Penalty notice under Section 274 and 271(1)(c) invalid due to failure to specify relevant charge, penalty quashed

The ITAT Kolkata held that the penalty notice issued under section 274 read with section 271(1)(c) was invalid as the AO failed to strike off irrelevant limbs and indicate the relevant limb, rendering the notice mechanical and without application of mind. Consequently, the penalty order under section 271(1)(c) was quashed. The tribunal relied on precedent from the Calcutta HC, affirming that a defective show cause notice lacking specification of the charge-whether concealment of income or furnishing inaccurate particulars-cannot sustain penalty proceedings. The assessee's appeal was allowed.

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The Appellate Tribunal (ITAT Kolkata) allowed the assessee's appeal against the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for AY 2011-12. The penalty was based on a notice issued under section 274 read with section 271(1)(c). The key issue was the validity of the penalty notice, which did not strike off irrelevant limbs nor specify the relevant limb of section 271(1)(c), thereby failing to indicate whether the charge was for concealment of income or furnishing inaccurate particulars. Relying on the Hon'ble Kolkata High Court's decision in *KPC Medical College and Hospital v. PCIT* [2025] 173 taxmann.com 581 (Cal HC), the Tribunal held that such a mechanically issued notice "without application of mind" is invalid and "goes to the root of the matter." Consequently, the penalty order based on this invalid notice was quashed. The Tribunal concluded: "the order passed by the ld. AO u/s 271(1)(c) of the Act is also invalid and cannot be sustained," and allowed the appeal.

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