Reassessment invalid Notice under section 148 is invalid if it was not properly served
Fact and Issue of the case
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-1, Jaipur dated 31/01/2020 for the A.Y. 2010-11. Following grounds have been taken by the assessee:.
1. Under the facts and circumstances of the case, the ld. CIT(A) erred in confirming the action of the ld. AO in passing the order U/s 148/143(3) which is void an-initio deserves to be quashed.
2. Under the facts and circumstances of the case, the ld. CIT(A) erred in treating the expenditure of the assessee on vacating the premises as sale and thereby applying the provisions of Section 50C of the Income Tax Act, 1961.
3. Under the facts and circumstances of the case, the ld. CIT(A) erred in treating the transaction of the assessee for vacating the premises under the consent term in suit filed before Rent Tribunal agreed for vacating the premises against the zero consideration.
4. Under the facts and circumstances of the case, the ld. CIT(A) erred in sustaining the addition of Rs. 1,13,23,461/-out of total addition of Rs. 2,76,51,300/- by applying the provision of Section 50C of the income Tax Act, 1961.
5. The ld ITO erred in levying interest u/s 234A and 234B of the Income Tax Act, 1961.
6. The ld. ITO erred in initiating penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961.
7. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.
Observation of the court
The Court has heard the rival contentions of both the parties and have perused the material placed on record, judgments cited by the parties as well as orders passed by the revenue authorities. The basic dispute before us raised by the assessee is that no notice U/s 148 of the Act was served upon the assessee. It was categorically submitted by the assessee that, although, the assessee has filed return of income on 30/10/2017, however, a specific note was given in the return that notice U/s 148 of the Act was not served upon the assessee. It was submitted that since the assessee has received notice u/s 143(2) and 142(1) of the Act for assessment proceedings, therefore, return was filed in protest. The assessee has placed on record copy of return alongwith computation of income which is at page No. 1 to 4 of the paper book wherein specific note has been written by the assessee that no notice U/s 148 of the Act was served upon the assessee. It was further submitted that a separate letter dated 01/11/2017 on the next day of filing of return of income was also filed by the assessee to the revenue thereby again stating the fact that notice U/s 148 of the Act was not served upon the assessee. In this regard, copy of letter is available at page 5 & 6 of the paper book.
Further, it is pertinent to mention here that while initiating proceedings u/ s 147 there must be existence of belief of the AO that income had escaped assessment [ITO vs Lakhmani Mewal Das (SC) 103 ITR 437; Phool Chand Bajrang Lal and Another vs ITO as another (SC) 203 ITR 456 and Raymond Woollen Mills vs ITO & another (SC) 236 ITR 34]. At the time of re-opening, Assessing officer is not required to establish escapement of income [Srikrishan (P) Ltd. vs CIT (SC) 221 ITR 538]. The expression “has reason to believe” is wider than “is satisfied” [Kalyanji Mavji & Co. vs CIT(SC) 102 ITR 287]. The only condition to be satisfied for re-opening is that the taxable income has escaped assessment [Kone Elevator IndiaLtd. vs ITO (Mad) 340 ITR 454]. In the instant case there is sufficient material available on records which indicates that income of the assessee has escaped assessment. Therefore, proceedings under sec. 147 has been rightly initiated and accordingly the Noticei under sec. 148 has rightly been issued in the case under reference.
Inview of above, it is requested to please attend the proceedings and comply with the requirements of Order sheet entry dated 01.11.2017. For this purpose the case has been fixed for hearing on 10th November, 201730 PM. Notice under sec. 143(2) is enclosed.
From perusal of the said reply, it is amply clear that A.O. has nowhere mentioned in the reply that on which date notice U/s 148 of the Act was served upon the assessee and there is no evidence on record with regard to service of notice U/s 148 of the Act upon the assessee. The assessee has relied upon the decision in the case of CIT Vs Mal Chand Surana 28 ITR 684 (Cal) and in the case of Saha Vs CIT 27 ITR 231 (Cal) wherein it has been mentioned that when service is effected by notice server to the department or by post, in such case, it is for the department to prove that notice has been served in accordance with provisions of order V of Code of Civil Procedure, particularly Rules 16 to 20 thereof.
Since the assessee has raised this ground and questioned the service of notice during the course of assessment proceedings time and again, therefore, the provisions of Section 292BB of the Act as relied upon by the ld DR is of no help to the revenue as this provision is applicable only in the facts and circumstances, when the assessee has not raised the issue of service and has not questioned the same during the course of assessment proceedings. In this respect, we draw strength from the following decisions:
(i) CIT vs. Vardhman Estate P. Ltd. 287 ITR 368 (Del)
(ii) CIT vs. Bhan Textiles P. Ltd. 287 ITR 370 (Del)
(iii) CIT vs. Lunar Diamonds Ltd. 281 ITR 1 (Del)
(iv) Venkat Naicken Trust v. ITRO 242 ITR 141 (Mad)
(v) Sudev Industries Ltd. v. ITO 98 TTJ 97 (Del)
(vi) Hind Book House v. ITO 92 lTD 415 (Del)
(vii) Dulli Chand Laxmi Narain v. ACIT 89 lTD 426 (Del)
(viii) Dina Nath v. CIT 204 ITR 667 (J&K)
(ix)ayanthi Talkies Distributors v. CIT 120 ITR 576 (Mad)”
To summarize the conclusions:
(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 authorised 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 finalised 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.
(vii) 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. The appeal is dismissed but, in the facts and circumstances of the case, with no order as to costs.”
After appreciating the facts of the present case, we are of the considered view that the facts contained in the present case are similar to the facts which are contained in the case of CIT Vs. Chetan Gupta (Supra), therefore, we are of the view that the question of service of notice U/s 148 of the Act is a jurisdictional requirement.
As per the facts of the present case, admittedly no attempt was made by the revenue to serve a notice to the assessee at the address provided by him. The revenue was also made aware of this lapse, as the assessee while filing of its return has made a note therein it was mentioned that no notice U/s 148 was served upon the assessee and moreover, the assessee have also served a letter to the revenue thereby categorically mentioning that no service of notice was effected upon the assessee and even the revenue in his reply dated 07/11/2017 has no where mentioned that notice U/s 148 of the Act was ever served upon the assessee. Hence, merely participation of the assessee in the proceedings is not a waiver to the service of notice U/s 148 upon the assessee. As per record, prior to completion of reassessment, the assessee has raised a categorical objection that he has not been duly served in accordance with Section 148 of the Act. Therefore, the ‘proviso’ to Section 292BB is attracted and Revenue cannot take advantage of the main portion of Section 292BB. This view has already been taken by the Special Bench of the Tribunal in Kuber Tobacco Products (P.) Ltd. v. Dy. CIT [2009] 28 SOT 292 (Delhi) (SB).
After having gone through the judgment cited by both the parties and more particularly the decision of the Hon’ble Delhi High Court in the case of CIT Vs Chetan Gupta (supra), which is squarely applicable to the facts of the present case, we are also of the view that:
(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 authorised 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 finalised 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.”
From the entire crux of the matter, we found that the revenue has failed to bring on record any positive evidence to prove that the notice U/s 148 of the Act was served upon the assessee whereas the assessee has successfully placed on record letter dated 07/11/2017 issued by the department wherein it has no where been mentioned that the notice U/s 148 was ever served upon the assessee. In view of the above facts and circumstances, we can safely conclude that there was no ‘proper service’ of notice U/s 148 of the Act was effected in the present case before completion of reassessment u/s 147 r.w.s 143(3). Therefore, we set aside the orders of the lower authorities and quash the proceeding U/s 148 of the Act. This ground of appeal is allowed.
Conclusion
In the result the tribunal allowed the petition and ruled in favour of the assessee
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