9911796707
TMI Blog2024 (1) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... udice being caused to the appellant - assessee. 2. This appeal under section 260A of the Income-tax Act, 1961 (for short "I.T. Act") is filed by the appellant/assessee, being aggrieved by the judgment and order dated 30 October, 2001 passed by the Income-tax Appellate Tribunal (for short "ITAT") whereby the respondent/Revenue's appeal against the order passed by the Commissioner of Income-tax (Appeals) (for short "CIT(A)") has been allowed. Earlier the CIT(A) by its order dated 05 February, 1996, as impugned before the Tribunal, had set aside the penalty of Rs. 33,34,096/- imposed on the appellant/assessee under section 271(1)(c) of the I.T. Act. 3. At the outset, we may observe that by an order dated 14 September, 2004, the present appeal came to be admitted by a co-ordinate Bench of this Court on the following substantial question of law: "Whether the Tribunal erred on the facts and in the circumstances of the case and in law in reversing the order of the CIT(A) and confirming the penalty of Rs. 33,34,096/- (Rupees Thirty three lacs Thirty four thousand Ninety six only) levied by the Assessing Officer under section 271(1)(c) of the Act? 4. The appeal was pending hearing, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the present appeal. 4. In our opinion, in the facts of the present case, if the appellant intends an additional question to be framed in this regard, the same cannot be done without the appellant crossing the barrier of the test of specific prejudice, if any caused to it in responding to such notice issued under Section 271(1)(c) of the Act, is satisfied. 5. The question therefore would be that when the assessee never raised a plea that the assessee did not understand such notice issued to him and/ or acquiesced and conceded in the adjudication of such notice, without any plea of prejudice being taken at any point of time, then in such circumstances, can the assessee take a plea before the High Court calling upon it to take a view that although no prejudice on such count was earlier felt and suffered, merely because it is now technically noticed that there was a defect in the notice by non-striking of the applicable option, it should be deemed to be presumed that a prejudice was caused to the assessee and therefore, on such count, the penalty proceedings be declared illegal. 6. In our opinion, although Ventura Textiles Ltd. (supra) has though considered such issue being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant replied to both the limbs falling under Section 271(1)(c) of the Act. Accordingly, the assessee whole heartedly participated in such penalty proceedings without raising any objection on the nature of the notice. Thus, when the facts are such that the test of prejudice itself was not satisfied by the assessee, would it be permissible for the assessee to contend that without satisfying the test of prejudice, the penalty proceedings ought to be held to be vitiated is the question which would arise for our consideration. 7. The relevant facts are required to be adverted, which are as follows:- The assessee is a company registered under the Companies Act, 1956. It was dealing with real estate and construction. The assessment year in question is 1984-85. The assessee had purchased a plot of land in 1982 at Agripada in Mumbai for Rs. 25,00,000/-. A sum of Rs. 26,61,283/- was incurred towards development and construction. The balance in the account stood at Rs. 51,61,282/-. On 19 September, 1983, a partnership in the name of M/s. Nirmal Enterprises was formed between the assessee and six others. The assessee revalued the land at Rs. 1,04,53,500/-, being the market value as on 19 Sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities to go behind the transaction. Also, the tax authorities were entitled to examine whether the formation of the partnership was genuine, and whether the conversion of the personal asset of the partner into partnership asset was a genuine contribution to the capital of the firm or a device to avoid tax liability. Even if the partnership is genuine, the tax authorities could examine whether there is a genuine attempt to contribute to the capital of the firm for the purpose of carrying on the partnership business or it is only a ruse or device to convert the personal asset into money substantially for the benefit of the assessee, while evading tax on capital gains. The CIT noted that if such circumstances existed, it would be open to the Department to disregard the apparent and tax the profits or capital gains. The CIT also relied on the judgment of the Supreme Court in the case of McDowell & Co. Ltd. vs. Commercial Tax Officer (1985) 154 ITR 148 where the right of the income-tax authorities to pierce the veil or smokescreen created by dubious or colourable devices and tax the profits was upheld. The CIT noted that the Assessing Officer had not applied his mind to these aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm was bogus or that if it was specifically formed for avoiding tax liability. It was observed that hence, the conditions laid down in Sunil Siddharthbai (supra) to come to the conclusion that the transfer was a ruse or device have not been satisfied, inasmuch as, the firm was not established for avoiding tax. It was observed that the asset had not been converted into money and a mere revaluation of the asset did not result in any income. The CIT(A) accordingly deleted the addition of Rs. 52,92,218/- and allowed the appeal filed by the assessee. 12. Being aggrieved by the order passed by the CIT(A), the department approached the Tribunal. The assessee also preferred a cross appeal against the said order. Both the appeals were heard together and decided by the Tribunal. In the Department's appeal, the Tribunal held that it was apparent from the facts that the assessee, after joining the firm, withdrew substantial amounts of money (from the capital account). It was observed that the real purpose for which the partnership firm was established, was neither for the smooth running of the project nor for the financial requirements, as sought to be made out by the assessee. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cularly on the applicability of both / any of the limbs of Section 271(1)(c) of the IT Act. 14. The Assessing officer, after considering the assessee's reply, held that the assessee had attempted to avoid tax by adopting a device and therefore, penalty was exigible. The assessee's claim that it had furnished all the material facts was rejected. It was held that the case was clearly covered by Section 271(1)(c). He also invoked Explanation 1 below the provision on the ground that the explanation of the assessee has been found to be false and that the assessee has not been able to substantiate the same. He accordingly imposed the minimum penalty of Rs. 33,34,096/-. 15. Being aggrieved, the assessee preferred an appeal before the CIT (A) against the levy of penalty. The CIT(A) noted that the assessee had furnished all the facts before the Assessing Officer and did not hold back anything. He further noted that in the assessment proceedings, the CIT(A) had earlier deleted the addition and although the Tribunal restored it, this showed that there was a bona fide difference of opinion amongst the two authorities as to whether the transaction resulted in taxable profits. It was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his itself was a prejudice, inasmuch as, the notice in question issued to the assessee itself would be rendered illegal. It is submitted that Section 271(1)(c) is attracted in two situations, namely, the assessee having concealed the particulars of income or having furnished inaccurate particulars of such income. Thus, an assessee having not been clearly informed of any of such two limbs, a prejudice being caused to the assessee has to be presumed. It is submitted that there cannot be any ambiguity in respect of a charge which the assessee is required to meet, as the penalty proceedings are penal in nature. It is submitted that once the notice itself was defective, such defect could not have been cured. In support of her contentions, Ms. Vissanji has placed reliance on the following decisions - (i) Ventura Textiles Ltd. vs. Commissioner of Income-tax 426 ITR 478 (Bom.); (ii) Commissioner of Income-tax & Anr. vs. Manjunatha Cotton and Ginning factory 359 ITR 565 (Kar.); (iii) Dilip N. Shroff vs. Joint Commissioner of Income-tax & Anr. (2007) 291 ITR 519 (SC); (iv) Mohd. Farhan A. Shaikh vs. Deputy Commissioner of Income-tax, Central Circle-1, Belgaum (2021) 125 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is next submitted that the Full Bench of this Court in Mohd. Farhan A. Shaikh vs. The Deputy Commissioner of Income Tax (supra) although had an occasion to consider as to whether the assessee would be required to satisfy that a prejudice was caused to the assessee for want of a proper notice under Section 271(1)(c) of the IT Act, it does not hold that the observations of the Division Bench in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) in paragraph 26 to be bad. It is submitted that in fact, the decision in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) would support the case of the revenue, rather than the assessee contending that it supports the assessee's case on an alleged defect in the show cause notice issued to the assessee under Section 271(1)(c) of the IT Act. 22. It is next submitted that in fact, the order admitting the present appeal itself is very clear that the case of the assessee was never of any defect in the notice issued by the Assessing Officer under Section 271(1)(c) of the IT Act or not even remotely, a complaint of breach of principles of natural justice on that count as urged by the assessee. It is, therefore, not permissible for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner [or the Commissioner (Appeals] in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section-139 or by notice given under sub-section (2) of section-139 or section-148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section-139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section-142 or sub-section (2) of section-143, or fails to comply with a direction issued under sub-section (2A) of Section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (i) in the cases referred to in clause (a),, - a) ..... b) .... (ii) in the cases referred to in clause (b), in addition to any tax payable by him a sum which shall not be less then ten per cent but which shall not exceed fifty per cent of the amount of the tax, if any, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quarrel on any defect on the notice. This also for the reason, that an opportunity to contest a plea of a defective notice was available to the assessee and if so raised, it calls for and merges into consideration of such plea, in the order to be passed by the Assessing Officer. Conversely if such plea of a notice being defective is not raised, it brings about a situation that the assessee was not aggrieved with the notice, having fully participated at the hearing and that there was no question of any real prejudice being caused to the assessee. The real position on such issue would be required to be ascertained from the facts of each case. Thus, in so far as the provision of Section 274 is concerned, the bottom line is whether the assessee was heard on all his pleas before an order imposing penalty was passed against him, which may include several serious pleas as raised by him including a plea of a defective notice. In fact, there is something more fundamental namely in the course of adjudication, a party is entitled to take all the pleas, such pleas would fall for consideration of the adjudicating authority. All such pleas, which are raised by the parties would fall for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory provisions like Rule 55-A of the Rules in relation to disciplinary proceeding. Rule 55-A referred to above embodies in it nothing but the principles of reasonable opportunity and natural justice." 27. The assessee's case on whether any prejudice was caused to it can now be examined. It is not in dispute that the assessee had filed its return of income for the assessment year 1984-85 on 29 September, 1984 showing "Nil" total income. The assessee had computed its income for the year in question before deducting brought forward losses of earlier assessment years at Rs. 47,32,428/-. From such amount, the assessee deducted an amount of Rs. 33,89,467/- which it claimed to be "brought forward unabsorbed losses of earlier years". On this basis, a "Nil" income was written in the return by the assessee in the year 1984-85. Such assessment was made under Section 143(3) of the IT Act. The Assessing Officer computed the assessee's income before deducting total brought forward unabsorbed losses of earlier years at Rs. 33,89,467/-. From this, he deducted brought forward unabsorbed losses of earlier years aggregating to Rs. 33,89,467/- and arrived at a "Nil" total income on which the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored the order of the Assessing Officer thereby allowing the department's appeal. 29. On such backdrop, it is significant to note that the original show cause notice issued under Section 271(1)(c) read with Section 274 of the IT Act was followed by another notice dated 19 August, 1993, which was served upon the assessee. In response to the said notice, the assessee's representative had appeared before the Assessing Officer. Also a written explanation vide letter dated 06 September, 1993 was filed. The assessee's representative reiterated the contentions as urged in the written reply as both the issues of concealment of the particulars of income as also inaccurate particulars of income were attracted. The assessee contended that the assessee neither concealed the particulars of income nor had given any inaccurate particulars of income and that a true and correct disclosure was made. The Assessing Officer in the order passed on the penalty proceedings observed that none of the contentions as urged by the assessee had any substance and more particularly that the assessee's contention that the assessee had disclosed all material facts for computation of total income and that it had ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate particulars have been furnished had such income been the total income - Rs. 33,34,096/-. iii) Minimum amount of penalty imposable u/s.271(1)(c) of the I.T. Act 1961- - Rs. 33,34,096/-. iv Maximum amount of penalty imposable u/s. 271(1)(c) of the Act - Rs. 66,68,192/-. 10. Having regard to facts and the circumstances of the case I impose a penalty of Rs. 33,34,096/- (Rupees Thirty-three lakhs, thirty-four thousand, ninety-six only) u/s.271(1)(c) of the I.T. Act, 1961 on the assessee and direct that the assessee shall pay by way of penalty u/s.271(1)(c) of the I.T. Act a sum of Rs. 33,34,096/- (Rupees Thirty- three lakhs, Thirty-four thousand, ninety-six only). Issue notice of demand and chalan." (emphasis supplied) 30. The order passed by the Assessing Officer was challenged by the assessee before the Commissioner of Income-Tax (Appeals), who by an order dated 05 February, 1996 allowed the assessee's appeal, inter alia on the ground that the assessee did not conceal the particulars of income or furnish inaccurate particulars of income, thus, the assessee's case was covered under Explanation-1 to Section 271(1)(c) which made it clear that the presumption of concealme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liabilities of the assesse and to bring the capital of the partners in proportion to their profit-sharing ratio has already been found by us and not substantiated by any evidence. The explanation is inherently false because if the capital is to be reduced to levels proportionate to the profit-sharing ratios of the partners within 6 months of the capital contribution then what is the purpose of bringing in disproportionate capital in the first place? There is also an admission in the same explanation that the monies were drawn out of advances received by Nirmal Enterprises from the buyers of units. This disproves the other part of the explanation as to why the monies were withdrawn. Thus the explanation is inherently false. Therefore, even on merits. Explanation 1 to s. 271(1)(c) is fully attracted. 31. For the above reasons, we set aside the order of the CIT(A) cancelling the penalty and restore that of the AO. The Departmental will have its costs from the assessee which we assess at Rs. 5,000/- (Rupees five thousand only). The same shall be deposited by the assesse with the Registry of the Tribunal within 2 months from the receipt of this order. The Department may withdraw the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions in regard to the two ingredients of Section 271(1)(c) of the IT Act namely "concealment of particulars of income" and "furnishing inaccurate particulars of such income" being attracted in a notice to be issued invoking such provision for levy of a penalty. It was observed that these two expressions comprise of the two limbs for imposition of penalty under the said provision. The Division Bench, inter alia referring to the decision of the Gujarat High Court in Manu Engineering Vs. CIT (1980) 122 ITR 306 (Guj) and Delhi High Court in Virgo Marketing P. Ltd. Vs. CIT (2008) 171 Taxmann 156 (Del), held that a notice for levy of penalty has to be clear as to qua which limb of the said provision the penalty was attracted. It was observed that if the Assessing Officer proposes to invoke the first limb or the second limb, then the notice has to be appropriately marked to that effect. If there was no striking off of the inapplicable portion in the notice which is in the printed format, it would lead to an inference of non- application of mind. In such a case, penalty would not be sustainable for the reason that both the limbs, as held by the Supreme Court in Ashok Pai Vs. CIT (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of income. The Court observed that concealment of particulars of income was not the charge against the appellant and the charge was of furnishing inaccurate particulars of income. It was hence observed that it was trite that penalty cannot be imposed for alleged breach of one limb of Section 271(1)(c) of the IT Act, while penalty proceedings were initiated for breach of the other limb of Section 271(1)(c) and for such reason, it was observed that the order of penalty stood vitiated. Thus, the facts before the Court in such case were quite peculiar. 36. Reverting to the facts of the present case, certainly, the facts are distinct from what had fallen for consideration of the Division Bench in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra). It is clear that the Assessing Officer in the present case had taken into consideration both the limbs of Section 271(1)(c) as both the limbs were attracted and they were so understood by the assessee. It is on such backdrop, the penalty proceedings which were initiated against the assessee, were also responded/contested. Thus, in our opinion, what has been held in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) in the first p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issanji's contention that the assessee's case would stand covered by the decision in Ventura Textiles's case. 37. At this stage, for more clarity, we may observe some of the significant features of the case in hand, which are as under:- (i) that the penalty proceedings were initiated during the assessment proceedings. The Assessing Officer had although issued a notice without a tick mark, it appears that both the limbs under Section 271(1)(c) namely "concealment of particulars of income" and "furnishing inaccurate particulars of such income" were attracted in the facts of the case. (ii) At no point of time, the assessee had a grievance in regard to the Section 271(1)(c) notice being in any manner vague, ambiguous and not being understood by the assessee in regard to the limbs under Section 271(1)(c) being attracted. The corollary to this, was that neither before the Assessing Officer, nor before the appellate authority, the assessee raised such a plea, that the notice proposing to impose penalty on the assessee, was in any manner defective. (iii) The notice was in fact, responded by the assessee on both the counts as falling under Section 271(1)(c) of the IT Act. (iv) The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of real prejudice, observed that there is no such thing as "technical infringement of natural justice", as what is necessarily to be seen is that there must have been caused some real prejudice to the complainant. It was observed that the requirements of natural justice must depend inter alia as involved in the facts and circumstances of the case and the nature of the inquiry, etc. The relevant observations of the Supreme Court are required to be noted which read thus:- "26. Even in the application of the doctrine of fair play there must be real flexibility. There must also have been caused some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter to be dealt with and so forth. Can the Courts supplement the statutory procedures with requirements over and above those specified? In order to ensure a fair hearing, Courts can insist and require additional steps as long a such steps would not frustrate the apparent purpose of the legislation." (emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person whose rights are going to be affected. [See A.K. Roy v. Union of India 1982 (1) S.C.C. 271) and Swadeshi Cotton Mills v. Union (1981 (1) S.C.C. 664)]. As pointed out by this Court in A.K. Kraipak L Ors. v. Union of India & Ors. (1969 (2) S.C.C.262), the dividing line between quasi-judicial function and administrative function [affecting the rights of a party] has become quite thin and almost indistinguishable a fact also emphasized by House of Lords in C.C.C.U. v. Civil Service Union [supra] where the principles of natural justice and a fair hearing were treated as synonymous. Whichever the Cases it is from the standpoint of fair hearing - applying the test of prejudice, as it may be called - that any and every complaint of violation of the rule of audi alteram partem should be examined. Indeed, there may be situations where observance of the requirement of prior notice/no hearing may defeat the very proceeding - which may result in grave prejudice to public interest. It is for this reason that the rule of post-decisional hearing as a sufficient compliance with natural justice was evolved in some of the cases, e.g., Liberty Oil Mills v. Union of India (1984 (3) S.C.C. 46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he complaint should be examined on the touch- stone of prejudice as aforesaid. 29. The matter can be looked at from the angle of justice or of natural justice also. The object of the principles of natural justice - which are now understood as synonymous with the obligation to provide a fair hearing - is to ensure that justice is done, that there is no failure of justice and that every person whose rights are going to be affected by the proposed action gets a fair hearing. The said objective can be tested with reference to sub-clause (iii) concerned herein. It says that copies of statements of witnesses should be furnished to the delinquent officer "not later than three days before the commencement of the examination of the witnesses by the Inquiring Authority". Now take a case - not the one before us where the copies of statements are supplied only two days before the commencement of examination of witnesses instead of three days. The delinquent officer does not object; he does not say that two days are not sufficient for him to prepare himself for cross-examining the witnesesses. The eqnuiry is concluded and he is punished. Is the entire enquiry and the punishment awarded to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SCC 379], a three Judge Bench of this Court while following the principle in Ridge v. Baldwin stated that if upon admitted or indisputable facts only one conclusion was possible, then in such a case that principle of natural justice was in its self prejudice would not apply. Thus, every case would have to be examined on its own merits and keeping in view the statutory rules applying to such departmental proceedings. The Court in S.L. Kapoor (supra) held as under: "18. In Ridge v. Baldwin [1964 AC 40, 68 : 1963 2 All ER 66, 73] One of the arguments was that even if the appellant have been heard by the Watch Committee nothing that he could have said could have made any difference. The House of Lords observed at (p. 68): "It may be convenient at this point to deal with an argument that, even if as a general rule a watch committee must hear a constable in its own defence before dismissing him this case was so clear that nothing that the appellant could have said could have made any difference. It is at least very doubtful whether that could be accepted as an excuse. But, even if it could, the watch committee would, in my view, fail on the facts. It may well be that no reasonably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of apprehended prejudice." (emphasis supplied) 44. It is well settled that in judging the validity of an adjudicatory order, when the complaint is of non compliance of the principles of natural justice or in cases where the attack is not on the ground of bias, a distinction is required to be drawn between cases of no notice or no hearing, and cases of no fair hearing or no adequate hearing. If the defect is of the former category, it will automatically make the order invalid but if the defect is of a latter category, it will have to be further examined whether the defect has resulted in prejudice and failure of justice and it is only when such a conclusion is reached that the order may be declared invalid. (See. Municipal Corporation, Ludhiana vs. Inderjit Singh & Anr. AIR 2009 SC 195; P.D. Agrawal vs State Bank Of India & Ors. AIR 2006 SC 2064.; Haryana Financial Corporation & Anr. Vs. Kailash Chandra Ahuja (2008) 9 SCC 31; Union of India & Anr. v. M/s. Mustafa & Najibai Trading Co. & Ors. AIR 1998 SC 2526. Some of these decisions can be discussed. 45. In the above context the Supreme Court in Municipal Corporation, Ludhiana vs. Inderjit Singh & Anr.(supra) observed thus:- 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 111 of the Act is a penalty in rem which attaches to the goods which are the subject matter of the proceedings for confiscation and if it is found that the goods are liable to be confiscated under Section 111 of the Act, they can be confiscated without ascertaining their real owner. Moreover, in so far as the rule of audi alteram partem is concerned, the position is well settled that an order passed in disregard of the said principle would not be invalidated if it can be shown that as a result of denial of the opportunity contemplated by the said rule the person seeking to challenge the order has not suffered any prejudice. Since Section 124 of the Act incorporates the said principle of natural justice, failure to give the notice to the owner of goods would not, by itself, invalidate an order of confiscation. What has to be seen is whether the owner of the goods has suffered prejudice on account of the failure on the part of the officer passing the order for confiscation of goods. The owner of goods ordered to be confiscated cannot be said to have suffered any prejudice in a case where notice has been given to the person responsible for the alleged contravention on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, have undergone a sea change. In view of the decisions of this Court in State Bank of Patiala v. S.K. Sharma [(1996) 3 SCC 364 : 1996 SCC (L&S) 717] and Rajendra Singh v. State of M.P. [(1996) 5 SCC 460] the principle of law is that some real prejudice must have been caused to the complainant. The Court has shifted from its earlier concept that even a small violation shall result in the order being rendered a nullity. To the principle/doctrine of audi alteram partem, a clear distinction has been laid down between the cases where there was no hearing at all and the cases where there was mere technical infringement of the principle. The Court applies the principles of natural justice having regard to the fact situation obtaining in each case. It is not applied in a vacuum without reference to the relevant facts and circumstances of the case. It is no unruly horse. It cannot be put in a straitjacket formula. (SeeViveka Nand Sethi v. Chairman, J&K Bank Ltd. [(2005) 5 SCC 337 : 2005 SCC (L&S) 689] and State of U.P. v. Neeraj Awasthi [(2006) 1 SCC 667 : 2006 SCC (L&S) 190 : JT (2006) 1 SC 19]. See also Mohd. Sartaj v. State of U.P.[(2006) 2 SCC 315 : 2006 SCC (L&S) 295 : (2006) 1 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her before taking the action. On behalf of the Board it was contended that the facts were not in dispute and therefore, "no useful purpose would have been served" by giving a show-cause notice to the petitioner. This Court, however, set aside the decision of the Board, holding that the Board was acting in a quasi-judicial capacity and, therefore, it ought to have observed the principles of natural justice. 35. In S.L. Kapoor v. Jagmohan [(1980) 4 SCC 379], rejecting the argument that observance of natural justice would have made no difference, this Court said:(SCC p. 395, para 24) "24. ... The non-observance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary. It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced." (emphasis supplied) 36. The recent trend, however, is of "prejudice". Even in those cases where procedural requirements have not been complied with, the action has not been held ipso facto illegal, unlawful or void unless it is shown that non-observance had prejudicially affected the applicant. 37. In Malloch v. Aber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aused to M. Referring to several cases, considering the theory of "useless" or "empty" formality and noting "admitted or undisputed" facts, the Court held that the only conclusion which could be drawn was that had M been given a notice, it "would not have made any difference" and, hence, no prejudice had been caused to M. 41. In Ajit Kumar Nag v. Indian Oil Corpn. Ltd. [(2005) 7 SCC 764 : 2005 SCC (L&S) 1020], speaking for a three-Judge Bench, one of us (C.K. Thakker, J.) stated: (SCC pp. 785-86, para 44, "44. We are aware of the normal rule that a person must have a fair trial and a fair appeal and he cannot be asked to be satisfied with an unfair trial and a fair appeal. We are also conscious of the general principle that pre-decisional hearing is better and should always be preferred to post-decisional hearing. We are further aware that it has been stated that apart from Laws of Men, Laws of God also observe the rule of audi alteram partem. It has been stated that the first hearing in human history was given in the Garden of Eden. God did not pass sentence upon Adam and Eve before giving an opportunity to show cause as to why they had eaten the forbidden fruit. (See ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of principles of natural justice and the test of prejudice which is required to be met by a party, complaining of the breach of principle of natural justice have been reiterated. In paragraph 42 of the said decision, the Court has observed that the party alleging violation of the principles of natural justice is required to prove that the administrative action has violated the principles of natural justice and such non-compliance of the requirement of natural justice has prejudiced a party. It was observed that the Courts, while assessing prejudice, need to determine if compliance of the principles of natural justice, could have benefited the party in securing a just outcome. The Court further observed that non-compliance of every facet and component of natural justice does not render the procedure unreasonable and the claimant must prove that the effect of non-compliance of a component of natural justice is so grave that the core of the right to a fair trial is infringed while making an argument from a component-facet perspective. 50. Such principles of law are enunciated, recognised and followed in cases which may directly affect the livelihood of a person, who would face a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Razaq, learned Standing Counsel for the Respondent- Income Tax Department in both these Appeals. 2. The issue involved in both these Appeals is, whether mere failure to tick mark the applicable grounds in the printed form in which the notice is issued under Section 271 of the Income Tax Act, 1961 (IT Act), vitiates the entire penalty proceedings ? 3. The following decisions rendered by the Division Benches of this Court, relied upon by Mr. Rivankar, the learned Senior Advocate for the Appellant, supports the view that it does:- (1) The Commissioner of Income-Tax-11 vs. Shri Samson Perinchery; (2) The Principal Commissioner of Income-Tax (Central) Bengaluru vs. Goa Coastal Resorts and Recreation Pvt. Ltd.; (3) The Principal Commissioner of Income-Tax, Panaji vs. New Era Sova Mine and (4) The Principal Commissioner of Income-Tax, Panaji vs. Goa Dourado Promotions Pvt. Ltd. 4. However, Ms. Razaq, the learned Standing Counsel for the Respondents-Income Tax Department relied upon a prior decision of the Division Bench of this Court in Commissioner of Income-tax vs. Smt. Kaushalya, in which, the Division Bench has held that mere failure to tick mark the applicable ground or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demonstrate in a case where the complaint is of 'inadequate notice', as opposed to a case of 'no notice'. 9. In State Bank of Patiala and others vs. S.K. Sharma, the Hon'ble Supreme Court has held that it would not be correct to say that for any and every violation of a facet of natural justice or of a rule incorporating such facet, the order passed is altogether void and ought to be set aside without further inquiry. The approach and test adopted in Managing Director, ECIL vs. B. Karunakar7 should govern all cases where the complaint is not that there was no hearing (no notice, no opportunity and no hearing), but one of not affording a proper hearing (i.e. adequate or full hearing) or of violation of a procedural rule or requirement governing the enquiry; the complaint should be examined on the touchstone of prejudice. The test is: 'all things taken together whether the delinquent officer/employee had or did not have a fair hearing'. 10. The aforesaid is relevant because, Ms Razaq has pointed out that in the present matters the assessment order under Section 143(3) of the IT Act or the order under Section 153C of the IT Act had recorded satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench can as well consider the impact of non-discussion on the aspect of 'prejudice' in the decisions relied upon by Mr. Rivonkar, which includes the decision in Goa Dourado Promotions (supra), in the light of the decision of the Hon'ble Supreme Court in State Bank of Patiala (supra). The Full Bench can also consider the effect of the decision of the Hon'ble Supreme Court in case of Dilip N. Shroff vs. Joint Commissioner of Income-Tax and another on the issue of non-application of mind where the relevant portions of the printed notices are not struck off. 15. The Registry is, therefore, directed to place these matters before the Hon'ble Chief Justice in order to obtain orders in terms of Chapter I, Rule 8 of the Bombay High Court Appellate Side Rules, 1960." 53. Having noted the referral order, the decision of the Full Bench would be required to be considered as to the view, which was taken by the Full Bench. 54. The Full Bench framed an issue as to whether the assessment order clearly recorded satisfaction for imposition of penalty on one or the other, or both limbs mentioned in Section 271(1)(c) and whether a mere defect in the notice not striking off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51. 57. ... ... .. 58. No doubt, there an 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. Take for example, the notice dated March 29, 1972, for the assessment year 1967-68. This show- cause notice was issued even before the assessment order was made. The assessee had no knowledge of exact charge of the Department against him. In the notice, not only there is use of the word "or" between the two groups of charges but there is use of the word "deliberately". The word "deliberately" did not exist in section 271(1)(c) when the notice was issued. It is worthwhile recalling that the said word was omitted by the Finance Act, 1964, with effect from April 1, 1964, and the Explanation was added. The notice clearly demonstrated non- application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the present case, is not what has been disapproved by the Full Bench. The Full Bench cannot be read so as to construe that the test of prejudice in the given facts or a waiver as acquiescence would not be applicable, in considering any challenge to the orders imposing penalty. In other words, the Full Bench does not hold that the principles of law as laid down by the Supreme Court on prejudice are per se not applicable, when a complaint of breach of principles of natural justice is made in assailing an order imposing penalty. It also does not consider as to what can the fate of such plea if it is belatedly raised for the first time after a prolonged delay like in the present case. As to what has been observed by the Full Bench in this context can be noted which read thus:- "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(1)(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra). ..... 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 mandatory provision of law which is conceived not only in individual interest but also in the public interest"." 58. In view of the above discussion, we are not persuaded to accept the contentions as urged by Ms. Vissanji that in the facts of the present case, merely because Ventura Textiles Ltd. (supra) and the other decisions as referred by her, would observe that in the facts of such cases, the Assessing Officer did not put the tick mark on the order issued under Section 271(1)(c) of the IT Act, indicating as to which limb of the provisions was attracted, the penalty proceedings would not stand vitiated in the present case. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty proposed to be imposed on him under Section 271 (1)(c) of the Income Tax Act. Once having accepted the notice and having participated in the proceedings thereby submitting to the jurisdiction of the Assessing Officer, considering the settled principles of law, the assessee cannot take a position that there is a jurisdictional defect in the Assessing Officer proceeding to adjudicate the penalty-notice, by alleging defect in the notice. Even assuming that defect in the notice has adversely affected the interest of the noticee, the manner in which the interest is adversely affected and/or the nature of the prejudice caused to him, is required to be raised / set out with utmost promptness and/or at the first available opportunity. Certainly such grievance cannot be raised after long years that is after 23 years, to be a new invention, after the Assessing Officer had decided the issue. The plea of defect in the notice, cannot be an empty plea. Such plea can be accepted only when a demonstrable prejudice, was to be set out by the assessee, which would go to the root of the adjudication. If there is nothing on prejudice being pointed out to the Court except for bald plea of defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test of prejudice is not attracted when it comes to any complaint of breach of principles of natural justice on issues arising under Section 271(1)(c) of the IT Act. The Full Bench also does not consider as to whether at such a belated stage as in the present case, that is after 23 years of after the Assessing Officer had decided the issue, a plea of defect in the notice can be permitted to be raised. The Full Bench only questions the correctness of Kaushalya when it says that the assessment orders would provide sufficient reasons so as to substitute the defective notice. This is not the same as saying that, in the event a notice issued by the Assessing Officer within his jurisdiction having been accepted by the assessee, and/or never complained of, by applying the principles of law as laid down by the Supreme Court, the assessee can get away on technical infringement of natural justice. This would be opposed to the principles of law as laid down by the Supreme Court in Natwar Singh vs. Director of Enforcement & Anr. (supra), wherein the Supreme Court has observed that there can never be a technical plea of breach of principles of natural justice and plea would be a realistic plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue can never be a question of law in the assessee's case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised a plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the First Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under section 274 read with Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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