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COMMISSIONER OF INCOME TAX (CENTRAL) -I Versus CHETAN GUPTA

2015 (9) TMI 756 - DELHI HIGH COURT

Reopening of assessment - Whether the ITAT was correct in holding that since notice under Section 148 was not served on the Assessee in accordance with law, the re-assessment made consequent thereto was without jurisdiction and liable to be quashed? - Held that:- 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.

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ervice 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.

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.

The mere fact that an Assessee or .....

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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. Decided in favour of the Assessee. - ITA 72 of 2014 .....

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n of law 2. Admit. The question of law framed for consideration is: Whether the ITAT was correct in holding that since notice under Section 148 of the Income Tax Act (the Act) was not served on the Assessee in accordance with law, the re-assessment made consequent thereto was without jurisdiction and liable to be quashed? Background facts 3. The Assessee, showing his address as C/o Jagat Theatre, Chandigarh , filed a return of income for AY 2001-2002 with the Income Tax Range-2, Chandigarh on 11 .....

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m and a pen drive had been recovered from him. The print outs from the pen drive received by ADIT from the Punjab Vigilance Bureau were forwarded to the Assessing Officer (AO) in Chandigarh. A perusal of the print outs revealed that there were various entries in different names pertaining to Financial Year (FY) 2000-2001. The information when tabulated by the AO showed that there were credits of ₹ 40,49,77,905 on which interest of ₹ 7,35,49,141 had been paid. For the FY in question a .....

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nv.), Ludhiana, the Assessee denied knowledge of the names appearing in the pen drive although he failed to deny that the pen drive was recovered from his possession. The AO drew a presumption that the information in the pen drive found in his possession was true and that the primary onus to establish the identity, genuineness and creditworthiness of the creditors whose names appeared therein was on the Assessee. The AO accordingly concluded that he had reason to believe that the income for the .....

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rved upon one Mr. Ved Prakash, an Accountant at Kiran Cinema on that very date. 6. Subsequently the jurisdiction of the Assessee was transferred to the ACIT, Central Circle-5, New Delhi. On 28th November, 2008, another notice under Section 148 of the Act was issued to the Assessee by the ACIT, New Delhi and this time there were two addresses shown for him. The first was C/o Kiran Cinema, Sector-22, Chandigarh and the second C/o Vipin Aggarwal & Associates, E-4, Defence Colony, New Delhi. 7. .....

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s 148 of the Income Tax Act to enable us to get comply with the same. In continuation to above proceedings and our earlier submission, without prejudice to the legal rights of the assessee earlier original return filed by the assessee, may be treated as a return in these provisions u/s 148 of the Income Tax Act, under protest and we object the present proceedings. 8. On that very date, i.e. 12th December 2008, the ACIT, Central Circle 5, New Delhi again wrote to the Assessee with the two address .....

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the Assessee should show cause why the sums mentioned hereinbefore should not be added in the income as they were not declared in the return of AY 2001-02. 10. In response to the above letter, Vipin Aggarwal & Associates wrote to the ACIT on 19th December, 2008, as under: Dear Sir, This is with reference to your letter dated 12.12.08 and our earlier reply dated 12.12.08. It is again submitted that notice u/s 148 was not received by the assessee. However, without prejudice to the above submis .....

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ssment is with great respect unjustified. The assessee has already declined to have any knowledge as well as recovery from him, the said pen drive before the ADIT (Inv.), Ludhiana and Delhi. It is further requested that copy of the pen drive and its printouts as referred in the reasons recorded may please be supplied to us. Further, in the reason recorded for the reopening of the case, it has been mentioned that the concerned officer has tabulated the information and some amount of credit totall .....

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of the CIT (A) 12. In the appeal filed before the Commissioner of Income Tax (Appeals) [CIT(A)], the Assessee contended inter alia that the AO erred in law in framing the impugned assessment order without assuming jurisdiction as per law and without serving the mandatory notices under Sections 143 & 148 of the Act. 13. In the order dated 26th March, 2012 dismissing the Assessee‟s appeal, the CIT(A) noted that a letter had been faxed by the ACIT, New Delhi to ACIT, Circle-3, Chandigarh .....

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uot; It was further mentioned that service of all notices pertaining to the Assessee Group was effected at the above address at Kiran Cinema and that different employees of Kiran Cinema had received the said notices. Further, in the case of Ms. Vandana Gupta, the Assessee's daughter, service of notices had been effected at Kiran Cinema. Even in the other group case of M/s. Jagtumal Kundan Lal, C/o Jagat Theatre, service of notice had been effected at Kiran Cinema. It was accordingly asserted .....

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that the Assessee was silent on the issue as to why notices in the case of family members and other group cases were received at the address of Kiran Cinema. The CIT (A) concluded that it appeared that the Assessee and his group for their own convenience prefer to receive notice at this place instead of so called address of care of Jagat Theatre. The purpose of the notice was to make the Assessee aware of the proceedings and that purpose had been fulfilled. Further, Section 292BB was a procedur .....

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ssment. 17. The ITAT, by the impugned order, reversed the order of the CIT (A) and came to the conclusion that with the Assessee‟s contention that Ved Prakash is neither his employee nor his authorized representative remaining uncontroverted, and with that AO failing to take note of the Assessee‟s objections about non-service of notice under Sections 148 and 143 (2) of the Act, it could not be said to be proper service upon the Assessee. 18. The ITAT followed the decisions of this Co .....

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nior counsel for the Respondent-Assessee. 20. The submission of Mr. Singh was to the effect that there is distinction to be drawn between issuance of notice under Section 148 of the Act and service of such notice upon the Assessee. Relying on the decision of the Supreme Court in R.K. Upadhyaya v. Shanbhai P. Patel (1987) 3 SCC 96, Mr. Singh submitted that service of notice under Section 148 of the Act was not a condition precedent to conferment of jurisdiction in the ITO to deal with the matter .....

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Singh submitted that in the present case the Assessee did not deny that Mr. Ved Prakash was employed by him as an Accountant. Referring to the decision in Harshad J. Shah v. LIC of India AIR 1997 SC 2459 Mr. Singh submitted that in such circumstances the doctrine of apparent authority‟ would apply such that although the principal may not have given that person such authority, his conduct was such that it could be inferred. According to Mr. Singh, in terms of Section 282 (1) of the Act rea .....

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eliance was also placed on the decision in CIT v. Shital Prasad Kharag Prasad 280 ITR 541 (All); CIT v. Hotline International Pvt. Ltd. 296 ITR 333 (Del); Sri Nath Suresh Chand Ram Naresh v. CIT 280 ITR 396 (All); P.N. Sasikumar v. CIT (1988) 170 ITR 80 (Ker); Venad Properties (P) Limited v. Commissioner of Income Tax (2012) 340 ITR 463 (Del) and Mayawati v. CIT (2010) 321 ITR 349 (Del). 23. In reply, Mr. Ajay Vohra submitted that notice to an Assessee under Section 148 and 143 (2) of the Act wa .....

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otice would lead to the inevitable result of invalidating the re-assessment order. Finally, he pointed out that Section 292 BB of the Act, introduced with effect from 1st April 2008 was not retrospective. In any event, in terms of the proviso thereto, the Assessee had, prior to the completion of the re-assessment, specifically raised an objection to the effect that service of notice under Section 148 of the Act had not been effected upon him. Mr. Vohra referred to a number of decisions in suppor .....

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e 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. 25. 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 r .....

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s 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. 26. This was also the basis for the decision in Banarasi Debi v. ITR (1964) 53 ITR 100. However, under the 1961 Act the p .....

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effected on the Assessee or his authorised representative. 27. 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, .....

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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 sect .....

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ecurity guard was not an agent of the Assessee and therefore, the reassessment proceedings were held to be bad in law. 30. 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 author .....

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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. 32. 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 g .....

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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. 33. In Sri Nath Sures .....

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e 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 informa .....

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eing 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 a .....

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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, .....

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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 .....

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im 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 .....

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ection 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 .....

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by the Assessee to specifically protest that Mr. Ved Prakash was not his Accountant or agent or that he was not empowered to accept notices on his behalf should be taken to be a waiver by the Assessee of the requirement of proper service of notice in terms of Section 148 of the Act. The settled legal position is that merely because an Assessee may have participated in the proceedings, the requirement of service of proper notice upon the person in accordance with the legal requirement under Sect .....

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ime and an ex parte order was passed. Before the High Court it was contended that the employee on whom the service of the notice was found to have been made was not duly authorized to accept such notice and that the mere fact that the General Manager of the firm applied for time, would not render the service of notice on the employee a valid and a legal service. It is contended that the Assessee had not denied service of notice on such employee. The High Court however negatived the plea of the R .....

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issuance of the notice otherwise than by its service on the person concerned is one thing and the service of the notice on the person is another. 41. In the context of sales tax the Full Bench of the Allahabad High Court in Laxmi Narain Anand Prakash v. Commissioner of Sales Tax, Lucknow AIR 1980 All 198 it was held that the notice of initiation proceeding under Section 21 of U.P. Sales Tax Act, 1947 was a condition precedent and not only a procedural requirement. The mere fact that the Assessee .....

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t that the failure to comply with a procedural requirement should not defeat substantive justice may not be apposite in the present context where the failure to serve notice under Section 148 is a jurisdictional and not merely a procedural requirement. 43. Also, the observations in Mayawati v. CIT (supra) to the effect that the requirement of service of notice under Section 143 (2) of the Act cannot be considered as mandatory can no longer be considered to be good law in light of the subsequent .....

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ce under Section 148 of the Act was not effected on the Assessee is hypothetical since in the present case pursuant to issuance of such notice, reassessment has in fact been completed. In any event, even Section 153 (2) makes it clear that no order of reassessment can be made after the expiry of one year from the end of the financial year in which the notice under Section 148 was served. Therefore the service of notice is a pre-condition to finalising the re-assessment. Section 292 BB not attrac .....

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8 SOT 292 (Del) (SB), Section 292 BB which was introduced with effect from 1st April 2008 and is prospective. Conclusions 46. 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 mandatori .....

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