The penalty notice for AY 2015-16 struck out neither limb - is that still worth arguing in 2026?
A partnership firm was assessed for AY 2015-16 under s.143(3). The officer disallowed Rs 18 lakh of depreciation on plant that the firm had capitalised a year before it was actually put to use, and added Rs 9 lakh as an unexplained credit standing in the name of a supplier. The first appellate authority confirmed both additions and a penalty of Rs 8.3 lakh under s.271(1)(c) was imposed and also confirmed. The second appeal is now pending before the Tribunal, and while assembling the paper book the firm's new counsel finds that the s.274 notice is the printed form with 'have concealed the particulars of your income' and 'furnished inaccurate particulars of such income' both intact and neither struck off. The penalty order itself records concealment in one paragraph and inaccurate particulars in another. The firm has its depreciation register, the installation certificate from the machinery supplier, and confirmations from the creditor that were filed but disbelieved.
Establish the assessment year and the date of the s.274 notice before anything else, because the entire notice-defect line belongs to the concealment provision and to assessment years up to 2016-17. If the year is within that band and the notice is the unamended printed form, the defect is a legal ground that can be argued on the existing record without fresh evidence; if the year is later, the provision itself does not apply and the whole enquiry moves to the newer penalty code.
A notice under s.274 must state which limb of the section is invoked, and a printed form retaining all grounds with the inapplicable limb left unstruck has been held to show non-application of mind and to render the proceedings bad in law. A Full Bench has treated an omnibus notice as suffering from the vice of vagueness, since the assessee is entitled to learn the grounds only through the statutory notice. This is a pure record point and needs nothing beyond a legible copy of the notice, which is also why it can be taken for the first time in the second appeal: the library holds that the Tribunal has jurisdiction to decide a question of law raised for the first time before it where the facts are already on the file, it now carries the rule under which leave to urge the ground is sought, and it answers the standing departmental objection that a point not made in the return or below cannot be raised on appeal. It also records that the jurisdiction to entertain the ground and the discretion to admit it are separate things, so the application should annex the notice, say that no fresh evidence is sought, and explain candidly why the point was not taken earlier.
The library now carries the limitation provision in full, and it is worth running before the argument is settled, because it is a complete answer where it works and it does not depend on any proposition that is under reconsideration. Everything in that provision is a bar on the *order*, not on the notice: there is no statutory time limit on issuing the show-cause at all, so the only question is when the order was passed and from what date the period runs. Where the assessment went to the first appellate authority and the penalty was initiated in that assessment, the period is the later of the end of the financial year in which the assessment was completed, or - on the proviso that applies to first-appeal orders passed from June 2003 - one year from the end of the financial year in which the appellate order was received by the Commissioner. The date that counts is receipt by the Commissioner, not the date on the appellate order and not the date the firm was served. So the papers to get are the first appellate order, any covering note showing when the Commissioner's office received it, and the date on the penalty order. The library also records that the first introductory step for an action of this kind is the reference that starts it rather than the show-cause notice, which matters when the department computes the period from its own notice. One caution: the whole provision was substituted with effect from April 2025 and replaced by a single quarterly rule, so the entries here are recorded as superseded on their statutory footing - they govern this assessment year, which is well before that, but do not carry them forward to a current-year penalty without checking.
There is a competing line holding that s.274 prescribes no particular form, that a mere mistake in language or non-striking of the inapplicable portion does not by itself invalidate the notice, and that the assessee must show actual prejudice. A penalty has been upheld where the notice did not specify the default but the assessee had plainly understood what was alleged and had claimed depreciation on machinery that did not exist. The reply therefore has to show that the firm's own responses to the penalty notice were themselves generic, which is evidence that nobody knew which case was being met.
The Explanation is part of the section itself, it need not be expressly invoked in the penalty notice, and no separate intimation that it is being applied is required. A ground framed on that footing will be dismissed and weakens the genuine notice-defect ground standing beside it. Keep the defect argument confined to the failure to identify the limb.
Penalty here is a civil liability and wilful concealment is not an essential ingredient, so an argument that the partners meant no harm will not carry weight. What remains open is that the section's own conditions must be satisfied before any penalty arises, and that penalty is not to be imposed for a technical or venial breach. The depreciation timing item is the stronger of the two, because the asset and its cost were disclosed and only the year of allowance was wrong.
A claim that is merely not sustainable in law does not by itself attract penalty where the particulars behind it were disclosed and factually true, and a bona fide computational error has been treated the same way. The depreciation register and installation certificate turn the timing dispute into a disclosed claim about the year of allowance. The unexplained credit is different in kind, because there the finding is that the explanation was disbelieved, and the penalty defence there has to be built on the confirmations actually filed.
An offer made after detection, expressed as being to avoid litigation and buy peace, is not an explanation at all and has supported the levy of penalty. If the firm's letters during assessment contain that language about the supplier credit, the penalty on that item becomes much harder to resist and the realistic objective narrows to the depreciation item and the notice defect. Read the assessment correspondence before settling the grounds of appeal.
For assessment years up to 2016-17 the unstruck printed notice remains a live and frequently successful ground before the Tribunal, though benches differ and some insist on demonstrated prejudice. Where the notice defect succeeds the penalty goes in full without the merits being examined. Where it does not, the depreciation timing item often survives on the bona fide claim reasoning while the penalty on the disbelieved credit tends to stand, and the pending reconsideration of the defect proposition at the highest level means today's favourable order may not be the last word.
