Invalid service of notice under Section 263 leads to quashing of order due to lack of proof of proper dispatch

The ITAT Raipur held that the notice issued under section 263 was not validly served on the assessee as the department failed to provide documentary evidence of service through the prescribed mode under section 144B(6)(ii)(a). The department admitted non-service via email and could not prove dispatch through Dak or real-time alert on the portal. Consequently, the order passed under section 263 based on such defective notice was quashed. The tribunal allowed the assessee's appeal, affirming that proceedings initiated without valid service of notice under section 263 are unsustainable.

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ISSUES:

Whether the order passed under Section 263 of the Income Tax Act, 1961 is sustainable when the assessing officer's order is alleged to be erroneous and prejudicial to the interest of revenue due to inadequate inquiry into genuineness of unsecured loans.Whether the notice issued under Section 263 of the Income Tax Act, 1961 was validly served on the assessee in compliance with the prescribed statutory procedure.Whether the failure to provide the assessee with a valid and timely opportunity of hearing before passing the revisionary order under Section 263 renders the order null and void.

RULINGS / HOLDINGS:

On the validity of the Section 263 order: The revisionary order was passed on the ground that the Assessing Officer "failed in performing his duties" by not conducting necessary inquiries regarding the genuineness of unsecured loans, and the order was "erroneous in so far as it is prejudicial to the interest of revenue" under Explanation (2) of Section 263.On service of notice: The notice under Section 263 was uploaded on the ITBA portal but was not served through email or physical mode, and no "real time alert" was sent to the assessee, thus the service was not in accordance with the prescribed mode under Section 144B(6)(ii)(a) of the Income Tax Act.On opportunity of hearing: Since the notice was not validly served, the assessee was deprived of the mandatory "opportunity of hearing" under Section 263, making the revisionary order "null and void ab initio."Consequently, the order passed under Section 263 without valid service of notice and without providing opportunity of hearing is liable to be quashed.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, specifically Sections 263, 144B(6)(ii)(a), and Explanation (2) of Section 263, along with procedural requirements under Section 282 and Rule 127 of the Income Tax Rules for valid service of notices.The Court relied heavily on the judgment of the Hon'ble Delhi High Court in Suman Jeet Agrawal & Ors. vs. Income Tax Officer & Ors., which clarified that mere uploading of notices on the e-filing portal without sending a "real time alert" or serving through prescribed modes does not constitute valid service under the Act.The Court noted the absence of any documentary proof or dispatch register from the revenue to establish valid service of notice, and the assessee's affidavit denying receipt of any such notice or real time alert.The Court emphasized that providing the assessee with an opportunity of hearing before passing a revisionary order under Section 263 is a "mandatory requirement under the settled principle of law."Following the principle that invalid service of notice equates to "no due despatch," the Court held that the revisionary order under Section 263 is unsustainable and must be quashed.No further adjudication on the merits of the revisionary order was undertaken due to the fundamental procedural defect in service of notice.

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