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        <h1>Penalty under Section 271(1)(c) quashed due to defective notice under Section 274 failing to specify charges</h1> <h3>C & S Electric Limited Versus National Faceless Assessment Centre, ACIT (OSD), Delhi</h3> C & S Electric Limited Versus National Faceless Assessment Centre, ACIT (OSD), Delhi - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961, were validly conducted. Specifically, the question is whether the failure to specify the exact limb of Section 271(1)(c) - either 'concealment of income' or 'furnishing inaccurate particulars of income' - renders the penalty proceedings and the consequent penalty order invalid.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedentsSection 271(1)(c) of the Income Tax Act, 1961, provides for the imposition of a penalty on an assessee if it is found that they have either concealed the particulars of their income or furnished inaccurate particulars of such income. The section requires the Assessing Officer (AO) to record their satisfaction regarding the specific limb under which the penalty is being initiated. The legal precedents relevant to this issue include the decisions in CIT vs. Manjunatha Cotton & Ginning Factory, CIT vs. SSA's Emerald Meadows, and Dilip N. Shroff vs. JCIT, which emphasize the necessity for clarity in specifying the limb under which penalty proceedings are initiated.Court's interpretation and reasoningThe Tribunal interpreted that the penalty notice issued to the assessee did not specify whether the penalty proceedings were for 'concealment of particulars of income' or for 'furnishing inaccurate particulars of income.' This lack of specificity was deemed a significant procedural defect. The Tribunal relied on the precedent set by the Karnataka High Court in Manjunatha Cotton & Ginning Factory, which held that the failure to specify the limb indicates non-application of mind by the AO and renders the penalty proceedings invalid.Key evidence and findingsThe Tribunal examined the notice issued under Section 274 read with Section 271(1)(c) and found that it was issued in a standard proforma without striking off the irrelevant parts, thus failing to specify the exact charge against the assessee. This was a key piece of evidence leading to the conclusion that the penalty proceedings were initiated without proper application of mind.Application of law to factsApplying the legal principles from the precedents, the Tribunal found that the AO's failure to specify the exact charge in the penalty notice deprived the assessee of the opportunity to respond appropriately to the allegations. This procedural lapse was sufficient to invalidate the penalty proceedings and the consequent penalty order.Treatment of competing argumentsThe Department argued that the AO had recorded satisfaction in the assessment order regarding the furnishing of inaccurate particulars of income and that the penalty was levied accordingly. However, the Tribunal found that the absence of specificity in the penalty notice itself was a critical defect that could not be cured by the contents of the assessment order. The Tribunal favored the assessee's argument, supported by judicial precedents, that the penalty notice must explicitly state the limb under which proceedings are initiated.ConclusionsThe Tribunal concluded that the penalty proceedings were invalid due to the failure to specify the limb under Section 271(1)(c) in the penalty notice. Consequently, the penalty order was quashed.3. SIGNIFICANT HOLDINGSThe Tribunal's significant holding is that a penalty notice under Section 271(1)(c) must clearly specify whether the proceedings are for 'concealment of income' or 'furnishing inaccurate particulars of income.' Failure to do so renders the penalty proceedings and any consequent order invalid. This holding reinforces the principle that procedural fairness and clarity are essential in penalty proceedings.Verbatim quotes from the judgment include:'The penalty proceedings initiated without recording the satisfaction is liable to be quashed.''The standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer.'The core principle established is the necessity for the AO to clearly specify the charge against the assessee in the penalty notice to ensure procedural fairness and allow the assessee to respond appropriately.Final determination on the issue is that the penalty order under Section 271(1)(c) is quashed, and the appeal of the assessee is allowed.

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