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TMI Blog2024 (5) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... hence the same is invalid and illegal. 2. Without prejudice, on the facts and in law, the Hon'ble CIT (A) erred in confirming the penalty under Section 271(1)(c) of the Act without appreciating the fact that penalty cannot be levied when income is determined on estimate basis." 03. The brief facts of the case shows that assessee is an individual who filed his return of income on 15th September, 2009, at the total income of Rs.530,780/-. The original assessment was made under Section 143(3) of the Act on 28th November, 2011, at total income of Rs.625,180/-. Subsequently, based on the information received from the Director General of Income Tax, Investigation, Mumbai assessee was found to have obtained accommodation entries of bogus purchase bills amounting to Rs.92,47,095/-. On hearing, reassessment order under Section 143(3) read with section 147 of the Act was passed on 19th march, 2015, determining the total income of the assessee at Rs.17,81,070/- by making addition of 12.5% of alleged bogus purchases. Reassessment order was challenged before the learned CIT (A) unsuccessfully and consequently, before the ITAT. As per the order of the ITAT dated 25th October, 2021, in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the addition in both these appeals are similar, the learned Authorized Representative Ms. Ridhisha Jain, submitted a detailed written submission contesting the first ground of appeal stating that both the penalty orders are not sustainable in law for the reason that in the notice under Section 274 read with section 271 of the Act issued for A.Y. 2009-10 placed at page no. 11 of the Paper Book at 19th March, 2015, and penalty notice issued under Section 274 read with section 271(1)(c) of the Act for A.Y. 2010-11 issued on 31st December, 2015, placed at page no.11 of the Paper Book does not strike off any one of the twin charges against the assessee and therefore, such penalty notices are bad in law and therefore, the penalty orders passed by the lower authorities are not sustainable. She relied upon the full Bench decision of the Hon'ble Bombay High Court in case of Mohamad Farah Mohd. Farhan A. Shaikh v. ACIT (2021) 434 ITR 1 (FB) (Bom) (HC). She referred to question no.1 at page no.56 and submitted that the issue is decided in favour of the assessee. 09. She also submitted that when the addition was made on the basis of the estimation of income, the penalty cannot be levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the paper book clearly shows that the learned Assessing Officer has not struck off any of the alternative twin charges. Therefore, it was contended that the issue is squarely covered in favour of the assessee by the decision of the Full Bench of Hon'ble Bombay High Court in [2021] 125 taxmann.com 253 (Bombay)/[2021] 280 Taxman 334 (Bombay) wherein in answer to question no.1, it held as under:- "Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings? 181. 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 procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice", as what is necessarily to be seen is that there must have been caused some real prejudice to the complainant. It was observed that the requirements of natural justice must depend inter alia as involved in the facts and circumstances of the case and the nature of the inquiry, etc. The relevant observations of the Supreme Court are required to be noted which read thus:- "26. Even in the application of the doctrine of fair play there must be real flexibility. There must also have been caused some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter to be dealt with and so forth. Can the Courts supplement the statutory procedures with requirements over and above those specified? In order to ensure a fair hearing, Courts can insist and require additional steps as long a such steps would not frustrate the apparent purpose of the legislation." (emphasis supplied) 42. In the present case, applying such principles of natural justice, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion (1981 (1) S.C.C.664)]. As pointed out by this Court in A.K.Kraipak L Ors. v. Union of India & Ors. (1969 (2) S.C.C.262), the dividing line between quasi-judicial function and administrative function [affecting the rights of a party] has become quite thin and almost indistinguishable a fact also emphasized by House of Lords in C.C.C.U. v. Civil Service Union [supra] where the principles of natural justice and a fair hearing were treated as synonymous. Whichever the Cases it is from the standpoint of fair hearing - applying the test of prejudice, as it may be called - that any and every complaint of violation of the rule of audi alteram partem should be examined. Indeed, there may be situations where observance of the requirement of prior notice/no hearing may defeat the very proceeding - which may result in grave prejudice to public interest. It is for this reason that the rule of post-decisional hearing as a sufficient compliance with natural justice was evolved in some of the cases, e.g., Liberty Oil Mills v. Union of India (1984 (3) S.C.C. 465). There may also be cases where the public interest or the interests of the security of State or other similar considerations may mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f natural justice also. The object of the principles of natural justice - which are now understood as synonymous with the obligation to provide a fair hearing - is to ensure that justice is done, that there is no failure of justice and that every person whose rights are going to be affected by the proposed action gets a fair hearing. The said objective can be tested with reference to sub-clause (iii) concerned herein. It says that copies of statements of witnesses should be furnished to the delinquent officer "not later than three days before the commencement of the examination of the witnesses by the Inquiring Authority". Now take a case - not the one before us where the copies of statements are supplied only two days before the commencement of examination of witnesses instead of three days. The delinquent officer does not object; he does not say that two days are not sufficient for him to prepare himself for cross-examining the witnesesses. The eqnuiry is concluded and he is punished. Is the entire enquiry and the punishment awarded to be set aside on the only ground that instead of three days before, the statements were supplied only two days before the commencement of the exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible, then in such a case that principle of natural justice was in its self prejudice would not apply. Thus, every case would have to be examined on its own merits and keeping in view the statutory rules applying to such departmental proceedings. The Court in S.L. Kapoor (supra) held as under: "18. In Ridge v. Baldwin [1964 AC 40, 68 : 1963 2 All ER 66, 73] One of the arguments was that even if the appellant have been heard by the Watch Committee nothing that he could have said could have made any difference. The House of Lords observed at (p. 68): "It may be convenient at this point to deal with an argument that, even if as a general rule a watch committee must hear a constable in its own defence before dismissing him this case was so clear that nothing that the appellant could have said could have made any difference. It is at least very doubtful whether that could be accepted as an excuse. But, even if it could, the watch committee would, in my view, fail on the facts. It may well be that no reasonably body of men could have reinstated the appellant. But at between the other two courses open to the watch committee the case is not so clear. Certainly, on the facts, as we kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principles of natural justice or in cases where the attack is not on the ground of bias, a distinction is required to be drawn between cases of no notice or no hearing, and cases of no fair hearing or no adequate hearing. If the defect is of the former category, it will automatically make the order invalid but if the defect is of a latter category, it will have to be further examined whether the defect has resulted in prejudice and failure of justice and it is only when such a conclusion is reached that the order may be declared invalid. (See. Municipal Corporation v. Inderjit Singh AIR 2009 SC 195; P.D. Agrawal v. State Bank Of India AIR 2006 SC 2064; Haryana Financial Corporation v. Kailash Chandra Ahuja [2008] 9 SCC 33; Union of India v. Mustafa & Najibai Trading Co. 1998 taxmann.com 667 (SC)/AIR 1998 SC 2526. Some of these decisions can be discussed. 45. In the above context the Supreme Court in Inderjit Singh (supra) observed thus:- 17. In Alighar Muslim University itself, the Court noticed the decision of the Court in S.L. Kapoor v. Jagmohan wherein it was held that non-compliance with the principles of natural justice by itself causes prejudice. No doubt, the developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g their real owner. Moreover, in so far as the rule of audi alteram partem is concerned, the position is well settled that an order passed in disregard of the said principle would not be invalidated if it can be shown that as a result of denial of the opportunity contemplated by the said rule the person seeking to challenge the order has not suffered any prejudice. Since section 124 of the Act incorporates the said principle of natural justice, failure to give the notice to the owner of goods would not, by itself, invalidate an order of confiscation. What has to be seen is whether the owner of the goods has suffered prejudice on account of the failure on the part of the officer passing the order for confiscation of goods. The owner of goods ordered to be confiscated cannot be said to have suffered any prejudice in a case where notice has been given to the person responsible for the alleged contravention on which the order for confiscation of goods is founded and who alone is in a position to offer an requirement regarding issuing of notice to the owner of the goods under section 124 cannot therefore, be construed as a mandatory requirement so as to have the effect of invalidating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the rule of audi alteram partem has to be considered. Even if hearing is not afforded to the person who is sought to be affected or penalised, can it not be argued that "notice would have served no purpose" or "hearing could not have made difference" or "the person could not have offered any defence whatsoever". In this connection, it is interesting to note that under the English law, it was held few years before that non-compliance with principles of natural justice would make the order null and void and no further inquiry was necessary. 32. In the celebrated decision of Ridge v. Baldwin [1964 AC 40 : (1963) 2 WLR 935 : (1963) 2 All ER 66 (HL)] it was contended that an opportunity of hearing to the delinquent would have served no purpose. Negativing the contention, however, Lord Reid stated: (All ER p. 73 F- G) "It may be convenient at this point to deal with an argument that, even if as a general rule a watch committee must hear a constable in his own defence before dismissing him, this case was so clear that nothing that the appellant could have said could have made any difference. It is at least very doubtful whether that could be accepted as an excuse." (emphasis suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further and stated: (All ER p.1291b-c) "... A great many arguments might have been put forward but if none of them had any chance of success then I can see no good reason why the respondents should have given the appellant a hearing, nor can I see that he was prejudiced in any way." (emphasis supplied) 38. In Jankinath Sarangi v. State of Orissa [(1969) 3 SCC 392] it was contended that natural justice was violated inasmuch as the petitioner was not allowed to lead evidence and the material gathered behind his back was used in determining his guilt. Dealing with the contention, the Court stated: (SCC p. 394, para 5) "5. ... We have to look to what actual prejudice has been caused to a person by the supposed denial to him of a particular right." (emphasis supplied) 39. In B. Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704] this Court considered several cases and held that it was only if the court/tribunal finds that the furnishing of the report "would have made a difference" to the result in the case that it should set aside the order of punishment. The law laid down in B. Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704] was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do a little wrong".' [Per Mukharji, C.J. in Charan Lal Sahu v. Union of India [(1990) 1 SCC 613] (Bhopal Gas Disaster), SCC p. 705, para 124.] While interpreting legal provisions, a court of law cannot be unmindful of the hard realities of life. In our opinion, the approach of the Court in dealing with such cases should be pragmatic rather than pedantic, realistic rather than doctrinaire, functional rather than formal and practical rather than 'precedential'." (emphasis supplied) 42. Recently, in P.D. Agrawal v. SBI [(2006) 8 SCC 776 : (2007) 1 SCC (L&S) 43] this Court restated the principles of natural justice and indicated that they are flexible and in the recent times, they had undergone a "sea change". If there is no prejudice to the employee, an action cannot be set aside merely on the ground that no hearing was afforded before taking a decision by the authority. .. ... ... .. ... 45. In the instant case, no finding has been recorded by the High Court that prejudice had been caused to the delinquent employee, the writ petitioner. According to the High Court, such prejudice is "writ large". In our view, the above observation and conclusion is not in consonanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facto prejudice which is required to be proved. Applying such principles to the facts of the present case, it is clear that the notice issued to the assessee by the Assessing Officer under section 271(1)(c) itself not being disputed by the assessee, to be in any manner in breach of the principles of natural justice, much less on the ground that it does not clarify as to which limb of the provisions was attracted, no fault could be found in the Assessing Officer proceeding to pass an order on such notice. In our opinion, accepting such a plea as urged on behalf of the assessee would amount to accepting a place of technical infringement of natural justice, as even remotely it was not the case of the assessee before any of the forums below that the notice in question was defective. This even assuming and as seen from the aforesaid decisions, that the law is well settled in a series of decisions, that even a mandatory provision can be waived. Thus, to accept such belated plea of a defective notice, would not be a permissible course of action for the Court, considering the well settled principles of law, as laid down by the Supreme Court as noted above. 52. We may also observe that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the ITAT erred in holding the penalty proceedings fatal for mere failure of the AO to tick the relevant box in the show cause notice, was answered against the Appellant-Revenue and in favour of the Respondent-Assessee relying upon the Samson Perinchery (supra) and New Era Sova Mine (supra). As noticed above, the Division Bench in Kaushalya (supra) has held that such failure to strike off the relevant portion of the printed notice or to tick mark the applicable portion in the printed notice, is not fatal, particularly where no prejudice has been demonstrated by the Assessee. Thus, there appears to be a conflict between the two sets of decisions of the Coordinate Benches. In particular, there appears to be a conflict between the view in Goa Dourado Promotions (supra) and Kaushalya (supra). 6. Though the said decisions relied upon by Mr. Rivankar were rendered subsequent to the decision of the Division Bench in Kaushalya (supra), it appears that the decision in Kaushalya (supra) was not brought to the notice of the subsequent Division Benches. 7. Though attempts were made by the learned Counsel for the parties to distinguish the two sets of decisions based upon the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter. One of the Assessee's had also urged 'lenient treatment'. All these aspects have not been considered in the first set of decisions relied upon by Mr. Rivankar. There is, however, reference to these aspects in Kaushalya (supra), relied upon by Ms Razaq. 11. According to us, the issue which arises can be more advantageously decided by the Full Bench, now that we notice the conflict between the decisions relied upon Mr. Rivankar and the decision in Kaushalya (supra), not to mention the absence of discussion on the aspect of 'prejudice' in the decision relied upon by Mr. Rivankar. 12. Chapter I, Rule 8 of the Bombay High Court Appellate Side Rules, 1960 provides that if it shall appear to any Judge, either on the application of a party or otherwise, that an appeal or matter can be more advantageously heard by a Bench of two or more Judges, he may report to that effect to the Chief Justice who shall make such order thereon as he shall think fit. 13. According to us, the following question can be more advantageously considered by a Bench of more than two Judges, taking into consideration the conflicting decisions as aforesaid, as well as absence of any disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, as in the absence of any prejudice, curing the defect of natural justice would not bring about any solution. In such context, the Division Bench in Kaushalya (supra) observed thus:- 56."... The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that ether there was non-application of mind by the Income-tax Officer or the so called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be remedied and penalty order on such defective notice cannot stand. However, in all the said decisions an issue in regard to prejudice was not placed for consideration of the Court, on the touchstone of the well settled principles of prejudice which would be applicable in given circumstances and as applied in the case of Kaushalya. It is this cleavage of opinion led the Division Bench of this Court at Goa in Mohd. Farhan A. Shaik (supra) to record such dichotomy and refer the question to be considered by the Full Bench, as noted by us in the referral order (supra). 60. It is in such context, the Full Bench considered the issues in this regard namely the issues falling on the line of reasoning in Goa Coastal Resorts and Recreation (P.) Ltd. (supra), which did not consider the issue of prejudice and on the other hand, the decision rendered in Smt. Kaushalya (supra). The Full Bench framed two questions which inter alia are (i) If the assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), will a mere defect in notice not striking off the irrelevant matter vitiated penalty proceedings; and (ii) Has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 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 Kaushalya does not lay down the correct proposition of law. Question No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agrawal, the learned amicus, even assuming that the provisions are fundamental in nature and mandatory, it is not the case that no notice was served on the assessee. Moreover, this is a case where notice was served on the assessee which was understood by the assessee in the perspective it was issued, that both the limbs had stood attracted; and it was accordingly contested/responded by the assessee. If this be the case, any artificial and/or superfluous introduction of a plea of natural justice or a defective notice, certainly would not be an acceptable plea. In the facts of the case, it can certainly be said that it is not a case of any real prejudice or a case of the breach of principles of natural justice, but a borrowed plea of natural justice. The decision of the Full Bench in Mohd. Farhan A. Shaik cannot be read to mean that it does not recognize the principles of law as laid down by the Supreme Court that in accepting any plea of breach of principles of natural justice, such plea would be required to be tested on the aspect of prejudice. The law as laid down by the Supreme Court is law of the land and it is binding on all Courts. In this view of the matter, it would be unfou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a question of fact namely whether a prejudice was at all caused, was not raised before the forums below, the parties were estopped from urging it before the appellate forum. Even otherwise and considering the well settled position in law, even a legal right which may accrue to a party can be waived. Such party would be later on estopped/precluded from raising any question on a breach of a right which stood waived. 64. We are of the opinion that the Full Bench in answering the above questions, however, would not assist the assessee to contend that the settled principles of law as laid down by the Supreme Court in regard to the test of prejudice being made applicable, is inapplicable in the facts of the present case. 65. It is abundantly clear from the principles of law as laid down by the Supreme Court as noted above, that a technical plea of breach of principles of natural justice cannot be taken, unless a case of prejudice has been made out, and if no case of prejudice is made out, certainly a plea of breach of principles of natural justice would be a hollow plea or a plea in futility. This for the reason, that a person complaining of breach of principles of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with provisions of section 274, the Court observed that in the facts of the case, the assessee's objection in regard to any defect in the notice could not be entertained in the appeal, as such an objection, can never be a question of law in the assessee's case, as it was purely a question of fact. It was observed that the assessee at no earlier point of time had raised a plea that on account of a defect in the notice, that the assessee was put to any prejudice. The Court observed that such violation will not result in nullifying the orders passed by statutory authorities. It was observed that if the case of the assessee is that the assessee was put to a prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. It was observed that on facts, the Court could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee "clearly understood" what was the purport and import of notice issued under section 274 read with section 271 of the Act. The principles of natural justice cannot be read in abstract. The relevant obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove discussion, we reject the contention as urged on behalf of the assessee that the proceedings would stand covered by the decision of this Court in Ventura Textiles Ltd. (supra). To answer the question of law as initially framed, the proceedings would be required to be heard by the regular Court." 014. Further In case of Ventura Textiles Ltd. s [2020] 117 taxmann.com 182 (Bombay)/[2020] 274 Taxman 144 , Honourable High court held that :- "21. Let us now advert to the fourth question i.e. Question number D framed/proposed by the appellant. Through this question, appellant is contending that the Tribunal ought to have held that the order of penalty passed under section 271(1) (c) of the Act was bad in law in view of the fact that at the time of initiation of penalty proceedings as well as at the time of imposition of penalty, Assessing Officer was not clear as to which limb of section 271(1)(c) of the Act was attracted. At the time of hearing, learned counsel for the appellant had argued that in the show-cause notice the inapplicable portion was not struck off; thus it was not indicated in the notice whether the penalty was sought to be imposed for concealment of particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PVT. LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX CC-35, MUMBAI I.T.A. No. 5351/Mum/2012 and (ii) Mum Gems [2023] 155 taxmann.com 1. 018. In case of ETCO Profiles Private Limited [ Supra] facts were that search and seizure operations in Etco group and it was noticed that the assessee herein had made purchases worth Rs. 3.43 crores form M/s Triton Infotech Pvt Ltd. During the course of search operation, a statement was taken from the director of Shri Triton Infotech Pvt Ltd and he confessed that he did not supply materials, but gave only accommodation bills. However, since the assessee herein had shown sale of goods and since the sale could not effected without making purchases, the AO took the view that the assessee might have purchased goods from grey market in order to avoid local taxes. Therefore, the AO disallowed of 20% of purchases and made an addition of Rs. 65,21,831/-. The AO levied penalty on the above said addition and the same was also confirmed by Ld CIT (A). Coordinate bench held that "4. Having heard rival submissions, we are of the view that there is merit in the contentions of the assessee. Admittedly, the AO has disallowed 20% of purchases only on presumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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