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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 ..... ls) has erred in deciding the appeal ex-parte without considering the submissions of the appellant submitted on 27.12.2022. 3) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in confirming penalty of Rs. 54,108/- u/s 271(1)(c) of the Income-tax Act, 1961. 4) The impugned order is bad in law and on facts. 5) The appellant reserves the right to add, alter or omit all or any of the grounds of appeal in the interest of justice. 2. Succinctly stated, as the assessee who was deriving income from two streams, viz. (i) salary income; and (ii) income from other sources, had failed to file his return of income for the year under consideration; therefore, the A.O initiated proceedings u/s. 147 of the Act. Notice u/s. 148 of the Act dated 18.12.2017 was issued to the assessee. In response, the assessee filed his return of income, declaring an income of Rs. 4,92,662/-. The A.O. framed the assessment vide his order passed u/s. 143(3) r.w.s. 147 dated 28.12.2017 assessing the income returned by the assessee as such. As the assessee had filed a return of income only pursuant to the notice issued by the A.O u/s. 148 of the Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him. The Ld. D.R submitted that now when the assessee, in compliance with the SCN, dated 31.12.2017, had submitted that no penalty u/s 271(1)(c) of the Act was called for in his hands; therefore, it was beyond comprehension that as to on what basis he could after that claim that he was not validly put to notice about the default for which penalty u/s. 271(1)(c) of the Act was sought to be imposed on him. 7. We have heard the ld. Authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. Admittedly, on a perusal of the SCN dated 31.12.2017, it stands revealed that the Assessing Officer had failed to strike off the irrelevant default while calling upon the assessee to explain why he may not be subjected to penalty u/s 271(1)(c) of the Act. For the sake of clarity, the SCN dated 31.12.2017, Page 13 of APB is culled out as under: At this stage, we may herein observe that though the A.O, while framing the assessment vide his order passed u/s. 143(3) r.w.s. 147, dated 28.12.2017, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default for which he was being called upon to explain that as to why penalty under Sec. 271(1)(c) may not be imposed on him. As observed hereinabove, a perusal of the 'Show cause' notice issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 31.12.2017, clearly reveals that there was no application of mind by the A.O. while issuing the same. We say so for the reason that the A.O by using the term "OR" as a conjunction between both the defaults, i.e., "concealed the particulars of your income or furnished inaccurate particulars of such income", had clearly failed in his statutory obligation of conveying and validly putting the assessee to notice penalty was sought to be imposed upon him for which default; and, thus, had divested him from putting forth his defense that as to why no such penalty was called for in his case. We are of a firm conviction that the very purpose of affording a reasonable opportunity of being heard to an assessee as per the mandate of Sec. 274(1) of the Act would not only be frustrated but would be rendered redundant if he is not conveyed in clear terms the specific default for which penalty under the said statutory provision was soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard proforma 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. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing reliance on the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from nonapplication of mind. It was also bound to comply with the principles of natural justice [See Malabar Industrial Co. Ltd. Vs. CIT (2000) 2 SCC 718]. We are of the considered view that now when as per the settled position of law the two defaults, viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults, therefore, it was incumbent on the part of the A.O to have clearly specified his said intention in the 'Show cause' notice dated 31.12.2017 (supra), which we find he had failed to do in the case before us. The aforesaid failure of the A.O ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortions which are not applicable are required to be struck-off, so as to indicate with clarity the nature of the satisfaction recorded. The High Court observed that as in the case before them the AO had failed to strike-off the irrelevant default in the body of the SCN issued under Sec. 274 of the Act, therefore, the penalty imposed by the AO u/s 271(1)(c) of the Act was liable to be vacated. For the sake of clarity the observations of the Hon'ble High Court of Bombay in its aforesaid order are culled out as under: "4. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any well as in New Era Soya Mine (supra) has held that the notice which is inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such satisfaction, the two authorities have quite correctly ordered the dropping of penalty proceedings against the assessee. 6. Besides, we note that the Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future-on parties who are entering similar situations and have not yet decided what to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 (1). 178. Therefore, in every instance, it is a question of inference whether the assessment order contained any grounds for initiating the penalty proceedings. Then, whenever the notice is vague or imprecise, the assessee assails it as bad; the Revenue defends it by saying that the assessment order contains the precise charge. Thus, it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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, Kaushalya 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 so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Kaushalya closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions 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[ 74], in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei[ 75]. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles 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 treats omnibus show cause notices as be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red view that the failure on the part of the A.O. to put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be imposed on him by clearly and explicitly pointing out the specific defaults in the SCN, dated 31.12.2017, for which he was called upon to explain that as to why penalty u/s. 271(1)(c) of the Act may not be imposed upon him, had, thus, left the assessee guessing of the default for which he was being proceeded against, and had divested him of an opportunity to put forth an explanation before the A.O that no such penalty was called for in his case. We, thus, in the backdrop of our observations above, are of a firm 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 under Sec. 271(1)(c) of Rs. 54,108/- imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We, thus, for the reasons above not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) who had uph ..... X X X X Extracts X X X X X X X X Extracts X X X X
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