Penalty notice must specify the exact charge; vague Section 274 notice and lack of concealment defeated penalty.

Penalty under Section 271(1)(c) requires a valid Section 274 notice clearly specifying whether the charge is concealment of income or furnishing of inaccurate particulars; a printed, non-struck-off notice is vague and violates natural justice, so the penalty proceedings fail. On merits, penalty was also unsustainable because the assessee had disclosed the relevant income, the Section 54F claim was bona fide and debatable, and Explanation 3 could not be applied where the statutory conditions for deemed concealment were not met. The result is that no concealment or inaccurate particulars were established to support the penalty.

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Issues: (i) Whether penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 were invalid for want of a specific notice under Section 274 of the Income-tax Act, 1961 identifying the exact limb of default. (ii) Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 was sustainable on merits, including under Explanation 3 thereto, in respect of the income returned and the disallowance of exemption under Section 54F of the Income-tax Act, 1961.

Issue (i): Whether penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 were invalid for want of a specific notice under Section 274 of the Income-tax Act, 1961 identifying the exact limb of default.

Analysis: The notice issued in printed form did not strike off the inapplicable portion and did not specify whether the proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. A penalty notice must clearly inform the assessee of the precise charge to be met. A vague notice offends the requirement of fair opportunity and the principles of natural justice. The record also showed only a general initiation of penalty proceedings without a clear specification of the exact limb.

Conclusion: The penalty notice was invalid and the penalty proceedings were quashed.

Issue (ii): Whether penalty under Section 271(1)(c) of the Income-tax Act, 1961 was sustainable on merits, including under Explanation 3 thereto, in respect of the income returned and the disallowance of exemption under Section 54F of the Income-tax Act, 1961.

Analysis: The assessee had disclosed income arising from the development agreement and paid tax after the survey. The difference for assessment year 2007-08 arose from disallowance of a claim under Section 54F of the Income-tax Act, 1961, which was a bona fide and debatable claim. In addition, Explanation 3 could not be invoked for assessment year 2009-10 because notice under Section 148 of the Income-tax Act, 1961 was issued within the relevant period, so the statutory conditions for deemed concealment were not satisfied. On the facts, there was no concealment of income or furnishing of inaccurate particulars warranting penalty.

Conclusion: Penalty was not sustainable on merits and could not be levied.

Final Conclusion: The penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 failed both on the validity of the notice and on merits, leaving no basis for its sustenance.

Ratio Decidendi: A penalty under Section 271(1)(c) of the Income-tax Act, 1961 cannot be sustained where the notice under Section 274 does not specify the precise limb of the charge and, on the facts, the alleged default is not established as concealment or furnishing of inaccurate particulars.

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