Income Tax Appellate Tribunal - Delhi
Chandra Agencies vs Income-Tax Officer [Alongwith I.T.A. ... on 29 August, 2003
Equivalent citations: [2004]89ITD1(DELHI)
JUDGMENT
R.K. Gupta, Judicial Member
1. These are six appeals by assessee and department against the order of CIT(Appeals) relating to assessment year 1985-86. Two cross appeals are in the case of M/s Chandra Agencies and other four cross appeals are in case of Shri Kharaiti Lal Khanna and Shri Kapil Khanna, partners of the firm M/s Chandra Agencies. The main order is in the case of the firm, M/s Chandra Agencies and the orders in cases of partners are consequential to the order in case of the firm, as in those cases the share of profit from the firm has been assessed in the hands of the partners as per their sharing ratio.
2. We will take first the appeal in case of the firm M/s Chandra Agencies filed by assessee being ITA No. 1970(Del)/98. Return of income accompanied with the audit report Under Section 44AB and Form 3CD was filed on 3.1.1986 declaring an income of Rs. 61,140/-. The firm has also filed Form No. 11 and copy of partnership deed on 31.12.1984. The assessment was completed originally Under Section 143(1) of the Income-tax Act on 10.6.1987 on the returned income in the status of RF. On a later stage notice Under Section 148 was issued on 27.3.1995 after obtaining approval from the Commissioner of Income-tax-VIII, New Delhi and as per order of the AO, the same was served through Notice Server/Inspector by affixture at the last known address of the firm at 17, Hotel Continental, Regal Building, New Delhi; 167-168, Jhilmil Colony, New Delhi and at 389, NDSE, Part-II New Delhi on 29.3.1995. It is also mentioned in the order of the AO that the service of notice Under Section 148 was got served by affixture due to the reason that the assessee and its partners vacated the business/residential premises and all efforts to trace them had failed. Copies of the notices Under Section 148 were also affixed on the notice board and held as a valid service. Thereafter in second paragraph at page 2 of the order of the Assessing Officer, it is stated that the assessee did not comply with the notice Under Section 143(2) and 142(1) along with questionnaire for requisite details and particulars were issued on 19.3.1998 and served on Shri Kapil Khanna, partner of the firm on 21.3.1997, requiring him to attend and to produce books of accounts of the firm along with requisite details/confirmations on 26.3.1997. It is also observed in this paragraph that the present address of the assessee came to the notice of the department on 19.3.1997. Summons Under Section 131 were also served on Shri Kapil Khanna, partner for necessary compliance. Proceedings were attended by Shri Khanna, along with Smt. Nitika Khanna, advocate and requisite requirements asked by the Assessing Officer were filed. However, the AO was not satisfied with the reply. As per the order of the Assessing Officer, the assessee has also not offered any explanation to the suppressing of sales under the M.P.Red Cross Super Bumper Scheme, as there was some information with the Assessing Officer that assessee has suppressed its sale of lottery tickets. As on the date of hearing none appeared, accordingly, the assessment was completed Under Section 144/148 on a net income of Rs. 1,34,68,250/-, which includes inter-alia, various additions i.e., on account of trading account; on account of suppressed sale; out of advertisement and publicity expenses; sundry creditors and other unsecured loans etc.
3. The assessee preferred appeal before the CIT(Appeals). As many as 40 grounds of appeals were taken before the CIT(Appeals) and main grounds were in regard to that the order of the Assessing Officer is bad in law as no notice Under Section 148 dated 27.3.1995 has ever been served upon the assessee firm or its partners. A ground has also been taken that the service through affixture was not proper service, as last known address was before the department. In one of the grounds it was also challenged that even initiation of proceedings were also not valid as necessary approval was also challenged that even initiation of proceedings were also not valid, as necessary approval was taken from the Commissioner of Income-tax instead from Joint CIT, as required under the provisions of law at that point of time.. These grounds were raised from ground Nos. 1 to 22 before the CIT (Appeals). Detailed written submission were filed before the CIT(Appeals) and hearings were attended from time to time.. A copy of written submissions was sent to the Assessing Officer for his comments and on receipt of AO's comments, notice was again issued to the assessee in response to which Shri V.K. Shah, Advocate appeared before the CIT(Appeals) on the date of hearing.
3.1 After perusing the submissions and considering the submission of the counsel of the assessee, the CIT(Appeals) held that initiation of proceedings Under Section 147/148 were valid, as reasons for reopening of the assessment was duly recorded and the Assessing Officer issued notices on the firm as well, as on partners through affixture by Notice Server/Inspector at the last known address of the firm described in the return of income filed by assessee. It was also observed by the CIT(Appeals) that notice had been displayed on the notice board of the Assessing Officer, which is a public office and display of such notice has to be held as proper issue of notice. It was further observed that moreover the appellant did appear before the Assessing Officer in response to subsequent notice Under Section 142(1) and 143(2) of the Income-tax Act and was aware of the fact that the notice Under Section 148 had been issued. By further observing that "the purpose of the notice Under Section 148 is plainly to inform the assessee of the grievances of the AO. The mode of service mentioned in Section 282 of the I.T. Act is not exhaustive. If there is a mere procedural irregularity in the service, it may not render the service invalid. Where the AO resorts to service under Code of Civil Procedure, he may resort to Order V, Rule 20(1). In such a case, the AO has the discretion to adopt the manner of service other than by affixing a copy of the summons in the court house." By further observing that a partner of the firm did appear before the Assessing Officer, queries were raised and he promises to comply with those queries on the subsequent dates. His statement was also recorded by the AO. Therefore, in view of the decision of the Hon'ble Madhya Pradesh High Court in the case of Kaushalya Bai v. CIT in MCC No. 185/89 dated 17.3.1997, it must be held in the instant case also that the very fact that one of the partners participated in the proceedings, the defect of service of notice stood automatically cancelled. Therefore, the CIT(Appeals) held that the service of notice Under Section 148 was as per the requirement of law and the Assessing Officer's action was correct. Accordingly the same was upheld. Further grounds taken by assessee were also considered and the action of the Assessing Officer i.e., in regard to proper opportunity, initiation of proceedings Under Section 147 and additions on account of suppressed sales etc. were upheld. However, the additions of Rs. 15,000/- and Rs. 2,12,000/- in respect of cash credits were deleted. Chargeability of interest Under Section 139(8); 215/217 and 216 was also cancelled. Against confirming the order of the Assessing Officer, the assessee is in appeal and against deleting the additions of Rs. 15,000/- and Rs. 2,12,000/- along with cancellation of chargeability of interest under various sections, as stated above, the department is in appeal here before the Tribunal.
4. On behalf of the assessee, detailed written submissions were filed by the learned counsel, by which the assessee has hotly contested the issue in regard to service of notice Under Section 148 allegedly made on assessee through affixture. The reliance is placed on various case laws, i.e., B. Johar Forest Works v. CIT, 107 ITR 409(J&K); in the case of C.N. Natraj v. Fifth ITO, 56 ITR 250 (Mysore); in case of S.Velu Palandar 83 ITR 683 (Mad.); Tin Box Company 249 ITR 216 (SC); in case of Baradakanta Mishra 1976 AIR 1899 and in case of Sri Krishan v. CIT, Delhi decided by Delhi High Court in ITR No.15 of 1963 vide its order dated 11.7.1967. The assessee has also placed reliance on the decisions reported in 139 ITR 73; 68 ITR 540; 110 ITR 27; 37 ITR 249; 60 ITR 147 (SC); 82 ITR 888 (SC) and 76 ITR 692 (SC).
5. In reply, the learned DR firstly strongly placed reliance on the orders of the AO and CIT(Appeals) and it was further submitted that substantial income was escaped and valid reasons were recorded and then only proceedings under Section 147/148 were initiated. The proceedings Under Section 147/148 were initiated after due approval from CIT-VIII, New Delhi. Accordingly it was submitted that the plea of the counsel that the approval is not correct because the approval should have been taken from the Joint Commissioner of Income-tax and not from CIT. It was stated that the CIT is a senior officer, therefore, the approval is valid. Regarding the affixture of the notice, it was stated that the notices were affixed on last known address, therefore, the service is valid. It was further submitted that the notices were served on the address on which the return for the same year i.e., 1985-86 was filed. Therefore, it cannot be said that the affixture of notice is not valid. It was further stated that was no intimation with the department that assessee firm has changed its address. The attention of the Bench was drawn on the observations of the Assessing Officer that he tried to trace the exact address of the assessee but when he failed, then only notice was served through affixture as per provisions of Section 282 of the Income-tax Act.
6. In reply it was stated by the learned counsel that all the contentions raised by the learned DR are factually incorrect. The attention of the Bench was drawn on copies of various documents placed on record and it was stated that the firm dissolved vide Dissolution Deed dated 31.7.1986, copy of which was available on A.O's file, copy of the same is placed at pages 27 to 29 of the paper book placed on record of tribunal, and followed by public notice dated 29.9.1986, a copy of the same is placed at pages 30-31. It was further stated that the assessment was completed Under Section 143(1) on 10.6.1987 in the status of RF, as also mentioned in the present order of the Assessing Officer. It was further stated that on 15.1.1988 the assessment order for assessment year 1987-88 was passed Under Section 143(1), wherein the last known address i.e., 4413, Gali Jatav, Pahari Dhiraj, Delhi has been mentioned. A copy of the same is placed at page 132 of the paper book. It was also stated that on the same address notice Under Section 131 dated 7.3.1988 was issued to the firm requiring to attend personally on 14.3.1988 at 11.00 A.M. for producing books of accounts for assessment years 1984-85, 1985-86 and 1986-87. A copy of the notice is placed at page 135 of the paper book. It was further stated that the telephone number and address of the partner of the firm, Shri K.L. Khanna was also mentioned in Delhi Telephone Directory, 1994, which is meant for public as the same is a public document. Therefore, it was submitted that it was in the knowledge of the department that the address, on which the notices were affixed, were not pertaining to the firm or its partners at the relevant point of time. It was further stated that tax Under Section 140-A was paid by the assessee for assessment year 1987-88, wherein the address of the firm M/s Chandra Agencies was mentioned as 4413, Gali Jatav, Pahari Dhiraj, Delhi. A copy of the same is placed at page 133. It was also submitted that an order Under Section 154 of the Income-tax Act dated 15.3.1988 was passed for assessment year 1987-88 and the same was communicated to the assessee on this new address, copy of which is placed at page 134 of the paper book. Therefore, it was submitted that it is factually incorrect that the notice affixed by affixture were affixed on the last known address. It was also submitted that even notice affixed on the addresses mentioned in the notices are not valid in law, because these notices are without any independent witness, which are mandatory as per provisions of the law. The attention of the Bench was drawn on various copies of the notices affixed by the department, which are placed on record.
7. We have heard rival submissions and considered them carefully. We have also considered the relevant material on which our attentions were drawn along with various case laws relied upon. There is no dispute that proceedings Under Section 147/148 were initiated after taking necessary approval from CIT-VIII and after recording reasons. Whether these proceedings are valid or not, these can be examined only after affording proper opportunity as provided under the stature. The department's case is that there was a reason to believe that income has escaped, therefore, the reasons were recorded and the necessary approval for initiation of proceedings Under Section 147/148 was taken. As stated above, whether the jurisdiction assumed Under Section 148 is valid or not can be examined only after examining the point of issue that whether any valid service has been made for giving opportunity to file the return in response to notice Under Section 147. No return Under Section 147/148 was filed, as assessee is strongly agitating that there was no question of filing any return because no notice was served on the assessee. Therefore, before examining the issue of legality on account of reopening of the assessment and on account of proper approval by Commissioner of Income-tax, we will first examine the point of issue that whether valid served has been effected or not, as the Hon'ble Supreme Court as well as other High Courts have held if there is no valid service of notice Under Section 148, then assessment completed in absence of valid service, is bad in law.
8. The procedure regarding service of notice has been laid down in Sections 282 & 283 of the Income-tax Act. As per provision of Section 282(1), it is provided that a notice or requisition under this Act may be served on the person thereunder named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908 (V of 1908).
(2) any such notice or requisition may be addressed-
a) in case of firm or a Hindu Undivided Family, to any member of the firm or two manager or any adult member of the family.
In case of dissolved firm, the procedure has been laid down in Section 283(2), wherein it is prescribed as under:-
"(2) Where a firm or other association of persons is dissolved notice under this Act in respect of income of the firm or association may be served on any person, who was a partner (not being a minor) or member of the association, as the case may be, immediately before its dissolution."
9. After going through the provisions of he above sections, we noted that where the firm has been dissolved, then notice has to be served on its partners. If the whereabouts is not traceable, then notice has to be served by affixtures as per Order V of 1908 of CPC. As per order of the Assessing Officer, the address of the firm or address of the partners were not traceable, therefore, he made service through affixture by his Inspector/Notice Server. After going through the material such as comments of Commentator of Sampath Iyengar and other cases decided by various courts, we find that the service through affixture is to be invoked only in exceptional case. Order V, Rule 17 of CPC states that where the defendant refuses to sign the acknowledgement, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant and there is no agent empowered to accept service, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business and shall then return the original to the court from which it was issued, with a report stating that he has so affixed the copy, the circumstances under which he did so and the name and address of the person by whom the house is identified and in whose presence the copy was affixed. In resorting to the method of substituted service under Order V, Rule 20 it is the duty of the department to discharge its onus by showing that the authority concerned had reason to believe that the assessee was keeping out of the way for the purpose of avoiding service or that there were other good reasons to come to the conclusion that the summons could not be served in the ordinary way.
10. In case of Kunj Behari, 139 ITR 73, the Hon'ble Punjab & Haryana High Court has held that the condition for service by affixture was not satisfied. Therefore, the service made on assessee were not valid. Hence the appeal of the assessee was allowed.
11. In case of Gopi Ram Aggarwala, 37 ITR 493, the Hon'ble Calcutta High Court has held that where the officer, who has to serve a notice of re-assessment under Section 34 of the Indian Income-tax Act, 1922 on the appellant, went to his address but found that he had gone out, offer the notice to a person who was pointed out as the appellant's son and on the latter refusal to accept it, affixed the notice to the premises, the service was not a good service and there was no valid service in accordance with law of notice under Section 34.
12. In the case of Ramendra Nath Ghosh v. CIT, 82 ITR 888, the Hon'ble Supreme Court has confirmed the order of High Court by holding that on the facts that service of notices was not in accordance with law and, therefore, it could not be said that the assessee had been given a proper opportunity to put forward their case, as required by Section 33B of the Income-tax Act. The facts in this case were that 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 assessee. The assessee, however, claimed that they had closed their businesses long before the notices were issued. On writ petitions filed by the assessees, the High Court held that there was no proper service on the assessees and the orders of the Commissioner pursuant thereto could not be sustained.
13. In the case of Champalal Binani, 76 ITR 692, the Hon'ble Supreme Court has held that so long as the place at which the notice was served was one where the assessee was carrying on business, the service would be valid and proper. Failure to do so would render the substituted service by affixture bad in law. In case of Daulat Ram Khanna, 65 ITR 603, the Hon'ble Supreme Court has held that a copy of the notice need not be affixed on the notice board of the income-tax office for a valid service, as the notice has to be affixed on the premises of the assessee.
14. In the case of B. Johar Forest Works, 107 ITR 409, the Hon'ble Jammu & Kashmir High Court has held that a notice must be served in one of the modes provided in Section 63 of the Income-tax Act, 1922 before an assessee could be considered to be in default.
15. In case of Sri Krishnan v. CIT the Hon'ble Delhi High Court has held that the service of notice by affixture was bad in law, as it was not in conformity with Order V, Rule 17 of Code Civil Procedure, read with Section 63 of the Income-tax Act. It was further held that the fact that the assessee had knowledge of the proceedings was not sufficient since the jurisdiction to start an assessment under Section 34 depended on the very service of the notice.
16. In the light of the procedure of service laid down in Section 282 & 283 of the Income-tax Act and various decisions pronounced by the various High Courts and Supreme Court, mentioned above, now we will examine the facts of the present case vis-a-vis service by affixture by the Assessing Officer that whether there was a valid service or notice under Section 148 or not.
17. As mentioned above, the notices dated 27.3.1995 were affixed on three addresses i.e., 17, Hotel Continental, Regal Building, New Delhi; 167-168, Jhilmil Colony, New Delhi and C-89, NDSE, Part-II, New Delhi on 29.3.1995. These three addresses were mentioned in the Audit Report prepared by the auditor under Section 44AB before filing the return for assessment year 1985-86. The return of income was filed on the address of 17, Hotel Continental, Regal Building, New Delhi. Thereafter the firm was dissolved on 31.7.1986 and address in the dissolution deed was given as C-89, South Extension, Part-II, New Delhi. Thereafter, a public notice under Section 45(1) of Indian Partnership Act was given in regard to dissolution of the firm. This was given on 29.9.1986.
18. After that the return for assessment year 1987-88 was filed in the name of the firm, M/s Chandra Agencies at the address of 4413, Mohalla Jatav, Pahari Dhiraj, Delhi and the assessment was also completed by mentioning the same address, as above. This assessment was completed on 18.1.1988. Self-assessment tax for assessment year 1987-88 in case of M/s Chandra Agencies was also made on the same address i.e., 4413, Gali Jatav, Pahari Dhiraj, Delhi. A copy of assessment order for assessment year 1987-88 and receipt of self assessment tax are placed at pages 132 and 133 of the paper book. After that, an order under Section 154 was passed by the Assessing Officer on 7.3.1988 and the same was served on the same address i.e., 4413, Mohalla Jatav, Pahari Dhiraj, Delhi. Summons under Section 131 of the Income-tax Act were issued by the AO on 7.3.1988 on the address as 4413, Mohalla Jatav, Pahari Dhiraj. A notice under Section 139(2) and 133 was issued by the AO for assessment year 1988-89 on 3.5.1988 on this address i.e, 4413, Jatavpura, Pahari Dhiraj with P.A. No. C-531, a copy of which is placed at page 146 of the paper book. From all these details, it is clearly emerged and established that last known address of the firm was 4413, Mohalla Jatav, Pahari Dhiraj, New Delhi and not 17, Hotel Continental, Regal Building, Connaught Place, New Delhi or 167-168, Jhilmil Colony, New Delhi or C-89, NDSE, Part-II, New Delhi, means thereby that the notice by affixture was not affixed on the last known address. We further noted that the notices under Section 148 earlier were prepared on 20.3.1995 and they were given to the Inspector for making service on the assessee and the report was given that he went on the address given and found that nobody lives on the address given in the notice. Copies of these notices are placed at page 45, 46 & 47. Thereafter notices under Section 148 were prepared on 27.3.1995 and they were directed by the AO to be affixed on the addresses mentioned in the notices and accordingly the notices were affixed on three addresses, ad mentioned above. Copies of these notices are placed at pages 141 to 143. We have seen these copies of the notices and found that no name of witness is mentioned on these notices. It clearly shows that the notices were affixed on the above three addresses in absence of any witness, which is mandatory as per Order V, Rule 17 of CPC, 1908. We further noted that a report was given by Inspector, one Shri K. Bhatnagar of Ward 12(2) on 18.3.1995 wherein it is stated that he visited Continental Hotel, 17, Regal Building, New Delhi and C-89, NDSE, Part-II, New Delhi and was informed that M/s Chandra Agencies had left this address, as they have closed down their business from these premises. Once there was a report that the firm has been shifted from these addresses, then in our considered view, there was no necessity of even fixing the notices on these addresses on 28.3.1995, as the report was given by the Inspector only on 18.3.1995. Noting is borne out from the records available on record that Assessing Officer has attempted to know the whereabouts of the firm as well as of its partners. The assessment records were available with the Assessing Officer and the last known address i.e., 4413, Jatavpura, Pahari Dhiraj, Delhi was available on the record. We are surprised that why the Assessing Officer has not made service on the last known address i.e., 4413, Jatavpura, Pahari Dhiraj, Delhi.
19. the procedure of service through affixture has already been discussed above, along with the ratio of various decisions of Supreme Court and various High Courts and after going through the provisions regarding service by affixture, we found that there is no valid service either on the assessee firm or on its partners. Therefore, the assessment completed by the AO under Section 144/148 cannot be held as valid assessment. The jurisdiction under Section 148 was not properly assumed, therefore, the assessment cannot be held as valid assessment. as we have already discussed that there was no service of notice under Section 148, accordingly there was no jurisdiction to make assessment at the end of AO. The finding of CIT(Appeals) that one of the partners had participated in the assessment proceedings, therefore, this was a technical irregularity in issuing notice under Section 148, cannot be sustained because once the proper jurisdiction has not been assumed, then assessment proceedings cannot be held as valid proceedings.
20. In the case of Varadakanta Mishra v. Orissa High Court, 1976 AIR 1899, the Hon'ble Supreme Court has held that if the order of the initial authority is void, an order of the appellate authority cannot make it valid. Similar view has been taken by the Hon'ble Delhi High Court in the case of Shri Krishna v. CIT (supra), wherein it is held that since the jurisdiction to start assessment under Section 34 depended on very service of the notice. These two ratios are squarely applicable on the facts of the present case. Jurisdiction to start assessment in response to notice under Section 148 depends upon valid service of notice under Section 148 has been made on the assessee, therefore, the assessment completed cannot be held as valid assessment. In view of all these facts and circumstances, we hold that the assessment completed under Section 144/148 was not a valid assessment. Accordingly the same is quashed.
21. Since we have quashed the assessment completed by the Assessing Officer, therefore, we are not inclined to consider the aspect of validity of initiation of proceedings under Section 147/148, that whether the initiation was proper or whether the necessary approval was validly taken or not. As stated above, the legal ground in regard to service has been allowed by us, therefore, we are not inclined to dispose off the grounds on merits sine we have quashed the assessment itself. Therefore, the appeal of the assessee in case of firm is allowed.
22. The appeal of the department in case of the firm M/s Chandra Agencies has become infructuous, as we have already quashed the assessment order passed by the Assessing Officer.
23. The appeals in case of both the partners are also allowed, as the assessments in these cases were completed on the basis of share of profit distributed in the hands of the partners. The assessment in the case of the firm has already been quashed, therefore, there is no question of assessing the share of profit in the hands of partners. Accordingly the appeals of the partners are also allowed.
24. The appeals of the department in case of two partners have become infructuous because they were completed on the basis of assessment order in case of firm, which has already been quashed here by us above.
25. In the result, the appeals of the assessees are allowed and the appeals of the department are dismissed.