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TMI Blog2020 (9) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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." 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. The brief facts of the case are that the assessee is a private limited company. filed its return of income originally on 14.10.2010 declaring a loss of Rs. 3,16,326/-. Subsequently in protest against allegedly notice issued u/s 148 of the Income Tax Act, 1961 (in short, the Act) on 30.03.2017, assessee furnished return on 30.10.2017 disclosing the same loss of Rs. 3,15,326/- as disclosed in the return filed originally on 14.10.2010. The A.O. completed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 is ab-initio void and deserves to be annulled. The same is assailed as under: - 2. No service of notice u/s 148 - During the course of assessment proceedings it was vehemently argued by the assessee that the service of notice should be proved and disclosed to the assessee before proceeding in the matter of assessment. However the Learned Assessing Officer did not bother. He even while responding to the objections of the assessee vide letter dated 07.11.2017 scanned below. The Learned Assessing Officer has not mentioned the date on which notice u/s 148 was served either by post or by notice server as claimed in the letter. This proves that in the records of the revenue there is no evidence of service of notice u/s 148. Otherwise the Learned Assessing Officer would have disclosed and shown to the assessee but this was not done. Therefore it is prayed that assessment so framed without jurisdiction deserves to be annulled; In the letter scanned above, although the assessee has challenged the service of notice u/s 148 despite this Learned Assessing Officer has not mentioned the date of service of notice u/s 148. This clearly establishes that notice u/s 148 was not served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 148 is mandatory for assuming valid jurisdiction to re-assess the escaped income. He has relied on 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. AC'IT 89 lTD 426 (Del) (viii) Dina Nath v. CIT 204 ITR 667 (J&K) (ix) Jayanthi Talkies Distributors v. CIT 120 ITR 576 (Mad)" Therefore the order passed without serving notice to the assessee deserve to be quashed. 8. On the other hand, the ld DR had relied on the orders of the authorities below. CIT Dr relied on provisions of Section 292BB and contended that since assessee had participated in the reassessment proceedings and had also filed its return of income, therefore, it shall be deemed that the notice has been duly served in accordance with the provisions of the Act and as such the assessee is precluded from taking any objection that notice was not served. Ld. DR in this regard relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Jayanthi Talkies Distributors v. CIT 120 ITR 576 (Mad)" 11. The only argument raised by the department is by relying on the decision of the Hon'ble Supreme Court in the case of R.K. Upadhyaya Vs Shanabhai P Patel (1987) 33 Taxman 229 (SC). It was submitted that service of notice is not a condition precedent to conferment of jurisdiction in ITO. However, the said decision of the Hon'ble Supreme Court has alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inbefore and had therefore escaped assessment within the meaning of Section 147(b) of the Act. The re-assessment proceedings 5. On 28th March 2008, the Assistant Commissioner of Income Tax (ACIT) Circle 3, Chandigarh issued a notice under Section 148 of the Act. The notice was addressed to the Assessee but the address indicated therein was "C/o Kiran Cinema, Sector-22, Chandigarh." It appears that the said notice was served 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. In response to the above notice, on 12th December, 2008, Vipin Aggarwal & Associates addressed a letter to the ACIT inter alia stating as under: "In this connection, it is to submit that the assessee has not received any notice u/s 148 dated 28.03.2008 requiring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 totalling to Rs. 40,49,77,905/- along with interest has been shown. It is requested that the basis of the said figures may be given to us, so that reply may be filed as required in your show cause notice dated 12.12.08 regarding adding of said amount to the income of the assessee for the Asstt. Year 2001-02." 11. The ACIT computed the assessment on 29th December, 2008 under Section 143(3)/148 of the Act and made an addition of Rs. 30,50,48,745 to the income of the Assessee for AY 2001-02. Order 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 orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discuss the merits of the additions made and upheld it. The impugned order of the ITAT 16. Aggrieved by the above order the Assessee filed an appeal being ITA No. 1891/Del/2012 before the ITAT urging more or less the same grounds of challenge to the order of re-assessment. 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 Court in CIT v. Hotline International (P.) Ltd. [2008] 296 ITR 333/[2007] 161 Taxman 104 (Delhi) and of the Supreme Court in Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) and held that on account of the absence of a valid service of notice under Section 148 of the Act on the Assessee, the reassessment proceedings for AY 2001-02 were bad in law. 19. This Court has heard the submissions of Mr. Raghvendra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Ker.); Venad Properties (P.) Ltd. v. CIT [2012] 340 ITR 463/212 Taxman 20/[2011] 16 taxmann.com 62 (Delhi) and Mayawati v. CIT [2010] 321 ITR 349 (Delhi). 23. In reply, Mr. Ajay Vohra submitted that notice to an Assessee under Section 148 and 143 (2) of the Act was different from a notice under Section 142 (1) for instance. Service of notice on the Assessee strictly in terms of Section 148 read with Section 282 (1) of the Act is a jurisdictional requirement. Section 153 (2) of the Act made it clear that without such service of notice the AO could not proceed to make the re-assessment. He submitted that the onus was on the Revenue to show that service of notice had been effected on the Assessee or his authorised representative. The failure to serve such notice 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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, even under the 1961 Act, is that service of notice under Section 148 is a jurisdictional requirement for completing the reassessment. This has been emphasized in several other decisions of the High Courts as well. 28. In C.N. Nataraj v. Fifth ITO [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Assesseefirm 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." 33. In Sri Nath Suresh Chand Ram Naresh (supra) it was reiterated that service of valid notice under Section 148 was "the foundation for the initiation of reassessment proceedings and a condition pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. 36. The reliance by the Assessee on the decision in Harshad J. Shah (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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening 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. Participation by Assessee in proceedings not a waiver 39. The next issue to be considered is whether the failure 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 Section 148 of the Act is not dispensed with. 40. In B. Johar Forest Works v. CIT [1977] 107 ITR 409 (J&K) the notice issued by the ITO to the Assessee under Section 22 (2) of the 1922 Act. The notice was served on an employee of the Assessee who was not authorized to accept such notice. Subsequently, the General Manager of the Assessee applied for extension of time for filing the return, which was allowed by the ITO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice 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 decision of the Supreme Court in Hotel Blue Moon (supra) where it was held that an "omission on the part of the assessing authority to issue notice under Section 143 (2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143 (2) cannot be dispensed with." 44. The submission that under Section 153 (2) of the Act, there was an open ended time limit for completion of the reassessment till such time proper service of the notice 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 attracted 45. In the present case, prior to the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Revenue to effect service of notice upon him, the main part of Section 292 BB is not attracted. 47. 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. 48. The appeal is dismissed but, in the facts and circumstances of the case, with no order as to costs." 12. 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. 13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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