2025 (7) TMI 813 - AT - Income Tax

Validity of reopening of assessment - absence of recording of correct postal address - no service of notice u/s 148 which is an essential condition to be fulfilled - HELD THAT - Referring to the correct postal address as contained in the death certificate the address as noted by the AO in the notice u/s 148 of the Act as reproduced above is entirely different. In the absence of recording of correct postal address there cannot be presumption a service of notice. Thus we are at loss to understand as to how the AO can claim that the notice was duly served upon the assessee when it is clear fact evident on record that the notice was marked with a wrong postal address. Thus by no circumstances it can be conclusively established the notice u/s 148 was served upon the assessee particularly when ld. Sr. DR hardly controvert the same. See Chetan Gupta 2015 (9) TMI 756 - DELHI HIGH COURT Thus we hold that in absence of valid service of notice the entire proceedings u/s 148 is a nullity and accordingly the assessment be quashed. Assessee appeal allowed.

Summary

The core legal questions considered in this appeal pertain primarily to the validity of reassessment proceedings initiated under sections 147/144 of the Income Tax Act, 1961, and the consequential additions made to the assessee's income. Specifically, the issues include:

1. Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) erred in confirming the reassessment order framed under sections 147/144 without assuming jurisdiction as per the statutory requirements and without complying with mandatory procedural conditions under sections 147 to 151 of the Act.

2. Whether the notices under sections 148, 142(1), and 144 were validly served on the assessee, which is a jurisdictional prerequisite for reassessment.

3. Whether the addition of Rs. 89,75,000/- on account of sale of agricultural land treated as a capital asset under section 2(14) was justified on facts and in law.

4. Whether the interest charged under sections 234A, 234B, and 234C of the Act was legally sustainable.

Issue-wise detailed analysis:

Validity of Reassessment Proceedings and Jurisdictional Compliance:

The legal framework mandates that for reopening an assessment under section 147, the AO must record reasons to believe that income has escaped assessment and issue a notice under section 148 to the assessee, which must be validly served. The reassessment must comply with procedural safeguards prescribed under sections 147 to 151. The Court referred to binding precedent from the Hon'ble Delhi High Court, which emphasized that issuance and valid service of notice under section 148 are jurisdictional conditions, not mere procedural formalities. Without compliance, the AO lacks jurisdiction to reopen the assessment.

The Court noted that the reassessment was completed under section 144 based on information received from the Sub-Registrar regarding the sale of immovable property. However, the AO had not recorded or complied with the mandatory jurisdictional requirements, particularly valid service of notice under section 148.

Service of Notice under Section 148:

Key evidence included the death certificate of the assessee dated 23.04.2017, and the notices issued under sections 148, 142(1), and 144. The AO claimed that the notice under section 148 dated 30.03.2017 was served by postal authorities on 31.03.2017 at the assessee's last known address. However, the Court found discrepancies in the postal addresses used by the AO for service of notices and in the assessment order itself, which did not match the correct address as per the death certificate and other records.

The Court held that in the absence of recording the correct postal address and proper proof of service, the presumption of valid service cannot be drawn. The Senior Departmental Representative did not contest this fact effectively.

The Court relied heavily on the authoritative ruling which held that the onus lies on the Revenue to prove valid service of notice under section 148, and failure to do so renders the reassessment proceedings invalid and liable to be quashed. The ruling also clarified that participation by an unauthorized person after the fact does not amount to waiver of the requirement for valid service.

Treatment of Capital Gain Addition:

The addition of Rs. 89,75,000/- was made on the ground that the agricultural land sold was a capital asset within the meaning of section 2(14). However, since the Court quashed the reassessment proceedings on jurisdictional grounds, it refrained from delving into the factual and legal merits of this addition.

Interest under Sections 234A, 234B, and 234C:

Similarly, since the reassessment was set aside on the fundamental issue of invalid notice, the Court did not address the validity of interest charged under these sections.

Treatment of Competing Arguments:

The assessee's contention focused on the invalidity of the reassessment due to lack of valid service of notice, especially given the death of the assessee before issuance of notice. The Revenue maintained that notice was duly served and the reassessment was valid. The Court found the assessee's argument persuasive, supported by documentary evidence and binding precedent, and noted the Revenue's failure to discharge the onus of proving valid service.

Conclusions:

The Court concluded that the reassessment proceedings initiated under section 147/144 without valid service of notice under section 148 are null and void. Consequently, the addition of Rs. 89,75,000/- was set aside. The Court declined to examine other grounds raised by the assessee, including the treatment of agricultural land as capital asset and interest charges, since the fundamental jurisdictional defect rendered the entire reassessment void.

Significant holdings include the following verbatim excerpt from the binding precedent relied upon:

"(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."

The core principle established is that valid service of notice under section 148 is a jurisdictional prerequisite for reopening assessments, and failure in this regard vitiates the entire reassessment proceeding.

Ultimately, the Court allowed the appeal, quashed the reassessment order, and directed deletion of the addition of Rs. 89,75,000/-, without addressing substantive issues relating to capital gains or interest.