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Income Tax Appellate Tribunal, Hyderabad ‘ A‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
ITA Nos 1248 & 1347 of 2017 Sridhar Reddy Jagan Nagari Satya Hyderabad
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.1248/Hyd/2017 Assessment Year:2012-13 Sridhar Reddy Jagan Vs. Dy. C.I.T. Nagari Satya, Circle 15(1) Secunderabad Hyderabad PAN:ADAPJ3782D (Appellant) (Respondent) ITA No.1347/Hyd/2017 Assessment Year:2012-13 A.C.I.T. Vs. Sridhar Reddy Jagan Circle 15(1) Nagari Satya, Hyderabad Secunderabad PAN:ADAPJ3782D (Appellant) (Respondent) Assessee by: Sri P. Murali Mohan, CA Revenue by: Sri Rajendra Kumar, CIT(DR) Date of hearing: 08/06/2022 Date of pronouncement: 29/07/2022 ORDER Per R.K. Panda, A.M These are cross appeals. The first one is filed by the assessee and the 2nd one is filed by the Revenue and are directed against the order dated 27.3.2017 CIT (A)-7, Hyderabad relating to the A.Y 2012-13. For the sake of convenience, these were heard together and are being disposed of by this common order.
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Fact of the case, in brief, are that the assessee is a firm engaged in the business of steel trading. It filed its return of income on 30.09.2012 declaring total income of Rs.1,93,28,820/-. As per the assessment order, the case was selected for scrutiny under CASS and a notice u/s 143(2) was issued and served on the assessee by affixture on 30.09.2013. Subsequently, notice u/s 142(1) was issued calling for books of account and other details to which the AR of the assessee appeared before the Assessing Officer and filed the requisite details as called for.
During the course of assessment proceedings, the Assessing Officer noted from the details filed by the assessee that the assessee has introduced capital of Rs.14,35,98,259/- which is as per Schedule-I of the balance sheet. Similarly, as per Schedule- II of the balance sheet, the assessee claimed to have taken unsecured loan of Rs.95,31,364/-. On being asked by the Assessing Officer to explain the source of capital introduced and unsecured loan taken, the assessee filed the reply, the relevant portion which has been reproduced in the body of the assessment order and which reads as under: “I am herewith submitting the following information/ clarification required by you. 1. Source of capital introduced: During the year a sum of Rs.14,35,98,259/- has transferred from M/s. Sujana Universal Industries Ltd A/c to my capital Account to obtain from banks. However no physical capital was introduced by me during the year. 2. Note for Universal loans: As the bank is insisting for funds, I have transferred a sum of Rs.95,31,364/- to unsecured loan. This is only a book entry. No unsecured loan was borrowed during the year except transfer from Sujana Industries Ltd. I am herewith enclosing the following information: 1) Confirmation letter from Creditor M/s. Sujana Universal Industries Ltd along with ledger. 2) Ledger for Capital introduced source 3) Ledger for Unsecured loan”. Page 2 of 25
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Subsequently, the Assessing Officer issued summons to the assessee who appeared before the Assessing Officer and his statement was recorded. The Assessing Officer noted that on verification of the account of M/s. Sujana Universal Industries Ltd in the books of account of the assessee there are two entries in name of M/s. Sujana Universal Industries Ltd, one for Rs.95,31,364/- and the other for Rs.14,35,98,259/. This account copy was filed by the assessee on 04.03.2015. The Assessing Officer noted that the assessee also filed confirmation from M/s. Sujana Universal Industries Limited in the form of ledger account of the assessee in the books of M/s. Sujana Univèrsal Industries Limited. However, the said ledger account does not contain the above entries. There is another difference noted by the Assessing Officer i.e, when the accounts of the assessee shows purchase returns in his books however, no such sales return has been shown by M/s. Sujana Universal Industries Limited. While the assessee is showing closing credit balance in the name of M/s. Saujana Universal Industries Ltd of Rs.9,46,43,968/-, M/s. Sujana Universal Industries Limited is showing debit balance in the account of the assessee for Rs.49,39,82,512/-. This according to the Assessing Officer clearly shows that the argument that deferment of payments to supplier M/s. Sujana Universal Industries Limited is transferred for bank (name of which is not specified by the assessee) purpose as capital and unsecured loan is misleading and fallacious. The difference of Rs.39,93,38,544/- is not reconciled by the assessee. He, therefore, inferred that the under reports of this amount is deliberate action on the part of the assessee.
4.1 According to the Assessing Officer, it is clear that the assessee received goods from M/s. Sujana Universal Industries Page 3 of 25
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Limited and transferred them to unknown parties.(whose names, the assessee is not willing to explain). Part of these amounts are clearly camouflaged under unsecured loan & capital by the assessee. He inferred that it could be possible that the assessee sold the goods in cash or keeping undisclosed sundry debtors out of the books. According to the Assessing Officer, when the real dues to M/s. Sujana Universal Industries Limited are taken into account, an amount of Rs.39,93,38,544/- is excess of liability over assets and therefore he brought this amount to tax as unexplained asset/undisclosed investment in the hands of the assessee.
The Assessing Officer further noted that the assessee did not furnish books of account, vouchers/bills, LRs/DCs for the expenditure claimed in the P&L A/c. He, therefore, made an addition of Rs.9,91,15,015/- being 10% of the entire expenditure of Rs.99,91,50,156/- claimed by the assessee. Accordingly, the Assessing Officer determined the total income of the assessee at Rs.51,77,82,379/-.
Before the learned CIT (A), the assessee apart from challenging the addition on merit, challenged the validity of the assessment in absence of nonservice of notice u/s 143(2) of the I.T. Act. However, the learned CIT (A) rejected the grounds challenging the validity of the assessment in absence of service of notice u/s 143(2) of the Act. He, however, deleted the addition made by the Assessing Officer on the basis of the remand report of the Assessing Officer and the rejoinder of the assessee to such remand report. So far as the validity of the issuance of notice u/s 143(2) is considered, he decided the issue against the assessee by observing as under: Page 4 of 25
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““5.4 I have considered the submissions of the assessee, the material placed before me and the contention of the Assessing Officer in this regard. It is seen that the notice has been served on the assessee through affixture at the address available in AST database. The screenshot of database is on record and the same was made available to the assessee. The assessee has participated in the assessment proceedings and has not raised the issue of jurisdiction/non-service of notice during the assessment proceedings nor even in the original grounds of appeal. In view of the above, the notice u/s 143(2) is deemed a valid notice and consequently the proceedings there under are also validly initiated and concluded. Accordingly, the ground raised above is rejected.”
So far as the addition of Rs.39,93,38,544/- is concerned, the learned CIT (A) deleted the same by observing as under: “6.4 I have considered the assessment order, submissions of the assessee, remand report of the Assessing Officer and the rejoinder of the assessee The whole manipulation is done by the assessee w.r.t. the thereto. the transaction/outstanding payable against M/s. Sujana Universal Industries Ltd. The Account copy of M/s. Sujana Universal Industries Ltd in the books of accounts of the assessee for Asst. Year 2012-13 and Asst. Year 2013-14 and the account copies of assessee's account copy in the books of account of M/s. Sujana Universal Industries Ltd are filed which are relevant to examine the and find out the exact nature of transactions between them, the manipulation done by the assessee and implication of the same from the taxation angle. 6.4.1 Examination of the both the account copies for Asst. Year 2012-13 and 2013-14 have revealed that the account copies now submitted do not show any differences between them. Further, the assessment order done u/s. 143(3) for Asst. Year 2013-14, wherein the transactions between the two Concerns as submitted above have been accepted. 6.4.2 Neither the so called adjustments made by way of transferring the payable to capital account, unsecured loans and others nor the entries on account of purchase returns and reduction in sundry debtors have been reflected in the accounts for Asst. Year 2013-14. This shows and gives credence to the assessee's claim that the entries/adjustments are made in the balance sheet without making entries in the ledger accounts. The initial submissions before Assessing Officer are also not correct. 6.5 The Assessing Officer in the remand report raised doubts as to whether and the whether material filed is additional evidence or not. The same is non issue and whether the same is filed before the Assessing Officer during the assessment proceedings or not, the same needed to be examined w.r.t. submissions of the assessee. The Assessing Officer in the Page 5 of 25
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Remand Report only reiterated the contents/findings of the assessment order. The evidences filed as well as the explanation given have not been examined by the Assessing Officer. The contention raised by the assessee in the rejoinder fairly depicts the factual position. It appears, the Assessing Officer do not have anything adverse to comment and mostly reiterated the contents of t Assessment Order. 6.6 On examination of the issues raised by the Assessing Officer in the assessment order, the statement given by the assessee and explanation during the appellate proceedings and the remand proceedings, it is seen that the assessee has made certain adjustments in the accounts without making any entries in the concerned ledger accounts, allegedly for the purpose of availing bank loan. The capital has been enhanced, the sundry creditors is reduced with corresponding increase in unsecured loans and decrease in the sundry debtors apparently to give on better account of himself for availing loan. 6.7 In view of the factual position as above, it is held that there are no grounds for making addition of Rs.39,93,38,544/- by the Assessing Officer. The difference is on account of fictitious entries without any basis made by the assessee which do not have tax implication as there is no introduction or otherwise of profits/money into the accounts warranting any addition. Accordingly, the addition made is deleted. 6.8 The other legal grounds raised w.r.t. whether the addition is warranted u/s. 69 or u/s. 68 are not adjudicated as the addition is deleted in the facts and circumstances of the as above”.
So far as the addition of Rs.9,91,15,015/- is concerned, the learned CIT (A) deleted the same by observing as under: “7.2 I have considered the assessment order and the submissions of the assessee. I have perused the profit and loss a/c of the assessee for the relevant period. The assessee claimed expenses, apart from purchases, under the heads employee cost, administrative expenses, interest and finance charges and depreciation. Considering the fact that purchases are mainly from M/s. Sujana Universal Industries Ltd which stand verified, no disallowance may be made on purchases. The Assessing Officer is directed to restrict the disallowance to 10% of expenses claimed under employee cost and administrative expenses. The ground raised is disposed off with above direction”.
Aggrieved with such order of the learned CIT (A), the assessee as well as the Revenue are in appeal before the Tribunal by raising the following grounds of appeal:
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ITA No.1248/Hyd/2017 (Assessee) “1. The Ld. Commissioner of Income-tax (Appeals)-7 Hyderabad ['CIT (A)'], failed to note that no notice u/s 143(2) of the Income Tax Act, 1961 (' Act') was served on the appellant as enjoined u/s 282 of the Act and therefore the entire assessment made u/s 143(3) of the Act is void ab initio, invalid, bad in law and without jurisdiction and must be annulled . 2. The CIT (A) erred in holding that the notice u/s 143(2) of the Act was a valid notice and that the consequent proceedings were validly initiated. 3. The CIT (A) failed to note that the provisions of Section 292BB were not applicable as the notice u/s 143(2) of the Act were not served on the appellant as required and in accordance with the provisions of the Act and therefore the entire assessment proceedings lacks credence and hence invalid, bad in law and void ab initio and therefore the assessment should be annulled. 4. The CIT(A) ought to have clearly held on Ground No. 6 raised by the appellant before him that excess of liabilities over assets cannot have the characteristic of unexplained investment or cash credit and therefore on this ground also the entire addition of Rs. 39,93,38,544 ought to have been deleted. 3. Any other grounds that may arise at the time of hearing.”
ITA No.1347/Hyd/2017 (Revenue) “(i) The Ld. CIT(A) erred both on facts and law of the case. (ii) The Ld. CIT(A) failed to appreciate the inconsistency of facts emanating from the ledger accounts furnished by the assessee and M/ s. Sujana Universal Industries Ltd., as on 31.03.2012 produced before the AD and also failed to appreciate facts mentioned in the AD's remand report. (iii) The Ld. CIT(A) erred in admitting the additional evidence adduced by the assessee during the appellate proceedings under rule 46A of I. T. Rules, 1962 as the same was not submitted before the AD during the examination of scrutiny. (iv) The Ld. CIT(A) failed to appreciate the 10% disallowance of total expenditure considered by the AO in the absence such as bills/vouchers etc., but cost restricted the 10% of disallowance on only two grounds i.e., employee cost and administrative expenses without any basis. (v) Any other ground(s) that may be urged at the time of hearing”. Page 7 of 25
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We would first like to decide the grounds raised by the assessee in his appeal. The learned AR for the assessee drew the attention of the Bench to page (1) and Para-1 of the assessment order and submitted that the notice u/s 143(2) was issued and served on the assessee by affixture on 30.09.2013. Referring to page No.6 of the Paper Book filed by the Revenue the ld Counsel for the assessee drew the attention of the Bench to the sequence of events which are as under: “Order Sheet Shri Sridhar Reddy Jagan Nagari Satya PAN:ADAPJ 3782D H.No.2-4-96/1 Nacharam, A.Y 2012-13 Hyderabad Status :individual 29.3.2013. The assessee filed his return of income electronically for the A.Y 2012-13 on 30.09.2012 declaring total income of Rs.1,93,28,820/- The case has been selected for scrutiny by CASS on AST. Hence, notice u/s 143(2) is prepared and put up. DOH: 15.10.2013: Time 11.30AM 30.9.2013: The above notice has been served by Affixture at the above address of the assessee being the assessee or the learned AR shall now appear before the learned CIT (A) on or before 31/07/2021 with all the cogent supportive material at his own risk and responsibility to be followed by three effective opportunities of hearing. known address given in the RETURN OF INCOME for the A.Y 2012-13 as the assessee is presently not available at the above address and his whereabouts are not known. Since the assessee’s returned income for the A.Y 2012-13 exceeds Rs.20 lakhs, the jurisdiction over the case vests with ACIT, Circle 11(1) Hyderabad. As directed letter to the ACIT, Circle 11(1) Hyderabad transferring the scrutiny record prepared and put up for signature”……………………………..” 11. The learned AR submitted that from a bare reading of the assessment order as well as the order sheet entries dated 30.09.2013, it is clear that the notice u/s 143(2) of the Act ,was affixed at the premises at H.No.2-4-96/1 Nacharam, Hyderabad. The learned Counsel for the assessee referring to the report of the Inspector, copy of which is placed at page No.14 of the Paper Book
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filed by the Revenue drew the attention of the Bench to the same which is as under:
The learned Counsel for the assessee submitted that as per the Assessing Officer in the order sheet entries, the notice was allegedly served on the assessee on the last known address as per the return of income for the A.Y 2012-13. However, the notice was allegedly served by affixture at a different address which is other than the address given in the return of income. He
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submitted that the assessee was regularly filing his return of income from the A.Y 2008-09 to 2014-15 by giving the following address:
“Shri Sridhar Reddy Jagan Nagari Satya 1-5-5913, Old Alwal, Select Theatre Road, Hyderaad.
He submitted that the notice was sent and affixed at the wrong address.
Referring to the order sheet entry dated 30.09.2013, he submitted that the Assessing Officer in the order sheet entries has mentioned that the notice has been served by affixture at the above address of the assessee being last known address given in the return of income for the A.Y 2012-13. However, no effort was made by the Assessing Officer to serve the notice in the address given in the return of income which he himself has mentioned in the body of the assessment order. Referring to the report of the Inspector for service by affixture, the learned Counsel for the assessee drew the attention of the Bench to the same and submitted that the service of notice by affixture by the Inspector of the Income Tax Department is not in accordance with law and as per the provisions of section 282 of the I.T. Act. The learned Counsel for the assessee referring to the provisions of section 282 of the I.T. Act, drew the attention of the Bench to the same which reads as under: “Service of notice generally. 282 (1), the service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as "communication") may be made by delivering or transmitting a copy thereof, to the person therein named,
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(a) by post or by such courier services as may be approved by the Board; or (b) in such manner as provided under the Code of Civil Procedure, 1908 for the purposes of service of summons; or (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000; (d) by any other means of transmission of documents as provided by rules made by the Board in this behalf. (2) The Board may make rules providing for the addresses (including the address for electronic mail or electronic mail message) to which the communication referred to in sub-section (1) may be delivered or transmitted to the person therein named. Explanation-For the purposes of this section, the expressions "electronic mail and "electronic mail message" shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act, 2000 (21 of 2000)”
Referring to the above, he submitted that the notice was required to be served in accordance with the procedure laid down by the Civil Procedure Code (CPC). Further, the notice cannot be served by affixture at the very first instance.
The learned Counsel for the assessee again referring to the report of the Inspector while serving the notice through affixture drew the attention of the Bench to the same and submitted that the names of the witnesses do not disclose their complete name and address and names of their father etc., Therefore, the finding recorded by the learned CIT (A) that the notice u/s 143(2) is deemed a valid notice is incorrect. The learned Counsel for the assessee also relied on the following decision to the proposition that when the notice issued u/s 143(2) by affixture was not in accordance with law, the entire assessment proceedings have to be quashed: a) ITAT Delhi Benches in ITA No.1605/Del/2012 in Wg. Cdr.Sucha Singh. Page 11 of 25
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b) ITAT Delhi Benches in ITA Nos.1467 & 1468/Del/2011 in the case of Sumanglam Sewa Awam Educational Samiti c) ITAT Delhi in ITA Nos.5626/Del/2012 & C.O. No.319/ Del/2016 in the case of Gravity Systems (P) Ltd d) ITAT Hyderabad Benches in the case of Shri Mahesh Agarwal vs. ITO in ITA No.365/Hyd/2019.
He also relied on various other decisions.
The learned DR, on the other hand supported the order of the learned CIT (A) and filed the following written submission: “There are appeals by both the Revenue and the assessee. The assessee has raised a ground that the entire assessment is void ab initio because notice u/s 143(2) was not served on him and also Section 292BB is not applicable. The assessee also raised ground stating that the CIT(A) did not clearly held excess of liabilities over assets cannot have the characteristic of unexplained investment or cash credit.
The Department is aggrieved on the order of CIT(A) and raised grounds stating that the CIT(A) failed to appreciate inconsistency between the ledger accounts furnished by the assessee in the case of M/s. Sujana Universal Industries Limited as per his own books and also as in the books of the said company. The Department is also aggrieved of the fact that in the absence of evidence the CIT(A) was not correct in restricting the disallowance of 10% of the expenditure that too only on Employee Cost and Administrative Expenditure. The Department also has filed a ground stating that the CIT(A) admitted additional evidence without giving opportunity to the Assessing Officer under Rule 46A of LT. Rules. 3. With regard to the ground taken by the assessee that the notice u/s 143(2) was not served, it is humbly submitted that the notice was issued on 29/03/2013 to the address as available in the PAN database of the Department. As the notice could not be served, immediate efforts were made by the AO to effect service. An Inspector of Income-tax located the premises and the notice was served through affixture on 30/09/2013 at the last known address in presence of two witnesses. Thereafter a notice u/s 143(2) was again issued on 22/10/2013 and also on 07/10/2014. It is humbly submitted that throughout the proceedings the assessee never objected on the issue of non-service of notice. As seen from order sheet notings, on 19/12/2014 06/01/2015, 16/01/2015, 04/03/2015 and 20/03/2015 either the assessee or the AR appeared. The Page 12 of 25
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assessment order was passed on 27/03/2015. Throughout the assessment proceedings the assessee did not contest the issue of non-service of notice u/s. 143(2). It is humbly submitted that the issue is covered ule. 292BB of the I.T.Act which is reproduced below: "Notice deemed to be valid in certain circumstances. 292BB. Where an assessee has appeared in any proceeding or co- operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in ay proceeding or inquiry under this Act that the notice was - (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner; Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment". 4. In the present case assessee never raised any objection during the assessment proceedings. Therefore, the notice served through affixture is a valid notice and the ground taken by the assessee in this regard is without any merit. 5. It is also humbly submitted that the claim that the address in PAN database was incorrect is a claim made by the assessee and the onus lies on him to prove that there was a wrong entry of address. This is because the assessee has to produce PAN application made by him to prove his case and the matter being very old it is not possible for the Department to locate his PAN application, that too when a claim is made by him to the contrary. …………………..”. 18. We have considered the rival arguments made by both sides, perused the orders of the Assessing Officer and the learned CIT (A) and the respective paper books filed on behalf of the assessee and the Revenue. We have also considered the various decisions cited before us by both sides. We find the Assessing Officer in the instant case has served notice u/s 143(2) of the I.T. Act through affixture on the address as per the PAN Database which is not the address as per the return of income filed by the assessee or the address as per the assessment order. There is also
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no record available in the file of the Assessing Officer to demonstrate that the Assessing Officer or his office has made any attempt to serve the notice u/s 143(2) of the Act on the assessee either by ordinary post or through registered post or through courier or through email prior to resorting to the alternative mode of service by affixture. A perusal of the assessment record and the Paper Book filed by the Revenue clearly shows that the notice was allegedly served by the Assessing Officer by affixture at House No.2-4-96/1 Nacharam, Hyderabad on 30.09.2013.
A perusal of the various case laws relied on by the learned Counsel for the assessee shows that the law does not contemplate service of notice by way of affixture at the very first instance. Provisions of section 282 of the I.T. Act which has already been reproduced in the preceding paragraphs, provides that the service of notice is required to be made in such manner as may be provided under the Code of Civil Procedure for the purpose of service of summons. Order 5 Rule 9 or Order 5 Rule 17 of the CPC provides the manner of service of notice to the assessee by ordinary or by alternative means of service. For ready reference, we reproduce Order 5 Rule 9 and Order 5 Rule 17 of the C.P.C. which reads as under: “1 [9. Delivery of summons by Court.—(1) Where the defendant resides within the jurisdiction of the Court in which the suit is instituted, or has an agent resident within that jurisdiction who is empowered to accept the service of the summons, the summons shall, unless the Court otherwise directs, be delivered or sent either to the proper officer to be served by him or one of his subordinates or to such courier services as are approved by the Court. (2) The proper officer may be an officer of a Court other than that in which the suit is instituted, and, where he is such an officer, the summons may be sent to him in such manner as the Court may direct. (3) The services of summons may be made by delivering or transmitting a copy thereof by registered post acknowledgment due, addressed to Page 14 of 25
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the defendant or his agent empowered to accept the service or by speed post or by such courier services as are approved by the High Court or by the Court referred to in sub-rule (1) or by any other means of transmission of documents (including fax message or electronic mail service) provided by the rules made by the High Court: Provided that the service of summons under this sub-rule shall be made at the expenses of the plaintiff. (4) Notwithstanding anything contained in sub-rule (1), where a defendant resides outside the jurisdiction of the Court in which the suit is instituted, and the Court directs that the service of summons on that defendant may be made by such mode of service of summons as is referred to in sub-rule (3) (except by registered post acknowledgment due), the provisions of rule 21 shall not apply. (5) When an acknowledgment or any other receipt purporting to be signed by the defendant or his agent is received by the Court or postal article containing the summons is received back by the Court with an endorsement purporting to have been made by a postal employee or by any person authorised by the courier service to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons or had refused to accept the summons by any other means specified in sub-rule (3) when tendered or transmitted to him, the Court issuing the summons shall declare that the summons had been duly served on the defendant : Provided that where the summons was properly addressed, pre-paid and duly sent by registered post acknowledgment due, the declaration referred to in this sub-rule shall be made notwithstanding the fact that the acknowledgment having been lost or mislaid, or for any other reason, has not been received by the Court within thirty days from the date of issue of summons. (6) The High Court or the District Judge, as the case may be, shall prepare a panel of courier agencies for the purposes of sub-rule (1). ……………………………………………………………………………………………………………… ……………………………………………………………………………………………… 17. Procedure when defendant refuses to accept service, or cannot be found.—Where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgment, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, 2 [who is absent from his residence at the time when service is sought to be effected on him at his residence and there is no likelihood of his being found at the residence within a reasonable time] and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so Page 15 of 25
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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 whose presence the copy was affixed.”
A perusal of the above rules of the procedures mentioned in CPC cited (Supra) shows that before resorting to alternate mode of service namely by affixture or by publication or by beating of drums, it is essential to resort to other routine way of service of notice by ordinary post or by registered post with acknowledgement due. However, the service by way of affixture has not been contemplated at the first instance.
We find the Assessing Officer in the present case has served the notice u/s 143(2) of the Act through affixture at the very first instance. A perusal of the order sheet entries shows that the notice was put up for service before the Assessing Officer on 23.9.2013. However, the Revenue in its submission has mentioned that the notice was issued on 29.3.2013 and thereafter it was allegedly served by way of affixture on 30.09.2013.
A perusal of the service report of the Inspector Smt. T. Mary Ratna Kumari clearly shows that neither the names of the witnesses nor their complete identity were provided in the service report. It is essential as per CPC to give the name and addresses of the witness/s in whose presence notice was allegedly affixed by the Inspector, and the witnesses had in fact identified the premises and assessee. In the absence of these details and complete address of the independent witnesses, resorting to the alternative mode of service of notice by the Assessing Officer at the very first instance makes the service of notice doubtful and does not inspire confidence.
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Further there is another reason to record a finding that the notice has neither been issued nor served on the assessee even by way of affixture. From the reading of order sheet, it is clear that attempt was made to serve the notice on the assessee at the address given in the ROI. In the Return Of Income for the A.Y 2012-13, the address given by the assessee was “Shri Sridhar Reddy Jagan Nagari Satya, 1-5-5913, Old Alwal, Select Theatre Road, Hyderabad” which is different from the address given in the service report mentioning that notice was served by affixture. In our considered opinion, there is contradiction in the report of the Inspector of the Revenue and the order sheet entry recorded by the Assessing Officer.
There is yet another reason namely that the jurisdiction of the Assessing Officer was transferred and it was transferred to ITO Ward-11(1) Hyderabad from ITO ward 11(2) Hyderabad. As a matter of fact, Assessing Officer circle 11(1) again issued notice u/s 143(2) on 22.10.2013 and also on 10.07.2014. Again, notice dated 22.10.2013 and 10.7.2014 were issued at the address 2-4-96/1 Nacharam but there is no service of these two notices on the file of the Assessing Officer.
In our considered opinion, there was no requirement of law to issue 2nd notice u/s 143(2) as has been done in the present case on 22.10.2013 and 10.7.2014. Further as per law notice u/s 143(2) is required to be served within a period of 6 months from the end of the financial year in which the return is furnished. In the present case as is clear no notice was served on the assessee within six months of issuance of notice from the end of financial year i.e. before 30.09.2013. In our considered opinion, the Assessing Officer has resorted to affixture of notice by the Ward Page 17 of 25
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Inspector on 30.9.2013. The reading of the content of the subsequent notice 22.10.2013 clearly shows that the return of income was filed by the assessee on 30.09.2012 for the A.Y 2012- 13 but there was no reference of earlier notice, if any, issued by the Assessing Officer for fixing the date of hearing as 15.10.2013 or nonappearance of assessee on 15.10.2013 despite service of notice on 30.9.2013.
We find an identical issue had come up before the Delhi Bench of the Tribunal in the case of Wg.Cdr.Sucha Singh vs. Income Tax Officer in ITA No.1605/Del/2012 where the Tribunal after considering various decisions quashed the assessment proceedings in the absence of issue of notice u/s 143(2) in a valid manner by observing as under: “5.1 On a careful consideration of fact, we find that, admittedly, the issue involved is legal issue and it is a settled position of law that a legal issue can be raised before the Tribunal even for the first time even if it was not raised before the authorities below. In our considered opinion, the position does not change in raising the legal issue before the Tribunal even if such legal issue was raised before the CIT (A) but was not pressed. Therefore, we proceed to adjudicate on this issue. 5. 2 It is now well settled by various courts, including the jurisdictional High Court and the Apex Court, that for proper assumption of jurisdiction by the assessing officer, a valid service of notice in terms of section 282 (1) of the Act is a mandatory legal requirement. The Hon’ble Delhi High Court in the case of Hotline International 296 ITR 333 has held as under “22. As per order V, r.12 of the CPC referred to above, wherever it is practicable, the service has to be effected on defendant in person or on his agent. Admittedly, in the present case, notice under S. 148 of the Act was not tendered to the assessee nor the same was refused at all by the assessee. It is an admitted case of the revenue that when the officials of the IT department went to serve the notice under S.148 for the assessment year 1995 – 96, the security guard informed them that the company was closed for Holi festival holidays. The security guard by no stretch of imagination can be said to be the agent of the assessee and admittedly no notice was tendered either to the assessee or his agent nor the same was refused either by the assessee or his agent. 23. Under order V, r.17 of the CPC, the fixation can be done only when the assessee or his agent refuses to sign the acknowledgement or could not be found. Here, in the present case, no Page 18 of 25
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effort was made by the IT department to serve the notice upon the assessee, since the company of the assessee was closed due to Holi festival holidays, and admittedly no effort was made by the serving officer to locate the assessee. 24. Even otherwise, as per order V, r.19A of the CPC, the notice sent by registered post ought to have been sent along with acknowledgement due but admittedly it was not sent along with acknowledgement due. 25. So, from the entire material available on record we have no hesitation in holding that there has been no valid service of notice under S. 148 of the act upon the assessee as the same was neither tendered to the assessee or his agent, nor the same was refused by either of them. ” 5.3 Coming to the facts of the case, it is undisputed that the property located at 123, Hargobind Enclave, Delhi was sold by the assessee during assessment year 2008-2009. It is also undisputed that the return of income for assessment year 2009- 2010 was filed by the assessee on 04/09/2009 whereas the notice under section 143 (2) was dated 14/09/2009 and was served by affixture on 24/09/2009 and, thus, the last known address before the issue of service of notice was H – 234, Naraina Vihar, Naraina, New Delhi i.e. the address mentioned in the return of income for assessment year 2009-2010. The remand report of the AO also admits that all the notices under section 143 (2) remained un-served. Thus, the service of the very first notice has, undisputedly, been done by way of affixture whereas order V, rule 12 of CPC provides that wherever it is practicable, service has to be effected on the defendant in person or on his agent. Order V, rule 17 of CPC further provides that the affixture can be done only when the assessee or his agent refuses to sign the acknowledgement or cannot be found. Thus, for resorting to affixture, efforts have to be made to serve the notice upon the assessee and only after reaching a finding that the notice cannot be served upon the assessee, the mode of affixture can be resorted to. Further rule 17 of order V of CPC mandates that an independent local person be the witness of service through affixture and for the purpose of having been associated with the identification of the place. However a perusal of the affixture report shows that there was no independent local person as a witness and there is no evidence that anyone identified the place as belonging to the assessee before such affixture. It is seen that the Income Tax Inspector has signed as the local independent person but such witness cannot be considered to be a local independent person for the purposes of rule 17 of order V of CPC. The Hon’ble Punjab and Haryana High Court in the case of CIT versus Naveen Chander reported in 323 ITR 49 has held that the fixation is required to be done in accordance with the procedure laid down in the Code of Civil Procedure, and where in the report of the inspector/notice server, who claimed to have affixed the notice, there was no evidence of any independent local person having been associated with the identification of the place of business of the assessee, it was a clear violation of the mandate of rule 17 of order V of Code of Civil Procedure, which laid down the procedure to serve notice by affixture. Since there was no valid service of notice, the assessment proceedings were held Page 19 of 25
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as invalid. Therefore, in view of the factual matrix of the case, it is our considered opinion that the Department has failed to prove a valid service of notice on the assessee before embarking upon the assessment proceedings. Since the entire reassessment proceedings were based on assumption of jurisdiction through the issue of notice under section 143 (2) of the Act, which was not validly served on the assessee, we hold that the assessing officer was patently wrong in completing the assessment without effecting the service of notice in accordance with section 282 (1) of the Income Tax Act, 1961 read with order V rule 12 and order V rule 17 of the CPC. Therefore, on the facts and circumstances of the case, we have no option but to quash the entire assessment proceedings. Accordingly, we quash the assessment proceedings and allow the appeal of the assessee on the legal issue. In view of our adjudication in favour of the assessee on the legal issue, the other grounds become academic in nature and are not being adjudicated upon”.
We find the Delhi Bench of the Tribunal in the case of Sumanglam Sewa Awam Education Samity Vs. ACIT (Supra) while deciding an identical issue has quashed the re-assessment proceedings in absence of proper service of notice by observing as under: “6. we have considered the rival submissions and have perused the facts on record. Undisputedly, notice u/s 148 was issued on 26.03.2007 and was served upon the assessee through affixture on 16.04.2007. This fact has been recorded by the AO also on Page 2 of the Assessment Order. There is no other evidence on record to even suggest that efforts were made earlier to serve the notice on the assessee. The short question which arises for consideration in this case is as to whether notice under section 148 of the Act has been duly served upon the assessee prior to the Commencement or completion of the reassessment proceedings or not. The issue at hand will necessarily have to be examined in light of the relevant provisions of Income Tax Act, 1961 as well as the Code of Civil Procedure, 1908. 7. The relevant portion of section 148(1) of the Act, reads as under: "148. Issue of notice where income has escaped assessment (1) Before making the assessment reassessment or re computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed,; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139." Page 20 of 25
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Section 282 of the Act provides as to how the notice under the Act is to be served. The relevant provision of this section reads 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 a Summons issued by a Court under the Code of Civil Procedure, 1908 (5 of 1908)," Thus, any notice under the Income-tax Act has to be served on the person named therein either by post or as if it were a summon issued by Court under the Code of Civil Procedure. Order V, Rule 12 of the Code of Civil Procedure 1908 provides that wherever it is practicable, service shall be made on defendant in person or on his agent. The relevant provision reads as under:- "Rule 12. Service to be on defendant in person when practicable, or on his agent.-Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient " Order V, Rule 17 of the Code of civil Procedure lays down the procedure when defendant refuses to accept service or cannot be found and it reads as under: "'Rule 17. Procedure when defendant refuses to accept service, or cannot be found.-Where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgement or where the serving officer, after using all due and reasonable diligence, cannot find the defendant (who is absent from his residence at the time when service is sought to be effected on him at his residence and there is no likelihood of his being found at the residence within a reasonable time), and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto 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 whose presence the copy was affixed. " Order V, Rule 19A provides for simultaneous issue of summons for service by post in addition to personal service. It reads as under: "Rule 194. Simultaneous issue of summons for service by post in addition to personal service.-() The Court shall, in addition to, and simultaneously with, the issue of summons for service in the manner provided in rules 9 to 19 (both inclusive) also direct the summons to be served by registered post, acknowledgement due, addressed to the defendant, or his agent empowered to accept the service, at the place where the defendant, or
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his agent, actually and voluntarily resides or carries on business or personally works for gain: Provided that nothing in this sub-rule shall require the Court to issue a Summons for service by registered post, where, in the circumstances of the case, the Court considers it unnecessary. (2) When an acknowledgement purporting to be signed by the defendant or his agent is received by the Court or the postal article containing the summons is received back by the Court with an endorsement purporting to have been made by a postal employee to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons, when tendered to him the Court issuing the summons shall declare that the summons had been duly served on the defendant: Provided that where the summons was properly addressed, prepaid and duly sent by registered post, acknowledgement due, the declaration referred to in this sub-rule be made notwithstanding the fact that the acknowledgement having been Iost or mislaid, or for any other reason, has not been received by the Court within thirty days from the date of the issue of summons. Order III Rule 2 of the Code of Civil Procedure defines as to who are the recognized agents of the parties. It reads as under:- 'Rule 2. Recognised agents. The recognised agents of parties by whom such appearances, applications and acts may be made or done are a) persons holding Powers-of attorney, authorizing them to make and do such appearances, applications and acts on behalf of such parties; b) persons carrying on trade or business for and in the names of parties not resident within the local limits of the jurisdiction of the court within which limits the appearance, application or act is made or done, in matters connected with such trade or business only, where no other agent is expressly authorized to make and do such appearances, applications and acts” 8. Thus a bare reading of the provisions of the Income visions of the Income Tax Act, 1961 and the Code of Civil Procedure reproduced herein above it is seen that as per order V, Rule 12 of the Code of Civil Procedure, wherever it is practicable per Order V, Rule 12 of the Civil Procedure Code, wherever it is practicable the service has to be erected on defendant in person or on his agent. Admittedly, in the present case, notice under section 148 of the Act was not tendered to the assessee nor the same Was refused at all by the assessee. It was refused by the servant of another person Who by no stretch of imagination can be said to be the agent of the assessee and admittedly no notice was tendered either to the assessee or his agent nor was the same refused either by the assessee or his agent. Under Order V, Rule 17 of the Code of Civil Procedure, the affixation can be done only when the assessee or his agent refuses to sign the acknowledgement or could not be found. Here,
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in the present case, it is very much apparent from the records that no effort was made by the Income-tax Department to serve the notice upon the assessee and no effort was made by the AO to locate the assessee. Even otherwise, as per Order V, Rule 19A of the Code of Civil Procedure, the notice sent by registered post ought to have been sent along with acknowledgement due but admittedly it was not sent along with acknowledgement due. The Delhi Bench of the Tribunal in the case of Dr. K.C. Verma vs ACIT 84 ITD 33 (Delhi) held as follows "Section 282 provides the manner in which a valid service can be affected. According to this section, a notice under the Act is to be served either by post or as if it was summon under the Code of Civil Procedure, 1908. In the present case, admittedly, notice was never sent by post. So the question arises whether the service was effected in accordance with the provisions of Civil Procedure Code. The relevant provisions of the service of summons under the Code of Civil Procedure are contained in Order V Rules 12 to 20. Rule 12 provides that service shall be made on the defendant in person wherever it is unless he has an practicable agent empowered to accept the service in which case service on such agent shall be sufficient. Admittedly, personal service on the assessee was not affected in the present case. The claim of the department is that service of notice under Section 142 was effected by affixture. Rule 17 provides service by affixture and the same is being reproduced as under 17. Procedure when defendant refused to accept service, or cannot be found: Where the defendant or his agent or such other person as aforesaid refused to sign the acknowledgement, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, who is absent from his residence at the time when service is sought to be effected on him at his residence within a reasonable time and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto 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 whose presence the copy was affixed. Rule 19 provides that where a summon 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 and may, if it has been so verified, examine the serving officer on oath, or cause him to be so examined by another Court, touching his proceedings and may make such further enquiry in the matter as it thinks fit; and shall either declare that the Summon has been duly served or order such service as it thinks fit. At this stage, the attention is also drawn to Rule 20 which provides the circumstances under which the substituted service can be effected. For the benefit of this order, the provisions of Rule 20 are being reproduced as under :
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Substituted service Where the Court is satisfied that there is reason to believe that the defendant is keeping out of the 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 Court thinks fit. The perusal of the above provisions shows that before ordering for substituted service, the Court must be satisfied that the defendant is keeping out of the way for the purposes of avoiding service or that for any other reason the summons cannot be served in the ordinary way. Further, before affixture the serving officer must use its due and reasonable diligence to find out the defendant and if the circumstances as mentioned in Rule 17 exist then only the notice may be served by affixture that too in the presence of witnesses by whom the house was identified and in whose presence the copy was affixed. " 9. Accordingly, from the entire material available on record we have no hesitation in holding that there has been no valid service of notice under section 148 of the Act upon the assessee as the same was neither tendered to the assessee or his agent, nor the same was refused by either of them. 10. On the facts of the case and respectfully following the ratio of judgment laid down by the Hon'ble High Court of Delhi in the case of CIT Delhi - IV vs. Hotline International (P) Ltd (supra) and that of the Delhi Bench of the ITAT in the case of Dr. K.C. Verma vs ACIT, we hold that since there has been no proper service of notice on the assessee, the entire reassessment proceedings, resulting in the order dated 30-12- 2008 are bad in law and the order passed u/s 148/143(3) dated 30.12.2008 is quashed. The other grounds of appeal become in fructuous and are not being adjudicated upon. 11. In the result, the appeals of the assessee are allowed”. 28. Since in the instant case, the notice u/s 143(2) was undisputedly served by affixture at the very first instance and the report of the Inspector does not give the complete details of the witnesses in whose presence such notice was affixed, therefore, we are of the considered opinion that there is no valid service of notice to the assessee before the statutory period for assuming jurisdiction and completing the assessment. Merely because the
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assessee has participated in the proceedings will not validate the assessment proceedings in absence of service of notice u/s 143(2) of the I.T. Act and the provisions of section 292BB, in our opinion, cannot come to the rescue of the Revenue for invalid assumption of jurisdiction. In this view of matter, we hold that the entire assessment proceedings are void ab initio, invalid, bad in law and therefore, are to be quashed. Accordingly, we quash the assessment proceedings and allow the appeal filed by the assessee.
Since we have allowed the appeal filed by the assessee by quashing the assessment proceedings, the grounds raised by the Revenue challenging the order of the learned CIT (A) in deleting the addition become academic in nature and therefore, are not being adjudicated. 30. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 29th July, 2022. Sd/- Sd/- (LALIET KUMAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 29th July, 2022. Vinodan/sps Copy to: S.No Addresses 1 Sridhar Reddy Jagan Nagari Satya C/o K.C. Devdas, C.A, Sekhar & Co. C.A. 133/4, Bible House, R.P. Road, Secunderabad 500003 2 Dy.CIT, Circle 15(1) Hyderabad 3 CIT (A)-7,Hyderabad 4 Pr. CIT-7, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order
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