2025 (9) TMI 1320 - HC - Income Tax

Reassessment quashed for invalid service of s.148 notice; speed post without acknowledgment and inspector delivery invalid under s.27 and s.114(f).

Mahesh Gautam Versus Commissioner of Income Tax

HC held the reassessment invalid for lack of valid service of the s.148 notice. The court found no registered-post envelope on record and ruled speed post ... Validity of reopening of assessment - absence of service of notice issued u/s 148 by registred post - Contention of the appellant that for service of notice as per Section 282 notice should be served on the assessee personally through, post means only the registered post not the speed post - HELD THAT:- The envelope containing the notice u/s 148 sent to appellant through registered post is not available on record as on date because this court itself perused the original record which was produced before this court in pursuance of order dated 15.12.2016 even though the assessing officer as well as first appellate authority has recorded the finding that notice sent to the appellant has returned back. Service of notice u/s 148 of the Act, 1961, upon the assessee is a precondition to initiate reassessment proceedings. This being the provision of a taxing statute, it should be construed strictly. As per this definition, any system for collection, dispatching, conveyance and delivery of items by the postal network is 'post'. Regulation 2(1)(k) is being reproduced as under: '2(1)(k). 'Post' means any system for collection, clearance, sorting, dispatch, conveyance, and delivery of items by the postal network.' In view of the above mentioned definition of post, registered post or speed post, both come within the definition of post. However the procedure of sending and serving the summons issued by the court under C.P.C. includes not only sending the notice through registered post but also personal service and in absence thereof, affixing the notice at the house of assessee. However, if there is no proof of service of notice sent through post to the addressee, then the presumption of service of registered post can be invoked as per Section 27 of the Act, 1897. But for invoking the presumption of service of notice through post upon the addressee, the condition mentioned u/s 27 of the Act, 1897 should be fulfilled which requires a proper address, pre-paying and posting by registered post. Notice was sent by speed post without any acknowledgement rather than through registered post which is a fundamental requirement for service of notice upon the addressee personally. Consequently, the presumption of service u/s 27 of the Act, 1897 read with Section 114(f) of the Act, 1872 cannot be invoked in relation to the notice sent by speed post even if the envelope containing the notice u/s 148 of the Act, 1961 was not returned back. Therefore, this court decides the substantial question no.1 in favour of the appellant and concludes that there was no service of notice u/s 148 of the Act, 1961 through post upon the assessee (appellant). Failure to affix the notice at the last known address of the assessee (appellant) especially when he was not traceable at that address - Service through Income Tax Officer was attempted by the assessing officer in accordance with Part II of Section 282(i) of the Act, 1961. This is aligned with the Order V Rule 17 of Code of Civil Procedure, which requires affixation of notice when personal service is not possible. In the present case, it is not in dispute that Income Tax Officer did not affix notice at the assessee's address despite the fact that assessee was not traceable there. Therefore, service of notice through personal service as specified by Order V Rule 17 of CPC and Part II of Section 282(i) of the Act, 1961 was not validly made. Therefore, substantial question no.2 is also decided in favour of the appellant by observing the service of notice through the Income Tax Inspector was also not made upon the appellant by affixing the same on the address of the assessee in absence of personal service upon the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under Section 148 (read with Section 282) of the Income Tax Act, 1961 sent by speed post (without acknowledgement) can be treated as service by 'registered post' for invoking the presumption of service under Section 27 of the General Clauses Act, 1897 and Section 114(f) of the Indian Evidence Act, 1872. 2. Whether, where the Income Tax Inspector reports that the assessee is 'not traceable', the Assessing Officer's failure to effect affixture at the assessee's last known address (or otherwise follow the affixation procedure under Order V Rule 17 CPC / Part II of Section 282) permits initiation of reassessment proceedings under Section 147 based on presumed service. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of service by speed post; applicability of presumption under Section 27 General Clauses Act and Section 114(f) Evidence Act Legal framework: Service for initiating reassessment is a condition precedent - Section 148 requires service 'on the assessee personally'; Section 282 permits service 'by post' or as a summons under the CPC; Section 27 General Clauses Act deems service effected where a document is 'properly addressing, pre-paying and posting by registered post' unless contrary is proved; Section 114(f) Evidence Act permits drawing of a presumption in the absence of proof to the contrary. Precedent treatment: The Court considered and contrasted prior authorities including (i) a Division Bench decision holding that 'post' includes speed post (Milan Poddar) (followed liberally by some benches), (ii) decisions that treat speed post as equivalent to registered post for presumption purposes (single-judge authority on speed post), and (iii) authorities holding that registered post with acknowledgment or personal service / affixture is required for Section 148 notices (e.g., Hotline International and Madan Lal Agarwal). Interpretation and reasoning: The Court emphasized strict construction of taxing statutes and that Section 148's requirement of personal service must be read with Section 282. The term 'post' is a genus, but the statutory deeming in Section 27 explicitly refers to 'registered post' with conditions (proper addressing, pre-paying and posting by registered post). The historic rules (Indian Post Office Rules, 1933) distinguished registered post (addressee-specific, delivery on signature) and speed post (address-specific, deliverable to any person at address), and speed post lacked the mandatory acknowledgment process of registered post. At the time of the notice (2008) these distinctions applied. Therefore, speed post (without acknowledgement or proof of personal delivery) cannot be equated with registered post for the limited purpose of invoking the Section 27 deeming; the presumption under Section 27/114(f) cannot be invoked where only speed post (no registered-post formalities/acknowledgement) was used. Precedent treatment - followed/distinguished: The Court declined to follow the Division Bench view equating speed post with registered post (Milan Poddar), respectfully disagreeing on the ground that taxing provisions require strict construction and the statutory conditions of Section 27 must be satisfied in their terms (i.e., registered post formalities). The Court followed and relied on authorities (including Hotline International and Madan Lal Agarwal) that require personal service, acknowledgement or affixture where appropriate. Ratio vs. Obiter: Ratio - For purposes of deeming service under Section 27 of the General Clauses Act and applying presumptions under Section 114(f), a notice under Section 148 cannot be deemed served merely because it was sent by speed post without satisfying the registered-post conditions; strict compliance with service formalities (registered post with requisite acknowledgment or personal/affixed service) is required. Obiter - Discussion of later consolidation/changes in postal rules and future merged services (not relevant to facts) and historical observations on postal rules are explanatory. Conclusion: The Court concluded that the notice sent by speed post without acknowledgement did not satisfy the statutory prerequisites for invocation of Section 27/Section 114(f); hence the presumption of service could not be invoked on the basis that the envelope was not on record. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Requirement to affix when assessee not traceable; effect on reassessment initiation Legal framework: Section 282(1) permits service 'by post or as if it were a summons under the Code of Civil Procedure'; Order V Rule 17 CPC authorizes affixture when personal service is impracticable (e.g., refusal or inability to find the person); issuance of a valid notice under Section 148 is a condition precedent to valid reassessment under Section 147 (Madan Lal Agarwal). Precedent treatment: Hotline International (Delhi High Court) held that when personal service is not effected and the notice was not tendered to the assessee or his agent, and no affixture was attempted when required, service under Section 148 is invalid. Madan Lal Agarwal reiterated the condition precedent nature of valid service for reassessment. Interpretation and reasoning: The Court examined the factual matrix: the Income Tax Inspector reported the assessee was 'not traceable' after personal efforts, but there was no affixture at the last known address. Ordinarily, when personal service fails and the officer reports inability to locate the person, affixture per CPC Order V Rule 17 / Part II of Section 282 is the procedural step to effect service. Absent affixture (or registered-post/acknowledgement compliance), service cannot be said to have been effected. The Tribunal's reliance on the absence of the returned envelope in record to presume service was improper given the Assessing Officer and first appellate authority had recorded return of the notice; the Tribunal failed to verify availability of envelope in record and proceeded to draw the presumption - a conclusion inconsistent with strict service requirements. Precedent treatment - followed/distinguished: The Court followed Hotline International's approach requiring affixture when personal service is not possible and Madan Lal Agarwal's principle that valid notice is condition precedent. The Court distinguished the Tribunal's conclusion which effectively bypassed the affixture requirement by invoking presumption from an absent envelope. Ratio vs. Obiter: Ratio - Where a departmental officer reports the assessee is not traceable, the Assessing Officer must take procedural steps (including affixture at last known address) required under Order V Rule 17 CPC / Section 282 before reassessment can validly proceed; mere report of non-traceability without affixture or registered-post formalities invalidates service under Section 148 and hence vitiates subsequent proceedings under Section 147. Obiter - Observations on the Tribunal's failure to check original record are factual commentary supporting the ratio. Conclusion: The Court held that affixture was not attempted though required; consequently service by the Income Tax Inspector was invalid. As valid service under Section 148 was not effected, reassessment under Section 147 could not be lawfully initiated. FINAL CONCLUSION / DISPOSITION (derived from issues) Because (a) speed post without registered-post formalities/acknowledgement does not satisfy the deeming provision of Section 27 General Clauses Act for notices under Section 148 and (b) affixture was not effected when the assessee was reported 'not traceable', the statutory prerequisites for valid service under Section 148/Section 282 were not complied with. The Tribunal's contrary finding (invoking presumptions because an envelope was not on record) was unsustainable. The order of the Tribunal insofar as it upheld reassessment for the relevant assessment year was therefore set aside.