Ositxa-805-2018.Doc v. Jcit[1]. The Itat Also Relied On Various Judgments

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL (IT) NO. 805 OF 2018 Pr. Commissioner of Income Tax - 17 … Appellant VersusJehangir H. C. Jehangir… Respondent Mr. Suresh Kumar for Appellant.Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for Respondent. CORAMK. R. SHRIRAM &DR. N. K. GOKHALE, JJ.DATED:6[th] September 2023 P.C. :1.The following substantial questions of law are proposed : A. Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT was justified indeleting penalty of Rs. 3,11,37,351/- levied underSection 271(1)(c) of the Act for furnishing inaccurateparticulars of income and concealment of income bymerely stating that limb was not clear for whichpenalized instead of adjudicating the same on merits ? B. Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT was correct inholding that limb/exact charge was not clear for whichpenalized without appreciating the fact that the assesseehad never raised this issue before the Assessing Officer ? C. Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT was correct indeleting the penalty without appreciating the fact thatthe assessee has made false claim which was withdrawnonly after objection raised by the Assessing Officer ? D. Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is correct in deleting penalty holding that the limb/exact charge wasnot clear without considering the fact that it is clearfrom the assessment order under Section 143(3) and thepenalty order under Section 271(1)(c) that the AO haslevied penalty for both the limbs i.e. furnishinginaccurate particulars of income and concealment ofincome ? 2.This is the Appeal filed by appellant challenging the orderdated 17[th] May 2017 passed by the Income Tax Appellate Tribunal(“ITAT”), thereby allowing the Appeal filed byRespondent/assessee. Assessee is engaged in development of landby construction of residential/commercial premises. Assessee filedreturn of income on 31[st] October 2006 declaring total income ofRs. 18,95,66,240/- for the Assessment Year 2006-2007, which wasprocessed under Section 143(1) of the Income Tax Act, 1961 (“theAct”) and subsequently, the case was selected for scrutiny. TheAssessing Officer (“AO”) passed an order dated 30[th] December2008. Assessee was also saddled with penalty by AO vide an orderdated 30[th] June 2009 under Section 271(1)(c) of the Act. 3.Being aggrieved, assessee contested the penalty without anysuccess before the Commissioner of Income Tax (Appeals)(“CIT(A)”). Assessee impugned the order of CIT(A) before theITAT. Before the ITAT, the preliminary issue raised was that AO didnot fulfil the jurisdictional requirement of arriving at a clear finding and satisfaction for the levy of penalty in the quantumorder, because in the show-cause notice issued under Section 274read with Section 271(1)(c) of the Act, the charges were “…..haveconcealed the particulars of your income or furnished inaccurateparticulars of such income.” Finally, the penalty was imposed byAO by stating “…..in view of the above facts, I am satisfied that theassessee has filed inaccurate particulars of income and hence,concealed the income.” Admittedly in this case, AO had notdeleted the relevant portion. 4.The ITAT concluded that the same reflects non-application ofmind on the part of AO because AO himself was not sure about thelimb/exact charge for which assessee was being penalized. TheITAT relied on the judgment of Apex Court in the case of Dilip N.Shroff v. JCIT[1]. The ITAT also relied on various judgments. 4.The ITAT concluded that the same reflects non-application ofmind on the part of AO because AO himself was not sure about thelimb/exact charge for which assessee was being penalized. TheITAT relied on the judgment of Apex Court in the case of Dilip N.Shroff v. JCIT[1]. The ITAT also relied on various judgments. 5.A similar issue had come up before the Division Bench of thisCourt in the case of CIT v. Smt. Kaushalya[2] where the DivisionBench held that assessee fully knew in detail the exact charge ofthe Revenue against her by virtue of the assessment order andtherefore, there was no breach of the principles of natural justiceon the ground of absence of opportunity. 1. 291 ITR 519. 2. 216 ITR 660 (Bom.). 6.The aforesaid judgment and other judgments came up forconsideration before the Full Bench of this Court in the case ofMohd. Farhan A. Shaikh v. Deputy Commissioner of Income Tax,Central Circle 1, Belgaum[3] where the following three questionswere decided by the said Full Bench with the answers mentionedbelow : Question No. 1: If the assessment order clearly recordssatisfaction for imposing penalty on one or the other, orboth grounds mentioned in Section 271(1)(c), does amere defect in notice – not striking off irrelevant matter– would vitiate penalty proceedings ? Ans.: It does. The primary burden lies on the Revenue.In the assessment proceedings, it forms an opinion,prima facie or otherwise, to launch penalty proceedingsagainst the assessee. But that translates into action onlythrough the statutory notice under Section 271(1)(c)read with Section 274 of IT Act. True, the assessmentproceedings form the basis for the penalty proceedings,but they are not composite proceedings to draw strengthfrom each other. Nor can each cure the other's defect. Apenalty proceeding is a corollary; nevertheless, it muststand on its own. These proceedings culminate under adifferent statutory scheme that remains distinct from theassessment proceedings. Therefore, the assessee must beinformed of the grounds of the penalty proceedings onlythrough statutory notice. An omnibus notice suffers fromthe vice of vagueness. More particularly, a penal provision, even withcivil consequences, must be construed strictly. Andambiguity, if any, must be resolved in the affectedassessee's favour. Therefore, we answer the first question to theeffect that Goa Dourado Promotions and other caseshave adopted an approach more in consonance with the statutory scheme. That means we must hold thatKaushalya does not lay down the correct proposition oflaw. Question No. 2: Has Kaushalya failed to discuss theaspect of ‘prejudice’ ? Ans.: Indeed, Smt. Kaushalya Case (supra) did discussthe aspect of prejudice. As we have already noted,Kaushalya noted that the assessment orders alreadycontained the reasons why penalty should be initiated.So, the assessee, stresses Kaushalya, “fully knew in detailthe exact charge of the Revenue against him”. ForKaushalya, the statutory notice suffered from neithernon-application of mind nor any prejudice. According toit, “the so-called ambiguous wording in the notice [hasnot] impaired or prejudiced the right of the assessee to areasonable opportunity of being heard”. It went on toobserve that for sustaining the plea of natural justice onthe ground of absence of opportunity, “it has to beestablished that prejudice is caused to the concernedperson by the procedure followed”. Smt. Kaushalya Case(supra) closes the discussion by observing that the noticeissuing “is an administrative device for informing theassessee about the proposal to levy penalty in order toenable him to explain as to why it should not be done”. No doubt, there can exist a case where vaguenessand ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimateprejudice to the right of opportunity of hearingcontemplated under Section 274. So asserts Smt.Kaushalya Case (supra). In fact, for one assessment year,it set aside the penalty proceedings on the grounds ofnon-application of mind and prejudice. That said, regarding the other assessment year, itreasons that the assessment order, containing thereasons or justification, avoids prejudice to the assessee.That is where, we reckon, the reasoning suffers.Kaushalya's insistence that the previous proceedingssupply justification and cure the defect in penaltyproceedings has not met our acceptance. Question No. 3: What is the effect of the SupremeCourt's decision in Dilip N. Shroff Case (supra) on theissue of non-application of mind when the irrelevantportions of the printed notices are not struck off ? Ans.: In Dilip N. Shroff Case (supra), for the SupremeCourt, it is of “some significance that in the standardPro-forma used by the assessing officer in issuing anotice despite the fact that the same postulates thatinappropriate words and paragraphs were to be deleted,but the same had not been done”. Then, Dilip N. ShroffCase (supra), on facts, has felt that the assessing officerhimself was not sure whether he had proceeded on thebasis that the assessee had concealed his income or hehad furnished inaccurate particulars. We may, in this context, respectfully observe that acontravention of a mandatory condition or requirementfor a communication to be valid communication is fatal,with no further proof. That said, even if the noticecontains no caveat that the inapplicable portion bedeleted, it is in the interest of fairness and justice thatthe notice must be precise. It should give no room forambiguity. Therefore, Dilip N. Shroff Case (supra)disapproves of the routine, ritualistic practice of issuingomnibus show-cause notices. That practice certainlybetrays non-application of mind. And, therefore, theinfraction of a mandatory procedure leading to penalconsequences assumes or implies prejudice. In Sudhir Kumar Singh, the Supreme Court hasencapsulated the principles of prejudice. One of theprinciples is that “where procedural and/or substantiveprovisions of law embody the principles of naturaljustice, their infraction per se does not lead to invalidityof the orders passed. Here again, prejudice must becaused to the litigant, “except in the case of a mandatoryprovision of law which is conceived not only inindividual interest but also in the public interest”. 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] 27 SCC 181, in which the Page 6 of 8 Apex Court has quoted with approval its earlierjudgment in State of Orissa v. Dr. Binapani Dei AIR 1967SC 1269. According to it, when by reason of action onthe part of a statutory authority, civil or evilconsequences ensue, principles of natural justice must befollowed. In such an event, although no expressprovision is laid down on this behalf, compliance withprinciples of natural justice would be implicit. If a statuecontravenes the principles of natural justice, it may alsobe 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 betrayingnon-application of mind and disapproves of the practice,to be particular, of issuing notices in printed formwithout deleting or striking off the inapplicable parts ofthat generic notice. 7.Therefore, it is clear from the law as laid down that if one of As a result, we hold that Dilip N. Shroff Case(supra) treats omnibus show-cause notices as betrayingnon-application of mind and disapproves of the practice,to be particular, of issuing notices in printed formwithout deleting or striking off the inapplicable parts ofthat generic notice. 7.Therefore, it is clear from the law as laid down that if one of the irrelevant matters is not struck off, it would mean that AOhimself was not sure while issuing the show-cause notice whetherhe had proceeded on the basis that assessee had concealed hisincome or he had furnished inaccurate particulars. If withoutbeing sure as to what was the basis on which he was planning toimpose the penalty on assessee, such a notice, in our view, wouldindicate non-application of mind and the notice would be notvalid. 8.A similar view has been taken by the Co-ordinate Bench ofthis Court in the case of Ganga Iron & Steel Trading Co. v. Commissioner of Income-tax[4]. Digitally signedGITALAXMIKRISHNAby GITALAXMIKRISHNAKOTAWADEKARKOTAWADEKARDate:2023.09.0819:35:56 +0545 9.In the circumstances, we see no reason to interfere. 10.Appeal dismissed. (DR. N. K. GOKHALE, J.) (K. R. SHRIRAM, J.)