Penalty notice validity depends on clear charge specification; a vague section 274 notice could not sustain penalty.

A penalty notice under section 274 read with section 271(1)(c) of the Income-tax Act was invalid where it referred to both concealment of income and furnishing of inaccurate particulars without striking off the irrelevant limb or specifying the exact charge. The notice was treated as mechanical and issued without application of mind, and the defect was held to go to the root of the penalty proceedings. As the penalty order was founded on that invalid notice, it could not be sustained and was quashed in favour of the assessee.

---

---

Issues: Whether a penalty notice issued under section 274 of the Income-tax Act, 1961 read with section 271(1)(c) is valid when it does not specify the exact charge, and whether the consequent penalty order can be sustained.

Analysis: The notice initiated penalty proceedings on both limbs, namely concealment of income and furnishing of inaccurate particulars of income, without striking off the irrelevant charge or indicating the specific default. Such a notice was treated as mechanical and issued without application of mind. Following the binding line of authority that a notice must clearly specify the exact limb on which penalty is proposed, the defect was held to go to the root of the proceedings. The consequential penalty, being founded on an invalid notice, could not survive.

Conclusion: The penalty notice was invalid and the consequent penalty order under section 271(1)(c) of the Income-tax Act, 1961 was quashed in favour of the assessee.

---