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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: HON’BLE SHRI PAWAN SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. The bunch of cross-appeals in respect of three different assessee having same address, for Assessment Year [AY] 2008-09, contest the order of Ld. first appellate authority on common grounds of appeal. Since the appeals were identical on material facts in all respect, the same were heard together and now, disposed-off by way of this common order for the sake of convenience & brevity. Cross Appeals : M/s. Sweet Memories Property Pvt. Ltd 2.1 Aforesaid Cross-appeals for Assessment Year [AY] 2008-09 contest the order of Ld. Commissioner of Income-Tax (Appeals)-3, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-3/ACIT- 1(3)(1)/IT-73/2016-17 dated 28/04/2017 on separate grounds of appeal. 2.2 The effective grounds raised by the assessee read as under: - 1(a) The Commissioner of Income Tax (Appeals) - 3, Mumbai [hereinafter referred to as 'the CIT(A)'] erred in confirming the action of AO in reopening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act,1961 ("the Act"). The Appellant submits that the notice issued u/s 148 of the Act and reopening of assessment u/s 147 of the Act is bad in law, illegal, ultra- virus and contrary to the provision of the Act and shall be quashed. (b) The CIT(A) erred in confirming the re-opening of assessment u/s 147 read with section 148 of the Act by the AO, since the same was without valid service of notice u/s 148 of the Act The Appellant submits that there is no valid service of notice u/s 148 of the Act on the Appellant hence the reopening of assessment is bad in law, illegal, ultra-virus and contrary to the provision of the Act and same shall be quashed. (c) The CIT(A) erred in confirming the re-opening of the assessment u/s 148 read with section 147 of the Act on the basis of general statement recorded of third parties, and without appreciating that those statements were also subsequently retracted by such parties. (d) The CIT(A) erred in confirming the Order u/s 143(3) r.w.s. 147 of the Act passed by the AO without allowing verification and cross examination of the parties, and without appreciating that the said order is passed in gross violation of principle of natural justice; thus, void in law and needs to be quashed (e) The CIT(A) erred in confirming the action of AO in reopening the assessment u/s 148 of the Act, without obtaining the requisite prior approval/sanction as required u/s 151 of the Act and without providing the same to the Appellant in spite of repeated request by the Appellant during the reassessment proceedings. (f) The CIT(A) erred in confirming the action of AO in issuing the notice u/s 148 of the Act after expiry of four years from the end of relevant assessment year. The Appellant submits that in its case assessment proceedings has been completed u/s 143(1) of the Act after considering full details/disclosure filed by the Appellant; hence, the same cannot be reopened after expiry of four years from the end of relevant assessment year.
2.3 The effective grounds raised by the revenue read as under: - i) Whether on the facts and circumstances of the case and in Law, the CIT(A) erred in ignoring the findings of survey, materials gathered there-from and the statement of directors etc. admitting that only accommodation entries were provided, more so when such findings got strengthened by findings of AO during assessment? ii) Whether, on the facts and circumstances of the case and in Law, the CIT(A) was justified in directing the deletion of the sum brought to tax by AO as unexplained income under section 68 of the Income Tax Act, 1961 in respect of moneys credited in the books as share capital, including share premium of Rs.3,95,00,000/-? iii) Whether, on the facts and circumstances of the case and in Law, the CIT(A) was justified in holding that the assessee proved identity, credit-worthiness and genuineness of moneys credited in the books as share capital, including share premium, of Rs.3,95,00,000/- just by submitting PAN, and acknowledgement of income-tax returns of the shareholders, and that the share premium has been received through banking channel and duly supported by the forms filed by the assessee company with Registrar of Companies. (ROC)?" (iv) Whether ,on the facts and circumstances of the case and in Law, the CIT(A) erred in not upholding the addition made on account of unjustified share premium, by relying on the decision of Hon’ble ITAT, Mumbai in the case of Green Infra Ltd. (ITA No. 7762/Mum/2012 dtd.23/08/2013), although the facts were different in the said case since the addition was made u/s. 56(1) whereas in this case addition has been made u/s. 68? (v) Whether on the facts and circumstances of the case and in Law, the CIT(A) erred in relying on the decision of Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Union of Income & Ors 368 ITR
1. (Bom) wherein the issue is relating to income arising out of international transaction in the form of issue of shares and not taxability of capital receipt u/s 68 of the Income Tax Act?" (vi) Whether on the facts and circumstances of the case and in Law, the CIT(A) erred in holding that receipt of share capital / premium is capital in nature and thus cannot be bought to tax u/s 68 of Income Tax, 1961 by relying on Instruction No. 2/2015 wherein the issue is regarding acceptance of the decision of Hon'ble Bombay High Court in Vodafone Case (Supra) relating to income arising out of international transaction in the form of issue of shares not taxability of capital receipt u/s 68 of the Income Tax Act 1961?
As evident from grounds of appeal, the assessee is contesting the legality of jurisdiction acquired by Ld. Assessing Officer to initiate reassessment proceedings against the assessee whereas the revenue is contesting the relief granted by first appellate authority in the impugned order on merits.
3.1 Facts leading to the same are that the assessee being resident corporate assessee stated to be engaged in the business of real estate and investments was subjected to an assessment u/s 143(3) read with Section 147 on 31/03/2016 by Ld. Assistant Commissioner of Income Tax-1(3)(1), Mumbai [AO] wherein the income was determined at Rs.393.38 Lacs after sole addition u/s 68 for Rs.395 Lacs as against returned loss of Rs.1.61 Lacs filed by the assessee on 30/09/2008. The original return of income was processed u/s 143(1). 3.2 The reassessment proceedings got triggered by issuance of notice u/s 148 on 10/03/2015 which was beyond 4 years but within 6 years from the end of relevant AY i.e. 2008-09. However, the notice was returned back unserved by postal authorities on 16/03/2015. As per revenue, the notice was affixed at the address of the assessee on 09/07/2015 as per the report of the notice-server of the ward. This was followed by issuance of notice u/s 142(1) on 23/07/2015 through post requesting the assessee to file a return in response to notice issued u/s 148 on 10/03/2015. However, the same was also returned back with the remarks not known. Subsequently, notice u/s 142(1) was finally hand served to the office of the assessee on 30/07/2015. 3.3 The assessee, vide submissions dated 06/08/2015, objected to re- assessment proceedings on the ground that the no notice u/s 148 was ever received by the assessee and therefore, no return against the same has been filed by the assessee. The attention was drawn to the fact that the notice must be served in terms of provisions of Section 148 to assume valid reassessment jurisdiction to make assessment u/s 147. Since no notice was served on the assessee, the reassessment proceedings were to be dropped. Reliance was placed on various judicial pronouncements to support the same. 3.4 The assessee’s submissions were controverted by Ld. AO by drawing attention to the fact that notice was first issued on 10/03/2015 through speed post and therefore the same was issued well within the time limit as per Section 149 of the Act and the said notice was issued after obtaining requisite approval u/s 151 of the Act and the notice was properly addressed. However, the notice was returned back undelivered on 16/03/2015 with the remarks incomplete address / not known after two unsuccessful attempts made by postal authorities to deliver the same at the given address, first on 11/03/2015 and thereafter on 13/03/2015. Since the notice was returned back undelivered, a notice- server was deputed to deliver the copy of the said notice with reminder to the assessee to promptly file the return of income so that reassessment proceedings could be expedited. As per the report of notice-server, the office copy of the notice u/s 148 dated 10/03/2015 was affixed on the assessee’s address on 09/07/2015. In the absence of any response, a reminder dated 23/07/2015 was again sent by speed post at the given address, however, the same also got returned back undelivered on 29/07/2015 with the remarks not known. Therefore, a notice server was again deputed to deliver the said reminder which was finally received in assessee’s office on 30/07/2015 with the following remarks: - i) No notice dated 10/03/2015 as mentioned in the notice has been received earlier. ii) This is the first notice received u/s 148 for the AY 2008-09.
Therefore, the notice, in the opinion of Ld. AO was validly issued as well as served within the framework of law and therefore, the prescribed conditions to invoke the reassessment proceedings were duly fulfilled. 3.5 Thereafter, the assessee, vide submissions dated 15/10/2015, drew attention to the fact that the notice u/s 148 dated 10/03/2015 was addressed to the following incomplete / incorrect address: - Court Chambers, 35, Sir V.T.Marg Mumbai – 400 020 As against the same, the correct address of the assessee was as follows: - 1B, Court Chambers, 35, Sir Vithaldas Thackersey Marg, New Marine Lines, Mumbai – 400 020 In support of correct address, copy of relevant extracts of this address as registered with Registrar of Companies was placed on record. It was submitted that the building Court Chambers was an office building housing a large number of commercial offices related to various businesses and the assessee was occupying a single office unit in this large complex. Mere writing of the name of building & without mentioning the proper and correct office number or even the floor number, it could possibly not lead to delivery of any correspondence to assessee’s office. The attention was also drawn to the fact that in earlier years, the income tax returns were duly filed with proper and correct address and despite having full and complete address, Ld. AO kept on sending notices at incomplete address and the communications / notices were returned undelivered many times and could not be served to the assessee within the prescribed time limits and therefore, it could not be considered as valid service of notice. It was also pointed out that the assessee’s office was located just behind the Income Tax Department Office and in case of any difficulty, the notices could have been served personally since address and contact details were duly mentioned in all correspondences as well as in the Income Tax returns filed by the assessee. However, no efforts were made to serve the notice u/s 148 within the prescribed time limit. The attention was also drawn to the fact that affixture of notice was also done at the incomplete address which was never received by the assessee and therefore, a notice drawn on incorrect / incomplete address could not be said to be validly issued or served within the meaning of law and therefore, reassessment proceedings were wrongly initiated and liable to be dropped. However, the same could not find favor with Ld. AO who proceeded to reassess the income which got triggered pursuant to receipt of information during survey proceedings conducted by DDIT (Inv.), Mumbai on Capri Group of Services on 09/10/2014. During survey proceedings, it transpired that the assessee received share premium of Rs.3.55 Crores. The share was allotted at a very high premium and the same shares were bought back by the group companies of the assessee at a very low price. The assessee, vide letter dated 15/10/2015 offered the original return filed u/s 139 as the return in response to notice u/s 148. 3.6 The copy of the reasons recorded by Ld. AO was duly supplied to the assessee which were objected to by the assessee primarily on the ground that the primary conditions to initiate reassessment proceedings viz. reason to believe that certain income escaped assessment of income was not fulfilled by Ld. AO with due application of mind. The Ld. AO had no rational or proper belief that any income escaped assessment of income & the same was triggered merely on borrowed satisfaction of investigation wing and therefore, the reopening of the assessment was without jurisdiction and invalid under law. It was also submitted that issue of shares at premium alone would not automatically lead to an inference that the premium on share was the income of the assessee and chargeable to tax without there being any adverse material on record. Reliance was placed on certain judicial pronouncements to support the same, which have already been extracted in the quantum assessment order. The attention was also drawn to the fact that investment made by the stated share applicant viz. M/s Deevee Commercial Ltd. was genuine and supported by cogent documentary evidences. 3.7 However, not convinced with assessee’s submissions, Ld. AO proceeded to reassess the income of the assessee and issued notice u/s 142(1) along with questionnaire on 28/01/2016 directing assessee to file the requisite information / explanations in support of the transactions. The assessee pointed out that the persons whose statements were being relied upon by the revenue to draw adverse inference against the assessee was retracted subsequently and therefore, the same alone could not form the basis to make additions. The assessee also submitted that details of share applicant along with their respective address, number of shares issued, face value per share and share premium received against the same. These details have already been extracted in para 12.1 on page No. 24 of the quantum assessment order. Notices u/s 133(6) were issued to all 10 share applicants, out of which 8 parties responded to the notices. The Ld. AO analyzed the replies / material on record to examine the fulfillment of primary conditions of Section 68 viz. identity of the investor, creditworthiness of the investors & genuineness of the transactions and tabulated the financial positions of 8 share applicants on page no. 29 of the quantum assessment order. Few instances were also noted wherein it transpired that the shares of share applicants purchased @Rs.20/- per share were subsequently purchased by the group concerns of capri group at a low price i.e. at Rs.2/- per share thereby generating losses for the investor companies. The assessee rebutted the same on the ground that the assessee did not bought any shares from any of the applicants and selling was purely a commercial or genuine decision of the shareholders to sell the shares at an agreed consideration. 3.8 Finally, not convinced with assessee’s explanations / submissions, Ld. AO treated the amount of Share Capital & Share Premium aggregating to Rs.395 Lacs received by the assessee from 10 share applicants as unexplained cash credit u/s 68 and added the same to the income of the assessee. 4.1 The assessee agitated the same on legal grounds as well as on merits before Ld. first appellate authority vide impugned order dated 28/04/2017 wherein the assessee’s plea contesting the invocation of reassessment proceedings were dismissed. However, on merits, the assessee drew attention to the fact that requisite details as well as documentary evidences were filed by the assessee during assessment proceedings so as to establish the fulfilment of primary ingredients of Section 68 and therefore, the additions were not justified. The details of these documents, as tabulated in the impugned order, were stated to be as follows: - i) Details of share subscribers giving name, address, PAN. No. of shares subscribed, share capital & share premium received etc. ii) Share Application form submitted by the shareholders iii) Audited Accounts of the Share subscribers iv) Copy of PAN card of the subscribers v) Board resolution of the share subscribers for application of shares vi) Board resolution of appellant for allotment of shares vii) Confirmation letters obtained from the share subscribers confirming the transactions and showing source of fund for making investment by them viii) Bank statement of share subscribers showing payment towards share subscribed ix) NBFC registration certificate of share subscribers wherever applicable x) Bank statement of Appellant Company reflecting share capital received during the year xi) Return of Allotment in Form-2 filed with Registrar of Companies Reliance was placed on various judicial pronouncements in support of the submissions. It was also reiterated that the additions were being made merely on the basis of third-party statements made during survey proceedings which were retracted later on in view of the fact that the statement was given under pressure and to buy peace of mind. 4.2 The Ld. first appellate authority concurred with assessee’s stand on merits that Ld. AO heavily relied upon third-party statements who were later on retracted and therefore, the same alone were not sufficient to invoke Section 68 against the assessee. It was further observed that Ld. AO failed to demonstrate as to how unaccounted money was brought in to the channel and how the transactions were not genuine. No independent inquiries were made to bring out any evidence on record to establish the dubious character of the said cash credit. Since the assessee demonstrated the fulfilment of primary ingredients of Section 68 with cogent documentary evidences as tabulated in para 4.1 above, the impugned additions u/s 68, in the opinion of Ld. first appellate authority, in respect of Share Capital could not be sustained. 4.3 The addition of Share Premium was deleted in terms of CBDT instruction No. 2/2015 dated 29/01/2015 and decision of Hon’ble Bombay High Court rendered in Vodafone India Services Pvt. Ltd. Vs. Union of India [368 ITR 1] in view of the fact that these transactions were on capital account. Reliance was also placed on the decisions of Hon’ble Bombay High Court rendered in CIT Vs. Gagandeep Infrastructure Pvt. Ltd. & CIT Vs. Green Infra Ltd. to arrive at the conclusion that addition on account of share premium was not justified. 4.4 The aforesaid conclusions drawn by first appellate authority has given rise to cross-appeals before us. The assessee, in its appeal, is contesting the validity of reassessment proceedings on the same grounds as agitated before lower authorities whereas the revenue is contesting the deletion of additions, on merits. 5.1 The Ld. Authorized Representative for Assessee, taking us through the documents placed in the paper-book, reiterated the submissions that notice u/s 148 was never issued to the assessee which makes reassessment proceedings bad in law. The attention has been drawn to the fact that notice u/s 148 was not issued at the correct address of the assessee and the same could not be said to have been issued within the outer time limit provided u/s 149 of the Act which was 31/03/2015, being the expiry of 6 years from the end of relevant AY i.e. 2008-09. The fact that it was issued at incomplete address was quite evident from the fact that it was returned by postal authorities with remarks like incomplete address/ not known. Our attention has been drawn to the fact that the correct address of the assessee was always on the record of the revenue for the AYs 2013-14 & 2014-15 and the documents for those years were filed around the same time during which notice u/s 148 was stated to be issued by the revenue. It has been emphasized that the phrase issued as used in Section 149 would mean issued at the correct address and notice issued at incomplete address could not be said to be a valid notice in terms of Section 149. Proceeding further, Ld. AR submitted that similar is the position of notice stated to be served by affixture on 09/07/2015. Therefore, the jurisdictional requirement of Section 149 was not complied with by the revenue and therefore, the proceedings were bad in law. Reliance has been placed on the following judicial pronouncements in this regard: - i) Hon’ble Chhattisgarh High Court in Ardent Steel Ltd. Vs ACIT 405 ITR 422 ii) Hon’ble Delhi High Court in PCIT Vs Atlanta Capital Pvt. Ltd. ITA 665-666 of 2015 5.2 Coming to service of notice, it has been emphasized that Section 148 envisages service of notice before making assessment, reassessment or re-computation u/s 147. The notice, as per Ld. AR, was never served upon assessee since the notice issued on 10/03/2015 was undisputedly returned back by postal authorities with remarks incomplete address / not known. Thereafter, the revenue adopted the mode of affixture for service of notice as per Section 282(1)(b) of the Act i.e. in the manner prescribed under the Code of Civil Procedure, 1908 for the purposes of serving of summons. Accordingly, ward inspector was deputed to affix the notice at assessee’s premises and as per inspector’s report, the notice is alleged to have been affixed on 09/07/2015 i.e. after a lapse of 4 months from the date of the notice. However, there was no service by affixture also on assessee’s office as alleged by the revenue since the same also bear the incomplete address only. It was submitted that the assessee came to know about proceedings u/s 148 for the first time only upon receipt of Ld. AO’s letter dated 23/07/2015 on 30/07/2015 which was hand delivered at the assessee’s correct address. The said letter referred to notice u/s 148 dated 10/03/2015 and its alleged non- compliance by the assessee. However, the said letter did not make any mention of the alleged affixture on 09/07/2015 and therefore, the assessee vide letter dated 06/08/2015 objected and denied the service of notice with a request to drop the proceedings on non-fulfilment of jurisdictional condition of service of notice. Our attention is further drawn to the fact that the envelop containing notice dated 10/03/2015 was always and at present also, in sealed condition and therefore, the stand that the same was served vide affixture on 09/07/2015 could not hold any ground. It has been the submissions of Ld. AR that notice u/s 148, till date has never been served upon assessee and therefore, the reassessment proceedings were not validly initiated & therefore, unsustainable in law. 5.3 It is also the submissions of Ld. AR that the affixture report dated 09/07/2015 again states incomplete address of the assessee without referring to the office number of the assessee. The submissions has also been made that the stated building Court Chambers is a multi-storied commercial building housing more than 100 offices and therefore, it could not have been possible for the notice server to find the assessee in the absence of correct office number and therefore, it was incomprehensible to accept the fact that notice was affixed at the assessee’s address particularly in view of the fact that no signature of independent witness was taken to substantiate the affixture of notice. Reliance has been placed on various judicial pronouncements to support the submissions, which have already been enumerated in the written synopsis filed during the course of hearing before us. The stand of first appellate authority, in deleting the additions, on merits, have sought to be buttressed on the strength of documentary evidences submitted by the assessee during proceedings before lower authorities. 5.4 Per contra, Ld. Departmental Representative, through oral submissions as well as on the strength of written submissions, pleaded that the letter dated 23/07/2015 was received by the assessee on the same address as given in notice dated 10/03/2015 and therefore, the notice was validly issued as well as served upon assessee as per law. On merit, reliance has been placed, inter-alia, on the recent decision of Hon’ble Apex Court rendered in PCIT Vs. NRA Iron & Steel Private Limited [Civil Appeal No. 29855 of 2018 dated 05/03/2019] to submit that deletion of additions by Ld. first appellate authority was not justified. 6.1 We have carefully heard the rival submissions and perused relevant material on record including judicial pronouncements cited before us. Since the assessee’s appeal contest the very jurisdiction of Ld. Assessing Officer and goes to the root of the matter, we take up the same first. After perusal of material on record, the undisputed position that emerges is that notice issued u/s 148 for the first time on 10/03/2015 was returned back by postal authorities on 16/03/2019 with remarks incomplete address / not known after two unsuccessful attempts made by postal authorities. Another undisputed fact that emerges is the fact that the aforesaid notice bear the address of the assessee as Court Chambers, 35, Sir V.T.Marg Mumbai – 400 020 without mentioning the office number. From the records, it transpires that the assessee’s correct / complete address is 1-B, Court Chambers, 35, Sir V.T. Marg, New Lines, Mumbai – 400 020 which is evident from returns of income filed by the assessee for AYs 2013-14 & 2014-15 on 27/09/2013 & 29/09/2014 as well as per the records of Registrar of Companies, a copy of which has been placed on page nos. 26 to 29 of the paper-book. The Ld. AR has contended that the building Court Chambers was an office building housing a large number of commercial offices related to various businesses and the assessee was merely occupying a single office unit in this large complex, which remain undisputed. Therefore, mere writing of the name of building, without mentioning the proper and correct office number or even the floor number, it could possibly not lead to delivery of any correspondence to assessee’s office. The said fact is uncontroverted by the revenue and also gather strength from the evidence that notice sent through postal authorities remained undelivered despite two attempts made by the postal authorities and returned back on 16/03/2015 with remarks incomplete address / not known. The said very remarks by postal authorities, in our opinion, would have triggered the revenue to probe into the correct address of the assessee as per records and find out the reasons for non-delivery of the said notice at the address mentioned therein. 6.2 However, we find that prima-facie no efforts were made by the revenue, subsequent to return of notice by postal authorities, to trace the correct address of the assessee from the records and make earnest effort to serve the notice on assessee. The same is also evident from the fact that the copy of the same very notice as sent earlier was sought to be served through affixture on 09/07/2015. The perusal of the notice- server affixture report, as placed on record, reveal that same mistake has been repeated while mentioning the address of the assessee in the said notice and the notice is stated to have been affixed at the same incomplete address viz. Court Chambers, 35, Sir V.T.Marg Mumbai – 400 020. It is another aspect that the said report has not been substantiated with signatures of any independent witness. Thereafter, notice sent u/s 142(1) at the same address has also been returned back, as it would have been.
6.3 The only communication, which is shown to have been served on the assessee on 30/07/2015, is the letter dated 23/07/2015, the contents of which has been reproduced below: - GOVERNMENT OF INDIA OFFICE OF THE Asst. COMMISSIONER OF INCOME TAX, CIRCLE l(3)(l), MUMBAI. Room No. 540, M. K. Road, Aayakar Bhavan, Mumbai - 400 020.
------------------------------------------------------------------------------------------------------ No. DCIT-l(3)(l)/Req./2015-16 Date: 23.07.2015 PAN-AALCS2054 G To, The Principal Officer M/s Sweet Memories Properties Pvt.Ltd, Court Chambers,35,Sir V.T. Marg Mumbai 400020 Sub: Request to file the return in response to the Notice u/s 148 of the Act. Sir/ Madam, Notice under section 148 of the Income Tax Act was issued to you on 10.03.15, however this office has not received any proper reply from your side in response to the said notice as to filing Return of Income for the assessment year 2008-09. Kindly note that this is the last opportunity being given to you to respond TO SAID NOTICE WITHIN 7 DAYS OF RECEIPT OF THIS NOTICE, otherwise necessary action will be taken as per law without any further intimation to you. For Sweet Memories Property Pvt.Ltd. Sd/- Director / Authorized Signatory Thanking You, Yours Faithfully Sd/- Dr.Akshay Jain ACIT1(3)-1 Mumbai 1. No notice dated 10/3/15 as mentioned in this notice has been received earlier. 2 This is the first notice received u/s. 148 for AY 2008-09 Sd/- with round seal डॉ अ�य जैन Dr. AKSHAY JAIN सहायक आयकर आ यु� -1 (3) 1,मुंबई Asst. Commissioner of Income Tax-1 (3) 1, Mumbai
IB 1st Floor, Court Chambers 35, Sir, Vithaldas Thakersay Marg New Marine Lines Mumbai-400 020. (Seal Affixed by assessee upon receipt)
The perusal of the same reveal that the said communication is also not a notice u/s 148 but merely a reminder to the assessee to file a return in response to notice u/s 148 dated 10/03/2015. No other material could be placed on record by the revenue to establish that notice u/s 148 was ever served upon the assessee. 6.4 Upon combined reading of Section 149 & Section 148, we find that notice could not be issued to the assessee beyond a period of 6 years from the end of relevant AY which, in the present case, expired on 31/03/2015. Further, Section 148 mandates revenue to serve upon assessee the requisite notice before proceeding to make any assessment / reassessment or re-computation. Upon careful perusal of chronology of events as enumerated in the preceding paragraphs, we find that there was no service of notice u/s 148 by the revenue on assessee in the present case and the primary condition to invoke reassessment jurisdiction, against the assessee, remained unfulfilled. The non-service of notice, in our opinion, was not merely a curable procedural defect but primary requirement under law, without fulfilment of which the revenue could not be empowered to trigger re-assessment proceedings against the assessee. 6.5 At this juncture, we find that the given factual matrix is squarely covered by an exhaustive decision of Hon’ble Delhi High Court rendered in CIT Vs. Chetan Gupta [2015 382 ITR 613] wherein Hon’ble Court, after considering catena of judgment on the subject, has succinctly dealt with identical issue in the following manner: - Service of notice a jurisdictional requirement 24. The Court first would like to deal with the question whether notice under Section 148 of the Act is a jurisdictional requirement. The relevant portion of Section 148 (1) reads as under: "148. Issue of notice where income has escaped assessment.— (1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the Assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section."
The Supreme Court in R.K. Upadhyaya (supra), explained that there was a distinct shift in the scheme of the provisions of the 1961 Act in comparison with the corresponding provision i.e. Section 34 under the 1922 Act under which the mandatory requirement was that both the issuance and service of notice had to be completed within the prescribed period. Consequently, the service of notice within the limitation period was the foundation of jurisdiction under the 1922 Act. In Y. Narayana Chetty v. ITO [1959] 35 ITR 388 the Supreme Court observed in the context of Section 34 of the 1922 Act,: "The notice prescribed by section 34 of the Income tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void."
This was also the basis for the decision in Banarasi Debi v. ITO [1964] 53 ITR 100 (SC). However, under the 1961 Act the procedural requirement has been spread over three sections, being Sections 147, 148 and 149. The period of limitation within which notice under Section 148 has to be issued is specified in Section 149. Section 153 (2) of the Act stipulates that no order of re-assessment can be passed beyond the period of one year from the expiry of the financial year in which service of the notice was effected. Section 148 (1), however, is clear that no reassessment can take place without service of notice being effected on the Assessee or his authorised representative.
In R.K. Upadhyaya (supra) the Supreme Court explained that "the mandate of Section 148 (1) is that reassessment shall not be made until there has been service." However, the said decision does state that jurisdiction becomes vested in the AO to proceed with the assessment once notice is issued within a period of limitation. It also emphasized that no reassessment shall be made "until there has been service." The legal position therefore, even under the 1961 Act, is that service of notice under Section 148 is a jurisdictional requirement for completing the re- assessment. This has been emphasized in several other decisions of the High Courts as well.
In C.N. Nataraj v. Fifth ITO [1965] 56 ITR 250 (Mys), the High Court of Mysore was dealing with the case where the notice under Section 148 of the Act was issued in the names of the Assessee who were minors and not in the names of their guardians. The notices were served on a clerk of the father of the Assessee who was neither an agent of the Assessee nor authorized to accept notices on their behalf. The Court, relying on the decision in N. Narayana Chetty (supra) observed: "There is no doubt that a notice prescribed under section 148 of the Act for initiating reassessment proceedings is not a mere procedural requirement; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 147. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the Income tax Officer without a notice or in pursuance of an invalid notice would be illegal and void."
In Hotline International (P) Ltd. (supra) this Court held that affixation of notice on an address at which the security guard of the Assessee-company refuses to receive such notice cannot be construed to be a proper service of notice under Section 148 of the Act. The security guard was not an agent of the Assessee and therefore, the reassessment proceedings were held to be bad in law.
In Dina Nath v. CIT [1994] 72 Taxman 174 (J. & K.) the notice under Section 143 (2) of the 1961 Act was served upon one S, who was neither a member of the family of the Assessee nor his duly authorized agent. However, S had been accepting the notice on behalf of the Assessee and prosecuting the cases on his behalf earlier before the income tax authorities. The High Court held: "the object of issuance the notice or summons is to intimate the concerned person to appear and answer the queries or the question sought to be clarified by a Court or the authorities. As serious consequences are likely to follow, a notice or summons must necessarily be issued and served in the form and in the manner prescribed by law."
The High Court in Dina Nath (supra), referred to Order V Rule 12 CPC as well as Order III Rule 6 CPC. It thereafter concluded that notice must be served personally upon the individual or upon his agent duly authorized in terms of Order III Rule 6 CPC. The contention of the Assessee was upheld and the reassessment proceeding was quashed.
In Jayanthi Talkies Distributors v. CIT [1979] 120 ITR 576 (Mad.) the notice was served by the notice-server of the Department on the Manager of the Assessee-firm. The Manager wrote to the ITO seeking time. Since no return was filed by the Assessee within the time granted, the ITO completed the reassessment under Section 144 of the 1961 Act. On appeal the High Court found that none of the partners of the Assessee-firm had been personally served with the notice. Service was effected only on the Manager of the firm who had no specific or written authority to receive such notice. It was held: "when the statute provides that a notice should be served in a particular mode, it was not possible to hold that there had been a proper service of notice merely from the fact that the person to whom the notice had been addressed had received the notice through some other source or that he had become aware of the contents of the notice. There had not been a due service of notice as contemplated by the provisions of the Code of Civil Procedure dealing with service of notice or summons. Therefore, the service of the notice on the Manager who had no written authority to receive the same could not be held to be a proper service on the Assessee."
In Sri Nath Suresh Chand Ram Naresh (supra) it was reiterated that service of valid notice under Section 148 was "the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of the notice." It was held that the Tribunal was not right in holding that the notices under Section 148 addressed as 'SCR' and the karta 'S' were valid notices for reassessing the income of the HUF 'MM' or 'MS' or its successors. Onus on Revenue to prove service of notice 34. There is sufficient judicial authority for the proposition that the burden of showing that service of noticed has been effected on the Assessee or his duly authorized representative is on the Revenue. These include Fatechand Agarwal v. CWT [1974] 97 ITR 701 (Ori.) and Venkat Naicken Trust v. ITO [1999] 107 Taxman 391/[2000] 242 ITR 141 (Mad). In CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 (SC), the Respondent to whom the notice was directed was not in town. The only information which the process server had was that the Respondent was either in Bombay or Ceylon. Thereafter, the process server affixed the notice on the business premises of the Respondent. The Supreme Court affirmed the essential principle that "if no notice was served within the period, the Income-tax Officer was incompetent to commence proceedings for reassessment under Section 34 of 1922 Act." It was further held that "service of notice under Section 34 (1) (a) within the period of limitation being a condition precedent to the existence of jurisdiction, if the Income-tax Officer was unable to prove that the notice was duly served upon the Respondent within the prescribed period, any return filed by the Respondent after the expiry of the period of eight years will not invest the Income-tax Officer with authority to reassess the income of the Respondent pursuant to such return." On the facts of that case it was held that the Revenue had sufficiently discharged the onus by producing the affidavit of the process server.
Under Section 282 (1) of the Act, service of notice may be made by delivering or transmitting a copy thereof to the person to whom the notice is addressed by more than on mode. One of the modes is "in such manner as provided under the Code of Civil Procedure, 1908 ('CPC')". For the purpose of service of summons under Order V Rule 12 CPC, service can be taken to complete, if it is effected, on person to whom his address or to another person who is empowered to receive such notice on his behalf. Besides the appointment of such agent by the Assessee has to be in writing in order to meet the requirement of Order III Rules 2 and 6 CPC. Therefore, in the instant case, the Revenue had to show that the person on whom the notice was served i.e., Mr. Ved Prakash was in fact empowered by the Assessee to receive notices on his behalf. Apart from invoking the doctrine of 'apparent authority', the Revenue has been unable to show that, in fact, Ved Prakash was empowered to receive such notice on behalf of the Assessee.
The reliance by the Assessee on the decision in Harshad J. Shah (supra) appears to be misplaced. The facts there were that the relationship of principal and agent flowed from the contract. The agent was employed as such by the LIC and the letter of appointment contained an expressed prohibition on him collecting premium on behalf of the LIC. Further there were regulations that prohibiting the agents from collecting premium on behalf of the LIC. The Court explained the doctrine of apparent authority and observed: "the authority of the agent is apparent where it results from a manifestation made by the principal to third parties." On the facts of the case, the said doctrine was held not to bind the LIC against third parties who may have been unaware of the lack of authority of the agent to whom they handed over the premium cheques. In the present case, however, the Revenue has not been able to show that the Assessee held out Mr. Ved Prakash to be his employee or agent.
No attempt appears to have been made by the Revenue to serve the Assessee at the address provided by him i.e. "c/o Jagat Theatre, Sector 17, Chandigarh". All the notices were addressed to him at the address "C/o Kiran Cinema, Chandigarh" which was in Sector-22. Therefore, this is not a case where an attempt was made by the Revenue to serve the Assessee at his known address, and upon not finding him there the Revenue learnt of the address where he would be found. Merely because other notices sent to the 'Assessee group' were received by the employees of Kiran Cinema it does not automatically lead to the inference that the Assessee's place of business was also Kiran Cinema. In any event, there could not be an inference that Mr. Ved Prakash was duly empowered by the Assessee to receive notices on his behalf. In the very first notice dated 28th March 2008 the endorsement made by Mr. Ved Prakash shows him describing himself as "Accountant, Kiran Cinema, Sector- 22, Chandigarh" and nothing more.
It was not as if the Revenue was not made aware of the lapse. Vipin Aggarwal & Associates, the Chartered Accountants (CAs) of the Assessee, by their letter dated 12th December 2008 informed the ACIT that the Assessee had not till then received the notice dated 28th March 2008 under Section 148 of the Act. They made a specific request to the ACIT that a copy of notice under Section 148 "along with basis and reason of opening the above mentioned case under Section 148" be provided to them to enable them to "comply with the same." However, the ACIT in his reply of the same date continued to show the addresses of the Assessee as "c/o Kiran Cinema, Sector-22, Chandigarh" and "c/o M/s. Vipin Aggarwal & Associates CA" and insisted that notice had been "validly served on Shri Ved Prakash, accountant of Kiran Cinema (who also receives other notices of the concerned group concerns)." The CAs for a second time on 19th December 2008 pointed out that that "notice u/s 148 was not received by the assessee" and again asked for a copy thereof along with the reasons for reopening the assessment. However, no attempt was made by the ACIT to ascertain the correct address of the Assessee and serve a copy of the notice afresh on him. Participation by Assessee in proceedings not a waiver 39. The next issue to be considered is whether the failure by the Assessee to specifically protest that Mr. Ved Prakash was not his Accountant or agent or that he was not empowered to accept notices on his behalf should be taken to be a waiver by the Assessee of the requirement of proper service of notice in terms of Section 148 of the Act. The settled legal position is that merely because an Assessee may have participated in the proceedings, the requirement of service of proper notice upon the person in accordance with the legal requirement under Section 148 of the Act is not dispensed with. 40. In B. Johar Forest Works v. CIT [1977] 107 ITR 409 (J&K) the notice issued by the ITO to the Assessee under Section 22 (2) of the 1922 Act. The notice was served on an employee of the Assessee who was not authorized to accept such notice. Subsequently, the General Manager of the Assessee applied for extension of time for filing the return, which was allowed by the ITO. However, the return was not filed within the extended time and an ex parte order was passed. Before the High Court it was contended that the employee on whom the service of the notice was found to have been made was not duly authorized to accept such notice and that the mere fact that the General Manager of the firm applied for time, would not render the service of notice on the employee a valid and a legal service. It is contended that the Assessee had not denied service of notice on such employee. The High Court however negatived the plea of the Revenue and held that in the absence of finding by the Tribunal that the employee of the Assessee was authorized to accept such service on behalf of the Assessee, notice could not be said to have been duly served upon the Assessee. It was held that "acquisition of knowledge in regard to the issuance of a notice under Section 22 (2) of 1922 Act could not be considered to be equivalent to, or a substitute for, the service of the notice on the Assessee." It was further observed that "knowing about the issuance of the notice otherwise than by its service on the person concerned is one thing and the service of the notice on the person is another."
In the context of sales tax the Full Bench of the Allahabad High Court in Laxmi Narain Anand Prakash v. Commissioner of Sales Tax AIR 1980 All 198 it was held that the notice of initiation proceeding under Section 21 of U.P. Sales Tax Act, 1947 was a condition precedent and not only a procedural requirement. The mere fact that the Assessee had obtained knowledge of the proceeding and participated could not validate the proceeding being initiated without jurisdiction. It is subsequently held that "it is firmly established that where a Court or Tribunal has no jurisdiction, no amount of consent, acquiescence or waiver can create it." Decisions referred to by the Revenue 42. The cases referred to by Mr. Singh do not appear to be relevant to the case on hand. The general observations in Venad Properties (P.) Ltd. (supra) to the effect that the failure to comply with a procedural requirement should not defeat substantive justice may not be apposite in the present context where the failure to serve notice under Section 148 is a jurisdictional and not merely a procedural requirement.
Also, the observations in Mayawati (supra) to the effect that the requirement of service of notice under Section 143 (2) of the Act cannot be considered as mandatory can no longer be considered to be good law in light of the subsequent decision of the Supreme Court in Hotel Blue Moon (supra) where it was held that an "omission on the part of the assessing authority to issue notice under Section 143 (2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143 (2) cannot be dispensed with."
The submission that under Section 153 (2) of the Act, there was an open ended time limit for completion of the reassessment till such time proper service of the notice under Section 148 of the Act was not effected on the Assessee is hypothetical since in the present case pursuant to issuance of such notice, reassessment has in fact been completed. In any event, even Section 153 (2) makes it clear that no order of reassessment can be made after the expiry of one year from the end of the financial year "in which the notice under Section 148 was served." Therefore, the service of notice is a pre-condition to finalising the re- assessment. Section 292 BB not attracted 45. In the present case, prior to the completion of the reassessment, the Assessee has raised an objection that he has not been duly served in accordance with Section 148 of the Act. Consequently, the proviso to Section 292 BB is attracted and Revenue cannot take advantage of the main portion of Section 292 BB. In any event, as rightly pointed out by Mr. Vohra, and as held by the Special Bench of the Tribunal in Kuber Tobacco Products (P.) Ltd. v. Dy. CIT [2009] 28 SOT 292 (Delhi) (SB), Section 292 BB which was introduced with effect from 1st April 2008 and is prospective. Conclusions 46. To summarize the conclusions:
(i) Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements. (ii) For the AO to exercise jurisdiction to reopen an assessment, notice under Section 148 (1) has to be mandatorily issued to the Assessee. Further the AO cannot complete the reassessment without service of the notice so issued upon the Assessee in accordance with Section 282 (1) of the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC. (iii) Although there is change in the scheme of Sections 147, 148 and 149 of the Act from the corresponding Section 34 of the 1922 Act, the legal requirement of service of notice upon the Assessee in terms of Section 148 read with Section 282 (1) and Section 153 (2) of the Act is a jurisdictional pre-condition to finalizing the reassessment. (iv) The onus is on the Revenue to show that proper service of notice has been effected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf. In the present case, the Revenue has failed to discharge that onus. (v) The mere fact that an Assessee or some other person on his behalf not duly authorised participated in the reassessment proceedings after coming to know of it will not constitute a waiver of the requirement of effecting proper service of notice on the Assessee under Section 148 of the Act. (vi) Reassessment proceedings finalised by an AO without effecting proper service of notice on the Assessee under Section 148 (1) of the Act are invalid and liable to be quashed. (vii) Section 292 BB is prospective. In any event the Assessee in the present case, having raised an objection regarding the failure by the Revenue to effect service of notice upon him, the main part of Section 292 BB is not attracted.
On the facts of the present case, the Court finds that the ITAT was right in its conclusion that since no proper service of notice had been effected under Section 148 (1) of the Act on the Assessee, the reassessment proceedings were liable to be quashed. Consequently, the question framed is answered in the affirmative, i.e., in favour of the Assessee and against the Revenue.
The appeal is dismissed but, in the facts and circumstances of the case, with no order as to costs.
6.6 Therefore, keeping in view the facts & circumstances of the present case, applicable legal position & statutory provisions, we hold that in the absence of service of notice u/s 148, reassessment jurisdiction as acquired by Ld. AO could not be sustained in law which left us with no option but to quash the reassessment proceedings. We order so. The assessee’s appeal stand allowed in terms of our above order.
Since the assessee succeeds on legal grounds and we have already quashed the re-assessment proceedings against the assessee, considering the revenue’s appeal, on merits would become merely academic in nature and we see no fruitful reason to delve into the same. Therefore, the appeal stands dismissed, being infructuous.
In nutshell, the assessee’s appeal stands allowed whereas the revenue’s appeal stands dismissed. Cross Appeals: M/s Stroll Properties Pvt. Ltd. & M/s Sitilite Properties Pvt. Ltd. 9. Both the representatives converge on the point that the facts in cross-appeals in the case of these two assessee are quite identical in all respect. Identical arguments have been sought to be raised under these appeals. The assessment order as well as impugned order is on identical lines. The assessee as well as revenue are in appeal with identical worded grounds of appeal
. The address of all the assessee is common. Therefore, our observations, conclusion, adjudication as given in main appeal mutatis mutandis applies to these cross appeals also. Resultantly, the appeal of both the assessee’s stand allowed whereas the two appeals filed by revenue stand dismissed. Conclusion
10. The assessee’s appeals stands allowed whereas the revenue’s appeals stand dismissed. Order pronounced in the open court on 23rd April, 2019.