On 15 February 2024 the Income Tax Department completed a reassessment of a taxpayer’s 2016‑17 income, citing Rs 55.62 lakh as unexplained cash deposits in a bank account that the officer claimed belonged to the man. The assessment order referred to Sections 68 and 69 before directing tax under Section 115BBE. On 21 August 2024 the officer levied a Rs 17.18 lakh penalty under Section 271(1)(c), a provision that punishes concealment or furnishing of inaccurate particulars.
The man challenged the penalty, but the National Faceless Appeal Centre in Delhi upheld it on 23 January 2026. He then petitioned the Mumbai bench of the Income Tax Appellate Tribunal, arguing that he was a non‑resident and that the bank account did not belong to him, and pointing to erroneous references to 2018‑19 and 2019‑20 in the assessment order.
Under Section 271(1)(b), a penalty can only be imposed if the assessment order contains a direction to initiate penalty proceedings under Section 271(1)(c). The tribunal found that the order mentioned Sections 271AAC and 272A(1)(d) but omitted the critical direction for Section 271(1)(c). Without that, a later switch to a different penalty provision is impermissible.
Partner Amit Gupta of Saraf and Partners said the judgment underscores that penalty proceedings are distinct from the underlying assessment. "A taxpayer can challenge the penalty independently, even if the assessment itself is contested," he told The Indian Express.
The ruling means the Rs 17.18 lakh penalty is void, allowing the taxpayer to file a fresh appeal against the reassessment without the penalty burden. The tax department may appeal the tribunal’s decision, but the case sets a clear precedent on the proper use of penalty provisions.