USHABEN HITENDRAKUMAR GHADIYA ,RAIGAD vs. DCIT CENTRAL CIRCLE 1(1), MUMBAI

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ITA 6062/MUM/2024Status: DisposedITAT Mumbai16 July 2025AY 2015-16Bench: the Hon'ble Bombay High\nCourt.\n4.5 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty proceedings are vitiated due to the defect in the notice. Citing the Full Bench decision of the Bombay High Court in Mohammed Farhan A Shaikh vs DCIT, the Tribunal emphasized that a penalty proceeding must stand on its own and the assessee must be informed of the grounds of the penalty proceedings solely through the statutory notice. An omnibus notice suffers from vagueness. The Court stated that a defect in the notice, such as not striking off the irrelevant matter, vitiates the penalty proceedings. The primary burden lies on the Revenue to clearly inform the assessee of the grounds. The Tribunal further noted that penal provisions, even with civil consequences, must be construed strictly, and any ambiguity must be resolved in favour of the assessee. The judgment in Smt. Kaushalya was distinguished as not laying down the correct proposition of law on this aspect. Since the appeals were decided in favour of the assessee on legal grounds, the examination of the merits of the case was rendered academic.

What were the facts?

These are four appeals filed by different assessees against orders of the Learned Commissioner of Income-tax (Appeals) [CIT(A)] for Assessment Years 2014-15 and 2015-16. The impugned orders upheld penalty orders passed by the Deputy Commissioner of Income-tax (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The assessees are aggrieved by the CIT(A)'s dismissal of their appeals. The appeals were clubbed due to identical facts and common issues. The AO had levied penalties after seeking explanations from the assessees, with the penalty amount being 100% of the tax sought to be evaded. The assessees contend that the penalty notices were defective and invalid.

What were the issues?

1. Whether the penalty proceedings are vitiated due to a defect in the notice issued under Section 271(1)(c) of the Income-tax Act, 1961, specifically the absence of mention of the limb under which the penalty was proposed (concealment of income or furnishing inaccurate particulars)? Assessee's contention: The assessee argues that the notice dated 27/12/2016 is invalid because it does not specify whether the penalty was proposed for concealment of income or for furnishing inaccurate particulars, rendering it vague and contrary to the principles of natural justice. They rely on the decision in Mohammed Farhan A Shaikh vs DCIT (2021) 434 ITR 1 (Bom [FB]). Revenue's contention: The judgment does not record any specific contentions from the Revenue regarding this issue.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

O R D E R Per Anikesh Banerjee (JM):

These are four appeals filed by difference assessees against the independent orders of the Learned Commissioner of Income-tax-47, Mumbai [in short, the “Ld. CIT(A)”] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for Assessment years 2014-15 and 2015-16, dated 30/09/2024 for AY 2014-15 and 27/09/2024 for AY 2015-16. The impugned orders emanated from the penalty orders under section 271(1)(c) of the Act by the Ld. Deputy Commissioner of Income-tax, Central Circle-1(1), Mumbai (in short, the “Ld. AO”) date of orders for AY 2014-15 dated 03/08/2023 and for AY 2015-16 dated 06/12/2023.

2. All the appeals carry identical facts and common issue. Therefore, for the sake of convenience, they were clubbed together, heard together, and are being disposed of by this common order. is taken as the lead case.

4 ITA 6060 to 6063/Mum /2024 Chhaganbhai Ghaiya & Others 4.3. The Hon'ble CIT(A) erred in not adjudicating the Ground No. 4 raised by the Appellant as reflected in Annexure B to Form 35, which is a violation of principle of natural justice.

4.4. Further, on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the order passed by the Ld. AO without considering the fact that the Appellant had filed a WRIT petition before the Hon'ble Bombay High Court.

4.5. Therefore, the Appellant prays that the order u/s 250 of the Act is bad in law and the Ld. AO be directed to delete the penalty levied u/s 271(1)(c) of the Act.

5. Without prejudice to Grounds 1 to 3, Ground 4:

5.1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding that the unsecured loans have remained unexplained without appreciating the fact that the Appellant had discharged his primary responsibility of explaining the nature and source of credits and had submitted detailed explanations with supporting documentary evidences to prove the genuineness and creditworthiness of the lenders.

5.2. He further failed to appreciate that the Appellant had submitted the correct details. However the addition has been confirmed under a deeming provision.

5.3. Therefore, the Appellant prays that the penalty levied u/s 271(1)(c) of the Act is bad in law and ought to be deleted.

6.

Ground 5:

The Appellant craves leave to add, amend or alter any ground/s of appeal on or before the final hearing.”

2.

Further to that, the assessee sought to raise the following additional ground of appeal, which is identical to all the appeals under consideration:

6 ITA 6060 to 6063/Mum /2024 Chhaganbhai Ghaiya & Others the Ld.AO, after seeking explanations from the assesse passed order under section 271(1)(c) of the Act, levying penalty of Rs.6,94,323/- being 100% of the tax sought to be evaded. The aggrieved assesse filed appeal before the Ld. CIT(A). The Ld.CIT(A) dismissed the appeal filed by the assessee. Further aggrieved, the assessee filed appeal before the Tribunal.

5.

The Ld.AR invited our attention to the notice dated 27/12/2016 issued by the DCIT, Central Circle 1(1), Mumbai that the notice suffers from defect; there is no mention about the limb under which the penalty was proposed to be levied, whether for concealment of income or for furnishing inaccurate particulars of income. So accordingly, the said notice is invalid. The copy of the alleged notice is reproduced as below:-

8 ITA 6060 to 6063/Mum /2024 Chhaganbhai Ghaiya & Others Court (Panaji Bench) in the case of Mohammed Farhan A Shaikh vs DCIT (2021) 434 ITR 1 (Bom [FB]). The relevant paragraphs are reproduced as below:- 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 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 10 ITA 6060 to 6063/Mum /2024 Chhaganbhai Ghaiya & Others ITA 6061/Mum/2024 (A.Y. 2015-16) & ITAs 6062 & 6063/Mum/2024

9.

The facts and circumstances in these three appeals are identical to the facts and circumstances narrated above, therefore, the decision arrived at above, shall apply mutantis mutandis to these appeals also.

10.

Since the appeals have been decided in favour of the assessee on legal grounds, the examination of the merits of the case is rendered academic in nature and does not require adjudication.

11.

In the result, all the appeals filed by the assesse to 6063/Mum/2024 are allowed.

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