2026 (1) TMI 824 - AT - Income Tax

Penalty under section 271(1)(c) quashed where assessment notice invoked both limbs without striking inapplicable portion

Penalty proceedings addressed the validity of a penalty notice that invoked both limbs of the penalty provision without striking off the inapplicable ... Penalty u/s 271(1)(c) - notice invoking both limbs without striking off inapplicable portion - allegation of defective notice - non specification of clear charge HELD THAT:- We find that the AO has mentioned both limbs in the notice issued u/s 271(1)(c) and has not struck off the inapplicable portion of the Act. AO in the penalty order has mentioned the facts that the penalty levied u/s 271(1)(c) of the Act for concealment of income. Penalty quashed - Decided in favour of assessee. Issues: (i) Whether the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 is valid where the notice for penalty mentions both limbs of Section 271(1)(c) without striking off the inapplicable limb, and whether such defect renders the penalty order liable to be quashed.Analysis: The notice initiating penalty proceedings referred to both limbs of Section 271(1)(c) without indicating which limb was invoked and without striking off the inapplicable portion. The penalty order, however, proceeded to levy penalty on the ground of concealment of income. The legal framework requires that a penalty notice must clearly indicate the statutory limb under which proceedings are initiated so that the charged party can know the case to be met. Where a notice ambiguously invokes both limbs and the inapplicable limb is not struck off, the notice is rendered defective and undermines the validity of subsequent penalty proceedings. Reliance on applicable precedents and the requirement of specifying the limb was applied to the facts, leading to a conclusion that the defect in the notice vitiates the penalty order.Conclusion: The penalty imposed under Section 271(1)(c) is quashed because the penalty notice mentioned both limbs without striking off the inapplicable limb, rendering the proceeding defective; outcome is in favour of the assessee.Final Conclusion: The appeal is allowed and the penalty order under Section 271(1)(c) is set aside.Ratio Decidendi: A penalty notice under Section 271(1)(c) that ambiguously invokes both the limb of concealment of income and the limb of furnishing inaccurate particulars without striking off the inapplicable limb is defective, and a penalty order based on such a notice is liable to be quashed.