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TMI Blog2022 (1) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into consideration for deciding these two appeals en masse. 3.The grounds of appeal raised by assessee in "lead case" in ITA No.618/SRT/2018, for A.Y 2011-12, are as follows: "01. The order imposing penalty U/s 271(1)(c)of the Act is contrary to the facts of the case and prejudicial to the Law. The assessee has neither concealed its income nor submitted any inaccurate particulars of income and the action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted. 02. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) on the addition made on account of sundry creditors to the tune of Rs. 15,91,100/-. 03. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) for both concealment as well as furnishing of inaccurate particulars of income. The action of the Learned Commissioner of Income Tax (Appeals) is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c)for the estimated addition of Rs. 1,43,622/- is not sustainable as there is no case of concealment of income made out and it is based on mere disallowance of certain purchase expenses. The decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. As referred by the AR will apply to penalty pertaining to addition of Rs. 1,43,622/-. The penalty levied on other additions of Rs. 15,91,100/- is related to unexplained sundry creditors. On the addition of unexplained sundry creditors, I find that the AO has noted in the assessment order, following facts: (1) The assessee has shown outstanding credit liability of Rs. 15,91,100/- for which books of account or bills were not furnished for verification. In response to the show cause notice for treating the sundry creditors bogus and unexplained, the assessee state that the nature of business of the waste paper purchase from rag pickers made it difficult for them to maintain details regarding these sundry creditors. The assessee clearly admitted that it is not possible for them to produce any details pertaining to sundry creditor neither present them for verification. (2) The AO noted that the purchase of wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus liability and hence as concealed income. To this extent of addition on account of bogus liability, the assessee has certainly concealed particulars of its income and penalty u/s 271(1)(c) is attracted. The facts of the case on this issue, in no way, is no explanation at all by the assessee for Sr. creditors of Rs. 15,91,100/-. In view of these facts and discussions, the penalty u/s 271(1)(c)is confirmed for the addition of Rs. 15,91,100/- whereas penalty u/s 271(1)(c)of the Act for addition of Rs. 1,43,622/- is deleted. Thus, the assessee's gets partial relief." 7.Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 8.Shri A. Gopalakrishnan, Learned Counsel for the assessee, pleads that having once rejected the books of account and estimating the profits, the assessing officer could not have made further addition on account of sundry creditors for goods supplied u/s 68 of the Act by relying upon the same books of account. Learned Counsel also argues that assessing officer has issued defective notice to levy penalty, that is, assessing officer did not specify any limb whether penalty is on account of furnishing inaccurate particulars of income or concea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te particulars were furnished by assessee was sine qua non for initiation of penalty proceedings and in absence of such satisfaction, both Commissioner (Appeals) as well as Tribunal had correctly ordered to drop penalty proceedings against assessee - Whether Special Leave petition against said impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee]" 12. Thus, the primary burden lies on the revenue to inform the assessee that on what account the penalty proceedings are being initiated against the assessee. 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 . It is true, that 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision in sub-section (IB). (h) The imposition of penalty is not automatic. (i) The imposition of penalty even if the tax liability is admitted is not automatic. (j) Even if the assessee has not challenged the order of assessment levying tax and has even paid tax, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty. (k) If the explanation offered, even though not substantiated by the assessee, but is found bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (l) The direction referred to in Explanation 1(B) to section 271 of the Act should be clear and without any ambiguity. (m) If the Assessing Officer has recorded no satisfaction or has issued no direction to initiate penalty proceedings, in appeal, if the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment on this point. In Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 ("Mavilayi"), the question concerns the deductions a primary agricultural credit society can claim under section 80P(2)(a) (i) of the IT Act, after the introduction of section 80P(4) of that Act. Two Division Benches of Kerala High Court have taken conflicting views-the latter decision being unaware of the former one. Finally, that precedential conflict stood resolved through a Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT[2019 (2) KHC 287]. This Full Bench decision was taken to Supreme Court. That is how, on 12 January 2021, a three-Judge Bench of the Supreme Court has decided Mavilayi. 165. Mavilayi has noted that the Full Bench of Kerala High Court has reached its conclusion based on the Supreme Court's judgment Citizen Cooperative Society Ltd. v. Asst. CIT, Hyderabad [(2017) 9 SCC 364]. Indeed, Mavilayi acknowledges that the Kerala High Court's Full Bench did follow Citizen Cooperative. Case (supra) But it holds that in Citizen Cooperative Society Ltd. Case (supra) the counsel for the assessee advanced no argument that "the assessing officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Goa Coastal Resorts and Recreation (P.) Ltd. (supra) In that one, the learned Division Bench has held: 6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or 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 with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine, the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in a matter of initiation of penalty proceedings. 7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be wellversed 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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." 177. That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). In other words, the Assessing Officer's satisfaction as to be spelt out in the assessment order is only prima facie. Even if the assessment order gives no reason, a mere direction for penalty proceedings triggers the legal fiction as contained in the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Smt. Kaushalya case (supra) 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 socalled ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, Dilip N. Shroff Case (supra) 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. 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 [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269. According to it, when by r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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