2025 (7) TMI 1858 - AT - Income Tax

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 ... Penalty u/s 271(1)(c) - invalid/defective notice issued u/s 274 - as alleged AO has not struck off the irrelevant limb nor indicated the relevant limb in the penalty notice - HELD THAT:- We find from the perusal of the notice that the ld. AO has not struck off the irrelevant limb of the notice nor indicated the relevant limb. Therefore, the notice has been issued in a mechanical manner and without application of mind which is invalid and goes to the root of the matter. Consequently, the order passed by the ld. AO u/s 271(1)(c) of the Act is also invalid and cannot be sustained. The case of the assessee is squarely covered in the case of KPC Medical College and Hospital [2025 (3) TMI 1230 - CALCUTTA HIGH COURT] wherein as held that where in the penalty notice issued u/s 274 read with section 271 of the Act none of the relevant columns have been indicated nor the irrelevant limb been struck off. Show cause notice issued u/s 274 read with section 271(1)(c) of the Act did not specify the charge against the assessee as to whether it was for concealment of income or furnishing of inaccurate particulars of income - Assessee appeal allowed. 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.