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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
AadoSa / O R D E R भहावीय स िंह, उऩाध्मक्ष के द्वाया / PER MAHAVIR SINGH, VP: These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-49, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-49/IT-419/2014-15 vide order dated 23.12.2016. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-40, Mumbai (in short ‘ACIT/ AO’) for the A.Y. 2007-08 vide order dated 28.12.2011 under section 143(3) read with section 254 of the Income Tax Act, 1961 (hereinafter ‘the Act’). The penalty was levied by DCIT under section 271(1)(c) of the Act vide order dated 25.03.2014.
The only common issue in these cross appeals is as regards to the order of CIT(A) deleting the penalty levied by Assessing Officer under section 271(1)(c) of the Act on the disallowance of notional interest on advances given by the assessee in the course of business.
At the outset, the learned Counsel for the assessee stated that the assessee’s appeal be taken up first for the reason that the assessee has raised the issue as regards to the jurisdiction for levy of penalty by the Assessing Officer under section 271(1)(c) of the Act. For this, assessee has raised the following grounds: - “
1. Penalty proceedings initiated under section 271(1)(c) needs to be quashed: On the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that notice issued under 3. ITAs No. 1532/Mum/2017 & 187/Mum/2017 Soya Ruchi Industries Ltd.; AY 07-08 section 271(1)(c) is invalid as it did not laid down whether it is concealment of facts or for furnishing of inaccurate particulars. Thus, the penalty proceedings initiated under section 271(1)(c) is invalid and needs to be quashed.”
The learned Counsel for the assessee stated that the assessment was framed by the Assessing Officer under section 143(3) read with section 254 of the Act and made disallowance of notional interest on the advance given by the assessee in the course of business amounting to ₹1,49,48,313/-. The Assessing Officer initiated the penalty proceedings under section 271(1)(c) of the Act by issuing notice under section 274 read with section 271(1)(c) of the Act vide notice dated 28.12.2011. The learned Counsel for the assessee drew our attention to the copy of notice filed along with Memo of appeal. He took us through the notice issued under section 274 read with section 271 of the Act for initiation of penalty proceedings under section 271(1)(c) of the Act. The learned Counsel for the assessee stated that the Assessing Officer has not deleted the inappropriate words whether the penalty is initiated under which charge i.e. for furnishing of inaccurate particulars of income or for concealment of particulars of income. The learned Counsel also stated that even the notice sent for penalty under section 274 of the Act. The relevant notice is enclosed as under: - ITAs No. 1532/Mum/2017 & 187/Mum/2017 Soya Ruchi Industries Ltd.; AY 07-08
The learned Counsel for the assessee stated that once inappropriate words were not deleted, the initiation of penalty and 5 ITAs No. 1532/Mum/2017 & 187/Mum/2017 Soya Ruchi Industries Ltd.; AY 07-08 levy of penalty on that basis will not survive. For this, he relied on the decision of Hon’ble Bombay High Court Full Bench in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bombay). When these facts were confronted to the learned Sr. DR he could not controvert the above position rather he relied on the penalty order of the Assessing Officer.
We have heard the rival contentions and gone through the facts and circumstance of the case. After going through the notice issued for levy of penalty under section 271(1)(c) of the Act i.e. notice under section 274 read with section 271 of the Act dated 28.12.2011, we observe that the Assessing Officer has not specified the charge as decided by Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shaikh (supra), wherein Hon’ble Bombay High court held as under:-
“188. 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 ITAs No. 1532/Mum/2017 & 187/Mum/2017 Soya Ruchi Industries Ltd.; AY 07-08 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.”