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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
The appeal is directed against the order of learned CIT(A) in confirming the order of penalty of ₹3,30,000/- levied under section 271(1)(c) of the Act.
During the course of appellate proceedings before us, the assessee has also raised revised ground of appeal stating that the notice under section 274 read with section 271(1)(c) dated 18th March 2015 is bad in law and it does not specify whether the penalty is levied for Ravi Gehi (HUF) AY 09-10 - 2 - concealment of income or furnishing of inaccurate particular of income. The relevant ground read as under:
1. The learned CIT(A) erred in confirming order of penalty of ₹3,30,000/- levied under section 271(1)(c) on addition of deemed dividend U/s 2(22)(e) without appreciating that the Notice under section 274 read with section 271(1)(c) dated 18.03.2015 is bad in law as it does not specify whether the penalty is levied for concealment of income or furnishing inaccurate particulars of income and hence the penalty of ₹3,30,000/- may be deleted.
The facts in brief are that the assessment in the case of the assessee was completed under section 143(3) read with section 147 of the Act on 18th March, 2015. During the course of assessment proceedings, the Assessing Officer stated that the assessee had received a loan of ₹10 lakhs from Growmore Investment and Developers Private Limited (GIPL) in which the assessee was shareholder having shareholding of 11.50%. Therefore, the advance given by the aforesaid company to the assessee was treated as deemed dividend under section 2(22)(e) of the Act and added to the total income of the assessee. The Assessing Officer has also initiated the penalty proceedings under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income.
The Assessing Officer has levied the penalty of ₹ 3,30,000/- vide order under section 271(1)(c) of the Act dated 30th March, 2018 for furnishing of inaccurate Ravi Gehi (HUF) AY 09-10 - 3 - particulars of income. Aggrieved, assessee filed appeal before the learned CIT(A). The learned CIT(A) has dismissed the appeal of the assessee.
During the course of appellate proceedings before us, the learned Counsel has contended vehemently that the Assessing Officer has issued notice under section 274 read with section 271(1)(c) dated 18th March 2015 without specifying whether the penalty is levied for concealment of income or furnishing of inaccurate particulars of income. In this regard, the learned Counsel has referred page No.120 of the assessee’s paper book pertaining to copy of notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961 dated 18.03.2015. The learned Counsel has further contended that Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT (2021) 434 ITR 1 (Bom) has held that if there is a defect in notice not striking off irrelevant matter, the penalty cannot be levied. The learned Counsel has also referred the Co-ordinate Bench decision in & 4631/Mum/2019 and Ors vide order dated 09.07.2021, wherein on identical facts and issue after following the aforesaid decision of Hon’ble jurisdictional High Court, the penalty levied was deleted.
On the other hand, the learned Departmental Representative has supported the order of lower authorities.
Ravi Gehi (HUF) AY 09-10 - 4 - 7. Heard both the sides and perused the materials available on record. The case of the assessee was reopened on the basis of information received that assessee had obtained loan from Growmore Investment and Developers Private Limited in which the assessee was having shareholding of 11.50%. Therefore, the Assessing Officer has added the amount of advance taken from the said company of ₹10 lacks to the total income of the assessee as deemed dividend under section 2(2)(e) of the Act. The Assessing Officer has levied the penalty of ₹3,30,000/- for concealment of particulars of income. With the assistance of learned representative, we have gone through the notice under section 274 read with section 271(1)(c) dated 18th March 2015, the relevant part of the notice is reproduced as under:-
Whereas in the course of proceedings before me for the Assessment year 2009-10 appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income. You are hereby requested to appear before me on 31.03.2015 at 11.30 AM and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income Tax Act, 1961. If no one attends his office on the said date of hearing, the case shall be decided on the basis of material available on records.
On perusal of the aforesaid notice it is clear that Assessing Officer has not specified whether the penalty is being levied on account of concealment of particulars of Ravi Gehi (HUF) AY 09-10 - 5 - income or furnishing of inaccurate particulars of income. In this regard, we have gone through the case of Jurisdictional High court referred by learned counsel in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bombay), wherein the relevant Para of the head note is reproduced as under:-
Section 271(1)(c), read with section 274 of the Income-tax Act, 1961 - Penalty - For concealment of income (Recording of satisfaction) - Whether where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice-not striking off irrelevant matter would vitiate penalty proceedings - Held, yes - Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice - Held, yes - Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give no room for ambiguity - Held, yes [Paras 181 and 188][In favour of assessee]
Further, we have also perused the decision of co- ordinate Bench of the ITAT, Mumbai in the case of M/s Bhavya Shashank Shanbhag Vs. DCIT in vide order dated 09.07.2021, wherein the co-ordinate Bench in identical issue and similar facts has deleted the penalty after following the decision of Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A.
Ravi Gehi (HUF) AY 09-10 - 6 - Shaikh (supra). The relevant part of the decision of co- ordinate Bench is reproduced as under:-
“3. We have heard rival submissions and perused the materials available on record. We find that assessee for both the assessment years vide ground No.1(e) had raised the preliminary technical ground that in the show-cause notice issued by the ld. AO u/s.274 r.w.s. 271(1)(c) of the Act, he had not struck-off the irrelevant portion and that the ld. AO had not specified the specific offence committed by the assessee by stating as to whether the assessee has concealed his particulars of income or had furnished inaccurate particulars of income. 3.1. We find that this issue is no longer res-integra in view of the Full Bench decision of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A Shaikh vs. DCIT reported in 434 ITR 1 (Bom). The relevant portion of the said order is reproduced hereunder:- 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.
Ravi Gehi (HUF) AY 09-10 - 7 - 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 socalled 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 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 Smt. Kaushalya case (supra) .In fact, for one assessment year, it set aside the penalty proceedings on the grounds of nonapplication 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 Ravi Gehi (HUF) AY 09-10 - 8 - 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 Ravi Gehi (HUF) AY 09-10 - 9 - 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. 3.2. Respectfully following the aforesaid decision, we hold that the penalty levied by the ld. AO for both the assessment years is hereby directed to be deleted. 3.3. Since the relief is granted to the assessee on this aspect by adjudicating the ground No.1(e), the other grounds raised
by the assessee for both the years on legality of levy penalty as well as on merits of the case are not adjudicated herein and the same are hereby left open.”
10. In the light of the decision of the co-ordinate Bench as elaborated above, there is nothing before us on hand to differs from the issue raised in the cases cited (supra) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in the submission of the assessee and direct the Assessing Officer to delete the penalty since, the notice issued under section 274 read with section 271(1)(c) dated 18 th March 2015 was bad in law. Since, we have deleted the Ravi Gehi (HUF) AY 09-10 - 10 - penalty on account of invalid notice issued under section under section 274 read with section 271(1)(c) dated 18 th March 2015, therefore other ground on merit are not require to be adjudicated.
5. In the result the appeal of the assessee is allowed. Order pronounced in the open court on 04.01.2022.