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The full bench of the Bombay High Court in [2021] 434 ITR 1 held that penalty initiation during assessment proceedings translates into action only through the statutory notice under section 271(1)(c) , read with section 274 of the Act. It further held that even though 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. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee’s favour.
The Court is further lead by Supreme Court decision in DILIP N. SHROFF case (291 ITR 519) to treat 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.
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