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income Tax Officer Vs. Bedi Enterprises - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Lucknow
Decided On
Judge
Reported in(2008)114TTJLuck706
Appellantincome Tax Officer
RespondentBedi Enterprises
Excerpt:
.....assessment order of the assessee is not valid. in the case of the appellant, the ao has neither served notice on the partner of the firm or authorised representative of the firm, even the notice server has not identified the person on whom the notice was served. 2.9 the hon'ble allahabad high court in case of laxmi narain anand prakash v. cst have held that the question of law raised by the assessee is decided by saying that notice under section 21 having been improperly served, the initiation of proceeding was without jurisdiction and it could not be validated by participation of the assessee in the proceedings. the appellant has further relied on the decision of hon'ble calcutta high court in the case of bhagwan devi saraogi and ors. v. ito and ors. wherein the hon'ble court have.....
Judgment:
1. This appeal, filed by the Revenue, is directed against the Order of CIT(A)-II, Lucknow dt. 15th June, 2005 relating to asst. yr. 1996-97.

The only effective ground raised by the Revenue in this appeal reads as under: 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in law in annulling the assessment Order of the AO relying on the decision of the Allahabad High Court in the case of Addl. CIT v. Prem Kumar Rastogi (1980) 124 ITR 381 (All), as the notice under Section 148 of the IT Act had been issued only after taking prior approval of the Addl. CIT, Range-IV and properly served at the residence of the partner of assessee firm.

2. Briefly stated, the facts of the case are that the assessee furnished return showing income of Rs. 1,04,170 on 29th Nov., 1996 which was processed under Section 143(1)(a) on 25th Sept., 1997 determining refund payable at Rs. 56,470. The AO observed that the audit has pointed out that against receipts for work done of Rs. 50,96,608, the assessee firm had shown receipts of only Rs. 46,84,488 and there was a short computation of income to the extent of Rs. 4,12,190. Accordingly, the case was reopened and notice under Section 148 of the Act was issued on 21st Jan., 2002 and served on assessee on 24th Jan., 2002. No return was filed by the assessee in response to notice under Section 148 of the IT Act, 1961. The AO issued notice under Section 142(1) on 27th Aug., 2002 fixing the case for compliance on 4th Sept., 2002. According to AO, this notice was duly served by notice server on 3rd Sept., 2002. Another notice under Section 143(2) was issued on 20th Dec, 2002 fixing the compliance on 3rd Jan., 2003.

According to AO, this notice was received by one Shri Babloo on 27th Dec, 2002. There was no compliance to this notice also. The AO also issued a notice to the assessee through IT Inspector. The report of the Inspector reads as under: The shop has since been closed. However from the enquiry from the other persons it is gathered by me that Mr. M.S. Bedi, one of the partners (main) of the aforesaid firm has shifted to Delhi. His Delhi address is as under: 3. On the basis of Inspector's report dt. 30th Jan., 2003, the AO issued a notice to Shri M.S. Bedi by speed post on the address made available by the IT Inspector. There was no response to this notice also. Consequently, the AO framed the assessment under Section 148/144 of the Act on 14th Feb., 2003 and added a sum of Rs. 4,12,120 to the total income of the assessee. Thus, the total income came to Rs. 5,16,629.

Aggrieved by the Ord0er of the AO, the assessee carried the matter in appeal before the CIT(A). The main plea of the assessee before the CIT(A) was that the AO has erred on facts and law in passing the assessment Order under Section 148/144 of the IT Act, 1961 dt. 14th Feb., 2003 without service of any notice under Section 148 of the IT.Act, 1961 on the assessee or any of its partners and, therefore, it was stated that the assessment Order is bad in law and be quashed. The assessee also submitted before the CIT(A) that the AO has not served the notice under Section 148 of the Act on the partners of the firm or any authorised person and hence never acquired a legal or a valid jurisdiction to pass any Order in the present case. The assessee, while relying upon the decision of Hon'ble Supreme Court in the case of RULEK. Upadhyaya v. Shanabhai P. Patel , submitted that service of notice is a condition precedent to pass a valid assessment Order. The assessee also relied on the decision of Hon'ble Gauhati High Court in the case of CIT v. Mintu Kalita (2001) 170 CTR (Gau) 149, wherein the Hon'ble High Court held that "service of notice prescribed by Section 148 for the purpose of initiating proceedings for reassessment is not a mere procedural requirement, it is a condition precedent to the initiation of a proceeding for assessment under Section 147." It was also submitted by the assessee before the CIT(A) that someone had placed signature on the copy of the notice on the record of the Department. It was contended by the assessee that the said signatures are not that of any of the partners. It was also submitted that the copy of the notice does not disclose on whom the same has been served. It was also argued before the CIT(A) by the assessee that no further evidence or material has been brought on record by the AO vide his remand report to show that the recipient of the notice is an authorised person, i.e. any partner of the firm.

4. In view of the above, it was submitted by the assessee before the CIT(A) that no notice under Section 148 was received by the assessee.

The assessee also prayed that there was no legal or valid service of notice under Section 148 in present case, the AO did not acquire a legal or valid jurisdiction to pass any Order in the present case.

The learned CIT(A) accepted this contention of the assessee that neither the notice under Section 148 was served on the partners of the firm nor on the Authorised Representative of the firm, or any person authorised in this behalf by the firm. For the sake of convenience, we may reproduce the finding of CIT(A) on this issue, which reads as under: 2.8...I have carefully considered the reply given by the appellant and perused the assessment Order. A remand report was called for from the AO vide this office letter dt. 5th April, 2005 in which the assessee (sic-AO) was informed that the appellant has challenged the validity of the service of notice under Section 148. Hence a remand report may be submitted in this regard. The AO has sent remand report vide his letter dt. 9th May, 2005 and reported that first issue is with regard to validity of service of notice under Section 148 of the IT Act. In this regard, it is submitted that the notice under Section 148 dt. 21st Jan., 2002 was served on the assessee on 24th Jan., 2002 and the service of notice is placed on file. The ITI's report has also been obtained and is placed on file. As the notice under Section 148 has been served rightly, the assessee's contention challenging the validity of proceedings is immaterial and deserves to be rejected. I have also examined the case record and Inspector's report in this regard. The AO has issued notice under Section 148 dt. 21st Jan., 2002 and served on the assessee on 24th Jan., 2002, but neither the name of the person to whom the notice has been served has been mentioned nor any report and affidavit has been placed on the notice as who had served the notice. The AO has mentioned about ITI's report which is placed on record. The ITI Shri K.G. Philip has given his report to the AO, Range-IV(2), Lucknow which is reproduced as under: Sub : Reg. service of notice under Section 148 in the case of M/s Bedi Enterprises, 82, G.B. Marg, Lucknow-Asst. yr. 1996-97 27. In this regard, it is submitted that I have served the notice under Section 148 in respect of the above assessee for the asst. yr.

1996-97 at his residential house 43, Purana Qila, Lucknow on 24th Jan., 2002 as the assessee was not available at the address mentioned in the notice i.e. 82, G.B. Marg, Lucknow. It is further submitted that as far as my memory is concerned, the above notice was served on a lady who was present in the house at the time of my visit and on my enquiry, she has stated that she is the wife of the assessee.

Firstly, the report is undated and it is not transpired from record as when this report was given by the ITI to ITO and under which context. As far as language of the report is concerned, it speaks about the memory of the Inspector. Thus, it is certain that the report has been given afterward of the service of notice i.e. 24th Jan., 2002. Since the ITI had not identified the person to whom he has served the notice, it is clear that neither the notice has been served on the partner of the firm, nor on the Authorised Representatives of the appellant firm in this regard as per provision of Section 282 of the IT Act, 1961. The Hon'ble Supreme Court in its judgment in case of RULEK. Upadhyaya v. Shanabhai P. Patel have held, that service under the new Act, is not a condition precedent to confirmation of jurisdiction on the ITO. It is a condition precedent and to making of the Order of assessment. The Hon'ble Allahabad High Court in case of Addl. CIT v. Prem Kumar Rastogi (supra) have held that a person who is not an authorised agent of the assessee or an agent or manager, personally carrying on the assessee's business or an adult member of the family but who has merely accepted notices in the past on his behalf cannot be deemed or treated to be an authorised agent of the assessee and service on him of the assessment Order of the assessee is not valid.

In the case of the appellant, the AO has neither served notice on the partner of the firm or Authorised Representative of the firm, even the notice server has not identified the person on whom the notice was served.

2.9 The Hon'ble Allahabad High Court in case of Laxmi Narain Anand Prakash v. CST have held that the question of law raised by the assessee is decided by saying that notice under Section 21 having been improperly served, the initiation of proceeding was without jurisdiction and it could not be validated by participation of the assessee in the proceedings. The appellant has further relied on the decision of Hon'ble Calcutta High Court in the case of Bhagwan Devi Saraogi and Ors. v. ITO and Ors. wherein the Hon'ble Court have held that if no valid notice of assessment has been issued or if the notice issued is illegal or invalid, the entire assessment would be without jurisdiction and would be void and illegal.

2.9 In view of the above fact, it is clear neither the notice under Section 148 was served on the partners of the firm, nor on the Authorised Representatives of the firm or on any person authorised in this behalf by the firm. Moreover, the person who had served the notice has not given the name and identification of the person to whom the notice has been served and also its authenticity to receive the notice. In view of the above facts and decision of the jurisdictional High Court in case of Addl. CIT v. Prem Kumar Rastogi (1980) 124 ITR 381 (All) and other decisions as discussed above, the AO has not acquired jurisdiction to pass the impugned Order under Section 144/148 of the IT Act, 1961 therefore, the assessment Order passed by the AO is illegal and without jurisdiction. Thus, the assessment Order passed by the AO is annulled. Since the assessment Order passed by the AO has been annulled, therefore, there is no need to adjudicate the other grounds of appeal as well.

5. From the above findings of CIT (A), it is clear that he has cancelled the reassessment Order and hence the Revenue is in appeal before the Tribunal.

Before us, Shri Anadi Verma, senior Departmental Representative vehemently argued that the AO has categorically stated that "on the basis of observation of the audit objection, raised by RAP dt. 25th Sept., 2002, proceedings under Section 148 were initiated by way of issuance of notice under Section 148 of the IT Act, 1961 on 21st Feb., 2002. This notice was served upon the assessee on 24th Jan., 2002." He further submitted that the plea of the assessee before the CIT(A) was that the notice under Section 148 was never served on the assessee as the office of the assessee was no more situated at 82, G.B. Marg, Lucknow on the date of alleged issuance of notice. In this regard, Shri Anadi Verma, senior Departmental Representative submitted that office records show that the assessee has communicated neither closure of business nor change of address of business premises which was the bounden duty of the assessee. He further submitted that notice under Section 148 was sent to M/s Bedi Enterprises, 82, G.B. Marg, Lucknow which was served on 24th Jan., 2002. He further submitted that ITI, in his report, has duly stated that notice under Section 148 in this case, for asst. yr. 1996-97 was served at the residential address 48, Purana Kila, Lucknow on 24th Jan., 2002 as the assessee was not available at G.B. Marg, address. He further stated that above notice was served on a lady who was present in the house. Shri Anadi Verma, senior Departmental Representative further submitted that as a notice under Section 148 was served on the person present at the residential premises and who was the member of the family of the partner as the name of the recipient on the notice suggests, inference of CIT(A) that notice under Section 148 was neither served on the partner of the firm nor on the Authorised Representative of the firm, is not sustainable in law. Learned Departmental Representative further submitted that subsequent notice under Section 142(1) dt. 27th Aug., 2002 was duly served on 3rd Sept., 2002 by the notice server but the same remained uncomplied with just as the previous notice under Section 148. In view of the above, Shri Anadi Verma, senior Departmental Representative submitted that there was a valid service of notice on the assessee and, therefore, CIT(A) was not justified in annulling the reassessment Order. He also relied on the decision of Tribunal Agra Bench in the case of Chandra Bhan Bansal v. Dy. CIT (2004) 90 TTJ (Agra) 635 : (2001) 79 ITD 639 (Agra). In this case it has been held that the notice under Section 148 can be considered to be validly served when it was served on assessee's son. Learned Departmental Representative urged that the Order of CIT(A) may be set aside and restore that of the AO.6. On the other hand, learned Authorised Representative of the assessee submitted that the Order of CIT(A) is based on correct appreciation of facts of the case and also settled legal position and therefore no interference in his Order is required. He further submitted that a copy of notice bearing some signature was shown to the assessee but, the signature bearing on the notice is neither of any of the partners, nor of any person known to us or employee with the assessee during the assessment year under consideration or thereafter He further submitted that the notice does not detail the identity of the person on whom it has been served. Shri Kanchan Kaushal, learned Counsel for the assessee also submitted that as there was no proper service of notice, the AO never acquired a legal or a valid jurisdiction to pass an Order in the present case. According to him, for the above reasons, the present reassessment Order passed by the AO lacks jurisdiction and hence is bad in law. He further submitted that the report of 1TI has not been provided to assessee and, therefore, the AO was not justified in relying on the report of ITI. He also relied on the following decisions:Addl. CIT v. Prem Kumar Rastogi 6. Gorakhpur Petro Oils Ltd. v. Addl CIT ITA No. 1951/A11/1996 dt.

12th Oct., 2004 (sic-31st May, 2005) reported at (2005) 95 TTJ (All) (TM) 489-Ed.;Duli Chand Luxmi Narain v. Asstt CIT (2004) 90 TTJ (Del) 236 : (2004) 89 ITD 426 (Del); 9. Hind Book House v. ITO (2005) 93 TTJ (Del) 224 : (2005) 92 ITD 415 (Del) 7. We have heard learned representatives of both the parties at length and have also perused the materials available on record. The decisions cited at the time of hearing of the appeal were duly considered.

Section 148(1) of the IT Act, 1961 reads as under: 148. (1) Before making the assessment, reassessment or recompilation under Section 147, the AO 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.

From the above provisions, it is clear that service of valid notice is a condition precedent to the validity of the reassessment. This section further provides that notice should be served on the assessee. In regard to service of notice, we may refer to Section 282 of the IT Act, 1961. Section 282 prescribes specified mode of service of notice. This section reads as under: 282. (1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a Court under the CPC, 1908 (5 of 1908).

(a) in the case of a firm or an HUF, to any member of the firm or to the manager or any adult member of the family; (b) in the case of a local authority or company, to the principal officer thereof; (c) in the case of any other association or BOI, to the principal officer or any member thereof; (d) In the case of any other person (not being an individual), to the person who manages or controls his affairs.

Section 282(1)(a) of the IT Act, 1961 provides that in the case of a firm or an HUF, a notice can be served to any member of the firm or to the manager or any adult member of the family. Section 282(1) provides that the notice under this Act can be served on the person either by post and if not by post, then in the same manner in which summons issued by the Court under the CPC 1908, are to be served. It is also trite law that as far as position (sic-possible) service/summons should be effected on the person named in the notice/summon and, if it is not possible, then the same should be effected on the person who is duly vested with the authority to receive such notice by the person named in the summon. It is also well settled that in Order to ensure proper service of notice, acknowledgement of the person served should be obtained and person serving should also record necessary detail so as to avoid any dispute in this regard. In the instant case, it has been claimed by the assessee that no notice under Section 148 of the IT Act, 1961 was served. We also find that there was no participation in the proceedings under Section 148 of the IT Act. There was no response from the assessee to the notice issued under Sections 143(1) and 143(2) of the IT Act. Thus, the AO framed the assessment under Section 148/144 of the IT Act, 1961. It is well settled law that it is the duty of the Revenue to establish that a service of notice under Section 148 was made on the assessee himself or on somebody duly authorised by him in that behalf. When the assessee took the plea that there was no proper service on him, it is for the Revenue to place the relevant material to substantiate the plea that the assessee was served with proper notice.

In the case of R.K. Upadhyaya v. Shanabhai P. Patel (supra), the Hon'ble Supreme Court held that "the mandate of Section 148(1) is that reassessment shall not be made unless there has been service." In our considered view, valid assessment Order could not be passed without proper service of notice.Addl. CIT v. Prem Kumar Rastogi (supra), the Hon'ble Allahabad High Court held as under: A person who is not an authorised agent of the assessee or an agent or manager personally carrying on the assessee's business or an adult member of his family but who has merely accepted notices in the past on his behalf cannot be deemed or treated to be an authorised agent of the assessee and service on him of the assessment Order of the assessee is not valid.

9. It is observed that during the course of appellate proceedings the CIT(A) called for a remand report from the AO. The AO vide his letter dt. 9th April, 2005 submitted a report. The report of the AO has been reproduced by the CIT(A) in para 2.7 of the Order. On a perusal of report of ITI which is undated, shows that the ITI had not identified the person, to whom he has served the notice. According to ITI, notice under Section 148 was served on a lady who was present in the house. It is relevant to observe that the person on whom the service has been effected has not duly been identified which was necessary as per Rule 18 of Order V of CPC, 1908. In our view, the learned CIT(A) has correctly observed that since the ITI had not identified the person to whom he had served the notice, it is clear that neither the notice has been served on the partner of the firm, nor on the Authorised Representative of the assessee firm in this regard as per provisions of Section 282 of the IT Act, 1961. The decision relied upon by learned Departmental Representative is not applicable to the facts of the present case. In the case of Chandra Bhan Bansal (supra), notice under Section 148 was served on assessee's son and, therefore, the Agra Bench of the Tribunal held that the service of notice under Section 148 on the son of the assessee was a valid service. However, in the instant case it is not clear that who had signed the notice or who had received the notice or upon whom notice was served. As we have already observed hereinabove that the notice does not detail the identity of the person on whom it has been served.

10. The Hon'ble Calcutta High Court in the case of Bhagwan Devi Saraog and Ors (supra), held that "if no valid notice of reassessment has been issued or if the notice issued is illegal or invalid the entire reassessment proceedings would be without jurisdiction and would be void and illegal." In the case of Bal Govind Singh (supra), the learned CIT(A) cancelled the assessment on the ground that notice under Section 148 had been served on the minor son of the assessee and the status of the assessee was not mentioned in the notice, and consequently notice was not valid.

The Revenue filed a second appeal before the Tribunal, Allahabad Bench and the Tribunal held that there was no infirmity in the Order of CIT(A) as notice under Section 148 was not validly issued and served on the assessed.

11. In view of the above discussions, we agree with this finding of the CIT(A) that the AO has not acquired jurisdiction to pass the impugned Order under Section 144/148/147 of the Act, therefore, the assessment Order passed by AO is illegal and without jurisdiction. In that view of the matter, the learned CIT(A) has correctly annulled the assessment Order.


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