2025 (8) TMI 42 - AT - Income Tax

Penalty notice under Section 274 and 271(1)(c) invalid if AO fails to specify relevant charges clearly

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 specify or strike off ... Validity of penalty imposed u/s 271(1)(c) - allegation of invalid notice issued u/s 274 r/w section 271(1)(c) - non specification of clear charge - 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 AO u/s 271(1)(c) of the Act is also invalid and cannot be sustained. The case of the assessee is squarely covered by the decision 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 r.w.s. 271 of the Act, none of the relevant column have been indicated nor the relevant limb been struck off, then the notice is not valid. 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 for which the penalty notice issued u/s 271(1)(c) of the Act is invalid. Decided in favour of assessee. ISSUES: Whether a penalty notice issued under section 274 read with section 271(1)(c) of the Income-tax Act, 1961 is valid if it does not specify or strike off the irrelevant limb and indicate the relevant limb of the charge'Whether a penalty order passed under section 271(1)(c) of the Act based on such an invalid notice can be sustained? RULINGS / HOLDINGS: The penalty notice issued under section 274 read with section 271(1)(c) of the Act is invalid if the assessing officer does not strike off the irrelevant limb nor indicate the relevant limb of the charge, rendering the notice issued 'without application of mind' and in a 'mechanical manner'.Consequently, the penalty order passed under section 271(1)(c) of the Act based on such an invalid notice is also invalid and cannot be sustained. RATIONALE: The Court applied the legal framework under sections 271(1)(c) and 274 of the Income-tax Act, 1961, emphasizing that a valid penalty notice must specify the charge clearly by striking off irrelevant limbs and indicating the relevant limb to show the basis of penalty proceedings.This interpretation aligns with the precedent set by the Kolkata High Court in KPC Medical College and Hospital, which held that failure to specify the charge in the penalty notice renders it invalid.The Court also relied on multiple Supreme Court and High Court decisions reinforcing that a show cause notice issued without clear specification of the charge under section 271(1)(c) is invalid.No dissent or doctrinal shift was indicated; the Court followed established precedent to quash the penalty order.