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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEDr. Annie Besant Road, Worli
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 30.05.2022 for the A.Y.2014-15.
(A.Y: 2014-15) Mega Custodial Services Limited 2. Assessee has raised following grounds in its appeal: - “1. The Learned Commissioner of Income Tax-Appeals Faceless has erred in law and facts by confirming the penalty levied u/s.271(1)(c) of the Income Tax Act of Rs.81.73.422/- i.e. 100% tax on the amount which are disallowed by the then learned AO Rs.2,64,51,207/-. Your appellant prays that addition of penalty of Rs.81,73,422/- made shall be deleted.
2. The appellant carves to add to, alter or amend the foregoing grounds, which are without prejudice to one another, at the time of hearing.”
Further, Assessee has raised following additional ground in its appeal: - “1. We are raising herewith an additional ground of appeal as under and request your honour to kindly consider the same while deciding the appeal: a. The Ld. CIT(A) erred in not holding that the notice issued by the Ld. Assessing officer under section 274 read with section 271(1)(c) was bad in law as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated i.e. whether for concealment of particulars of Income or furnishing of inaccurate particulars of Income.”
Ld. Counsel for the assessee submitted that the above additional ground of appeal is purely legal ground and do not require any fresh examination of facts. Therefore, Ld. Counsel for the assessee prayed it may be admitted.
(A.Y: 2014-15) Mega Custodial Services Limited 5. Ld. DR objected for admission of the additional grounds as they were never raised before lower authorities and therefore cannot be admitted.
Considered the rival submissions and material placed on record, we observe that as the said additional ground is legal ground, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds of appeal.
7. Additional 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.
8. 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
(A.Y: 2014-15) Mega Custodial Services Limited limb and specifying the charge for which the notice was issued. Reliance was placed on decision of the Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd., (2010) 322 ITR (SC) and decision of the Hon'ble Delhi High Court in the case of Shervani Hospitalities Ltd., v. CIT dated 28.05.2013. 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.
Considered the rival submissions and material placed on record and the case laws relied on by parties. On a perusal of the notice 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 notice issued u/s. 271(1)(c) of the Act it appears that the charge was for both the limbs.
(A.Y: 2014-15) Mega Custodial Services Limited 11. 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 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 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 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 (A.Y: 2014-15) Mega Custodial Services Limited 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”.
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 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 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.
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.
(A.Y: 2014-15) Mega Custodial Services Limited 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".
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.
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 (A.Y: 2014-15) Mega Custodial Services Limited vagueness. Ratio of this 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(1)(c) of the Act 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 notice was 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 2014-15 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 26th August, 2022.