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आदेश/Order
Per Sanjay Garg, Judicial Member:
The captioned & 1007/Chd/2017 are cross appeals by the assessee & Revenue against the order dated 31.3.2016 of the Commissioner of Income Tax-2, Ludhiana [hereinafter referred to as ‘CIT(A)’], whereas, is the appeal by the Revenue against the order dated 18.8.2017 of CIT(A)-2, Ludhiana.
First, we shall deal with the appeal of the assessee wherein, following grounds have been taken:-
1. That the learned CIT(A) has erred in confirming the action of the Assessing Officer about the service of the notice on the assessee, which was never served on the assessee and, as such, the proceedings as initiated by issue of notice u/s 148 are void abinitio.
2. That there was no proper service of notice u/s 148 and, as such, the finding of the Assessing Officer, which have been confirmed by the CIT (A) is not valid.
That there was non-application of mind by the Assessing Officer before issuance of notice u/s 148 and, thus, the proceedings are not sustainable.
4. That the Ld. Assessing Officer has erred in applying the G.P. rate of 10% on Rs. 1,28,57,800/-, which is against the facts and circumstances of the case as per para 4.20 of the order.
5. That the finding of the CIT(A) in para 4.21 of her order is not valid.
6. That the Ld. CIT(A) has erred in confirming the action about the alleged fraudulent claim of duty drawback 6t DEPB and for which, there is no evidence against the assessee.
7. That the Ld. CIT (A) has erred in enhancing the assessment by Rs.1 lac as per para 5.2 of the order.
8. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
3. The assessee vide ground Nos. 1 to 3 has challenged the validity of the reopening of the assessment on the ground that no notice u/s 148 of the Income Tax Act, 1961 (in short 'the Act') was served upon the assessee.
The brief facts of the case are that some information was received by the Assessing Officer from the Assistant Director of Income Tax (Inv.)-III about the assessee having indulged in some alleged fraudulent claim of 'duty draw back' and DEPB and on the basis of that the Assessing Officer reopened the assessment for the year under consideration. The plea of the Ld. Counsel for the assessee is that no notice u/s 148 of the Act was ever served upon the assessee. However, the case of the Assessing Officer is that the notice u/s 148 of the Act was served by way of affixture on the premises of the assessee.
Whereas, the plea of the assessee is that the deemed service of notice by way of substituted service i.e by way of affixture was not validly done & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 4 and, in fact, the same cannot be said to be service of notice in the eyes of law. The Ld. AR, therefore, has pleaded that in the absence of service of notice u/s 148 of the Act on the assessee, the assessment framed u/s 147 of the Act has no legal sanctity and the same is liable to be quashed.
The Ld. Counsel pointing out defects in the service of notice has made the following submissions:- i). The notice, dated 29.03.2007 was issued and sent by post, but the said notice was received back by the Assessing Officer on 12.04.2007 as per evidence at pages 1 & 2 of the paper book. ii). Without waiting for the service of notice by post, the affixture exercise was carried out as per evidence placed at pages 3 & 4 of the paper book. iii). No efforts were made by the Assessing Officer to trace the address of the assessee or to effect the service in the ordinary way. iv). There was no refusal by the assessee as is apparent from the record. v). Before resorting to affixture, there has to be reasons recorded as to how the Assessing Officer had come to the conclusion that the service of notice, cannot effected in the ordinary way vi). Without taking the essential and necessary first step, the Assessing Officer, has jumped to the 'last resort' without following the correct procedure of law. vii). That the mode and manner of service of notice is governed by section 282(1) and it should be in the manner laid down by the Code of Civil procedures. viii). As per rule-20 of CPC, there has to be reason to believe that the person concerned was avoiding the service of notice and, as such, the notice could & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 5 not be served in the ordinary way and no such satisfaction has been recorded by the Assessing Officer.
The Ld. Counsel has also placed reliance on the copy of the notice issue u/s 148 of the Act placed at pages 1 & 2 of the paper book to submit that the notice dated 29.3.2007 was sent by post, however, the same was received back undelivered to the Assessing Officer on 12.4.2007 which was entered in the Receipt register of the office at S. No.
The Ld. Counsel has further invited our attention to the affixture notice to submit that the Assessing Officer without waiting for the result of the service done through post, opted for substituted course of service by way of affixture on 30.3.2007 itself. The Ld. counsel has submitted that there was no reason for the Assessing Officer to switch to the method of substituted service without recording any satisfaction to the effect that there was any reason to believe that the assessee was keeping out away for the purpose to avoid it or for that any other reason, the notice could not be served in ordinary way. The Ld. Counsel in this respect has relied upon the provisions of Order V of Code of Civil Procedure (CPC).
The provisions of section 282 of the I.T. Act as were in force during the relevant period (in the year 2007) for the purpose of reference are as under:-
"282. Service of notice generally.—(1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 6 a summons issued by a court under the Code of Civil Procedure, 1908 (5 of 1908). (2) Any such notice or requisition may be addressed— (a) in the case of a firm or a Hindu undivided family, to any member of the firm or to the manager or any adult member of the family ; (b) in the case of a local authority or company, to the principal officer thereof; (c) in the case of any other association or body of individuals, to the principal officer or any member thereof ; (d) in the case of any other person (not being an individual), to the person who manages or controls his affairs.”
Further, as per the Order V Rule 9 of the Code of Civil Procedure (CPC), the notice is to be delivered or sent personally on the defendant or the same may be made by delivery or transmitting a copy thereof by registered post acknowledgement due addressed to the defendant or his agent or by speed post or by such courier service as approved by the Court or by any means of transmission including fax message or electronic mail service. As per Order V, Rule 12, wherever, it is practicable, service shall be made on the defendant in person, unless he has agent empowered to accept service, in which case service on such agent shall be sufficient. As per Order V, Rule 17, where the defendant or his agent refuses to sign the acknowledgment or where the serving officer, after using all due and reasonable diligence, cannot find the & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 7 defendant who is absence from his residence at the time when service is sought to be effected on him at his residence and there is no likelihood of being found at the residence within a reasonable time, the service can be done by way of affixture of a copy of the summons on the outer door of the house or at conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain. The serving officer has to return the original summons to the Court with a report stating that he has so affixed the copy, the circumstances under which he did so, and the name and address of the person (if any) by whom the house was identified and in whom presence the copy was affixed. As per Order V Rule 19, where the summons is returned under Rule 17, the Court shall, if the return under that rule has not been verified by the affidavit of the serving officer, examine the serving officer on oath, touching his proceedings, and may make such further enquiry in the matter as it thinks fit; and shall either declare that the summons has been duly served or order such service as it thinks fit.
As per Rule 20 Order V CPC, where the Court is satisfied that there is reason to believe that the defendant is keeping out of way for the purpose of avoiding service, or that for any other reason the summons cannot be served in the ordinary way, the Court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the Court-house and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business or personally worked for gain, or in such other manner as the & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 8 Court thinks fit. Hence, as per the above discussed provisions of the Code of Civil Procedure (CPC) before effecting service by way of substituted service, the Assessing Officer should be satisfied that the defendant is keeping out of way for the purpose of avoiding service or that for any other reasons the summons cannot be served in the ordinary way.
In the case in hand, there is no mention that there was any reason to believe to the Assessing Officer that the assessee or its proprietor Mr. Shambhu Kumar was avoiding service of summons. The Assessing Officer issued summons through registered post on 29.3.2007, however, without waiting the service through post, he immediately ordered the service by way of affixture. Surprisingly, the service through post was not affected and the said summons was received back later on. A perusal of the affixture report reveals that there is no mention about the identification of the premises of the assessee. In the Affixture Report, it is only mentioned that the notice has been affixed at the gate of the firm. However, the property where the affixture was done has not been identified by its site or location or otherwise by house number / property number etc., nor any independent witness was jointed.
The Ld. CIT(A) in the impugned order, while rejecting the contention of the assessee regarding valid service of notice has observed that since as per the report of the DRI, the assessee firm was fictitious and the assessee was not operating at the given address, hence, the & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 9 Assessing Officer had reason be believe that the service could not be done in ordinary manner, therefore, the service was rightly done through affixture.
We are not inclined to accept the above reasoning given by the Ld.
CIT(A). If the Assessing Officer was aware that the assessee was not residing or last seen or carrying on business or personally worked for gain at the given address, how the affixture at such a place can be deemed to be a proper service. Moreover, the notice has not been issued in the name of the proprietor of the firm. The notice has been addressed in the name of ‘M/s Jindal Alloys, Kanganwal Road, VPO Jugiana, Ludhiana. In the assessment order, the status of the assessee has been mentioned as ‘Firm”. If the Assessing Officer had doubt that such a firm had not been carrying out the business at the given address, the Assessing Officer should have made efforts to find out as to who were the partners of the firm and as to what was the status of the assessee.
The assessee admittedly is a proprietorship concern. The Assessing Officer did not make efforts to find out the proprietor of the firm or his address. The Assessing Officer proceeded to complete the required process of service of notice in a hurried and perfunctory manner by just ordering the service of notice by way of affixture. He did not follow the due process of service by ordinary course nor did he try to find about the actual address of the proprietor of the concern, which he could have done from the PAN number of the Firm. It has been noticed by the Ld. & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 10 CIT(A) that prior to the aforesaid assessment carried out by the Assessing Officer u/s 144 read with section 147 of the Act, earlier the returns filed by the assessee were processed u/s 143(1) of the Act meaning thereby that the assessee was a regular assessee, filling the returns of income regularly. Under the circumstances, the Assessing Officer could have easily verified the address of the assessee as well as its partners or proprietor. So far as the observation of the Ld. CIT(A) that the assessment under question is an assessment and not re- assessment or that it cannot be said that the assessment was reopened, in our view, the said observations are not correct. After the limitation period prescribed for issuance of notice u/s 143(2) of the Act, the assessment u/s 143(3) cannot be proceeded with. Under the circumstances, as per the provisions of section 147 read with section 148 of the Act, a notice is required to be served for reopening of the assessment. So far as the arguments of the Ld. DR that assessment was going to be time barred, hence, the service was done through affixture, in our view, the said reasoning has not merits. The Coordinate Beach of the Tribunal in the case of ‘Heaven Distillery Pvt. Ltd. vs ITO’ 88 Taxman.com 825 has held that merely because the assessment was becoming time barred, the service of notice by affixation without exhausting ordinary process was not proper.
It is now well settled by the various Courts including the jurisdictional High Court and Apex court of the County that for proper & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 11 assumption of jurisdiction by the Assessing Officer, a valid service of notice u/s 148 of the Act as per procedure as prescribed u/s 282(1) of the Act, is a mandatory legal requirement. The Ld. counsel in this respect has relied upon the following case laws:-
Commissioner of Income Tax V/s Eqbal Singh Sindhana 304 ITR 177 DEL-HC 2. Commissioner of Income V/s Hotline International (P) Ltd. 296 ITR 333 DEL-HC 3. Heaven Distillery Pvt. Ltd, V/s Income Tax Office 88 taxmann.com 825 4. Parshotam Singh V/s Income Tax Officer 47 CCH 603 ASR-TRIB 5. Sanjay Badani V/s by. Commissioner of Income Tax 35 ITR (Trib) 536 MUM-TRIB 6. Commissioner of Income Tax Vs. Ramendra Nath Ghosh 82 ITR 888 (SC) 7. Commissioner of Income Tax V/s Kishan Chand 328 ITR 173 P&H-HC 8. Commissioner of Income Tax V/s Naveen Chander 323 ITR 49 P&H-High Court 9. Chandra Agencies vs ITO 89 ITD 1 Delhi-TRIB 10. A K Kochandi Vs Agricultural Income Tax Officer 110 ITR 405 KER-HC 11. Kunj Bihari V/s Income Tax Officer 139 ITR 73 P&H-HC 12. Wg. Cdr. Sucha Singh V/s Income Tax Officer ITAT, Delhi Bench at New Delhi & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 12 The aforesaid case laws can be well applied to the case of the assessee also. The service of notice u/s 148 of the Act on the assessee has not been proved. Even the deemed service by way of substituted service by affixture of notice was not a valid service in the absence of efforts made by the Assessing Officer to trace the proprietor of the assessee firm and without satisfaction made thereof by the Assessing Officer that the assessee could not be served in ordinary manner. However, the service by affixture was also defective as neither the place / premises of the assessee was identified by the officer making the affixture nor any independent witness was jointed. In view of the settled legal position of law, to assume jurisdiction to frame assessment u/s 147 of the Act, the notice should have been served upon by the assessee u/s 148 of the Act. The assessment framed u/s 147 of the Act without proper service of notice u/s 148 of the Act is therefore, liable to be quashed. We order accordingly.
Since the re-assessment framed u/s 147 of the Act has been quashed, hence, the consequential additions made by the Assessing Officer are accordingly ordered to the deleted. Any discussion on the merits of the case, under the circumstances, has become academic in nature and, hence, there is no need at this stage to deliberate upon the same.
In view of this, the appeal of the assessee stands allowed.
& 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 13 ITA No.1007/Chd/.2017 – Revenue’s appeal:
This is a cross appeal by the Revenue, wherein, following grounds of appeal have been taken:-
1. That the worthy CIT(A)-2, Ludhiana has erred on the facts as well as in law in deleting addition of Rs. 2,16,36,500/-made on account of unexplained cash credits u/s 68 of the I.T. Act, 1961.
2. That the worthy CIT(A)-2, Ludhiana has erred on facts as well as in law applying @ 10% gross profit rate in lieu of addition of entire payment received during the year, ignoring the established fact that the entities are bogus concerns.
3. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
12. In this appeal, the Department has contested the relief given by the Ld. CIT(A) to the assessee vide impugned order dated. However, since as per our discussion made, we had already quashed the assessment framed u/s 147 of the Act, hence, the consequential additions stood deleted.
This appeal of the Revenue, therefore, has become infructuous and the same is accordingly dismissed.
ITA No. 1492/Chd/2017 – Revenue’s appeal :
In this appeal, the Revenue has taken following grounds of appeal:- & 1007/Chd/2017 & 1492/Chd/2017 Shri Shambhu Kumar, Ludhiana 14
1. Whether the Ld. CIT(A) was right in law in admitting appeal on 12.05.2014 against an order passed on 26.08.2008 ?
2. Whether the Ld. CIT(A) was right in law in deleting the penalty when the quantum of addition was reduced by CIT(A) on estimated basis ?
3. Whether the decision of Ld. CIT(A) was right keeping in view unaccounted receipts by assessee?
The Revenue vide aforesaid grounds of appeal has agitated the levy of penalty u/s 271 (1)(c) of the Act in respect of the additions made by the Assessing Officer consequent to the assessment order dated 27.12.2007 framed u/s 147 read with section 143(2) / 144 of the Act.
Since we have already quashed the impugned assessment framed vide order dated 27.12.2007, as per our observations made above, while adjudicating the assessee’s appeal in hence, the consequential penalty levied u/s 271 (1)(c) of the Act has not legs to stand and the same is accordingly ordered to be deleted.
In view of this, the appeal of the Revenue is hereby dismissed.
In the result, the appeal filed by the assessee is allowed, whereas, the appeals of Revenue stand dismissed.
Order pronounced in the Open Court on 27.02.2020.