Ram Narayan Contractor, New Delhi V. ACIT Circle-62(1), New Delhi

ITA 957/DEL/2020

AI Insights

The case involves Ram Narayan Contractor, who appealed against a penalty imposed by the Assessing Officer (AO) under section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The penalty was based on additions made to the assessee's income, which were contested. The primary contention in the appeal was the issuance of a defective notice under section 274 read with section 272B, which failed to specify the exact charge for the penalty. The Tribunal, referencing a decision by the Hon'ble Bombay High Court, found that the notice was vague and did not meet the statutory requirements, leading to the quashing of the penalty.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130338 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 02-03-2020
• Other Referred Cases: Mr. Mohd. Farhan A. Shaikh vs. ACIT [434 ITR (1)]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 271(1)(c); 144; 143(3); 274

Judgement Text

Page 1 of 10 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE, DR. B.R.R.KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.957/Del/2020 (ASSESSMENT YEAR 2014-15) Ram Narayan Contractor 23, Bahi Veer Singh Marg Gole Market New Delhi-110 001 PAN-AABFR 5903N Vs. ACIT Circle-62(1) New Delhi (Appellant) (Respondent) Appellant by Mr. KVSR Krishana, Advocate Respondent by Mr. Anuj Garg, Sr. DR Date of Hearing 24/07/2023 Date of Pronouncement 27/07/2023 ORDER PER YOGESH KUMAR U.S., JM: This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-20, New Delhi [Ld. CIT(A)”, for short], dated 13/02/2020 for Assessment Year 2014-15. Grounds taken in this appeal are as under: “1. The AO has wrongly levied penalty which needs to deleted as 'A' has not concealed any income nor filed inaccurate particulars of his income and C.I.T (A) has wrongly rejected the appeal without appreciating facts of the case and without going through submission emailed on 12.12.2019 ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 2 of 10 and as such penalty needs deletion. Penalty has wrongly been levied on two additions:- -Interest on Capital of Rs.29,68,351/- and Salary to Partner of Rs.59,94,429/- not allowed as assessment has been made u/s 144 (actually it was made u/s 143(3) r.w.s. 144 of the Income Tax Act, 1961). -On addition in net profit of a firm made by estimating profit as 5% of turnover instead of 3.86% declared by 'A'. And such prayer for deletion.” 2. Brief facts of the case are that, an assessment order came to be passed for the Assessment Year 2013-14 on 20/12/2016 by computing the income of the Assessee at Rs. 2,77,09,776/- as against the returned income at Rs. 38,46,290/-. Consequent to the assessment order, an order u/s 271(1)(c) of the Act came to be passed by levying penalty of Rs. 48,49,582/-. Aggrieved by the order of the penalty dated 27/3/2019, the assessee preferred an appeal before the CIT(A), the Ld. CIT(A) vide order dated 31/03/2019, dismissed the Appeal filed by the Assessee. As against the order of the CIT(A) dated 31/03/2019, the assessee preferred the present Appeal on the grounds mentioned above. 3. The Ld. Counsel for the Assessee vehemently contended that the order of penalty has been passed based on the defective notice issued u/s 274 read with Section 272(B) of the Act, wherein the specific limb or charge for which the notice was issued has not been mentioned. Therefore, the Ld. Counsel for the assessee submitted that the penalty order passed based on the defective notice cannot be sustained. ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 3 of 10 4. Per contra, the Ld. DR submitted that the Ld.CIT(A) has adjudicated all the grounds including issuance of alleged defective notice and came to just conclusion by dismissing the appeal. The Ld. DR has relied on the orders of the Lower Authorities and submitted that no interference is required by the Tribunal. 5. We have heard both the parties and perused the material available on record. The assessment order came to be passed on 20/12/2016 u/s 143(3) r/w Section 144 of the Act, wherein the A.O. in so far as initiating the penalty proceedings u/s 271(1)(c) is concerned has mentioned as under:- “Penalty proceedings u/s 271(1)(c) is initiated separately for concealment of income or for furnishing inaccurate particulars on income on this issue.” 6. Further a notice u/s 274 read with Section 272B of the Act dated 05/04/2012 came to be issued, wherein there was no specific limb mentioned by the A.O. The copy of the notice dated 05/04/2012 is reproduced as under:- “NOTICE U/S 274 READ WJTH SECTION 272B OF THE I.T. ACT, 1961” ------------------------------------------------------------------------------------------- To, M/s Ram Narain Contractor, 257, Cycle Market, Jhandewalan Extn., New Delhi -110055 Whereas in the course of proceedings before me for the Assessment Year 2014-15., it appears to me that you :- ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 4 of 10 • Have concealed the particulars of your Income or furnished inaccurate particulars of such Income. You are hereby requested to appear before the undersigned on or before 20.04.2017 and show cause why an order imposing a penalty on you should not be made under section 272 of the Income-tax Act, 1961. If you do not wish to avail yourself of this opportunity. of ' being heard in person , or through ...authorized representative you may show case in writing on or before the said date which will be considered before any such order is made under section 272. This notice should be read with Section 129 of the Act subsequent to change of incumbent. 9. Thus, it is clear from the above that the A.O. himself was not sure and certain regarding the limb on which the penalty proceedings are initiated against the assessee. Ultimately, the order of penalty came to be passed for concealment of income. 11. On verifying the above notice issued u/s 274 read with Section 271 of the Act, it is found that the said notice is stereotype one and the AO has not specified any limb or charge for which the notice was issued i.e. either for concealment of particulars of income or furnishing of inaccurate particulars of such income. It can be seen from the said notice, Assessing Officer did not strike off irrelevant limb in the notice specifying the charge for which notice was issued. ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 5 of 10 12. The identical issue as to whether ‘the order of the penalty is sustainable which was initiated by issuing a defective notice without striking off irrelevant limb and without specifying the charge for which notice was issued?’ has been decided by the Hon'ble Bombay High Court (full bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT [434 ITR (1)] and the Hon'ble High Court held as under:- "Question No. l: 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 ties 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(l)(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. ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 6 of 10 182. 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. 183. Therefore, we answer 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 we must hold that Kaushaiya does not lay down the correct proposition of law. Question No.2: Has Kaushaiya failed to discuss the aspect of 'prejudice? 184. Indeed, Kaushaiya did discuss the aspect of prejudice. As we I.T.A.No.1409/Del/2016 have already noted, Kaushaiya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushaiya, "fully knew in detail the exact charge of the Revenue against him". For Kaushaiya, 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 piea 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 doses 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 ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 7 of 10 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. 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. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff 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, 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 I.T.A.No.1409/Del/2016 ambiguity. Therefore, Dilip N. Shroff ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 8 of 10 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(l)(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 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 ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 9 of 10 notice. Conclusion: 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." 13. As could be seen from the above the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT [(2021) 434 ITR 1 (Bom)] while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(l)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. 14. Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the Assessee’s case as the notice u/s. 274 r.w.s. 271(l)(c) of the Act was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued. 15. Thus, by following the above ratio, we are of the opinion that, the penalty order passed u/s 271(1)(c)of the Act by the Assessing Officer and the order of the CIT(A) in confirming the penalty order are erroneous. Accordingly, the penalty order dated 27/03/2019 passed by the A.O for Assessment Year 2014-15 is hereby quashed. Accordingly, Assessee’s Grounds of Appeal are allowed. ITA No.957/Del/2020 Ram Narayan Contractor vs. ACIT Page 10 of 10 16. In the result, Appeal filed by the assessee is allowed. Order pronounced in open Court on 27 th July, 2023 Sd/- Sd/- (DR. B.R.R.KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27/07/2023 Pk/R.N, Sr PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI