M.LAKHAMSI& CO. ,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX 17(1), MUMBAI

ORDER \nPER PRABHASH SHANKAR [A.Μ.] :-\nThe present appeal is preferred by the assessee against the order\npassed by the Learned Commissioner of Income-tax (Appeals)/National\nFaceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”]\npertaining to a penalty order passed u/s.271(1)(c) of the Income-tax Act,\n1961 [hereinafter referred to as “Act"] dated 30.03.2018 for the\n Assessment Year [A.Y.] 2012-13.\nPage 2\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\n2. The grounds of appeal

1. The Ld.AR argued that the notice\nwas duly reproduced by the Ld.CIT(A) in his order. The notice suffers from two\ndefects; first of allthere is absence of section under which the showcause notice U/s\n274 of the Act was issued and secondly, there is no mention about the limb under\nwhich the penalty was proposed to be levied whether for concealment of income or for\nfurnishing inaccurate particulars of income. So accordingly, the said notice is invalid.\nConsidering the fact of the case, the Ld.AR informed that related to addition of bad\ndebt amount to Rs.4,21,55,018/- is duly deleted by the order of the co-ordinate bench\nof ITAT, Mumbai bearing date of order 08/10/2021. So\nonly the disallowance of depreciation on BSE card, Rs.10,03,320/- is sustained for\naddition. But mere disallowance for expenses cannot be the point of penalty which is\nduly covered by the order of the Hon'ble Apex Court in CIT vs Reliance\nPetroproducts (P) Ltd 322 ITR 158 (SC). The Ld. CIT(A) in alleged appeal order\nhad respectfully referred the catena of judgements where the Hon'ble High Courts\nhave taken view against the revenue related issuance of the defective notice. The\nrelevant paragraphs of the alleged appeal order are reproduced as below:-\nPage 9\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\n\"

1. I have carefully considered the submissions and contentions of the\nappellant and have also gone through the assessment order, notice by which\nthe impugned penalty proceedings were initiated and also the impugned\npenalty order, it is seen that the AD had discussed the issues relating to the\ndisallowances of Rs.10,26,320/- and Rs.4,21,55,018 in paras 5 and 6,\nrespectively, of the assessment order dated 27/12/2011 passed us.143(3) road\nwith Section 254 of the Act. in both the paragraphs, the AO had mentioned\nthat the penalty proceedings uls 271(1)(c) of the Act were being initiated for\nfurnishing inaccurate particulars and concealment of income. The AO has\nstated in paras 2 and 4.1 of the impugned penalty order that the penalty\nproceedings u/s 271(1)(c) of the Act had been initiated by notice uls.274 read\nwith Section 271(1)(c) issued on 27/12/2011 for concealment and furnishing\ninaccurate particulars of income. Further, as per para 13 of the impugned\norder, the penalty has been levied by the AO for concealment of income.\n6.2 Before me, the AR of the appellant has, inter alia, filed a copy of notice\ndated 27/12/2011 issued by the AO u/s.274 read with Section 271 of the Act\nfor initiating penalty proceedings u/s.271(1)(c) of the Act.\n6.3 It can be seen from the above that there is no mention at all about the\ncharge of either furnishing of inaccurate particulars of income or concealment\nof the particulars of income, in the notice dated 27/12/2011 issued by the\nAO u/s.274 read with Section 271 of the Act for initiating the penalty\nproceedings u/s.271(1)(c) of the Act. The notice refers only to the failures to\nfurnish return of income and to comply with notices issued, and here also, the\nrelevant details are left blank and the clause which is not relevant is not struck\noff. It is only in the last paragraph that there is a mention about imposing of\npenalty u/s.271(1)(c) of the Act on the appellant. Thus, I find that in the\naforesaid notice, the AO had not specified any of the relevant charges either\nfurnishing of inaccurate particulars of income or concealment of the\nparticulars of income-being brought against the appellant.\n6.4 It is pertinent to note that the entire legal controversy about identification\nof the relevant limb of penalty in the notice u/s.274 read with Section 271 of\nthe Act started with the judgment of Hon'ble Karnataka High Court in the\ncase of CIT & Anrs Vs. Manjunatha Cotton and Ginning\nFactory (2013) 359 ITR 0565 (Kar.), wherein it was held that the\nnotice u/s.274 of the Act should specifically state the grounds mentioned\nin Section 271(1)(c), ie, whether it is for concealment of income or for\nfurnishing of incorrect particulars of income.\n6.5 Subsequent to the above judgment, in the case of CIT v. SSA's Emerald\nMeadows 73 taxmann.com 241 (Kar.) (HC), a Division Bench of\nHon'ble Karnataka High Court, again taking note of the Manjunatha's case,\ndismissed the appeal filed by the Revenue holding that no substantial\nquestion of law arose for determination by the Court.\n6.6 However, the Hon'ble Bombay High Court, in the case of CIT Vs.\nSmt. Kaushalya &Ors. (1995) 216 ITR 0660, has held that assessment\nhaving already been made before issue of notice under s 274(1) and assessee\nfully knowing in detail the exact charge of the Department against him, the\nPage 10\n \nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\nnotice could not be said to have prejudiced the assessee by any ambiguity in\nits wordings and mere mistake in language would not invalidate the same.\n6.7 Thereafter, the Hon ble Bombay High Court has taken a different view in\nPCIT v. Goa Coastal Resorts [TXA/24/2019 (Bom)); (8) PCIT v. Goa\nDorado [TXA/18/2019 (Bom)): (9) and in the case of PCIT v. New\nEra Sova Mine [TXA/70/2019 (Bom)).\n6.8 I find that this very issue has now been considered by the Full bench of\nHon'ble Bombay High Court in the case of Mohd. Farhan A.\nShaikhreported in (2021) 125 taxmann.com 253 (Bom). In this case,\nthe Larger Bench of the Hon'ble Jurisdictional High Court was referred an\nissue, that is, mere failure to tick mark the applicable grounds' in the notice\nissued under Section 271 of the Income Tax Act, 1961 (IT Act) vitiate the\nentire penalty proceedings. To this, it was held that a penal provision even\nwith civil consequences, must be construed strictly and ambiguity, if any,\nmust be resolved in the affected assessee's favour.\n6.9 While making observation on the Judgment of Dilip N. Shroff, it was\nobserved by the Hon'ble High Court that primary burden of proof is on the\nRevenue. The Assessing Officer must satisfy himself that there is primary\nevidence to establish that the assessee had concealed the amount or furnished\ninaccurate particulars. And this onus is to be discharged by the Revenue\nWhile considering whether the assessee has discharged his burden, the\nAssessing Officer should not begin with the presumption that he is guilty.\nOnce the Revenue discharges its primary burden of proof, the secondary\nburden of proof, would shift on to the assessee. It is because the proceeding\nunder Section 271(1)(c) is of penal nature in the sense that its consequences\nare intended to be an effective deterrent which will put a stop to practices\nwhich the Parliament considers to be against the public interest\", So, it was\nfor the Revenue to establish that the assessee shall be guilty of the particulars\nof income". The Hon'ble High Court also relied on the Judgments of\nCIT v. Samson Pericherry, ITA/1154/2014 (Bom); PCIT v. Goa\nDorado, TXA/18/2019 (Bom) and PCIT v. New Era Sova Mine\nTXA/70/2019 (Bom), wherein it was observed that "No notice could be\nissued under Section 274, read with Section 271, of the Act without indicating\nwhich particular limb of Section 271(1)(c) was invoked for initiating the\npenalty proceedings". Finally, the larger Bench of Hon'ble high Courthas\ndecided the matter with following findings:\nAnswers:\nQuestion No. 1: If the assessment order clearly records satisfaction for\nimposing penalty on one or the other, or both grounds mentioned in Section\n271(1)(c), does a mere defect in the notice-not striking off the irrelevant\nmatter-vitiate the penalty proceedings?\n181. It does. The primary burden lies on the Revenue. In the assessment\nproceedings, it forms an opinion, prima facie or otherwise, to launch penalty\nproceedings against the assessee. But that translates into action only\nthrough the statutory notice under section 271(1)(c), read with section 274 of\nIT Act. True, the assessment proceedings form the basis for the penalty\nproceedings, but they are not composite proceedings to draw strength from\neach other. Nor can each cure the other's defect. A penalty proceeding is a\ncorollary; nevertheless, it must stand on its own. These proceedings\nPage 11\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\nculminate under a different statutory scheme that remains distinct from the\nassessment proceedings.Therefore, the assessee must be informed of the\ngrounds of the penalty proceedings only through statutory notice. An\nomnibus notice suffers from the vice of vagueness.\n182. More particularly, a penal provision, even with civil consequences, must\nbe construed strictly. And ambiguity, if any, must be resolved in the affected\nassessee's favour.\n183. Therefore, we answer the first question to the effect that Goa Dourado\nPromotions and other cases have adopted an approach more in consonance\nwith the statutory scheme. That means we must hold that Kaushalya does\nnot lay down the correct proposition of law.\nQuestion No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'?\n184. Indeed, Kaushalya did discuss the aspect of prejudice. As we have\nalready noted, Kaushalya noted that the assessment orders already\ncontained the reasons why penalty should be initiated. So, the assessee,\nstresses Kaushalya, \"fully knew in detail the exact charge of the Revenue\nagainst him\". For Kaushalya, the statutory notice suffered from neither non-\napplication of mind nor any prejudice. According to it, \"the so-called\nambiguous wording in the notice [has not] impaired or prejudiced the right\nof the assessee to a reasonable opportunity of being heard\". It went onto\nobserve that for sustaining the plea of natural justice on the ground of\nabsence of opportunity, it has to be established that prejudice is caused to the\nconcerned person by the procedure followed\". Kaushalya closes the\ndiscussion by observing that the notice issuing \"is an administrative device\nfor informing the assessee about the proposal to levy penalty in order to\nenable him to explain as to why it should not be done\".\n185 No doubt, there can exist a case where vagueness and ambiguity in the\nnotice can demonstrate non-application of mind by the authority and/or\nultimate prejudice to the right of opportunity of hearing contemplated\nunder section 274. So asserts Kaushalya. In fact, for one assessment year, it\nset aside the penalty proceedings on the grounds of non- application of mind\nand prejudice.\n186. That said, regarding the other assessment year, it reasons that the\nassessment order, containing the reasons or justification, avoids prejudice to\nthe assessee. That is where, we reckon, the reasoning suffers. Kaushalya's\ninsistence that the previous proceedings supply justification and\ncure the defect in penalty proceedings has not met our\nacceptance.\nQuestion No. 3: What is the effect of the Supreme Court's decision in Dilip N.\nShroff on the issue of non-application of mind when the irrelevant portions\nof the printed notices are not struck off?\n187 In Dilip N. Shroff, for the Supreme Court, it is of \"some significance that\nin the standard Pro-forma used by the assessing officer in issuing a notice\ndespite the fact that the same postulates that inappropriate words and\nPage 12\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\nparagraphs were to be deleted, but the same had not been done\". Then, Dilip\nN. Shroff, on facts, has felt that the assessing officer himself was not sure\nwhether he had proceeded on the basis that the assessee had concealed his\nincome or he had furnished inaccurate particulars.\n188. We may, in this context, respectfully observe that a contravention of a\nmandatory condition or requirement for a communication to be valid\ncommunication is fatal, with no further proof. That said, even if the notice\ncontains no caveat that the inapplicable portion be deleted, it is in the\ninterest of fairness and justice that the notice must be precise. It should give\nno room for ambiguity. Therefore, Dilip N. Shroff disapproves of the routine,\nritualistic practice of issuing omnibus show-cause notices. That practice\ncertainly betrays non application of mind. And, therefore, the infraction of a\nmandatory procedure leading to penal consequences assumes or implies\nprejudice.\n189. In Sudhir Kumar Singh, the Supreme Court has encapsulated the\nprinciples of prejudice. One of the principles is that \"where procedural\nand/or substantive provisions of law embody the principles of natural\njustice, their infraction per se does not lead to invalidity of the orders passed.\nHere again, prejudice must be caused to the litigant, \"except in the case of a\nmandatory provision of law which is conceived not only in Individual\ninterest but also in the public interest\".\n190. Here, section 271(1)(c) is one such provision. With calamitous, albeit\ncommercial, consequences, the provision is mandatory and brooks no\ntrifling with or dilution. For a further precedential prop, we may refer\nto Rajesh Kumar v. CIT ((2007) 2 SCC 181], in which the Apex Court has\nquoted with approval its earlier judgment in State of Orissa v. Dr. Binapani\nDei [AIR 1967 SC 1269]. According to it, when by reason of action on the part\nof a statutory authority, civil or evil consequences ensue, principles of\nnatural justice must be followed. In such an event, although no express\nprovision is laid down on this behalf, Triumph\nSecurities Ltd compliance with principles of natural justice would be\nimplicit. If a statue contravenes the principles of natural justice, it may also\nbe held ultra vires Article 14 of the Constitution.\n191. As a result, we hold that Dilip N. Shroff treats omnibus show-\ncause notices as betraying non-application of mind and\ndisapproves of the practice, to be particular, of issuing notices in\nprinted form without deleting or striking off the inapplicable\nparts of that generic notice. (emphasis added)\n6.10 Further, in another judgment, the Hon'ble Bombay High Court in Pr.\nCIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124\ntaxmann.com 248 (Bom) also took similar view that where inapplicable\nportions were not struck off in the penalty notice, the penalty was\nvitiated. The SLP of the Department against this judgment has recently been\ndismissed by the Hon'ble Apex Court in Pr.CIT Vs. Golden Peace Hotels and\nResorts (P.) Ltd. (2021) 124 taxmann.com 249 (SC).\nPage 13\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\n6.11 I find that this very issue has recently been considered by the Hon'ble\nDelhi ITAT as well in the case of ACIL Ltd. Vs ACIT, [2022] 137\ntaxmann.com 339 (Delhi -Trib.), wherein it was held as follows:\n\"9. We have gone through the record in the light of the submissions made on\neither side. From the orders under challenge, it is very clear that the main\ngrievance of the assessee is that the levy of penalty on the basis of notice\nwhich is vague and illegal cannot be sustained. Such a question of the legality\nor otherwise of assumption of jurisdiction by the learned Assessing Officer\nunder a notice issued under section 271(1)(c) of the Act without striking off of\nthe relevant limb under which the penalty is proposed is no longer res integra,\nand the Hon'ble jurisdictional High Court in the case of Pr. CIT v. Sahara\nIndia Life Insurance Co. Ltd. [2019] 108 taxmann.com 597/2021) 432 (TR 84\n(Delhi), while noticing the addition of the Hon'ble Karnataka High Court\nin CIT v Manjunatha Cotton & Ginning Factory (2013) 35 taxmarin.com\n250/218 Taxman 423/359 ITR 565 dealt with this issue.\n10. In the case of Manjunatha Cotton & Ginning Factory (supra). Vide\nparagraph 60, the Hon'ble Karnataka High Court has held as follows:-\n\"60, Clause (c) deals with two specific offences, that is to say, concealing\nparticulars of income or furnishing inaccurate particulars of income. No\ndoubt, the facts of some cases may attract both the offences and in some cases\nthere may be overlapping of the two offences but in such cases the initiation of\nthe penalty proceedings also must be for both the offences. But drawing up\npenalty proceedings for one offence and finding the assessee guilty of another\noffence or finding him guilty for either the one or the other cannot be\nsustained in low. It is needless to point out satisfaction of the existence of the\ngrounds mentioned in section 271(1)(c) when it is a sine qua non for initiation\nor proceedings, the penalty proceedings should be confined only to those\ngrounds and the said grounds have to be specifically stated so that the\nassessee would have the opportunity to meet those grounds. After, he places\nhis version and tries to substantiate his claim, if at all, penalty is to be\nimposed, it should be imposed only on the grounds on which he is called upon\nto answer. It is not open to the authority, at the time of imposing penally to\nimpose penalty on the grounds other than what assessee was called upon to\nmeet. Otherwise though the initiation of penalty proceedings may be valid and\nlegal, the final order imposing penalty would offend principles of natural\njustice and cannot be sustained. Thus once the proceedings are initiated on\none ground, the penalty should also be imposed on the same ground. Where\nthe basis of the initiation of penalty proceedings is not identical with the\nground on which the penalty was imposed, the imposition of penalty is not\nvalid. The validity of the order of penalty must be determined with reference\nto the information, facts and materials in the hands of the authority imposing\nthe penalty at the time the order was passed and further discovery of facts\nsubsequent to the imposition of penalty cannot validate the order of penalty\nwhich, when passed, was not sustainable.\"\nIn CIT v. SSA's Emerald Meadows (2016) 73 taxmann.com 241 the\nHon'ble Karnataka High Court Considered the question of law as to,-\n\"Whether, omission if assessing officer to explicitly mention that penalty\nproceedings are being initiated for furnishing of inaccurate particulars or that\nfor concealment of income makes the penalty order liable for cancellation\nPage 14\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\neven when it has been proved beyond reasonable doubt that the assessee had\nconcealed income in the facts and circumstances of the case?\"\nAnd the Hon'be High Court ruled answered the same in favour of the assessee\nobserving that:\n\"The Tribunal has allowed the appeal filed by the assessee holding the notice\nissued by the Assessing Officer under section 274 read with section\n271(1)(c) of the Income-tax Act, 1961 (for short 'the Act') to be bad in law as it\ndid not specify which limb of section 271(1)(c) of the Act, the penalty\nproceedings had been initiated i.e., whether for concealment of particulars of\nincome or furnishing of inaccurate particulars of income. The Tribunal, while\nallowing the appeal of the assessee, has relied on the decision of the Division\nBench of this Court rendered in the case of Commissioner of Income Tax V.\nManjunatha Cotton And Ginning Factory (2013) 359 ITR 565. In our view,\nsince the matter is covered by judgment of the Division Bench of this Court,\nwe are of the opinion, no substantial question of law arises in this appeal for\ndetermination by this Court. The appeal is accordingly dismissed.\"\nThe Special Leave Petition filed by the Revenue challenging the aforesaid\njudgement of the High Court was dismissed by the Hon'ble Supreme Court .\n6.12 This issue has further been considered by the Hon'ble Jurisdictional\nHigh Court in another recent decision in the case of [2022] 135\ntaxmann.com 244 (Bombay) Ganga Iron & Steel Trading Co. vs\nCIT, wherein the penalty was directed to be deleted placing reliance on the\ndecision of Hon'ble Full Bench in the case of Mohd. Farhan A. Shaikh\n(supra), with following findings:\n\"B. We may at the outset refer to the judgment of the Full Bench of this Court\nin Mohd. Farhan A. Shaikh (supra) wherein this precise question was\nconsidered and answered. The said question reads as under:\n1. If the assessment order clearly records satisfaction for imposing penalty on\none or the other, or both grounds mentioned in section 271(1)(c), does a mere\ndefect in the notice-not striking off the irrelevant matter-vitiate the penalty\nproceedings?\n9. After considering various decisions of the Hon'ble Supreme Court and of\nthis Court including the decision in Dilip N. Shroff (supra) the Full Bench\nanswered the aforesaid question as under:\n\"181. It does. The primary burden lies on the Revenue. In the assessment\nproceedings, it forms an opinion, prima facie or otherwise, to launch penalty\nproceedings against the assessee. But that translates into action only through\nthe statutory notice under section 271(1)(c), read with Section 274 of the IT\nAct. True, the assessment proceedings form the basis for the penalty\nproceedings, but they are not composite proceedings to draw strength from\neach other. Nor can each cure the other's defect. A penalty proceeding is a\ncorollary, nevertheless, it must stand on its own. These proceedings culminate\nunder a different statutory scheme that remains distinct from the assessment\nproceedings. Therefore, the assessee must be of the grounds of the penalty\nproceedings only through statutory notice. An omnibus notice suffers from\nthe vice of vagueness.\nPage 15\nITA No. 4304/Mum/2025\nΑ.Υ. 2012-13\nM. Lakhamsi & Co.\n182. More particularly, a penal provision, even with civil consequences, must\nbe construed strictly. And ambiguity, if any, must be resolved in the affected\nassessee's favour.\n183. Therefore, we answer the first question to the effect that Goa Dourado\nPromotions and other cases have adopted an approach more in consonance\nwith the statutory scheme. That means we must hold that Kaushalya does not\nlay down the correct proposition of law.\"\nIt is thus clear from the law as laid down that even if there was an order\nrecording satisfaction for imposing penalty on one or the other, or on both\ngrounds as mentioned in section 271(1)(c) of the said Act, if the show cause\nnotice suffers from the vice of vagueness the same would vitiate such notice\"\n10. We find that the law as laid down by the Full Bench applies on all fours to\nthe facts of the present case as in the show cause notice dated 12-2-2008, the\nAssistant Commissioner of Income-tax is not clear as to whether there was\nconcealment of particulars of income or that the Assessee had furnished\ninaccurate particulars of income. We therefore find that issuance of such show\ncause notice without specifying as to whether the Assessee had concealed\nparticulars of his income or had furnished inaccurate particulars of the same\nhas resulted in vitiating the show cause notice.\" (emphasis added)\n6.13 It would be seen from the above decisions that where the charge is not\nproperly set out in the notice u/s 274, that is, both the limbs stand therein\nwithout striking off of the inapplicable limb, but the penalty has been levied\nfor one of the two, such a penalty order gets vitiated. However, in the present\ncase, the situation is even worse, as the notice does not mention either of the\ncharges/limbs. Accordingly, respectfully following the judgment of the Full\nBench of the Hon'ble jurisdictional High Court and other decisions referred to\nabove, I hold that the penalty in this case gets vitiated as the notice issued u/s\n274 r.w.s.271 has to be held as void ab initio.