2026 (3) TMI 889 - AT - Income Tax

Notice specificity under section 271(1)(c) requires identifying the applicable limb; failure invalidates the penalty imposed.

A penalty notice invoking both limbs of section 271(1)(c) without specifying which limb applied or striking off the inapplicable limb was held defective; ... Penalty imposed u/s 271(1)(c) - Notice non specifying limb of section 271(1)(c) - Notice u/s 271(1)(c) which mentioned both limbs without striking off the inapplicable limb - HELD THAT: - The Assessing Officer's notice recited both limbs of section 271(1)(c) and did not strike off the inapplicable portion. The penalty order proceeded on the basis that penalty was for furnishing inaccurate particulars, but the defect in the notice remained. The Tribunal, applying the ratio of M/S. SAHARA INDIA LIFE INSURANCE COMPANY, LTD. [2019 (8) TMI 409 - DELHI HIGH COURT] held that a notice must specify which limb of section 271(1)(c) proceedings are initiated under and that failure to do so vitiates the penalty proceedings. Consequently the penalty order was quashed for want of a valid notice. [Paras 6] Penalty order quashed for defective notice; ground of the assessee's appeal allowed. Final Conclusion: The appeal is allowed and the penalty imposed under section 271(1)(c) is quashed because the notice failed to specify and strike off the inapplicable limb, rendering the proceedings invalid. Issues: Whether the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 can be sustained where the notice invoked both limbs of section 271(1)(c) without specifying which limb was applicable and the inapplicable portion was not struck off.Analysis: The notice issued under section 271(1)(c) mentioned both limbs-concealment of particulars of income and furnishing inaccurate particulars of income-without striking off the inapplicable limb. The Assessing Officer applied section 145(3) to reject books and estimated profits, and levied penalty under section 271(1)(c) for furnishing inaccurate particulars. The Tribunal followed the binding precedent of the Hon'ble Delhi High Court holding that a penalty notice under section 271(1)(c) must specify the limb under which proceedings are initiated and that failure to do so renders the notice and consequent penalty liable to be quashed. The defect in the notice was decisive irrespective of the merits of the underlying additions or estimation of income.Conclusion: The penalty order under section 271(1)(c) is quashed and the appeal is allowed in favour of the assessee.