Invalid reassessment due to improper notice service; participation post-error doesn't cure defect

The Tribunal dismissed the appeals, upholding that the reassessment proceedings were invalid due to improper service of notice under section 148 of the Income-tax Act. The Tribunal found that the mandatory procedures for service were not followed, as the correct addresses were not used despite being available on record. The participation of the assessee in subsequent proceedings did not cure the defect of non-service of notice under section 148, leading to the conclusion that the entire reassessment proceedings were void.

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Issues Involved:
1. Validity of service of notice under section 148 of the Income-tax Act.
2. Proper procedure for service by affixation.
3. Consequences of non-service of notice under section 148.
4. Impact of the assessee's participation in subsequent proceedings.

Issue-wise Detailed Analysis:

1. Validity of Service of Notice under Section 148 of the Income-tax Act:
The central issue in these appeals was whether the notice under section 148 was affixed at the latest and correct address of the assessee. The Tribunal quashed the reassessment done by the Assessing Officer under sections 147/148 on the grounds that there was no valid service of notices under section 148 upon the assessees. The case pertained to the assessment year 1985-86, and the reassessment notice was issued on 27-3-1995 after obtaining approval from the Commissioner of Income Tax-VIII, New Delhi. The Assessing Officer claimed that notices were served through affixation at three addresses: C-89, NDSE, Part-II, New Delhi; E-167-168, Jhilmil Colony, Delhi; and 17, Hotel Continental, Regal Building.

2. Proper Procedure for Service by Affixation:
The Assessing Officer resorted to service by affixation after failing to serve the notices by normal process. However, the Tribunal found that no proper attempts were made to trace the assessees' current addresses. The addresses used for affixation were not the latest known addresses. The firm had been dissolved, and the new address, 4413, Jatavpura, Pahari Dhiraj, Delhi, was on record but was not used. The Inspector's report indicated that the firm and its partners were not found at the addresses used for affixation. The Tribunal emphasized that for valid affixation, the serving officer must follow the procedure laid down in Rule 19A, Order V of the Civil Procedure Code, including attempts to serve through registered post and proper verification of the serving officer's report.

3. Consequences of Non-service of Notice under Section 148:
The Tribunal concluded that there was no proper/valid service of notice under section 148. The legal position under section 282 of the Act requires notices to be served either by post or in the manner summons are issued by the Court under the Civil Procedure Code. The Tribunal found that the mandatory procedure for substituted service under Order V Rule 20 of the CPC was not followed. The addresses used for affixation were not the last known addresses, and the department failed to look into its records to find the correct address. Consequently, the entire reassessment proceedings were void due to the absence of valid service of notice under section 148.

4. Impact of the Assessee's Participation in Subsequent Proceedings:
The revenue argued that since the assessee had appeared and participated in the proceedings, no prejudice was caused, and the plea of non-service of notice under section 148 could not be taken. However, the Tribunal rejected this argument, noting that the appearance of the assessee was pursuant to a notice under section 143(2), not section 148. The Tribunal held that the mere appearance of the assessee did not validate the assessment or nullify the effect of non-service of notice under section 148. The Tribunal concluded that the entire proceedings for reopening the assessment were void due to the absence of service of notice under section 148.

Conclusion:
The Tribunal upheld that the reassessment proceedings were invalid due to the improper service of notice under section 148. The appeals were dismissed, affirming that the mandatory procedures for service were not followed, and the correct addresses were not used despite being available on record. The participation of the assessee in subsequent proceedings did not cure the defect of non-service of notice under section 148.

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