TaxTMI 
TaxTMI 
2022 (12) TMI 337
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....ade by the AO of Rs.1,92,68,281/- on account of disallowance 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 t....
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....bserved as under:- "Assessed at current year's loss of Rs. 7,93,17,635/-. Penalty 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 L....
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.... into action only through the statutory notice under section 271(l)(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 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,....
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.... ", 185. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to 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 no....
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....gh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is 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". 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 wi....