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TMI Blog2022 (12) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of prior period expenses as the Explanation 1 of section 271(1)(c) puts the burden of proof on the assessee." 3. Brief facts of the case are that, the return of income declaring filing income at 'NIL' and claimed loss at Rs. 9,92,88,186/- filed by the assessee. The assessment proceedings initiated against the assessee and an assessment order u/s 143(3) of the Income Tax Act ('Act' for short) has been passed by making following additions/disallowances :- (a) Disallowance of Prior period expenses =Rs. 1,92,68,281/- (b) Addition of interest income = Rs. 50,560/- (c) Disallowance u/s 14A =Rs. 6,51,710/- The penalty proceedings has been initiated against the assessee and an order u/s 271 (1)(c) of the Act has been passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings u/s 271(1)(c) read with Section 274 of the Act are initiated separately. Issue necessary forms." 9. After passing the assessment order, the A.O. has issued notice u/s 274 of the Act for initiation of penalty proceedings vide notice dated 23/12/2016 & 06/06/2017 as under:- "2.1 As per copies of notice issued u/s 274 read with Section 271 dated 23.12.2016 and dated 06.06.2017 enclosed, the Ld. A.O. has issued a Vague notice holding that the appellant: * Have concealed the particulars of your income or furnished inaccurate particulars of such income." * As per the assessment ode, satisfaction is recorded by the Ld. A.O. in respect of addition under the head Prior Period Expenses and interest income by stating that "Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm 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. 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'sfavour. 183. Therefore, we answer the first question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant limb and charge for which the notices were issued. 14. In this background of the above said legal position and having regarded to the manner in which A.O issued the notice u/s 274 of the Act on 23/12/2016 and 06/06/2017 which the A.O. has fail to specify the limb under which the penalty proceedings having initiated and proceeded with, apparently goes to prove that above notices have been issued in a mechanical manner without applying the mind. Being so, the said notice issued u/s 271(1)(c) of the Act is bad in law consequently the penalty levied there under cannot be sustained. 15. In view of the above discussion, we do not find merits in the Grounds of Appeal of the Revenue. In the result, the Appeal filed by the Revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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