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

At the threshold, it is apprised by ld. Authorized Representative (for short “Ld. AR”) representing the assessee (appellant) that all the aforesaid appeals arise against the penalty proceedings initiated and completed against the assessee under section 271(1)(c) r.w.s. 274 of the Act. It is further clarified that these appeals are assailed with the identical grounds of appeal, challenging the legality of notices issued under section 271(1)(c) of the Act, as well as on merits for imposing of such penalties. Since, all the aforesaid appeals are of the

To adjudicate the issues in present appeals, since are on parity in terms of facts, circumstances, wordings or orders by the revenue authorities etc., ITA No. 1938/Mum/2024, as suggested by ld. AR has been taken up, as the lead case, wherein, the discussion, submissions, deliberation and thereafter the adjudication would apply mutatis mutandis to the remaining appeals under consideration herein.

The grounds of appeal in the lead case i.e., ITA No. 1938/Mum/2024 for AY 2008-09 are culled out as under:

The brief facts of the case are that the assessee has filed his return of income for AY 2008-09 on 07.07.2008 declaring total income at Rs. 3,89,625/-. The return of assessee was then processed under section 143(1) of the Act. Subsequently, the case of assessee was selected for scrutiny on account of search action conducted on Shri Bhanwarlal Jain Group cases by DGIT (Inv.), Mumbai on 03.10.2013 and observed that the assessee is involved in issuance of fictitious sales bills and accommodation entries of non-genuine unsecured loans. Consequentially, the proceedings under section 153A of the Act are initiated and the assessment was completed on 21.03.2016 under section 143(3) r.w.s. 153A of the Act, making therein an addition of Rs. 5,91,95,321/- (for AY 2008-09) on account of undisclosed commission income. As a result of addition, the penalty proceedings under section 271(1)(c) r.w.s. 274 of the Act was also initiated. Later, the assessee challenged the substantive quantum

While the penalty proceedings were initiated, the assessee was confronted to clarify as to why penalty should not be levied under section 271(1)(c) of the Act. In response, the assessee made his submissions before the ld. AO, however the contentions raised by the assessee are not enough to satisfy the ld. AO, accordingly, a penalty @ 100% of the total tax was imposed for Rs. 1,13,35,645/-.

Being dissatisfied with the aforesaid penalty order u/s 271(1)(c) r.w.s. 274 dated 28.03.2019, assessee preferred an appeal before the ld. CIT(A) contesting the legality as well as the merits in imposing the penalty. Submissions were made before the ld. CIT(A) by the assessee on all the aspects; however, the ld. CIT(A) did not find any merit or substance in the contentions raised by the assessee, so observing no infirmity in the action of ld. AO, have dismissed the appeal of assessee by confirming the penalty imposed. The relevant observations of the ld. CIT(A) under the common order are extracted here under for the sake of completeness of facts:

To challenge the aforesaid decision of ld. CIT(A), which as per the assessee, was not justified and tenable in the eyes of law, the assessee preferred the present appeals before us.

At the outset, Ld. AR initiated his arguments, requesting to take up the legal contention first as per Ground No. 3 of the instant appeal, claiming that the penalty imposed cannot be sustained as per the settled principles of law, as the Ld. AO failed to “strike off” the irrelevant portion / limb, even the assessment Order did not specify the particulars limb of section 271(1)(c) under which the penalty was initiated.

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

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. ITA No. 5020 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

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

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

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 ITA No. 07/2010 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.

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.

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

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

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 ITA No. 58 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

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

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

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.

In result, ITA No. 1938/Mum/2024 for AY 2008-09 of the assessee stands allowed.

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