Defective penalty notice under section 274 read with section 271(1)(c) vitiates proceedings when the exact charge is not specified.

A penalty notice under section 274 read with section 271(1)(c) must clearly specify the exact charge, because concealment of income and furnishing inaccurate particulars are distinct limbs. A notice issued in an omnibus form, without striking off the inapplicable limb, creates ambiguity and shows proper application of mind. On that basis, the text states that such a defective notice vitiates the penalty proceedings and the penalty action cannot be sustained.

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Issues: Whether the penalty notice issued under section 274 read with section 271(1)(c) of the Income-tax Act, 1961 was defective for not striking off the inapplicable charge and thereby vitiated the penalty proceedings.

Analysis: The notice was issued in an omnibus manner and simultaneously mentioned both limbs of section 271(1)(c), namely concealment of particulars of income and furnishing of inaccurate particulars of income, without deleting the irrelevant portion. This created ambiguity as to the exact charge and reflected absence of proper application of mind. Where the statutory notice does not clearly specify the basis on which penalty is proposed, the resulting proceedings are vitiated.

Conclusion: The penalty notice was defective and the penalty proceedings could not be sustained; the issue is decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the assessee's appeal was allowed because the penalty action was founded on an and invalid notice.

Ratio Decidendi: A penalty notice under section 274 read with section 271(1)(c) must clearly specify the precise charge, and failure to strike off the inapplicable limb renders the notice defective and vitiates the penalty proceedings.

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