Penalty Cannot Be Imposed Based on Vague Cyclostyled Notice Lacking Specific Grounds
Issue
Whether a penalty under Section 271(1)(c) of the Income-tax Act, 1961 can be validly imposed based on a cyclostyled show cause notice where irrelevant options were not struck off, making the notice vague and incapable of a proper response.
Facts
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The Assessing Officer issued a cyclostyled show cause notice to initiate penalty proceedings against the assessee under Section 271(1)(c).
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The Assessing Officer failed to strike off the irrelevant limb/particulars in the pre-printed notice (i.e., whether the penalty was for “concealment of income” or for “furnishing inaccurate particulars of income”).
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Following the vague notice, the Assessing Officer proceeded to impose a penalty on the assessee.
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The Tribunal set aside the penalty order, holding that the show cause notice was vague and legally unsustainable.
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The Revenue challenged the Tribunal’s order, leading to the present proceedings.
Decision
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The Court held that a clear and specific show cause notice is a mandatory prerequisite for assuming valid jurisdiction to levy a penalty under Section 271(1)(c).
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It was observed that the cyclostyled notice issued to the assessee was indeed vague and failed to inform the assessee of the exact charge against them, rendering them unable to respond effectively.
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The Court ruled that a vague show cause notice cannot serve as the legal foundation for imposing any penalty.
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Consequently, the Court declined to interfere with the Tribunal’s order and upheld the deletion of the penalty in favor of the assessee.
Key Takeaways
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Definite Charge Required: The Assessing Officer must explicitly specify the exact limb of Section 271(1)(c) under which the penalty is initiated—either for concealment of income or for furnishing inaccurate particulars.
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Failure to Strike Off Inapplicable Words Invalidates Notice: Striking off irrelevant clauses in a printed or cyclostyled notice is mandatory; failure to do so reflects non-application of mind and invalidates the notice ab initio.
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Vague Notice Violates Natural Justice: A vague notice deprives the assessee of a reasonable opportunity to defend themselves, violating the principles of natural justice and vitiating all subsequent penalty proceedings.
HIGH COURT OF BOMBAY
Principal Commissioner of Income-tax Central 1 Mumbai
v.
Hasmukh I Gandhi
M.S. Sonak and Advait M Sethna, JJ.
IT APPEAL NO. 269 OF 2024
NOVEMBER 7, 2025
Akhileshwar Sharma for the Appellant. Ms. Aasavari Kadam for the Respondent.
ORDER
1. Heard Mr. Akhileshwar Sharma for the Appellant and Ms. Aasavari Kadam for the Respondent.
2. Though the tax effect in this Appeal is less than Rs.2 Crores, Mr. Sharma submits that the same is required to be decided on merits given the provisions in Clause 10(d) of the CBDT Circular dated 11 July 2018.
3. Therefore, we have now heard learned counsel for the parties on merits.
4. The challenge in this Appeal is to the order of the ITAT setting aside the penalty imposed upon the assessee. The ITAT has taken the view that since the irrelevant particulars in the cyclostyled show cause notice were not struck of, the show cause notice was vague. Based on such a show cause notice, no penalty could have been imposed.
5. The ITAT has relied on the decision of the Full Bench of this Court in the case of Mohd Farhan A Shaikh v. Deputy CIT 434 ITR 1 (Bombay).
6. We have perused the record and we find that the show cause notice based upon which the penalty was imposed upon the assessee was indeed vague and incapable of a proper response. The Full Bench in the case of Mohd. Farhan A Shaikh (supra) has held that such a vague show cause notice cannot be the foundation for imposing any penalty upon the assessee.
7. Therefore, the issues raised in this Appeal stand covered against the revenue given the decision of the Full Bench in the case of Mohd. Farhan A Shaikh (supra). In such circumstances, we are satisfied that this Appeal does not involve any substantial question of law.
8. The Appeal is accordingly dismissed without any order for costs.