VANSH INDUSTRIES LTD.,NEW DELHI vs. ACIT CIRCLE-26(1), NEW DELHI

आदेश / O R D E R PER C. N. PRASAD, J. M. :

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the penalty u/s 271(1)(c) on the disallowance of Rs. 5,26,469/- and that too without considering the facts and circumstances of the case and without observing the principles of natural justice.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in sustaining the penalty u/s 271(1)(c) on the disallowance of Rs. 5,26,469/-, is bad in law and against the facts and circumstances of the case and barred by limitation also.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the action of Ld. AO in imposing penalty and passing the impugned penalty order and that too without recording the mandatory 'satisfaction' as per law and without levying a clear charge either in the penalty notice or in the original assessment order and without obtaining valid approval of Ld. JCIT.

4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the action of Ld. AO in imposing penalty and passing the impugned penalty order more so when the charge on penalty notice dated 18.03.2015 was not specified and penalty notice was vague and inapplicable clause was not struck off. “

penalty notice issued u/s 274 read with section 271(1)(c) of the IT Act which is placed at page 88 of paper book submitted that the notice was issued mechanically stating that assessee has concealed particulars of income or furnished inaccurate particulars of such income. In other words, the notice was issued for both the limbs without strike off irrelevant limb and specifying the charge for which the notice was issued. Therefore, the Ld. Counsel for the assessee submits that since the notice was issued without specifying the charge for which notice was issued the penalty proceedings initiated were bad in law and consequently levy of penalty u/s 271(1)(c) cannot be sustained. Reliance was placed on the following decisions:- i) PCIT Vs. Sahara India Life Insurance Co. Ltd. 432 ITR 84 (Del.); ii) CIT Vs. SSA’s Emerald Meadows (2016) 73 taxmann.com 241 (Kar.); & iii) CIT Vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar.)

"Question No.l: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? It does. The primary burden ties on the Revenue. In 181. 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(l)(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. More particularly, a penal provision, even with civil 182. 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 183. that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushaiya does not lay down the correct proposition of law. Question No.2: Has Kaushaiya failed to discuss the aspect of 'prejudice? Indeed, Kaushaiya did discuss the aspect of 184. prejudice. As we have already noted, Kaushaiya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushaiya, "fully knew in detail the exact charge of the Revenue against him". For Kaushaiya, 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 piea 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 doses 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 ", No doubt, there can exist a case where vagueness and 185. ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right 5 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.

That said, regarding the other assessment year, it 186. 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 ? In DUip N. Shroff, for the Supreme Court, it is of 187. "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 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. We may, in this context, respectfully observe that a 188. 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-appiication of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice.

by the assessee on merits are not gone into as the adjudication of these grounds become only academic at this stage.

12. In the result, appeal of the assessee is allowed. Order pronounced in the open court on : 11/04/2023.