DCIT, CIR-2(2), KOLKATA, KOLKATA vs. M/S SUTCO BEARINGS INDIA PVT. LTD., KOLKATA

आदेश /O R D E R

PER BENCH:-

This appeal by the Revenue and Cross Objection (CO) by the assessee are for the assessment year 2010-11. Both are directed against the order of Commissioner of Income Tax (Appeals)-10, Kolkata dated 31.07.2015.

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 2 Assessment was framed by DCIT, Circle-2, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 26.03.2013. 2. At the outset, it was observed that neither anybody appeared from the side of assessee nor its authorized representative as well as no adjournment petition was filed. However, on perusal of the grounds of appeal raised by Revenue as well as grounds raised by assessee in its CO, we find that hearing is possible without the appearance of assessee or by Ld. AR for the assessee. First we take up Revenue’s appeal in ITA No.1253/Kol/2015. 3. Revenue has raised the following grounds:- “1) On the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in both law & facts by holding the assessment void as being not a valid assessment an deserves to be annulled. 2) On the fats and the circumstances of the case, the Ld. CIT(A) has erred in both law & facts in observing that the service of notice 143(2) by way of affixation as invalid. 3) The Ld. CIT(A) has erred in not adjudicating and deciding on the merit of the case. 4) That the appellant craves leave to add, alter amend or modify the grounds of appeal during the course of hearing proceedings of this case.”

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 3 The assessment was framed u/s. 143(3) of the Act under the normal computation of income at ₹94,10,850/- only. However, assessee before Ld. CIT(A) has challenged the validity of assessment proceedings u/s.143(3) of the Act on the ground that the statutory notice for scrutiny assessment needs to be served upon the assessee u/s 143(2) of the Act but the same has not been served within the stipulated time i.e., within six months’ from the end of financial year in which the return of income was furnished. As per the assessee notice u/s. 142(1) of the Act was received by it from the Assessing Officer dated 17.02.2012 requiring to produce the books of accounts and other relevant documents. The assessee immediately in response to the notice received u/s. 142(1) of the Act objected on the validity of such notice vide letter dated 23.02.2012. The assessee in its letter dated 23.02.2012 which was dispatched through registered post on 24.02.2012 and received by the AO on 26.02.2012 stated that no statutory notice u/s. 143(2) of the Act was received by it within the stipulated time. The assessee also submitted that the provision of Section 292BB of the Act cannot be applied to it as assessee has raised the objection on the validity of the assessment proceedings before its completion. 7. Ld. CIT(A) called for the assessment records and after examination of the same made following observations:- a) As the present year was subject-matter of survey u/s. 133A of the Act and therefore it was quite certain that the impugned assessment year would be selected under scrutiny proceedings. b) The Assessing Officer failed to serve notice to assessee u/s 143(2) of the Act through normal mode of service such as normal post, speed post, registered post or notice server. c) AO in the instant case has served the notice u/s. 143(2) of the Act vide dated 23.09.2011 through the mode of affixture on the premises of assessee on 28.09.2011 In views of above, Ld. CIT(A) sought clarification from the AO on the following points:-

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 4 i) Justification for issuance of notice through the mode of affixture; ii) Declaration under oath recorded by the Inspector of Income-tax for serving the notice through the affixture was not duly signed by the officer-in-charge; The AO in response to the letter dated 08.07.2015 of Ld. CIT(A) submitted as under:- 1) The notice u/s. 143(2) was served upon assessee through an affixture due to short of time. 2) The declaration under oath by the officer-in-charge was not properly filled up. 3) It is not ascertainable from the records why notice was not served through normal mode of service. 4) The objection raised by assessee on the service of notice u/s. 143(2) of the Act vide letter dated 23.02.2012 was replied by the AO Ward-2(4) Kolkata vide letter dated 05.03.2012 but due to transfer of said case no record is available. 5) As it was a time barring case, therefore notice was served through an affixture and the error committed in the declaration given by the concerned officer on oath is a technical mistake. However, Ld. CIT(A) after considering the submission of assessee and remand report and having reliance on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Shanker Lal Ved Prakash (Del) (2006) 300 ITR 234 (Del) and the order of ITAT Mumbai Bench in the case of Shri Sanjay Badani and Others vs. DCIT in SA No.216/Mum/2014 arising out ITA No.5221/Mum/2014 dated 09.09.2015 has held that the Assessing Officer has failed to serve notice u/s.143(2) of the Act by observing as under:- “After examination of the assessment record, and the contentions of the A. R, and the report of the AO , the following emerge:

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 5 1. The notice u/s 143(2) has been apparently serviced by affixture at the first instance itself, without having taken recourse to any other ordinary method of service such as by Post or notice Server or by Inspector of Income tax. I The AO has made no note regarding the need for the extraordinary service by affixture, nor did he record his apprehension as to why it was being done in the first place. Therefore, I find that there is no record of the AO having used all "due and reasonable diligence" before resorting to affixture as envisaged in Rules 17,19,and 20 of Order V of the CPC. 2. The Order Sheet entries or the other documents also do not contain any direction to the IIT to ensure service by affixture upon the assessee, nor has the AO recorded any adverse conduct by the assessee-company, which would warrant service by affixture. 3. In a situation where the AO was facing time constraints, it would be normal to serve the impugned notice by an ordinary method or through an Inspector. Getting the notice served by Inspector without bringing any adverse conduct by the assessee on record appears not to be in order with the procedure envisaged in Rules 17,19,and 20 of Order V of the CPC. 4. If the Other notices issued by the AO by post or through NS/ IIT have been i accepted by the assessee with seal, date and stamp, and not challenged, there could be no explanation for the need to serve the preliminary notice u/s 143(2) by affixture. Also, the report of the Inspector before the AO suffers from certain inconsistencies. The AO has also admitted that there were technical mistakes in filling up the part relating to declaration of oath before the Assessing Officer. Not filling the declaration under oath before the Authority who has authorized him cannot be termed a mere technical mistake. The said form also bears no seal or signature of acknowledgement or date of receipt of the Authorizing Officer, the AO. These by no means are technical mistakes. When it appears that the matter was serious enough to warrant service by affixture, the Form of declaration virtually serves the functions of an affidavit by the serving Officer before the Authorizing Officer. In the absence of the oath of declaration by the Serving Officer (of the affixed notice ), the evidentiary value would be largely negated, and therefore the AO rebuttal that the mistake is a technical one does not stand to good reason. 5. It is also seen that the Declaration by the Serving Officer before the AO contains the name of a witness as a Departmental Inspector. It would normally be expected that the witness would be a person who would identify the premises, and would necessary be a local person or a neighbor. Even this basic requirement has been followed in the breach by the IIT conducting the service by affixture. In view of the findings recorded above, it is clear that there was no valid service of notice u/s 143(2) of the Income Tax Act, 1961, by affixture. Accordingly the assessment made on the basis of such invalid notice could not be treated as a valid assessment and hence the same deserves to be annulled. Therefore the legal issue taken in the Ground No 1 is allowed in favor of the appellant. In the circumstances, the other grounds become infructuous and are not being discussed. In the result, the appeal filed by the appellant is treated as "allowed"

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 6 The Revenue, aggrieved with such order of Ld. CIT(A) has now come in appeal before us. 8. Before us Ld. DR heavily relied on the order of AO and prayed before the Bench to confirm the same. 9. Having heard Ld. DR and perused the material available on record. The assessee has basically argued legality of the assessment framed u/s 143(3) in view of the fact that there was no service of notice u/s 143(2). It was contended by the assessee that it has filed return of income on 25-09-2010. The statutory time limit to serve notice u/s 143(2) was till 30-9-2011, i.e. six months from end of the financial year in which return was furnished. As per assessee no notice u/s 143(2) has ever been issued and served on the assessee before completion of assessment. Due to non-compliance of statutory notice u/s 143(2), the assessee has filed objection against the jurisdiction, vide letter dated 23-02-2012 submitted at the office of AO.

As per the assessee the objection raised by the assessee has not been disposed off by the AO and he proceeded with the assessment. The basic thrust of the assessee is to substantiate the prima facie case in its favor for quashing the assessment framed under section 143(3) of the Act in the absence of the mandatory notice u/s 143(2) of the Act.

The position in law is well settled that if the requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, such requirements are, in all cases absolute and neglect to attend to such requirement will invalidate the whole proceeding.

The Hon’ble Apex Court in the case of Assistant Commissioner of Income-tax vs. Hotel Blue Moon reported in [2010] 321 ITR 362 (SC) has considered the very issue. The Apex Court held that the Assessing Officer has to necessarily follow the provisions of section 142 and sub-sections (2) and (3) of section 143. It did not accept the submission of the Revenue that the requirement of

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 7 the notice under section 143(2) can be dispensed with and the same is mere procedural irregularity.

During the course of hearing, the Bench specifically asked the learned AR with regard to the requirements of Section 292BB introduced w.e.f. 1-4-2008 with retrospective effect. In reply, learned AR contended that as per proviso to Section 292 BB, where the assessee has raised objection regarding issue of notice before the completion of such assessment or reassessment, the provisions contained u/s.292BB will not be applied. We found that provisions of Section 292BB was introduced w.e.f. 1-4-2008 relevant to A.Y. 2008-09 under consideration, according to which, 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 any 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. We found that in the instant case, assessee has filed his objection before the AO as evident from the submission of assessee before the ld. CIT(A). Thus, participation of assessee in the assessment proceedings will not disentitle the assessee for his right to object to the service of notice u/s.143(2) of the I.T. Act, 1961.

After going through the records, we found that notice issued u/s143(2) dated 23-09-2011 served upon the assessee by affixture by the Inspector on 28-09- 2011.

Here we have to examine as to whether service of notice by affixture was proper in terms of provisions of Order V, Rule 17 to 20 of CPC. As per provisions of Section 282 of the I.T. Act, 1961, notice under the Act is to be served either by post or as if it is summoned under the Code of Civil Procedure. Notice dated 23-9-2011 has been claimed to have been served through affixture on 28-9-2011 as provided in Code of Civil Procedure. Here

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 8 provisions of Order V Rules 17 to 20 of CPC are relevant. After taking notice of above statutory provisions. their Lordships of Supreme Court in the case of CIT v. Ramendra Nath Ghosh [1971] 82 ITR 888 (SC), held (pages 890 & 891) as under:–

As per sub-section (1) of section 282, the notice is to be served on the person named therein either by post or as if it was a summons issued by Court under the Code of Civil Procedure, 1908 (V of 1908). The relevant provision for effecting of service by different modes are contained in rules 17, 19 and 20 of Order V of CPC. Rules 17, 19 and 20 of Order V of CPC lay down the procedure for service of summons/notice and, therefore, the procedure laid down therein cannot be surpassed because the intention of the legislature behind these provisions is that strict compliance of the procedure laid down therein has to be made. The expression after using all due and reasonable diligence’ appearing in rule 17 has been considered in many cases and it has been held that unless a real and substantial effort has been made to find the defendant after proper inquiries, the Serving Officer cannot be deemed to have exercised ‘due and reasonable diligence’. Before taking advantage of rule 17, he must make diligent search for the person to be served. He therefore, must take pain to find him and also to make mention of his efforts in the report. Another requirement of rule 17 is that the Serving Officer should state that he has affixed the copy of summons as per this rule. The circumstances under which he did so and the name and address of the person by whom the house or premises were identified and in whose premises the copy of the summon was affixed. These facts should also be verified by an affidavit of the Serving Officer. The reason for taking all these precautions is that service by affixture is substituted service and since it is not direct or personal service upon the defendant, to bind him by such mode of service the mere formality of affixture is not sufficient. Since the service has to be done after making the necessary efforts, in order to establish the genuineness of such service, the Serving Officer is required to state his full action in the report and reliance can be placed on such report only when it sets out all the circumstances which are also duly verified by the witnesses in whose presence the affixture was done and thus the affidavit of the Serving Officer deposing such procedure adopted by him would also be essential. In the instant case, the whole thing had been done in one stroke. It was not known as to why and under which

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 9 circumstances at the first stage only service of notice by affixture was made on 23-9-2011 when sufficient time was available through normal service till 30- 9-2011. Nor there is any entry in the note-sheet by the AO directing the Inspector for service by affixture and had only recorded the fact that the notice was served by the affixture. It appears that the report of the Inspector was obtained without issuing any prior direction for such process or mode. However, the fact remained that Serving Officer had not set out reason for passing subsequent entry nor for adopting the mode for service by affixture and without stating the reasons for doing so, the adoption of the mode of substituted service could not be legally justified. Notice was served by affixture at the first instance only. The reasons for service through affixture have not been noted by the AO in the note sheet. Thus, the adoption of substituted mode of service was not legally justified. It is also clear from the finding of ld. CIT-A that there is no mention of name and address of the person who had identified the house of the assessee and in whose presence the notice u/s.143(2) was affixed. There is no evidence or indication in the report of Inspector that he had personal knowledge of the place of the business of the assessee and was, thus, in a position to identify the same. Therefore, neither the procedure laid down under order V. rule 17 had been followed nor that laid down under order V rules 19 and 20 had been adhered to. Neither before taking recourse to service by affixture, the Assessing Officer or the concerned officer had recorded the findings to justify the service by this mode nor afterwards called for the affidavit or certificate of service by affixture from the Serving Officer. He had not certified that the service had been effected by adopting this course.

In view of the above, it is clear that there was no valid service of notice u/s.143(2) by way of affixation. Since in the instant case, the department has not been able to demonstrate that notice u/s.143(2) was served within the statutory time limit, the assessment made on the basis of such invalid notice could not be treated to be valid assessment and, hence, such assessment order deserves to be treated as null and void and liable to be quashed and

ITA No.1253/Ko/2015 & CO 56/Kol/2015 A.Y. 2010-11 DCIT Cir-2(2) Kol Vs. M/s Sutco Bearings India (P) Ltd. Page 10 annulled. Accordingly, we allow assessee’s appeal on legal issue regarding non-service of notice u/s 143(2). 10. In the result, Revenue’s appeal is dismissed. Coming to assessee’s CO No.56/Kol/2015. 11. The CO filed by the assessee is supportive to the order of Ld. CIT(A). Since we have dismissed the appeal of Revenue, therefore, the CO filed by the assessee become infructuous and hence, dismissed as infructuous. 12. In the result, appeal of Revenue stands dismissed and that of assessee’s CO stands dismissed as infructuous. Order pronounced in the open court 22/09/2017 Sd/- Sd/- (Aby. T. Varkey) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 22/09/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Sutco Bearings India (P) Ltd.,11, Clive Row, Kolkata-01 2. राज�व/Revenue-DCIT, Circle-2(2), Aayakar Bhawan, P-7, Chowringhee Sq., Kolkata-69 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ�धकरण, कोलकाता ।