Vague penalty notice under section 274 invalidates section 271(1)(c) proceedings when the exact charge is not specified.

Penalty under section 271(1)(c) was held unsustainable where the section 274 notice failed to strike off the inapplicable limb and did not specify whether the charge was concealment of income or furnishing inaccurate particulars. The notice was treated as vague and as showing non-application of mind, because the assessee must be informed of the exact statutory ground through the notice itself. The defect could not be cured by the assessment order or earlier proceedings. Applying strict construction of penal provisions, the penalty proceedings were invalid and the penalty order was quashed.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable when the notice under section 274 did not strike off the inapplicable limb and did not specify the exact charge.

Analysis: The notice was found to be a stereotype form in which the Assessing Officer had not deleted the irrelevant portion or indicated whether the proposed penalty was for concealment of particulars of income or for furnishing inaccurate particulars of income. The defect was treated as material because the assessee is to be informed of the precise grounds of penalty through the statutory notice itself. An omnibus notice was held to suffer from vagueness and to reflect non-application of mind, and the defect could not be cured by reference to the assessment order or earlier proceedings. The decision relied on the principle that penal provisions must be construed strictly and ambiguity must operate in favour of the assessee.

Conclusion: The penalty proceedings were invalid and the penalty order was quashed; the issue was decided in favour of the assessee.

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