar provision was existed in the statue by way of sec.271(1)(c) of the Act, for concealment of particulars of income Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 13 :: or furnishing of inaccurate particulars of income. Provisions of Sec.271(1)(c) of the Act, was also having two limbs or two charges i.e. i) for concealment of particular of income and ii) furnishing of inaccurate particulars of income. If you go by provisions of Sec. 271(1)(c) of the Act & Sec.270A of the Act, and wordings therein both provisions are similar and para materia to each other. Although, the term ‘tax evasion’ has been redefined by way of ‘under reporting of income and under reporting as a consequence of misreporting of income’ but it is synonymous to concealment of particular of income or furnishing of inaccurate particulars of income. Therefore, it is necessary to examine whether penalty proceedings u/s.270A of the Act, is mandatory in nature and further, such penalty can be invoked without providing an opportunity to the assessee as required u/s.274 of the Act. 15. The order imposing penalty u/s.270A of the Act, is an appealable order u/s.246A of the Act before the First Appellate Authority. If penalty u/s.270A of the Act, has been mandatory, there have not been any provision of appeal u/s.246A of the Act. Since, the order imposing penalty Sec.270A of the Act, is an appealable order, then, it cannot be said that penalty u/s.270A of the Act, is not mandatory in nature. Since, penalty u/s.270A of the Act, is not mandatory in nature, the AO is required to give an opportunity to the assessee to show cause ‘as to why’ penalty should not be levied in terms of sec.274 of the Act. Admittedly, the AO issued notice u/s.274 r.w.s.270A of the Act. Sec.274 of the Act deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of hearing. Thus, it is evident that the penalty u/s.270A of the Act, cannot be imposed unless the assessee has given a reasonable opportunity and the assessee is being heard. Once, the AO is bound to act to hear the assessee and give reasonable opportunity to explain its case, then, there is no mandatory requirement of imposing penalty, because the opportunity of hearing is not a mere formality, but it is to adhere to the principle of natural justice. Therefore, in our considered view, the penalty u/s.270A of the Act, is not mandatory and it is based on the facts and merits placed before the AO. 16. Having said so, let us come back to notice issued u/s.274 r.w.s.270A of the Act. We have gone through notice u/s 274 r.w.s. 270A of the Act dated 26.07.2021, wherein, the AO has stated that ‘under reporting of income and under reporting as a consequence of misreporting of income’. From the notice, it is not discernable whether penalty has been initiated for ‘under reporting of income’ as per section 270A (1) to (6) or ‘misreporting of income’ as per section 8 & 9 of Sec.270A of the Act. The AO issued a notice in a routine manner without specifying under which clause of Sec.270A of the Act, the assessee is liable for penalty. Though, the AO while passing the impugned order has imposed penalty u/s.270A(9) of the Act, but no such ground was specified in the show cause notice dated 26.07.2021. In our considered view, notice u/s.274 r.w.s.270A of the Act, is not a valid notice for the reason that the AO did not specify the satisfaction as to whether assessee had either ‘under reporting of income’ or ‘misreporting of income’. In Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 14 :: absence of proper notice, which is mandatory, the AO cannot impose penalty, because, it is a clear violation of principles of natural justice, because, issuing a vague notice without specifying the charge under which limb the proposed penalty proceedings is initiated, would vitiate the entire proceedings, because, the assessee was not given an opportunity to explain its case on specific charge. Therefore, in our considered view, penalty levied on the basis of invalid or vague notice is invalid and void ab initio. 17. The concepts of ‘under reporting of income’ and ‘misreporting of income’ are two different charges with very clear boundaries. As we have already discussed in earlier part of this order, sub-section 2 to 6 of sec Sec.270A of the Act, deals with concept of ‘under reporting of income’ and for this, separate rate of penalty is provided. Sub-sec.9 deals with concept of ‘misreporting of income’ and for this, separate rate of penalty is provided. Therefore, ‘under reporting of income’ and ‘misreporting of income’ shall not be used interchangeably nor are they synonymous, but each operates under strict definition and do not overlap each other. Since, ‘under reporting of income’ and ‘misreporting of income’ are two concepts and separate charges, the AO before initiating penalty proceedings should specifically arrive at a satisfaction to the effect that, for which charge, he has initiated penalty Sec.270A of the Act. In the present case, if you go by the assessment order passed by the AO, there is no satisfaction in respect of initiation of penalty proceedings u/s.270A of the Act, whether it is for ‘under reporting of income and under reporting as a consequence of misreporting of income’ thereof which is clearly evident from the assessment order passed by the AO, where, the AO simply referred to initiation of penalty proceedings u/s.270A of the Act. Further, said lapse is even continued while issuing show cause notice u/s.274 r.w.s.270A of the Act, where, the AO simply specified ‘under reporting of income and under reporting as a consequence of misreporting of income’, without specifying for which charge the assessee is directed to pay penalty u/s.270A of the Act. There is no whisper as to which limb of Sec.270A of the Act, is attracted and how the ingredients of sub-sec.9 of Sec.270A of the Act are specified. In absence of such particulars, the mere reference to the word ‘misreporting of income’ in the assessment order or in the show cause notice makes the impugned order manifestly arbitrarily. Therefore, we are of the considered view that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, without specifying the charge under which penalty is proposed u/s.270A of the Act, is a clear case of non- application of mind at the time of issuing show cause notice and thus, in absence of specific charge against the assessee, the assessee is not in a position to counter the show cause notice issued by the AO as well as cogent reply to the show cause notice. In view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of the Act for ‘misreporting of income’ is not only erroneous, but also arbitrary and thus, penalty proceedings cannot be sustained. This legal position is strengthened by the decision of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP (supra), where the Hon’ble Delhi High Court by following Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 15 :: the earlier decision in the case of Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of 2022 dated 28.03.2022, held that in view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub- section 9 is specified, initiation of penalty u/s.270A of the Act for ‘misreporting of income’ is not only erroneous, but also arbitrary and bereft of any reason and consequently, penalty order passed by the AO, cannot be sustained. The relevant findings of the Hon’ble Delhi High Court are as under: 6. This court in the case of Schneider Electric South East Asia (HQ) PTE Ltd. Vs. ACIT, International Taxation Circle 3(1)(2), New Delhi and Ors. W.P.(C) No. 5111/2022 vide judgment dated 28.03.2022 observed as under:- “6. Having perused the impugned order dated 9th March, 2022, this Court is of the view that the Respondents’ action of denying the benefit of immunity on the ground that the penalty was initiated under Section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any W.P.(C) 7092/2022 Page 4 of 6 reason as in the penalty notice the Respondents have failed to specify the limb - \"underreporting\" or \"misreporting\" of income, under which the penalty proceedings had been initiated. 7. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub-section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word \"misreporting\" by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. 8. This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No.1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in the assessment order as well and consequently, there is no question of any misreporting. 9. This Court is further of the view that the impugned action of Respondent No.1 is contrary to the avowed Legislative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation. 10. Consequently, the impugned order dated 09th W.P.(C) 7092/2022 Page 5 of 6 March, 2022 passed by Respondent No.1 under Section 270AA (4) of the Act is set aside and Respondent No.1 is directed to grant immunity under Section 270AA of the Act to the Petitioner.” 7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No.1 is in respect of disallowance under section 14A of the Act. The Petitioner has made a disallowance of Rs.3,20,14,010/- which was recomputed by the Assessing Officer at Rs.6,82,45,759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 16 :: misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions i.e. differing quantum of disallowances under Section 14A of the Act. This by no stretch of imagination can be held to be ‘misreporting’. 8. This Court also finds that there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of sub- section (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word \"misreporting\" by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. W.P.(C) 9. Consequently, the impugned penalty order dated 28th March, 2022 passed by Respondent No.1 under Section 270A of the Act is quashed and Respondent No.1 is directed to grant immunity under Section 270AA of the Act to the Petitioner. 18. At this stage, it is relevant to consider the decision of Hon’ble Madras High Court in the case of Babuji Jacob v. ITO reported in [2021] 430 ITR 259 (Madras), where the Hon’ble High Court has dealt with the issue of show cause notice u/s.274 r.w.s.271(1)(c) of the Act, and after considering its earlier decision in the case of Sudaram Finance Ltd. v. ACIT reported in [2018] 93 taxmann.com 250, held that issuing a printed form of notice without striking inapplicable portion in the notice and not charging the assessee for particular evasion vitiates the entire penalty proceedings, including the order passed by the AO imposing penalty u/s.271(1)(c) of the Act. A similar view has been taken by the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory reported in [2013] 359 ITR 565, where the issue of show cause notice and consequent penalty proceedings has been dealt in detail and held that penalty proceedings consequent to vague and invalid notice becomes invalid and liable to be quashed. The Hon’ble Supreme Court has upheld the decision of the Hon’ble Karnataka High Court in the case of CIT v. SSA’s Emerald Meadows reported in [2016] 73 taxmann.com 241. From the ratio of above case laws, it is undisputedly clear that satisfaction of the AO should be discernable from the show cause notice issued by the AO u/s.274 r.w.s.270A of the Act. In absence of any particular charge for which, the assessee is directed to pay penalty u/s 270A of the Act, entire penalty proceedings becomes invalid and liable to be quashed. 19. In this view of the matter and by following the ratio laid down by the Hon’ble Supreme Court and various High Courts referred to hereinabove, we are of the considered view that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, is vague, non specific to charge Printed from counselvise.com ITA No.416/Chny/2025 (AY 2017-18) Arusuvai Food Processors Pvt. Ltd. :: 17 :: and thus, is illegal and liable to be quashed. Thus, we quash the order passed by the AO imposing penalty u/s.270A(9) of the Act. 18. Respectfully following the decision of the co-ordinate bench in the case of Enrica Enterprises Pvt. Ltd.(supra), we hold that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act is vague, doesn’t spell out the specific charge and thus, is illegal and liable to be quashed. Thus, we quash the penalty order passed by the AO u/s.270A(9) of the Act for AY 2017-18. 19. In the result, appeal filed by the assessee is allowed. Order pronounced on the 28th day of August, 2025, in Chennai. Sd/- Sd/- (जगदीश) (JAGADISH) लेखा सद /ACCOUNTANT MEMBER (एबी टी. वक ) (ABY T. VARKEY) \u0001याियक सद\bय/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 28th August, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ\u0010/Appellant 2. \u0011\u0012थ\u0010/Respondent 3. आयकरआयु\u0018/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u0011ितिनिध/DR 5. गाड फाईल/GF Printed from counselvise.com "