BABUBHAI PUNMAJI GEHLOT,AHMEDABAD vs. THE ITO, WARD-5(3)(3), AHMEDABAD

These are appeals filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax-5, (in short “Ld. CIT(A)”), Ahmedabad vide orders dated 25.03.2019 for Assessment Year 2007-08. The appeal filed by the assessee in Ld. CIT(A) in relation to quantum proceedings, whereas appeal filed by the assessee in relates to order passed by Ld. CIT(A) upholding the levy of penalty under Section 271(1)(c) of the Act in relation to quantum proceedings for the same assessment year. Since common facts and issues for consideration are involved for both the years under consideration, both the appeals filed by the assessee are being taken up together.

The assessee has taken the following grounds of appeal:

The brief facts of the case are that the assessee is an individual and is engaged in the business of trading of grains, grams, flour etc. During the year under consideration, the assessee filed return of income declaring total income of Rs. 9,12,500/-. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was issued on 24.09.2008 which was duly served upon the assessee on 30.09.2008. In response to the said notice, none appeared on behalf of the assessee. Thereafter, the Assessing Officer issued various notices dated 24.09.2008, 02.02.2009 and 23.07.2009. However, all the notices issued by the Assessing Officer remained uncomplied with. Thereafter, the Assessing Officer issued final notice dated 08.12.2009, giving a final opportunity to the assessee to cause appearance, however, again none appeared on behalf of the assessee and no details were filed. Accordingly, the Assessing Officer proceeded to finalize the assessment order on the basis of material available on record.

On verification of return filed by the assessee, and data available on record, the Assessing Officer observed that the assessee had shown unsecured loan of Rs. 62,37,123/-. The Assessing Officer was of the view & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 4– that since the assessee did not furnish any details, the unsecured loans and the source thereof remained unexplained. Accordingly, the Assessing Officer added a sum of Rs. 62,37,123/- as unexplained cash credit in the hands of the assessee. Further, on verification of return of income filed by the assessee, the Assessing Officer observed that the assessee had shown gross sale of Rs. 26,08,45,675/-. In absence of any details such as opening stock, closing stock, purchase, sales, various business expenses claimed by the assessee, the Assessing Officer finalized assessment under Section 143(3) r.w.s. 144 of the Act and estimated net profit @ 8% of gross sales amounting to Rs. 2,08,67,654/- and added the same to the total income of the assessee. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act for concealment of income. The said assessment order was passed on 31.12.2009.

Accordingly, the appeal stands dismissed.”

The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) refusing to condone the delay in filing of appeal. Before us, the Counsel for the assessee submitted that the assessee had suffered business losses in 2009 and the business of the assessee was closed down and the assessee had also sold his residential house in the year 2009, in the month of November 2009, therefore, the assessment order was not served upon the assessee. The contention of the Counsel for the assessee before us was that the assessment order was not served either in person or by Registered Post and the assessment order was served upon the assessee by “affixture”. However, the Counsel for the assessee submitted that the copy of the satisfaction note showing the circumstances under which the Department decided to serve the assessment order by affixture have not been provided to the assessee. The Counsel for the assessee submitted that the Affidavit of the notice server stating that notice could not be served in the normal way and the assessee was trying to avoid the service has also not been provided to the assessee. Therefore, the contention of the Counsel for the assessee before us was that the mandatory provision as laid down for service of assessment order were not followed by the Department and hence, the assessment order had not been validly served upon the assessee. The Counsel for the assessee submitted before us that the procedure laid down for service of assessment order as mandated under Section 282 of the Act was not followed by the Income Tax Department. The Counsel for the assessee submitted that the Department had not made any attempt to serve the assessment order in normal course and the service of assessment of by affixture at a place which was not functional and closed is not a valid service of assessment order. The Counsel for the assessee placed reliance & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 7– on the case of CIT vs. Ramendranath Ghosh 82 ITR 888 (SC) and on the case of CIT vs. Shersingh 37 taxmann.com 418 in support of the above contention.

In response, the Ld. D.R. submitted that even the assessee has not denied service of notice dated 24.09.2008 under Section 143(2) of the Act, which was duly served upon the assessee on 30.09.2008. Therefore, even despite valid service of notice on the assessee during the course of assessment proceedings, the assessee deliberately refused to participate in assessment proceedings and any absence of in compliance on part of the assessee, the Assessing Officer had no option but to pass best judgment assessment order under Section 143(3) of the Act r.w.s. 144 of the Act, on the basis of material available on record. Secondly, the Ld. D.R. placed before us the relevant assessment records and from the same, it was observed that the Assessing Officer had tried to serve the assessment order on the assessee by “speed post” and the assessment order could not be served on the assessee with the remarks “returned back”. Accordingly, the D.R. submitted that the Assessing Officer had followed the due process as mandated under Section 282 of the Act under which, the Assessing Officer first sent the assessment order through “speed post” and once the speed post was “returned back” then the assessment order was served upon the assessee by way of affixture at the last known address. Thirdly, the Ld. D.R. also pointed out that the assessee could not be allowed to take advantage of his own deliberate non-compliance. In this case, admittedly, notice under Section 143(2) of the Act dated 24.09.2008 was duly served upon the assessee on 30.09.2008. However, the assessee deliberately choose not to & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 8– file any response to the said notice and hence, the Assessing Officer was left with no option to pass an ex-parte order under Section 144 of the Act, on the basis of material available on record. Further, the Ld. D.R. also submitted before us that the conduct of the assessee is also evident from the fact that the assessee filed appeal before the aforesaid order passed by the Ld. CIT(A) only when the bank account of the assessee at IDBI Bank, Ashram Road Branch, Ahmedabad was attached under Section 222 to 225 of the Act by the Tax Recovery Officer against non-payment of tax demand against the aforesaid assessment order. Accordingly, it was only when the Tax Department marked a lien to the tune of Rs. 2.15 crores on the assessee’s bank account held with IDBI Bank that the assessee immediately filed appeal against the assessment order dated 31.12.2009, on 01.02.2017 i.e. after a gap of over seven years. Therefore, had the Income Tax Department not attached the bank account of the assessee towards recovery of tax arrears, the assessee would have never filed appeal before the Ld. CIT(A) against the impugned assessment order. Therefore, the case of the Ld. D.R. is that first the assessment order was served by speed post, which was “returned back” and only thereafter, the Department served the assessment by way of affixture at the last known address. The assessee has claimed to have change it’s address, however, the assessee did not inform the Income Tax Department about the change in address and also the details of change in address were also not updated in the PAN data base. The assessee, therefore, was deliberately avoiding the services of notice by the Tax Department and it was only when the bank account of the assessee, held by the assessee at IDBI Bank, Ashram Road Branch, Ahmedabad was attached by the Tax Recovery Officer in proceeding under Section 222 to & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 9– 225 of the Acct that the assessee finally decided to file appeal before CIT(A), and that too after a gap of over seven years. Accordingly, the Ld. CIT(A) has not erred in facts and in law in refusing to condone the delay in filing of the present appeal.

We have heard the rival contentions and perused the material on record.

On going through the facts of the instant case, it is evident that the assessee has been deliberately avoiding receipt of notices issued by the Income Tax Department and had also deliberately not participated in assessment proceedings. The assessee had changed his address and such change in address was also intimated to the Income Tax Department and neither was the PAN data base was updated by the assessee to keep the Income Tax Department informed about the whereabouts of the assessee. It was only when the bank account of the assessee was attached by the Tax Recovery Officer that the assessee decided to file appeal before the Ld. CIT(A) and that also after a gap of over seven years. It would be useful to reproduce Section 282 of the Act which lays down the procedure for service of notice:

As per the provisions of Section 282 of Income Tax Act,1961, the service of notice of summon or requisition or order under the I.T. Act may be made by delivering a copy thereof, by post or by such courier services as may be approved by the Central Board of Direct Taxes. Sub-Rule (1) of the Rule 127 of the Income Tax Rules, 1962 provides that for the purposes of sub-Section (1) of Section 282, the addresses (including the address for electronic mail or electronic mail message) to which a notice or summons or requisition or order or any other communication under the may be delivered or transmitted shall be as per sub-Rule (2). Clause (a) of sub- Rule (2) of Rule 127 states the following:

The Assessing Officer can also serve the assessment order by affixture. Service by affixture is resorted to in two circumstances: First, when the assessee or his agent refuses to sign the acknowledgement for & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 11– service or when the serving official, after using all due and reasonable diligence, cannot find the assessee in his residential or business premises within a reasonable time and second, when there is nobody else authorized to receive the notice. In the above circumstances, the Income Tax Inspector can effect the service by affixture on his own initiative without waiting for an order from the AO. A report is to be drawn up by the Income Tax Inspector, on the facts and circumstances of the service by affixture, specifying the date and time of service and the name of the identifier if any.

Therefore, for the purpose of deciding the question of condonation of delay, it needs to be assessed whether the Assessing Officer had followed the due process laid down for service of notice by affixture in the instant facts. While, from the facts placed on record before us, the Assessing Officer had initially tried to serve the assessment order by way of speed post which could not be done since the assessee had left the premises without intimation regarding the new address, and therefore, the Assessing Officer had no option to take resort to service of assessment order by affixture. However, from the facts placed on record before us, it is not clear where the complete process of affixture as laid down under Section 282 of the Act r.w.r. 127 of the Income Tax Rules, 1961 has been followed by the Income Tax Department. Accordingly, in the interest of justice, the matter is restored to the file of Ld. CIT(A) to call for the relevant assessment records for the purpose of verifying whether the due process of service of assessment order by way of affixture has been followed in the instant case. Here it is also pertinent to point out that the assessee has not pressed for vacating / setting-aside of the assessment order, as being bad in law, but the & 1034/Ahd/2019 Babulal Punmaji Gehlot vs. ITO Asst. Year –2007-08 - 12– only request of the Counsel for the assessee before us is that in case it is found that the due process for service of notice has not been followed by the Income Tax Department, then the Ld. CIT(A) may condone the delay in filing of the appeal before him and thereafter, decide the issue on merits after giving due opportunity of hearing to the assessee. Accordingly, the matter is set-aside to the file of Ld. CIT(A) for carrying out the verification as directed in the preceding paragraphs.

Since the matter related to the quantum appeal has been restored to the file of Ld. CIT(A), the penalty proceedings are also restored to the file of Ld. CIT(A), as well.

In the combined result, both the appeals of the assessee are allowed for statistical purposes. This Order pronounced in Open Court on 23/08/2024