M/S.ALLIED DIGITAL SERVICES LIMITED,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3), MUMBAI, MUMBAI

ITA 8147/MUM/2025

AI Insights

The case involves M/s. Allied Digital Services Limited appealing against a penalty imposed by the Deputy Commissioner of Income Tax, Central Circle 1(3), Mumbai. The penalty was levied following an assessment order that made certain additions to the assessee's income, which were partly sustained by the Tribunal. The primary contention in the appeal was the defect in the penalty notice, which did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal, referencing several judgments including those of the Karnataka High Court and the Jurisdictional High Court, found the notice to be defective and thus the penalty unsustainable.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 841453 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2025
• Other Referred Cases: CIT vs. Manjunatha Cotton & Ginning Factory, CIT vs. Shri Samson Perinchery vs. ACIT, Md. Farhan A Shaikh vs. DCIT, Principal Commissioner of Income Tax Vs. Colo Colour (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: VINITA SHAH; LD
• Keywords: Initiation of penalty proceedings
• Section: 147; 143(3); 271(1)(c); 69C; 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “A”, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER And SHRI JAGADISH, ACCOUNTANT MEMBER ITA No.8147/M/2025 Assessment Year: 2010-11 M/s. Allied Digital Services Limited, 808, 8th Floor, Mafatlal Centre, Nariman Point, Mumbai – 400021. PAN – AAACA5509K Vs. Deputy Commissioner of Income Tax, Central Circile 1(3), 905,9th Floor, Old CGO Building, Pratishtha Bhavan, M.K. Road, Mumbai – 400020. (Appellant) (Respondent) Present for: Assessee by : Ms. Vinita Shah, Ld. A.R. Revenue by : Shri Surendra Mohan, Sr. D.R. Date of Hearing : 12.02.2026 Date of Pronouncement : 26.02.2026 O R D E R Per : Narender Kumar Choudhry, Judicial Member: This appeal has been preferred by the Assessee against the order dated 11.07.2025, impugned herein, passed by Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short „the Act‟) for the A.Y. 20101-11. 2. In the instant case, the AO vide assessment order dated 28.03.2013 under Section 143 (3) r.w.s. 153(A) of the Act has made the additions of Rs.5,35,91,882/- and Rs.1,25,66,049/- on account of disallowances under Section 69C of the Act and Section Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 2 14A of the Act read with Rule 8 D of the Income Tax Rule, 1962 (in short, “Rules”) respectively. The AO while making the addition of Rs.5,35,91,882/- also recorded the satisfaction in the assessment order for initiation of penalty proceedings under Section 271(1)(c) of the Act for furnishing of inaccurate particulars of income and thereby, canceling the said income. The AO simultaneously also issued a notice dated 28.03.2013 under Section 274 of the Act, with the following limb: “Concealing particulars of income OR furnishing inaccurate particulars of such income”. 3. The AO vide penalty order dated 25.02.2019 under Section 271(1)(c) r.w.s. 274 of the Act, ultimately levied the penalty of Rs.18,21,588/- @ 100% being amount of tax evaded on the income of Rs.54,64,764/- for concealing particulars of income OR furnishing inaccurate particulars of income by considering the peculiar facts and circumstances that the Hon‟ble Tribunal ultimately, affirmed the addition of Rs.5,35,91,882/- to the extent of Rs.53,59,188/- only, being 10% of such impugned purchase, while partly allowing the appeal of the Assessee. 4. The Assessee being aggrieved challenged the said decision of the AO in levying the penalty, by filing the first appeal before the Ld. Commissioner and also raised a technical/legal issue qua not specifying the charge or limb, under which the penalty was supposed to be levied and/or without recording the satisfaction for imposing penalty. The Ld. Commissioner, not only rejected the grounds raised by the Assessee on merits, but also on this legal aspect as well and vide impugned order dated 11.07.2025, ultimately, dismissed the appeal of the Assessee. Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 3 5. Thus, the Assessee being aggrieved has preferred the instant appeal challenging the impugned order and at the outset has submitted that in view of various judgments including in the case of CIT vs. Manjunatha Cotton & Ginning Factory (2013) 73 taxmann.com 248/218 taxman 423 (Karnataka) passed by the Hon‟ble Karnataka High Court and CIT vs. Shri Samson Perinchery vs. ACIT (ITA No.4625 to 4630/M/2013) decided by the Hon‟ble Mumbai Tribunal etc., the penalty levied on the basis of defective notice, as also issued in this case, is liable to be deleted/quashed. 5.1 The Assessee further relied on the judgment passed by the Hon‟ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB). 5.2 The Ld. Counsel for the Assessee also raised the issue that as the addition has ultimately been sustained at the rate of 10% on estimation basis therefore, the penalty under consideration is also unsustainable, specifically in view of the latest judgment by the Hon‟ble Jurisdictional High Court, in the case of Principal Commissioner of Income Tax Vs. Colo Colour (P.) Ltd., ITA No. 48 of 2022 dated 16.09.2025 6. On the contrary, the Ld. D.R. refuted the claim of the Assessee by mentioning the fact that in the assessment order the AO has specifically made the satisfaction qua initiation of penalty proceeding for furnishing of inaccurate particulars of income thereby concealing the said income and ultimately, vide penalty order dated 25.02.2019 levied the penalty for concealment of income and filing of inaccurate particulars of income and therefore, the penalty order cannot be faulted with. Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 4 7. We have heard the parties and perused the material available on record. Admittedly, the AO initiated the penalty proceedings in the assessment order for filing of inaccurate particulars of income, however, thereafter issued a notice under Section 274 r.w.s. 271 (c) of the Act dated 28.03.2013 for concealment of particulars of income OR furnishing of inaccurate particulars of income meaning thereby without specifying any specific charge/limb. The AO further vide penalty order, ultimately levied the penalty under consideration for concealment of income OR furnishing inaccurate particulars of income, which goes to show that the AO while levying penalty was also confused and/or unclear qua limb/charge of penalty levied. Thus, the decision of the AO in levying the penalty is hit by the judgment of the Jurisdictional High Court in the case of Md. Farhan A Shaikh (supra) . 8. We further observe that the validity/legality of such kind of notice as involved in this case, has also been examined by the Hon‟ble Coordinate Bench of the Tribunal recently in the case of Chiragkumar Rajendrabhai Shah Vs ITO, Ward 30(1)(2), [now] ITO Ward 41(3)(1) {ITA Nos.7130,7131 & 7132/M/2025 decided on 05.02.2026 and ultimately deleted the identical penalty levied, on the basis of similar kind of notice u/s 274 r.w.s. 271(i)(c) of the Act, by observing and holding as under: “7. We have heard the parties and perused the material available on record. As observed above, the Assessing Officer, vide assessment order dated 30.03.2014, made an addition of Rs.8,23,49,198/-, which was sustained by the then CIT(Appeals), vide order dated 09.04.2014 to the extent of 25%, i.e., Rs.2,05,87,299/-. The Hon’ble Tribunal, by order dated 03.04.2018 in ITA Nos. 4086 to 4088/M/2016, subsequently restricted the said addition to 12.5% of the total disallowance made by the Assessing Officer. Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 5 8. As, the Assessee has raised a legal point/ground, which goes to the root of the case, therefore, before delving into the merits of the case, we deem it appropriate to decide the legal ground first. 9. Coming to the legal ground raised by the Assessee, we observe that the Assessing Officer, in the assessment order dated 30.03.2014 passed under section 143(3) read with section 147 of the Act, simultaneously initiated penalty proceedings under section 274 read with section 271(1)(c) of the Act for concealment of particulars of income and subsequently issued a notice dated 30.03.2014 under section 274 read with section 271(1)(c) of the Act for concealment of particulars of income or furnishing of inaccurate particulars of income and on the basis of such notice, ultimately levied the penalty of Rs.70,00,000/- under section 271(1)(c) of the Act for concealment of income. 10. Admittedly, in the notice dated 30.03.2014 issued under section 274 read with section 271(1)(c) of the Act, the Assessing Officer has not specified the specific limb / charge for initiating the penalty proceedings, so as to make the Assessee aware “as on what charge/limb penalty proceedings have been initiated and/or on what charge the Assessee has to defend the case. 11. Though the Ld. DR drew attention of this Court to the notice dated 28.03.2018 issued under section 274 read with section 271(1)(c) of the Act, whereby the specific charge of concealment of particulars of income was communicated to the Assessee and the Assessee was show-caused to appear on 13.04.2018, either personally or through a duly authorised representative, to reply as to why an order imposing a penalty should not be made under section 271(1)(c) of the Act. Therefore, it is a fact that, in such notice, the date for compliance was given as 13.04.2018. but the Assessing Officer, prior to the said date, passed the penalty order on 30.03.2018 itself, i.e., anti-date, as prescribed in the notice. Thus, such notice lost its sanctity and would be of no help to the Revenue. 12. We observe from the impugned order that though the Ld. Commissioner has also considered the aspect qua non-specification of the limb/charge for initiating penalty proceedings by issuing a notice dated 30.03.2014 under section 274 read with section 271(1)(c) of the Act, by relying on various judgments, however, it is a fact that the Ld. Commissioner has not considered the judgment of the Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB) and various other judgments of the jurisdictional Benches of the Tribunal, including in the case of Korbusier Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 6 Kinema Private Limited, Juhu vs. NFAC ACIT, Circle-15(1)(2), ITA No. 1016/M/2025, decided on 01.05.2025 wherein, the Hon’ble Coordinate Bench of the Tribunal not only considered the judgment of the Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh (supra), but also in the case of Veena Estate (P) Ltd. vs. CIT (2024) 461 ITR 483 (Bom.), which was delivered in favour of the Revenue, and held as under : 5. Thereafter, the AO issued a show cause notice dated 27.12.2008 for concealment of the particular of income or/and furnishing of inaccurate particulars of such income and ultimately vide penalty order dated 18.01.2022 u/s 271(1)(c) of the Act imposed the penalty to the tune of Rs.9.97.234/being 200% of the tax sought to be evaded on the income of Rs.14.95.851/-. M/s. Korbusier Kinema Private Limited 6. The Assessee, being aggrieved, challenged the said levy of penalty before the Ld. Commissioner, however, of no avail, as the Ld. Commissioner vide impugned order dated 17.12.2024 affirmed the levy of penalty. 7. The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner on various aspects including notice issued u/s 274 of the Act dated 27.12.2018 and by relying on the judgment passed by the Hon'ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB). 8. On the contrary, the Ld. D.R. refuted the claim of the Assessee by placing reliance on the judgment in the case of Veena Estate (P.) Ltd. vs. CIT (2024) 461 ITR 483 (Bom.) passed by the Hon'ble Jurisdictional High Court, concerning the identical issue, wherein it was held that if an Assessee does not challenge the validity of notice during the penalty or appellate proceedings but instead responds substantially to the allegations, such objections are barred at a later stage. 9. We have heard the parties and perused the material available on record. As the issue/ground raised by the Assessee qua notice u/s 274 of the Act, goes to the root of the case, hence for the sake of brevity, we are inclined to decide this ground first. Admittedly, the AO issued the penalty notice dated 27.12.2018 u/s 274 of the Act which is reproduced herein below: Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 7 Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 8 10. From the notice, it clearly appears that the AO has used or/and in between both of the limbs, which goes to show that the AO was not sure under which limb the penalty proceedings have been initiated and to be carried out. Therefore, issue emerges \"as to whether the defective notice and/or not mentioning the charge/limb specifically in the notice u/s 274 r.w.s. 271(1)(c) of the Act can justify the levy of penalty\". The Hon'ble Jurisdictional High Court in the case of Md. Farhan A Shaikh (supra) has dealt with the identical issue and considered various judgments in this respect and ultimately held \"mere defect in the notice non striking of the irrelevant matter - vitiate the proceedings\" and therefore respectfully following the dictum laid down by the Hon'ble Jurisdictional High Court, in our considered view, the penalty under consideration is liable to be deleted. 11. Coming to the judgment relied on by the Ld. D.R. in the case of Veena Estate (P.) Ltd. (supra), we observe that in that particular case the notice u/s 274 of the Act was challenged after 23 years for the first time before the Hon'ble High Court by raising additional ground, which was not admitted and rejected by the Hon'ble High Court by interim order. Here it is not the case so, as in the instant case the Assessee has challenged the notice u/s 274 r.w.s. 271 of the Act before the second appellate authority and within a reasonable time and therefore the judgment referred to by the Ld. D.R. is factually dissimilar. 12. Even otherwise, the Hon'ble Jurisdictional High Court in the Full Bench case in the case of Md. Farhan A Shaikh (supra) has elaborately dealt with the issue and the relevant judgments and therefore respectfully following the said judgment, we are inclined to delete the penalty imposed by the AO and affirmed by the Ld. Commissioner. Thus, the penalty is deleted. 13. We further observe that the Hon’ble Jurisdictional High Court, recently in the case of Principal Commissioner of Income Tax -6 vs. Colo Colour Private Limited (Income Tax Appeal No. 48 of 2022), decided on 16.09.2025, also dealt with an identical issue, qua not specifying the relevant limb/charge for initiating the penalty proceedings and held as under: 16. It is well settled that the condition precedent for levy of penalty under Section 271(1)(c) is only when the Assessing Officer, in the course of proceedings, is satisfied that an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Thus, in applying the penalty provisions under Section 271(1)(c), it was necessary for the Assessing Officer to reached to a Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 9 conclusion, that the assessee had consciously concealed the particulars of his income and/or had deliberately furnished inaccurate particulars of income to gain an undue advantage of not offering the real income to tax. A clear subjective satisfaction of these essentials is a sine qua non for the Assessing Officer to levy a penalty. Penalty proceedings are penal in nature, as the intention of such provisions is to create an effective deterrent, which will restrain the assessee from adopting any practices detrimental to the fair and realistic assessment as the law would mandate. 14. The Hon’ble High Court has held that there cannot be two opinions that section 271(1)(c) of the Act is required to be strictly construed. Hence, in the absence of a clear position regarding concealment of particulars of income or furnishing of inaccurate particulars of income in the facts of the present case, penalty proceedings could not have been initiated. 15. The Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar), has also dealt with identical notice and held as under: 7.2. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non- application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind. 16. The Hon'ble High Court of Delhi in the case of M/s. Sahara India Life Insurance Company Ltd. 432 ITR 84 (Del.) while following the above judgement in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar), 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 Printed from counselvise.com ITA No.8147/M/2025 M/s. Allied Digital Services Limited 10 income or for hesitation to delete the penalty levied by the AO and affirmed by the Ld. Commissioner. 17. Thus, on the aforesaid analyzations, we are unable to sustain the penalty levied under section 271(1)(c) of the Act. Hence, the same is deleted. 9. Thus, respectfully following the aforesaid judgment, we are inclined to delete the penalty under consideration, hence the same is deleted. 10. In the result the Assessee‟s Appeal is allowed. Order pronounced in the open court on 26.02.2026. Sd/- Sd/- (JAGADISH) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Tarun Kushwaha Sr. Private Secretary. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. Printed from counselvise.com "