HOTEL SAURAB,DEHRADUN vs. DCIT CENTRAL CIRCLE, DEHRADUN

आदेश / O R D E R

PER C. N. PRASAD, J. M.

I.T.A. No. 2438/Del/2019

referred to CIT (Appeals)] Kanpur, dated 28.01.2019 for assessment year 2011-12.

“1. That on the facts and circumstances of the appellant's case the learned CIT (A) grossly erred in confirming the penalty imposed on the appellant by the learned AO under section 271(1)(c) of the IT Act, 1961 amounting to Rs.55,250/-. 2. That on the facts and circumstances of the appellant's case the learned CIT (A) as also the learned AO before him grossly erred in not appreciating that imposition of penalty under section 271(1)(c) of the Act is not automatic to the confirmation of the addition, whether in part or in full, in the quantum appeal. 3. That on the facts and circumstances of the appellant's case the learned CIT (A) grossly erred in not appreciating that the original notice issued by the learned AO for initiating the penalty proceedings, as also that issued by him, after the disposal of the first appeal, before imposition of the penalty, both, were invalid in as much as these did not spell out as for which specific alleged default of the appellant the penalty proposed was sought to be imposed by him on the appellant. 4. That on the facts and circumstances of the appellant's case the learned CIT (A) grossly erred in not appreciating the true import of the case laws cited by the appellant and not even that of the case laws cited by him himself in his impugned order, to thwart the appellant's valid contentions, to avoid following the applicable precedent cited before him. “ 3. In spite of issue of notice none appeared on behalf of the assessee nor any adjournment was sought. As the issue in appeal has been decided by various High Courts this appeal is disposed off 2

I.T.A. No. 2438/Del/2019

on hearing the ld. DR. It is noticed from the grounds of appeal the assessee challenged the imposition of penalty on the ground that the notice did not spell out specific change/default before levying penalty under section 271(1)(c) of the Act. In other words, the assessee contends that the penalty order is bad in law as the penalty proceedings were initiated and penalty was levied without specifying the exact limb of Section 271(1)(c) of the Act. 4. We have perused the penalty notice dated 28.02.2013 issued u/s 274 read with section 271(1)(c) of the IT Act which is placed on record before us and find that the said notice was issued mechanically 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 strike off irrelevant limb and specifying the charge for which the notice was issued. It can be seen from the notice issued u/s 274 read with section 271(1)(c) of the Act, Assessing Officer did not strike off irrelevant limb in the notice specifying the charge for which notice was issued. 5. We observe that an identical issue came up before the Hon’ble Bombay High Court (full bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT [434 ITR (1)] and the Hon’ble High Court held as under: "Question No.l: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings?

I.T.A. No. 2438/Del/2019

It does. The primary burden ties on the Revenue. In 181. 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(l)(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 182. 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 183. that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushaiya does not lay down the correct proposition of law. Question No.2: Has Kaushaiya failed to discuss the aspect of 'prejudice? Indeed, Kaushaiya did discuss the aspect of 184. prejudice. As we have already noted, Kaushaiya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushaiya, "fully knew in detail the exact charge of the Revenue against him". For Kaushaiya, 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 piea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the 4

I.T.A. No. 2438/Del/2019

concerned person by the procedure followed". Kaushalya doses 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 185. 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 fact, for one assessment year, it set aside the penalty proceedings on the grounds of non- application of mind and prejudice. That said, regarding the other assessment year, it 186. 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 ? In DUip N. Shroff, for the Supreme Court, it is of 187. "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. We may, in this context, respectfully observe that a 188. 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

I.T.A. No. 2438/Del/2019

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-appiication 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(l)(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

I.T.A. No. 2438/Del/2019

Tax Appeals before the Division Bench concerned for further adjudication."

I.T.A. No. 2438/Del/2019

issued by the Assessing Officer was bad in law if it did not specify under which limb of section 271(1)(c ) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. 9. Ratio of the full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the assessee's case as the notice u/s. 274 r.w.s. 271(l)(c) of the Act dated 28.02.2013 was 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(l)(c) of the Act by the Assessing Officer is bad in law and accordingly the penalty order passed u/s. 271(l)(c) of the Act for Assessment Year 2011-12 is quashed. 10. As we have decided the preliminary and legal ground in favour of the assessee by quashing the penalty order the other grounds raised by the assessee on merits are not gone into as the adjudication of these grounds become only academic at this stage. 11. In the result, appeal of the assessee is allowed. Order pronounced in the open court on : 16/10/2023.

Sd/- Sd/- ( M. BALAGANESH ) ( C. N. PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER

I.T.A. No. 2438/Del/2019

Dated : 16/10/2023. *MEHTA* आदेश क� �ितिलिप अ�ेिषत / Copy of Order Forwarded to:- 1. आवेदक / Assessee 2. राज�व / Revenue 3. संबंिधत आयकर आयु� / Concerned CIT 4.आयकर आयु�- अपील / CIT (A) 5. िवभागीय �ितिनिध,आयकर अपीलीय अिधकरण, DELHI/ DR, ITAT, DELHI 6. गाड� फाइल / Guard file. By order

ASSISTANT REGISTRAR ITAT, New Delhi.

Date of dictation 11.10.2023 12.10.2023 Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before 16.10.2023 the Other Member Date on which the approved draft comes to the 16.10.2023 Sr. PS/PS Date on which the fair order is placed before 16.10.2023 the Dictating Member for pronouncement Date on which the fair order comes back to the 16.10.2023 Sr. PS/PS

I.T.A. No. 2438/Del/2019

Date on which the final order is uploaded on 16.10.2023 the website of ITAT Date on which the file goes to the Bench Clerk 16.10.2023 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order