I.T.O, BANGALORE vs. M/S MOHTA UDYOG LIMITED, BANGALORE

This is an appeal filed by the revenue directed against the order of the CIT(A)-III, Bangalore, dated 31/10/2014 for the assessment year 2007-08.

Page 2 of 9 2. The revenue raised the following grounds:

Page 3 of 9 addition of Rs.3,32,56,388/-. The addition represents amount of interest debited to P&L A/c on account of borrowing by way of issue of discount bonds from one company called Insotex (India) Ltd. The Assessing Officer [AO] disallowed this interest expenditure on the ground that the amount so borrowed was given to the same company without accounting for or offering any income from loan advanced to the said company.

Page 4 of 9 Based on the submissions of the assessee, the CIT(A) called for remand report from the AO. The AO had submitted as under:

6.1 The learned CIT(DR) vehemently contended that the AO had given a categorical finding in the assessment order that notice u/s 143(2) was issued on 9/9/2008 which is within prescribed time limit. There was no evidence led by the assessee controverting this finding of the AO before CIT(A). Therefore the CIT(A) ought not to have held that there was no notice issued u/s 143(2) of the Act. Thus, he submitted that the CIT(A) had erroneously allowed the appeal of the assessee.

6.2 None appeared on behalf of the respondent-assessee.

Page 6 of 9 7. We heard the learned CIT(DR) and perused the material on record. The only issue in the present appeal is whether there is a valid notice u/s 143(2) of the Act. The AO had recorded categorical finding that notice u/s 143(2) was issued on 9/9/2008. Even in the remand report submitted to the CIT(A), he reiterated that notice u/s 143(2) dated 9/9/2008 has been despatched to the assessee-company. It is undisputed fact that the assessee had participated in the assessment proceedings. At no stage of assessment proceedings, assessee raised objection that no notice u/s 143(2) was served on the assessee. It is only during course of proceedings before the CIT(A) it was contended that no notice was served on the assessee. The AO had not disputed issue and service of notice. He only admitted that acknowledgement slip was not found on the assessment record. In our considered opinion, based on admission of the AO, the CIT(A) ought not to have concluded that no notice was issued and served on the assessee. In fact, there are judicial precedents to the effect that the moment notice is signed and put in the course of transmission by the department, notice is deemed to be served. The said principle of issue of notice has also come up before the Hon’ble Supreme Court in the context of provisions of section 4 of the Contract Act, 1872:

“The said principle of the issue of a notice or communication has also come up for consideration before the Hon’ble Supreme Court in the context of the provisions of Section 4 of the Contract Act, 1872. It has been held that the moment the proposer puts his

Page 7 of 9 proposal in the course of transmission, it is complete as against the acceptor i.e. addressee. Therefore, the moment the notice is signed and put in the course of transmission by the department, the notice is deemed to be served as the communication is out of the proposer. It has been so held by the Hon’ble Supreme Court in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., AIR 1966 SC 543, wherein it has been held to the following effect: "By the second clause of Section 4, the communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor. This implies that where communication of an acceptance is made and it is put in a course of transmission to the proposer, the acceptance is complete as against the proposer: as against the acceptor, it becomes complete when it comes to the knowledge of the proposer. In the matter of communication of revocation it is provided that as against the person who makes the revocation it becomes complete when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it, and as against the person to whom it is made when it comes to his knowledge". Subsequently in State of Punjab v. Khemi Ram, AIR 1970 SC 214, the Court observed as: "16. ...It will be seen that in all the decisions cited before us, it was the communication of the impugned order which was held to be essential and not its actual receipt by the officer concerned and such communication was held to be necessary because till the order is issued and actually sent out to the person concerned the authority making such order would be in a position to change its mind and modify it if it thought fit. But once such an order is sent out, it goes out of the control of such an authority, and therefore, there would be no chance whatsoever of its changing its mind or modifying it. In our view, once an order is issued and it is sent out to the concerned government servant, it must be held to have been communicated to him, no matter when he actually received it. We find it difficult to persuade ourselves to accept the view that it is only from the date of the actual receipt by him that the order becomes effective. If that be the true meaning of communication, it would be possible for a government servant to effectively thwart an order by avoiding

Page 8 of 9 receipt of it by one method or the other till after the date of his retirement even though such an order is passed and despatched to him before such date. An officer against whom action is sought to be taken, thus, may go away from the address given by him for service of such orders or may deliberately give a wrong address and thus prevent or delay its receipt and be able to defeat its service on him. Such a meaning of the word "communication" ought not to be given unless the provision in question expressly so provides. Actually knowledge by him of an order where it is one of dismissal, may, perhaps, become necessary because of the consequences which the decision in The State of Punjab v. Amar Singh Harika AIR 1966 SC 1313 contemplates. But such consequences would not occur in the case of an officer who has proceeded on leave and against whom an order of suspension is passed because in his case there is no question of his doing any act or passing any order and such act or order being challenged as invalid." Quoting the above paragraphs, the Hon’ble Punjab & Haryana High Court in the case of VRA Cotton Mills Pvt.Ltd. vs.Union of India & Others (359 ITR 459) held that service of notice is complete the moment it is signed and put in the course of transmission by the department. Following the same ratio in this case, since issue of notice was not in dispute, we hold that it cannot be said that no notice was served on the assessee.