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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Bharat Gadhi & Shri Ashish Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER
ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited v. ACIT – Circle – 1 401, Kailas Corporate Lounge Kalyan - 421204 Veer Savarkar Marg, Park Site Vikhroli (W), Mumbai - 400079 PAN: AABCD1592N (Appellant) (Respondent) Shri Bharat Gadhi & Assessee Represented by : Ms. Poonam Kotkar Department Represented by : Shri Ashish Kumar
Date of Hearing : 27.12.2022 Date of Pronouncement : 23.02.2023
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 27.07.2022 for the A.Y.2009-10 in sustaining the penalty levied u/s. 271(1)(c) of the Act. and
2 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited revenue has filed appeal for the A.Y. 2008-09 in partly reducing the penalty.
Brief facts of the case are, assessee is engaged in the business of textiles processing and filed its return of income on 26.09.2009 for A.Y.2009-10 declaring total loss at ₹.50,87,624/-. Assessment was completed u/s 143(3) accepting the returned income. Assessing Officer observed that the assessee had claimed depreciation to the tune of ₹.5,39,36,889/- @ 50% as per IT Act on "Plant & Machinery" under TUFS which is available for weaving, processing and garment sector textiles only for the machinery installed during the period 01.04.2001 to 01.04.2004 and put to use before 01.04.2004. Accordingly, reassessment proceedings u/s 148 of Act was initiated on 30.03.2016 and reassessment completed on 08.12.2016 by making addition on account of excess depreciation claimed of ₹.2,53,37,774/-. On appeal, Ld.CIT(A), Thane had rejected the excess claim of depreciation @50% and allowed the additional depreciation @20% on the new Plant & Machinery observing that assessee had claimed excess depreciation and the same was added back to the income of the assessee. Subsequently, Assessing Officer Initiated Penalty proceedings u/s 271(1)(c) of the IT Act. On appeal Ld.CIT(A)
3 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited sustained the penalty levied by the Assessing Officer. Against, this order of the Ld.CIT(A), assessee is in appeal before us.
In the present appeal a preliminary ground was raised by the assessee stating that the penalty order is bad in law as the penalty proceedings were initiated and penalty levied was without specifying the exact limb of section u/s.271(1)(c) of the Act.
At the outset, Ld. Counsel for the assessee referring to the penalty notice issued u/s. 274 r.w.s. 271(1)(c) of the Act submitted that notice was issued stating that assessee has concealed particulars of income or furnished inaccurate particulars of such income. In other words, the notice was issued for both the limbs without striking off the irreverent limb and specifying the charge for which the notice was issued. Reliance was placed on the various decisions in support of the above contention, [Copies of the orders are placed in Paper Book]. Therefore, it is submitted that since the notice issued u/s.274 r.w.s. 271(1)(c) of the Act did not specify the limb for which or the charge for which it was issued the penalty order passed pursuant to such notice is bad in law.
Ld. DR vehemently supported the orders of the authorities below.
4 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited 6. Considered the rival submissions and material placed on record and the perused the orders of the authorities below and the decisions relied by the Ld. AR of the assessee. On a perusal of the notices issued u/s.274 r.w.s. 271(1)(c) of the Act, we observe that the Assessing Officer has not specified any limb for which the notices were issued i.e., either for concealment of particulars of income or for furnishing inaccurate particulars of such income. Assessing Officer did not strike off irrelevant limb in the notices specifying the charge for which notices were issued. It can be seen from the notices issued u/s. 271(1)(c) of the Act it appears that the charge was for both the limbs.
An identical issue came up before Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT [434 ITR 1] and the Hon'ble Jurisdictional High Court held as under: - “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
5 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited 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. 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, Kaushalya 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”. Kaushalya 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 Kaushalya. In
6 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited 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 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, 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, 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. 188. 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 nonapplication 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
7 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited 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[74], in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei[ 75]. 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 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.”
As could be seen from the above the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT [(2021) 434 ITR 1 (Bom)] while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(1)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. Ratio of this full bench decision of the Hon'ble Bombay High
8 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited Court (Goa) squarely applies to the facts of the assessee’s case as the notices u/s. 274 r.w.s. 271(1)(c) of the Act were issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. Thus, respectfully following the said decision we hold that the penalty order passed u/s. 271(1)(c) of the Act by the Assessing Officer is bad in law and accordingly the penalty order passed u/s. 271(1)(c) of the Act for Assessment Year 2009-10 is quashed. As we have decided the preliminary ground in favour of the assessee and quashed the penalty order the other grounds raised by the assessee on merits are not gone into as they become only academic at this stage.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd February, 2023.
Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 23.02.2023 Giridhar, Sr.PS
9 ITA NO. 2130/MUM/2022 (A.Y. 2009-10) Dhanalaxmi Fabrics Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum