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Income Tax Appellate Tribunal, DELHI BENCHES : “G” NEW DELHI
Before: SHRI J.SUDHAKAR REDDY & SHRI SUDHANSHU SRIVASTAVA
“That the learned CIT (Appeals) has erred in upholding the impugned assessment order passed u/s 147/148 of the Act even when the notice u/s 148 was never served on the assessee society.”
, 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT 2. The facts of the case, in brief, are that the return of income was filed on 3.12.2003 and the same was processed u/s 143(1) of the Income Tax Act, 1961 on 26.03.2006 at the returned income. Meanwhile a survey had been conducted on the premises of the assessee on 17.02.2006 wherein during the course of survey, a loose paper (marked as Page No 89 of Annexure D-3) was found which showed that certain payments had been made by one Shri Vijay Gupta and another Shri JK Gulati to Shri Satish Kumar, Secretary of the assessee society. The amount pertaining to AY 2003-04 was Rs. 33,15,100/- which according to AO was the undisclosed income having escaped assessment u/s 147 r.w.s. 148 of the Income Tax Act, 1961. Notice u/s 148 was issued on 26.03.2007 and was served upon the assessee through affixture on 16.04.2007. Para 2 on Page 2 of the Assessment Order contains the information about service of notice through affixture.
The ground of appeal relating issue of service of notice through affixture was not taken before the Ld. CIT(A) and it is only in this appeal before us that this ground has been raised for the first time. The assessee has specifically challenged the issue of non service of notice under section 148 before us, albeit, for the first time. The Learned DR has strongly objected to the admitting of this additional ground. However, in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT 229 ITR 383 (SC), we are of the opinion that the assessee is entitled to urge question of law on the basis of facts already available on record. We also rely on the decision of the Hon’ble Supreme Court in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, wherein it was held that in the absence of any statutory provision, the appellate authority is vested , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT with all the plenary powers which the subordinate authority may have in the matter.
The Hon'ble Court held that the Tribunal will have the discretion to allow or not allow a new ground to be raised and further observed that where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings then such a question should be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. We accordingly, allow this additional ground to be admitted.
The Learned AR for the assessee submitted that a perusal of the notice dated 26.03.2007 allegedly issued under section 148 of the Act (placed at 61 of the paper book), would reveal that the said notice has not been issued at the correct address, as the address mentioned on the said notice is not the address of the appellant trust and further, down below in the said notice, it has been mentioned that the servant (not of assessee, as the notice was not sent at the address of assessee - appellant) had refused to receive the said notice. He drew our attention to Order V, Rule 12 of the Code of Civil Procedure which prescribes that the service has to be effected on defendant in person or on his agent. The Learned AR further submitted that in the present case, notice under section 148 of the Act was not served on the assessee nor the same was refused at all by the assessee. He submitted that when the officials of the Income-tax Department went to serve the notice under section 148, the servant (not of assessee, as the notice was not sent at the address of assessee - appellant) refused to accept the notice. The Learned AR submitted that the servant here, by no stretch of imagination can be said to be the agent of the assessee and , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT thus, admittedly, no notice was tendered either to the assessee or his agent nor was the same refused either by the assessee or his agent. The Learned AR further submitted that the notice allegedly served on 16.04.2007 and that too by affixture is in complete violation of Order V Rule 17 of CPC, as the conditions precedent to said affixture of notice were never satisfied by the learned AO. The Learned AR also submitted that service of notice by affixation can be resorted to only when the department has discharged its initial onus by showing that authority concerned has reason to believe that assessee was intentionally hiding himself from authorities for purpose of avoiding service or that there were other good reasons to come to the conclusion that summons could not be served in the ordinary way. The Learned AR submitted that the said process had not been exhausted or carried out by the AO in the instant case and as such, the service of notice by affixation is bad in law. The Learned AR placed reliance on the decision of the Hon’ble Delhi High Court in CIT, Delhi – IV vs Hotline International (P) Ltd. 296 ITR 333 in support of his preposition.
He also relied on the judgment rendered by the Hon’ble Delhi High Court in CIT vs Chandra Agencies (Delhi HC) reported in 202 Taxman 106.
Ld. Counsel for the assessee submitted that the reopening is bad in law as the reasons recorded were based on a statement, recorded during the course of survey u/s 133A which is no evidence at all. For this proposition, he relied on the following case laws:-
CIT vs. S. Khader Khan Son (2008) 352 ITR 480 (SC)
Commissioner of Income-tax v. S. Khader Khan Son [2008] 300 ITR 157 (Mad) , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT 5.1 He further submitted that the information is not backed by any evidence.
5.2 He raised number of other contentions which we would be dealing, if necessary, in our findings. Shri Salil Aggarwal also made statements on merit and raised contentions with which we would deal, if necessary. The Ld. DR Shri Sujit Kumar on the other hand controverted the statement of the assessee. Ld. DR submitted that notice was issued to the assessee by speed post and the postal department tried to serve the notice on several locations but found the premises of the assessee locked. He pointed out that on none of these days i.e. 3.4.2007, 5.4.2007 and 9.4.2007, the assessee was available at its premises. He submitted that a person at the house of the assessee refused to receive the notice. He argued that the servant carries out the instruction of his master and thus it was only at the residence of the assessee master that the servant refused to take service of the notice. Because of assessee’s conduct with a criminal mind, the department was forced to serve the notice by affixture. He argued that the service was valid.
5.3. Both on the issues of reopening as well as on merits, he strongly opposed the contentions of the assessee. We would be dealing with the same, if necessary.
Both parties agreed that the issues for the assessment year 2004-05 are identical to the issues that arise for the assessment year 2003-04 and hence the arguments would be the same. In rejoinder the Ld. Counsel for the assessee pointed out that the notice was not sent at the correct address and hence the question of the assessee avoiding the receiving of notice does not arise. He also submitted that admittedly no notice has been served to the assessee by speed post. He referred to , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT section 282 and submitted that refusal by servant is of no consequence, as the notice is to be served on the person mentioned u/s 282.
We have considered the rival submissions and have perused the facts on record. Undisputedly, notice u/s 148 was issued on 26.03.2007 and was served upon the assessee through affixture on 16.04.2007. This fact has been recorded by the AO also on Page 2 of the Assessment Order. There is no other evidence on record to even suggest that efforts were made earlier to serve the notice on the assessee. The short question which arises for consideration in this case is as to whether notice under section 148 of the Act has been duly served upon the assessee prior to the commencement or completion of the reassessment proceedings or not. The issue at hand will necessarily have to be examined in light of the relevant provisions of Income Tax Act, 1961 as well as the Code of Civil Procedure, 1908.
The relevant portion of section 148(1) of the Act, reads as under: "148. Issue of notice where income has escaped assessment.- (1) Before making the assessment, reassessment or re computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139." Section 282 of the Act provides as to how the notice under the Act is to be served. The relevant provision of this section reads as under: "282. Service of notice generally.-(1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were a , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT summons issued by a Court under the Code of Civil Procedure, 1908 (5 of 1908)." Thus any notice under the Income-tax Act has to be served on the person named therein either by post or as if it were a summon issued by Court under the Code of Civil Procedure. Order V, Rule 12 of the Code of Civil Procedure 1908 provides that wherever it is practicable, service shall be made on defendant in person or on his agent. The relevant provision reads as under:- "Rule 12. Service to be on defendant in person when practicable, or on his agent.-Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient. " Order V, Rule 17 of the Code of Civil Procedure lays down the procedure when defendant refuses to accept service or cannot be found and it reads as under: "Rule 17. Procedure when defendant refuses to accept service, or cannot be found.-Where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgement, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant (who is absent from his residence at the time when service is sought to be effected on him at his residence and there is no likelihood of his being found at the residence within a reasonable time), and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so, and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed. " Order V, Rule 19A provides for simultaneous issue of summons for service by post in addition to personal service. It reads as under:- "Rule 19A. Simultaneous issue of summons for service by post in addition to personal service.-(l) The Court shall, in addition to, and , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT simultaneously with, the issue of summons for service in the manner provided in rules 9 to 19 (both inclusive), also direct the summons to be served by registered post, acknowledgement due, addressed to the defendant, or his agent empowered to accept the service, at the place where the defendant, or his agent, actually and voluntarily resides or carries on business or personally works for gain: Provided that nothing in this sub-rule shall require the Court to issue a summons for service by registered post, where, in the circumstances of the case, the Court considers it unnecessary. (2) When an acknowledgement purporting to be signed by the defendant or his agent is received by the Court or the postal article containing the summons is received back by the Court with an endorsement purporting to have been made by a postal employee to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons, when tendered to him, the Court issuing the summons shall declare that the summons had been duly served on the defendant: Provided that where the summons was properly addressed, prepaid and duly sent by registered post, acknowledgement due, the declaration referred to in this sub-rule be made notwithstanding the fact that the acknowledgement having been lost or mislaid, or for any other reason, has not been received by the Court within thirty days from the date of the issue of summons. " Order III Rule 2 of the Code of Civil Procedure defines as to who are the recognized agents of the parties. It reads as under:- "Rule 2. Recognised agents. - The recognised agents of parties by whom such appearances, applications and acts may be made or done are- (a ) persons holding powers-of attorney, authorizing them to make and do such appearances, applications and acts on behalf of such parties; (b) persons carrying on trade or business for and in the names of parties not resident within the local limits of the jurisdiction of the court within which limits the appearance, application or act is made or done, in matters connected with such trade or business only, where no other agent is expressly authorized to make and do such appearances, applications and acts. " , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT 8. Thus a bare reading of the provisions of the Income Tax Act, 1961 and the Code of Civil Procedure reproduced herein above it is seen that as per Order V, Rule 12 of the Code of Civil Procedure, wherever it is practicable the service has to be effected on defendant in person or on his agent. Admittedly, in the present case, notice under section 148 of the Act was not tendered to the assessee nor the same was refused at all by the assessee. It was refused by the servant of another person who by no stretch of imagination can be said to be the agent of the assessee and admittedly no notice was tendered either to the assessee or his agent nor was the same refused either by the assessee or his agent. Under Order V, Rule 17 of the Code of Civil Procedure, the affixation can be done only when the assessee or his agent refuses to sign the acknowledgement or could not be found. Here, in the present case, it is very much apparent from the records that no effort was made by the Income-tax Department to serve the notice upon the assessee and no effort was made by the AO to locate the assessee. Even otherwise, as per Order V, Rule 19A of the Code of Civil Procedure, the notice sent by registered post ought to have been sent along with acknowledgement due but admittedly it was not sent along with acknowledgement due. The Delhi Bench of the Tribunal in the case of Dr. K.C.
Verma vs ACIT 84 ITD 33 (Delhi) held as follows :-
“Section 282 provides the manner in which a valid service can be affected. According to this section, a notice under the Act is to be served either by post or as if it was summon under the Code of Civil Procedure, 1908. In the present case, admittedly, notice was never sent by post. So the question arises whether the service was effected in accordance with the provisions of Civil Procedure Code. The relevant provisions of the service of summons under the Code of Civil Procedure are contained in Order V Rules 12 to 20. Rule 12 provides that service , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT shall be made on the defendant in person wherever it is practicable unless he has an agent empowered to accept the service in which case service on such agent shall be sufficient. Admittedly, personal service on the assessee was not affected in the present case. The claim of the department is that service of notice under Section 142 was effected by affixture. Rule 17 provides service by affixture and the same is being reproduced as under: 17. Procedure when defendant refused to accept service, or cannot be found: Where the defendant or his agent or such other person as aforesaid refused to sign the acknowledgement, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, who is absent from his residence at the time when service is sought to be effected on him at his residence within a reasonable time and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed. Rule 19 provides that where a summon is returned under Rule 17, the Court shall, if the return under that rule has not been verified by the affidavit of the serving officer and may, if it has been so verified, examine the serving officer on oath, or cause him to be so examined by another Court, touching his proceedings and may make such further enquiry in the matter as it thinks fit; and shall either declare that the summon has been duly served or order such service as it thinks fit. At this stage, the attention is also drawn to Rule 20 which provides the circumstances under which the substituted service can be effected. For the benefit of this order, the provisions of Rule 20 are being reproduced as under: , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT 20. Substituted service - Where the Court is satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service, or that for any other reason the summons cannot be served in the ordinary way, the Court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the Court- house and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business or personally worked for gain, or in such other manner as the Court thinks fit. The perusal of the above provisions shows that before ordering for substituted service, the Court must be satisfied that the defendant is keeping out of the way for the purposes of avoiding service or that for any other reason the summons cannot be served in the ordinary way. Further, before affixture the serving officer must use its due and reasonable diligence to find out the defendant and if the circumstances as mentioned in Rule 17 exist then only the notice may be served by affixture that too in the presence of witnesses by whom the house was identified and in whose presence the copy was affixed.”
Accordingly, from the entire material available on record we have no hesitation in holding that there has been no valid service of notice under section 148 of the Act upon the assessee as the same was neither tendered to the assessee or his agent, nor the same was refused by either of them.
On the facts of the case and respectfully following the ratio of judgment laid down by the Hon’ble High Court of Delhi in the case of CIT Delhi – IV vs. Hotline International (P) Ltd (supra) and that of the Delhi Bench of the ITAT in the case of Dr. K.C. Verma vs ACIT, we hold that since there has been no proper service of notice on the assessee, the entire reassessment proceedings, resulting in the order dated 30-12-2008 are bad in law and the order passed u/s 148/143(3) dated , 1468/Del/2011 Sumanglam Sewa Awam Educational Samiti vs. ACIT 30.12.2008 is quashed. The other grounds of appeal become in fructuous and are not being adjudicated upon.
In the result, the appeals of the assessee are allowed.