Is a defective s.274 notice always fatal?
On this view, no. Section 274 prescribes no particular form, and a mistake in language or a failure to strike out the inapplicable limb does not by itself invalidate the notice — you must show you were actually prejudiced.
Decided by the High Court (Bombay High Court (Nagpur) — V. A. Mohta J and G. D. Paul J (judgment by Mohta J)) on 1992-01-14, reported as (1995) 216 ITR 660 (Bom); (1994) 75 Taxman 549 (Bom); IT Reference No. 288 of 1976, AYs 1967-68 to 1969-70. It bears on section 271(1)(c), section 274 of the Income Tax Act 1961, in Penalty matters.
This is the other side of the Manjunatha Cotton argument, and it is in the library deliberately. If you build a penalty appeal purely on a defective notice, this is what the department will cite — and in some jurisdictions it still works.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
This was a reference under s.256(1) at the instance of the Commissioner, Vidarbha and Marathwada, Nagpur. The assessee, the late Sampatprasad Tiwari, had returned income from a coal and sand supply business and a share in a firm for assessment years 1967-68 to 1969-70. While assessing 1969-70 the Income-tax Officer found he had also run a transport business, plying trucks in a benami name. The first two years were reopened under s.147, and in response to the s.148 notices the assessee filed revised returns including the transport income; he revised the 1969-70 return too. Assessments for all three years were made by order of 29 March 1972 recording that penalty proceedings under s.271(1)(c) were being initiated, the concealed income being Rs 33,022, Rs 19,355 and Rs 9,988 respectively. Before that order was made, the Officer had referred 1967-68 to the Inspecting Assistant Commissioner, who issued a show cause notice dated 28 March 1972 alleging that the assessee had 'concealed the particulars of your income or deliberately furnished inaccurate particulars of such income'. For the other two years the Officer issued notices dated 29 March 1972 in the same form but without the word 'deliberately', after the assessments were made. Penalties of Rs 13,000, Rs 22,000 and Rs 10,000 followed. The Tribunal quashed all three, holding the notices ambiguous because of the word 'or', and holding the Officer's two orders to be without jurisdiction.
The three referred questions were answered separately and the decision went both ways. On the notices of 29 March 1972 for 1968-69 and 1969-70, issued after the assessment orders which recorded the reasons, the assessee fully knew in detail the exact charge against him, so there was neither non-application of mind nor prejudice; s.274 does not mandate a notice in any particular form, and a mere mistake in the language used or mere non-striking off of the inaccurate portion cannot by itself invalidate the notice, the entire factual background falling for consideration with no one aspect decisive (para 7). But on the notice of 28 March 1972 for 1967-68 the Court upheld the quashing of the penalty: that notice was issued before the assessment order was made, so the assessee had no knowledge of the exact charge; it used 'or' between the two charges and also the word 'deliberately', which had been omitted from s.271(1)(c) by the Finance Act 1964 with effect from 1 April 1964. The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner, and its vagueness and ambiguity prejudiced the assessee's right to a reasonable opportunity (para 10). On jurisdiction, the law in force when the penalty proceedings were initiated governs, so after the Taxation Laws (Amendment) Act 1970 took effect on 1 April 1971 the Income-tax Officer and not the Inspecting Assistant Commissioner had jurisdiction, and his penalty orders were valid (para 11). Question 1 was answered in favour of the assessee and questions 2 and 3 in favour of the revenue (para 12).
Penalty proceedings are quasi-criminal in nature and s.274 embodies the principle of natural justice that the assessee be heard before penalty is levied. But rules of natural justice cannot be imprisoned in any straight-jacket formula: to sustain a complaint of failure of natural justice for want of opportunity, prejudice caused by the procedure followed must be established. The notice is an administrative device for informing the assessee of the proposal to levy penalty so that he may explain why it should not be levied, and neither the Act nor the Rules prescribes a form. So a mistake in language, or a failure to strike off the inapplicable portion, does not by itself invalidate the notice; the entire factual background is to be considered and no single aspect is decisive (para 7). The Court supported that with the Patna decision in Mithila Motors, that it is enough if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. It declined to import the preventive detention reasoning of Kishori Mohan Bera, observing that even in that field the mere use or misplacement of 'and' or 'or' is not decisive and everything turns on whether the lapse shows non-application of mind or impairs the right of representation (para 8), and it distinguished Lakhdhir Lalji and N.N. Subramania Iyer on their facts (paras 9-10). Applying the same test the other way, the 1967-68 notice failed it. On jurisdiction the Court followed its own decision in Rizumal Pherumal, that the law prevailing on the date the penalty proceedings are initiated governs, and noted that the Madras decision in Continental Commercial Corporation had been dissented from (para 11).
Mere mistake in the language used or mere non-striking off of inaccurate portion cannot by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive.
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Handle my notice → Ask a CA on WhatsAppOn this view, no. Section 274 prescribes no particular form, and a mistake in language or a failure to strike out the inapplicable limb does not by itself invalidate the notice — you must show you were actually prejudiced. This was decided by the High Court (Bombay High Court (Nagpur) — V. A. Mohta J and G. D. Paul J (judgment by Mohta J)) and bears on section 271(1)(c), section 274 of the Income Tax Act 1961. It is reported as (1995) 216 ITR 660 (Bom); (1994) 75 Taxman 549 (Bom); IT Reference No. 288 of 1976, AYs 1967-68 to 1969-70. This is the other side of the Manjunatha Cotton argument, and it is in the library deliberately. If you build a penalty appeal purely on a defective notice, this is what the department will cite — and in some jurisdictions it still works. If it applies to you, the first step is this: Do not rest a penalty appeal on the notice defect alone; argue the merits in the alternative.
This was a reference under s.256(1) at the instance of the Commissioner, Vidarbha and Marathwada, Nagpur. The assessee, the late Sampatprasad Tiwari, had returned income from a coal and sand supply business and a share in a firm for assessment years 1967-68 to 1969-70. While assessing 1969-70 the Income-tax Officer found he had also run a transport business, plying trucks in a benami name. The first two years were reopened under s.147, and in response to the s.148 notices the assessee filed revised returns including the transport income; he revised the 1969-70 return too. Assessments for all three years were made by order of 29 March 1972 recording that penalty proceedings under s.271(1)(c) were being initiated, the concealed income being Rs 33,022, Rs 19,355 and Rs 9,988 respectively. Before that order was made, the Officer had referred 1967-68 to the Inspecting Assistant Commissioner, who issued a show cause notice dated 28 March 1972 alleging that the assessee had 'concealed the particulars of your income or deliberately furnished inaccurate particulars of such income'. For the other two years the Officer issued notices dated 29 March 1972 in the same form but without the word 'deliberately', after the assessments were made. Penalties of Rs 13,000, Rs 22,000 and Rs 10,000 followed. The Tribunal quashed all three, holding the notices ambiguous because of the word 'or', and holding the Officer's two orders to be without jurisdiction. The matter was decided on 1992-01-14 by the High Court (Bombay High Court (Nagpur) — V. A. Mohta J and G. D. Paul J (judgment by Mohta J)). On those facts the High Court held as follows. The three referred questions were answered separately and the decision went both ways. On the notices of 29 March 1972 for 1968-69 and 1969-70, issued after the assessment orders which recorded the reasons, the assessee fully knew in detail the exact charge against him, so there was neither non-application of mind nor prejudice; s.274 does not mandate a notice in any particular form, and a mere mistake in the language used or mere non-striking off of the inaccurate portion cannot by itself invalidate the notice, the entire factual background falling for consideration with no one aspect decisive (para 7). But on the notice of 28 March 1972 for 1967-68 the Court upheld the quashing of the penalty: that notice was issued before the assessment order was made, so the assessee had no knowledge of the exact charge; it used 'or' between the two charges and also the word 'deliberately', which had been omitted from s.271(1)(c) by the Finance Act 1964 with effect from 1 April 1964. The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner, and its vagueness and ambiguity prejudiced the assessee's right to a reasonable opportunity (para 10). On jurisdiction, the law in force when the penalty proceedings were initiated governs, so after the Taxation Laws (Amendment) Act 1970 took effect on 1 April 1971 the Income-tax Officer and not the Inspecting Assistant Commissioner had jurisdiction, and his penalty orders were valid (para 11). Question 1 was answered in favour of the assessee and questions 2 and 3 in favour of the revenue (para 12).
Penalty proceedings are quasi-criminal in nature and s.274 embodies the principle of natural justice that the assessee be heard before penalty is levied. But rules of natural justice cannot be imprisoned in any straight-jacket formula: to sustain a complaint of failure of natural justice for want of opportunity, prejudice caused by the procedure followed must be established. The notice is an administrative device for informing the assessee of the proposal to levy penalty so that he may explain why it should not be levied, and neither the Act nor the Rules prescribes a form. So a mistake in language, or a failure to strike off the inapplicable portion, does not by itself invalidate the notice; the entire factual background is to be considered and no single aspect is decisive (para 7). The Court supported that with the Patna decision in Mithila Motors, that it is enough if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. It declined to import the preventive detention reasoning of Kishori Mohan Bera, observing that even in that field the mere use or misplacement of 'and' or 'or' is not decisive and everything turns on whether the lapse shows non-application of mind or impairs the right of representation (para 8), and it distinguished Lakhdhir Lalji and N.N. Subramania Iyer on their facts (paras 9-10). Applying the same test the other way, the 1967-68 notice failed it. On jurisdiction the Court followed its own decision in Rizumal Pherumal, that the law prevailing on the date the penalty proceedings are initiated governs, and noted that the Madras decision in Continental Commercial Corporation had been dissented from (para 11). In the words reproduced by the source cited on this page: "Mere mistake in the language used or mere non-striking off of inaccurate portion cannot by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive." The decision followed or applied CIT v. Rizumal Pherumal [1988] 169 ITR 25 (Bom.) — followed and relied on, on jurisdiction (para 11); CIT v. Mithila Motors (P.) Ltd. [1984] 149 ITR 751 (Pat.) — quoted with approval (para 7); Continental Commercial Corpn. v. ITO [1975] 100 ITR 170 (Mad.) — dissented from (para 11).
It was decided by the High Court on 1992-01-14 and is reported as (1995) 216 ITR 660 (Bom); (1994) 75 Taxman 549 (Bom); IT Reference No. 288 of 1976, AYs 1967-68 to 1969-70. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 271(1)(c), section 274, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The three referred questions were answered separately and the decision went both ways. On the notices of 29 March 1972 for 1968-69 and 1969-70, issued after the assessment orders which recorded the reasons, the assessee fully knew in detail the exact charge against him, so there was neither non-application of mind nor prejudice; s.274 does not mandate a notice in any particular form, and a mere mistake in the language used or mere non-striking off of the inaccurate portion cannot by itself invalidate the notice, the entire factual background falling for consideration with no one aspect decisive (para 7). But on the notice of 28 March 1972 for 1967-68 the Court upheld the quashing of the penalty: that notice was issued before the assessment order was made, so the assessee had no knowledge of the exact charge; it used 'or' between the two charges and also the word 'deliberately', which had been omitted from s.271(1)(c) by the Finance Act 1964 with effect from 1 April 1964. The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner, and its vagueness and ambiguity prejudiced the assessee's right to a reasonable opportunity (para 10). On jurisdiction, the law in force when the penalty proceedings were initiated governs, so after the Taxation Laws (Amendment) Act 1970 took effect on 1 April 1971 the Income-tax Officer and not the Inspecting Assistant Commissioner had jurisdiction, and his penalty orders were valid (para 11). Question 1 was answered in favour of the assessee and questions 2 and 3 in favour of the revenue (para 12). It arises in Penalty matters, on section 271(1)(c), section 274 of the Income Tax Act 1961, and was decided by Bombay High Court (Nagpur) — V. A. Mohta J and G. D. Paul J (judgment by Mohta J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show actual prejudice: what you could not answer because the charge was unclear. Check which line your High Court follows — Bombay's own Full Bench has since gone the other way.
Partly overruled — read this first. A Full Bench of the same High Court, sitting at Goa, held in Mohd. Farhan A. Shaikh v. DCIT [2021] 125 taxmann.com 253 (Bom), Tax Appeal Nos. 51 and 57 of 2012 decided 11 March 2021 by Dama Seshadri Naidu, Bharati Dangre and M.S. Jawalkar JJ, that an omnibus notice suffers from the vice of vagueness, that assessment and penalty proceedings are not composite and cannot cure each other's defects so the assessee must be informed of the grounds only through the statutory notice, and that a penal provision must be construed strictly with any ambiguity resolved in the assessee's favour (paras 181-182). It then stated in terms, at para 183, that this decision 'does not lay down the correct proposition of law'. Within Bombay the notice limb of this decision therefore no longer stands. The Full Bench also recorded, at paras 184-185, that this decision did address prejudice and that it had set aside the penalty for one assessment year on the grounds of non-application of mind and prejudice. The jurisdiction limb — that the law in force when penalty proceedings are initiated governs — was not before the Full Bench and is untouched. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read against the reported judgment, and the earlier record inverted the decision. This was a reference under s.256(1), decided on 14 January 1992 by Mohta and Paul JJ at Nagpur, on three questions for assessment years 1967-68 to 1969-70. The Court upheld two penalties and quashed the third: the notice for 1967-68 was issued before the assessment order, used the word 'deliberately' which had been out of s.271(1)(c) since 1 April 1964, and was held to demonstrate non-application of mind and to have prejudiced the assessee. So the decision was never authority that the form of a s.274 notice is irrelevant — it holds that a defect does not invalidate a notice by itself, the whole factual background being decisive. It also decided a jurisdiction question, holding that the law in force when penalty proceedings are initiated governs. On status, the Full Bench of the same Court in Mohd Farhan A Shaikh v DCIT [2021] 125 taxmann.com 253 (Bom), 11 March 2021, held at para 183 that this decision does not lay down the correct proposition of law; the notice limb is gone in Bombay, the jurisdiction limb untouched. The Full Bench in Mohd Farhan A Shaikh addressed only the s.274 notice question; the jurisdiction holding on the Taxation Laws (Amendment) Act 1970 was not before it, and is in any event spent. Whether courts outside Bombay still follow the no-prejudice approach was not established by this read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The three referred questions were answered separately and the decision went both ways. On the notices of 29 March 1972 for 1968-69 and 1969-70, issued after the assessment orders which recorded the reasons, the assessee fully knew in detail the exact charge against him, so there was neither non-application of mind nor prejudice; s.274 does not mandate a notice in any particular form, and a mere mistake in the language used or mere non-striking off of the inaccurate portion cannot by itself invalidate the notice, the entire factual background falling for consideration with no one aspect decisive (para 7). But on the notice of 28 March 1972 for 1967-68 the Court upheld the quashing of the penalty: that notice was issued before the assessment order was made, so the assessee had no knowledge of the exact charge; it used 'or' between the two charges and also the word 'deliberately', which had been omitted from s.271(1)(c) by the Finance Act 1964 with effect from 1 April 1964. The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner, and its vagueness and ambiguity prejudiced the assessee's right to a reasonable opportunity (para 10). On jurisdiction, the law in force when the penalty proceedings were initiated governs, so after the Taxation Laws (Amendment) Act 1970 took effect on 1 April 1971 the Income-tax Officer and not the Inspecting Assistant Commissioner had jurisdiction, and his penalty orders were valid (para 11). Question 1 was answered in favour of the assessee and questions 2 and 3 in favour of the revenue (para 12).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
The penalty notice does not say whether I concealed income or filed inaccurate particulars. Does that matter?