Section 274

Section 274 — the law in short

What the courts have decided on section 274, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v SSA's Emerald Meadows Supreme CourtHelps taxpayer
  The penalty notice does not say whether I concealed income or filed inaccurate particulars. Does that matter?
  It does. A penalty notice that does not specify which limb is alleged is reported as defective — you cannot answer a charge that has not been made.
• MAK Data P Ltd v CIT Supreme CourtHelps department
  You surrendered the amount to buy peace and avoid litigation. Does that stop the penalty?
  No. The statute does not recognise 'to avoid litigation' or 'to buy peace' as an explanation at all. A surrender made only after the department confronts you with documents is not voluntary, and the penalty stood.
• Dilip N. Shroff v JCIT Supreme CourtHelps taxpayerPartly overruled — read this first
  Is a valuation you put on an asset 'inaccurate particulars' if the officer disagrees with it?
  No. 'Inaccurate' connotes a deliberate act or omission and 'particulars' means the details disclosed in the return. Furnishing an assessment or valuation is not by itself inaccurate particulars. But read the editor's note — this case was later overruled in part.
• K.P. Madhusudhanan v CIT Supreme CourtHelps department
  Must the officer say in the notice that he is invoking Explanation 1?
  No. The Explanation is part of s.271 itself, so a notice under the section puts you on notice of the whole of it. No separate intimation that the Explanation is being applied is required.
• JCIT v Ganesh Agarwal High CourtCuts both ways
  The Assessing Officer sent a proposal to the Joint Commissioner for penalty on my cash receipts. Does the six month limitation run from that proposal or from the notice the Joint Commissioner later issued?
  From the notice. A Division Bench of the Karnataka High Court held that penalty proceedings under section 271DA begin only when the Joint Commissioner issues the notice under section 274, not when the Assessing Officer forwards a proposal, so the six months in section 275(1)(c) run from the end of the month of that notice. But the Court did not leave the Joint Commissioner free to sit on the proposal: it held he must issue the section 274 notice within six months of the end of the month in which he receives it, failing which the proceedings are time-barred. On that footing four of the ten penalty orders fell and six were restored.
• PCIT v Jai Maa Jagdamba Flour Private Limited High CourtHelps taxpayerValidity unconfirmed
  After a search on or after 1 July 2012, can the officer levy penalty under s.271(1)(c) instead of s.271AAB?
  No, not for the specified previous year. The Jharkhand High Court held that s.271AAB opens with a non obstante clause and excludes s.271(1)(c) where the undisclosed income relates to the specified previous year. Where the search was on 3 September 2014 the penalty, if any, had to be levied under s.271AAB, and because the assessee had admitted nothing in a s.132(4) statement and paid no tax on admitted income, the case fell under clause (c) of s.271AAB(1). The penalty actually levied under s.271(1)(c) could not stand. The Court also held it immaterial that no incriminating document had been found, because the statute keys the choice of section to the date of the search.
• Virdichand Bawandas HUF v National e-Assessment Centre High CourtHelps taxpayer
  You asked for time to reply to the draft order and were refused. Is the final order safe?
  No. The scheme requires an opportunity to respond to the modifications proposed in the draft order. Refusing time and then finalising was held wrong, and the assessment and the penalty notice were set aside.
• Mantra Industries Ltd v NFAC High CourtHelps taxpayerSuperseded by amendment
  The faceless order says I filed no reply when I did, and my hearing request was ignored. Is it valid?
  It was set aside. The final order reproduced the draft order word for word apart from one sentence, recorded that no response had been filed when two replies were on the record, and ignored the requests for adjournment and personal hearing — so it was held non est under s.144B(9) as it then stood. The Court warned that costs would be recovered from the Assessing Officer personally and entered in the service record if it recurred.
• Mohd. Farhan A. Shaikh v ACIT (Full Bench) High CourtHelps taxpayer
  Bombay had two conflicting lines on defective penalty notices. Which one won?
  The assessee's. A Full Bench held that the grounds must be conveyed through the statutory notice, that an omnibus notice suffers from the vice of vagueness, and that non-striking of the irrelevant portion renders the penalty order bad in law.
• Sundaram Finance Ltd v ACIT High CourtHelps departmentValidity unconfirmed
  The notice did not specify the default, but you clearly understood it. Does the defect still help you?
  In Madras, no. The assessee had understood the purport and import of the notice, and claiming depreciation on machinery that did not exist was inaccurate particulars. The penalty was upheld.
• PCIT v Sandeep Chandak High CourtHelps departmentValidity unconfirmed
  The s.271AAB penalty notice came on the printed s.274 read with s.271 form. Does that by itself kill the penalty?
  Not on these facts. The Allahabad High Court looked past the caption to the body of the notice, which told the assessee that proceedings under s.271AAB were being taken and that his reply would be considered before any order was made under s.271AAB. Because the officer had never initiated any s.271(1)(c) proceeding in the s.143(3) assessment, and because the assessee's own reply showed he had understood the notice as a s.271AAB notice, the Court held the initiation was in accordance with law and restored the penalties the Tribunal had cancelled.
• CIT v Manjunatha Cotton and Ginning Factory High CourtHelps taxpayer
  Your penalty notice keeps both limbs and strikes off neither. Does that make it bad?
  Yes. Concealment and inaccurate particulars are different charges. A printed form that retains every ground shows non-application of mind, denies you the chance to answer the actual charge, and makes the proceedings bad in law.
• CIT v Mohair Investment & Trading Co High CourtHelps departmentSuperseded by amendment
  The CIT(A) order came two years ago but the appeal is still in the Tribunal. Is the penalty already time-barred?
  No. The proviso to s.275(1)(a) does not take away the six months the officer gets from the end of the month in which the Tribunal's order is received. Where successive appeals are filed, the clock in the main limb runs from the final appellate order; the proviso's one-year period from the end of the financial year of receipt of the CIT(A)'s order is an exception for cases that stop at the CIT(A).
• Madhushree Gupta v Union of India High CourtCuts both waysValidity unconfirmed
  The Assessing Officer just wrote "initiate penalty proceedings under section 271(1)(c)" at the foot of the assessment order. Section 271(1B) now says that is enough. Can I still challenge it?
  The provision survives, but the Delhi High Court read it consistently with Article 14 rather than at face value. Section 271(1B), inserted by the Finance Act 2008 with retrospective effect from 1 April 1989, deems a direction to initiate penalty proceedings in an assessment order to be satisfaction for section 271(1)(c). The petitioners said this legislatively presumes away a jurisdictional fact the Assessing Officer must find for himself. The Court did not strike the provision down; it said it had applied the settled principles by reading the amended provision so as to be in consonance with the safeguards contained in Article 14. The Revenue accepted that it does not reopen assessments that have already become final.
• CIT v Kaushalya High CourtCuts both waysPartly overruled — read this first
  Is a defective s.274 notice always fatal?
  On this view, no. Section 274 prescribes no particular form, and a mistake in language or a failure to strike out the inapplicable limb does not by itself invalidate the notice — you must show you were actually prejudiced.
• Ghanta Srinivas v DCIT, Central Circle-1, Guntur ITATHelps taxpayerValidity unconfirmed
  After a search I admitted the cash as professional receipts in a revised computation during the assessment and paid the tax. The AO has now levied penalty under s.270A(9) for misreporting AND a second penalty under s.271AAD(1)(ii) for omitting entries from my books. Can he do both?
  The Tribunal deleted both. The s.270A penalty fell because the s.274 notice never said which of the six sub-clauses of s.270A(9) was alleged, and the s.271AAD(1)(ii) penalty fell because once the assessee had brought the receipts on record in a revised statement of total income filed during the assessment and paid the tax, there was no longer an omitted entry to penalise.
• Mayur Bhararbhai Popat v ITO ITATHelps departmentValidity unconfirmed
  I applied for immunity under s.270AA after paying the tax on the s.80GGC disallowance. The Assessing Officer refused it because he had charged misreporting. Was he entitled to?
  Yes, on this decision. Section 270AA(3) grants immunity only where penalty proceedings under s.270A have NOT been initiated in the circumstances in s.270A(9). Once the Assessing Officer invokes s.270A(9), the statute itself excludes immunity, and the 200 per cent penalty under s.270A(8) follows. The qualification is important: where the invocation of s.270A(9) is a bare label with no clause identified and no reasoning on its ingredients, the Delhi High Court in Prem Brothers Infrastructure LLP v NFAC (W.P.(C) 7092/2022, 31 May 2022) quashed the penalty and directed immunity to be granted — so the battleground is the quality of the initiation, not the availability of s.270AA in the abstract.
• Mithibai College Employees Co-operative Credit Society Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  The notice said under-reporting; the order said misreporting. Can the charge change between them?
  No. The enhanced penalty for misreporting is available only if the case falls within a named sub-clause of s.270A(9), and the officer must say which. Shifting to a heavier charge in the order, having alleged only under-reporting in the notice, sank the penalty.
• Vasavi Developers v ACIT, Central Circle 3(2), Hyderabad ITATHelps taxpayerValidity unconfirmed
  After a search the Additional Commissioner has levied a s.271DA penalty equal to the whole of the cash the Department says we received on flat bookings. Nobody has identified a single payer or a single receipt over Rs 2,00,000. Can the penalty stand?
  No. The Tribunal held that s.269ST is not attracted merely because cash exists or because a cash receipt has been broadly admitted — the Revenue must prove the precise statutory violation, person-wise and transaction-wise, and where it has not, the s.271DA penalty cannot survive. It also held that the AO must record a clear satisfaction of the s.269ST violation in the assessment order itself, failing which the foundational jurisdiction to initiate s.271DA is absent.
• Mohammed Shabbir Bhojani v ITO, Ward-9(1), Hyderabad ITATHelps taxpayerValidity unconfirmed
  I received the sale price of my land in cash across the table at the sub-registrar's office. Is that a 'specified sum' under s.269SS?
  The Hyderabad Bench held it is not. On its consistent view, cash received for the transfer of immovable property at the time of registration of the sale deed, where the receipt is recorded in the registered deed itself, does not fall within the mischief of s.269SS and does not attract s.271D. The Tribunal also set the penalty aside on the separate ground that no satisfaction had been recorded by the Assessing Officer in the assessment order.
• Sushil Kumar Paul v ACIT ITATHelps taxpayerSuperseded by amendment
  Search penalty under s.271AAB, but the notice used the ordinary s.271(1)(c) printed form. Is that valid?
  No. Section 271AAB has different rates under different clauses, so the notice must tell you which clause and which rate is proposed. A mechanical s.271(1)(c) form bears no relation to the ingredients of s.271AAB and cannot support the penalty.
• Rashmi Jalan v ACIT ITATHelps taxpayer
  The 271AAB notice does not say which clause or what rate. Can the penalty survive?
  No. Section 271AAB contains clauses (a), (b) and (c) with different conditions and different rates, so an omnibus show-cause notice that names neither the clause nor the rate leaves the assessee unable to know the case to be met and denies a real opportunity under s.274. The Tribunal also held, independently, that the levy had no foundation where no statement was recorded under s.132(4) and the returned income was accepted under s.143(3) without any addition.
• Guntur District Co-operative Central Bank Ltd v DIT ITATCuts both ways
  We had no reportable transactions and filed no SFT. Can they still levy penalty under 271FA?
  No, not for a year in which there was nothing to report. Section 285BA casts the filing obligation on a person who has registered or recorded a specified financial transaction during the financial year, so where no such transaction exists the duty to furnish the statement never arises and s.271FA has nothing to bite on. The burden is on the department to show that reportable transactions were in fact recorded before it can allege a failure.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.