Penalty under tax law struck down due to defective show cause notice; departmental rectification application dismissed

Tribunal found that a penalty imposed by the assessing officer was invalid because the show cause notice failed to strike out an irrelevant default in its body, rendering the notice defective and not properly informing the taxpayer of the specific default. Because the departmental miscellaneous/rectification application relied solely on those misconceived facts and did not arise from any substantive tribunal observation, the application was dismissed and the penalty deletion sustained. The analysis emphasises that a procedurally defective SCN can vitiate penalty proceedings and defeat subsequent departmental rectification attempts.

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Issues: Whether the miscellaneous application filed by the Revenue seeking recall/rectification of the Tribunal's order under Section 254(2) of the Income-tax Act, 1961 on the ground of a purported "mistake apparent from record" (relating to deletion of penalty under Section 271(1)(c)) is maintainable.

Analysis: The factual and legal question addressed is whether the Tribunal's deletion of penalty under Section 271(1)(c) was a result of a mistake apparent from the record that would permit recall/rectification under Section 254(2). The Tribunal's order records that the penalty was quashed because the Show Cause Notice issued under Section 274 read with Section 271 was defective: the issuing authority failed to strike off an irrelevant default in the body of the notice, thereby not validly putting the assessee on notice as to the default for which penalty was sought. The Revenue's misc application alleges that the assessment order contained material indicating concealment of income and that the Tribunal overlooked this, producing a mistake apparent. The Tribunal's review of the misc application finds that the Revenue's claim rests on misconceived facts and that the Tribunal's reliance on the defective Show Cause Notice was a recorded, substantive basis for deletion of the penalty rather than an omission or clerical error amenable to rectification under Section 254(2).

Conclusion: The miscellaneous application filed by the Revenue seeking recall/rectification of the Tribunal's order is not maintainable and is dismissed; the Tribunal's deletion of the penalty stands, which is therefore affirmed in favour of the assessee.

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