TaxTMI 
TaxTMI 
2024 (1) TMI 701
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.... August, 1993), can now be permitted to be raised, in the absence of any prejudice being caused to the appellant - assessee. 2. This appeal under section 260A of the Income-tax Act, 1961 (for short "I.T. Act") is filed by the appellant/assessee, being aggrieved by the judgment and order dated 30 October, 2001 passed by the Income-tax Appellate Tribunal (for short "ITAT") whereby the respondent/Revenue's appeal against the order passed by the Commissioner of Income-tax (Appeals) (for short "CIT(A)") has been allowed. Earlier the CIT(A) by its order dated 05 February, 1996, as impugned before the Tribunal, had set aside the penalty of Rs. 33,34,096/- imposed on the appellant/assessee under section 271(1)(c) of the I.T. Act. 3. At the outset, we may observe that by an order dated 14 September, 2004, the present appeal came to be admitted by a co-ordinate Bench of this Court on the following substantial question of law: "Whether the Tribunal erred on the facts and in the circumstances of the case and in law in reversing the order of the CIT(A) and confirming the penalty of Rs. 33,34,096/- (Rupees Thirty three lacs Thirty four thousand Ninety six only) levied by the Asses....
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....e such contention in the proceedings of a Section 260-A appeal when admittedly such question of law is not raised in the present appeal. 4. In our opinion, in the facts of the present case, if the appellant intends an additional question to be framed in this regard, the same cannot be done without the appellant crossing the barrier of the test of specific prejudice, if any caused to it in responding to such notice issued under Section 271(1)(c) of the Act, is satisfied. 5. The question therefore would be that when the assessee never raised a plea that the assessee did not understand such notice issued to him and/ or acquiesced and conceded in the adjudication of such notice, without any plea of prejudice being taken at any point of time, then in such circumstances, can the assessee take a plea before the High Court calling upon it to take a view that although no prejudice on such count was earlier felt and suffered, merely because it is now technically noticed that there was a defect in the notice by non-striking of the applicable option, it should be deemed to be presumed that a prejudice was caused to the assessee and therefore, on such count, the penalty procee....
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.... to which of the two limbs of Section 271(1)(c) were pressed into service against the assessee in the facts and circumstances of the case. The assessee / appellant replied to both the limbs falling under Section 271(1)(c) of the Act. Accordingly, the assessee whole heartedly participated in such penalty proceedings without raising any objection on the nature of the notice. Thus, when the facts are such that the test of prejudice itself was not satisfied by the assessee, would it be permissible for the assessee to contend that without satisfying the test of prejudice, the penalty proceedings ought to be held to be vitiated is the question which would arise for our consideration. 7. The relevant facts are required to be adverted, which are as follows:- The assessee is a company registered under the Companies Act, 1956. It was dealing with real estate and construction. The assessment year in question is 1984-85. The assessee had purchased a plot of land in 1982 at Agripada in Mumbai for Rs. 25,00,000/-. A sum of Rs. 26,61,283/- was incurred towards development and construction. The balance in the account stood at Rs. 51,61,282/-. On 19 September, 1983, a partnership in the name ....
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....onal asset of the partner into money, which would substantially remain available to him without any liability to tax on capital gains, it would be open to the taxing authorities to go behind the transaction. Also, the tax authorities were entitled to examine whether the formation of the partnership was genuine, and whether the conversion of the personal asset of the partner into partnership asset was a genuine contribution to the capital of the firm or a device to avoid tax liability. Even if the partnership is genuine, the tax authorities could examine whether there is a genuine attempt to contribute to the capital of the firm for the purpose of carrying on the partnership business or it is only a ruse or device to convert the personal asset into money substantially for the benefit of the assessee, while evading tax on capital gains. The CIT noted that if such circumstances existed, it would be open to the Department to disregard the apparent and tax the profits or capital gains. The CIT also relied on the judgment of the Supreme Court in the case of McDowell & Co. Ltd. vs. Commercial Tax Officer (1985) 154 ITR 148 where the right of the income-tax authorities to pierce the veil o....
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....n income unless the same was sold or transferred, and that the assessee had merely transferred the land as its capital to the firm, that the Assessing Officer had not established that the firm was bogus or that if it was specifically formed for avoiding tax liability. It was observed that hence, the conditions laid down in Sunil Siddharthbai (supra) to come to the conclusion that the transfer was a ruse or device have not been satisfied, inasmuch as, the firm was not established for avoiding tax. It was observed that the asset had not been converted into money and a mere revaluation of the asset did not result in any income. The CIT(A) accordingly deleted the addition of Rs. 52,92,218/- and allowed the appeal filed by the assessee. 12. Being aggrieved by the order passed by the CIT(A), the department approached the Tribunal. The assessee also preferred a cross appeal against the said order. Both the appeals were heard together and decided by the Tribunal. In the Department's appeal, the Tribunal held that it was apparent from the facts that the assessee, after joining the firm, withdrew substantial amounts of money (from the capital account). It was observed that the real pu....
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....e particulars thereof, to warrant any levy of penalty. Thus, the notice was replied by the assessee without any grievance on the ground of any ambiguity or defect in the notice and more particularly on the applicability of both / any of the limbs of Section 271(1)(c) of the IT Act. 14. The Assessing officer, after considering the assessee's reply, held that the assessee had attempted to avoid tax by adopting a device and therefore, penalty was exigible. The assessee's claim that it had furnished all the material facts was rejected. It was held that the case was clearly covered by Section 271(1)(c). He also invoked Explanation 1 below the provision on the ground that the explanation of the assessee has been found to be false and that the assessee has not been able to substantiate the same. He accordingly imposed the minimum penalty of Rs. 33,34,096/-. 15. Being aggrieved, the assessee preferred an appeal before the CIT (A) against the levy of penalty. The CIT(A) noted that the assessee had furnished all the facts before the Assessing Officer and did not hold back anything. He further noted that in the assessment proceedings, the CIT(A) had earlier deleted the addition and alth....
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....ed under section 260A of the I.T. Act. She submits that there is no need to prove prejudice when the notice itself was defective which, according to her, is a jurisdictional issue. It is submitted that this itself was a prejudice, inasmuch as, the notice in question issued to the assessee itself would be rendered illegal. It is submitted that Section 271(1)(c) is attracted in two situations, namely, the assessee having concealed the particulars of income or having furnished inaccurate particulars of such income. Thus, an assessee having not been clearly informed of any of such two limbs, a prejudice being caused to the assessee has to be presumed. It is submitted that there cannot be any ambiguity in respect of a charge which the assessee is required to meet, as the penalty proceedings are penal in nature. It is submitted that once the notice itself was defective, such defect could not have been cured. In support of her contentions, Ms. Vissanji has placed reliance on the following decisions - (i) Ventura Textiles Ltd. vs. Commissioner of Income-tax 426 ITR 478 (Bom.); (ii) Commissioner of Income-tax & Anr. vs. Manjunatha Cotton and Ginning factory 359 ITR 565 (Ka....
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....the principles of natural justice, as it is settled principle of law in catena of judgments, that it would be the burden on the person complaining of any breach of principles of natural justice to prove the prejudice caused to him and such burden ought to be discharged. 21. It is next submitted that the Full Bench of this Court in Mohd. Farhan A. Shaikh vs. The Deputy Commissioner of Income Tax (supra) although had an occasion to consider as to whether the assessee would be required to satisfy that a prejudice was caused to the assessee for want of a proper notice under Section 271(1)(c) of the IT Act, it does not hold that the observations of the Division Bench in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) in paragraph 26 to be bad. It is submitted that in fact, the decision in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) would support the case of the revenue, rather than the assessee contending that it supports the assessee's case on an alleged defect in the show cause notice issued to the assessee under Section 271(1)(c) of the IT Act. 22. It is next submitted that in fact, the order admitting the present appeal itself is very clear that the case of the....
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.... parties, we may, at the outset, note the relevant extract of Section 271 and Section 274 of the I.T. Act as it stood at the relevant time:- "Failure to furnish returns, comply with notices, concealment of income, etc. Section 271.(1) If the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals] in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section-139 or by notice given under sub-section (2) of section-139 or section-148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section-139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section-142 or sub-section (2) of section-143, or fails to comply with a direction issued under sub-section (2A) of Section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct t....
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....atory and the same is issued to the assessee, it is for the assessee to raise a grievance, if the assessee feels that the same is defective. Any grievance on the nature of the notice is subjective depending on the facts and circumstances of the case. If in a given case the assessee participates in any hearing without any grievance on the notice, then certainly a situation is brought about that he has no quarrel on any defect on the notice. This also for the reason, that an opportunity to contest a plea of a defective notice was available to the assessee and if so raised, it calls for and merges into consideration of such plea, in the order to be passed by the Assessing Officer. Conversely if such plea of a notice being defective is not raised, it brings about a situation that the assessee was not aggrieved with the notice, having fully participated at the hearing and that there was no question of any real prejudice being caused to the assessee. The real position on such issue would be required to be ascertained from the facts of each case. Thus, in so far as the provision of Section 274 is concerned, the bottom line is whether the assessee was heard on all his pleas before an order....
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....kewise, in the Code of Criminal Procedure also, Section 465 lays down that no finding, sentence or order passed by a competent court shall be upset merely on account of any error, omission or irregularity unless in the opinion of the court a failure of justice has, in fact, been occasioned thereby. We do not find any reason why the principle underlying the aforesaid provisions would not apply in case of the statutory provisions like Rule 55-A of the Rules in relation to disciplinary proceeding. Rule 55-A referred to above embodies in it nothing but the principles of reasonable opportunity and natural justice." 27. The assessee's case on whether any prejudice was caused to it can now be examined. It is not in dispute that the assessee had filed its return of income for the assessment year 1984-85 on 29 September, 1984 showing "Nil" total income. The assessee had computed its income for the year in question before deducting brought forward losses of earlier assessment years at Rs. 47,32,428/-. From such amount, the assessee deducted an amount of Rs. 33,89,467/- which it claimed to be "brought forward unabsorbed losses of earlier years". On this basis, a "Nil" income was written in....
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....of stock-in-trade to the partnership firm M/s. Nirmal Enterprises as also initiated the penalty proceedings. It appears that the CIT (Appeals) deleted the said additions made by the Assessing Officer against which the Department has filed the second appeal before the tribunal. The Tribunal on such proceedings filed by the Department by an order dated 22 February, 1993 set aside the order of the CIT (Appeals) and restored the order of the Assessing Officer thereby allowing the department's appeal. 29. On such backdrop, it is significant to note that the original show cause notice issued under Section 271(1)(c) read with Section 274 of the IT Act was followed by another notice dated 19 August, 1993, which was served upon the assessee. In response to the said notice, the assessee's representative had appeared before the Assessing Officer. Also a written explanation vide letter dated 06 September, 1993 was filed. The assessee's representative reiterated the contentions as urged in the written reply as both the issues of concealment of the particulars of income as also inaccurate particulars of income were attracted. The assessee contended that the assessee neither concealed the part....
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....n the assessee. The minimum and the maximum amounts of penalty imposable u/s. 271(1) (c) of the Act work out to Rs. 33,34,096/- and Rs. 66,68,192/- respectively as computed below: i) Amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished - Rs. 52,92,218/-. ii) Tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income - Rs. 33,34,096/-. iii) Minimum amount of penalty imposable u/s.271(1)(c) of the I.T. Act 1961- - Rs. 33,34,096/-. iv Maximum amount of penalty imposable u/s. 271(1)(c) of the Act - Rs. 66,68,192/-. 10. Having regard to facts and the circumstances of the case I impose a penalty of Rs. 33,34,096/- (Rupees Thirty-three lakhs, thirty-four thousand, ninety-six only) u/s.271(1)(c) of the I.T. Act, 1961 on the assessee and direct that the assessee shall pay by way of penalty u/s.271(1)(c) of the I.T. Act a sum of Rs. 33,34,096/- (Rupees Thirty- three lakhs, Thirty-four thousand, ninety-six only). Issue notice of demand and chala....
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....as been disclosed in the manner required of it smacks of mala fide. At no stage did the assesse volunteer the information it had to be called out from the record after investigation pursuant to the CIT's order u/s. 263. There has been no explanation worth the while with regard to the withdrawal of monies from Nirmal Enterprises through the capital account. The explanation given in the reply to the penalty notice to the effect that the monies were drawn as per the partnership deed to pay off the liabilities of the assesse and to bring the capital of the partners in proportion to their profit-sharing ratio has already been found by us and not substantiated by any evidence. The explanation is inherently false because if the capital is to be reduced to levels proportionate to the profit-sharing ratios of the partners within 6 months of the capital contribution then what is the purpose of bringing in disproportionate capital in the first place? There is also an admission in the same explanation that the monies were drawn out of advances received by Nirmal Enterprises from the buyers of units. This disproves the other part of the explanation as to why the monies were withdrawn. Thus the ....
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....urt was considering an appeal under Section 260-A of the IT Act which assailed an order passed by the Tribunal, whereby for the first time, an issue was raised as to whether the order passed under Section 271(1)(c) of the IT Act was bad in view of the fact that both at the time of initiation as well as at the time of imposition of the penalty, the Assessing Officer was not clear as to which limb of Section 271(1)(c) was attracted. It is in such context, the Division Bench of this Court was inter alia considering the decisions in regard to the two ingredients of Section 271(1)(c) of the IT Act namely "concealment of particulars of income" and "furnishing inaccurate particulars of such income" being attracted in a notice to be issued invoking such provision for levy of a penalty. It was observed that these two expressions comprise of the two limbs for imposition of penalty under the said provision. The Division Bench, inter alia referring to the decision of the Gujarat High Court in Manu Engineering Vs. CIT (1980) 122 ITR 306 (Guj) and Delhi High Court in Virgo Marketing P. Ltd. Vs. CIT (2008) 171 Taxmann 156 (Del), held that a notice for levy of penalty has to be clear as to qua whi....
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....hat there was some peculiarity namely in the statutory show cause notice, the Assessing Officer did not indicate as to whether penalty was sought to be imposed for concealment of income or for furnishing inaccurate particulars of income, though in the assessment order it was mentioned that penalty proceedings were initiated for furnishing inaccurate particulars of income. However, in the order of penalty, the Assessing Officer had held that the assessee had concealed its income as well as furnished inaccurate particulars of income. The Court observed that concealment of particulars of income was not the charge against the appellant and the charge was of furnishing inaccurate particulars of income. It was hence observed that it was trite that penalty cannot be imposed for alleged breach of one limb of Section 271(1)(c) of the IT Act, while penalty proceedings were initiated for breach of the other limb of Section 271(1)(c) and for such reason, it was observed that the order of penalty stood vitiated. Thus, the facts before the Court in such case were quite peculiar. 36. Reverting to the facts of the present case, certainly, the facts are distinct from what had fallen for consider....
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....ination of the entire matter, while we answer question number D against the appellant / assessee, question numbers A, B and C are answered in favour of the appellant / assessee. Therefore, on an overall consideration, the appeal would stand allowed and the order of penalty as affirmed by the two lower appellate authorities would consequently stand interfered with." It needs to be observed that the questions A, B and C as decided in Ventura Textiles Ltd. Vs. CIT, Mumbai City-11 (supra) were on merits. It is thus difficult to accept Ms. Vissanji's contention that the assessee's case would stand covered by the decision in Ventura Textiles's case. 37. At this stage, for more clarity, we may observe some of the significant features of the case in hand, which are as under:- (i) that the penalty proceedings were initiated during the assessment proceedings. The Assessing Officer had although issued a notice without a tick mark, it appears that both the limbs under Section 271(1)(c) namely "concealment of particulars of income" and "furnishing inaccurate particulars of such income" were attracted in the facts of the case. (ii) At no point of time, the assessee had a ....
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....eing 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. (supra), the 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. 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 preju....
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....ae. The relevant observations in that regard are required to be noted which read thus:- "28. The decisions cited above make one thing clear, viz., principles of natural justice cannot be to reduced to any hard and fast formulae. As said in Russell c. Duke of Norfolk [1949 (1) All. E.R. 109] way back in 1949, these principle cannot be put in a straight-jacket. Their applicability depends upon the context and the facts and circumstances of each case. [See Mahender Singh Gill v. Chief Election commissioner (1978 (2) S.C.R. 272)]. The objective is to ensure a fair hearing, a fair deal, to the person whose rights are going to be affected. [See A.K. Roy v. Union of India 1982 (1) S.C.C. 271) and Swadeshi Cotton Mills v. Union (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. Whic....
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.... hearing. It would not be correct - in the light of The above decisions to say that for any and every violation of a facet of natural justice or of a rule incorporating such facet, the order passed is altogether void and ought to be set aside without further enquiry. In our opinion, the approach and test adopted in B.Karunkar should govern all cases where the complaint is not that there was no hearing [no notice, no opportunity and no hearing] but one of not affording a proper hearing [i.e., adequate or a full hearing] or of violation of a procedural rule or requirement governing the enquiry; the complaint should be examined on the touch- stone of prejudice as aforesaid. 29. The matter can be looked at from the angle of justice or of 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 stat....
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....n opportunity is granted to the delinquent officer to defend himself except that some copies of formal documents had not been furnished to the delinquent. In that event the onus is upon the employee to show that non-furnishing of these formal documents have resulted in de facto prejudice and he has been put to a disadvantage as a result thereof. 85. The Doctrine of de facto prejudice has been applied both in English as well as in Indian Law. To frustrate the departmental inquiries on a hyper technical approach have not found favour with the Courts in the recent times. In the case of S.L. Kapoor v. Jagmohan [1980 (4) SCC 379], a three Judge Bench of this Court while following the principle in Ridge v. Baldwin stated that if upon admitted or indisputable facts only one conclusion was possible, 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 ....
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....be reverted in the event the order of punishment is set aside for these reasons. 89. The well established canons controlling the field of bias in service jurisprudence can reasonably extended to the element of prejudice as well in such matters. Prejudice de facto should not be based on a mere apprehension or even on a reasonable suspicion. It is important that the element of prejudice should exist as a matter of fact or there should be such definite inference of likelihood of prejudice flowing from such default, which relates statutory violations. It will not be permissible to set aside the departmental inquiries in any of these classes merely on the basis of apprehended prejudice." (emphasis supplied) 44. 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 categor....
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....the Court observed thus: "35. Section 124 of the Act, which incorporates the rule of audi alteram partem, one of the two basic tenets of the principles of natural justice, does not have the effect of making any alteration in the nature of these penalties. There may be situations where the goods are found to be smuggled goods and are seized but the identity of the owner of the goods is not known. Can it be said that since notice cannot be issued to the owner of the goods under Section 124 of the Act, the goods which are found to be smuggled goods cannot be confiscated under Section 111 of the Act? In our view, this question must be answered in the negative because confiscation of goods under Section 111 of the Act is a penalty in rem which attaches to the goods which are the subject matter of the proceedings for confiscation and if it is found that the goods are liable to be confiscated under Section 111 of the Act, they can be confiscated without ascertaining 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 t....
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..... It was observed that to the principle/doctrine of audi alteram partem, a clear distinction has been laid down between the cases where there was no hearing at all and the cases where there was mere "technical infringement of the principle." The observations of the Supreme Court are required to be noted which read thus:- "39. Decision of this Court in S.L. Kapoor v. Jagmohan [(1980) 4 SCC 379] whereupon Mr Rao placed strong reliance to contend that non- observance of principle of natural justice itself causes prejudice or the same should not be read "as it causes difficulty of prejudice", cannot be said to be applicable in the instant case. The principles of natural justice, as noticed hereinbefore, have undergone a sea change. In view of the decisions of this Court in State Bank of Patiala v. S.K. Sharma [(1996) 3 SCC 364 : 1996 SCC (L&S) 717] and Rajendra Singh v. State of M.P. [(1996) 5 SCC 460] the principle of law is that some real prejudice must have been caused to the complainant. The Court has shifted from its earlier concept that even a small violation shall result in the order being rendered a nullity. To the principle/doctrine of audi alteram partem, a clear dis....
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....yth in their classic work, Administrative Law, (9th Edn.) pp. 506-09 also stated that if such argument is upheld, the Judges may be tempted to refuse relief on the ground that a fair hearing could have made no difference to the result. "But in principle it is vital that the procedure and the merits should be kept strictly apart, since otherwise the merits may be prejudiced unfairly." (emphasis supplied) 34. This Court expressed the same opinion. In Board of High School & Intermediate Education v. Chitra Srivastava [(1970) 1 SCC 121] , the Board cancelled the examination of the petitioner who had actually appeared at the examination on the ground that there was shortage in attendance at lectures. Admittedly, no notice was given to her before taking the action. On behalf of the Board it was contended that the facts were not in dispute and therefore, "no useful purpose would have been served" by giving a show-cause notice to the petitioner. This Court, however, set aside the decision of the Board, holding that the Board was acting in a quasi-judicial capacity and, therefore, it ought to have observed the principles of natural justice. 35. In S.L. Kapoor v. J....
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....wn in B. Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704] was reiterated and followed in subsequent cases also (vide State Bank of Patiala v. S.K. Sharma [(1996) 3 SCC 364 : 1996 SCC (L&S) 717] , M.C. Mehta v. Union of India [(1999) 6 SCC 237] ). 40. In Aligarh Muslim University v. Mansoor Ali Khan [(2000) 7 SCC 529 : 2000 SCC (L&S) 965] the relevant rule provided automatic termination of service of an employee on unauthorised absence for certain period. M remained absent for more than five years and, hence, the post was deemed to have been vacated by him. M challenged the order being violative of natural justice as no opportunity of hearing was afforded before taking the action. Though the Court held that the rules of natural justice were violated, it refused to set aside the order on the ground that no prejudice was caused to M. Referring to several cases, considering the theory of "useless" or "empty" formality and noting "admitted or undisputed" facts, the Court held that the only conclusion which could be drawn was that had M been given a notice, it "would not have made any difference" and, hence, no prejudice had been caused to M. 41. I....
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..... According to the High Court, such prejudice is "writ large". In our view, the above observation and conclusion is not in consonance with the decisions referred to above, including a decision of the Constitution Bench in B. Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704]. The view of the High Court, hence, cannot be upheld. The impugned order, therefore, deserves to be set aside and is accordingly set aside. 46. Since the High Court has not considered the second question, namely, whether failure to supply the report of the inquiry officer had or had not resulted in prejudice to the delinquent employee, ends of justice would be met with if we remit the matter to the High Court to decide the said question." (emphasis supplied) 49. In a recent decision of the Supreme Court in Madhyamam Broadcasting Limited vs Union Of India 2023 (3) BCR 685 the law in regard to the compliance of principles of natural justice and the test of prejudice which is required to be met by a party, complaining of the breach of principle of natural justice have been reiterated. In paragraph 42 of the said decision, the Court has observed that the party alleging violation o....
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.... 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 arguments are advanced by both the sides on the view taken by the Full Bench of this Court in the case of Mohd. Farhan A. Shaik Vs. The Deputy Commissioner of Income Tax (supra). We discuss the judgment of the Full Bench. In such case, the Full Bench was considering a precedential cleavage in view of the two decisions of this Court namely in Commissioner of Income-tax vs. Smt. Kaushalya & Ors. (Supra) and in case of Principal Commissioner of Income-tax (Central), Bengaluru vs. Goa Coastal Resorts and Recreation (P.) Ltd. (supra). The order passed by the Division Bench referring the issue to the Full Bench is required to be noted which reads thus:- "Heard Mr. S. R. Rivankar, learned Senior Advocate with Mr. Rama Rivankar for the Appellant in both these Appeals and Ms. Amira Razaq, learned Standing Counsel for the Respondent- Income Tax Department in both these Appeals. 2. The issue involved in both these Appeals is, whether mere failure to tick mark the applicable grounds in the printed form in which the notice is issued unde....
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.... 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 fact situations in the present matters, the conflict, according to us, will still persist. Since such issues recur, we feel that these Appeals can be more advantageously heard by a Bench of more than two Judges, so that, this conflict between the two sets of decisions, is resolved by authoritative pronouncement of the Full Bench. 8. Besides, we find that in the first set of decisions, relied upon by Mr. Rivankar while the entire emphasis is upon the proper form of the notice and inference of non-application of mind and failure to observe natural justice, there is no discussion on the aspect of 'prejudice' which a party is expected to demonstrate in a case where the complaint is of 'inadequate notice', as opposed to a case of 'no notice'. 9. In State Bank of Patiala and others vs. S.K. Sharma....
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.... 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 discussion on the aspect of 'prejudice' in the set of decisions relied up by Mr. Rivonkar :- When in the assessment order or the order made under Sections 143(3) and 153C of the IT Act, the Assessing Officer has clearly recorded satisfaction for imposition of penalty on one or the other, or both grounds mentioned in Section 271(1)(c), whether a mere defect in the notice of not striking out the relevant words, would vitiate the penalty proceedings ? 14. The Full Bench, in the context of the aforesaid question can then, perhaps examine the conflict between the decisions in Goa Dourado Promotions (supra) and Kaushalya (supra). The Full Bench can as well consider the impact of non-discussion on the aspect of 'prejudice' in the decisions relied upon by Mr. Rivonkar, ....
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....es 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 opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motors (P.) Ltd. [1984] 149 ITR 751. 57. ... ... .. 58. No doubt, there an exist a case where vagueness and ambiguity in the notice ca....
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....mely the issues falling on the line of reasoning in Principal Commissioner of Income-tax (Central), Bengaluru vs. 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 Kaushalya. 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 Kaushalya failed to discuss the aspect of 'prejudice'? The Full Bench answered these questions inter alia observing that in so far as the view taken in Principal Commissioner of Income-tax (Central), Bengaluru vs. Goa Coastal Resorts and Recreation (P.) Ltd. (supra) and other similar orders were concerned, the same is required to be considered to be more acceptable, as it is beneficial to the assessee. We may observe that per se the test of prejudice ought not to be applied in the manner as may be applicable in the facts of the present case, is not what has been disapproved by the Full Bench. The Full Bench c....
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.... 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 ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done". 185. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authorit....
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....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 unfounded for the assessee in the facts of the present case to contend that the test of prejudice was not attracted. 60. Even to consider such a plea as raised by the assessee, as a plea of jurisdiction, an anomalous situation is created, in as much as the assessee in a quasi-judicial adjudication without raising any grievance in regard to any defect in the notice acquiesced in the jurisdiction of the Assessing Officer in responding to the notice on on all his pleas, in regard to penalty proposed to be imposed o....
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....r, 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. 62. 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 needs to show that curing such breach, would culminate the proceedings with a different consequence favourable to the assessee. It is only after considering such pleas, it would be a fair decision, rendering justice to the complainant. In our opinion, this would be the logical conclusion of a plea on breach of principles of natural justice and the test of prejudice which is being sought to be applied in dealing with such complaints. The Full Bench does not lay down that the test of prejudice is not att....
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....at 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 observations of the Court are required to be noted, which reads thus: "16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never ....