INCOME TAX ACT, 1961

Section 271(1)(c) Section 274

Penalty under section 271(1)(c) - Defective notice under section 274 - Leviability of, whether vitiates penalty -

Assessee, had submitted that Kaushalya's case (1995) 216 ITR 660 (Bom) was the only decision from the Court that had taken a contrary view. All other decisions, according to him, have taken a consistent view that a vague notice under section 274 read with 271(1)(c) in a printed form without a tick mark to the relevant ground, would vitiate the penalty proceedings. The assessee had also contended that Kaushalya had overlooked the two ingredients to be satisfied by AO before his issuing notice under section 274 read with section 271(1)(c): (a) that the assessee had concealed the particulars of his income, or (b) Furnished inaccurate particulars of such income. Both these ingredients, are in contradistinction to each other. If the assessment order clearly records satisfaction for imposing penalty. Mere defect in the notice—not striking off the irrelevant matter-vitiates the penalty proceedings. Kaushalya's case failed to discuss the aspect of 'prejudice'. Held: The primary burden lies on the Revenue. 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. 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. Therefore, Tribunal answered 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 Kaushalya does not lay down the correct proposition of law. 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 Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stressed Kaushalya, 'fully knowing 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 proposal to levy penalty in order to enable him to explain as to why it should not be done'. 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, Court reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings, had not met acceptance.

Followed:The Commissioner of Income Tax-11 v. Shri Samson Perinchery [TXA No. 1154/2014 & Ors., dt. 5-1-2017] : 2017 TaxPub(DT) 0672 (Bom-HC); (2) The Principal Commissioner of Income Tax (Central) Bengaluru v. Goa Coastal Resorts and Recreation Pvt. Ltd. [TXA No. 24/2019, dt. 11-11-2019] : 2020 TaxPub(DT) 0081 (Bom-HC); (3) The Principal Commissioner of Income Tax, Panaji v. New Era Sova Mind [TXA Nos. 70/2019 & Ors., dt. 18-6-2019]; and (4) The Principal Commissioner of Income Tax, Panaji v. Goa Dourado Promotions Pvt. Ltd.[TXA No. 18/2019, dt. 26-11-2019] : 2020 TaxPub(DT) 0082 (Bom-HC), Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (2) KHC 287, Citizen Cooperative Society Ltd. v. Asst. CIT (2017) 9 SCC 364 and Tax Appeal No. 24/2019, decided on 11-11-2019 : 2020 TaxPub(DT) 0081 (Bom-HC), relates to The Pr. CIT (Central) v. Goa Coastal Resorts and Recreation Pvt. Ltd.. Relied:CIT v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC) : 2010 TaxPub(DT) 1683 (SC), CIT v. Manjunatha Cotton and Ginning Factory (2014) 359 ITR 565 (Karn) : 2014 TaxPub(DT) 202 (Karn-HC), CIT v. Samson Perinchery & Pr. CIT v. New Era Sova Mine, D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC) : 197 TaxPub(DT) 432 (SC), Khushiram Murarilal v. CIT (1954) 25 ITR 572 (Cal) : 1954 TaxPub(DT) 17 (Cal-HC), Gaur Pratibha v. State of Maharashtra (2019) 4 Bom CR 100, Cage v. Acton 1 Mad 288 (1796, Fisher v. Prince Burr. 1363, 1364 (1762), Central Asbestos Ltd. v. Dodd (1973) AC 518, Hambrook v. Stokes Bros. (1925) 1 KB 141, Rylands v. Fletcher LR 3 HL 330 (1868), Nichols v. Marsland [4 L. R. 10 Ex. 255 (1875)], Mavilayi Service Co-operative Bank Ltd. v. CIT 2021 SCC OnLine SC 16 ('Mavilayi'), State of Orissa v. Sudhanshu Sekhar Misra (1968) 2 SCR 154 and CIT v. Atul Mohan Bindal (009) 317 ITR 1 (SC) : 2009 Taxub(DT) 2009 (SC). Distinguished:CIT v. Smt. Kaushalya (1995) 216 ITR 660 (Bom) : 1995 TaxPub(DT) 109 (Bom-HC), CIT v. SSA's Emerald Meadows [ITA No. 380 of 2015, dated 23-11-2015, Karn-HC] : 2018 TaxPub(DT) 953 (Karn-HC), CIT v. P.M. Shah (1993) 203 ITR 792 (Bom-HC) : 1993 TaxPub(DT) 850 (Bom-HC) and CIT v. Dharamchand L. Shah (1993) 204 ITR 462 (Bom-HC) : 1993 TaxPub(DT) 1198 (Bom-HC).

SUBSCRIBE FOR FULL CONTENT