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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI ABY T VARKEY & SHRI AMARJIT SINGH
Appellant by : Yogesh Thar & Ms Hirali Desai Respondent by : Tushar Mohite Date of Hearing 29.11.2023 Date of Pronouncement 20.12.2023 आदेश / O R D E R Per Amarjit Singh (AM): These two appeals filed by the assessee are directed against the different order of ld. CIT(A) for assessment year 2006-07 & 2008-09. Both these appeals are pertained to the issue of levying of penalty u/s 271(1)(c) of the Act, therefore, both these appeals are adjudicated together by this common order. (AY: 2006-07) GROUND 1: 1. On the facts and circumstances of the case and in law, the Hon'ble Commissioner of Income Tax (Appeals) 17, Mumbai ("the CIT(A)") erred in confirming the penalty levied by the Dy. CIT-8(2), Mumbai ("the A.O") on disallowance made by restricting the claim u/s 801B from 100% to 30% in respect of Whisper E-Line, by relying on the CIT(A)'s order for A Y 2003-04 without appreciating the fact that the subject disallowance did not form part of assessment order for A Y 2003-04 P a g e | 2 2 appeals Proctor & Gamble Hygiene & Healthcare Lted Vs. DCIT, Circle 10(3)(2)
2. The Appellant prays that the action of the CIT(A) to that extent be reversed. WITHOUT PREJUDICE TO ABOVE GROUND II:
1.
On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the penalty levied by the A.O on account of disallowance made by restricting the claim u/s 801B from 100% to 30% in respect of Vicks Vaporub Tin Line & Whisper E-Line, on the alleged ground that such excess claim represented concealment of income and / or furnishing of inaccurate particulars of income 2. The Appellant prays that the penalty u/s 271(1)(c) of the Act be deleted GROUND III: 1. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the penalty levied by the A O. on account of disallowance of claim u/s 80-IB in respect of certain other income, on the alleged ground that such claim represented concealment of income and/or furnishing of inaccurate particulars of income 2. The Appellant prays that the penalty u/s 271(1)(c) of the Act be deleted. GROUND IV: 1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-17, Mumbai erred in confirming the action of the AO of levying penalty u/s. 271(1)(c) of the Income-tax Act, 1961 ('the Act) of Rs 11.34,45,500 in respect of the Transfer Pricing adjustment on account of export of finished goods.
2. In doing so he failed to appreciate and ought to have held that: a) the Appellant had computed the price paid in the international transaction in accordance with and in the manner prescribed under section 92C, in good faith and with due diligence, and b) the Appellant had neither concealed the particulars of income nor furnished inaccurate particulars thereof.
3. The Appellant therefore prays that the aforesaid penalty be deleted." GROUND V: The Appellant craves leave to add, amend and/or alter all or any of the above grounds of appeal at the time of hearing.”
Vide letter dated 20.11.2023 the assessee had filed additional grounds of appeal as under:
On the facts and in the circumstances of the case and in law, the Led Assessing Officer (the AO) erred in initiating the penalty proceedings without specifying the reason for penalty initiation under section 274 S. 271(1)(c) of the Act. The Appellant prays that the notice initiating penalty is ambiguous in the absence of clear mention of the limb under which penalty is initiated, the notice is therefore invalid, and the penalty is unsustainable hence the penalty proceedings ought to be dropped.
Fact in brief is that assessment u/s 143(3) of the Act was completed on 05.02.2010 at an income of Rs.179,92,18,840/- after making various addition and disallowances. In its ground of appeal
the P a g e | 3 2 appeals Proctor & Gamble Hygiene & Healthcare Lted Vs. DCIT, Circle 10(3)(2) assessee has contested the levying of penalty u/s 271(1)(c) of the Act on account of disallowance made by the AO by restricting the claim u/s 80IB from 100% to 30% in respect of Vicks Vaporub Tin Line & Whisper E-line on the ground of excess claim of deduction made by the assessee u/s 80IB of the Act. The AO stated that assessee has claimed deduction u/s 80IB in respect of 4 units at Goa amounting to Rs.61,80,88,396/-. The assessing officer after considering the facts of the case held that profits of two units i.e whisper unit is treated as a single unit for claiming deduction. The deduction claimed in respect of whisper E-line product was restricted to 30% of Rs.44,89,04,071/- as against 100% claimed by the assessee. The assessing officer held that units were in the 9th year of claiming the deduction and allowed deduction @ 30%. Accordingly, the AO has levied minimum penalty to the amount of Rs.11,34,45,500/- u/s 271(1)(c) of the Act for concealment of particulars of income.
4. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
5. During the course of appellate proceedings before us at the outset the ld. Counsel has discussed the additional ground of appeal filed by the assessee and contended that the notice u/s 274 r.w.s 271(1)(c) of the Act was invalid as the assessing officer has not specified the limb under which penalty was initiated. In this regard, the ld. Counsel has placed reliance on the decision of Hon’ble jurisdictional High Court in the case Mohd. Farhan A Shaikh Vs. DCIT (2021) 434 ITR 1 (Bom). He also referred various decision of ITAT, Mumbai wherein on identical facts and issue after following the aforesaid decision of Hon’ble jurisdictional High Court the penalty levied was deleted. On the other hand, the ld. D.R supported the order of lower authorities.
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Heard both the sides and perused the material on record. During the course of appellate proceedings the ld. Counsel contended that assessing officer has issued notice u/s 274 r.w.s 271(1)(c) of the Act dated 05.02.2010 without specifying whether the penalty is levied for concealment of income for furnishing of inaccurate particular of income. Or furnishing of inaccurate particulars of income. In this regard, the ld. Counsel has referred page no. 173 of the assessee’s paper book pertaining to copy of notice u/s 274 r.w.s 271(1)(c) of the Act dated 05. 02.2010. On perusal of the aforesaid notice it is clear that assessing officer has not specified whether the penalty is being levied on account of concealment of particulars of income or furnishing of inaccurate particulars of income. The relevant part of the notice is reproduced as under:
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In this regard, we have gone through the case of Jurisdictional High court referred by learned counsel in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bombay), wherein the relevant Para of the head note is reproduced as under:-
Section 271(1)(c), read with section 274 of the Income-tax Act, 1961 - Penalty - For concealment of income (Recording of satisfaction) - Whether where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice- not striking off irrelevant matter would vitiate penalty proceedings - Held, yes - Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice - Held, yes - Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give no room for ambiguity - Held, yes [Paras 181 and 188][In favour of assessee] P a g e | 6 2 appeals Proctor & Gamble Hygiene & Healthcare Lted Vs. DCIT, Circle 10(3)(2)
Further, we have also perused the decision of coordinate Bench of the ITAT, Mumbai in the case of M/s Bhavya Shashank Shanbhag Vs. DCIT in vide order dated 09.07.2021, wherein the co-ordinate Bench in identical issue and similar facts has deleted the penalty after following the decision of Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh (supra). The relevant part of the decision of coordinate Bench is reproduced as under:-
“3. We have heard rival submissions and perused the materials available on record. We find that assessee for both the assessment years vide ground No.1(e) had raised the preliminary technical ground that in the show-cause notice issued by the ld. AO u/s.274 r.w.s. 271(1)(c) of the Act, he had not struck-off the irrelevant portion and that the ld. AO had not specified the specific offence committed by the assessee by stating as to whether the assessee has concealed his particulars of income or had furnished inaccurate particulars of income. 3.1. We find that this issue is no longer res-integra in view of the Full Bench decision of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A Shaikh vs. DCIT reported in 434 ITR 1 (Bom). The relevant portion of the said order is reproduced hereunder:- 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.
Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law. Question No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 184. Indeed, Smt. Kaushalya case (supra) did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the socalled ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that P a g e | 7 2 appeals Proctor & Gamble Hygiene & Healthcare Lted Vs. DCIT, Circle 10(3)(2)
for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done".
No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra). In fact, for one assessment year, it set aside the penalty proceedings on the grounds of nonapplication of mind and prejudice.
That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff Case (supra) on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187. In Dilip N. Shroff case (supra), for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done". Then, Dilip N. Shroff case (supra), on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars.
We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff Case (supra) disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice.
In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that "where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, "except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest".
Here, section 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed.
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In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution.
As a result, we hold that Dilip N. Shroff Case (supra) treats omnibus show- cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. 3.2. Respectfully following the aforesaid decision, we hold that the penalty levied by the ld. AO for both the assessment years is hereby directed to be deleted. 3.3. Since the relief is granted to the assessee on this aspect by adjudicating the ground No.1(e), the other grounds raised
by the assessee for both the years on legality of levy penalty as well as on merits of the case are not adjudicated herein and the same are hereby left open.”
9. In the light of the decision of the co-ordinate Bench as elaborated above, there is nothing before us on hand to differs from the issue raised in the cases cited (supra) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in the submission of the assessee and direct the Assessing Officer to delete the penalty since, the notice issued under section 274 read with section 271(1)(c) dated 18th March 2015 was bad in law. Since, we have deleted the penalty on account of invalid notice issued under section under section 274 read with section 271(1)(c) dated 18th March 2015, therefore other ground on merit are not require to be adjudicated.
10. In the result the appeal of the assessee is allowed.
During this year also the assessing officer has also levied penalty u/s 271(1)(c) of the Act on the issue of disallowance of claim of deduction u/s 80IB from 100% to 30% in respect of whisper E-line to the amount of Rs.11,76,08,130/- on the ground of claiming wrong deduction on the similar facts as discussed while adjudicating the ground of appeal of the assessee pertaining AY 2006-07 for as supra in this order.
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During the course of appellate proceedings before us the ld. Counsel at the outset has discussed the ground no. 2 of the appeal of the assessee on the issue that the assessing officer has issued notice u/s 274 r.w.s 271(1)(c) dated 01.02.2012 without specifying whether the penalty is levied for concealment of income or furnishing of inaccurate particulars of income. In this regard, the ld. Counsel has referred page no. 1 & 2 of the assessee’s paper book pertaining to copy of notice u/s 274 r.w.s 271(1)(c) of the Act as referred above. Similar to AY 2006-07 the ld. Counsel has referred the decision of Hon’ble jurisdictional High Court in the case of Mohd. Farhan A. Shaikh and other various decision of ITAT on the issue wherein held that if there is a defect in notice not striking off irrelevant matter the penalty cannot be levied. The relevant part of the notice issued u/s 274 r.w.s 271(1)(c) dated 01.02.2012 is reproduced as under:
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On perusal of the aforesaid notice it is evident that the assessing officer has not specified whether the penalty is being levied of concealment of particulars of income or furnishing of inaccurate particulars of income, therefore, applying the finding of this appeal of the assessee is also allowed.
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