GUNWANTI NAGINJ JAIN,MUMBAI vs. ITO -21(1)(4), MUMBAI

The only issue to be decided in this appeal of the assessee is as to whether the ld. CIT(A) was justified in confirming the levy of penalty of Rs.2,08,854/- u/s.271(1)(c) of the Act in the facts and circumstances of the instant case.

None appeared on behalf of the assessee. We have heard the ld. DR and perused the materials available on record. We find that assessment for A.Y.2014-15 was completed u/s.143(3) of the Act on 23/12/2016 restricting the short term capital loss on sale of currency to Rs.35,90,873/- as against 46,04,727/-. In the return, the assessee had not set off this loss with any income and had carried forward the same to subsequent year. During the course of assessment proceedings, the assessee vide letter dated 20/12/2016 accepted that she had erroneously taken capital loss of Rs.46,04,727/- instead of Rs.35,90,873/-. Accordingly, in the assessment order, the ld. AO restricted the short term capital loss to Rs.35,90,873/-. Later penalty proceedings u/s.271(1)(c) of the Act were initiated by the ld. AO. Penalty notice u/s.274 r.w.s. 271(1)(c) of the Act dated 23/12/2016 is placed on record wherein we find that the ld. AO had not struck off the specific limb or had not specified the specific offence committed by the assessee as to whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income or whether the assessee had committed both the offences. Hence, the penalty notice issued by the ld. AO becomes a defective notice. We find that the Full Bench of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT reported in 280 Taxman 334 dated 11/03/2021 had categorically held that not striking off irrelevant portion in the penalty notice would vitiate the penalty proceedings. Accordingly, the Hon’ble Jurisdictional High Court had cancelled the penalty. The relevant operative portion of the said judgement is reproduced hereunder:-

“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".

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 Case (supra) 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 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.

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 (supra) 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.”

In the result, appeal of the assessee is allowed.