2025 (8) TMI 205 - AT - Income Tax

Penalty under Section 271(1)(c) quashed due to defective, unclear notice causing ambiguity in penalty basis

Penalty under section 271(1)(c) was quashed due to a defective notice that failed to specify a clear charge, causing ambiguity about the basis for ... Levy of penalty u/s. 271(1)(c) - defective notice - Non specification of clear charge - ambiguity and vagueness in the mind of AO with regard to the charge for which penalty is to be levied HELD THAT:- Hon’ble Supreme Court of India in the case of T. Ashok Pai [2007 (5) TMI 199 - SUPREME COURT] has held that the expression ‘concealment of income’ and ‘furnishing inaccurate particulars’ carry different connotations. As in Samson Perinchery [2017 (1) TMI 1292 - BOMBAY HIGH COURT] has held that penalty initiated on one limb and levied on the other limb of section 271(1)(c) of the Act is unsustainable. In the case of Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] held that non striking of irrelevant matter in the notice issued u/s. 274 r.w.s. 271 of the Act would make the notice defective and thus would vitiate penalty proceedings. The defect in notice is incurable. Thus, penalty u/s. 271(1)(c) of the Act in the instance case is liable to be quashed on more than one count. Decided in favour of assessee. ISSUES: Whether a notice issued under section 274 read with section 271(1)(c) of the Income Tax Act, 1961, is valid if it does not specify the exact charge under section 271(1)(c) for which penalty is proposed to be levied.Whether penalty under section 271(1)(c) of the Income Tax Act can be sustained if the penalty proceedings were initiated on one limb (concealment of income) but penalty was levied on the other limb (furnishing inaccurate particulars of income).Whether a notice issued in a preprinted form without striking off irrelevant clauses under section 271(1)(c) renders the notice ambiguous and defective.Whether penalty proceedings under section 271(1)(c) of the Income Tax Act are sustainable if initiated and levied on ambiguous or defective notice. RULINGS / HOLDINGS: The notice issued under section 274 read with section 271(1)(c) of the Act that fails to specify the charge and is issued in an omnibus preprinted performa without striking off irrelevant clauses is 'ambiguous and defective,' and no penalty can be levied on the basis of such defective notice.Penalty initiated under one limb of section 271(1)(c) (concealment of income) and levied under the other limb (furnishing inaccurate particulars of income) is 'unsustainable' and liable to be quashed.The defect in the notice for penalty proceedings under section 271(1)(c) is 'incurable,' and such defective notice vitiates the penalty proceedings.Penalty proceedings under section 271(1)(c) of the Act are liable to be quashed on account of defective notice and ambiguity in the charge for which penalty is levied. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, particularly sections 271(1)(c) and 274, governing penalty proceedings and issuance of notices.The Court relied on precedents including the Supreme Court decision in T. Ashok Pai vs CIT, which held that 'concealment of income' and 'furnishing inaccurate particulars' under section 271(1)(c) carry different connotations and require specificity in penalty proceedings.The Court referred to the Full Bench decision of the Bombay High Court in Mohd. Farhan A. Shaikh vs DCIT, which held that non-striking of irrelevant matter in the notice issued under section 274 read with 271 renders the notice defective, thereby vitiating penalty proceedings.The Court emphasized that the Assessing Officer must be 'specific in mentioning the charge' under section 271(1)(c) in the notice and penalty order, and ambiguity or vagueness in this regard leads to unsustainable penalty orders.No dissent or doctrinal shift was noted; the Court followed established legal principles and precedent to quash penalties based on defective notices and inconsistent charges.