A penalty notice is a prerequisite for initiating penalty proceedings. The same is an administrative device for informing the assessee about the proposal to levy a penalty to enable him to explain as to why the penalty proceedings should not be initiated. An ambiguous notice issued in standard proforma without striking off the irrelevant part blurs the chances of the assessee to defend himself and lacks clarity. Say, in a case where notice is issued under Section 271(1)(c) and it hasn’t been specifically mentioned whether the initiation of penalty proceedings is on account of concealment of income or furnishing inaccurate particulars of such income, by striking off the irrelevant part, results in ambiguity and disables the assessee from figuring out the exact reason behind the issue of the penalty notice.
The same has been held in the case of Mohd. Farhan A. Shaikh where it was decided that issuing a notice which is sufficiently precise in nature in so far as it states the exact reason for penalty proceedings initiation saves the assessee the unnecessary burden of looking for other sources to know the exact reason for initiation of penalty proceedings. Further, in the above case, the High Court referred to the Case of Kaushalya, thereby pointing out that the latter followed the approach of ” Curing the defect rather than preventing it” by holding that the penalty notice alone is not the only source of information, rather assessment proceedings can also be considered as a source to know the reason for initiation of penalty proceedings if the notice is defective and doesn’t explicitly state the reasons for penalty imposition. In other words, its judgment implied that a defective penalty notice can be cured by way of assessment proceedings/order. Thus, merely on the ground that the penalty notice is vague, the proceedings cannot be declared void.
In contradiction to the above, the high court in the give case relied on the judgement of New Era Sova Miles. It mentioned the fact that penalty proceedings and assessment proceedings are seperate. Although the former originates from the latter, the two are not composite and the assessment order may/may not have the reasons stated for initiation of penalty proceedings.
Thus, disregarding the judgment in the case of Kaushalya, the HC held that a notice of penalty should be precise rather than vague in order to be fair and just and not prejudicial to the assessee. A vague penalty notice reflects non-application of mind on AO’s part.
Therefore, issuing notices in printed form without deleting or striking off the irrelevant parts of that generic notice is a disapproved practice in the wake of the given judgment.
