Defective penalty notice under income tax law vitiates concealment proceedings when the exact charge is not specified.

Penalty under Section 271(1)(c) requires a valid notice under Section 274 that clearly specifies whether the charge is concealment of income or furnishing inaccurate particulars, so the assessee can meet the exact allegation. A printed or vague notice that does not strike off the inapplicable limb is legally defective and can vitiate the penalty proceedings. Explanation 5A does not cure an invalid initiation where the statutory basis for penalty is not properly conveyed. The Karnataka HC found no reason to disturb the Tribunal's conclusion that the notice was defective and the penalty could not be sustained.

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Issues: Whether the penalty under Section 271(1)(c) of the Income-tax Act, 1961 could be sustained when the notice under Section 274 did not specify whether the alleged default was concealment of income or furnishing of inaccurate particulars, and whether Explanation 5A altered that position.

Analysis: Penalty under Section 271(1)(c) is attracted only when the statutory conditions are satisfied and the assessee is made aware of the precise charge so that an effective defence can be raised. A printed or vague notice which does not strike off the inapplicable limb does not meet the requirement of law where the jurisdictional basis itself is uncertain. The deeming fiction in Explanation 5A does not dispense with the need for a legally sustainable initiation of penalty proceedings. On the facts found, the Tribunal treated the notice as defective and held that the penalty proceedings were vitiated; the High Court found no ground to interfere with that factual and legal conclusion.

Conclusion: The penalty deletion was upheld, and the challenge to the Tribunal's order failed.

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