Defective penalty notice under section 274 vitiates penalty proceedings when the exact charge is not specified.

Penalty proceedings under section 271(1)(c) require a valid notice under section 274 that clearly specifies the exact charge by striking off the inapplicable limb. A standard form or omnibus notice that does not indicate whether the allegation is concealment of income or furnishing inaccurate particulars is vague, shows non-application of mind, and prejudices the assessee in a mandatory penal framework. Because the notice failed to disclose the precise grounds, the penalty proceedings were vitiated and the penalty could not be sustained. The penalty was quashed in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) could be sustained when the notice under section 274 did not specify the exact limb of the charge and did not strike off the inapplicable portion.

Analysis: The notice issued for penalty was found to be a standard form notice without deletion of the irrelevant portion and without indicating whether the proceedings were for concealment of income or furnishing inaccurate particulars. The decision followed the principle that penalty proceedings must stand on their own, and the assessee must be informed of the precise grounds through the statutory notice itself. An omnibus notice was treated as vague, reflecting non-application of mind and causing prejudice in a mandatory penal framework requiring strict construction.

Conclusion: The penalty notice was defective, and the penalty order could not be sustained. The penalty was quashed in favour of the assessee.

Ratio Decidendi: In penalty proceedings under section 271(1)(c), failure to specify the exact charge in the notice under section 274 by striking off the inapplicable limb vitiates the proceedings, because the assessee must be clearly informed of the grounds of penalty through a valid and precise statutory notice.

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