Doctrine of prejudice cannot be invoked for non-specific penalty notices u/s 271(1)(c)

Non-specific penalty notice u/s 271(1)(c) issued by assessing officer violates mandatory requirement of law and doctrine of prejudice cannot be invoked

ABCAUS Case Law Citation
ABCAUS 3511 (2021) (06) ITAT

Important case law relied referred:
Mohd. Farhan A. Shaikh
Rajesh Kumar v. CIT [(2007) 2 SCC 181]
State of Orissa v. Dr. Binapani Dei [AIR 1967 SC 1269]
Dilip N. Shroff
Sudhir Kumar Singh

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the penalty u/s 271(1)(c) imposed by the Assessing Officer (AO).

The assessee inter alia contended that the order passed was without jurisdiction and bad in law since the penalty notice issued u/s 274 of the Act did not indicate the specific limb.

It was stated that in the notice, both the limbs were ticked and the order of penalty was also silent as to under which default i.e. whether for concealing the particulars of income or for furnishing inaccurate particulars of income was the assessee being penalized.

In the instant case, the AO had levied penalty with respect to the additions sustained by the CIT(A) in quantum proceedings.

Doctrine of prejudice cannot be invoked for Non-specific penalty notices u/s 271(1)(c) 

The Tribunal noted that the AO had issued the notice, without specifically mentioning the provision in which the penalty was sought to be imposed by the assessing officer.

The Tribunal noted that previously it had held that it is the duty of the assessee to demonstrate what prejudice has been caused by non-specific show cause notice.

The Tribunal further noted that subsequent to it passing the said judgment, Hon’ble Bombay High Court had examined almost all judgements on the issue of non-specific notice and also the concept of prejudice.

The Hon’ble High Court had examined 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 .

The Hon’ble High Court had observed that the Supreme Court on the issue of the standard Pro-forma without deleting the inapplicable limb, 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.

The Hon’ble High Court had stated that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. 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.

The Hon’ble High Court stated that the Supreme Court judgment 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.

On the principles of prejudice as encapsulated by the Supreme Court, the Hon’ble High Court stated 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”.

The Hon’ble High Court opined that section 271(1)(c) is one such provision which is mandatory and brooks no trifling with or dilution.

Placing reliance on the Hon’ble Supreme Court judgment the Hon’ble High Court pointed out that 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.

Finally, the Hon’ble High Court held that Supreme Court judgment 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.

In view of the above observation, the Tribunal held that in case of non-specific notices issued by the assessing officer, it will be violation of the mandatory requirement of law and the doctrine of prejudice cannot be invoked. Hence the penalty order which provided on non-specific notice is required to be struck down.

Accordingly, the Tribunal struck down the penalty notice and the proceedings based on that notice and allowed the appeal in the favour of the assessee.

Download Full Judgment Click Here >>

Also Read: SC dismisses assessee’s SLP against High Court order that non striking off penalty notice caused no prejudice to the assessee Click Here >>

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