Penalty notice must specify the exact charge; ambiguous section 274 notice was held invalid and penalty quashed.

A penalty notice under section 274 read with section 271(1)(c) must specify whether the charge is concealment of income or furnishing of inaccurate particulars. Where the Assessing Officer fails to strike off the inapplicable limb and the assessment order also leaves the allegation ambiguous, the assessee is not given an unequivocal basis to defend the penalty proceedings. A notice that clubs both limbs together is defective and invalid. On this basis, the penalty was quashed.

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Issues: Whether penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 could be sustained when the notice under section 274 did not specify the exact charge, namely concealment of income or furnishing of inaccurate particulars.

Analysis: The notice issued by the Assessing Officer did not strike off the irrelevant limb and, therefore, did not clearly communicate the precise allegation forming the basis of penalty proceedings. The assessment order also did not specify the exact limb. A penalty notice must convey an unequivocal and unambiguous charge so that the assessee can effectively defend the proceedings. Where both limbs are left clubbed together, the notice suffers from ambiguity and becomes invalid.

Conclusion: The notice under section 274 read with section 271(1)(c) was held to be invalid, the penalty was quashed, and the assessee succeeded.

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