2023 (1) TMI 1441 - AT - Income Tax

Reassessment u/s 147 quashed for improper notice service without exhausting alternative methods or mandatory waiting period

ITAT Delhi held that reassessment u/s 147 was invalid due to improper service of notice. The AO failed to exhaust alternative service methods before ... Reopening of assessment u/s 147 - improper service of notice - process of service of notice by affixture - HELD THAT:- In the case on hand there is no any evidence of any independent person having been associated with identification of place of the assessee, local person of area where the place of the assessee to be served is suggested are to be associated to identify the place of the assessee and such report may not be prepared by the process server and other persons sat in their office without involving local person of area. For obvious reasons it is very much necessary that local persons of the area are to be associated in the process of service of notice by affixture. The Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Kishan Chand [2009 (11) TMI 535 - PUNJAB AND HARYANA HIGH COURT] affirmed the decision of the Tribunal in holding that resort to affixture could not be straight away taken without taking other modes of service. In the case on hand also the AO except sending the notice through Speed Post in the month of March, 2018 no efforts have been made to serve notice u/s 148 of the Act on the assessee through other modes. Since the notice returned un-served the AO could have sent notice through notice server for service of notice on the assessee which process was not followed and at the fag end of the due date for completion of assessment i.e. in December, 2018 the AO chose to serve the notice by way of affixture on 4.12.2018 and complete the assessment immediately on 06th December, 2018 not even giving time for the assessee to file return of income in response to the said notice even though the said notice specifies filing of return within 30 days of time from the date of service of notice. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the assumption of jurisdiction under Section 147 of the Income Tax Act, 1961, for reopening the assessment was valid, considering the alleged improper service of notice under Section 148.Whether the service of notice by affixture was legally valid in the absence of a local witness and other procedural irregularities.Whether the principles of natural justice were violated due to the lack of opportunity given to the assessee to respond to the notice under Section 148 before the assessment was completed.Whether the approval for reopening the assessment under Section 151 was granted in a mechanical manner without proper application of mind.Whether the reassessment order was void due to the procedural lapses in the service of notice and the conduct of the assessment proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Assumption of Jurisdiction under Section 147Relevant Legal Framework and Precedents: The jurisdiction to reopen an assessment under Section 147 requires a valid service of notice under Section 148. The precedents cited include Ess Aar Exports v. Income Tax Officer and CIT v. Kishan Chand, which emphasize the necessity of proper service of notice.Court's Interpretation and Reasoning: The court found that the notice under Section 148 was not properly served as it was affixed without the presence of a local witness, violating procedural requirements.Key Evidence and Findings: The notice was served by affixture without a local witness, and there was no evidence that the process server knew the address personally.Application of Law to Facts: The court applied the principles from the cited cases, concluding that the service was not valid, thus vitiating the jurisdiction assumed under Section 147.Treatment of Competing Arguments: The Revenue's argument that service was valid was dismissed due to lack of compliance with procedural norms.Conclusions: The assumption of jurisdiction was invalid due to improper service of notice.Issue 2: Validity of Service by AfixureRelevant Legal Framework and Precedents: The service of notice by affixture must comply with Order V, Rules 17-20 of the Code of Civil Procedure, requiring a local witness.Court's Interpretation and Reasoning: The court held that the service by affixture was invalid as it did not involve a local witness and did not follow the prescribed procedure.Key Evidence and Findings: The affixture report was signed by a Tax Assistant and an Income Tax Inspector, with no local witness involved.Application of Law to Facts: The court found that the affixture did not meet legal standards, rendering the service invalid.Treatment of Competing Arguments: The assessee's argument that the service was invalid was upheld based on legal precedents.Conclusions: The service by affixture was invalid, affecting the validity of the entire assessment process.Issue 3: Violation of Principles of Natural JusticeRelevant Legal Framework and Precedents: The principles of natural justice require that an assessee be given an opportunity to respond to a notice before an assessment is completed.Court's Interpretation and Reasoning: The court found that the assessee was not given adequate time to respond to the notice, violating natural justice principles.Key Evidence and Findings: The notice was served on 4.12.2018, and the assessment was completed on 6.12.2018, without allowing the 30-day response period.Application of Law to Facts: The court concluded that the rapid completion of the assessment without allowing the response period violated natural justice.Treatment of Competing Arguments: The Revenue's defense of the assessment process was rejected due to clear procedural violations.Conclusions: The assessment was void due to the violation of natural justice principles.Issue 4: Mechanical Approval under Section 151Relevant Legal Framework and Precedents: Approval under Section 151 must be based on a careful examination of the reasons for reopening the assessment.Court's Interpretation and Reasoning: The court found that the approval was granted mechanically, without proper consideration of the reasons recorded by the Assessing Officer.Key Evidence and Findings: The approval was given on a prefilled standard format, lacking substantive reasoning.Application of Law to Facts: The court determined that the mechanical approval further invalidated the assumption of jurisdiction.Treatment of Competing Arguments: The court rejected the Revenue's claim of valid approval due to lack of evidence of proper consideration.Conclusions: The mechanical approval rendered the reopening of the assessment invalid.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The service by affixture was not effected in accordance with statutory provisions, thus rendering the assumption of jurisdiction void.'Core principles established: Proper service of notice is crucial for valid jurisdiction under Section 147; service by affixture requires compliance with procedural norms; principles of natural justice must be upheld in assessment proceedings.Final determinations on each issue: The court quashed the reassessment order due to improper service of notice, violation of natural justice, and mechanical approval under Section 151.The judgment underscores the importance of adhering to procedural requirements in tax assessments and the protection of an assessee's rights under the principles of natural justice.