THE ADIT (IT)-3(1), MUMBAI vs. M/S. GLOBAL CRICKET CORPN PTE. LTD, MUMBAI

Aggrieved, the assessee was in appeal before the ld. CIT(A) challenging the impugned penalty levied by the ld. A.O.

The ld. CIT(A) vide order dated 05.03.2011 partly allowed the appeal of the assessee.

Both the Revenue as well as the assessee are in appeal before us, challenging the impugned order of the ld. CIT(A).

The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and vehemently opposed to the filing of the additional ground as the same was not raised before the lower authorities. The ld. DR further to this contended that there was no prejudice caused to the assessee and that the penalty was levied both for concealment of income as well as for furnishing inaccurate particulars.

We have heard the rival submissions and perused the materials available on record. It is observed that the assessee being a non resident company was engaged in the management and promotion of sporting events and also on sale and distribution of Television and other commercial rights. The assessee had claimed that only US Dollar 1,16,611 were taxable as royalty under Article 12 as per India Singapore treaty and the balance receipts are not taxable in India for the reason that the assessee has no permanent establishment (PE for short). The ld. A.O. reopened the assessee’s case by relying on the assessment order of the assessee in A.Y. 2002-03 where it was held that the assessee was not entitled to treaty benefit as per Article 24 of the said treaty since the payments were not received in Singapore but in Jercy, UK and was taxable as royalty u/s. 9(1)(vi) of the total income of the assessee:

The ld. A.O. initiated the penalty proceeding u/s. 271(1)(c) of the Act vide notice dated 15.12.2006 u/s. 274 r.w.s. 271(1)(c) of the Act. The ld.A.O. after hearing the assessee held that the assessee has furnished the inaccurate particulars of income and has also concealed the particulars of income, thereby levying the penalty of Rs.35,41,86,182.

The ld. CIT(A) partly allowed the appeal filed by the assessee, on the ground that the payments received by the assessee from SET Satellite Capital Singapore Ltd. was a debatable issue, as the Tribunal has held that the said payment does not arise in India and The ld. CIT(A) further held that the assessee has furnished the inaccurate particulars of income for the balance receipts where the assessee has not made full disclosure of the nature of the receipts along with the name of the parties, the amount and consideration received by the assessee. The ld. CIT(A) further held that the assessee has not fully disclosed these details in the note to the computation of the income and the explanation offered by the assessee are found to be false and that the same is covered by clause (A) of Explanation 1 to section 271(1)(c) of the Act. The ld. CIT(A) upheld the penalty levied by the ld. A.O. excluding the payment received on account of Broadcasting right from the

From the above factual matrix, it is observed that the ld. AR has raised an additional ground, challenging the validity of the notice issued u/s. 274 r.w.s. 271 of the Act dated 15.12.2006 on the ground that non striking of the irrelevant limb in the notice would vitiate the penalty proceedings. As the additional ground goes to the very root of the cause, we hereby admit the additional ground raised by the assessee as per the provision laid down by the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. (supra). The jurisdictional ground raised by the assessee is supported by the decision of the Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh (supra) which has held that non striking on the irrelevant limb would vitiate the penalty proceedings in toto. As it is a settled proposition of law that the ld. A.O. ought to have struck off the irrelevant limb while issuing the penalty notice, we are of the considered view that the penalty levied by the ld. A.O. and partly confirmed by the ld. CIT(A) has to reference:

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 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". 190. 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) 2 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. In such an event, although no express provision is laid down on this behalf, compliance with 191. As a result, we hold that Dilip N. Shroff 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.

From the above observation, we conclude that non striking of the irrelevant limb has been held to be violation of the mandatory condition, which in turn violates the principle of natural justice. The Hon'ble High Court has dealt with various decisions which has constantly reiterated the fact that the assessee should be aware of the exact charge for which the penalty proceeding has been initiated inorder to entitle him to contend on the said charges. The non striking of the irrelevant limb amounts to vagueness and ambiguity in the notice which tantamount to non application of mind by the ld. A.O.

In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.

As the facts are identical in this appeal, the finding in & 4182/Mum/2011 applies mutatis mutandis to this appeal also.

In the result, the appeal filed by the Revenue in dismissed.