2022 (8) TMI 673 - AT - Income Tax

Assessment proceedings quashed for invalid notice, additions based on fictitious entries deleted.

Sridhar Reddy Jagan Nagari Satya Versus Dy. C.I.T., Circle 15 (1) Hyderabad And A.C.I.T. Circle 15 (1) Hyderabad Versus Sridhar Reddy Jagan Nagari Satya

The Tribunal quashed the assessment proceedings due to the invalid service of notice under Section 143(2), rendering the assessment void ab initio. The ... Validity of the issuance of notice u/s. 143(2) - Scope of proper service of notice - notice u/s. 143(2) served through affixture - jurisdiction of the Assessing Officer was transferred - HELD THAT:- We find the AO in the present case has served the notice u/s. 143(2) of the Act through affixture at the very first instance. A perusal of the order sheet entries shows that the notice was put up for service before the Assessing Officer on 23.9.2013. However, the Revenue in its submission has mentioned that the notice was issued on 29.3.2013 and thereafter it was allegedly served by way of affixture on 30.09.2013. A perusal of the service report of the Inspector Smt. T. Mary Ratna Kumari clearly shows that neither the names of the witnesses nor their complete identity were provided in the service report. It is essential as per CPC to give the name and addresses of the witness/s in whose presence notice was allegedly affixed by the Inspector, and the witnesses had in fact identified the premises and assessee. In the absence of these details and complete address of the independent witnesses, resorting to the alternative mode of service of notice by the Assessing Officer at the very first instance makes the service of notice doubtful and does not inspire confidence. There is another reason to record a finding that the notice has neither been issued nor served on the assessee even by way of affixture. From the reading of order sheet, it is clear that attempt was made to serve the notice on the assessee at the address given in the ROI. In the Return of Income for the A.Y. 2012-13, the address given by the assessee was 'Shri Sridhar Reddy Jagan Nagari Satya, 1-5-5913, Old Alwal, Select Theatre Road, Hyderabad' which is different from the address given in the service report mentioning that notice was served by affixture. In our considered opinion, there is contradiction in the report of the Inspector of the Revenue and the order sheet entry recorded by the Assessing Officer. There is yet another reason namely that the jurisdiction of the Assessing Officer was transferred and it was transferred to ITO Ward-11(1) Hyderabad from ITO ward 11(2) Hyderabad. As a matter of fact, Assessing Officer circle 11(1) again issued notice u/s. 143(2) on 22.10.2013 and also on 10.07.2014. Again, notice dated 22.10.2013 and 10.7.2014 were issued at the address 2-4-96/1 Nacharam but there is no service of these two notices on the file of the Assessing Officer. There was no requirement of law to issue 2nd notice u/s. 143(2) as has been done in the present case on 22.10.2013 and 10.7.2014. Further as per law notice u/s. 143(2) is required to be served within a period of 6 months from the end of the financial year in which the return is furnished. In the present case as is clear no notice was served on the assessee within six months of issuance of notice from the end of financial year i.e. before 30.09.2013. In our considered opinion, the Assessing Officer has resorted to affixture of notice by the Ward Inspector on 30.9.2013. The reading of the content of the subsequent notice 22.10.2013 clearly shows that the return of income was filed by the assessee on 30.09.2012 for the A.Y. 2012-13 but there was no reference of earlier notice, if any, issued by the Assessing Officer for fixing the date of hearing as 15.10.2013 or nonappearance of assessee on 15.10.2013 despite service of notice on 30.9.2013. Since in the instant case, the notice u/s. 143(2) was undisputedly served by affixture at the very first instance and the report of the Inspector does not give the complete details of the witnesses in whose presence such notice was affixed, therefore, we are of the considered opinion that there is no valid service of notice to the assessee before the statutory period for assuming jurisdiction and completing the assessment. Merely because the assessee has participated in the proceedings will not validate the assessment proceedings in absence of service of notice u/s. 143(2) of the I.T. Act and the provisions of section 292BB, in our opinion, cannot come to the rescue of the Revenue for invalid assumption of jurisdiction. In this view of matter, we hold that the entire assessment proceedings are void ab initio, invalid, bad in law and therefore, are to be quashed. Accordingly, we quash the assessment proceedings and allow the appeal filed by the assessee. Issues Involved:1. Validity of the assessment due to non-service of notice under Section 143(2).2. Addition of Rs. 39,93,38,544/- as unexplained asset/undisclosed investment.3. Addition of Rs. 9,91,15,015/- being 10% of the entire expenditure claimed by the assessee.Issue-wise Detailed Analysis:1. Validity of the assessment due to non-service of notice under Section 143(2):The assessee argued that the notice under Section 143(2) was not served properly, making the entire assessment void ab initio. The notice was allegedly served by affixture at an address different from the one provided in the return of income. The Tribunal examined the provisions of Section 282 of the Income Tax Act and the relevant rules under the Code of Civil Procedure (CPC). It was found that the Assessing Officer did not attempt to serve the notice by ordinary or registered post before resorting to affixture. Additionally, the report of the Inspector lacked complete details of the witnesses, making the service of notice doubtful. The Tribunal cited various case laws to conclude that the service of notice by affixture at the very first instance is not valid. Consequently, the Tribunal quashed the assessment proceedings, holding them void ab initio, invalid, and bad in law.2. Addition of Rs. 39,93,38,544/- as unexplained asset/undisclosed investment:The Assessing Officer added Rs. 39,93,38,544/- to the assessee's income, considering it as unexplained asset/undisclosed investment due to discrepancies in the accounts with M/s. Sujana Universal Industries Ltd. The CIT(A) deleted this addition, noting that the differences in the accounts were due to fictitious entries made by the assessee for availing bank loans. The CIT(A) observed that these entries did not have any tax implications as there was no actual introduction or withdrawal of profits/money. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was unwarranted and based on fictitious entries without any tax implications.3. Addition of Rs. 9,91,15,015/- being 10% of the entire expenditure claimed by the assessee:The Assessing Officer made an addition of Rs. 9,91,15,015/- (10% of the total expenditure) due to the assessee's failure to furnish books of account, vouchers, and bills. The CIT(A) restricted this disallowance to 10% of expenses claimed under employee cost and administrative expenses, considering that the purchases from M/s. Sujana Universal Industries Ltd. were verified. The Tribunal upheld the CIT(A)'s decision, finding it reasonable to restrict the disallowance to specific expenses rather than the entire expenditure.Conclusion:The Tribunal allowed the assessee's appeal by quashing the assessment proceedings due to invalid service of notice under Section 143(2). Consequently, the grounds raised by the Revenue challenging the deletion of additions became academic and were not adjudicated. The Revenue's appeal was dismissed.