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Issues: Whether a penalty notice issued under section 274 read with section 271(1)(c) of the Income-tax Act, 1961, that did not specify the exact charge, could sustain the penalty imposed for concealment of income or furnishing of inaccurate particulars.
Analysis: The penalty provisions in section 271(1)(c) operate on two distinct limbs, namely concealment of income and furnishing of inaccurate particulars of income. A notice issued under section 274 must clearly inform the assessee of the precise charge so that an effective reply can be made. A standard or omnibus notice that does not strike off the irrelevant limb reflects non-application of mind and offends the requirement of a reasonable opportunity of being heard. Such a defect is not a mere irregularity, and it is not cured by participation of the assessee or by the provisions relating to technical defects in notices. The notice in the present case was held to be vague and the penalty proceedings founded on it were treated as invalid.
Conclusion: The penalty notice was invalid for want of a specific charge, and the penalty levied under section 271(1)(c) could not be sustained. The issue was decided in favour of the assessee.
Ratio Decidendi: In penalty proceedings under section 271(1)(c), the notice under section 274 must specify the exact limb of default, and a vague notice without disclosure of the specific charge vitiates the penalty.
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