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TMI Blog2023 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... conviction that as the A.O had failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the defaults for which he was being proceeded against, therefore, the penalty u/s 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. Decided in favour of assessee. - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri S.R. Rao, Advocate For the Revenue : Shri Satya Prakash Sharma, Sr. DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 06.03.2023, which in turn arises from the order passed by the A.O. u/s. 271(1)(c) of the Income-tax Act, 1961 (for short Act ), dated 21.06.2018 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us: 1) In the facts and circumstances of the case and law, the ld. Assessing Officer has erred in initiating the penalty proceedings u/s. 271(1)(c) of the Income-tax Act, 1961 by issuing show cause notice u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be saddled with penalty, therefore, the penalty which he thereafter had imposed u/s 271(1)(c) of the Act cannot be sustained and is liable to be vacated. The ld. AR to drive home his aforesaid claim had drawn our attention to the SCN dated 31.12.2017. Referring to the discrepancy mentioned above in the SCN, dated 31.12.2017, it was submitted by the ld. AR that as the AO had failed to validly put the assessee to notice regarding the default for which the impugned penalty under Sec. 274 r.w.s 271(1)(c) was sought to be imposed on him; therefore, the assessee had remained divested of an opportunity to put forth in his defense a clear explanation that no such penalty u/s 271(1)(c) was called for in his case. The ld. AR, in support of his contention above had relied on certain judicial pronouncements, as under: (i) K.V.S Prakasa Rao, Bhilai (C.G.) Vs. DCIT, Circle-1(1), Bhilai (C.G.) ITA No.123/RPR/2018 dated 09.08.2018 (ii) Meeta Gutgutia, New Delhi Vs. ACIT, Central Circle-10, New Delhi, ITA No.327/Del/2014 dated 31.03.2016 6. Per contra, the Ld. Departmental Representative (for short 'D.R') relied upon the orders of the lower authorities. The Ld. D.R submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear terms the specific defaults for which the penalty was sought to be imposed in his case but had kept the latter guessing about the default/defaults for which penalty was sought to be imposed in his case. 8. Insofar the validity of the jurisdiction assumed by the A.O for imposing penalty u/s 271(1)(c) is concerned, we find that the same has been assailed before us on the ground that as the A.O had in the aforesaid Show cause notice, dated 31.12.2017 failed to point out the specific default for which penalty u/s. 271(1)(c) was sought to be imposed in his case; therefore, the assessee was not validly put to notice as regards the default/defaults for which he was called upon to explain that as to why penalty may not be imposed on the under Sec. 271(1)(c) of the I.T Act. 9. We have given thoughtful consideration to the facts of the case and are persuaded to subscribe to the claim of the Ld. AR that the A.O. in the aforesaid SCN dated 31.12.2017 had failed to point out the default for which penalty was sought to be imposed on the assessee. In our considered view, as both of the two defaults envisaged in Sec. 271(1)(c) i.e., concealment of income and furnishing of inaccur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions/disallowances made in his hands while framing the assessment. In our view, as penalty proceedings are like quasi criminal proceedings; therefore, as a matter of a statutory right, the assessee is supposed to know the exact charge for which he is being called upon to explain why the same may not be imposed on him. The non-specifying of the charge in the Show cause notice not only reflects the non-application of mind by the A.O but defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1) of the I.T. Act. We find that the fine distinction between the said two defaults contemplated in Sec. 271(1)(c), viz. concealment of income and furnishing of inaccurate particulars of income had been appreciated at length by the Hon ble Supreme Court in its judgments passed in the case of Dilip Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC). The Hon ble Apex Court in its aforesaid judgments had observed that the two expressions, viz. concealment of particulars of income and furnishing of inaccurate particulars of income have a different connotation. The Hon ble Apex Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that, we find that the Hon ble High Court of Bombay had taken a similar view in the case of CIT Vs. Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017)(Bom). The Hon ble High Court relied on the judgment of the Hon ble High Court of Karnataka in the case of Manjunathja Cotton and Ginning Factory (supra), which in turn had relied on the decision of the Hon ble Apex Court in T. Ashok Pai Vs. CIT, 292 ITR 1 (SC) had approved the order of the Tribunal that had deleted the penalty u/s 271(1)(c) imposed by the A.O and had, inter alia, observed that the failure of the AO to strike off the irrelevant default in the notice issued under Sec. 274 of the Act, which is in a standard proforma indicates a nonapplication of mind by the A.O. while issuing the notice. Further, we find that the Hon ble High Court of Bombay in the case of Pr. CIT (Central), Bengaluru Vs. Golden Peace Hotels Resorts (P) Ltd. (2021) 124 tamnn.com 249 (SC), by drawing support from its earlier order in the case of CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom) and PCIT Vs. New Era Sova Mine (2020) 420 ITR 376 (Bom), had observed that AO while issuing show-cause should clearly indicate that as per him the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order, leaves no ground for interference with the impugned order. The impugned order is quite consistent with the law laid down in the case of Samson Perinchery and New Era Soya Mine (supra) and therefore, warrants no interference. The Special Leave Petition (SLP) filed by the revenue against the above order had been dismissed by the Hon ble Apex Court in Pr. CIT (Central) Vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (SC). Also, the Full bench of the Hon ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh V. DCIT, Central Circle-1, Bengaluru (2021) 280 Taxman 334 (Bombay), had observed that where the assessment order records a satisfaction for imposing penalty on one or other; or both grounds mentioned in Sec. 271(1)(c), but there is a defect in the SCN, wherein the AO had failed to strike-off the irrelevant default, then, the same would vitiate the penalty proceedings. The Hon ble High Court, while concluding as hereinabove, had held as under: 173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty 176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [ 73], has explained the scope of section 271(1)(c) thus: [Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e demands prevention is better than cure. Answers: Question No.1: 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? 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind when the irrelevant portions of the printed notices are not struck off ? 187. In Dilip N. Shroff, for the Supreme Court, it is of 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. 188. We may, in this context, respectfully observe that a 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 nonapplication of mind. And, therefore, the infraction of a mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anaji Vs. Goa Dourdo Promotions (P) Ltd. (2021) 433 ITR 268 (Bombay) relying upon its earlier orders in the case of, viz.(i). Goa Coastal Resorts Recreation P. Ltd. (supra); (ii). Samson Perinchery (supra); and (iii). New Era Sova Mine (supra), had observed that recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in Ashok Sahahakari Sakhar Karkhana Ltd. Vs. ACIT (2018) 99 taxman.com 374 (Pune), had held that where in a notice issued u/s 274 of the Act the AO had used conjunction or to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was to be held as bad in law and penalty was liable to be set aside. On a similar footing was the view taken by the ITAT, Mumbai B Bench in ACIT Vs. Bhushan Kamanayan Vora (2018) 99 taxmann.com 373 (Mum). It was observed by the Tribunal that where the AO was not sure about the charge, i.e. whether it was for concealment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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