Ambiguous penalty notices cannot be foundation of imposition of any penalty – SC

Ambiguous notices without striking off the irrelevant limb cannot be the foundation of imposition of any penalty – Supreme Court dismisses SLP of Revenue

In a recent judgment, Hon’ble Supreme Court has dismissed the SLP of the Income Tax Department rejecting the contention that in the notice the limb of the penalty was not struck of as penalty was levied on both the limbs/grounds mentioned in section 271(1)(c) of the Act

ABCAUS Case Law Citation:
5192 (2026) (08) abacus.in SC

In the instant case, the Revenue had challenged the judgment of the Hon’ble High Court by which it upheld the order of the ITAT in deleting the penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act) on technical ground by holding that penalty notice was not valid as the irrelevant portion was not struck off.

Before the Hon’ble High Court, the Revenue had contended that the penalty was levied on both the limbs/grounds mentioned in section 271(1)(c) of the Act and therefore it was not possible to strike off one limb in the penalty notice.

The Revenue, in view of that the Tribunal had followed the decision of the Full Bench of the Hon’ble Supreme Court on the issue of non-striking of the limb of penalty, submitted that in the present case the impugned penalty was levied based upon both the reasons referred to in the show cause notice and therefore there was no question of striking out any irrelevant portions as was the case before the Full Bench.

The Hon’ble High Court observed that the ratio of the Full Bench was that ambiguous notices cannot be the foundation of imposition of any penalty. Clearly, in the present case, on the perusal of the show cause notice, it was not at all clear whether penalty was proposed to be imposed based on concealment, disclosure of furnishing incorrect particulars or both.

Therefore, the Hon’ble High Court held that the vice pointed out by the Full Bench, equally applied to the show cause notice in this case which was the foundation of imposition of the impugned penalty. There was no reason to distinguish the decision of the Full Bench with the case in hand.

As a result, the Hon’ble High Court dismissed the appeal of the Revenue holding that question of law proposed could not be regarded as substantial question of law.

Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,

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

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• Ambiguous penalty notices cannot be foundation of imposition of any penalty – SC
• Assessment itself is not a process to penalise assessee for earning undisclosed income – High Court
• Actual use of asset is not the sole test for allowability of depreciation – ITAT
• Object of assessment proceedings is not to find empirically correct solution on every fact issue – HC
• Penalty u/s 270A deleted as assessee filed revised computation during scrutiny