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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya
Per Shri Shamim Yahya (AM) :-
These appeals by the Assessee are directed against the respective orders of the learned Commissioner of Income Tax (Appeals), Mumbai (‘ld.CIT(A) for short) pertain to the respective assessment years as above.
Since the issues are common and connected and the appeals were heard together, these have been consolidated and disposed of by this common order.
ITA No.607/Mum/2020 for 2015-16:- 3. Grounds of appeal read as under:-
1 . Having regards to facts and circumstance of the case, Ld.CIT(A)-3, Thane erred in confirming the penalty levied by Assessing officer under section 271G of Income Tax Act, 1961.
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Brief facts of the case are that in this case, the return of income for AY 2015-16 was e-filed on 31.08.2015, declaring total income at Rs. 92,940/-. During the course of assessment proceedings, on perusal of the details available on record, it was noticed that during the year under consideration, the assessee firm has entered into purchase agreement of immovable properties with its associated firm i.e. M/s. Govardhan Developer for purchase consideration of Rs. 7,18,00,000/-.
Further AO observed that it can be seen that during the year under consideration Shri Nishit Bechar Patel, one of the partners was having more than 20% share in both the firms and also having substantial interest in profit of 'the firms. That thus, the transactions exceeding Rs. 5 crore held between the aforesaid firms must be treated as specified domestic transaction as per the provisions of section 92BA(i) and 40A(2)(b) of the Income Tax Act, 1961,
Hence, AO opined that, it is established that the assessee firm has entered into specified domestic transactions and hence the assessee was liable to keep and maintain such information and document as per the provisions of subsection (3) of section 92 D of the Income-tax Act, 1961. That however, the assessee failed to keep and maintain any information as per the provisions of section 92D of IT Act. That thus, the assessee firm contravened the provisions of sub-section (3) of section 92D of IT Act and liable to be penalized in accordance with section 271G of IT Act.
On query in this regard, assessee responded as under:-
"...In response to your observation that, during the year under reference assessee had purchased immovable property from associated enterprises aggregating to Ks. 7,18,50,000/- which exceeds the limit specified under section 92BA of the Income Tax Act, 1961. In this regard, we wish to submit your honor that, the assessee had purchased two plot of land from partnership firm in which one of the partners of the
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firm has substantial interest and he is also one of the partners in that firm. Your honour will appreciate that the land so purchased from. M/s Goverdhan Developers is at fair market value, i.e. the transaction has been taken place on Arm's Length Price which is evident that the agreement value and market value quoted in the Index-H shows the consideration price higher than the market value of the said plots of land. And the agreements have been duly registered on which stamp duty charges have been paid by the assessee. The taw relating to Transfer Price Index came into effect from the AY 2013-14 with limit of transaction exceeding Rs. 5.00 crore which has been amended to Rs.20.00 crore in the budget of 2015 relevant to AY2016-17, The transaction relating to purchase of Land is at Arm's Length Price, which can be evidence from the Index-II issued by registration local government authority certifying the market value and book value of the property. Copies of Index-II are enclosed for your verification.
As the assessee has submitted/provided all the documents/ information required and asked by you during the assessment proceedings, and had complied with the required provision of section 92D(3) of Income fax Act, 1961, therefore provision of section 271G of the Income Tax Act, 1961, will not be applicable to the assessee. So we request you to drop the penal provision under section 271G of the Income Tax Act, 1961." However, the AO was not satisfied. He held that the above submissions are carefully considered but not tenable as per provisions of Income-tax Act, 1961. That in his .submission, the AR of the assessee has contended that firm has furnished all the details related to Specified Domestic transaction during the assessment proceedings. That in this regard, it is to mention here that the assessee firm failed to furnish any details in accordance with the provisions of section 92D(3) r.w.r. 10D(3) of IT Rule. That thus, the contention of the assessee is not correct and liable to be penalized as per provisions of section 271G of the Income Tax Act, 1961. 6. Accordingly penalty of Rs. 14,37,000/- was levied u/s. 271G.
Upon assessee’s appeal Ld.CIT(A) confirmed the penalty on the basis of his following observation:- “The appellant should have kept and maintained such information and documents as per the provision of section 92D(3) of the IT. Act, 1961 but the appellant failed to do so. Therefore, the AO levied the penalty u/s 271G of the IT Act, 1961. During the appellate proceedings, the appellant has produced 3CEB report mandate as per provisions of section 92D and section 92E but failed to submit the same report during the assessment proceedings, therefore, the contention of the appellant cannot be accepted as the appellant should have disclosed the specified
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transaction in its return of income, but it failed to do so. It is also pertinent to mentioned here that, the appellant failed to get his account audited under the provisions of section 44AB of the Act. On the above stated facts and the circumstances of the case, I am of the considered opinion that the AO has rightly levied penalty of Rs. 14,37,000-u/s 271G therefore, the grounds of appeal of the appellant are hereby dismissed.”
Against the above order assessee has filed this appeal. 9. I have heard both the parties and perused the records. Ld. Counsel of the assessee has summarized his submission as under:-
“There is no failure to furnish any details in accordance with the provisions of section 92D{3) read with rule 10D(3) of the Income-tax Rules, 1962 ("the Rules") as alleged at para 4 of the penalty order (page 47 of the paper book filed in appeal against penalty under section 271G). The Appellant further submits that there is general and substantial compliance of the provisions of Rule 10D inasmuch as all the requisite documents, details and submissions have been filed before the learned AO in the course of the assessment proceedings and no fault has been found with respect to the same. In the circumstances, before levying penalty under section 271G of the Act. the learned AO ought to have first issued a notice specifying the document or information to be furnished by the Appellant and only if the Appellant did not comply with such notice could the question of levying penalty under section 27IG arise. Since this was not done, penalty deserves to be deleted. Reliance is placed on the decision of the Hon'ble Tribunal in the case of Cadbury Schweppes Overseas Ltd. vs. Asst. DIT (IT) 1(2), Mumbai ITA No. 5318/Mum/2014 (page 55 of the paper book - copy enclosed).” 10. Upon careful consideration, I note that the submission of the Ld. Counsel of the assessee is cogent. The order of authorities below is conspicuous inasmuch as there is no mention as to what document required/ordered for and which were not maintained. The order passed by the authorities below is mechanical without proper application of mind. Hence, on the touchstone of above discussion and precedents , I set aside the order of authorities below and direct that the penalty be deleted.
In the result, this appeal is allowed.
5 Apace Realty ITA No.608/Mum/2020 for 2015-16:-
Grounds of appeal read as under:-
1 . Having regards to facts and circumstance of the case, Ld.CIT(A)-3, Thane erred in confirming the penalty levied by Assessing officer under section 271AA of Income Tax Act, 1961. 13. Brief facts of the case are that in this case, the return of income for AY 2015-16 was e-filed on 31.08.2015, declaring total income at Rs. 92,940/-. During the course of assessment proceedings, on perusal of the details available on record, it was noticed that during the year under consideration, the assessee firm has entered into purchase agreement of immovable properties with its associated firm i.e. M/s. Govardhan Developer for purchase consideration of Rs. 7,18,00,000/-.
Further AO observed that, it can be seen that during the year under consideration Shri Nishit Bechar Patel, one of the partners was having more than 20% share in both the firms and also having substantial interest in profit of 'the firms. Thus, the transactions exceeding Rs. 5 crore held between the aforesaid firms must be treated as specified domestic transaction as per the provisions of section 92BA(i) and 40A(2)(b) of the Income Tax Act, 1961,
Hence AO opined that, it is established that the assessee firm has entered into specified domestic transactions and hence the assessee was liable to keep and maintain such information and document as per the provisions of subsection (1) and (2) of section 92 D of the Income-tax Act, 1961. However, the assessee failed to keep and maintain any information as per the provisions of section 92D of IT Act. Thus, the assessee firm contravened the provisions of subsection (1) and (2) of section 92 D of IT Act and liable to be penalized in accordance with section 271AA of IT Act.
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The AO levied the penalty by holding as is under:- "The above submissions are carefully considered. In his submission, the AR of the assessee has contended that firm has furnished all the details related to Specified Domestic transaction within time. Further, on going through Profit & Loss Account, Balance-sheet and ITR, it is seen that the firm has not disclosed/mentioned any details in respect of specified domestic transaction carried out during the year in its ITR filed. As firm has purchased two lands amounting to Rs, 7,18,50,000/- from associated firm, it should have disclosed the transaction either in its ITR filed. However, the assessee failed to disclose the same. Thus, the contention of the assessee is not correct and liable to be penalized as per provisions of section 271AA of the IT Act.
Therefore, in view of the above discussion and considering the fact case, I am satisfied that the assessee has committed default within the meaning of Section 92D r.w.s. 271AA of the I.T. Act, 1961 without any reasonable cause and accordingly, penalty of Rs.14,37,000/- (being 2% of International transaction or specified domestic transaction i.e. of Rs. 7,18,50,0007-) is hereby levied u/s 271AA of the IT Act.”
Ld.CIT(A) has confirmed the AO’s action by observing as under:-
“ During the appellate proceedings, the appellant was asked to explain and to produce the details related to the matter. After perusing the submissions of the appellant, it is seen that, the submission made by the appellant is not in accordance with the provisions of the section 92D (1) and (2) of the IT. Act, 1961. The submissions fifed by the appellant related to its grounds are not sufficient enough to conclude the matter in the favour of the appellant. The appellant claims that, the AO was fully satisfied with the price of specified domestic transaction entered into by the appellant with the associated concerns and reported in the income tax return as purchase price during the assessment proceedings, therefore, the AO has erred in levying penalty u/s 271AA, is found to be wrong. The point of conflict related to the levying of penalty is not that the purchase price of the two plots of Rs. 7.18 Cr. were below the fair market value or higher than that, but the penalty is levied on the ground that, the appellant had made transaction of Rs. 7.18 Cr, and it was a specified domestic transaction as it had exceeds the limit of Rs. 5 Cr as per the provisions of section 92BA(i) and 40A(2)(b) of the income tax act, 1961 therefore, the appellant should have kept and maintained such information and documents as per the provision of section 92D(1) and (2) of the IT. Act, 1961, but the appellant failed to do so. Therefore, the AO levied the penalty u/s 271AA of the IT Act, 1961.
During the appellate proceedings, the appellant has produced 3CEB report mandate as per provisions of section 92D and section 92E but failed to submit the same report during the assessment proceedings, therefore, the contention of the appellant cannot be accepted as the appellant should have disclosed the specified
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transaction in its return of income during the assessment proceedings, but it failed to do so. It is also pertinent to mentioned here that, the appellant failed to get his account audited under the provisions of section 44AB of the Act. On the above stated facts and circumstances of the case, I am of the considered opinion that the AO has rightly levied penalty u/s 271AA therefore, the grounds of appeal of the appellant are hereby dismissed.”
Against the above order assessee has filed this appeal. 17. I have heard both the parties and perused the records. Ld. Counsel of the assessee has summarized his submission as under:-
“It is submitted that penalty under section 271AA was initiated on the ground of failure to keep and maintain information and documents as required by sub-section (1) or sub-section (2) of section 92D. However, from a review of the impugned penalty order, it is seen that penalty is levied on a different ground, namely, that the Appellant did not disclose/mention details of specified domestic transaction in the return of income. It is respectfully submitted that levy of penalty is on a different ground as compared to initiation of penalty, which is not permissible. Moreover, non- disclosure of the details of specified domestic transaction in ITR cannot be a ground for levy of penalty under section 271AA of the Act. Penalty under section 271AA of the Act can only be levied if there is a failure to keep and maintain information and documents as required by section 92D(1) or 92D(2) of the Act. In the instant case, it is not specified as to which, if any, information and document required in section 920(1) and 92D(2) have not been kept or maintained. During the course of the assessment proceedings, the Appellant submitted complete details of the specified domestic transactions vide letters dated lllh August 2016 (pages 27-28 of the paper book - para 4), letter dated 7th November 2017 (page 34 of the paper book -para 5) and 4Ih December 2017 (pages 36-37 of the paper book). Satisfied with the same, the learned AO accepted the arm's length price of the specified domestic transactions. In the impugned penalty order, it has not been specified as to which document was not kept or maintained as required under section 92D(1) or section 92D(2) of the Act. It is submitted that in these circumstances, the levy of penalty under section 92AA is not justified. For sake of completeness, it is further submitted that the learned AO issued a notice under section 274 read with section 271AA of the Act (page 41 of the paper book) without striking off the irrelevant parts of the notice. The Appellant submits that the said notice is invalid since it does not specify the charge for which the proceedings are initiated. It is submitted that merely because the assessment order specifies the charge is of no consequence, as the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh vs. DCIT 434 1TR 1 (Bom)(FB) has held that even if the assessment order
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clearly records satisfaction for imposing penalty on one or the other grounds, not striking off irrelevant matter in notice vitiates penalty proceedings.”
Upon careful consideration, I note that as regards, the issue of non striking off the relevant limb of the penalty note the issue was considered by Hon’ble Bombay High court in Farhan A. Shaikh Vs. PCIT (125 taxamnn.com 253) vide order dt. 11.3.2021.
Now we refer to Hon'ble Bombay High Court exposition in Mohammed Farhan A. Shaikh (supra) as under :- We have already discussed what constitutes the ratio decidendi or case holding and what it takes to b a precedent. Now, we will see what makes a precedent conflict with another.
The Precedential Conflict: 164. To cut the discussion short, we will take aid of the latest Supreme Court judgment on this point. In Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax[2021 SCC Online SC 16] ("Mavilayi"), the question concerns the deductions a primary agricultural credit society can claim under section 80P(2)(a)(i) of the IT Act, after the introduction of section 80P(4) of that Act. Two Division Benches of Kerala High Court have taken conflicting views the latter decision being unaware of the former one. Finally, that precedential conflict stood resolved through a Full Bench decision in Maviluyi Service. Co-operative Bank Ltd. v. Commissioner of Income Tax, Caticut [2019 (2) KHC 287]. This Full Bench decision was taken to Supreme Court. That is how, on 12 January 2021, a three-Judge Bench of the Supreme Court has decided Mavilayi.
Mavilayi has noted that the Full Bench of Kerala High Court has reached its conclusion based on the Supreme Court's judgment Citizen Cooperative Society Ltd. v, Asst. CIT, Hyderabad [(2017) 9 SCC 364]. Indeed, Mavilayi acknowledges that the Kerala High Court's Full Bench did follow Citizen Cooperative. But it holds that in Citizen Cooperative Society Ltd., the counsel for the assessee advanced no argument that "the assessing officer and other authorities under the IT Act could not go behind the registration of the I co-operative society in order to discover as to whether it was conducting business in accordance with its j bye-laws". That sets Citizen Cooperative apart, according to Mavilayi. 166. In this context, Mavilayi holds that only the ratio decidendi of a judgment binds as a precedent. To elaborate on this proposition, Mavilayi refers to State of Orissa v. Sudhanshu Sekhar Misra [(1968) 2 SCR 154], which holds that a decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation
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found therein, nor what logically follows from the various observations made in it. Then, it quotes Dalbir Singh v. State of Punjab[1919) 3 SCR 1059]. Though it was from the dissenting judgment, Mavilayi points out, it remained uncontradicted by the majority:
According to the well-settled theory of precedents every decision contains three basic ingredients:
(i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct or perceptible facts;
(ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and
(iii) judgment based on the combined effect of (i) and (ii) above."
For the purposes of the parties themselves and their privies, ingredient (Hi} is the material element in the decision for it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purpose of the doctrine of precedents, ingredient (ii) is the vital element in the decision. This indeed is the ratio decidendi.
Then, Mavilayi applied the above principle and held that the ratio decidendi in Citizen Cooperative would not depend upon the conclusion arrived at on facts in that case. For the case is an authority for whaf it actually decides in law and not for what may seem to logically follow from it. Do Goa Dourado Promotions and Kaushalya conflict?
As we have seen Goa Dourado Promotions concludes the case based on the reasoning given in Tax Appeal No. 24/2019 (decided on 11-11-2019), Samson Perincherry, and New Era Sova Mine.
The Tax Appeal No. 24/2019, decided on 11-11-2019, relates to The Principal Commissioner of Income-tax (Central) v. Goa Coastal Resorts and Recreation Pvt. Ltd. In that one, the learned Division Bench has held: -
“6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine, the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there
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was no proper record of satisfaction or proper application of mind in a matter of initiation of penalty proceedings.
In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned orders are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine and therefore, warrant no interference.”
Samson Perinchery, too, has held that the notice issued under section 274 of the Act should strike off irrelevant clauses. And New Era Sova Mine has endorsed the Tribunal's view that "the penalty notices in these cases were not issued for any specific charge, that is to say, for concealment of particulars of income or furnishing of inaccurate particulars". In fact, Samson Perincherry relies on Karnataka High Court's SSA's Emerald Meadows, which, as we have already seen, has followed Manjunatha. So, in a sense, it is a conflict between Kaushalya and Manjunatha if we take comity, rather than stare decisis, as the reckoning factor.
That said, as Mavilayi found distinguishing features in Citizen Cooperative; here, too, the fact situation as obtained in Kaushalya has been seen in none of these decisions: Goa Dourado Promotions, Goa Coastal Resorts and Recreation, Samson Perinchery, New Era Sova Mine—not even in Manjunatha pointed, in both sets of cases, the proposition is this: To an assessee facing penalty proceedings, the Revenue must supply complete, unambiguous information so that he may defend himself effectually. This proposition has given rise to this question: Where should the assessee gather the required information from?
Goa Dourado Promotions and other cases have held that the information must be-gathered from the notice under section 271(l)(c) read with section 274 of the IT Act. No other source was_in_the_Court’s contemplation. In Kaushalya, both the proposition and the question were the same. But it has one extra input: the order in assessment proceedings. So it has held that the notice alone is not the sole source of information the assessment proceedings, too, may shed light on the issue and inform the assessee on the scope of penalty proceedings. Whether assessment proceedings can be a source of information and whether it can complement the notice have not been considered in Goa Dourado Promotions and other Cases.
We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well-versed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It
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forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical methods the Revenue adopts in sending a statutory notice to the assessee under section 271 (1) (c) read with section 274 of the Act? Pragmatically speaking, Kaushalya casts an extra burden on the assessee and assumes expertise on his part. It wants the assessee to make up for the Revenue's lapses.
Ex Post and Ex Ante Approaches of Adjudication:
In ex-post adjudication, the Court looks back at a disaster or other event after it has occurred and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future - on parties who are entering similar situations and have not yet decided what to do, and whose choices may be influenced by the consequences the law says will follow from them. The first perspective also might be called static since it accepts the parties' positions as given and fixed; the second perspective is dynamic since it assumes their behaviour may change in response to what others do, including judges, (for a detailed discussion, see Ward Farnsworth's Legal Analyst: A Toolkit for Thinking about the Law).
Kaushalya has adopted an ex-post approach to the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushafya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Kaushalya's approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty.
Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit of whether the conditions mentioned in section 271(l)(c) exist in the case. It is because Explanation 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atu Mohan Binda [2009]317 ITR 1 (SC) has explained the-scope of section 271(l)(c) thus:
"Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide
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and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(l)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income.”
That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 7, if a mere direction to initiate penalty proceedings under clause (c) of sub- section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). In other words, the Assessing Officer's satisfaction as to be spelt out in the assessment order is only prima facie. Even if the assessment order gives no reason, a mere direction for penalty proceedings triggers the legal fiction as contained in the Explanation (1). 178. Therefore, in every instance, it is a question of inference whether the assessment order contained any grounds for initiating the penalty proceedings. Then, whenever the notice is vague or imprecise, the assessee assails it as bad; the Revenue defends it by saying that the assessment order contains the precise charge. Thus, it becomes a matter of adjudication, opening litigious floodgates. The solution is a tick mark in the printed notice the Revenue is used to serving on the assessees.
Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(l)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty.
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(l)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings?
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(l)(c), read with section 274 of IT Act. True the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceeding to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a
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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'?
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 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".
185 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 sect7orT274. 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
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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 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(l)(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) 2 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 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.”
Examining the present case on the anvil of aforesaid case law, we find that the notice in this also is an omnibus show-cause notice as it does not strike off/delete the inappropriate/irrelevant/not applicable portion. Such a generic notice betrays a non- application of mind. Hence, the penalty levied pursuant to such a notice is not legally sustainable in law. Hence following the aforesaid precedent from the Full Bench of
15 Apace Realty
the Hon'ble Jurisdictional High Court we hold that the Assessing Officer was bereft of valid jurisdiction as the notice issued to assessee is unsustainable in law.
On merits above, it is clear from the submission above that penalty u/s. 271AA has been levied on a different ground that provided in the Act. This has been duly explained in the Ld. Counsel submission as above. Hence, on merits also the penalty is liable to be deleted. Hence, the assessee appeal is allowed.
In the result, both the assessee’s appeals are allowed.
Pronounced in the open court on 14.12.2021
Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 14 /12/2021 Thirumalesh, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai