Defective penalty notice under section 271(1)(c) and a debatable claim can vitiate penalty proceedings.

Penalty under section 271(1)(c) was considered unsustainable where the notice did not strike off the inapplicable limb and failed to specify whether the allegation was concealment of income or furnishing inaccurate particulars. That defect was treated as non-application of mind and as vitiating the foundation of the penalty proceedings. The text also notes that a penalty is not attracted where the underlying claim turns only on a debatable interpretation and no clear concealment or furnishing of inaccurate particulars is shown. On that basis, the penalty was held liable to be deleted.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable when the notice did not strike off the inapplicable limb and the addition arose from a difference of view on the underlying claim.

Analysis: The notice was found to be defective because the Assessing Officer had not specified whether the proposed penalty was for concealment of income or for furnishing inaccurate particulars of income. Since penalty under section 271(1)(c) can be levied only on one of these two mutually distinct grounds, failure to choose the applicable limb showed non-application of mind and vitiated the foundation of the penalty proceedings. The decision also accepted that where the claim involves only a debatable interpretation and no clear concealment or furnishing of inaccurate particulars is shown, penalty is not attracted.

Conclusion: The penalty was held unsustainable and was directed to be deleted.

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