JUDGMENT ASSESSMENTNotice under section 143(2)The AO issued several notices under section 143(2) which were returned with either postal remand "left without address" or on refusal of the assessee to receive the same. Finally, notice under section 143(2) was claimed to have been served on the assessee through affixture, made by the notice server and witnessed by the IT Inspector. On non-response to the said notice, assessment was framed ex parte under section 144. The assessee challenged the assessment contending invalidity of notice.
Held: There was no evidence of any independent person having been associated with the identification of the place of business of the assessee. There was also no evidence that the process server or the inspector had personal knowledge of the place of business of the assessee and was thus, in a position to identify the same. Thus, service of notice was not valid and consequently the assessment made pursuant to the invalid notice was bad in law.
1. These three appeals by the assessee, for assessment year 1998-99, are directed against the order of CIT(A) dated 25^th March, 2003.
2. The main appeal, being ITA No. 3146/Del/03, is directed against order of CIT(A) confirming ex parte assessment made Under Section 144 of the Income-tax Act, 1961. The above assessment was made as the assessee failed to comply with various notices issued by the AO. The other two appeals are directed against penalties imposed on the assessee under sections 271(1)(c) and 271(1)(b) of the Income-tax Act.
3. The assessee had filed return declaring income at nil on 31.10.98.
As per the assessment order, the AO issued first notice Under Section 143(2) to the assessee on 30^th September, 1999. The assessee refused to receive above notice. Fresh notices under the above provisions were also issued on 11.9.2000 and 12.2.2001 through registered post/speed post. These were returned with postal remarks "left without address".
Finally, notice Under Section 143(2) dated 5.3.2001 was claimed to have been served on the assessee through affixture. As there was no response to the last notice, the AO proceeded ex parte against the assessee and made assessment Under Section 144 of the Income-tax Act.
4. In the return, the assessee had claimed deduction Under Section 80HHC at Rs. 31,18,223/-. The AO reduced above deduction to Rs. 13,98,533/-. He further added Rs.5 lacs on estimate basis for a new loan which was treated as unproved. This way assessment was made at total income of Rs.20,84,570/- against nil income returned by the assessee.
5. The assessee impugned above assessment in appeal before the CIT(A) and raised strong objection to the ex parte assessment made Under Section 144 of the Income-tax Act. The assessee claimed that he did not receive any notice from the AO. The learned CIT(A) did not find any force in the above contention. He upheld the assessment and confirmed all the additions made in the total income.
6. The assessee, being aggrieved, has brought the issue in appeal before the Appellate Tribunal. Shri Anoop Sharma, learned counsel foplassessee, stressed that no service in accordance with law was affected on the assessee or his partners and, therefore, ex parte order Under Section 144 of Income-tax Act was bad in law. He read out relevant portion of the impugned orders and cited cases which we would be discussing hereinafter. As above point is likely to clinch the issue, we are not referring to other points raised in this appeal. The learned DR supported impugned order of the revenue authorities. He further urged that the assessee was a defaulter and did not response to six notices issued by the AO. Therefore, AO had no option but to proceed ex parte against the assessee.
7. After careful consideration of rival submissions, we are inclined to hold that ex parte proceedings in this case are not justified and, therefore, matter has to go back to the AO for providing fresh and reasonable opportunity of being heard to the assessee. We make it clear that question of limitation to issue statutory notice is not being considered or decided by us and the same is wide open.
8. We have already noted relevant observation of AO justifying action Under Section 144 of the Income-tax Act. The learned CIT(A), while upholding ex parte assessment, held as under: "Further on going through the assessment order, it is observed that for non compliance of various statutory notices by the assessee, the AO was forced to pass an ex parte order Under Section 144 of the I.T. Act. The assessment record show that notices Under Section 143(2) were invariably sent by the registered or by the speed post.
These notices were sent either to the assessee's business place i.e.
R-31, Rajouri Garden or at the residence of its partner at R-32, Rajouri Garden but all of them were received back unserved sometime either with the postal remark "left" or with the remarks "No person is ready to receive it". The details of these notices are as under:S. No Date of Address on which Mode of Remarks notices u/s issued service1 30.9.99 R-31, Rajouri By Regd," Reed. Back Garden Post's unserved2 30.9.99 T-32, Rajouri By Regd Recd.
back" Garden Post unserved3.
30.9.99 R-31, Rajouri By Speed" Reed, ""back Garden post with postal remarks'no4.
30.9.99 T-32, Rajouri By Speed "Reed. back Garden Post 'left4(a) 30.9.99 R-31 & T-32, By Notice' Reed. with" Rajouri Garden Server reamrs of5.
11.9.00 R-31, Rajouri By Regd.
Garden Post6.
12.2.01 R-31, Rajouri By Regd Reed, back Garden Post7.
5.3.01 R-31, Rajouri By Notice Served thru Garden Server affixture "As regards the issues of the non service of notices issued u/s 143(2), the A.R. for the appellant has contended that since the appellant and its partners were not able to pay their outstanding liabilities of the sundry creditors not the huge bank loans, the sundry creditors had become restless and pestered the partners of the appellant to pay the dues. In view of this awful situation, the partners had no other alternative except to suspend the business of the appellant and to close down its office. In other words, the partners remained away from their office as well as their residences. In these circumstances, none of the notices issued by the Assessing Officer could be served on the appellant or its partners. This contention of the appellant is not acceptable. The notices sent by registered/speed post on the last known address of the assessee is a proper deemed service on the appellant. Further, on examination of the notices issued Under Section 143(2), it is observed that the Notice Server one Shri Brij Pal has made the following entries dated 14.10.99 and 28.10.99 on the reverse side of the notice dated 30.9.99: "I had gone to partner's house at R-32, Rajouri Garden but notice was refused to be received".....sd/- (Brij Pal) dt.14.10.99." "I had gone on the address but the firm was closed. No one was there." Sd/- (Brij Pal) dt. 28.10.99." The service of notice Under Section 143(2) dated 5.3.2001 by affixture was made on 8.3.01. This affixture was made by the Notice Server one Shri Satya Singh wand was witnessed by Ms. Indu Rani, Inspector. The above given proceedings clearly show that the statutory notices Under Section 143(2) were duly served on the assessee but on all occasion, he failed to comply/respond to these notices issued by the AO. On going through the assessment records, it was also observed that no intimation for change of any address of the appellant was ever brought to the notice of the AO before passing of the said impugned order. Thus, the appellant himself had failed in fulfilling the basic responsibility on his part to intimate, if there was any change in his address, therefore, the responsibility of some of the notices that could not be served on the appellant squarely lay on the appellant himself. Thus, on account of gross, deliberate and defiant non cooperative attitude of the appellant, I hold that the AO was justified in passing an ex parte order and computing the income of the assessee at Rs. 20,84,574/- and the same deserves to be upheld. In view of this alone, other grounds of appeal do not deserve to be adjudicated upon separately." It is evident from above observations of learned CIT(A) that notices mentioned at S. Nos. 1 to 6 were received back with postal comments such as "unserved", "No person is ready to receive", "left". These postal remarks lend support to the assessee's claim that firm and its partners had suffered heavy losses and were running away from the creditors. They were not available at place of their business. At any rate, AO did not treat notices at S. Nos 1 to 6 as proper service and thought it necessary to serve notice on the assessee through affixture dated 5.3.01. The said notice is claimed to have been served on the assessee by notice server Shri Satya Singh and witnessed by Ms. Inau Rani, Inspector of Income-tax Department. As there was no response to above notice, the AO decided to proceed ex parte against the assessee.
We have to determine whether above service through affixture was made in accordance with law.
9. In the case of State Government v. Chandra Govindji, (2000) 8 SCC 532, their Lordships of Supreme court with reference to the question whether reasonable opportunity was afforded to the assessee or not, held that in such a situation the last date for which adjournment was sought is relevant and the question ordinarily should not be examined with reference to past adjournments granted in the case. The past need not be re-examined.
10. The principle laid down by their Lordships are applicable in this case. The question of service with reference to notices other than notice dated 5.3.2001 is not very material. The AO could not have proceeded ex parte if the assessee had responded to notice dated 5.3.01. It can be taken that defaults, if any, prior to above notice were condoned by the AO. This, of course, is subject to clear record that other notices sent by post were not served on the assessee as noted earlier.
11. It is provided in Section 282 of Income-tax Act that notice under the Act is to be served either by post or as if it was summoned under the Code of Civil Procedure. Notice dated 5.3.2001 has been claimed to have been served through affixture as provided in Code of Civil Procedure. Here provisions of Order V Rules 17 to 20 of CPC are relevant. After taking notice of above statutory provisions, their Lordships of Supreme Court in the case of Ramendra Nath Ghosh v. CIT, 82 ITR 888, observed as under (as per head note): "The Inspector of Income-tax who had to serve notices under Section 33B of the Income-tax Act, 1922, claimed to have served the notices by affixing them on the assessee's place of business but in his report did not mention the names and addresses of the persons who identified the place of business of the assessees, nor did he mention in his report or in the affidavit filed by him that he personally knew the place of business of the assessees. The assessees, however, claimed that they had closed their business long before the notices were issued. On writ petition filed by the assessees, the High Court held that there was no proper service on the assessee and the orders of the Commissioner pursuant thereto could not be sustained. On appeal to the Supreme Court: Held, affirming the decision of the High Court, on the facts, that the service of the notices was not in accordance with the law and, therefore, it could not be said that the assessees had been given a proper opportunity to put forward their case as required by Section 33B of the Income-tax Act.
Held also, that the question whether the assessees had been served in accordance with the law or not was essentially a question of fact and though the High Court had jurisdiction to entertain their writ petitions challenging the service of notice, the assessees should not have been allowed to invoke the extraordinary jurisdiction of the court." 12. In case of A.A. Kochnadi v. Agriculture ITO, 110 ITR 406, their Lordships of Kerala High Court observed as under: "Where service of a notice on the assessee or his authorized agent or an adult member of his family is not possible, statutes authorize substituted service and such service attributes constructive knowledge of the assessee. To attribute such constructive knowledge, the substituted service must be in accordance with the prescribed procedure, that is, by Section 64 of the Agricultural Income-tax Act, 1950, in this case, which provides that a notice can be served as if it were a summons issued by a court, that is, as provided in Order V Rules 17, 18 and 19 of the Code of Civil Procedure, 1908. In the absence of proof of service as required, in the said Rule 17, such service could not be treated as valid service. A mere statement that service was effected by affixture would not be enough." 13. It is clear from above that constructive knowledge of notice can be attributed to the assessee if service, has been effected as provided by the Statute. All the requirements of substituted service must be shown to be fully satisfied, In the case of Ramendra Nath Ghosh (supra), their Lordships also noted provisions of rule 17 Order V of the Civil Procedure Code and reproduced the same at pages 890/891 of the report.
It is seen that the provision requires that names and address of the persons, if any, by whom the house was identified and in whose presence the copy was affixed has to be stated in the report. If above is not done and the officer does not mention in his report nor in his affidavit that he had personally knew the place of the business of the assessee, the substituted service cannot be treated as "valid" and effected in accordance with law. Their Lordships in the decision emphasized that a service without following the procedure as laid down in the rule is not valid Their Lordships added "The possibility of his (processor) having gone to a wrong place cannot be ruled out". Local persons of area where the place (house) of the person to be served is situated are to be associated for two obvious reasons. First, that the place is properly identified. Secondly, such report may not be prepared by the process server and other persons sitting in their office.
14. In the light of clear provisions of law, we are unable to hold that service in this case was effected in accordance with statutory provisions. The report of the Process Server is witnessed by Ms. Indu Rani, the Income-tax Inspector. There is no evidence of any independent person having been associated with identification of place of business of the assessee. There is no evidence that the process server or Ms.
Indu Rani had personal knowledge of place of business of the assessee and was, thus, in a position to identify the same. In the absence of above material evidence, notice dated 5.3.2001 cannot be accepted as served on the assessee in accordance with law. Constructive knowledge of the above notice cannot be attributed to the assessee. In these circumstances, we hold that assessment made Under Section 144 was bad in law. The same is required to be set aside. The AO can issue fresh notice if so authorized under the law. The matter is restored to his file.
15. The AO further imposed penalty of Rs.4000/- Under Section 271(1)(b) on the assessee for not complying with various notices Under Section 143(2) of the Act. In the circumstances of the case and the view that we have taken in the matter, we see no justification for the levy of penalty. The penalty imposed is hereby cancelled and appeal of the assessee Under Section 271(1)(b) of Income-tax Act is allowed.
16. The third appeal, as noted earlier, relates to imposing of penalty Under Section 271 (1)(c) of the Income-tax Act. As the assessment has been set aside, the said penalty has no legs to stand. It is also cancelled. The AO would be at liberty to initiate fresh penalty proceedings in accordance with law and if so warranted by facts and circumstances of case.
17. In the result, all the three appeals are allowed in the terms stated above.