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2021 (3) TMI 608 - HC - Income TaxLevy of penalty u/s 271(1)(c) - validity of notice issued u/s 274 - mere failure to tick mark the applicable grounds - 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? - 3 Member bench decision - HELD THAT - 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. Goa Dourado Promotions 2020 (1) TMI 140 - BOMBAY HIGH COURT and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya 1995 (1) TMI 25 - BOMBAY HIGH COURT does not lay down the correct proposition of law. Has Kaushalya 1995 (1) TMI 25 - BOMBAY HIGH COURT failed to discuss the aspect of 'prejudice'? - HELD THAT - 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. - 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. What is the effect of the Supreme Court s decision in Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? - HELD THAT - 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 2007 (5) TMI 198 - SUPREME COURT 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. Dilip N. Shroff 2007 (5) TMI 198 - SUPREME COURT 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.
Issues Involved:
1. Whether an income tax authority’s failure to tick mark the applicable grounds in the notice issued under Section 271 of the Income Tax Act, 1961, vitiates the entire penalty proceedings. 2. The impact of non-discussion on the aspect of 'prejudice' in the first set of decisions. 3. The effect of the Supreme Court’s decision in Dilip N. Shroff v. Joint Commissioner of Income-Tax on the issue of non-application of mind where the relevant portions of the printed notices are not struck off. Issue-wise Detailed Analysis: 1. Failure to Tick Mark Applicable Grounds in Notice: The primary issue revolves around whether an income tax authority’s failure to tick mark the applicable grounds in the notice issued under Section 271 of the Income Tax Act, 1961, vitiates the entire penalty proceedings. The court acknowledged a conflict between previous rulings, with some decisions affirming that such a failure vitiates the notice, while others, like Kaushalya, held that the assessment order could supplement the notice to inform the assessee of the charges. The court concluded that penalty proceedings are distinct from assessment proceedings and must stand on their own. Therefore, the assessee must be informed of the grounds of the penalty proceedings through the statutory notice. An omnibus notice suffers from the vice of vagueness and does not meet the requirement of law. The court emphasized that penal provisions, even with civil consequences, must be construed strictly, and any ambiguity must be resolved in favor of the assessee. Consequently, the court held that the failure to tick mark the applicable grounds in the notice vitiates the penalty proceedings. 2. Impact of Non-Discussion on 'Prejudice': The court examined whether Kaushalya failed to discuss the aspect of 'prejudice'. It was noted that Kaushalya did discuss prejudice, asserting that the assessment orders already contained reasons for initiating penalty proceedings, thereby informing the assessee of the exact charge. However, the court found this reasoning flawed, as it placed an undue burden on the assessee to gather information from previous proceedings. The court highlighted that the statutory notice should clearly inform the assessee of the grounds for penalty proceedings to avoid any prejudice. Therefore, it concluded that Kaushalya did not adequately address the issue of prejudice. 3. Effect of Supreme Court’s Decision in Dilip N. Shroff: The court considered 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. Dilip N. Shroff emphasized the significance of a precise and clear notice, criticizing the practice of issuing omnibus show-cause notices without deleting inapplicable portions. The court observed that such notices betray non-application of mind and lead to prejudice against the assessee. The Supreme Court in Dilip N. Shroff disapproved of this practice, reinforcing that a mandatory procedural requirement, especially one with penal consequences, must be strictly followed. The court concluded that the principles laid down in Dilip N. Shroff support the view that a vague notice vitiates penalty proceedings. Conclusion: The court answered the reference by holding that the failure to tick mark the applicable grounds in the notice under Section 271 of the Income Tax Act, 1961, vitiates the penalty proceedings. It also found that Kaushalya did not adequately address the issue of prejudice and that the principles in Dilip N. Shroff support the requirement for a precise and clear notice. The court directed the Registry to place the Tax Appeals before the concerned Division Bench for further adjudication.
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