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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRIPAWAN SINGH, JM &DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRIPAWAN SINGH, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.618/SRT/2018 (िनधा�रणवष� / Assessment Year: (2011-12) (Virtual Court Hearing) Prakash F Singh, The Income Tax Officer, V Ward-7, Room No.810, 8th Floor, RBL, 63/751, Chanod Colony, GIDC, s. Vapi-396195 Fortune Square-II, Vapi Daman Road, Chala, Vapi-396191 �थायीलेखासं./जीआइआरसं./PAN/GIR No.:ASNPS 4835N (Assessee) (Respondent)
आयकरअपीलसं./ITA No.623/SRT/2018 (िनधा�रणवष� / Assessment Year: (2011-12)
Gufan Ahmed Chaudhary, V The Income Tax Officer, Ward-3, 7th Floor, Fortune Square- Prop. Saba Trading Co., s. Nr. Bombay Restaurant, N.H. No.8 II, Vapi Daman Road, Chala, Vapi- Balitha, Vapi-396195 396191 �थायीलेखासं./जीआइआरसं./PAN/GIR No.:AEYPC 0922 M (Assessee) (Respondent)
Assessee by : Shri A. Gopalakrishnan,C.A Respondent by :Mrs. AnupamaSingla– Sr.DR
सुनवाईकीतारीख/ Date of Hearing : 21/09/2021 घोषणाकीतारीख/Date of Pronouncement : 30/11/2021 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned two appeals filed by different assessees, pertaining to same assessment year 2011-12, are directed against the separate orders passed by the Learned Commissioner of Income Tax(Appeals)-Valsad [“CIT(A)” for short ] all dated 02.07.2018, which in turn arise out of separate penalty orders passed by Assessing Officer under section 271(1)(c) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’).
ITA Nos.618 & 623/SRT/2018 A.Y. 2011-13 Prakash F Singh &Gurfan A Chaudhury
Since common and identical issue are involved except variance in amount, therefore these two appeals have been clubbed and heard together and a consolidate order is being passed for the convenience and brevity. The facts as well as grounds of appeals narrated in ITA No.618/SRT/2018, for AY 2011-12, in the case of Prakasah F Singh’ have been taken into consideration for deciding these two appeals en masse.
3.The grounds of appeal raised by assessee in “lead case” in ITA No.618/SRT/2018, for A.Y 2011-12, are as follows: “01. The order imposing penalty U/s 271(1)(c)of the Act is contrary to the facts of the case and prejudicial to the Law. The assessee has neither concealed its income nor submitted any inaccurate particulars of income and the action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted. 02. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) on the addition made on account of sundry creditors to the tune of Rs.15,91,100/-. 03. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) for both concealment as well as furnishing of inaccurate particulars of income. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted.
4.The facts necessary for disposal of the appeals are stated in brief. The assessee before us is an individual and engaged in the business of scrap papers. The assessee filed his return of income for the assessment year 2011-12 on 21.05.2011 declaring total income of Rs.8,95,456/-. The case of assessee has been selected for scrutiny assessment u/s 143(3) of the Act. Accordingly, notice u/s 143(2) of the Act was issued upon assessee on 17.09.2012.The assessment u/s 143(3) of the Act was completed on 14.03.2014, determining total income of Rs.1,59,98,170/- and made the following additions. Sr.No. Issue of addition Addition in Rs. 1 Addition on account of disallowance of purchase 1,34,64,592/- 2 Addition on account of sundry creditors 15,91,100/- 3 Addition on account of non-deduction of TDS 47,025/-
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The Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act on above additions / disallowances for concealment of income and issued notices u/s 271(1)(c) r.w.s. 274 of the Act on 13.02.2017.
During the penalty proceedings, the assessing officer held that neither at the time of assessment proceedings nor at the time of penalty proceedings, the assessee could prove that there was no concealment. The Ld. CIT(A),Valsad has also confirmed the addition of Rs.1,43,622/-, and Rs.15,91,100/- made by the Assessing Officer. In these circumstances and that the assessee has failed to offer any plausible explanation, the assessing officer held that assessee has willfully, knowingly and without reasonable cause furnished in accurate particulars of income and, thus, tried to conceal the income so as to evade payment of tax thereon. Thus, Explanation 1 to Section 271 of the Act is clearly applicable to the case of the assessee for furnishing in accurate particulars of income and concealing the income for which assessee is liable for penalty u/s 271(1)(c) of the Act. Therefore, assessing officer imposed penalty of Rs.5,36,030/-, under section 271(1) (c) of the Act.
6.Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has deleted the penalty on estimated addition and confirmed the penalty in respect of sundry creditors, observing as follows:
“On merits of penalty levied by the AO, I find that the penalty u/s 271(1)(c)for the estimated addition of Rs.1,43,622/- is not sustainable as there is no case of concealment of income made out and it is based on mere disallowance of certain purchase expenses. The decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. As referred by the AR will apply to penalty pertaining to addition of Rs.1,43,622/-. The penalty levied on other additions of Rs.15,91,100/- is related to unexplained sundry creditors. On the addition of unexplained sundry creditors, I find that the AO has noted in the assessment order, following facts: (1) The assessee has shown outstanding credit liability of Rs.15,91,100/- for which books of account or bills were not furnished for verification. In response to the show cause notice for treating the sundry creditors bogus and unexplained, the assessee state that the nature of business of the waste paper purchase from rag pickers made it difficult for them to maintain details regarding these sundry creditors. The assessee clearly admitted that it
ITA Nos.618 & 623/SRT/2018 A.Y. 2011-13 Prakash F Singh &Gurfan A Chaudhury
is not possible for them to produce any details pertaining to sundry creditor neither present them for verification. (2) The AO noted that the purchase of wastes paper from rag pickers were made in cash on daily basis and these rag pickers could not have waited for payment after such long time. The AO also noted that the purchase is being made in cash from rag pickers. There could not be any situation of sundry creditors balance pertaining to rag pickers. (3) The assessee did not produce for verification any books of account, purchase bills sales bills, supporting evidences of expenditure despite several opportunities given during assessment stage. Based on the above facts, the AO held that the sundry creditors shown in the balance sheet was nothing but bogus liabilities. Even in the penalty proceedings, the assessee could not controvert the findings in the assessment order regarding bogus liability to the tune of Rs.15,91,100/-. At least, the assessee could have furnished the list of Sr. creditors and purchase from them, payments made to them and balance amount pending either in assessment or in penalty proceedings. No submissions of any details at all, certainly lead to the conclusion that the Sr. creditors shown in the balance sheet are bogus liabilities existing merely on paper. Thus, it is a case where no explanation is filed at all by the assessee to justify the figure of Sr. credit of Rs.15,91,100/-. In the appellate proceedings, the assessee has reiterated its contentions made before the AO during assessment proceedings as well as in penalty proceedings but could not controvert of the finding of the AO that these sundry creditors were bogus liability in view of no documentary evidence produced by the assessee for verification before the AO. Considering the totality of the facts of business of waste papers where the purchases are made from rag pickers in cash on daily basis, I am inclined to agree with the AO's view that there could not be any case of sundry creditors in such business. Further, even the assessee accepts that the rag pickers are not identifiable nor they can be produced for verification and in such a situation, it is impossible for the assessee to claim that the payments were made to them once the payment from paper mills were received. The assessee had, in fact, not given any details such as even names of the parties (rag pickers) under the head ‘sundry creditors’ totaling to Rs.15,91,100/-. Thus, the AO has rightly held that the sundry creditors balance of Rs.15,91,100/- was bogus liability and hence as concealed income. To this extent of addition on account of bogus liability, the assessee has certainly concealed particulars of its income and penalty u/s 271(1)(c) is attracted. The facts of the case on this issue, in no way, is no explanation at all by the assessee for Sr. creditors of Rs.15,91,100/-. In view of these facts and discussions, the penalty u/s 271(1)(c)is confirmed for the addition of Rs.15,91,100/- whereas penalty u/s 271(1)(c)of the Act for addition of Rs.1,43,622/- is deleted. Thus, the assessee’s gets partial relief.”
7.Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.
8.Shri A. Gopalakrishnan, Learned Counsel for the assessee, pleads that having once rejected the books of account and estimating the profits, the assessing officer could not have made further addition on account of sundry creditors for goods supplied u/s 68 of the Act by relying upon the same books of account. Learned Counsel also argues that assessing officer has issued defective notice to levy penalty, that is, assessing officer did not specify any limb whether penalty is on
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account of furnishing inaccurate particulars of income or concealment of income, hence there is no definite charge, so penalty should not be levied.
On the other hand, Mrs. Anupama Singla, Learned Senior DR for the Revenue reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
10.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee has challenged the levy of penalty u/s 271(1)(c) of the Act amounting to Rs.5,36,030/- in respect of following two additions, viz: (i) Rs.1,43,622/- being estimated addition on account of 2% of the profit in respect of total turnover of the business of trading in Waste paper, and (ii) Rs.15,91,100/- being the addition of unexplained sundry creditors. We note that ld CIT(A) deleted the addition in respect of Rs.1,43,622/- being estimated addition on account of 2% of the profit in respect of total turnover of the business of trading in Waste paper. The assessee is in appeal before us in respect of Rs.15,91,100/- being the addition of unexplained sundry creditors.
Learned Counsel has raised legal issue of sustainability of penalty u/s 271(1)(c) of the Act on the ground that penalty levied for both concealment as well as furnishing of inaccurate particulars of income is double mind of the Assessing Officer. The Ld Counsel referred to the decisions of Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery, 88 taxmann.com 413 and the decision of Hon'ble Karnataka High Court in the case of CIT vs. Manjunateha Cotton & Ginning Factory 359 ITR 565, to support his contention that penalty has to be imposed on the ground on which the penalty proceedings was initiated and it cannot be on a fresh ground of which the assessee has no notice. We note that
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Hon`ble Supreme Court in the case of Golden Peace Hotels and Resorts (P.) Ltd, [2021] 124 taxmann.com 249 (SC) held that: “Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income (Recording of satisfaction) - High Court by impugned order held that recording of satisfaction by Assessing Officer that there was concealment of income or that any inaccurate particulars were furnished by assessee was sine qua non for initiation of penalty proceedings and in absence of such satisfaction, both Commissioner (Appeals) as well as Tribunal had correctly ordered to drop penalty proceedings against assessee - Whether Special Leave petition against said impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee]”
Thus, the primary burden lies on the revenue to inform the assessee that on what account the penalty proceedings are being initiated against the assessee. 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 . It is true, that 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.Thus, it is clear that 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.
Therefore, in this background, first of all, we shall examine the notice issued by the assessing officer under section 271 (1) (c ) of the Act, which is reproduced below:
ITA Nos.618 & 623/SRT/2018 A.Y. 2011-13 Prakash F Singh &Gurfan A Chaudhury
ITA Nos.618 & 623/SRT/2018 A.Y. 2011-13 Prakash F Singh &Gurfan A Chaudhury
We have gone through the above mentioned notice issued by the assessing officer under section 271(1) (c ) of the Act and observed that there are two limbs in the notice, viz: 1) Inaccurate particulars of income, and 2) Concealment of income. We note that none of the limb has been ticked by the assessing officer. It is important to inform the assessee that on what account the penalty proceedings are initiating against him. In the impugned notice under section 271(1) (c ), the assessing officer did not tick any of the limb mentioned in the notice, therefore notice issued by the assessing officer is defective. We note that Hon`ble Bombay High Court in the case of Mohd. Farhan A. Shaikh,[2021] 125 taxmann.com 253 (Bombay), has held the same ratio. The summary of the judgment of the Hon`ble Bombay High Court, is reproduced below: “Summary: 160. From all the judgments we have quoted about the scope of penalty proceedings under section 271 (1)(c), read with section 274, of the IT Act, we gather the following: (a) Penalty under section 271(1)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271. (e) The existence of such conditions should be discernible from the assessment order or the order of the appellate authority or the revisional authority. (f) Even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and 1(B) it should be discernible from the said order which would be a legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision in sub-section (IB).
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(h) The imposition of penalty is not automatic. (i) The imposition of penalty even if the tax liability is admitted is not automatic. (j) Even if the assessee has not challenged the order of assessment levying tax and has even paid tax, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty. (k) If the explanation offered, even though not substantiated by the assessee, but is found bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (l) The direction referred to in Explanation 1(B) to section 271 of the Act should be clear and without any ambiguity. (m) If the Assessing Officer has recorded no satisfaction or has issued no direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the assessing authority. (n) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. [We must, however, admit that it is a contested conclusion.] (o) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. [This, too, eludes unanimity] (p) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. Based on such proceedings, no penalty could be imposed to the assessee. (q) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. (r) The penalty proceedings are distinct from the assessment proceedings. (s) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on the merits. (italics supplied and elaboration omitted) 161. In fact, these have been admirably summarised by Manjunatha. And we acknowledge our debt to the decision that has saved our labour. 162. As aptly pointed out by the referring Division Bench, before this Court there are two sets of cases. One set of cases is led by Kaushalya, a decision earliest in point of time. The other set does not have a lead case; they all have been cryptic but stand persuaded by Manjunatha. For that reason, we have discussed the Karnataka High Court's decision in detail. Nevertheless, the referring Division Bench has found on one precedential plank these cases: (1) Samson Perinchery; (2) Goa Coastal Resorts and Recreation (P.) Ltd.; Page | 9
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(3) New Era Sova Min; and (4) Goa Dourado Promotions (P.) Ltd. On the opposite plank is Kaushalya. All by co-equal Benches, though. 163. We have already discussed what constitutes the ratio decidendi or case holding and what it takes to be a precedent. Now, we will see what makes a precedent conflict with another. The Precedential Conflict: 164. To cut the discussion short, we will take aid of the latest Supreme Court judgment on this point. In Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 ("Mavilayi"), the question concerns the deductions a primary agricultural credit society can claim under section 80P(2)(a) (i) of the IT Act, after the introduction of section 80P(4) of that Act. Two Division Benches of Kerala High Court have taken conflicting views—the latter decision being unaware of the former one. Finally, that precedential conflict stood resolved through a Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT[2019 (2) KHC 287]. This Full Bench decision was taken to Supreme Court. That is how, on 12 January 2021, a three-Judge Bench of the Supreme Court has decided Mavilayi. 165. Mavilayi has noted that the Full Bench of Kerala High Court has reached its conclusion based on the Supreme Court's judgment Citizen Cooperative Society Ltd. v. Asst. CIT, Hyderabad [(2017) 9 SCC 364]. Indeed, Mavilayi acknowledges that the Kerala High Court's Full Bench did follow Citizen Cooperative. Case (supra) But it holds that in Citizen Cooperative Society Ltd. Case (supra) the counsel for the assessee advanced no argument that "the assessing officer and other authorities under the IT Act could not go behind the registration of the co-operative society in order to discover as to whether it was conducting business in accordance with its bye-laws". That sets Citizen Cooperative apart, according to Mavilayi. 166. In this context, Mavilayi case (supra) holds that only the ratio decidendi of a judgment binds as a precedent. To elaborate on this proposition, Mavilayi service co- operative case (supra) refers to State of Orissa v. Sudhanshu Sekhar Misra [1968] 2 SCR 154, which holds that a decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein, nor what logically follows from the various observations made in it. Then, it quotes Dalbir Singh v. State of Punjab [1979] 3 SCR 1059. Though it was from the dissenting judgment, Mavilayi Case (supra) points out, it remained uncontradicted by the majority: [A]ccording to the well-settled theory of precedents every decision contains three basic ingredients: "(i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of (i) and (ii) above." For the purposes of the parties themselves and their privies, ingredient (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties Page | 10
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from reopening the dispute. However, for the purpose of the doctrine of precedents, ingredient (ii) is the vital element in the decision. This indeed is the ratio decidendi[16]. 167. Then, Mavilayi applied the above principle and held that the ratio decidendi in Citizen Cooperative would not depend upon the conclusion arrived at on facts in that case. For the case is an authority for what it actually decides in law and not for what may seem to logically follow from it. Do Goa Dourado Promotions case (supra) and Kaushalya case (supra) conflict? 168. As we have seen Goa Dourado Promotions case (supra) concludes the case based on the reasoning given in Samson Perincherry, and New Era Sova Mine (supra). 169. The relates to Goa Coastal Resorts and Recreation (P.) Ltd. (supra) In that one, the learned Division Bench has held: 6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine, the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in a matter of initiation of penalty proceedings. 7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine and therefore, warrant no interference. 170. Samson Perinchery, case (supra) too, has held that the notice issued under section 274 of the Act should strike off irrelevant clauses. And New Era Sova Mine has endorsed the Tribunal's view that "the penalty notices in these cases were not issued for any specific charge, that is to say, for concealment of particulars of income or furnishing of inaccurate particulars". In fact, Samson Perincherry relies on Karnataka High Court's SSA's Emerald Meadows, Case (supra) which, as we have already seen, has followed Manjunatha. So, in a sense, it is a conflict between Kaushalya and Manjunatha if we take comity, rather than stare decisis, as the reckoning factor. 171. That said, as Mavilayi found distinguishing features in Citizen Cooperative; here, too, the fact situation as obtained in Kaushalya has been seen in none of these decisions: Goa Dourado Promotions, Goa Coastal Resorts and Recreation, case (supra) Samson Perinchery case (supra), New Era Sova Mine—not even in Manjunatha. Granted, in both sets of cases, the proposition is this: To an assessee facing penalty proceedings, the Revenue must supply complete, unambiguous information so that he may defend himself effectually. This proposition has given rise to this question: Where should the assessee gather the required information from?
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Goa Dourado Promotions and other cases have held that the information must be gathered from the notice under section 271(1)(c) read with section 274 of the IT Act. No other source was in the Court's contemplation. In Kaushalya, both the proposition and the question were the same. But it has one extra input: the order in assessment proceedings. So it has held that the notice alone is not the sole source of information; the assessment proceedings, too, may shed light on the issue and inform the assessee on the scope of penalty proceedings. Whether assessment proceedings can be a source of information and whether it can complement the notice have not been considered in Goa Dourado Promotions Case (supra) and other cases. 173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well- versed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical methods the Revenue adopts in sending a statutory notice to the assessee under section 271 (1) (c) read with section 274 of the Act? Pragmatically speaking, Kaushalya casts an extra burden on the assessee and assumes expertise on his part. It wants the assessee to make up for the Revenue's lapses. Ex Post and Ex Ante Approaches of Adjudication: 174. In ex-post adjudication, the Court looks back at a disaster or other event after it has occurred and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future—on parties who are entering similar situations and have not yet decided what to do, and whose choices may be influenced by the consequences the law says will follow from them. The first perspective also might be called static since it accepts the parties' positions as given and fixed; the second perspective is dynamic since it assumes their behaviour may change in response to what others do, including judges. (for a detailed discussion, see Ward Farnsworth's Legal Analyst: A Toolkit for Thinking about the Law)[17]. 175. Kaushalya has adopted an ex-post approach to the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushalya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Smt. Kaushalya's case (supra) approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty. 176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of
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whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [2009] 183 Taxman 444/317 ITR 1, has explained the scope of section 271(1)(c) thus: "[E]xplanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income." 177. That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). In other words, the Assessing Officer's satisfaction as to be spelt out in the assessment order is only prima facie. Even if the assessment order gives no reason, a mere direction for penalty proceedings triggers the legal fiction as contained in the Explanation (1). 178. Therefore, in every instance, it is a question of inference whether the assessment order contained any grounds for initiating the penalty proceedings. Then, whenever the notice is vague or imprecise, the assessee assails it as bad; the Revenue defends it by saying that the assessment order contains the precise charge. Thus, it becomes a matter of adjudication, opening litigious floodgates. The solution is a tick mark in the printed notice the Revenue is used to serving on the assessees. 179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty. 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice—and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 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 Page | 13
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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. 182. 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. 183. 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 so- called 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 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". 185 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 non-application of mind and prejudice. 186. 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.
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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. 189. 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] 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. 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. 191. 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. Conclusion: We have, thus, answered the reference as required by us; so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication.”
We have examined notice u/s 271(1)(c) dated 14.03.2014, attached in the assessee`s paper book page no.7 in case of ITA No.618/SRT/2018 for assessment year 2011-12. We have also examined notice u/s 271(1)(c) dated 03.03.2014, attached in the assessee`s paper book page no.7 in case of ITA No.623/SRT/2018 for assessment year 2011-12. We note that in these notices two limbs are mentioned viz (i) concealed the particulars of income and (ii) furnished inaccurate
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particulars of income. The assessing officer has not ticked any of the limbs in the notice issued u/s 271(1)(c) of the Act therefore penalty proceedings are bad in law. On the identical facts our view is fortified by the judgment of the Hon`ble Gujarat High Court in the case of Jyoti Ltd, [2013] 34 taxmann.com 65 (Gujarat), wherein it was held where Assessing Officer in order of penalty did not come to a clear finding regarding penalty being imposed on concealment of income or on furnishing inaccurate particulars of income, Tribunal was justified in setting aside impugned penalty order. Thus, respectfully following the judgment of the Hon`ble Bombay High Court and Hon`ble Gujarat High Court, we delete the penalty.
16.We have adjudicated the issue by taking lead case in ITA No.618/SRT/2018 for assessment year 2011-12. Since the facts are similar and identical therefore our observations made in ITA No.618/SRT/2018, shall apply mutatis mutandis to the aforesaid other appeal of Assessee, namely, ITA No.623/SRT/2018 for assessment year 2011-12. 17. In the result, appeals of the Assessees (in ITA No.618/& 623/SRT/2018 AY.2011-12) are allowed. A copy of the instant common order be placed in the respective case file(s).
Order pronounced on 30/11/2021 in the open court by placing the result on the notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 30/11/2021 Dkp, outsourcing Sr.P.S Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy// Assistant Registrar/Sr. PS/PS ITAT, Surat Page | 16