CHOICE DIAMOND,MUMBAI vs. ACIT 19 (1), MUMBAI

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ITA 27/MUM/2020Status: DisposedITAT Mumbai18 January 2022AY 2012-134 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 notice issued under section 274 r.w.s. 271 of the Act was defective because it was omnibus and did not specify the relevant limb of section 271(1)(c). Following the Bombay High Court's decision, the Tribunal found that such a defective notice vitiated the penalty proceedings.

What were the facts?

The assessee's appeal was against a penalty levied under section 271(1)(c) of the Income Tax Act. The assessee argued that the notice initiating the penalty proceedings was defective as it was issued in a pre-printed format without striking off the irrelevant limb of the section.

What were the issues?

The key issue was the validity of the penalty notice under section 274 r.w.s. 271 when it failed to strike off the irrelevant limb of section 271(1)(c), rendering it ambiguous and defective.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI

Hearing: 18/01/2022Pronounced: 18/01/2022

This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals) -29, Mumbai [ in short ‘the CIT(A)’] dated 13/12/2019 for the assessment year 2012-13, confirming levy of penalty under section 271(1)(c) of the Income Tax Act, 1961( in short ‘the Act’).

2.

Ms. Dharshti Shah appearing on behalf of the assessee raised a legal ground orally assailing the validity of notice issued under section 274 r.w.s. 271 of the Act dated 30/12/2014. The ld. Authorized Representative for the assessee submitted that aforesaid notice issued by the Assessing Officer is defective as the same has been issued in pre-printed performa without striking off the irrelevant limb of section 271(1)(c) of the Act. The ld.Authorized Representative for the assessee pointed that a perusal of assessment order dated 30/01/2014 passed under section 143(3) of the Act would show that penalty has been initiated under section 271(1)(c) of the Act for concealing the income. However, in the notice both limbs of section 271(1)(c) of the Act i.e. concealed the particulars of income or furnished inaccurate particulars of income are mentioned. Thus, the Assessing Officer has issued notice without application of mind, without specifying the limb under section 271(1)(c) of the Act. The ld.Authorized Representative for the assessee submitted that the Hon'ble Jurisdictional High Court in the case of Mohd.Farhan A. Shaikh vs. DCIT reported as 434 ITR 1 has held that where the notice has been issued in a format without striking off irrelevant matter, the penalty proceedings are vitiated.

3.

Shri R.A. Dhyani representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee.

4.

We have heard the submissions made by rival sides and have examined the orders of authorities below, as well as, the notice issued under section 274 r.w.s. 271 of the Act . The legal ground raised by the ld. Authorized Representative for the assessee is admitted. A perusal of the said notice reveals that the same has been issued in an omnibus performa without striking off the limb which is not relevant. In the present case the Assessing Officer has initiated penalty proceedings for concealment of income. However, in the notice we observe both charges under section 271(1)(c) of the Act i.e. concealment of particulars of income or furnishing inaccurate particulars of income are mentioned. The Full Bench of Hon'ble Bombay High Court in the case of Mohd.Farhan A. Shaikh vs. DCIT (supra) has held that the notice issued without striking off irrelevant clause would make the notice ambiguous and hence, defective. Consequently, the entire penalty proceeds would be vitiated. For the sake of completeness the question before the Hon’ble Full Bench and the relevant extract of the decision is reproduced herein 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.

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.” Thus, in the facts of the case and in the light of decision of Hon'ble Bombay High Court (supra), we hold that the notice issued under section 274 r.w.s. 271 of the Act is defective, hence, the subsequent penalty proceedings arising therefrom are vitiated.

5.

In the result, the impugned order is quashed and appeal of the assessee is allowed.

Order pronounced in the open court on Tuesday the 18th day of January, 2022.

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