Affixture of income tax notice-essential conditions, procedure and law explained by ITAT. Unless notice is served on proper person in manner prescribed, service is insufficient and invalidates the jurisdiction of AO
ABCAUS Case Law Citation:
ABCAUS 3128 (2019) (08) ITAT
Important case law relied upon by the parties:
Vankat Naicken Trust Vs ITO (2000) 242 ITR 141 (Mad)
Auram Jewellery Exports (P) Ltd Vs ACIT (2017) 88 taxman.com 633
Jagannath Prasad Vs CIT (1977) 110 ITR 27 (All)
Wg. Cdr. Sucha Singh, C/o Manoj Kumar Kanth Vs ITO 2017
M/s Electronic Glass Industries Vs ITO
CIT Vs Ramendra Nath Ghosh (1971) 82 ITR 888 (S.C)
ITO Vs Lal Chand Agarwal (2012) 134 ITD 91
Lal Chand Agarwal Vs CIT (2016) 68 taxmann.com
CIT vs. Satya Narain Poddar (1973) 89 ITR 136 (All.)
Kunj Behari vs. ITO (1983) 139 ITR 73 (P&H)
In the instant case, the AO received information from the ADIT (Inv.) about huge cash deposits in bank accounts of the assessee firm. Based on this information notice under section 148 of the Income Tax Act, 1961 (the Act) was issued. The notice so issued culminated into assessment framed by the ITO making additions to income originally returned by the assessee.
Before the CIT(A), assessee raised various grounds regarding validity of re-opening and also on merits. However, being unconvinced the CIT(A) rejected the appeal both on legal grounds as well on merits and confirmed the assessment order as such.
Before the Tribunal, the assessee challenged that no notice under section 148 of the Act was served upon the assessee and ex-parte assessment was completed without serving any notice under section 148 of the Act till the completion of assessment which rendered the assessment order to be held void-ab-initio.
The assessee submitted that objection regarding no service of notice under section 148 of the Act was duly raised before the AO immediately after receipt of notice under section 142(1) of the Act. However, the objection as rejected by the AO.
It was submitted that the Assessing officer was under an obligation to show with evidence that the said notice had properly been served in accordance with the procedure prescribed under the Law and the jurisdiction to proceed with the assessment has been lawfully acquired.
It was submitted that neither the Assessing officer nor the CIT (A) had brought any such evidence on records which may show that notice as claimed to have been issued ever got served upon the assessee.
It was further submitted that despite his best and consistent efforts, the AO refused to furnish evidence regarding service of Notice and it was only after several application under Right to Information Act, eventually it was informed that the service was made by Affixture and report of Affixture was also made available to the assessee.
Affixture of income tax notice
The assessee submitted that the Affixture was not in accordance with the law. He also pointed out that before the Bench the Revenue had claimed that notice was sent by Speed Post. It was submitted that no evidence was on records nor submitted that such notice sent by speed post.
It was further submitted that assessee had dispossed off the cold storage by virtue of order by the Hon’ble High Court and thus, even if presuming notice, on the date of issuance of notice assessee was not in possession of the cold storage therefore, notice if all issued was wrongly addressed and could not have even reached the assessee. It was pointed out that all future correspondence was made by the Assessing officer at the residential address of partners, which notices were duly served and there is no evidence on records that any notice issued in future correspondence by the learned Assessing officer got served upon the cold storage address.
On the other hand, the Revenue contended that notice was validly issued and served upon the assessee by two recognised methods i.e. by Affixture and also by speed post provided under 282 of the Act.
It was also stated that as per the provisions of Partnership Act assessee was required to intimate the change of address of registered office to the Registrar of Firms and no such intimation was given to Registrar.
Disputing the contents of affidavit of the partner, the Revenue submitted that cold storage had not been disposed off as claimed, only business operations had been discontinued.
There must be enough reason for resorting to service by affixture
Thus, the question was whether there was enough reason available on records to have resorted for service by affixture which is an alternate mode of service to be resorted when service by other modes are not found possible and thus one of the last mode of service notice and if so, whether notice claimed to have been served by affixture had been duly served upon the assessee as per procedure prescribed under law, prior to the commencement or even upto completion of the reassessment proceedings or not and whether the consequent assessment is valid in the eyes of law?
The Tribunal referred to relevant portion of section 148(1), sections 282, of the Income Tax Act and Order V, Rule 12, Rule 17, rule 19, Rule 20(1) and Order III, Rule 2 of the Code of Civil Procedure 1908.
Service has to be effected on defendant in person or on his agent
The Tribunal observed that as per order V, Rule 12 of the Code of Civil Procedure, wherever it is practicable, the service has to be effected on defendant in person or on his agent who is empowered to accept service.
It was noted that notice under section 148 of the Act was though attempted, but was not tendered to the assessee i.e Firm. Admittedly, the case of the revenue was that when the notice server went to serve the notice under section 148 of the Act at the cold storage the notice server found the cold storage to be closed and thereafter the notice server went to the residence of the Partner where from the house a man came out who refused to accept the service of notice under section 148 of the Act.
Unnamed man coming out of the house could not be said to be agent of the assessee
The Tribunal opined that the said unnamed man stated to be coming out of the house of partners could by no stretch of reasoning be said to be the agent of the assessee Firm who had been empowered by the Firm to receive service of notice or even of its partner either in terms of order III, Rule 2 of the Code of Civil Procedure and therefore, no notice was tendered either to the assessee or his agent nor was it refused either by the assessee or his duly appointed agent who had been empowered by the Firm to receive service of notice. Thus, refusals by un-named person found at the house of the partners did not amount to refusal by agent who had been empowered by the Firm or even by agent’s agent to receive service of notice.
For affixture, the agent of the Firm should have avoided service
The Tribunal further observed that there was no material to show that the duly appointed agent of the Firm was avoiding service and was keeping out of the way for being served with notice and thus there was reasons to believe that notice upon him could not be served in ordinary course, warranting recourse to service by Affixture. Thus, essential conditions of Rule-17 of Order-V of the Civil Procedure Code were not fulfilled and accordingly the Tribunal quashed the order of the Assessing officer directing service by Affixture, in absence of any material warranting circumstances for service to be made by Affixture.
A single attempt to find assessee not sufficient material for affixture
The Tribunal noted that the service by affixture was also against the specific Rule 20(1) of Order V of the CPC as held by the Hon’ble High Court which struck down the order for affixture by holding that a single attempt to find the assessee could not constitute sufficient material for the satisfaction of the Income-tax Officer that the conditions requisite for the application of Order V, rule 20, existed.
Similar views were expressed by yet another Hon’ble High Court holding that it is the duty of the Department to discharge the onus by showing that the authority concerned had reason to believe that the assessee was keeping out of the way for the purpose of avoiding service or that there were other good reasons to come to the conclusion that the summons could not be served in the ordinary way.
The Tribunal opined that the report of affixture did not inspire any confidence in it as in the absence of the name and capacity of the person who allegedly came out of the house and who allegedly stated that right now the partner was not at home service by affixture had wrongly been made.
The Tribunal pointed out that in view of Order III, Rule 2 of the Code of Civil Procedure, an unidentified person coming out of the house could not be treated to be the agent of the Firm or its Partner. Therefore, service by affixture is in violation to Order III, Rule 2 of the Code of Civil Procedure and in this view of the matter notice cannot be held to have been served. Thus, neither there was any valid reason on records for directing service by affixture and affixture, if any made was made in violation of the procedure provided under the Civil Procedure Code. In a similar case, where on alleged refusal by the Chowkidar, whose name had not been mentioned in the report notice was served through affixture. The Bench while quashing notice under section 148 held that no effort was made by the assessee to serve notice upon the assessee rather paper work showing service has been completed within two days.
Service by Affixture on temporary unavailability of partner was wrong
The Tribunal observed that service by Affixture on temporary unavailability of partner could not lead to the conclusion that there was no likelihood of him being found at his home at reasonable point of time.
Further, the Tribunal pointed out that service made by affixture was also in violation to Rule 17, Order V of the CPC which specifically requires that the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed has to be mentioned in the report of the process server who affixed the notice. The requirement that report is to be authenticated by independent persons is with a view to avoid any attempt by the process server to prepare the report sitting in his office.
The Tribunal noted that the notice by affixture was also in conflict with the Judgment of Hon’ble Supreme Court wherein it was held that “Service of notice by affixture is invalid where name of person who identified assessee’s business premises not mentioned in the report of Inspector and the Inspector also did not claim personal knowledge of assessee’s premise.”
Further the Tribunal noted that there was neither any affidavit furnished by the serving officer nor had he been examined on oath by the Assessing officer. Report by serving officer cannot be equated with affidavit required under the Rule-19, Order-V of the Civil Procedure Code as neither the report has any witness and in absence of any verification on oath in such a report.
In absence of acknowledgement issued by postal authority, there is no statutory presumption of service
Regarding claim of service of notice by speed post, the Tribunal opined that for raising the statutory presumption of service under section 27 of the General Clauses Act what is relevant is whether the notice sought to be served, was firstly proved to have been sent, secondly it must be shown that it was properly and correctly addressed and was adequately paid for being sent by registered post or speed post to the addressee. Similar presumption is raised under section 114 of the Indian Evidence Act where it is stated that the Court may presume that the, common course of business has been followed in a particular case that is to say, when a letter is sent by post by prepaying and properly addressing it the same has been received by the addressee.
However, in the absence of any evidence brought in the shape of any acknowledgement issued by the postal authority against booking of notice claimed to have been sent by speed post, the Tribunal opined that that no advantage can be availed by the Revenue by producing office stamped notice bearing office endorsement of the Assessing officer and by referring to section 27 of the General Clauses Act and section 114 of the Indian Evidence Act.
The Tribunal deliberated on the next question as to when can be notice under Section 148 can be said to have been issued?. The Tribunal observed that the term ‘shall be issued’ used in Section 149 of the Act is extremely important.
Income Tax Officer issuing notice may not have control over the said notice after issuance of the said notice
Referring to Lexicon, the Tribunal pointed out that the expression “to issue” in the context of issuance of notice, writs and process, has been attributed the meaning, to send out; to place in the hands of the proper officer for service. The expression “shall be issued” as used in Section 149 of the Act would therefore have to be read in the aforesaid context. Thus, the expression “shall be issued” would mean to send out to the place in the hands of the proper official for service. After issuing notice and after due dispatch, it must be placed in hands of the serving officer like the post office by speed post or by registered post etc., by which the officer issuing notice may not have control over the said notice after issuance of the said notice. It must be properly stamped and issued on the correct address to whom it has been addressed. Mere signing of notice cannot be equated with the issuance of notice as contemplated under Section 149 of the Act.
Thus, the Tribunal held that notice claimed to have been sent by speed post was no notice in the eye of law in absence of any evidence of its being put to the process of post for delivery.
The Tribunal stated that as supported by numerous decisions, under the provisions of section 148 of the Act, unless, the notice is served on the proper person in the manner prescribed under section 282, the service is insufficient and the Assessing officer does not have jurisdiction to re-assess the escaped income.
Thus, after having held that the service of notice under section 148 was no service in the eye of law, the Tribunal opined that all subsequent proceedings including the ex parte assessment framed were illegal and void ab initio.
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