Wheteher service of notice at the factory premises of the Assessee on the security guard is proper service under the provisions of Section 282(2)? - Held Yes
It is held that the assessment proceedings under Section 147/148 of the Act are not invalid or void for want of proper service of notice. However, an order of remand is required to be passed as the Tribunal has not adjudicated and decided the appeal filed by the respondent-assessee on merits.
This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short), relates to Assessment Year 1995-96 and arises from order dated 30th March, 2005 passed by the Income Tax Appellate Tribunal (Tribunal, for short) in the case of M/s Sudev Industries Limited (hereinafter referred to as, the respondent-assessee).
2. The appeal was admitted for hearing vide order dated 4th August, 2006 on the following substantial question of law:-
“Whether the Income Tax Appellate Tribunal is justified in law in holding that service of notice at the factory premises of the Assessee on the security guard was not proper service under the provisions of Section 282(2) of the Income Tax Act, 1961?”
3. For the Assessment Year (AY) 1995-96, the respondent-assessee had filed Return of Income declaring „nil‟ income with the Income Tax Department, Bulandshahar on 15th May, 1997. This return being belated and beyond statutory time was treated as non est Consequently, after recording “reasons to believe” in writing Additional Commissioner of Income Tax, Circle Bulandshahar had issued notice dated 11th September, 1998 under Section 148 read with Section 147 of the Act, calling upon the respondent assessee to file its return for AY 1995-96. This notice was sent registered post vide receipt No 4896 dated 15th September, 1998 and as per the Revenue also served on the respondent-assessee through Inspector of Income Tax Department on 18th December, 1998 at A-7/74/1 & 2, UPSIDC Indl. Area, Sikandarabad, Bulanshahr, Uttar Pradesh. The respondentassessee did not file return in response to the said notice, albeit their director Mr. Rajeev Aggarwal had appeared before the Deputy Commissioner of Income Tax, Bulandshahar and on his request reasons recorded for issue of notice and a copy of the notice under Section 148 were furnished.
4. On 27th February, 2001, while the proceedings under Section 147/148 of the Act were pending, jurisdiction was transferred from Deputy Commissioner of Income Tax, Circle Bulandshahar to Income Tax Officer, Company Ward 3(2), New Delhi.
5. Thereupon, the Assessing Officer, Company Ward 3(2), New Delhi had issued notice under Section 142(1) dated 28th February, 2001, which was served on the respondent-assessee requiring them to furnish details and particulars, including copy of bank accounts, monthly sale/purchase - valuewise and quantity-wise, opening and closing stock - item-wise, quality-wise and value-wise, details of squared up accounts with confirmation, and produce complete books of accounts. The proceedings continued with the respondent-assessee appearing through the chartered accountant, and sometimes with Mr. Rajeev Aggarwal, director in attendance. During the course of the assessment proceedings, objection questioning jurisdiction of the Assistant Commissioner of Income Tax Circle Bulandshahar, who had issued notice under Section 147/148 of the Act was raised. This contention was rejected, primarily for th ee reasons namely, (i) the respondent-assessee for the AYs 1994-95 and 1995-96 had voluntarily filed returns before the Assessing Officer at Bulandshahr;(ii) during the course of the assessment proceeding for AY 1994-95 on a query being raised by the Assessing Officer, the respondent-assessee vide letter dated 7.4.1995 had stated that a resolution had been passed for shifting of the registered office from Delhi to Sikandarabad. The plea was accepted and return for AY 1994-95 was processed by ITO, Ward 1, Bulundshahar and (iii) respondent-assessee had filed an application dated 12.5.1997 for certificate under Section 230A(1) with ITO ward-1, Bulandshahar, which was furnished on 28.5.1997.
6. On 22nd March, 2001, assessment order under section 144 of the Act to the best of judgment of the Assessing Officer was passed. Profit and loss account was not submitted and filed. Only a chart, indicating purchases and sales after 1st October, 1994 when the trading operations had started, and closing stock on 31st March, 1995 was filed. The respondent-assessee had as per the chart purchased goods worth Rs.3,06,98,078/-, sold goods worth Rs.3,02,61,167/- and had shown closing stock of Rs. 8,74,125/- resulting in gross profit of Rs.4,37,214/-. After referring to discrepancies on current liabilities and unsecured loans, capitalizing preoperative interest, failure to furnish confirmations from subscribers to share capital that had increased from Rs.36,57,000/- to Rs. 317,60,500/- and also invoking Section 68 of the Act, the total income of the respondent assessee was assessed at Rs.2,77,83,260/-.
7. Commissioner of Income Tax (Appeals) in his order dated 22nd March, 2002 upheld the action of the Assessing Officer at Bulandshahar in issuing notice under Section 147/148 of the Act for reasons recorded in detail including filing of returns of income for AY 1994-95 and 1995-96 before ITO, Bulandshahar, letter of the respondent-assessee justifying and explaining why return for AY1994-95 was filed at Bulandshahar, issue of certificate under Section 230A on application of the respondent-assessee by the said assessing officer and filing of belated return for AY 1995-96 before ITO, Bulandshahar. Commissioner of Income Tax (Appeals), notwithstanding best judgment assessment, had also examined merits and quantum of income earned by calling upon the respondent-assessee to furnish details relating to transactions of purchases and sales above Rs.1 lac, which were furnished. He noticed that the purchases or sales were not paid for during the year, though the respondent-assessee had purportedly made purchases and sales of Rs.3.06 crores and Rs.3.02 crores, respectively and had claimed net loss of Rs.24,920/-. Adverse findings were recorded on several aspects, including failure to justify investment in purchases. However, addition of more than Rs.2.28 crores made by the Assessing Officer under Section 68 of the Act was deleted observing that addition should be made in the hands of the persons who had actually advanced money and had introduced their undisclosed income towards share capital of the respondent-assessee. The respondent-assessee had contended that they were a public limited company and share applications had been invited from public at large. Few additions made by the Assessing Officer were deleted and others were confirmed.
8. The respondent-assessee filed further appeal which has been allowed by the impugned order of the Tribunal dated 30th March, 2005, on the ground that notice under Section 148 of the Act dated 11th September, 1998 issued by the Assistant Commissioner of Income Tax, Bulandshahar, and addressed to M/s Sudev Industries Limited, A-74/142, UPSIDC Industrial Area, Sikandarabad District Bulandshahar, Uttar Pradesh, was not served as per Section 282 of the Act. Service of notice affected on 8th February, 2001 through Inspector at the above address was not on any director or any person authorised by the respondent-assessee to receive the notice but on Ajay Pratap Singh, Security Guard. Inspector while effecting service had recorded that the factory was not working and only security guards were present. Service on the security guard, who was not authorised to receive notice, it was held, was invalid and therefore the re-assessment proceedings were entirely void and bad in law. Referring to the decision of Gauhati High Court in Commissioner of Income Tax versus Mintu Kalita,  253 ITR 334(Gau.), it was held that service of notice was not a procedural requirement, but a condition precedent for initiation of proceedings. Reliance was also placed on the decision of the Supreme Court in R.K. Upadhyaya versus Shanabhai P. Patel,  166 ITR 163(SC). Madras High Court in Venkat Naicken Trust and Another versus Income Tax Officer and Another,  242 ITR 141 (Mad.) has held that when an assessee pleads that he had not been served with notice, it was for the department to place relevant material to substantiate and prove that the assessee was served. Reliance was placed on the affidavit by Mr. Rajeev Aggarwal that neither he, any of the directors nor an authorised person had received notice dated 11th September, 1998 issued under Section 148 of the Act. Consequently, when the notice under Section 147/148 of the Act was not duly served, the Assessing Officer in Delhi could not have passed a valid and legally sustainable assessment order.
9. We begin by referring to Section 282 as it was before substitution by Finance (No.2) Act,2009. Section 282 of the Act, was as under:-
"Service of notice generally.
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 Code of Civil Procedure, 1908 (5 of 1908).
(2) Any such notice or requisition may be addressed—
( a) in the case of a firm or a Hindu undivided family, 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 body of individuals, 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 of the Act dealt with procedure for service of notice and without hesitation we would hold that this provision was enacted to ensure compliance of principles of natural justice and for ease of service, and not for hairsplitting and fault finding. Sub-section (1) to Section 282 had stated that a notice or requisition could be served on the person therein named either by post or as if it were summons issued by a court under the Code of Civil Procedure, 1908. Clauses (a) to (d) of Sub-section (2) to the said Section refer to whom such notice or requisition may be addressed to in different cases such as in case of a firm or Hindu undivided family, a local authority or company, any other association or body of individuals or any other person. In case of a company notice may be addressed to the principal officer. Use of the word "may" in sub-section (2) reflects that this provision is permissive and not mandatory. Therefore, it would not be correct to hold as held by the Tribunal that the notice under Section 148 of the Act not being addressed to the principal officer but to the company itself was invalid and completely illegal so as to not confer jurisdiction on the assessing officer.
20. Earlier in Rani Kusum versus Kanchan Devi and Others, (2005) 6 SCC 705, after referring to the ratio in Kailash versus Nanhku and Others, (2005) 4 SCC 480, it was observed:-
“10. All the rules of procedure are he handmaid of justice. The language employed by the draftsman of processual law may be liberal or stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the statute, the provisions of CPC or any other procedural enactment ought not to be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends of justice.
11. The mortality of justice at the hands of law troubles a judge's conscience and points an angry interrogation at the law reformer.
12. The processual law so dominates in certain systems as to overpower substantive rights and substantial justice. The humanist rule that procedure should be the handmaid, not the mistress, of legal justice compels consideration of vesting a residuary power in the judges to act ex debito justitiae where the tragic sequel otherwise would be wholly inequitable. Justice is the goal of jurisprudence, processual, as much as substantive. (See Sushil Kumar Sen v. State of Bihar[(1975) 1 SCC 774] .)
13. No person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner for the time being by or for the court in which the case is pending, and if, by an Act of Parliament the mode of procedure is altered, he has no other right than to proceed according to the altered mode. (See Blyth v. Blyth [(1966) 1 All ER 524 : 1966 AC 643 : (1966) 2 WLR 634 (HL)] .) A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. (See Shreenath v. Rajesh[(1998) 4 SCC 543 : AIR 1998 SC 1827] .)
14. Processual law is not to be a tyrant but a servant, not an obstruction but an aid to justice. Procedural prescriptions are the handmaid and not the mistress, a lubricant, not a resistant in the administration of justice.
21. We would, at this stage, refer to some facts, which were not disputed and were recorded in the assessment order. Said facts were found to be correct and were not overturned by the Tribunal. Notice under Section 147/148 had been sent by registered post vide receipt No.4896 dated 15th September, 1998 in addition to service by the Inspector of the Income Tax Department. Secondly, upon service of the said notice, Mr. Rajeev Aggarwal, director of the respondent-assessee had appeared before the Deputy Commissioner of Income Tax, Circle Bulandshahar and on request was given a copy of the notice issued under Section 148 of the Act and of the reasons recorded for issue of notice. The third aspect is that the respondent-assessee during the assessment proceedings before the Assessing Officer at Bulandshahar and then at Delhi, did not contest or object that notice under Section 147/148 of the Act was not duly served as it was not served on the authorized officer or director or the notice was not addressed to the principal officer. In case, and if, the respondent-assessee had taken the said plea, the Assessing Officer had the option to furnish and serve the notice on the director or the authorised representative. There was no occasion for the respondent-assessee to object as Mr. Rajeev Aggarwal was duly furnished a copy of the notice. A company being a juristic and a legal person, service cannot be in person on the Company, and has to be affected by sending the notice to the registered office or at the place of business. In the context of the present case, we would only observe that the object and purpose of service of notice was to inform and make the company aware that proceedings under Section 147/148 of the Act had been initiated. Initiation of proceedings under Section 147/148 of the Act was upon recording of reasons to believe and upon necessary approvals. Initiation to this extent was valid and not disputed and challenged.
22. It was submitted before us that the respondent-assessee had taken the plea and contested validity of service of notice on the security guard before the first appellate authority, i.e., Commissioner of Income Tax (Appeals). It was accepted and admitted that no such contention was raised before the Assessing Officer. In support, the respondent-assessee had relied on paragraph 2 of the order dated 22nd March, 2002 passed by the Commissioner of Income Tax (Appeals), which reads as under:-
“2. The first ground of appeal is that as the notice alleged to be issued to the assessee u/s 148 could not in law be said to be served on the assessee, the assessment made, there under on the basis of such notice is bad in law. That the proceedings u/s 148 of the I.T. Act is illegal and uncalled for in view of following facts:
a) The ITO, Bulandshahar did not have any jurisdiction over the case to issue the notice.
b) The ITO did not have any reason to believe that the income chargeable to tax has escaped assessment due to omission or failure on the part of the assessee.”
23. We have examined and considered order passed by the Commissioner of Income Tax (Appeals) with reference to the aforesaid grounds. Discussion and conclusions/findings recorded by the first appellate authority, un-ambiguously do not reflect and show that ground of invalidity of service in terms of Section 282 of the Act was raised. There is no discussion on the issue; whether the service by registered post or by the Inspector on the security guard would be valid. Legal effect and consequences were not considered. This would un-mistakenly support the submission of the appellant-Revenue that this ground was not taken at the initial stage and when the first appeal was preferred and decided. Moreover, what is important and relevant is whether this contention was raised before the Assessing Officer. Respondent-assessee accepts that this contention was not raised before the Assessing Officer.
24. We would now deal with the decisions relied upon by the counsel for the respondent-assessee, which he submits support their case. In Commissioner of Income Tax versus Rajesh Kumar Sharma,  311 ITR 235 (Del) reference was made to Section 282 of the Act and provisions of Order V of the Code of Civil Procedure and more importantly Rules 12 to 15 thereof. In the said case, as per the postal receipt notice was addressed to “Sh. R.K. Prop. M/s Karol Bagh, New Delhi, Pin 110065” and it was held that this was not the address of the assessee. The Court had also observed that it would have been a different matter if the Revenue had been able to show that the envelope was addressed to the correct person, but the receipt issued by the postal department was incomplete. Contention of the Revenue that the envelope was not returned and, therefore, it should be presumed to have been duly served was rejected because of the categorical stand of the assessee that he had not received the notice. Claim of the Revenue that the notice through process server was served on one Lalmani, who was an employeee of the assessee, was also rejected on the ground that the assessee had stated that he did not have any employee named Lalmani and it was not the case of the Revenue that the said Lalmani was authorised to receive notice. Pertinently, the assessee had written a letter after he was served with notice under Section 142(1) and 143(2) that he was unaware of any notice issued under Section 147/148 of the Act. The facts of the case are clearly distinguishable. Noticeably, Delhi High Court in Commissioner of Income Tax- V, New Delhi versus Regency Express Builders Private Limited,  291 ITR 55 (Del) had dealt with a situation where notice under Section 143(2) of the Act had been sent to the address given by the assessee and was served on one Gunanand. The assessee had thereafter appeared through a chartered accountant. Question arose whether there was valid service, as notice under Section 143(2) was required to be issued within the stipulated period. The appeal was allowed and the contention of the assessee was rejected, observing that the chartered accountant had appeared before the Assessing Officer, which would show that notice under Section 143(2) had been duly served.
25. In Venkat Naicken Trust and Another (supra), it was held that the burden was on the Department to substantiate the plea that the assessee was properly served. The said judgment would not be of relevance in the present appeal in view of the fact that notices were sent by registered post as well as through Inspector. Service was affected at the factory office of the respondent-assessee. The case of the respondent-assessee is that notice was served on the security guard and not on the d rector or authorised person. Director of the respondent-assessee had thereafter appeared before the Assessing Officer and was furnished a copy of the notice. In C.N. Nataraj and Others versus Vth Income Tax Officer, Bangalore  56 ITR 250 (Mys), the assessment year involved was 1958-59 and the High Court observed that the notices were issued in the name of minors, who could neither sue nor could be sued and had to be represented by guardians or next friend. In these circumstances, it was held that notices issued were wholly invalid.
26. In the facts of the present case we would prefer to follow the decision of the Delhi High Court in M/s Jagat Novel Exhibitors Private Limited (supra).
27. M/s Gopiram Bhagwandas, Dhanbad versus The Commissioner of Income Tax, Bihar and Orissa, Patna,  30 ITR 8 (Pat) is an old decision arising under the 1922 Act. The question adjudicated was whether for the purpose of determining the starting point of limitation date of service of the Tribunal‟s order on the assessee himself or his lawyer would be relevant. Issue and question in the present case is different.
28. Commissioner of Income Tax versus Hyderabad Deccan Liquor Syndicate,  95 ITR 130 (AP) was again a decision under the Income Tax Act, 1922. The dispute therein had several facets, including whether the assessing officer had elected to assess the individual members of the Association of Persons (AOP), instead of the AOP. Reference in this context was made to the provisions of the Income Tax Act, 1922, which as noticed in R.K. Upadhyaya (supra) were different.
29. B. Johar Forest Works versus Commissioner of Income Tax,  107 ITR 409 (J&K) related to imposition of penalty due to non-compliance of notices under Section 22 of the Income Tax Act, 1922.
30. Dina Nath versus Commissioner of Income Tax,  204 ITR 667 (J&K) was an extraordinary case, in which service of notice under Section 143(2) was affected and the assessment order was passed on the same day, making an addition of nearly Rs.36,000/- to the assessee's income. In this case, the service had not been effected on the assessee. Revenue‟s contention that the notice was served on a partner of a firm in which the assessee was a partner was rejected for several reasons. This order takes into account cumulative facts, which established prejudice.
31. In Additional Commissioner of Income-tax, Lucknow versus Prem Kumar Rastogi,  124 ITR 381 (All), the issue raised related to starting point for computation of period of limitation for appeal, and in that context it was held that the service on third person who was not an authorized agent would not matter.
32. In Commissioner of Income-tax, Kanpur versus Kanpur Plastipack Ltd.,  390 ITR 381 (All), notice was served on the power of attorney holder, who was authorized to represent the assessee to conduct the case, but was not authorized to receive notice. Apparently, the assessee had not complied and entered appearance.
33. Decision of the Delhi High Court in Commissioner of Income-tax versus Lunar Diamonds Ltd.,  281 ITR 1 (Del.) was on the issue whether notice under Section 143(2) of the Act was served within the prescribed limitation period. The decision relates to difference between „served‟ and „issued‟.
34. In Mintu Kalita (supra), it was observed that service of notice under Section 147/148 of the Act was not a mere procedural requirement, but a condition precedent for initiation of proceedings. In the present case, the question is whether the service affected should be treated as null and void. Ratio in Mintu Kalita (supra) has to be read in light of the pronouncement and ratio in R.K. Upadhyaya (supra).
35. In view of the aforesaid discussion, we find sufficient justification and reason to allow the present appeal and answer the substantial question of law in favour of the appellant-Revenue and against the respondent-assessee. It is held that the assessment proceedings under Section 147/148 of the Act are not invalid or void for want of proper service of notice. However, an order of remand is required to be passed as the Tribunal has not adjudicated and decided the appeal filed by the respondent-assessee on merits.
36. To cut short delay, it is directed that the Revenue and the authorised representative of the respondent-assessee would appear before the Tribunal on 10th July, 2018 when a date of hearing would be fixed. In the facts of the case, the appellant-Revenue, it is held, is entitled to costs.
Cases Referred to
1. Hind Samachar Limited Vs. Union of India (2011) 330 ITR 266
2. CIT Vs. Norton Motors  275 ITR 595
3. Balchand Vs. ITO (1969) 72 ITR 197
4. Commissioner of Income Tax Vs. Anand and Company (1994) 207 ITR 418
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