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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI ANUBHAV SHARMA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the ld. CIT(A), Ghaziabad dated 05.03.2018 pertaining to Assessment Year 2008-09.
Though the assessee has raised as many as 15 grounds of appeal, but the challenge to the service of notice u/s 148 of the Income-tax Act, 1961 [the Act, for short] for assumption of jurisdiction to frame order u/s 147 of the Act goes to the root of the matter, therefore, we decided to adjudicate the same first.
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
The bone of contention is the alleged notice dated 24.03.2015 issued by the Assessing Officer u/s 148 of the Act, which the assessee has claimed to have never been received. The said notice was issued at Noida address of Shri Rakesh Gupta, one of the trustees of the assessee. The address mentioned was 20, Sector 7, Noida. The Trust Deed is at pages 222 to 233 of the Paper Book. On the very first page, names and addresses of 8 trustees have been mentioned and none of the trustees lives in Noida.
The address of the assessee has been mentioned at 65, AGCR Enclave, Delhi – 10092. Allotment of PAN, as exhibited at page 234 of the Paper Book shows the address as 65, AGCR Enclave, Delhi – 110092.
The Gift Deed, which triggered the reassessment proceedings is at pages 22 to 221 of the Paper Book wherein the name of the assessee- trust has been mentioned at address 65, AGCR Enclave, Delhi – 110092, Shri Rakesh Kumar Gupta at 7/20, Raj Nagar, Ghaziabad, meaning thereby, that none of the documents contain any address pertaining to Noida.
Vide notice dated 13.07.2015, the Assessing Officer pointed out to the assessee that notice u/s 148 dated 24.03.2015 has already been issued and served upon the assessee but no return of income appears to have been filed by the assessee.
The assessee replied that it has never received any notice u/s 148 of the Act though the return of income has been filed pursuant to the notice u/s 142(1) of the Act.
On 06.11.2015, while responding to the queries of the Assessing Officer, the assessee reiterated that the trust has not received any notice dated 24.03.2015 issued u/s 148 of the Act.
The Assessing Officer proceeded with the assessment proceedings and completed the assessment vide order dated 22.03.2016 framed u/s 143(3) of the Act r.w.s 147 of the Act at the assessed income of Rs. 2,15,11,200/-.
The question which needs to be addressed now is whether action of the Assessing Officer is tenable in law without serving any notice u/s 148 of the Act tantamounting to without assumption of jurisdiction.
The answer has been given by the Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income tax, Central-1, Vs. Chetan Gupta 382 ITR 613. The relevant findings read as under:
2”4. 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. Income Tax Officer, Nellore [1959] 35 ITR 388 (SC) 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. ITR (1964) 53 ITR 100. 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 Income-tax Officer (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 CIT v. 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. Commissioner of Income-tax [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. Commissioner of Income- tax (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 v. CIT (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.”
The Hon'ble High Court, after adjudicating that service of notice is a jurisdictional requirement, went on to hold that the onus is on the Revenue to prove service of notice as under:
“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. Commissioner of Wealth- Tax [1974] 97 ITR 701 (Ori) and Venkat Naicken Trust v. ITO [1999] 107 Taxman 391 (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 v. LIC of India (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.”
The ld. DR was in possession of assessment records and when the Bench asked the ld. DR to discharge the onus of service of notice, the ld. DR stated that though the evidence of issue of notice is available on record, but the same has been sent to the address at Noida which does not have any relation with the address of the assessee or its 8 trustees, meaning thereby, that the ld. DR could not adduce any evidence of service of notice u/s 148 of the Act at the address of either the assessee or in its trustees.
As mentioned elsewhere, the assessee has time and again reminded the Assessing Officer that no notice was served upon it u/s 148 of the Act go on to show that the assessee attended the proceedings under protest.
The Hon'ble High Court concluded by holding as under;
“(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 authorized 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 finalized 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.
(vi) 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.”
Considering the facts of the case in light of the aforementioned decision of the Hon'ble High Court of Delhi, we have no hesitation in holding that the assessment order is bad in law and deserves to be quashed. Challenge to the service of notice u/s 148 of the Act and assumption of jurisdiction has been held to be bad in law. Therefore, we do not find any reason to dwell into the merits of the case.
In the result the appeal of the assessee in is allowed.
The order is pronounced in the open court on 14.09.2023.