The Bombay High Court has in the case of Ventura Textiles Ltd. Vs CIT (ITA NO.958 OF 2017) analysed the law relating to levy of the penalty u/s 271(1)(c) of the Act pursuant to the pre-printed notices sent to the Assessee in standard proforma without striking off the relevant causes.
While doing so, Hon’ble Court has minutely discussed the various judgments available on the matter and then cam to a conclusion, which is going to lay down a new spark to this highly litigative issue on levy of penalty u/s 271(1)(c) of the Act.
Various questions have been framed before the HC, and the same is being discussed in brief hereunder: -
Issue No. 1 – Whether a fresh plea can be taken before High Court
In this case, the penalty show cause notice was issued in printed format but the inapplicable portion therein was not struck off and Consequently, whether penalty was sought to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of such income was not indicated in the notice.
The Assessee raised this issue for the very first time before the High Court arguing that this is a fundamental error which goes to the root of the matter and has vitiated the impugned order of penalty.
In CIT Vs. Jhabua Power Limited, (2013) 37 Taxmann.com 162 (SC), two questions were raised by the Revenue for the first time before the Supreme Court. The two questions related to bar of limitation for imposing penalty under Section 275(1) of the Act. Supreme Court took the view that the two questions were required to be answered first by the Tribunal. Accordingly, Supreme Court set aside the orders passed by the High Court and the Tribunal and remanded the matter back to the Tribunal to decide the two questions in accordance with law.
Accordingly, high court has held that it would not preclude the High Court from entertaining an appeal on issue of jurisdiction even if the same was not raised before the Tribunal.
Issue No. 2 – Whether two expressions “concealment of particulars of his income” and “furnishing inaccurate particulars of such income” carry different connotations.
Hon’ble Court observed that The two key expressions in Section 271(1)(c) of the Act are “concealment of particulars of his income” and “furnishing inaccurate particulars of such income”. These two expressions comprise of the two limbs for imposition of penalty under Section 271(1)(c) of the Act. Gujarat High Court in the case of Manu Engineering Vs. CIT, 122 ITR 306 and Delhi High Court in Virgo Marketing P. Ltd. Vs. CIT, 171 Taxmann 156 held that levy of penalty has to be clear as to the limb for which penalty is levied. If the Assessing Officer proposes to invoke the first limb, then the notice has to be appropriately marked. Similarly, if the Assessing Officer wants to invoke the second limb then the notice has also to be appropriately marked. If there is no striking off of the inapplicable portion in the notice which is in printed format, it would lead to an inference as to nonapplication of mind. In such a case, penalty would not be sustainable.
Supreme Court in Ashok Pai Vs. CIT, 292 ITR 11 observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act carry different connotations. Therefore, same cannot be the one and the same.
Issue No. 3 – Whether sending pre-printed penalty show cause notices in standard Performa, without striking out inapplicable portion, would vitiate the entire penalty proceedings
The facts of the given case, the AO has initiated the penalty proceedings u/s 271(1)(c) for default of furnishing inaccurate particulars of the income but the AO erroneously send the pre-printed penalty show cause notices in standard Performa, without striking out inapplicable portion.
The Assessee cites various judicial pronouncements already available in the above matter and prayed that applying the same ratio, the entire penalty proceedings may kindly be quashed. The judgments relied by the Assessee were as under: -
CIT Vs. SSA's Emerald Meadows, (2016) 73 Taxmann.com 248 (SC);
CIT Vs. SSA's Emerald Meadows, (2016) 73 Taxmann.com 241 (Karnataka);
CIT Vs. Samson Pernchery, (2017) 98 CCH 39 (Bombay);
PCIT Vs. New Era Sova Mine, (2019) SCC OnLine Bom.1032;
PCIT Vs. Goa Coastal Resorts & Recreation Pvt.Ltd., (2019) 106 CCH 0183 (Bombay);
PCIT Vs. Shri Hafeez S. Contractor, ITA Nos.796 and 872 of 2016 decided on 11.12.2018.
After discussing all of the above cases, Hon’ble court framed a questions that “whether the assessee had notice as to why penalty was sought to be imposed on it?” In this context, the court has held as under: -
25. This brings us to the basic question as to what is a notice or what do we mean by notice. Concise Oxford English Dictionary, Indian Edition, explains notice to mean the fact of observing or paying attention to something; advanced notification or warning; a displayed sheet or placard giving news or information. It means to become aware of. In other words, to put someone on notice would mean warn someone of something about or likely to occur. Black's Law Dictionary, Eighth Edition, defines the expression 'notice' to mean having actual knowledge of a fact; has received information about it; has reason to know it; knows about the related fact. In CST Vs. Subhash & Company, (2003) 3 SCC 454, Supreme Court deliberated upon the concept of notice and observed that the term 'notice' has originated from the Latin word “notifia” which means “being known” or “a knowing”. Thereafter, Supreme Court referred to the definition of the word 'notice' in various general and judicial dictionaries. Without adverting to the large number of definitions, suffice it to say notice would mean information, warning or announcement of something impending; notice in its legal sense may be defined as information concerning a fact communicated to a party by an authorized person or actually derived by him from a proper source; the term “notice” in its full legal sense embraces a knowledge of circumstances that ought to induce suspicion or belief as well as direct information of that fact.
26. Reverting back to the facts of the present case, if the assessment order and the show cause notice, both issued on the same date i.e., on 28.02.2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the Assessing Officer sought to impose penalty. It was quite clear that for breach of the second limb of Section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated. The purpose of a notice is to make the noticee aware of the ground(s) of notice. In the present case, it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under Section 271(1)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income. Therefore, this contention urged by the appellant / assessee does not appeal to us and on this ground we are not inclined to interfere with the imposition of penalty.
The above finding appears to be landmark as it is going to impact the whole view point of the law relating to sending the sending pre-printed notices in mechanical manner if the intend was clear if read with the Assessment Order.
This judgment has made the entire controversy on the point as discussed above, live again.
- views are personal
Sunil Maloo (JAIN)
Copy of the judgment is attached.