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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, VP & SHRI M. BALAGANESH, AM
O R D E R भहावीय ससिंह, उऩाध्मऺ के द्वाया / PER MAHAVIR SINGH, VP: This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-1, Mumbai [in short CIT(A)], dated 06.08.2019. The assessment was framed by the Dy. Commissioner of Income Tax, (LTU)-2, Mumbai (in short ACIT/ ITO/ Lubrizol India Private Limited; AY: 11-12 AO) for the A.Y. 2011-12 vide order dated 23.02.2015 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty by the Assessing Officer under section 271(1)(c) of the Act, even though there is defect in the notice issued under section 274 read with section 271(1)(c) of the Act. For this, assessee has raised the following ground No.1: -
1. Validity of penalty 1.1 The learned CIT(A) erred in not appreciating that the order passed by the learned Deputy Commissioner of Income-tax (LTU) – 2 [DCIT] under section 271(1)(c) is bad in law, illegal and ought to be quashed as the notice under section 274 read with section 271(1)(c) is issued in a mechanical manner without specifying any charge for which the penalty was proposed to be levied.
1.2 The learned CIT(A) erred in not appreciating that the learned DCIT erred in levying penalty relying on both limbs of section 271(1)(c) without specifically invoking the same in the show cause notice dated 23 February 2015.”
Brief facts are that the Assessing Officer levied the penalty under section 271(1)(c) of the Act on account of interest received but not disclosed this interest income amounting to ₹32,87,831/-. The Assessing Officer levied the penalty amounting to ₹ 10,92,135/-vide Lubrizol India Private Limited; AY: 11-12 order dated 29.03.2018.The learned Counsel for the assessee stated that in the instant case, the Assessing Officer has initiated the penalty proceedings in terms of notice issued under section 274 read with section 271(1)(c) of the Act dated 23.02.2015 copy of the said notice is filed in assessee’s compilation. This issue was also raised before CIT(A) and CIT(A) rejected this ground by observing in Para 6.3 as under:-
6.3 I have carefully considered the facts of the case, oral contentions and written: submissions of the assesses, discussion of the AO in the impugned order and material available on record. The appellant in this case has raised an issue on the validity of the notice issued u/s 271(1)(c) of the Act contending that the notice does not specify under which limb of section 271(1)(c), the penalty proceedings have been initiated. in this respect, it is noted from the impugned order passed u/s 271(1)(c) of the Act that penalty proceedings were initiated for furnishing inaccurate particulars of income. In the impugned order, penalty eventually has been levied for the same default that the assesses has furnished inaccurate particulars of such income. Accordingly, it is not the case wherein the penalty proceedings u/s 271(1)(c) have been initiated under one limb of section and levy of penalty has been in the other. The assessee for the said purposes and contentions have placed reliance on many decisions which have been mentioned Lubrizol India Private Limited; AY: 11-12 hereinabove at para 6.2. In respect of such reliance placed, it is stated that the Hon’ble Madras High Court in the case of Sundaram Finance Ltd. vs. ACIT Co. Cir.Vl(4), Chennai (2018) 93 Taxmann.com 250 (Madras) in their order dated 23.04.2018 were faced with the issue of concealment of income. In that case the claim of depreciation of asset/equipment which dd not exist or which were never supplied was the issue on which penalty proceedings were initiated and Hon'ble High Court in that case held that the assessee had not only concealed particulars of income, but had also furnished inaccurate particulars of income. Therefore, penalty u/s 271(1)(c) was to be levied upon the assesses for furnishing inaccurate particulars and concealment of income. The said decision was challenged by the assessee before the Hon’ble Supreme Court and the Apex Court in their order [2018] 99 Taxmann.com 152 (SC) dated 26.10.2018 dismissed the SLP fled by the assessee and in that order it was also observed that there was no prejudice caused to the assesses and the assessee had dearly understood what was the purport and import of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act, and therefore, the principles of natural justice cannot be read in abstract. In view of the aforesaid decision of Hon’ble Madras High Court, and further confirmed by the Hon'ble Apex Court, the contentions and submissions of the Lubrizol India Private Limited; AY: 11-12 assessee as regards not specifying under which limb of Sec271(1)(c) of the proceedings were initiated is not found to be acceptable and is accordingly rejected.
Now before us, the learned Counsel for the assessee field copy of Hon’ble Bombay High Court Full Bench in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bombay) vide order dated 11.03.2021, wherein Hon’ble Bombay High Court observed that defect in notices i.e. not striking off irrelevant portion would vitiate penalty proceedings. The relevant finding of Hon’ble Bombay High court reads 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 Lubrizol India Private Limited; AY: 11-12 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.