SUDHA NAREN SETH, MUMBAI V. ITO 16(3)(3) (ERSTWHILE ITO , 11(3)(3)), MUMBAI

ITA 5671/MUM/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8387 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 03-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAKING PAYMENTS BY ACCOUNT PAYEE CHEQUES
• Keywords: Opportunity of being heard; Principle of natural justice; Transactions in derivatives
• Section: 271(1)(c); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘G‘ BENCH MUMBAI BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.5671/Mum/2018 (Asse ssment Year : 2011-12) Ms. Sudha Naren Seth 1201, Era VI, Marathon Nextgen, G.K. Marg Lower Parel West Mumbai – 400 013 Vs. Income Tax Officer- 16(3)(3) (erstwhile Income Tax Officer 11(3)(3) Aaykar Bhawan, M.K.Road Mumbai – 400 020 PAN/GIR No. AAEPS7729Q (Appellant) .. (Respondent) Assessee by Ms. Snehal Shah Revenue by Shri Hoshang B Irani Date of Hearing 15/02/2022 Date of Pronouncement 22/02/2022 आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.5671/Mum/2018 for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-7, Mumbai in appeal No.CIT(A)-7/IT-78/202/2014-15 dated 06/08/2018 (ld. CIT(A) in short) in the matter of imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as Act). 2. The only issue to be decided in this appeal of the assessee is as to whether the ld. CIT(A) was justified in confirming the levy of penalty of Rs.2,48,825/- u/s.271(1)(c) of the Act in the facts and circumstances of the instant case. ITA No.7958/Mum/2019 Ms. Sudha Naren Seth 2 3. We have heard the rival submissions and perused the materials available on record. We find that assessment for A.Y.2011-12 was completed u/s.143(3) of the Act on 28/03/2014 wherein disallowance of Future & Options (F&O) Loss was disallowed to the extent of Rs. 8,05,260/- by the ld. AO in the assessment. This loss was actually funded by the assessee by making payments by account payee cheques as under:- Date Narration Chq,/Ref.No. Amount Paid 27/12/2010 Eden Financial Services 829330 Rs.5,03,350.05/- 15/03/2011 Padmavati Shares 165722 Rs.3,01,910.14/- Total F&O Loss Rs.8,05,260.00/- This fact of funding of loss by the assessee is also mentioned in page 5 of the order of the ld CIT(A) and hence the said fact is not disputed. 3.1. Later penalty proceedings u/s.271(1)(c) of the Act were initiated by the ld. AO in the assessment order for furnishing inaccurate particulars of income and thereby concealing the income. Penalty notice u/s.274 r.w.s. 271(1)(c) of the Act dated 28/03/2014 is placed on record wherein we find that the ld. AO had specifically stated that the assessee had only concealed his income. Ultimately the penalty was levied by the ld AO u/s 271(1)(c ) of the Act in the sum of Rs. 2,48,825/- for both the limbs i.e concealing the particulars of income and furnishing of inaccurate particulars of income. The ld CIT(A) also confirmed the levy of penalty for the same combined offence. But we find that the ld AO though in the ITA No.7958/Mum/2019 Ms. Sudha Naren Seth 3 quantum assessment order had mentioned that assessee had committed both the offences u/s 271(1)( c) of the Act, had resorted to state only one offence in the statutory notice u/s 274 rws 271(1)(c ) of the Act. Hence the said notice becomes a defective notice. We find that the Full Bench of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT reported in 280 Taxman 334 dated 11/03/2021 had categorically held that where notice has been issued for one offence but penalty is ultimately levied for both the offences, the said action of the ld AO would vitiate the penalty proceedings. Accordingly, the Hon’ble Jurisdictional High Court had cancelled the penalty. The relevant operative portion of the said judgement is reproduced hereunder:- “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 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". Smt. Kaushalya case (supra) 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". 185 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 Smt. Kaushalya case (supra) .In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. 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, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. ITA No.7958/Mum/2019 Ms. Sudha Naren Seth 4 Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff Case (supra) on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187 In Dilip N. Shroff case (supra), 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 case (supra), 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 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 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 Case (supra) treats omnibus show- cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. Conclusion: ITA No.7958/Mum/2019 Ms. Sudha Naren Seth 5 We have, thus, answered the reference as required by us; so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication.” 3.2. In any case, even on merits, we find that the assessee had actually funded the loss incurred on F&O transactions during the year by making payment by account payee cheques to the tune of Rs 8,05,260/- which is the same amount of the loss. The said F&O loss had not been treated by the lower authorities as bogus. Hence it is only the legitimate claim made by the assessee which has been sought to be disallowed by the ld AO. In this regard, the Hon’ble Supreme Court in the case of Reliance Petroproducts Ltd reported in 322 ITR 158 (SC) had held that the assessee cannot be held to be liable for concealment penalty u/s 271(1)(c) of the Act if the legitimate claim has been sought to be disallowed. Hence in any case, even on merits, the penalty u/s 271(1)( c) of the Act is liable to be deleted. 3.3. Respectfully following the aforesaid decisions, we hereby direct the ld. AO to cancel the penalty levied in the case of the assessee. Accordingly, the grounds raised by the assessee are allowed. 4. In the result, appeal of the assessee is allowed. Order pronounced on 22/02/2022 by way of proper mentioning in the notice board. Sd/- (KULDIP SINGH) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 22/02/2022 KARUNA, sr.ps ITA No.7958/Mum/2019 Ms. Sudha Naren Seth 6 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//