2005 (5) TMI 262 - AT - Income Tax

Tribunal Sets Aside Ex Parte Tax Assessment and Penalties; Case Remanded for Fresh Proceedings to Ensure Fair Hearing.

The Tribunal allowed all appeals, setting aside the ex parte assessment and penalties under sections 271(1)(b) and 271(1)(c) of the Income-tax Act. It ... Service Of Notice - Ex parte assessment made u/s 144 - limitation to issue statutory notice - Whether service of notice through affixture was made in accordance with law - HELD THAT:- It is evident from above observations of learned CIT(A) that notices mentioned at Sl. Nos. 1 to 6 were received back with postal comments such as 'unserved', 'No person is ready to receive', 'left'. These postal remarks lend support to the assessee's claim that firm and its partners had suffered heavy losses and were running away from the creditors. They were not available at place of their business. At any rate, Assessing Officer did not treat notices at Sl. Nos. 1 to 6 as proper service and thought it necessary to serve notice on the assessee through affixture dated 5-3-2001. The said notice is claimed to have been served on the assessee by notice server Shri Satya Singh and witnessed by Ms. Indu Rani, Inspector of Income-tax Department. As there was no response to above notice, the Assessing Officer decided to proceed ex parte against the assessee. It is clear from above that constructive knowledge of notice can be attributed to the assessee if service has been effected as provided by the Statute. All the requirements of substituted service must be shown to be fully satisfied. In the case of Ramendra Nath Ghosh [1971 (8) TMI 26 - SUPREME COURT], their Lordships also noted provisions of rule 17, Order V of the Civil Procedure Code and reproduced the same at pages 890/891 of the report. It is seen that the provision requires that names and addresses of the persons, if any, by whom the house was identified and in whose presence the copy was affixed has to be stated in the report. If above is not done and the officer does not mention in his report nor in his affidavit that he had personally knew the place of the business of the assessee, the substituted service cannot be treated as 'valid' and effected in accordance with law. Their Lordships in the decision emphasized that a service without following the procedure as laid down in the rule is not valid. Their Lordships added 'The possibility of his (processor) having gone to a wrong place cannot be ruled out'. Local persons of area where the place (house) of the person to be served is situated are to be associated for two obvious reasons. First, that the place is properly identified. Secondly, such report may not be prepared by the process server and other persons sitting in their office. Thus, we are unable to hold that service in this case was effected in accordance with statutory provisions. The report of the Process Server is witnessed by Ms. Indu Rani, the Income-tax Inspector. There is no evidence of any independent person having been associated with identification of place of business of the assessee. There is no evidence that the process server or Ms. Indu Rani had personal knowledge of place of business of the assessee and was, thus, in a position to identify the same. In the absence of above material evidence, notice dated 5-3-2001 cannot be accepted as served on the assessee in accordance with law. Constructive knowledge of the above notice cannot be attributed to the assessee. Thus, we hold that assessment made u/s 144 was bad in law. The same is required to be set aside. The Assessing Officer can issue fresh notice if so authorized under the law. The matter is restored to his file. In the result, all the three appeals are allowed in the terms stated above. Issues Involved:1. Legality of ex parte assessment under section 144 of the Income-tax Act, 1961.2. Validity of notices issued under section 143(2) of the Income-tax Act.3. Imposition of penalty under section 271(1)(b) of the Income-tax Act.4. Imposition of penalty under section 271(1)(c) of the Income-tax Act.Detailed Analysis:1. Legality of Ex Parte Assessment under Section 144 of the Income-tax Act, 1961:The main appeal, ITA No. 3146/Del./03, challenges the order of CIT(A) confirming the ex parte assessment made under section 144 of the Income-tax Act, 1961. The ex parte assessment was made due to the assessee's failure to comply with various notices issued by the Assessing Officer. The Tribunal noted that the assessee had filed a return declaring nil income, and the Assessing Officer issued multiple notices under section 143(2) which were either refused, returned unserved, or served through affixture. The Tribunal held that the ex parte proceedings were not justified as the service of notice through affixture was not in accordance with the law. The matter was remanded back to the Assessing Officer for providing a fresh and reasonable opportunity of being heard to the assessee.2. Validity of Notices Issued under Section 143(2) of the Income-tax Act:The Tribunal examined the service of notices issued by the Assessing Officer. Notices were sent to the assessee's business and residential addresses but were returned with remarks such as 'left without address' or 'no person is ready to receive it.' The final notice dated 5-3-2001 was served through affixture. The Tribunal determined that the service through affixture did not comply with the statutory provisions of Order V, Rules 17 to 20 of the Code of Civil Procedure. The report of the process server did not include the names and addresses of the persons who identified the place of business, nor did it mention that the server personally knew the place of business. Consequently, the service of notice was deemed invalid, and the ex parte assessment was set aside.3. Imposition of Penalty under Section 271(1)(b) of the Income-tax Act:The Tribunal addressed the penalty of Rs. 4,000 imposed under section 271(1)(b) for non-compliance with various notices under section 143(2). Given the circumstances and the Tribunal's decision to set aside the ex parte assessment, the penalty was found to be unjustified and was cancelled.4. Imposition of Penalty under Section 271(1)(c) of the Income-tax Act:The third appeal concerned the penalty imposed under section 271(1)(c) of the Income-tax Act. Since the assessment was set aside, the penalty under this section was also annulled. However, the Assessing Officer was granted the liberty to initiate fresh penalty proceedings in accordance with the law if warranted by the facts and circumstances.Conclusion:In conclusion, the Tribunal allowed all three appeals, setting aside the ex parte assessment and the penalties imposed under sections 271(1)(b) and 271(1)(c). The matter was remanded to the Assessing Officer for fresh proceedings, ensuring compliance with statutory provisions and providing the assessee a reasonable opportunity to be heard.