Is Income Tax Penalty Notice without Specifying Limb u/s 271(1)(c) Valid? Supreme Court to Examine Revenue Petition [Read Order]
The primary issue pertained to whether the charge was for “concealment of income” or for “furnishing inaccurate particulars.”
The Supreme Court has admitted a petition filed by the Income Tax Department challenging a ruling by the Karnataka High Court which quashed a penalty on the grounds that a penalty notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 was defective since it did not mention the specific limb under Section 271(1)(c) which formed the basis for the notice.
The facts follow a search and seizure operation conducted in October 2007 at the premises of the Respondent - M/s Ennoble Constructions and related entities connected with one G. Janardhan Reddy and Obulapuram Mining Company Pvt. Ltd. The search led to the discovery of documents evidencing additional cash payments for purchase of land at Hyderabad, which the Assessing Officer (AO) treated as unexplained investment.
The AO thus imposed a minimum penalty of ₹6,50,00,000, under Section 271(1)(c) for concealment of income. The penalty was confirmed by the Commissioner of Income Tax (Appeals).
However, in appeal the Income Tax Appellate Tribunal (ITAT) deleted the penalty, observing that the notice issued under Section 274 of the Act was a generic printed notice that failed to indicate whether the charge was for “concealment of income” or for “furnishing inaccurate particulars.” The Tribunal held that the failure to strike off the inapplicable portion in the notice and the absence of clear satisfaction recorded by the AO in the assessment order rendered the penalty proceedings legally invalid.
In the Revenue’s appeal before the Karnataka High Court, a Bench of Justice K. Somashekar and Justice Umesh M. Adiga ruled that a generic penalty notice without specification of the charge violates principles of natural justice and is inconsistent with the statutory requirement under Section 274.
The Court also relied on its earlier ruling in CIT v. Manjunath Cotton and Ginning Factory (2013) and the Supreme Court ruling in CIT v. SSA’s Emerald Meadows (2016), which held that such defective notices are unsustainable in law.
Aggrieved, the Principal Commissioner of Income Tax (Central) filed a Special Leave Petition before the Supreme Court.
The matter came up before a bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan on November 7, 2025.
After hearing Additional Solicitor General N. Venkatraman on behalf of the Revenue, and Mayank Jain for the assessee, the court admitted the petition, directing that it be listed for further consideration on February 16, 2026.
The Supreme Court is positioned to settle a long-standing uncertainty on whether a penalty notice issued under Section 271(1)(c) without specifying the exact “limb” would render the penalty notice invalid in law. Majority judgments delivered by jurisdictional high courts and tribunals have answered in the affirmative that specifying the limb under section 271(1)(c) of the Income Tax Act, 1961 was central to determining the validity of the notice.
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