Delhi High Court in its latest judgment has held since no proper service of notice had been effected under Section 148(1) of the Income Tax Act, 1961 on the Assessee, the reassessment proceedings were liable to be quashed. The Court came to the following 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 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.

(vi) Section 292 BB is prospective. In any event the 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.

Case Details:
ITA 72/2014
Commissioner of Income Tax (Central)-I (Appellant) vs Chetna Gupta (Respondent)
Date of Judgment: 15-09-2015

Question of Law:
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?

Facts of the Case:
The Income Tax Return of the respondent assessee for AY 2001-02 was processed under Section 143(1). Later Additional Director of Income Tax Investigation (ADIT) Unit (VI), New Delhi informed the Assessing Officer that the assessee was arrested by Punjab Vigilance Bureau  in connection with Ludhiana City Centre Scam and print outs of a pen drive recovered from him were forwarded to the Assessing Officer. Print outs revealed that there were various entries in different names pertaining to Financial Year (FY) 2000-2001 related to credits of Rs.40,49,77,905 on which interest of Rs.7,35,49,141 had been paid. For the AY 2001-02 also Rs. 84,86,363 had been paid as interest. 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 AY in question had been under-assessed to the extent of the sums mentioned hereinbefore and had therefore escaped assessment within the meaning of Section 147(b) of the Act.

On 28-03-2008, the ACIT Circle 3, Chandigarh issued notice u/s 148 which was addressed to the assessee at the address “C/o Kiran Cinema, Sector-22, Chandigarh.” Subsequently the jurisdiction of the Assessee was transferred to the ACIT, Central Circle-5, New Delhi. On 28-11-2008 another notice u/s 148 was issued  with two addresses namely, “C/o Kiran Cinema, Sector-22, Chandigarh” and the second “C/o Vipin Aggarwal & Associates, E-4, Defence Colony, New Delhi. Vipin Aggarwal & Associates  wrote to ACIt that the assessee has not received any notice u/s 148 dated 28.03.2008 . Again on that very date, i.e. 12-12-2008, the ACIT, New Delhi again wrote to the Assessee with the two addresses stating that notice had been validly served on Shri Ved Prakash, accountant of Kiran Cinema who also receives other notices of the concerned group concerns. On 19-12-2008, Vipin Aggarwal & Associates wrote a letter to the ACIT asking for the supply of the reasons recorded and completely denied any recovery of the pendrive or any involvement in the alleged money lending business.

However, the ACIT completed the assessment u/s Section 143(3)/148 making an addition of Rs.30,50,48,745 for AY 2001-02. Before CIT(A) the Assessee, inter alia, contended that service of notice had not been effected properly in accordance with the legal requirements specified under Section 282(1) of the Act; that Section 292 BB did not have retrospective operation and further that the Assessee had in any event raised an objection in that regard prior to the completion of re-assessment by the AO. However, CIT(A) dismissed the appeal of the assessee

The ITAT, reversed the order of the CIT (A) holding that the Assessee’s contention that Ved Prakash was neither his employee nor his authorized representative remained uncontroverted, and AO failed to take note of the 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.

Excerpts from the Judgment:

…….. However, under the 1961 Act the procedural requirement has been spread over three sections, being Sections 147, 148 and 149. The period of limitation within which notice under Section 148 has to be issued is specified in Section 149. Section 153 (2) of the Act stipulates that no order of re-assessment can be passed beyond the period of one year from the expiry 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.

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 re-assessment. This has been emphasized in several other decisions of the High Courts as well.

…… 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 Assessee who was neither an agent of the Assessee nor authorized to accept notices on their behalf.

.......affixation of notice on an address at which the security guard of the Assessee-company refuses to receive such notice cannot be construed to be a proper service of notice under Section 148 of the Act.

…….. service of valid notice under Section 148 was “the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of the notice.” It was held that the Tribunal was not right in holding that the notices under Section 148 addressed as „SCR‟ and the karta “S” were valid notices for reassessing the income of the HUF „MM‟ or „MS‟ or its successors.

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.

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.

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

In the present case, prior to the completion of the reassessment, the Assessee has raised an objection that he has not been duly served in accordance with Section 148 of the Act. Consequently, the proviso to Section 292 BB is attracted and Revenue cannot take advantage of the main portion of Section 292 BB.

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