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Facts
The Revenue appealed an order that restricted an addition to 10% of the Gross Profit. The assessee had made purchases from two parties, the genuineness of which could not be fully established. The AO had initially added 12.5% of the purchases as unproved, and later penalty proceedings were initiated.
Held
The Tribunal held that the show cause notices issued for penalty proceedings were defective as they did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. This ambiguity, particularly in mandatory provisions like Section 271(1)(c), vitiates the penalty proceedings.
Key Issues
Whether the penalty proceedings initiated under Section 271(1)(c) are vitiated due to a fundamental defect in the show cause notice not specifying the exact charge (concealment of income vs. furnishing inaccurate particulars).
Sections Cited
143(3), 147, 145(3), 271(1)(c), 274
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Income Tax Appellate Tribunal, MUMBAI “D” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAHUL CHAUDHARY
Date of Hearing : 01-10-2025 Date of Pronouncement : 14-10-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : The appeal filed by the Revenue and the Cross Objection filed by the assessee are directed against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 11-11-2024, pertaining to Assessment Year (AY) 2009-10.
None appeared on behalf of the assessee nor was any adjournment application filed. Considering that the matter has been adjourned on number of occasions in the past, it was decided that no useful purpose would be served in adjourning the matter any further and to decide the matter based on material available on record.
Briefly the facts of the case are that the assessment proceedings in this case were completed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 („the Act‟), wherein the AO held that since the assessee could not establish the genuineness of the purchases made from two parties to the tune of Rs. 70,92,914/-, the books of acccounts were rejected u/s. 145(3) of the Act and thereafter, the AO stated that after giving due consideration to the fact that the assessee has recorded such purchases in the books of Account, 12.5% of the total amount of the said purchases which comes to Rs. 8,86,615/- be taken as un-proved/non-genuine purchases and the same was added to the total income of the assessee and penalty proceedings u/s.271(1)(c) of the Act initiated separately for furnishing of inaccurate particulars of income leading to concealment of income.
The assessee thereafter carried the matter in appeal before the Ld.CIT(A), who has sustained the said findings of the AO and thereafter, on further appeal, the Co-ordinate Bench of the Tribunal vide its order dt. 21- 11-2017, restricted the addition to the extent of 10% of the Gross Profit and the relevant findings therein reads as under: “8. I have considered rival contentions and carefully gone through the orders of the authorities below. From the record, I found that assessee has furnished details with regard to the purchases and also established co-relation between the corresponding sales. The assessee has declared GP of 11.33% on the alleged bogus purchases. Keeping in view the totality of facts and circumstances of the case, I direct the AO to restrict the addition to the extent of 10% of GP. I direct accordingly.”
In continuation of the initial show cause dt. 25-03-2015 issued u/s. 274 r.w.s. 271(1)(c) of the Act, a fresh show cause dt. 05-08-2015 was issued to the assessee. In response, the assessee filed its submissions dt. 18-08-2015. Thereafter, another show cause dt. 15-02-2019 was issued and in response, the assessee filed its submissions dt. 15-03-2019 and thereafter on 18-03-2019. Taking the submissions into account, but founding the same acceptable, the AO passed the order u/s. 271(1)(c) of the Act dt. 28-03-2019, wherein the AO recorded his satisfaction that the assessee has furnished inaccurate particulars of income by concealing particulars of his income and penalty amount to Rs. 2,19,170/- was levied on the assessee.
The assessee carried the matter in appeal before the Ld.CIT(A), who has since deleted the penalty so levied by the AO referring to the decision of the Coordinate Bench in the quantum proceedings and against the deletion of the penalty order, the Revenue is in appeal before us and assessee has also filed his Cross Objection.
At the outset, it is noted that the assessee in his Cross Objection has challenged the action of the Ld.CIT(A) in not allowing the appeal of the deceased-assessee, by deleting the penalty imposed u/s. 271(1)(c) of the Act on the basis of the defective show cause issued by the AO, without striking out the inapplicable words and provisions. As part of the assessee‟s Paper Book, we find that the assessee has relied on the decisions of the Hon‟ble Bombay High Court in the case of Mr.Mohd. Farhan A. Shaikh vs. DCIT in Tax appeal No. 51 of 2012 and another, dt. 11-03-2021 and another decision in the case of Shri Samson Perinchery vs. ACIT, in and others, dt. 11-10-2013 affirmed by the Bombay High Court vide its order dated 5-11-2017 and various other decisions of the Co-ordinate Benches of the Tribunal.
Per contra, the Ld. DR is heard, who has relied on the order passed by the AO and submitted that non-specifying the specific charge is a mere technicality and the same cannot be basis to hold the whole penalty proceedings as vitiated in law. The Ld.DR drawn our reference to the decision of the Hon‟ble Madras High Court in the case of Sundaram Finance Ltd., [2018] 403 ITR 407 (Madras).
We have heard the rival contentions and perused the material available on record. The primary contention of the assessee is that the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act suffer from a fundamental defect in as much as the AO failed to specify the particular charge - whether the penalty proceedings were initiated for "concealment of income" or for "furnishing inaccurate particulars of income." It is well-settled by the Hon'ble Bombay High Court in the case of Mohammad Farhan A. Shaikh (supra) that such omnibus notices betray non-application of mind and vitiate the penalty proceedings and we refer to the findings of the Hon‟ble Bombay High Court which read as under: “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. 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 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. 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 (supro) 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.”
In the instant case, we have gone through the first show cause dt. 25-03-2015 issued by the AO, wherein it is noted that the AO has stated that the assessee has concealed particular of his income or furnished inaccurate particulars of such income and as such, no specific charge has been stated by the AO as to whether the penalty has been initiated for concealing particulars of income or for furnishing inaccurate particulars of income. Thereafter, another show cause dt. 05-08-2015 was issued and therein, again, no specific charge has been pointed out by the AO. At the same time, we find that the assessee as part of his submissions dt. 15-03- 2019, in response to show-cause dated 15-02-2019, has drawn specific attention of the AO to the fact that the initial show cause notice dt. 05-08- 2015 has been issued in standard computer generated form without striking out the inapplicable words or provisions, thus creating confusion as to whether the penalty proceedings u/s. 271(1)(c) of the Act has been initiated for concealment of income or for furnishing of inaccurate particulars of income. It was submitted by the assessee that in such a situation, in absence of exact allegation/charge for which penalty proceedings have been initiated, it has become difficult for the assessee to present the case in proper and effective manner. However, we find that in spite of the specific objection so raised by the assessee during the course of penalty proceedings, the AO has not disposed off the said objection in terms of lack of specific charge and proceeded to levy the penalty. We therefore find that the AO has mechanically referred to "concealing of income or furnishing of inaccurate particulars of income" without striking off the irrelevant portion at the time of initiation of penalty proceedings and this ambiguity clearly violates the mandatory requirement of law and the principles of natural justice in spite of specific objections so raised by the assessee. We further note that the said ambiguity continued even at the time of levy of penalty where the AO has held that the assessee has furnished inaccurate particulars of income by concealing the particulars of his income, thus levying penalty on both the charges without specifying as to how both the charges are satisfied in the instant case. We are, therefore, unable to accept the contention of the Revenue that such defect is a mere technicality, particularly when penalty provisions u/s.271(1)(c) of the Act carry severe penal consequences. In light of the aforesaid discussion and respectfully following the jurisdictional High Court decision (supra), the ground so taken by the assessee in his Cross Objection is allowed.
In light of the same, the grounds on merits of deletion of penalty so taken by the Revenue in its appeal have become academic and the same are thus dismissed as infructuous.
In the result, the appeal of the Revenue is dismissed and the Cross Objection of the assessee is allowed.