Section 271(1)(c) penalty notice specificity required; unspecified limb allegation led to invalidation of penalty and appellate orders.

A statutory notice alleging contravention of a multi limbed penal provision must identify which limb is relied upon to enable a focused response; failure to specify whether the charge is concealment of income or furnishing inaccurate particulars deprived the assessee of fair opportunity to defend and caused prejudice. The notice under section 274 that referenced both limbs without particularising was materially defective, and that defect invalidated the ensuing penalty proceedings; accordingly the penalty order under section 271(1)(c) and the appellate order confirming it were set aside in favour of the assessee.

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Issues: Whether the penalty under section 271(1)(c) of the Income tax Act, 1961 can be sustained where the notice issued under section 274 of the Income tax Act, 1961 alleged both limbs of section 271(1)(c) (i.e. concealment of income and furnishing inaccurate particulars) without specifying which limb was relied upon.

Analysis: Section 274 notice must specify the particular limb of a provision alleged to have been violated when the provision contains more than one limb, so as to apprise the assessee of the specific allegation and enable a focused explanation with supporting documents. The notice dated 08.12.2015 referred to both limbs of section 271(1)(c)-"concealed particulars of income" and "furnished inaccurate particulars of income"-without indicating which limb was the basis for initiating penalty proceedings. This omission prevented the assessee from knowing the precise allegation and caused prejudice to the assessee's ability to defend against the charge. The defect in the notice is material to the validity of the penalty proceedings and renders the penalty order vulnerable to set aside.

Conclusion: The notice under section 274 was defective for not specifying the particular limb of section 271(1)(c) relied upon; consequently, the penalty order under section 271(1)(c) and the appellate order confirming it are set aside in favour of the assessee.

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