Notice affixture at wrong address hence reassessment Invalid

ORDER

Bhavnesh Saini, Judicial Member – Both the appeals by revenue are directed against different orders of ld. CIT(Appeals)-I Chandigarh dated 21.01.2015 for assessment year 2006-07.

2. We have heard ld. Representatives of both the parties, perused the material available on record and also perused the assessment record produced by the ld. DR. Both the appeals are decided as under.

ITA 335/2015

3. This appeal by revenue has been filed on the following grounds :

4. The assessee filed original return of income on 11.01.2007. Later on, case was reopened by issue of notice under section 148 of the Act dated 22.03.2013 after recording the reasons as reproduced at page 1 to 3 of the assessment order. The Assessing Officer noted that notice under section 148 issued on 22.03.2013 was served upon assessee on 26.03.2013 by affixture, as earlier notice sent by post was returned by the postal authorities. The assessee did not file any return of income in response to notice under section 148. The other statutory notices sent to assessee remained uncomplied with. However, later on, assessee filed a reply dated 27.01.2014 stating that no notice under section 148 has been received by him. The Assessing Officer, however, noted that since notice has been served by affixture, therefore, it is proper service and further noted that assessee is liable to tax for capital gains and accordingly, completed the assessment under section 147/148 of the Act vide order dated 27.03.2014.

5. The assessee challenged the re-assessment order before ld. CIT(Appeals) and it was submitted that since proceedings are invalid and barred by limitation and no notice under section 148 of the Income Tax Act was served by the assessee, therefore, re-assessment is bad in law. The assessee further submitted that Assessing Officer had issued notice under section 148 at the address “House No. 1626, Sector 18-D, Chandigarh” whereas the assessee resides at house No. 1627, Sector 18-D, Chandigarh. According to the assessee, non- receipt of valid notice makes the re-assessment proceedings void ab-initio. It was also submitted that assessment has been framed at the correct address but notice under section 148 was issued at the wrong address.

6. The ld. CIT(Appeals), considering the submissions of the assessee and on perusal of the assessment record, annulled the re-assessment proceedings because no notice under section 148 have been served upon assessee. His findings in para 5 and 6 of the appellate order are reproduced as under :

7. We have considered rival submissions. The ld. DR furnished copy of the return filed by assessee, copy of notice under section 148 dated 22.03.2013, copy of service of the notice by affixture dated 26.03.2013 and copy of the letter of assessee dated 24.01.2014 filed in response to notice under section 142(1) dated 17.01.2014. The ld. DR contended that assessee has filed letter dated 24.01.2014 in which assessee has given his address at house No. 1626, Sector 18-D, Chandigarh. He has submitted that service by affixture is valid mode of service. The ld. DR submitted that ld. CIT(A) should not have annulled the re-assessment order. He has relied upon decision of Hon’ble Supreme Court in the case of Deepak Agro Foods v. State of Rajasthan dated 11.07.2008 in Civil Appeal Nos. 4327-28 of 2008, decision of Hon’ble Punjab & Haryana High Court in the case of V.R.A. Cotton Mills (P.) Ltd. v. Union of India [2013] 359 ITR 495 and decision of the Hon’ble Supreme Court in the case of Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505. The ld. DR submitted that since Assessing Officer has jurisdiction to initiate proceedings under section 148 of the Act, therefore, ld. CIT(Appeals) should not have annulled the re-assessment proceedings. He has further submitted that even for lack of notice, it would not mean that Revenue authorities had no jurisdiction to assess and such a defect is curable.

7(i) On the other hand, ld. counsel for the assessee reiterated the submissions made before ld. CIT(Appeals) and relied upon decision of the Supreme Court in the case of CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147. The ld. counsel for the assessee submitted that assessee has not received any notice under section 148 of the Act and was not residing at house No. 1626, Sector 18-D, Chandigarh. The Assessing Officer has wrongly mentioned this address in the reasons recorded for re-assessment but later on passed the re-assessment order at the correct address i.e. 1627, Sector 18-D, Chandigarh. He has submitted that no notice under section 148 have been served upon assessee, therefore, ld. CIT(Appeals) was justified in annulling the re-assessment proceedings. He has submitted that in the letter dated 24.01.2014, assessee has given the address of 1626, Sector 18-D, Chandigarh because it was mentioned in the notice under section 142(1) dated 17.01.2014. He has further submitted that this letter was filed much later than the service of the notice under section 148 by affixture on dated 26.03.2013 and would not cure the illegality already committed by the Assessing Officer.

8. We have considered rival submissions. Section 148 of the Act provides as under :

148. [(1)] “Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139]

[Provided that in a case—

Provided further that in a case—

[Explanation.—For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.]

[(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.]”

9. The language of this section is very clear which provides that, “before making re-assessment under section 147 of the Act, Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period as may be specified in the notice, a return of income which is assessable under the Act” The service of the notice under section 148 is, therefore, condition precedent to validity of any re-assessment made under section 148 of the Income Tax Act. This is, therefore, upon service of notice u/s 148 of IT Act provides jurisdiction to the Assessing Officer to proceed under section 148 of the Act for re-assessment under section 148 of the Act. Hon’ble Madras High Court in the case of Jayanthi Talkies Distributors v. CIT[1979] 120 ITR 576 held as under :—

“Held (1) that the ITO will have no jurisdiction to make an assessment under s. 147 unless the notice under s. 148 is validly issued to and served on the assessee.

(2) As the notice in the instant case was by the notice-server of the department and not by post, the procedure contemplated by the Code of Civil Procedure should have been followed as per s. 282(1). The provisions in the Civil Procedure Code make it clear that the service of notice on a person can be effected by serving the notice on his agent who has been specifically empowered or authorized to receive the notice in writing by that person. The manager on whom the notice had been served in this case had no written authority from the partners to receive the notices on behalf of the firm.

Consequently, the notice under s. 148 had not been validly served on the assessee and the re-assessment made under s. 147 cannot be held to be valid.”

10. In this judgement, Hon’ble Madras High Court has referred to the decision of Hon’ble Supreme Court in the case of N. Narayana Chetty v. ITO [1959] 35 ITR 388 in which it was held by the Hon’ble Supreme Court that; “The notice prescribed by Section 34 of the Indian Income Tax Act, 1992, for the purpose of initiating re- assessment proceedings is not a mere procedural requirement, that the service of the notice on the assessee is a condition precedent to the validity of any re-assessment made under this Section and that if no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the Assessing Officer without a notice or in pursuance of an invalid notice would be illegal and void”. Hon’ble Delhi High Court in the case of CIT v. Hotline International (P.) Ltd. [2008] 296 ITR 333 held as under :

“Section 282 of the Income-tax Act, 1961, lays down the mode of service of notices. According to it, any notice under the Income-tax Act has to be served on the person named therein either by post or as if it were a summons issued by the court under the Code of Civil Procedure, 1908. Order V of rule 19A of the Code of the Civil Procedure, provides for simultaneous service by post in addition to personal service. Under Order V, rule 17 of the Code, the affixation can be done only when the assessee or his agent refuses to sign the acknowledgement or cannot be found. The notice sent by the registered post should be sent along with the acknowledgement due.

Held, that no effort was made by the Income-tax Department to serve the notice upon the assessee, since the company of the assessee was closed due to festival holidays, and admittedly no effort was made by the serving officer to locate the assessee. The notice sent by registered post ought to have been sent along with the acknowledgment due but admittedly this was not done. Since there had been no proper service of notice, the reassessment proceeding resulting in the order dated January 30, 2003, was not valid.”

11. In the light of the above decisions and provisions of law contained under section 148 of the Act, we examine the facts of the case. In the present case, Assessing Officer recorded the reasons for issue of notice under section 148 which are reproduced in the re-assessment order in which the Assessing Officer has mentioned the address of the assessee to be “House No. 1626, Sector 18-D, Chandigarh”. The Assessing Officer in the reasons also noted that as per this office record, the assessee has not filed the return of income though the territorial jurisdiction for the case at the given address vests with this office. It may be noted here that the Assessing Officer in the re-assessment order dated 27.03.2014 in the opening para itself has mentioned that assessee has filed its original return of income on 11.01.2007. This fact is also confirmed from the record produced by the ld. DR which shows that assessee has filed original return of income for assessment year under appeal prior to the initiation of re-assessment proceedings. It may also be noted here that in the return of income, originally filed by assessee, the assessee has given his address to be house No. 1627, Sector 18-D, Chandigarh. Therefore, Assessing Officer has recorded both wrong facts in the reasons recorded for re-assessment i.e. wrong address of the assessee as well as that no return of income have been filed. The Assessing Officer, thereafter, issued notice under section 148 on assessee on 22.03.2013 mentioning in the said notice the address of assessee at house No. 1626, Sector 18-D, Chandigarh where the assessee was not residing. The said notice is stated to have been served by affixture at wrong address on 26.03.2013. The Assessing Officer, thereafter, completed re-assessment on 27.03.2014 and correctly mentioned the address of the assessee in the re-assessment order as House No. 1627, Sector 18-D Chandigarh. Therefore, the Assessing Officer did not attempt to verify the address of the assessee from his own record as well as did not mention the correct address in the notice under section 148 of the Income Tax Act. Since assessee was not residing at the given address, as given in the notice under section 148 of the Act as House No. 1626, Sector 18-D Chandigarh, therefore, there is no question of any valid service through affixture of the notice under section 148 of the Act at this address because assessee was not residing at the given address. The ld. DR heavily relied upon letter of the assessee dated 24.01.2014 which was issued in response to notice under section 142(1) dated 17.01.2014 in which assessee has mentioned the address to be house No. 1626, Sector 18-D Chandigarh. First of all, this letter is filed after alleged service of the notice under section 148 by affixture, therefore, it may not be relevant for the purpose of deciding the issue. Further, according to submission of ld. counsel for the assessee, this wrong address was mentioned because the same address was mentioned in the notice of the Assessing Officer under section 142(1) of the Act as well. Therefore, explanation of the assessee is acceptable that again wrong address has been mentioned in this reply because it was mentioned in the notice issued by Assessing Officer under section 142(1) which was in reference to the reply filed before the Assessing Officer.

11(i) The ld. CIT(Appeals) also considered the report of the Inspector dated 14.03.2014 found in the assessment folder in which it was confirmed that assessee was residing at house No. 1627 Sector 18-D Chandigarh and not at house No. 1626 Sector 18-D Chandigarh. These facts clearly establish on record that notice under section 148 was never served upon assessee, therefore, resultant proceedings under section 148 would be invalid and bad in law.

12. The ld. DR relied upon decision of the Supreme Court in the case of Deepak Agro Foods (supra) in which the issue was with reference to proceedings under Rajasthan Sales Tax Act in which Hon’ble Supreme Court observed there is a fine distinction between the orders which are null and void and the orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such defect cannot be cured even by consent of the parties.

12(i) It is well settled law that Assessing Officer will have no jurisdiction to make an assessment under section 147/148 unless the notice under section 148 is validly issued and served upon assessee. Therefore, this decision would not support case of the Revenue. The other decision relied upon by ld. DR in the case of V.R.A. Cotton Mills (P.) Ltd. (supra) relates to the service of the notice under section 143(2) of the Income Tax Act and another decision in the case of Estate of Late Rangalal Jojodia (supra) deals with service upon the legal heirs and is not with reference to the proceedings under section 148 of the Act. The decision relied upon by ld. DR, thus, would not support the case of the revenue.

13. Considering the above discussion in the light of the findings of fact recorded by the ld. CIT(Appeals),it is clear that notice under section 148 of the Act dated 22.03.2013 have not been served upon assessee, therefore, the re-assessment made under section 147/148 cannot be held to be valid because the same is bad in law. There is no question of service by affixture by the Inspector at the wrong address upon assessee. The ld. CIT(Appeals), therefore, in proper perspective correctly set aside the re-assessment proceedings. We do not find any justification to interfere with the order of the ld. CIT(Appeals) in allowing the appeal of the assessee. The departmental appeal has no merit. The same is, accordingly, dismissed.

ITA 336/2015

14. In this appeal, Revenue challenged the order of ld. CIT(Appeals) and appeal of the assessee in reference to proceedings under section 154 of the Income Tax Act. The Assessing Officer in the proceedings under section 154 of the Act rectified the re-assessment order dated 27.03.2014. The ld. CIT(Appeals) noted that since proceedings under section 148 have been annulled by him vide order dated 21.01.2015, therefore, rectification of proceedings under section 154 of the Act would not survive. Since, we have dismissed the main appeal of the revenue in ITA 335/2015, therefore, present departmental appeal has become infructuous and is accordingly, dismissed.

15. In the result, both appeals of the Revenue are dismissed.