SC Declines Interference With Penalty Deletion Over Ambiguous Section 271(1)(c) Notice

PCIT Vs Mahesh G Garodia (Supreme Court of India)

Summary: In PCIT v. Mahesh G. Garodia, the Supreme Court dismissed the Revenue’s SLP against the Bombay High Court judgment concerning the validity of penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961, where the Section 274 show-cause notice failed to clearly specify whether the penalty was proposed for concealment of income or furnishing inaccurate particulars of income. The Bombay High Court, following its Full Bench ruling in Mohd. Farhan A. Shaikh v. DCIT, held that such an ambiguous notice cannot constitute a valid foundation for imposing penalty, as the assessee must be clearly informed of the precise charge to enable an effective defence. The Revenue had argued that the penalty was ultimately imposed on both limbs and, therefore, no portion of the notice was required to be struck off, but the High Court rejected this contention and dismissed the appeal. The Supreme Court, on 31 July 2026, found no grounds to interfere with the High Court judgment and dismissed SLP (C) No. 26281/2026, while expressly observing that the “Question of law, if any, is kept open.” Accordingly, the Bombay High Court ruling remains undisturbed in the particular case, but the Supreme Court’s order should not be treated as a final authoritative determination settling the broader question of law.

Read HC Judgment in this case: Bombay HC: Ambiguous Section 271(1)(c) Notice Invalidates Penalty

CIT-27, Mumbai v. Late Gordhandas S. Garodia through L/h Mahesh G. Garodia : An ambiguous notice under section 274, which fails to clearly identify whether penalty under section 271(1)(c) is proposed for “concealment of income” or “furnishing of inaccurate particulars”, cannot validly constitute the foundation for penalty.

The Supreme Court has now dismissed the Revenue’s SLP against the Bombay High Court judgment, though the question of law has expressly been kept open.

Core Issue: Validity of Ambiguous Section 274 Penalty Notice

The issue before the Bombay High Court was whether penalty under section 271(1)(c) could validly survive where the notice issued under section 274 did not strike off the inapplicable limb and therefore did not clearly communicate whether the assessee was being proceeded against for concealment of income, furnishing inaccurate particulars of income, or both. The Revenue argued that, since the penalty had ultimately been imposed on both limbs, there was no requirement to strike off either limb in the show-cause notice.

Facts and Penalty Proceedings

The assessee was subjected to penalty proceedings under section 271(1)(c). The show-cause notice issued under section 274 contained the standard alternatives relating to concealment of income and furnishing of inaccurate particulars but failed to clearly indicate the specific charge against the assessee. The assessee challenged the validity of the penalty on the ground that the notice itself was ambiguous and did not provide a clear opportunity to understand the precise allegation and defend the penalty proceedings.

AO / Penalty Finding

The penalty under section 271(1)(c) was imposed relying upon the grounds mentioned in the show-cause notice. The Revenue’s position before the High Court was that the penalty had been levied on both limbs of section 271(1)(c), namely concealment as well as furnishing inaccurate particulars. According to the Revenue, therefore, it was not necessary to strike off either portion of the printed notice.

ITAT Finding: Defective Section 274 Notice

The ITAT deleted the penalty on the ground that the notice issued under section 274 was defective and ambiguous because the irrelevant portion had not been struck off. The Tribunal followed the Full Bench judgment of the Bombay High Court in Mohd. Farhan A. Shaikh v. DCIT, which had held that an ambiguous notice cannot constitute a valid foundation for imposition of penalty under section 271(1)(c).

Revenue’s High Court Argument

Before the Bombay High Court, the Revenue attempted to distinguish Mohd. Farhan A. Shaikh on the ground that, in the present case, the penalty had actually been imposed on both grounds referred to in section 271(1)(c). It was therefore contended that there was no “irrelevant” limb which could have been struck off and that the Tribunal had deleted the penalty merely on a technical ground.

Bombay High Court Finding

The Bombay High Court rejected the Revenue’s attempt to distinguish the Full Bench decision. On examining the actual show-cause notice, the Court found that it was not at all clear whether the penalty was proposed for concealment, furnishing of inaccurate particulars, or both. Thus, the fundamental defect identified by the Full Bench in Mohd. Farhan A. Shaikh was equally present in the assessee’s notice.

High Court on Natural Justice

The Court effectively treated the specification of the charge in the notice as an important procedural safeguard. An assessee must know the precise allegation for which penalty proceedings are being initiated so that an effective opportunity of defence can be exercised. Where the notice leaves the charge uncertain, the assessee is unable to know whether the case concerns concealment, inaccurate particulars, or both.

High Court Decision

Since the ITAT had followed the binding Full Bench decision in Mohd. Farhan A. Shaikh, the Bombay High Court held that the question proposed by the Revenue did not constitute a substantial question of law. The appeal was accordingly dismissed without any order as to costs.

Principal Case Relied Upon: Mohd. Farhan A. Shaikh

Mohd. Farhan A. Shaikh v. Deputy Commissioner of Income Tax, Central Circle-1, Belgaum, [2021] 125 taxmann.com 253 (Bombay) (Full Bench). The Full Bench held that an ambiguous section 274 notice cannot form the foundation for valid imposition of penalty under section 271(1)(c).

Supreme Court — Subsequent Development

The Revenue challenged the Bombay High Court judgment before the Supreme Court through SLP (C) No.26281/2026 @ Diary No.31777/2026. On 31.07.2026, the Supreme Court, comprising Justice Aravind Kumar and Justice Vipul M. Pancholi, held that there were no grounds to interfere with the High Court judgment and dismissed the SLP.

Importantly, however, the Supreme Court expressly stated: “Question of law, if any, is kept open.”

Thus, the SLP dismissal leaves the Bombay High Court decision undisturbed in the particular case, but should not be treated as an authoritative Supreme Court adjudication finally settling the wider question of law.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Delay condoned.

2. We find no grounds to interfere with the impugned judgment and order of the High Court. Hence, the present Special Leave Petition stands dismissed.

Question of law, if any, is kept open.

3. Pending application(s), if any, shall stand disposed of.