UJALA CREDIT CO-OPERATIVE SOCIETY LIMITED,NSP PITAMPURA DELHI vs. DCIT CIRCLE 43(1), DELHI

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, & 1850/Del/2024 Ujala Credit Co-operative Society Ltd 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. 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. Conclusion: We have, thus, answered the reference as required by us; so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication.”

In the instant case, on perusal of the penalty notice placed on record dated 30.12.2017, it is evident that the ld. AO had not struck off the irrelevant portion thereon mentioning the specific offence committed by the assessee. The ratio laid down in the aforesaid decision of Hon‟ble High Court squarely applies to the facts of the instant case before us. Hence we direct the ld. AO to delete the penalty levied u/s 271(1)(c ) of the Act . Since the relief is granted for Ground No. 1 itself, there is no need to separately adjudicate the other grounds raised by the assessee.

In the result, the appeal of the assessee is allowed. & 1850/Del/2024 Ujala Credit Co-operative Society Ltd

The only issue to be decided in this appeal is as to whether the ld. NFAC was justified in confirming the levy of penalty u/s 270A of the Act in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee is a Co-operative Society with the primary objective to create funds to be lent to members, to provide facilities for exercise of thrift and savings to members, managing loans, providing credit facilities to members. The return of income for the Asst Year 2017-18 was filed by the assessee declaring loss of Rs 10,54,75,062/-. The quantum assessment order was completed u/s 143(3) of the Act on 19.12.2019 determining total loss at Rs 10,35,32,454/- after making the following additions / disallowances:-

The aforesaid quantum assessment was accepted by the assessee by not preferring any further appeal before the ld. NFAC.

The ld. AO proceeded to levy penalty u/s 270A of the Act vide order dated 9.12.2021 in the sum of Rs 13,80,610/- being 200% of tax payable on under reported income as per the provisions of section 270A(8) of the Act. This order was duly confirmed by the ld. NFAC.

At the outset, we find that in the show cause notice issued u/s 274 read with section 270A of the Act, the ld. AO had not bothered to mention the specific sub-clause under which the assessee‟s case falls. The provisions of section 270A(9) of the Act clearly define mis reporting of income and hence the ld. AO is duty bound to clearly mention in the show cause notice itself as to which of the sub-clauses in sub-section (9) get attracted in the facts of the present case. Hence it could be safely concluded that the show cause notice issued by the ld. AO is very vague. Further, we find that the entire disallowance of expenses has been made by the ld. AO in the quantum proceedings only on an estimated basis by making adhoc disallowances. Hence the assessee‟s case squarely falls under the exception provided in section 270A(6)(b) of the Act, wherein the assessee would be entitled for immunity from levy of penalty u/s 270A of the Act. On bare reading of provisions of section 270A of the Act, we find that for under reporting of income, the assessee is either entitled for immunity or liable to pay penalty at a lesser rate as a percentage of tax payable. Whereas for misreporting, the assessee would be liable for penalty at the rate of 200% of tax payable on under reported income. However, this would come into operation only when the ld. AO clearly mentions in the show cause notice itself as to which of the sub-clauses in sub-section (9) get attracted to the facts of the instant case. This is conspicuously absent in the show cause notice. In any case, the issue in dispute is no longer res integra in view of the decision of the Hon‟ble Jurisdictional High Court in the case of Schneider Electric South East Asia (HQ) Pte Ltd vs ACIT in W.P.(C ) 5111/2022 & C.M. Nos. 15165-15166/2022 dated 28.3.2022 wherein it was held as under:- & 1850/Del/2024 Ujala Credit Co-operative Society Ltd

Similar view was taken by the Hon‟ble Jurisdictional High Court in the case of Prem Brothers Infrastructure LLP vs NFAC reported in 288 Taxman 768 (Del) wherein it was held as under:-

In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we have no hesitation to cancel the levy of penalty u/s 270A of the Act in the facts and circumstances of the instant case as the penalty notice is very vague and hence becomes fatal to the proceedings. Accordingly the assessee would be entitled for relief on this technical aspect. Since relief is granted to the assessee on this technical issue, the other legal and factual grounds raised by the assessee need not be gone into and they are hereby left open.

In the result, the appeal of the assessee in Asst Year 2017-18 is allowed.

To sum up, both the appeals of the assessee are allowed.