2024 (1) TMI 701 - HC - Income Tax

Delay in raising defect in penalty notice u/s 271(1)(c) after 30 years does not breach natural justice

Veena Estate Pvt. Ltd. Versus Commissioner of Income-Tax, Mumbai City-IX,

The HC held that the alleged defect in the penalty notice u/s 271(1)(c) r.w.s. 274, raised after 30 years without any prior objection or demonstrated ... Penalty u/s 271(1)(c) - Defective notice u/s 274 - failure to tick mark the limb or non-striking of second limb - allegation of breach of principles of natural justice - whether an alleged defect in the notice issued to the appellant u/s 271(1)(c) r.w.s. 274 in regard to which the appellant had never raised an objection from the very inception, that is since last 30 years (from 19 August, 1993), can now be permitted to be raised, in the absence of any prejudice being caused to the appellant - assessee? - HELD THAT:- It is clear that the Assessing Officer in the present case had taken into consideration both the limbs of Section 271(1)(c) as both the limbs were attracted and they were so understood by the assessee. It is on such backdrop, the penalty proceedings which were initiated against the assessee, were also responded/contested. Thus, in our opinion, what has been held in Ventura Textiles Ltd. [2020 (6) TMI 305 - BOMBAY HIGH COURT] in the first part would become applicable, on which the Division Bench turned down the case of the assessee on the question of law no. D. There was no question of any issue of breach of the principles of natural justice, for want of a proper notice being raised before the tribunal by the assessee. The tribunal having allowed the revenue’s appeal by the impugned order dated 30 October, 2001, the present appeal was filed on 17 April, 2002 and the appeal came to be admitted vide an order dated 14 September, 2004 on the substantial question of law as framed which also does not admit the appeal on any issue on the notice under Section 271(1)(c) being defective. It is after about 20 years of admission of the appeal, the issue has been raised merely because in the meantime, there were certain decisions rendered by the Courts to hold that the Assessing Officer would be required to tick mark the relevant ground as falling under Section 271(1)(c) of the IT Act being attracted for levy of penalty, namely either the first limb of “concealment of particulars of income” or the second limb of “furnishing inaccurate particulars of such income”. It is for such reason, on a technical plea, it was contended that the case would stand covered by Ventura Textiles Ltd [2020 (6) TMI 305 - BOMBAY HIGH COURT]. It is a settled principle of law that any breach of the principles of natural justice cannot be addressed by a straight jacket formula. Any complaint of breach of principles of natural justice would be required to be considered in the facts of the case. When the facts of the case would demonstrate it, to be an undisputed position, that no real prejudice was caused to a party aggrieved by an order, being alleged to be breach of the principles of natural justice, the Court would certainly not interfere. Such complaint and/or a genuine grievance of the breach of principles of natural justice accompanied with the prejudice it would cause, is required to be made with utmost promptness. Any delay in making such complaint or raising a grievance would give rise to a position that such grievance is either not genuine or is belated and/or a technical plea being agitated. In Natwar Singh vs. Director of Enforcement & Anr. [2010 (10) TMI 156 - SUPREME COURT] Supreme Court while observing on the test of real prejudice, observed that there is no such thing as “technical infringement of 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 - In the present case, applying such principles of natural justice, the assessee at no point of time, had discharged the basic burden of prejudice being caused to it. It is well settled that in judging the validity of an adjudicatory order, when the complaint is of non compliance of the 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, Ludhiana vs. Inderjit Singh & Anr. [2008 (10) TMI 732 - SUPREME COURT]. We may also refer to the decision of the Division Bench of the Madras High Court in Sundaram Finance Ltd. [2018 (5) TMI 259 - MADRAS HIGH COURT] in which interpreting the provisions of Section 271(1)(c) read 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. In the light of the above 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. vs. Commissioner of Income-tax (supra). To answer the question of law as initially framed, the proceedings would be required to be heard by the regular Court. Issues Involved:1. Whether an alleged defect in the notice issued under Section 271(1)(c) read with Section 274 of the Income Tax Act can be raised after 30 years.2. Whether the Tribunal erred in reversing the order of the CIT(A) and confirming the penalty of Rs. 33,34,096/-.3. Whether the proceedings are covered by the decision in Ventura Textiles Ltd. vs. Commissioner of Income Tax.Summary:Issue 1: Alleged Defect in NoticeA key question was whether an alleged defect in the notice issued under Section 271(1)(c) read with Section 274 of the Income Tax Act, which the appellant had not objected to for 30 years, can now be raised. The court observed that the appellant never complained that the notice was vague or defective and had caused any prejudice. The appellant had participated in the penalty proceedings without raising any objection on the notice's nature. The court emphasized that a plea of breach of principles of natural justice requires satisfying the threshold test of 'factual prejudice.'Issue 2: Tribunal's Reversal of CIT(A) OrderThe appellant challenged the Tribunal's decision to reverse the CIT(A)'s order, which had set aside the penalty of Rs. 33,34,096/- imposed under Section 271(1)(c). The Tribunal had found that the assessee was guilty of both 'concealment of particulars of income' and 'furnishing inaccurate particulars of income.' The court noted that the assessee had fully participated in the penalty proceedings and had not raised any issue regarding the notice's validity before the lower authorities.Issue 3: Applicability of Ventura Textiles Ltd. DecisionThe appellant contended that the proceedings were covered by the decision in Ventura Textiles Ltd. vs. Commissioner of Income Tax, where a defective notice under Section 271(1)(c) was deemed to vitiate the penalty proceedings. The court distinguished the facts of the present case from Ventura Textiles, noting that the assessee had understood and responded to the notice, and no prejudice was demonstrated. The court emphasized that the principles of natural justice require showing real prejudice, and a mere technical plea of a defective notice without demonstrating prejudice is insufficient.ConclusionThe court concluded that the appellant's contention of a defective notice was not tenable, as no prejudice was demonstrated. The principles of natural justice require showing real prejudice, and the appellant had not raised any issue regarding the notice's validity before the lower authorities. The court rejected the appellant's contention that the proceedings were covered by the Ventura Textiles decision and emphasized that a plea of breach of principles of natural justice requires demonstrating factual prejudice.