2021 (3) TMI 608 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - validity of notice issued u/s 274 - mere failure to tick mark the applicable grounds - 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? - 3 Member bench decision - HELD THAT: - It does. The primary burden lies 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(1)(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.

Goa Dourado Promotions [2020 (1) TMI 140 - BOMBAY HIGH COURT] and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya [1995 (1) TMI 25 - BOMBAY HIGH COURT] does not lay down the correct proposition of law.

Has Kaushalya [1995 (1) TMI 25 - BOMBAY HIGH COURT] failed to discuss the aspect of 'prejudice'? - HELD THAT:- 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, 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.

What is the effect of the Supreme Court’s decision in Dilip N. Shroff [2007 (5) TMI 198 - SUPREME COURT] on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? - HELD THAT:- 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 [2007 (5) TMI 198 - SUPREME COURT] 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.

Dilip N. Shroff [2007 (5) TMI 198 - SUPREME COURT] 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.