1. This appeal, filed by the assessee, arises out of CIT(A)'s order dated 18.2.2005 relating to A.Y. 2001-02.
2. Shri Salil Agarwal Advocate along with Shri P.C. Yadav appeared on behalf of the assessee whereas Shri Avinash Mishra Sr. DR, appeared on behalf of the Revenue.
3. Ground Nos. 1 & 1.1: These grounds challenge the validity of the notice issued Under Section 143(2) of the Income-tax Act. It is alleged that the assessment made Under Section 143(3) deserves to be quashed as no notice Under Section 143(2) had been served upon the assessee within the statutory period of 12 months from the end of the month in which the return was filed by the assessee. In ground No. 1.1 it is alleged that in absence of any material the learned CIT(Appeals) was not justified in holding that the proceedings were validly initiated and the assessment framed was in accordance with law.
4. The facts, as emerging out from the assessment order, are that the Assessing Officer issued first notice on 16.10.02 which was not complied. Hence he issued second notice on 21.1.03 fixing the case for 31.1.03. Third notice Under Section 143(2) was issued by him fixing the case for 27.8.03 and fourth notice was issued on 17.11.03. Shri Navin CA appeared and objected to the validity of the notice. The Assessing Officer rejected this plea after observing that the assessee was shown all the record including the first notice and after that AR attended the case from time to time and submitted details.
4.1. The finding of the Assessing Officer was challenged before the learned CIT(Appeals). It was submitted that the notice was not served upon the assessee within the statutory period. The learned CIT(Appeals) rejected the pleas of the assessee by observing as under: Perusal of the record shows that the first notice under Section 143(2)(i) of the Act was issued by the A.O. on 16.10.2002 and the same was served upon the appellant by sending it through speed post on 20.10.2002 i.e. well before the expiry of the last date of 30.10.2002. The notice was issued in respect of the issue of inadmissibility of the appellant's claim for expenses/loss of Rs. 4,66,160/- and the same was clearly specified by the A.O. in the above notice. The postal receipt for speed post is found to have been duly affixed on the copy of the relevant notice. The notice was sent on the address given by the appellant in the return of income.
It is relevant to mention that the service of notice by post is a valid service in terms of the provisions contained in Section 282(1) of the Act. There is nothing on record to indicate that the notice was returned by the postal authorities as unserved. The fact of the case thus, clearly prove that the notice under Section 143(2) of the Act was duly served upon the appellant within the prescribed period of twelve months from the end of the month in which the return was furnished.
5. The learned Counsel for the assessee appearing before us submitted that in this case the return was filed on 30.10.01 and therefore notice should have been served by 31.10.02. According to him, the assessee received notice issued on 17.11.03 only and challenged the validity of the notice issued against it. The learned Counsel vehemently challenged the findings of the learned CIT(Appeals). These are as under: (i) That no presumption can be raised under Order 5 Rule 19A of the CPC regarding service of notice sent through sped post. The assessee had admitted the service of noticed served on 17.11.03. Had the earlier notice been received, then the assessee could have admitted the service. It was pointed out by the learned Counsel that in the statement of facts the assessee had stated that the first notice Under Section 143(2)(i) was served on the assessee on 20.11.03.
(ii) The burden is upon the department to establish that the service was done on the assessee within the specified statutory period of 12 months.
(iii) Participation of the assessee in assessment proceedings cannot be justified as the legal plea cannot be waived by the assessee. In this regard reliance was placed on the decisions reported in 138ITR 732 (Del.) and 85 ITD 727.
(iv) Since the assessee had challenged the service of the notice, it was on the department to specifically prove on which date the notice was served and upon whom served. In support of this argument, reliance was placed on the ratio of decisions reported in 77 ITR 383; and 160 ITR 920. The assessee also placed reliance on the decision in the case of Hind Book House v. ITO 92 ITD 415 (Del.); and CIT v. Lunar Diamonds Ltd. 146 Taxman 691 (Del.).
6. The learned DR on the other hand, submitted that as observed by the Assessing Officer, the AR of the assessee was shown the entire record including the service of first notice and thereafter the assessee did not raise any further objection regarding service of notices which shows that the assessee was fully convinced that the first notice was properly served within time. According to learned DR the assessee did not take any specific plea to deny the service of notice nor filed any affidavit before any of the authorities in this regard.
7. We have carefully considered the facts and circumstances relating to this matter and the rival submissions. Certain facts remained undisputed in this case: (3) The Assessing Officer issued four notices on the same address i.e. on the address on which first notice was sent. Fourth notice was received by the assessee and in compliance of this notice objection was raised.
(4) The observation of the Assessing Officer that the assessee was shown all the records including the first notice has not been controverted.
(5) The assessee has not filed any affidavit for making specific denial that the notice dated 16.10.02 was not served upon it.
7.1. In addition to the above, the following facts have not been controverted by filing any affidavit or other evidence.
(a) The assessee has not indicated any specific date of service of notice issued by the Assessing Officer. The statement of fact, in which it is stated that the first notice Under Section 143(2) was received by the assessee on 20.11.03, cannot be treated as a documentary evidence for proving this fact.
(b) The observation of the learned CIT(Appeals) that the postal receipt of the speed post was found to have been duly affixed on the copy of the relevant notice, has also not been challenged.
(c) The finding of the learned CIT(A) that notice was sent on the address given by the assessee in the return of income has also gone unchallenged.
(d) There is no proof to indicate that the notice issued to the assessee was returned by the postal authorities as unserved.
7.2. In view of the above facts, the following facts are observed -(1) the assessee has not made any specific denial by filing affidavit or even a letter before the Assessing Officer or the learned CIT(Appeals) or even before us to deny that the notice dated 16.10.02 was not served upon it; 2) the learned CIT(A) has held that the notice was served through speed post on 20.10.02; and (3) The department has not filed any other document to prove the service of notice dated 16.10.02 on 20.10.02 or thereafter.
7.3. In view of the above undisputed facts and uncontroverted facts, it is to be decided as to whether the notice issued by speed post on 16.10.02 was served on 20.10.02 or not.
7.4. In the present case, since the assessee was a company, the service was required to be effected in terms of the provisions contained in Section 282(1) of the I.T. Act. The service of notice by registered post/speed post is through a validly recognized mode. It may be mentioned that Order V Rule 9 of the CPC deals with the delivery of summons by Court. As per amendment introduced w.e.f. 1.7.02, Order V Rule 9 runs as under: Delivery of summons by Court - (1) Where the defendant resides within the jurisdiction of the Court in which the suit is instituted, or as an agent resident within that jurisdiction who is empowered to accept the service of the summons, the summons shall, unless the Court otherwise directs, be delivered or sent either to the proper officer to be served by him or one of his subordinates or to such courier services as are approved by the court." (3) The services of summons may be made by delivering or transmitting a copy thereof by registered post acknowledgment due, addressed to the defendant or his agent empowered to accept the service or by speed post or by such courier services as are approved by the High Court or by the Court referred to in-Rule (1) or by any other means of transmission of documents (including fax message or electronic mail service) provided by the rules made by the High Court.
7.4.1. Thus, in view of Sub-rule (3) of Rule 9 of Order V of the CPC, the summons may be sent through speed post or so, in view of the amendment introduced. In fact the mode of speed post is only a faster mode of registered mail and just another mode of dispatch through registered post.
(5) When an acknowledgement or any other receipt purporting to be signed by the defendant or his agent is received by the Court or postal article containing the summons is received back by the Court with an endorsement purporting to have been made by a postal employee or by any person authorized by the court service to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons or had refused to accept the summons by any other means specified in Sub-rule (3) when tendered or transmitted to him, the Court issuing the summons shall declare that the summons had been duly served on the defendant.
7.5.1. Thus, under Sub-rule (5), referred to above, a declaration has to be made by the Court that the summons had been duly served on the defendant.
7.5.2. In view of the proviso to this Sub-rule, a declaration regarding 'deemed service' shall be made. This provision is as under: Provided that where the summons was properly addressed, pre-paid and duly sent by registered post acknowledgement due, the declaration referred to in this sub-rule shall be made notwithstanding the fact that the acknowledgment having been lost or mislaid, or for any other reason, has not been received by the Court within thirty days from the date of issue of summons.
7.6. The Hon'ble Allahabad High Court had introduced an amendment to Sub-rule (3) of Rule 9, which was as under: (3) In lieu of, or in addition to, the procedure indicated in Sub-rule (1), such summons may be served by sending it by registered post addressed to the defendant at the place where he resides or carries on business or works for gain or to the agent at the place where he resides. Unless the cover is returned undelivered by the Post Officer on account of warrant of proper address or any other sufficient reason, the summons may be deemed to have been delivered to the addressee at the time when it should have reached him in the ordinary course.
7.7. Although the amendment introduced by Hon'ble Allahabad High court may not be applicable, but a guidance may be taken from this amendment for drawing the inference that the summons sent may be deemed to have been delivered to the addressee at the time when it should have reached him in the ordinary course. In the present case, the notice was sent through speed post. The learned CIT(Appeals) has recorded the finding that the summons that was issued on 16.10.02 was served upon the assessee on 20.10.02. The assessee is a local resident of Delhi and therefore, it is quite reasonable to observe and infer that the notice sent through speed post must have been served upon the addressee (assessee) at least within 3-4 days. Otherwise also, the findings recorded by the learned CIT(Appeals) have not been rebutted or controverted by the assessee by making any positive statement regarding the notice sent on 16.10.02 through speed post. Thus, in view of the amended provision of the CPC, firstly, the mode of sending notice through speed/registered post is recognized made and secondly, a presumption can be drawn regarding service by speed post within 3-4 days in the present case, where the assessee was living in the city of Delhi. On this basis also we have to uphold the finding of the learned CIT(Appeals).
7.8. The assessee has placed reliance on certain cases and on going through the same it is found that the decisions referred to by the learned Counsel for the assessee are not applicable to the facts of the present case and are not applicable being distinguishable on facts.
7.8.1. In the case of CIT v. Lunar Diamonds Ltd. (2005) 146 Taxman 691 (Del), the Hon'ble Delhi High Court examined the issue relating to service of notice. In that case the Assessing Officer had stated that notice Under Section 143(2) was issued to the assessee on 29.11.1996 by registered post. The assessee had filed affidavit stating that it had not received any notice Under Section 143(2) by registered post before the expiry of the period of one year. The Tribunal held that the Department failed to prove its case that notice was served upon the assessee within the prescribed time and upheld the order of CIT(A) annulling the assessment framed pursuant to such notice. This order of the Tribunal was upheld by the High Court by observing as under: 16. We may also point out that there appears to be some doubt whether the notice was at all sent to the assessee because, as observed by the CIT(A), the receipt showing that an envelope was sent by registered post merely contained the name of the assessee without its address. Consequently, it is quite possible that the notice may have been sent to the assessee at some wrong or even some incomplete address. However, it is not necessary for us to go into this question at all because the assessee had filed an affidavit stating that it had not received the notice and the Tribunal rightly held that under these circumstances, the burden was upon the Appellant to prove that notice was served upon the assessee within the prescribed time. The appellant had failed to prove its case in this regard.
7.8.2. In view of the above facts and the decision of the Hon'ble High Court it is clear that in that case full address was not given on the envelope and secondly assessee had specifically denied the service in affidavit, whereas, in the present case no such specific denial has been made by the assessee nor it is found that the notices were sent at incorrect address or incomplete address. Hence, the decision of Jurisdictional High Court is not applicable so far as the facts of the present case are concerned.
7.9. In the case of Hind Book House v. ITO 92 ITR 415 (Del.) also the issue relating to service of notice Under Section 143(2) was examined.
In that case the validity of the order passed by the Assessing Officer Under Section 143(3) was challenged by alleging that no notice Under Section 143(2) was served on it within the time limit specified in the proviso to that sub-section. On examination of assessment record, the learned CIT(Appeals) found that the first notice issued Under Section 143(2) was served at the address given by the assessee in its return and the same was also signed by the recipient as 'A. Singh'. It was further submitted on behalf of the assessee firm that the said signature appearing on the office copy of notice Under Section 143(2) did not belong either to any of its partners or authorized representative. It was also submitted that there was no person employed with the assessee firm who could have signed as Mr. A. Singh in this regard. An affidavit of the partner of the firm in support of this contention was filed. A copy of this affidavit was forwarded by the learned CIT(Appeals) to the Assessing Officer. The Assessing Officer, in reply submitted that the notice was served through process server who was stated to have obtained the acknowledgement. The learned CIT(Appeals) on these submissions of the Assessing Officer held that the notice was properly served within the time limit specified Under Section 143(2). The Tribunal after examining the provisions of Section 282 held that the notice was neither served on any partner of the firm or any agent duly authorized to receive the same. This case is distinguishable from the facts on the present case on two grounds - (1) In that case the notice was served through process server and not through speed/registered post; and (2) affidavit was filed on behalf of the assessee specifically stating that the notice was not served on its partner or its authorized representative.
7.10. On the other hand, learned DR, in support of its contention, has filed copies of orders of Tribunal.
7.10.1. In the case of ACIT v. Universal Finance & Traders Ltd. dated 23.12.2005 rendered in ITA No. 328/Del/01 for A.Y. 1997-98. On going through this order it is found that in that case the version of the department was that the notice was dispatched from the office of ITO on 28.11.1998. The assessee had stated before the learned CIT(Appeals) that the first notice was issued by it on 5.2.1999. In support of this version, affidavit was filed before the learned CIT(Appeals), stating that no notice Under Section 143(2) dated 27.11.98 was received by the assessee company or its representative. Under these circumstances, the assertion of the Assessing Officer that notice in question is presumed to be delivered within 24 hours under the speed post delivery scheme, was not accepted by the learned CIT(Appeals) in absence of any proof of delivery of the notice. There was no evidence on record to show that notice Under Section 143(2) of the Act was served upon the assessee within the limitation period and therefore the learned CIT(Appeals) had held that the assessment order was illegal and void ab initio. Against this finding of the learned CIT(Appeals) the Revenue came in appeal before the ITAT. The ITAT had set aside the matter by observing as under: In the interest of justice the objections vide his letter dated 8.2.99 submitted before Assessing Officer, before completion of assessment and affidavit before learned CIT(A) cannot be brushed aside and has to be rebutted by the Department and the A.O. has to produce the acknowledgement, to prove that the notice has actually been served upon the assessee upto 30.11.98. In spite of the fact the A.O. has not responded to the objection of the assessee before the completion of the assessment vide his letter dated 8.2.99 before the A.O. and also through an affidavit before the learned CIT(A) and A.O. has also avoided to comment upon the production of acknowledgment, in his report submitted before the learned CIT(A).
Therefore, the mater is restored to the file of the learned CIT(A) who is directed to ask the A.O. to produce the copy of the acknowledgement from his assessment records or make the enquiry from the postal authorities. In the absence of which it should be presumed that notice has not been served upon the assessee and assessment will be deemed to be null and void and without jurisdiction of the A.O. Thus the mater is restored to the file of the learned CIT(A) with the specific directions given above.
7.10.2. Thus, firstly the above case is not applicable to the facts of this case because in that case affidavit was filed by the assessee whereas in the present case no affidavit was filed to deny the service of the first notice; and secondly, in that case the finding of the learned CIT(Appeals) was not accepted and the matter was remanded back to the Assessing Officer for deciding the issue after collecting or examining other evidence.
7.11. The next case on which reliance has been placed by the learned DR. is the decision of ITAT in the case of Basant Lal Khushwaha v. ITO dated 18.11.2005 rendered in ITA No. 4195/Del/99 for AY. 1996-97. In that case the notice Under Section 143(2) dated 2.7.1997 bore a wrong address and the same was never served on the assessee on account of wrong address. Similar plea was taken in regard to notice dated 22.8.1997.
7.12. The Learned DR pointed out that another notice dated 20.3.1998 was sent through registered post on 23.3.1998 with correct address of the assessee and although there was no acknowledgement of having received this notice, but the service of notice has to be presumed under the provisions of General clauses Act. The assessee had not mentioned anything about the notice dated 20.3.1998 although in the paper book it placed copies of other notices. It was contended by the department that since the assessee had not made any specific denial regarding the service of notice dated 20.3.1998,the service of notice dated 20.3.98 should be deemed to be sufficient. On these facts, the Tribunal held that the notice dated 20.3.1998 issued Under Section 143(2) was validly served upon the assessee. The additional ground taken by the assessee in that case, before the Tribunal, was thus rejected. The decision in this case applies to the fats of the present case, because as pointed out earlier, the assessee did not make any denial of service of the notice before the Assessing Officer and the learned CIT(Appeals).
8. In view of the above, it is held that the learned CIT(Appeals) was justified in recording the finding that notice had been validly served.
We, therefore, do not find any scope to interfere in the finding of learned CIT(A) on the issue in question. Ground Nos. 1 & 1.1 taken by the assessee are, therefore, rejected.
9. Ground Nos. 2 to 4 challenge the disallowance of expenditure claimed by the assessee at Rs. 4,66,160/- and the claim of the assessee to allow carry forward the same to be set off in the succeeding assessment year. The Assessing Officer has observed that during this year the assessee did not do any business activity and on the other hand claimed expenses amounting to Rs. 4,66,160/- which could not be allowed in absence of business activity. Hence, loss claimed by the assessee was disallowed and income of the assessee was assessed at nil loss/income.
9.1. In appeal, it was submitted before the learned CIT(Appeals) that the business loss was claimed by the assessee on account of various expenses incurred during the year for purposes of its business which were fully allowable as deduction. It was submitted that the Assessing Officer was not justified in disallowing the claim of the assessee with regard to these expenses. The learned CIT(Appeals) upheld the finding of the Assessing Officer by observing as under: The allowability of the alleged business expenses has to be examined with reference to computation of income chargeable under the head Profits and gains of business or profession under Section 28 of the Act. In order to compute the profits or loss assessable under the head Profits and gains of business or profession under Section 28 of the Act, it is essential that the business of the appellant must have been carried on at any time during the previous year relevant to the assessment year under consideration. The onus to rove that the business was carried on during the year under consideration lies on the appellant. However, the appellant ahs not furnished any cogent and reliable evidence to prove that the business of trading in shares was carried on at any time during the year under consideration or that such business was in existence during the year under consideration. Perusal of the copies of audited final accounts shows that there was either any purchase or sale of shares nor any opening or closing stock of shares during the year under consideration. Even in the subsequent years also, there was neither any purchase of shares nor any sale of shares. The facts of the case, thus, clearly prove that the appellant had not carried on any business during the year under consideration and there was no business in existence during the year. Therefore, Section 28 of the Act cannot be invoked to compute any profits or loss assessable under the head Profits and gains of business or profession.
Consequently, the alleged business expenses Rs. 4,66,160/- claimed by the appellant were not allowable as deduction. On a careful consideration of the facts and circumstances of the case and the relevant position of the law, I am of the considered view that the A.O. was justified in disallowing the claim of the appellant with regard to expenses of Rs. 4,66,160/- and the disallowance so made by him is, accordingly, confirmed. These grounds of appeal are, therefore, dismissed.
10. Before us, learned Counsel for the assessee challenged the finding of the learned CIT(Appeals). It was submitted by him that entire expenditure claimed by the assessee was allowed in earlier and subsequent assessment years. The learned Counsel also pointed out that business activity continued in the assessment year 2001-02, although no trading was done. It was pointed out by him that in A.Y. 1997-98 the assessee claimed loss on shares which was allowed even by the Tribunal.
In this regard reference was made to the order of the Tribunal dated 10.2.2005, rendered in the case of DCIT v. Capital Gems Overseas Pvt.
Ltd. (ITA No. 2658/Del/02 for A.Y. 1997-98). The learned Counsel further pointed out that in A.Y. 1999-2000 the assessee had suffered loss which was allowed. In support of this contention the learned Counsel placed reliance on the decisions in the cases of CIT v. Rajeev Grinding Mills (2005) 142 Taxman 567 (Del.); and Daljit Exports (Ind.)(P) Ltd. v. ITO 11. The learned DR on the other hand, opposed the arguments of the learned Counsel for the assessee and submitted that deduction could be allowed only when the assessee succeeds in justifying the same.
According to him, if the Assessing Officer has not passed a speaking order then the matter should be restored to the file of A.O. for passing a speaking order.
12. In rejoinder, the learned Counsel for the assessee submitted that the nature of expenditure remained the same in this year as was in the earlier year. He further submitted that matter should not be restored because a party which is guilty of conduct, should not be given remissness.
13. We have carefully considered the facts and circumstances relating to these matters. In the assessment order, the Assessing Officer has not examined the nature of expenses nor the aspect that the assessee was carrying on business activity in earlier and subsequent assessment years and expenditure claimed by it was allowed by the Department in earlier and subsequent years. The learned CIT(A) has also not examined these aspects. The order of the Tribunal for A.Y. 1997-98, a copy of which has been placed on record was also not considered by the departmental authorities as no mention of this order has been made. It appears that this order was not available at the time when these authorities passed orders.
13.1. The learned Counsel for the assessee has made reference to the record pertaining to other assessment years and the balance sheet and P&L A/c etc. All these documents, which have been placed on record, have not been examined. On page 26 of the paper book there is P&L A/c for the year ending 31.3.1999 i.e. A.Y. 1999-2000, in which P&L a/c, loss on shares at Rs. 1,26,630/- has been shown. This evidence, which pertained to earlier assessment year has also not been considered. On page 48 of the paper book, the assessee ahs filed the P&L A/c for the year ending 31.3.2001. Details of expenditure have been given on this document. Neither the Assessing Officer nor the learned CIT(Appeals) have examined the justifiability of claiming such expenditure.
13.2. In view of the above, we are of the considered opinion that the mater has not been properly examined and the evidence filed by the assessee has not been properly appreciated. In the interest of justice, therefore, we consider it proper to set aside the finding of learned CIT(A). We, therefore, set aside the order of CIT(A) on the issue in question and restore the matter back to him for considering the entire material afresh in the light of our observations made above including the nature of expenditure and the fact that the expenditure was allowed to the assessee in earlier and subsequent years. Hence, the matter shall be decided as per law, of course, after providing opportunity to the parties of being heard. We order accordingly.
14. Ground No. 5 is general in nature and requires no specific adjudication.
15. In the result, assessee's appeal is partly allowed for statistical purposes only.