RAJESH B, JAIN AS LEGAL OF BHANWARLAL M. JAIN,MUMBAI vs. WARD 19(1)(1), MUMBAI

To substantiate / support / corroborate the aforesaid contention, Ld. AR drew our attention to the copy of notice u/s 274 r. w. s. 271(1)(c) issued on 21.03.2016, placed at assessee’s paper book (APB) page 1, demonstrating that the said notice was issued under a fixed template / prototype, without ‘striking off’ the irrelevant limb which is not applicable to the present case, neither any explicit default on the part of assessee have been specified in the said notice. Similir, notices were issued again on 06.04.2018 (APB page 2), 14.05.2018 (APB page 4) but with same analogy, having mention of the default as, “for to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain furnishing of inaccurate particulars of income and / or concealment of income”.

Ld. AR further took us to assessee’s reply dated 26.05.2018, submitted before the Ld. AO, clarifying that such notice without specific mention of the default is not in consonance with the decision of Hon’ble High Court of Karnataka, in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karn.), which clarifies that the notice u/s 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is concealment of income or for furnishing of incorrect particulars of income, so the assessee should know the grounds which need to be met specifically, otherwise, the principles of natural justice are offended and on the basis of such a vague notice, no penalty could be imposed on the assessee. Assessee also referred to the case of CIT Vs. SSA’s Emerald Meadows (2016) 73 Taxmann.com 241(Kar.), where in the findings in CIT Vs. Manjunatha Cotton & Ginning Factory (supra) was affirmed. Further, the revenue has challenged the identical issue before the Hon’ble Apex Court in the case of Veerabhadrappa Sangappa & Co. of 2009, but SLP against the said order was dismissed.

To strengthen the aforesaid legal preposition, Ld. AR drew our attention to the penalty order u/s 271(1)(c) dated 28.03.2019, where in the to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain aforesaid contention raised by the assessee was not responded by the Ld. AO, whereas have imposed the penalty under following observation: “26. The assessce in its reply has not been able to give a satisfactory reply to the stand taken by the Department. The assessee has not commented on the entire modus operandi admitted by the parties concerned. The parties to the transactions and their controlling key persons have categorically admitted in statement given under oath before the Department of providing only bogus & accommodation entries for commission to their clients.

The evidences gathered clearly proved that these parties have only provided accommodation entries for a consideration/commission to the willing parties. When entire modus operandi of these entities is that of only providing bogus and accommodation entries in the books and in fact the actual purpose of transactions is that of tax avoidance and introduction of unaccounted money in to books, there is no specific need to mention each and every name of the parties to the transactions in the statement itself. The same can be extracted from the books/documents maintained by such entry providers.

Further, reckoning the modus operandi enunciated above, details available en record and findings on record, it is not difficult to understand the manner in which the whole transaction of bogus loans has taken place. The logical corollary the above fact leads to the conclusion that accommodation entry for loans are taken by investing the assessee's own unaccounted cash for which the assessce has not offered any explanation regarding its nature and source. Further, Since unsecured loans in question have been held to be mere accommodation entries i.e. bogus in view of the categorical findings discussed above, the commission element also to be held in the nature of bogus.

Further, it is also pertinent to mention here that, had the case been not selected for scrutiny, the assessee would have enjoyed the gross and willful neglect on its part. In other words, this disclosure would not have been made, had there not been a search and seizure action/survey u/s 131 of the Income Tax Act, 1961 at the to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain premises of the assessee. In view of above, the disclosure by the assessce does not seem to be voluntary and bona fide but under compulsion.

In the backdrop of the above mentioned facts and circumstances, the addition on the basis of which the penalty is initiated, is sustained and further, warrants the levy of penalty, as the assessee han accepted the addition made in the assessment order on account of suppression of true total income to the extent of additions as computed in the assessment order, when compared with the total income disclosed by the assessee in the return of income.

As noted above, the assessce has failed to furnish any specific reason or details of any mitigating circumstances due to which the non compliance occurred. Accordingly, I find that the assessee had no reasonable cause for committing the default of not furnishing correct particulars and thereby concealing her income. In the case of CIT v. Standard Mercantile Co. [(1986) 160 ITR 613 (Pat.]], it wan held that it was for the assessee to show that he had reasonable cause for not complying with the provisions of the Act. It has also been laid down by the Hon'ble Supreme Court in a judgment reported in (1987) 165 ITR 14, 21-22 that the initial burden of discharging the onus of rebuttal is on the assessce. Once that initial burden is discharged, the assessee would be out of mischief unless further evidence was adduced. As to the nature of explanation to be rendered by the assessee, the Hon'ble Apex Court expressed its agreement with the Hon'ble Patna High Court's view to the effect that it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. It was further agreed that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body.

It was held in ITO v. Gayatri Coal Supply Co. [[1999) 238 ITR (AT) 16 (Patna) that "Once statutory obligation is cast on a person and such statutory obligation provides for a period of limitation within which a particular document is required to be submitted, failure to do so within the prescribed period of limitation, is by itself liable to be visited with penalty, unless explained by a reasonable cause." 10 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain

Further, in the case of MAK Data P. Ltd vs. CIT (Supreme Court) the Hon'ble Supreme Court has held that:-

Further the Delhi High Court in the case of CIT Vs Zoom Communication Pvt. Ltd. vide dated 24.05.2010 has held that:-

In view of the aforesaid facts and the clear position of law as discussed above, I am convinced that the assessee had no reasonable cause for the failure on her part to file correct particulars of income and fully disclose her income as required under the provisions of the Income Tax Act, 1961. Besides the above, the assessee has not brought out any case under the Act and, therefore, question of considering any reasonable cause for the failure on its part cannot be considered. Accordingly, I am satisfied that the assessee had committed a default which is covered by the penal provision of 274 of the Act.

In view of the above, it is held that assessee has failed to offer bonafide explanation in respect of the committed default making this a fit case for levy of penalty, I am of view that the assessee is liable for penalty and the tax sought to be evaded' is computed pursuant to clause (iii) of section 271(1)(c) read with Explanation 4, as under:

Hence, penalty u/s 271(1)(c) of IT Act 1961 of Rs. 1,13,35,645/- is accordingly levied. The assessee is directed to make payment of Rs. 1,13,35,645/- by way of penalty u/s 271(1)(c) of the IT Act, 1961. Issue demand notice.”

Ld AR further added, that the aforesaid irregularity in the notices, vitiating the entire proceedings of penalty was challenged before the Ld. CIT(A), who had dealt with such preposition by the assessee, had concluded that the nature of infraction in order to effect the provisions of section 271(1)(c) can be either of furnishing of particulars of income or concealment of income both, thus, the claim of assessee regarding not specifying the correct limb was rejected. to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain 14. In support of the legal analogy emerging from the decision in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (supra), Ld. AR placed his reliance on the judgement of Hon’ble Jurisdictional High Court of Bombay in the case of Mr. Mohd. Farhan A. Shaikh vs. DCIT [Bom. HC at GOA] Writ Petition No. 51 & 57/2012 dated 11th March 2021. Hon’ble High Court in this case has discussed the effect striking off of the irrelevant limb / tick mark the correct limb in notice, so no need to curing the defect in notice by referring to the assessment order. The relevant questions which have an impact in adjudication of the present matter has been answered by the Hon’ble High Court under the following observations:

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. to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain 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.

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.

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".

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 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance.

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(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. 16 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain CIT["J, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei["]. 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”

The ld. AR pointed out that this Tribunal in the following decisions has granted relief to the assessees, placing reliance on the decision of Bombay High Court in Mr. Mohd. Farhan A Shaikh (supra): 1. PCIT vs. Jehangir H.C. Jehangir [Bom. HC] [2023] 155 Taxmann.com 209 2. Ritu Multitrade Services (P.) Ltd. vs. ITO [Mum ITAT] [2024] 164 Taxmann.com 121 3. DCIT vs. Chakradhar Contractors and Engineers (P.) Ltd. [Pune ITAT] [2025] 171 taxmann.com 133 4. Kasat Prakash M (HUF) vs. ITO, Ward-1, [Pune ITAT] [ITA No. 1328/Pun/2023]

The ld. AR further submitted, a recent judgment by Hon’ble Bombay High Court in of 2020 PCIT vs. Pacific Organics Pvt. Ltd. dated 29.04.2025, wherein the decision relied upon by the revenue in the case of Veena Estate (p.) Ltd. vs. Commissioner of Income Tax [2024] 125 17 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain Taxmann.com 341 (Bombay) has been distinguished and held that the notice must be precise and there should be no room for ambiguity, the relevant findings of Hon’ble Bombay High Court, are extracted as under:

In backdrop of the aforesaid submissions, it was the prayer by ld. AR that, since the issue of not striking off of incorrect limb or on account of no 18 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain specific identification of the correct limb in the notice under section 274 of the Act, the entire penalty proceedings are vitiated, consequently, the penalty levied cannot be sustained.

Per contra, ld. CIT-DR representing the revenue, in rebuttal has submitted that the satisfaction was duly recorded by ld. AO, as extensive evidence surfaced during the search against the assessee. Further, the penalty order was strengthened by the ld. CIT(A) by upholding the same in clear words that the case of assessee falls under both the categories, therefore there was no need to strike off of particular limb. The ld. CIT-DR also confronted with the decision by Hon’ble Bombay High Court in the case of Md. Farhan (supra) in support of which he placed reliance on the decision of Veena Estate (P.) Ltd. [2014] (supra), however such argument by the ld. CIT-DR was clarified in rebuttal by the ld. AR by referring to the decision in the case of PCIT vs. Pacific Organic Pvt. Ltd. (supra). The ld. CIT-DR, thereafter, had vehemently supported the orders of ld. AO as well as ld. CIT(A) and contended to upheld the same.

We have considered the rival submissions, perused the material available on record and the case laws relied upon by the parties. Admittedly, the issue of striking off of incorrect limb was discussed in detail by Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra), which was further affirmed in the case of CIT vs. 19 to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain SSA’s Emerald Meadows (supra) and has reached the finality to become the law of land, which has been followed consistently by Hon’ble High Courts and the Tribunals in their subsequent decisions. The cases referred to by the revenue in their defense are somehow distinguishable on facts and circumstances, as clarified by the ld. AR during the hearing, therefore would not be of any rescue to them. Since the issue as of now is no more res-integra, therefore according to the settled principle of law on the aforesaid issue as again recently has been held by the Hon’ble Bombay High Court in the case of PCIT vs. Pacific Organics Pvt. Ltd. (supra), we find substance in the contention raised by the ld. AR, we therefore are fully convinced to delete the penalty imposed under section 271(1)(c) r.w.s. 274 of the Act in the present matter. We direct accordingly.

Since, the penalty imposed under section 271(1)(c) of the Act vide order dated 28.03.2019 has been held to be bad in law and directed to be deleted, on account of non-striking off of the incorrect /irrelevant limb, so impliedly not specific identification of correct limb, the other contentions raised by the assessee on legal aspects as well as merits of the facts are rendered as academic only, thus needs no separate adjudication. to 1942/Mum/2024 Rajesh B. Jain as Legal Heir of Bhanwarlal Jain 22. Admittedly, being on parity in terms of facts and circumstances, our observations and decision in for AY 2008-09 shall apply mutatis mutandis to the remaining appeals in 1937, 1939, 1940, 1941 & 1942/Mum/2025 for AYs 2009-10 to AY 2014-15.

Consequently, in combined result all the captioned appeals of the assessee for respective Assessment Years are allowed, in terms of our aforesaid observations.