Mohd. Farhan A Shaikh v. The Deputy Commissioner Ofincome -Tax

Amrut IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.51 OF 2012 MOHD. FARHAN A SHAIKH Versus THE DEPUTY COMMISSIONER OFINCOME -TAX … Appellant …Respondent WITH TAX APPEAL NO.57 OF 2012 MOHD. FARHAN A SHAIKHVersusTHE ASST. COMMISSIONEROF INCOME TAX. …Appellant ...Respondent WITHSTAMP NUMBER (APPLN.) NO.425 OF 2020IN TAX APPEAL NO.57 OF 2012 MOHD. FARHAN A SHAIKH ...Applicant Versus THE ASST. COMMISSIONEROF INCOME TAX. ...Respondent Mr. S. R. Rivankar, Senior Advocate with Mr. Rama G. Rivankar,Advocate for the appellant. Ms. Amira Abdul Razaq, Standing Counsel for the respondent. CORAM:SUNIL P. DESHMUKH & M. S. SONAK, JJ P.C. DATED: 9[th] August 2021 1.Heard Mr. Rivankar, learned Senior Advocate who appearsalong with Mr. Rama Rivankar for the appellant in both theseappeals and Ms. A. Razaq, learned Standing counsel for the IncomeTax Department. 1. th2.On 6 December 2019, an additional substantial question oflaw was framed in both these appeals. "Whether the notice dated 22/12/2008 issued u/s 274r/w Section 271 of the IT Act in the printed form withoutspecifically mentioning whether the proceedings areinitiated on the ground of concealment of income or onaccount of furnishing of inaccurate particulars is valid andlegal ?" th3.Thereafter, vide order dated 28 February 2020, this Courtnoticed the conflict between two sets of decisions and invoked theprovisions of Chapter I, Rule 8 of the Bombay High CourtAppellant Side Rules, 1960. The matters were then referred to theFull Bench for resolving the conflict. th4.The Full Bench, by its detailed judgment and order dated 11March 2021, has framed and answered three questions which arosebefore it in the following manner. “Question No.1: If the assessment order clearly recordssatisfaction for imposing penalty on one or the other, orboth grounds mentioned in Section 271(l)(c), does a mere defect in the notice—not striking off the irrelevantmatter—vitiate the penalty proceedings? 181. 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. 182. More particularly, a penal provision, evenwith civil consequences, must be construed strictly. Andambiguity, 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 haveadopted an approach more in consonance with thestatutory scheme. That means we must hold thatKaushalya does not lay down the correct proposition oflaw. Kaushalya does not lay down the correct proposition of Question No.2: Has Kaushalya failed to discuss theaspect of 'prejudice'? 9[th] August 2021 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. 182. More particularly, a penal provision, evenwith civil consequences, must be construed strictly. Andambiguity, 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 haveadopted an approach more in consonance with thestatutory scheme. That means we must hold thatKaushalya does not lay down the correct proposition oflaw. Kaushalya does not lay down the correct proposition of Question No.2: Has Kaushalya failed to discuss theaspect of 'prejudice'? 9[th] August 2021 184. Indeed, Kaushalya did discuss the aspect ofprejudice. As we have already noted, Kaushalya notedthat the assessment orders already contained the reasonswhy penalty should be initiated. So, the assessee, stressesKaushalya, “fully knew in detail the exact charge of theRevenue against him”. For Kaushalya, the statutorynotice suffered from neither non-application of mindnor any prejudice. According to it, “the so-calledambiguous wording in the notice [has not] impaired orprejudiced the right of the assessee to a reasonableopportunity of being heard”. It went onto observe thatfor sustaining the plea of natural justice on the groundof absence of opportunity, “it has to be established thatprejudice is caused to the concerned person by theprocedure followed”. Kaushalya closes the discussion by nor any prejudice. According to it, “the so-calledambiguous wording in the notice [has not] impaired orprejudiced the right of the assessee to a reasonableopportunity of being heard”. It went onto observe thatfor sustaining the plea of natural justice on the groundof absence of opportunity, “it has to be established thatprejudice is caused to the concerned person by theprocedure followed”. Kaushalya closes the discussion byobserving 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 wherevagueness and ambiguity in the notice can demonstratenon-application of mind by the authority and/orultimate prejudice to the right of opportunity ofhearing contemplated under section 274. So assertsKaushalya. 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, itreasons that the assessment order, containing thereasons or justification, avoids prejudice to theassessee. That is where, we reckon, the reasoning suffers.Kaushalya’s insistence that the previous proceedings 9[th] August 2021 supply justification and cure the defect in penaltyproceedings has not met our acceptance. Question No.3: What is the effect of the Supreme Court’the printed notices are not struck off? s decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of 187. In Dilip N. Shroff, for the Supreme Court, it is of"some significance that in the standard Pro-forma usedby the assessing officer in issuing a notice despite the factthat 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. 188. We may, in this context, respectfully observe that a contravention of a mandatorycondition or requirement for a communication tobe valid communication is fatal, with no further proof. condition or requirement for a communication to 187. In Dilip N. Shroff, for the Supreme Court, it is of"some significance that in the standard Pro-forma usedby the assessing officer in issuing a notice despite the factthat 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. 188. We may, in this context, respectfully observe that a contravention of a mandatorycondition or requirement for a communication tobe valid communication is fatal, with no further proof. condition or requirement for a communication to 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. 9[th] August 2021 189. In Sudhir Kumar Singh, the Supreme Court hasencapsulated the principles of prejudice. One ofthe principles is that "where procedural and/orsubstantive provisions of law embody the principles ofnatural justice, their infraction per se does not lead toinvalidity of the orders passed. Here again, prejudicemust 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, theprovision is mandatory and brooks no trifling with ordilution. For a further precedential prop, we may refer toRajesh Kumar v. CIT[(2007) 2 SCC 181], in which theApex Court has quoted with approval its earlierjudgment in State of Orissa v. Dr. Binapani Dei . According to it, when by reason ofaction on the part of a statutory authority, civil or evilconsequences ensue, principles of natural justice mustbe followed. In such an event, although no expressprovision is laid down on this behalf, compliance withprinciples 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 treatsomnibus show- cause notices as betraying non-application of mind and disapproves of the practice, tobe particular, of issuing notices in printed form withoutdeleting or striking off the inapplicable parts of thatgeneric notice. Conclusion: 9[th] August 2021 We have, thus, answered the reference as required by us;so we direct the Registry to place these two Tax Appealsbefore the Division Bench concerned for furtheradjudication.” 5.Having regard to the aforesaid, both these appeals will have tobe allowed and the aforesaid additional substantial question of law asframed will have to be answered in favour of the assessee and againstthe revenue. We do so accordingly. 6.Both the appeals are disposed of in the aforesaid terms. Thereshall be no order as to costs. 7.Stamp Number (Appln.) No.425 of 2020 do notsurvive/worked out and therefore, the same is disposed of. M. S. SONAK, J SUNIL P. DESHMUKH , J TARI AMRUT NAGESH Digitally signed by TARI AMRUT NAGESH Date: 2021.08.11 14:06:49 +05'30'