SMT. DIPALBEN MANISH PATEL, RAIPUR,RAIPUR vs. INCOME TAX OFFICER, WARD 2(1), RAIPUR, RAIPUR

आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 11.05.2023, which in turn arises from the order passed by the A.O. u/s. 271(1)(c) of the Income-tax Act, 1961 (for short ‘Act’), dated 30.10.2017 for A.Y. 2015-16. The assessee has assailed the impugned order on the following grounds of appeal before us:

“1. That under the facts & the law, the Ld. CIT (A), NFAC, Delhi erred in confirming the Order of Penalty levied by the learned AO u/s 271(1)(c) at Rs.1,90,000/- rejecting the explanation. Prayed that provisions of Sec. 271(1)(c) are not applicable, penalty levied at Rs.1,90,000/- kindly be cancelled. 2. That under the facts & the law, the Ld. CIT (A), NFAC, Delhi further erred in confirming the Penalty levied at Rs.1,90,000/- u/s 271(1)(c) by the learned AO who did not allow opportunity to explain Appellant in the Notice issued u/s 271(1)(c) by not specifying for which default penalty Notice was issued viz., for concealing the particulars of income or for furnishing inaccurate particulars of income, therefore, prayed to cancel the penalty levied at Rs. 1,90,000/-. 3. That under the facts & the law, the Ld. CIT (A), NFAC, Delhi further erred in confirming the Penalty levied by the learned AO u/s 271(1)(c) at Rs. 1,90,000/- on presumption and surmises and without rebutting the evidences filed viz., Purchase Bill, Sale Bill of Share Broker, Demat Account, Bank Statement etc. Prayed to cancel the penalty levied at Rs. 1,90,000/-. 4. That under the facts & the law, the Ld. CIT (A) further erred in confirming the Order of learned AO levying penalty u/s 271(1)(c) at Rs.1,90,000/- though the Appellant on her own, to avoid litigation, offered the exempted long term capital gain on sale of shares u/s 10(38) of Rs.6,06,137/- and paid tax of Rs.2,40,000/- on 30/09/2017 on above income before the Assessment Order was passed. Prayed to cancel the penalty levied.”

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30.10.2017, Page 1 of APB had failed to point out the specific default for which the impugned penalty was sought to be imposed upon the assessee, therefore, he had wrongly assumed jurisdiction and thereafter saddled the assessee with penalty under the aforesaid statutory provisions. Carrying his contention further, it was /s 271(1)(c) of the Act without validly assuming jurisdiction, therefore, the same cannot be sustained and is liable to be vacated. The ld. AR to drive home his aforesaid claim had drawn our attention to the “SCN” dated 30.10.2017, Page 1 of APB. Referring to the discrepancy mentioned above in the “SCN”, dated 30.10.2017, it was submitted by the ld. AR that as the AO had failed to validly put the assessee to notice regarding the default for which the impugned penalty under Sec. 274 r.w.s 271(1)(c) was sought to be imposed on her; therefore, the assessee had remained divested of an opportunity to put forth in her defense a clear explanation that no such penalty u/s 271(1)(c) was called for in her case. The ld. AR, in support of his contention above had relied on the judgment of the Hon’ble Supreme Court in the case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Special Range, Mumbai (2007) 161 Taxman 218 (SC).

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hands; therefore, it was beyond comprehension that as to on what basis she could after that claim that she was not validly put to notice about the default for which penalty u/s.271(1)(c) of the Act was sought to be imposed on her.

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At this stage, we may herein observe that though the A.O, while framing the assessment vide his order passed u/s.143(3), dated 30.10.2017, is stated to have initiated the penalty proceedings u/s.271(1)(c) for “furnishing in accurate particulars of income”, but the usage of the term “OR” as a conjunction between the two defaults, i.e. “concealed the particulars of income or furnished inaccurate particulars of such income” in the SCN, dated 30.10.2017 mentioned above in no clear terms

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conveyed to the assessee the specific default for which the penalty proceedings were sought to be proceeded with in her hands. In sum and substance, the A.O vide the aforesaid SCN dated 30.10.2017 (supra) had failed to validly put the assessee to notice as regards the default for which she was called upon to put forth an explanation as to why penalty u/s.271(1)(c) may not be imposed on her. As the A.O in the aforesaid SCN had mentioned both the defaults, i.e., “concealment of income” or “furnishing of inaccurate particulars of income”, therefore, by using “OR” as a conjunction between both the defaults mentioned above, he had not only failed to validly convey to the assessee in clear terms the specific defaults for which the penalty was sought to be imposed in her case but had kept the latter guessing about the default/defaults for which penalty was sought to be imposed on her.

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sought to be imposed on the assessee. In our considered view, as both of the two defaults envisaged in Sec. 271(1)(c), i.e., ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are separate and distinct defaults that operate in their respective independent and exclusive fields; therefore, the A.O needed to have put the assessee to notice as regards the specific default for which she was being called upon to explain that as to why penalty under Sec. 271(1)(c) may not be imposed on her. As observed hereinabove, a perusal of the ‘Show cause’ notice issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 30.10.2017, clearly reveals that there was no application of mind by the A.O. while issuing the same. We, say so, for the reason that the A.O by using the term “OR” as a conjunction between both the defaults, i.e., “concealed the particulars of income or furnished inaccurate particulars of such income”, had clearly failed in his statutory obligation of conveying and validly putting the assessee to notice that she was sought to be saddled with penalty for which default; and, thus, had divested her from putting forth her defense that as to why no such penalty was called for in her case. We are of a firm conviction that the very purpose of affording a reasonable opportunity of being heard to an assessee as per the mandate of Sec. 274(1) of the Act would not only be frustrated but would be rendered redundant if he is not conveyed in clear terms the specific default for which penalty under the said statutory provision was sought to be imposed. In our considered view, the indispensable requirement on the part of the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, viz.

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‘concealment of income’ or ‘furnishing of inaccurate particulars of income’ or both of the said defaults is not merely an idle formality but is a statutory obligation cast upon him, which we find had not been discharged in the present case as per the mandate of law.

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Hon’ble Apex Court in its aforesaid judgments had observed that the two expressions, viz. ‘concealment of particulars of income’ and ‘furnishing of inaccurate particulars of income’ have a different connotation. The Hon’ble Apex Court was of the view that the non-striking off the irrelevant limb in the notice clearly revealed a non-application of mind by the A.O, and had observed as under:-

“83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing reliance on the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the principles of natural justice [See Malabar Industrial Co. Ltd. Vs. CIT (2000) 2 SCC 718].

We are of the considered view that now when as per the settled position of law the two defaults, viz. ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are separate and distinct defaults, therefore, it was incumbent on the part of the A.O to have clearly specified his said intention in the ‘Show cause’ notice dated 30.10.2017 (supra), which we find he had failed to do in the case before us. The aforesaid failure of the A.O cannot be merely dubbed as a technical default as the same had clearly divested the assessee of her statutory right of an opportunity of being heard and defend her case.

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drawing support from its earlier order in the case of CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom) and PCIT Vs. New Era Sova Mine (2020) 420 ITR 376 (Bom), had observed that AO while issuing show-cause should clearly indicate that as per him the case of the assessee involves concealment of particulars of income; or there is furnishing of inaccurate particulars. It was further observed, that if the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck-off, so as to indicate with clarity the nature of the satisfaction recorded. The High Court observed that as in the case before them the AO had failed to strike-off the irrelevant default in the body of the SCN issued under Sec. 274 of the Act, therefore, the penalty imposed by the AO u/s 271(1)(c) of the Act was liable to be vacated. For the sake of clarity the observations of the Hon’ble High Court of Bombay in its aforesaid order are culled out as under:

“4. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any well as in New Era Soya Mine (supra) has held that the notice which is inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such satisfaction, the two authorities have quite correctly ordered the dropping of penalty proceedings against the assessee. 6. Besides, we note that the Division Bench of this Court in Samson (supra) as applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Soya furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate clarity the nature of satisfaction recorded. In both Samson Perinchery and New Era Sova Mine (supra), the notices issued had not struck off the portion which were inapplicable. From this, the Division Bench concluded that there was

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no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings. 7. In the present case, as well if the notice dated 30/09/16 (at page 32) is perused, it is apparent that the inapplicable portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order is quite consistent with the law laid down in the case of Samson Perinchery and New Era Soya Mine (supra) and therefore, warrants no interference.”

The Special Leave Petition (SLP) filed by the revenue against the above order had been dismissed by the Hon’ble Apex Court in Pr. CIT (Central) Vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (SC). Also, the “Full bench” of the Hon’ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh V. DCIT, Central Circle-1, Bengaluru (2021) 280 Taxman 334 (Bombay), had observed that where the assessment order records a satisfaction for imposing penalty on one or other; or both grounds mentioned in Sec. 271(1)(c), but there is a defect in the SCN, wherein the AO had failed to strike-off the irrelevant default, then, the same would vitiate the penalty proceedings. The Hon’ble High Court, while concluding as hereinabove, had held as under:

“ 173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well-versed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical methods the Revenue adopts in sending a statutory notice to the assessee under section 271 (1) (c) read with section 274 of the Act? Pragmatically speaking, Kaushalya casts an extra burden on the assessee and

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assumes expertise on his part. It wants the assessee to make up for the Revenue's lapses. Ex Post and Ex Ante Approaches of Adjudication: 174. In ex-post adjudication, the Court looks back at a disaster or other event after it has occurred and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future—on parties who are entering similar situations and have not yet decided what to do, and whose choices may be influenced by the consequences the law says will follow from them. The first perspective also might be called static since it accepts the parties' positions as given and fixed; the second perspective is dynamic since it assumes their behaviour may change in response to what others do, including judges. (for a detailed discussion, see Ward Farnsworth's Legal Analyst: A Toolkit for Thinking about the Law)[ 72]. 175. Kaushalya has adopted an ex-post approach to the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushalya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Kaushalya’s approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty 176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [ 73], has explained the scope of section 271(1)(c) thus: “[Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income.”

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informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 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. 183. 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. Question No.2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 184. 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”. 185 No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Kaushalya. In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. 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 previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No.3: What is the effect of the Supreme Court’s decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187. In Dilip N. Shroff, for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be

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deleted, but the same had not been done". Then, Dilip N. Shroff, on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. 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 disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays nonapplication of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice. 189. 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". 190. 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[ 74], in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei[ 75]. 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. 191. 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. 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.”

Also, the Hon’ble High Court of Bombay, in the case of Pr. CIT (Central) Bengaluru Vs. Goa Coastal Resorts and Recreation Pvt. Ltd. (2020) 113

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taxmann.com 574 (Bombay) had observed that where there was no recording of satisfaction by the AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in the notice issued for initiation of such proceedings, then, the Tribunal had in the absence of said statutory requirement rightly vacated the penalty proceedings. Further, the Hon’ble High Court of Bombay in the case of PCIT, Panaji Vs. Goa Dourdo Promotions (P) Ltd. (2021) 433 ITR 268 (Bombay) relying upon its earlier orders in the case of, viz.(i). Goa Coastal Resorts & Recreation P. Ltd. (supra); (ii). Samson Perinchery (supra); and (iii). New Era Sova Mine (supra), had observed that recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in Ashok Sahahakari Sakhar Karkhana Ltd. Vs. ACIT (2018) 99 taxman.com 374 (Pune), had held that where in a notice issued u/s 274 of the Act the AO had used conjunction “or” to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was to be held as bad in law and penalty was liable to be set aside. On a similar footing was the view taken by the ITAT, Mumbai “B” Bench in ACIT Vs. Bhushan Kamanayan Vora (2018) 99 taxmann.com 373 (Mum). It was observed by the Tribunal that where the AO was not sure about the charge, i.e. whether it was for concealment of income or furnishing of inaccurate particulars of income, the penalty imposed by him u/s 271(1)(c) could not be sustained.

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the assessee, wherein she has assailed the penalty sustained by the CIT(Appeals) qua the merits of the case, which, thus, are left open.

Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 14th September, 2023 #***SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT (Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.