Levy of penalty under section 271(1)(c) invalid where penalty notice fails to specify concealment or inaccurate particulars, leading to deletion

Penalty under section 271(1)(c) was held invalid where the penalty notice failed to specify whether proceedings were based on concealment of income or furnishing inaccurate particulars; defective notice that does not clearly identify the limb relied upon vitiates the penalty proceedings and leads to deletion of the penalty. A mere inclusion of irrelevant matter without striking it off amounts to a material defect. Precedential authorities applying the requirement of clear specification were relied upon, resulting in allowance of the assessees appeal and removal of the penalty.

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Issues: Whether the penalty of Rs. 6,21,198/- under section 271(1)(c) of the Income-tax Act, 1961 can be sustained where the penalty notice did not clearly identify whether it was issued for concealment of particulars of income or for furnishing inaccurate particulars, and whether the defective notice vitiates the penalty proceedings.

Analysis: The notice initiating penalty proceedings used the printed form without striking off the limb(s) not applicable, and the record does not contain a clear, specific satisfaction identifying concealment or inaccurate particulars as the basis for penalty. Judicial authorities hold that initiation of penalty under section 271(1)(c) requires a clear recorded satisfaction specifying the ground(s) relied upon, and a notice that fails to indicate the applicable limb(s) is defective. Where such defect exists, penalty proceedings are vitiated even if other substantive contentions (such as bona fide claims, computational errors, or AMT issues) are raised, because the statutory precondition for levy of penalty is absent.

Conclusion: Penalty under section 271(1)(c) of the Income-tax Act, 1961 deleted on the ground that the penalty notice was defective for not specifying the applicable limb(s) of section 271(1)(c).

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