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 irrelevant limbs, rendering the notice mechanical and without application of mind. Consequently, the penalty order under section 271(1)(c) could not be sustained. The tribunal relied on the Calcutta HC decision in KPC Medical College, which established that a notice lacking clear indication of the relevant charge is invalid. The show-cause notice did not clarify whether the penalty was for concealment of income or furnishing inaccurate particulars, leading to the decision in favor of the assessee.

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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.

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