ORDER
S.V. Mehrotra, Accountant Member
1. The cross appeals filed by the assessee as well as by the Department for assessment years 1995-96 and 1996-97 are directed against separate orders of the ld. CIT(A)-II, Lucknow, dated 20.12.2004. As the issues involved are common in both the assessment years, the same are being disposed off by this composite order. First we will take up the appeal filed by the assessee for assessment year 1995-96.
2. At the outset, it may be pointed out that these appeals are being disposed off in pursuance of the direction of the Hon’ble Allahabad High Court as submitted at the bar by the ld. Counsel that direction was issued by the Hon’ble High Court for deciding the appeals within 15 days. No certified copy of the direction of the Hon’ble Court has been filed either by the assessee or by the Department, but a letter from Ld. Standing Counsel of the Department in High Court has been filed by the Department which reads as under:
D.D. Chopra Chopra Bhawan
Advocate B-140, Sector C
Senior Standing Counsel Mahanagar, Lucknow-6
Income Tax Department Tel. Off 2321330 Res. 2320813
1-2-07
To.
The Sr. D.R
I.T.A.T
Income Tax Departt.
Lucknow
Sub: W.P. No. 551 of 2007 and 554 of 2007 (M.B)
Anil Kumal Goyal v. ITAT, Lko and Ors.
Dear Sir,
By interim order dated 25.1.07, the Hon’ble Court has been pleased to inter alia direct the learned ITAT to decide the appeals preferred by the petitioner on the next date of hearing (31.1.07) and if not possible within two(2) weeks thereafter and till the appeals are disposed of by the Tribunal, the Respondent No. 2 to 4 shall not take any coercive action against the petitioner on the basis of order dated 11.10.06 and 27.12.2006 and notices dated 4.1.07 and 8.1.07.
I have already applied for the copy of the order and the same is likely to be issued on 2.2.07. In the absence of order of the Hon’ble Court you may inform the learned ITAT to comply with the above orders of the Hon’ble court.
Yours sincerely,
Sd/-
Advocate
3. In deference with these directions we proceed to decide these appeals.
4. Brief facts of the case are that the assessee, in the relevant assessment year, apart from other business activities, had been carrying on the business of development of real estate in the name of his proprietary concern, M/s Agarwal Builders. In the relevant assessment year, the development activities were in progress in relation to Gomti Plaza and Jagat Complex. The relevant particulars as per statement of facts filed before the ld. CIT(A), are as under:
(a) Gomti Plaza : It was conceived as a commercial complex
consisting of shopping centre at Basement,
Ground and First Floors; offices at Second
and Third floors.
(b) Jagat Complex : It was proposed to be set up at 80/17,
Gurdwara Road, Naka Hindola, Lucknow,
as per Builders' Agreement.
5. Relying on the accounting standards laid down by the Institute of Chartered Accountants of India, the assessee had not any profit/loss as the projects were under progress. Prior to the said activities, the assessee had been carrying on the business of dealing in Ralllis Fans in his proprietary concern named as “Goel Electric Co.(Agencies)” from a different address known as 21-A, Pratap Market, Aminabad, Lucknow. However, owing to closure of the manufacturing activities of the said company, the business of the proprietary concern of the assessee also got suspended and the stocks thereof were disposed off during the previous year relevant to assessment year 1995-96. The profit earned from this business was disclosed as business income of the assessee. In addition, the assessee had been a partner in a partnership firm known as “Goel Eelctric Works” from where he had drawn salary as working partner, share in profit apart. The assessee filed his return under Section 139 of the Act showing income of Rs. 1,06,220/- on 31.10.1995 which was duly processed under Section 143(1)(a) of the Act. The notice Under Section 148 was issued on 20.3.2002 after recording reasons on 18.3.2002. The first ground raised by the assessee in this appeal reads as under:
1. On the undernoted facts and in law the learned CIT(A) was not justified in confirming the action of the AO in initiating proceedings us 148 in the present case:
a) Because the notice Under Section 148 was not served on the appellant.
b) Because the ld. CIT(A) ignored the contents of the affidavit filed by the appellant.
c) Because the appellant had raised the objection regarding non service of notice before the AO in assessment proceedings.
6. Since this issue goes to the root of proceedings, we proceed to decide it first. A photocopy of notice under Section 148 of the Act dated 20.3.2002 is contained at page 11 of Paper Book on which there is endorsement regarding receipt of notice on 26.3.2002. The assessee’s basic contention is that this notice was not served on assessee or any Authorized Representative of the assessee. The plea is that this notice was never received by assessee. This plea was taken before the ld. CIT(A) vide Ground No. 3 which reads as under:
3. Because subsequent to the recording of reasons, issuance of a valid notice and service thereof are the conditions precedent, and in the absence of such a notice being issued and served on the appellant (as is the case here) there is no assumption of jurisdiction by the learned Assessing Officer to pass assessment order under Section 147 and consequently the order dated 31st March, 2003 is wholly without jurisdiction.
7. It was pleaded that the assessment is void ab initio in the absence of valid service of notice on assessee or any of his Authorized Representative. The ld. CIT(A) observed that a statement on oath by one Shri A.K.Sehgal, ITI, dated 16.7.2003 is on record in which he has stated that he had served the alleged notice under section 148 of the Act on 26.3.2002 to persons at the shop of M/s Goel Electric Co. Works situated at 51, Gautam Budh Marg, Lucknow. It has further been stated that the person to whom the notice had been handed over by Shri A.K.Sehgal was supposed to be looking after the shop at that time. The assessee’s contention is that even by this statement of Shri A.K.Sehgal it is not established that the notice was served on the assessee or on a person authorized to receive the notice on behalf of Shri Anil Kumar Goel, the assessee. The ld. CIT(A) rejected this ground of appeal by observing as under:
3.4 The appellant has filed a letter dated 26.12.2002 during the assessment proceedings an stated that the return filed on 31.10.95 may be treated in compliance to notice Under Section 148 of IT Act, 1961. Thus, it is clear that the notice Under Section 148 was served on appellant or his authorized representative, therefore, he has filed letter dated 26.12.2002 with the assessing Officer to treat the return filed on 31.10.95 in compliance of notice Under Section 148. The appellant has never raised this objection during the assessment proceedings that the notice Under Section 148 has not been served on the appellant or his authorized representative, the appellant has raised objection only for initiating action Under Section 147 on the basis of DVO’s report which has already been dealt with by the Assessing Officer.
3.5 The appellant has participated in the assessment proceedings and question of service never raised in assessment proceedings, thus the same cannot be raised afterwards. The reliance has been placed on the following decisions:
1) CIT v. Bhanji Kanji Shop 68 ITR 416
2) Gunurpur Truck Operators Union v. ITO 89 ITD 89 (Jodhpur ITAT)
3) Ramnivas Hanuman Bux v. ITO 37 ITR 329 (Bom.)
4) ITO v. Suhel Atiq 89 ITD 489 (ITAT Delhi)
5) DR. H Rai v. CIT 145 ITR 809 (M.P High Court)
6) 66 ITR 147
7) 103 ITR 688
Thus, the Assessing Officer has validly completed assessment Under Section 148/143(3) as the appellant has filed return in response to notice Under Section 148 and participated in the assessment proceedings without protest, hence any objection in this regard in appellate proceedings is after thought and not acceptable. The case, laws cited by the appellant are distinguishable on fact as in none of the cases, the appellant filed his return in response of notice which was not validly served on them. The ground of appeal No. 4 [Ground No. 3] raised by the appellant has no force, hence rejected.
8. From the aforementioned findings of the ld. CIT(A), it is evident that he has primarily inferred the service of notice on assessee or his AuthorizedRepresentative on account of participation of assessee in the proceedings.The ld. counsel for the assessee referred to page 48 of the Paper Bookwherein the order dated 28.3.2003 of AO passed on objections of theassessee regarding initiation of proceedings under Section 148 and thescope of enquiry on 24.3.2003 is contained. The ld. Counsel referred to thefollowing passage from the order and pointed out that AO had not decidedthis issue though a specific objection had been raised in this regard.
At the outset, it is to be noticed that the notice Under Section 148 in the instant case was served on the assessee on 26.3.2002. The assessee has not raised a single objection of any type ever before. It is for the first time that the objections have been raised on 24.3.2003. The assessment proceedings are to be completed by 31.3.2003. Thus, it can be seen that a very short period of only 5 working days are available for deciding the objections and completing the assessment. However, I leave it to the assessee to explain it at any later stage why and with what intentions he has raised the objection at such a late stage. With these comments I now proceed to decide the objections as under.
9. In order to further substantiate his argument, the ld. Counsel referred to page 4 of the Paper Book wherein the order sheet dated 24.3.2003 before the AO is contained, in which, it is stated as under:
24.3.03: Shri S.K. Bansal, Advocate attended alongwith Shri Anil Kr. Goel. Filed written reply. Produced books of a/c and vouchers which were examined. He was required to furnish the explanation on the following points:
(a) You have never made any objection against limitation of proceedings Under Section 147 but in today’s reply you have sated that you have been contending that the very intimation of proceedings Under Section 147 is not valid. Why it is so?
10. Thereafter, the ld. Counsel referred to page 46 of the Paper Book wherein the letter dated 27.3.2003 addressed to the IT0-IV(4) is contained para 2 of which reads as under:
2. In this regard, detailed submissions have separately been made before the learned Joint Commissioner of Income-tax, Range-IV. Lucknow, under Section 144A, following by supplementary submissions (filed at the time of hearing before her on 26th March, 2003). Before her, it has also been contended without prejudice to the preliminary objection about the very validity of initiation of proceedings under Section 147 and issuance and service of notice under Section 148, that excepting the alleged under statement of investment in construction of two complexes, no other issues could be validly raised in these proceedings. I am sanguine that justice shall be done to me and the learned Joint Commissioner of Income-tax, Range–IV, Lucknow shall be pleased to issue directions, to drop the proceedings.
11. With reference to these documents, the ld. Counsel submitted that objection had been raised in regard to service of notice before the AO but, he has not decided the issue as noted earlier.
12. The ld. Counsel further pointed out that assessee does not have copy of notice. He further referred to page 10 of the Paper Book wherein thestatement on oath of Shri A.K. Sehgal, ITI, s/o Shri R.K. Sehgal, aged 44years, recorded on 16.7.2003 in connection with service of notice underSection 148 is contained. He pointed out that this statement has been takenfrom the ITI by the ITO after three months of the date of assessment orderwhich was in pursuance of enquiry made by the ld. CIT(A) in course ofappellate proceedings. He pointed out that no opportunity to cross examinethe ITI was afforded to the assessee. The ld. Counsel submitted that thestatement of ITI has been given before the ITO and therefore, it is primarilya unilateral statement which at best can be said to be a self-servinginformation. He submitted that the ITI also in his statement clearly statedthat the notice was served on a person present at the shop who was lookingalter the work at the shop. However, the person on whom the service hadbeen effected has not been identified. The ld. Counsel referred to Section282 of the Act and pointed out that service of notice should be either onassessee or on Authorized Representative. He pointed out that as per Sub-section (1) of Section 282, the notice is to be served on the person thereinnamed either by post or in the same manner in which summons issued by acourt under the Code of Civil Procedure, 1908, are to be served. In thisregard, the ld. Counsel pointed out that Rule 10 to 18 of Code of CivilProcedure deals with mode of service of notice. He referred to the orderdated 31.5.2005 of ITAT in the case of Dy. CIT v. Kunj Behari Pandey inI.T.A. No. 631/Luc/01 for assessment year 1996-97 and pointed out that inthis case since the ld. D.R. failed to establish who was the person whoaccepted the notice, the Tribunal quashed the assessment order, inter alia,observing in para 7 as under:
7. …During the curse of hearing, the ld. DR has filed the photocopies of some documents suggesting that on all the notices issued by the AO the same person has acknowledged various letters of the Department who has acknowledged the notice Under Section 148. However, on our query, he failed to establish who is this person….
13. The ld. Counsel further referred to page 12 of the Paper Book wherein the affidavit of Shri Anil Kumar Goel dated 10.10.2003 filed before the ld. CIT(A) is contained. As the contents of this affidavit are material for deciding this issue, we reproduce the same:
I, Anil Goel aged about 42 years son of Sri Anand Swaroop Agarwal, resident of Ruby House Compound, Model House, Lucknow do hereby solemnly affirm and state on oath as under:
1. That the deponent is the proprietor of the firm M/s Agarwal Builders and partner in the firm M/s Goel Electric Works, 51, Gautam Bud Marg, Lucknow and is fully conversant with the facts and nature of business.
2. That all notices for the A.Y 1997-1998, 1998-99, 1996-1997, A.Y 95-96 have always been received by the deponent on one or two occasions by the deponent counsel Sri S.K.Bansal Advocate (for the A.Y 97-98 & 98-99).
3. That no notice Under Section 148 of the Income Tax Act, 1961 for the A.Y 95-96 and 96-97 has been served on the deponent.
4. That all notices issued by the Income Tax Department in respect of A.Y 95-96 & 96-97 were received by the department himself.
5. That before and after the date 26.3.2002 all notices have been received by the deponent.
6. That on dates 15.03.2002, 18.03.2002, 21.03.2002, 22.03.2002, 26.03.2002, on 27.03.2002 in connection with the as the deponent was himself present before the learned Assessing authority and the learned assessing authority could easily have served the notice Under Section 148 of the Income Tax act, 1961 on the deponent instead of allegedly sending his inspector to the place 51, G.B Marg, Lucknow for the A.Y 95-96 & 96-97 on dated 26.3.2002.
7. That the Inspector namely Sri A.K. Seghal served the notice Under Section 148 of the Income Tax Act 1961 dated 20.03.2002 on the person alleged to be the employee of the deponent without asking the name of the person or his authority while such alleged person was never the employee of the deponent.
8. That at 51, G.B. Marg, Lucknow two other firms are running their business viz M/s Goel Electric Company under the proprietorship of Sri Ajay Kumar Agarwal and M/s Goel Trading Company under the proprietorship of Sri Arun Kumar Goel, (the deponent’s brother) it is also not clear on whom the inspector of Income Tax served the notice, neither r his name was asked nor the firm’s name was asked, nor where such alleged person was working.
14. The ld. Counsel submitted that the contents of this affidavit have not been controverted by the Department and therefore, the same stand duly accepted by the Department. In this regard, he relied on the decision of the Hon’ble Supreme Court in the case of Mehta Parekh & Co v. CIT 30 ITR 181 wherein it was, inter alia, held as under:
(ii) as the cash book of the appellants was accepted, and the entries therein were not challenged, and neither further accounts nor vouchers were called for, and the persons who gave the affidavit’s were not cross-examined, it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made in the affidavits;
The ld. Counsel referred to the order sheet for assessment year 1997-98 arid 1998-99 contained from pages 14 to 23 of the Paper Book and referred to page 18 of the Paper Book wherein the order sheet entry noting dated 26.03.2002 is contained to point out that assessee Shri Anil Kumar Goel appeared before the AO on the said date as is evident from the order sheet and therefore, notice under section 148 could be served on the assessee himself on 26.3.2002.
15. The ld. Counsel further pointed out that both the AO as well as the ld. CIT(A) have not passed speaking order on this issue. He further submitted that the ld. CIT(A) has wrongly observed that assessee participated in pursuance of proceedings under section 148. In this regard, he referred to page 6 of the Paper Book wherein the letter dated 21.11.2002 is contained in which it was enquired from the assessee as to why no return had been filed in response to the notice under Section 148. He referred to page 7 of the Paper Book wherein the reply dated 26.12.2002 of assessee is contained and pointed out that this letter was filed with reference to the queries and notice under Section 142(1) and 143(2) of the Act and in that reply it was submitted that the return filed on 31.10.1995 may be treated as return filed in response to notice under Section 148.
16. The ld. Counsel further referred to page 1 of the Paper Book wherein the copy of order sheet is contained and pointed out that on 21.11.2002 the notice Under Section 142(1) had been issued and in response to that notice assessee attended on 26.12.2002.
17. With reference to these documents, the ld. Counsel pleaded that letter dated 26.12.2002 cannot be construed as a reply in response to notice under Section 148. It is only against notice Under Section 142(1) dated 21.11.2002 which was accepted by the AO in order shekel entry dated 26.12.2002. Order sheet entry dated 26.12.2002 is reproduced below:
26.12.2002 Sri Anil Kr. Goal attended alongwith Sri
S.K. Bansal, Advocate. Furnished written
reply giving answers to query No. 1 of the
notice dated 21.11.2002....
18. After referring to all the factual aspects, the ld. Counsel relied on the following case laws in support of his contention that if notice has not beenserved on assessee or his duly authorized representative, being a conditionprecedent for passing the assessment order, then by mere participation inthe proceedings, the assessment cannot be validated. In this regard hereferred to following case laws which we shall discuss later on:
R.K. Upadhyaya v. Shanabhai P. Patel 166 ITR 163 (S.C) Addl. CIT v. Prem Kumar Rastogi 124 ITR 381 (Alld.) Laxmi Narain Anand Prakash v. 1980(ST2)-GJX-011-ALL Commissioner of Sales Tax Bhagwan Devi Saraogi and Ors. v. 118 ITR 906 (Cal) ITO ITO v. Bal Govind Singh 2004(4) MTC 1101 (All) Gorakhpur Petro Oils Ltd v. I.T.A. No. 1951/Alld/1996 Addl. CIT Chandra Agencies v. ITO 89 ITD 1 (Del) Duli Chand Laxmi Narain v. ACIT 89 ITD 426 (Del) Hind book House v. ITO 92 ITD 415
19. The ld. DR submitted that the objective of notice is to provide opportunity to assessee to represent his case. He submitted that since the assessee participated in the proceedings, no prejudice is caused to the assessee. The ld. DR referred to the Department’s Paper Book for assessment year 1995-96 which contains the order sheet starting from 20.3.2002 for issuance of notice under section 148. The ld. DR pointed out with reference to this order sheet that assessee as well as his Authorized Representative attended the proceedings on various dates and filed return in pursuance of notice under section 148 and also filed applications for adjournment. In this regard, he referred to page 9 of the Paper Book wherein the Power of Attorney in the name of Shri Sushil Kumar Bansal, Advocate is contained and he referred to page 10 to 13 of the Paper Book wherein the copies of letters of authorized representative of assessee seeking adjournments are contained. Thereafter, he referred to page 17 of the Paper Book wherein copy of notice under Section 142(1) of the Act dated 13.3.2003 alongwith detailed questionnaire issued to the assessee is contained.
20. The ld. DR submitted that service of notice should be seen in substance and in conformity with the provisions of Act, He submitted that when the very object of notice i.e providing opportunity to the assessee, has been achieved on account of participation of assessee in the proceedings, then the issue of service of notice is a legally and factually untenable technicality on which assessee is harping upon. He submitted that service of notice is only contentious but nevertheless it has been duly attended. The ld. DR referred to page 36 and 37of the Paper Book wherein the order Under Section 144A of the Act of Addl. CIT, Range IV is contained and pointed out that proper challenge to jurisdiction was not there. The ld. DR further submitted that whenever a person goes with the notice he faces practical difficulty when assessee is not found. It is impossible to identify people. He submitted that ITI is a responsible person under Section 116 of the Act and therefore, his statement, being of a Government Official, should be taken as correct. In regard to various case laws relied upon by the ld. counsel for the assessee, he referred to the decision of the Hon’ble Calcutta High Court in the case of Hindusthan Tea Trading Co. Ltd v. CIT 263 1TR 289, in which it was held that a decision becomes binding as a precedent only when the court decides a particular question of law or lays down the ratio through conscious adjudication. Agreement with the finding of the fact without adverting to the ratio laid down does not create a precedent. The ld. DR further submitted that interpretation of judicial decision takes its colour from the facts in the context on which it was delivered. He further submitted that if it is true that facts take colour from their context then it is also true that interpretation of judicial ratios too must take colour from the context in which delivered. He further submitted that if literal interpretation of a judicial ruling apparently defeats the scope, intent and purpose of a legislation, it is supposed to be interpreted in a liberal and meaningful manner so as to uphold the letter and spirit of law. The ld. DR further referred to the Hon’ble Allahabad High Court decision in the case of Hindustan Transport Co. v. Inspecting Assistant CIT 189 ITR 326, to submit that objection to jurisdiction cannot be raised after completion of assessment. He also referred to Section 124(3) to submit that objection to jurisdiction is time barred. The ld. DR. further referred to following case laws in support of his proposition tat service of notice on unauthorized persons does not invalidate the assessment proceedings:
Mahendra Kumar Agrawalla v. ITO and Ors. 103 ITR 688 (Pat) CIT v. Bhanji Kanji's Shop 68 ITR 416 (Guj.) Dr. H.R. Rai v. CIT 145 ITR 809 (M.P) ITO v. Shahid Atiq 89 ITD 489 (Delhi) Birla Cotton Spinning & Weaving Mills 46 ITR 236 Ltd v. ITO 209 ITR 434 (Raj.) M/s K.C Tiwari & Sons v. CIT 156 ITR 239 (Bom.) Sumerpur Truck Operators Union v. 89 ITD 89 ITO
21. The ld. DR referred to pages 54 and 55 of the Paper Book wherein the copy of order sheet noting of proceedings before the ld. CIT(A) in thecase of assessee for assessment years 1995-96 and 1996-97 are containedand pointed out that a statement of ITT was recorded in pursuance ofdirections of ld. CIT(A). In this regard, he referred to order sheet entrydated 8.7.2003 before ld. CIT (Appeals), Sl. No. 4 of which reads as under:
8.7.2003….
The Statement of Sri A.K. Sehgal for service of notice may related for 148 and submitted before the next hearing.
22. The ld. Counsel, in the rejoinder, submitted that it has been accepted by the Department that they could not identify the person on whom the notice has been served. The ld. Counsel advanced his arguments with reference to the decision relied on by the ld. DR and distinguished the same particularly on the ground that none of the decision was of Hon’ble Jurisdictional High Court.
23. We have considered the rival submissions and have perused the record of the case. It is not disputed that the notice under section 148 has not been served on the assessee. As per the statement of ITI, contained at page 10 of the Paper Book which was recorded in pursuance of the directions of the ld. CIT(A) dated 8.7.2003, the notice was served on a person working at the shop. It is not disputed that the business carried on at the shop was of a firm and it was not the proprietorship business of the assessee. Before dealing on the issue of service of notice, we will first deal with the pleadings of ld. Counsel for the assessee that participation in proceedings was not in pursuance of notice under Section 148. The contention of assessee is that on 21.11.2002 notice under Section 142(1) had been issued and the next date fixed for hearing was 2.12.2002. The ld. Counsel has; referred to the contents of this notice contained at page 6 of the Paper Book and has submitted that in this notice the assessee was required to furnish explanation as to why no return had been filed in response to the notice under Section 148. The contention is that the letter filed on 26.12.2002 was in reply to order sheet entry dated 21.11.2002 noted above in which the assessee has stated that the return filed on 31.10.1995 be treated as return filed in response to notice under Section 148. In this regard, he has referred to the order sheet entry dated 26.12.2002 which was noted earlier. We are unable to accept this contention of assessee on perusal of the entire order sheet. As per the order sheet contained at pages 1 to 5 of the Paper Book it is evident that on 20.3.2002, the notice had been issued under Section 148 as per record. Thereafter, on various dates directions have been issued for issuance of notice 142(1)/143(2). Therefore, it cannot be accepted that notice Under Section 142(1) dated 21.11.2002 was issued dehors the proceedings in pursuance of notice under Section 148 dated 20.3.2002. We are, therefore, not inclined to accept the assessee’s plea that there was no participation in the proceedings under Section 148.
24. Now coming to the main issue regarding service of notice under Section 148. We find that there are two school of thoughts on this issue.The first school of thought clearly holds that if notice is not served as perthe requirements of law then the proceedings would be void ab initio. Thesecond school of thought holds that if there is participation in theproceedings then it is purely an irregular exercise of jurisdiction, but theassessment proceedings cannot be invalidated. The ld. Counsel hasnaturally relied on the decisions rendered by first school of thought and theld. DR relied on the decisions relied upon by second school of thought. First we will deal with the case laws relied upon by the ld. counsel for the assessee and also some other relevant decisions in this regard:
25. In the case of Sivagaminatha Moopanar & Sons v. CIT 52 ITR 625 [Madras], it was held that notice giving less time than prescribed by law is not a valid notice under section 34 and participation of the asscssee is not relevant.
26. Hon’ble Supreme Court in the case of Y. Narayana Chetty and Anr. v. ITO 35 ITR 388: In this case it was held that the notice prescribed by Section 34 of the Income-tax Act, 1961 for the purposes of initiating re-assessment proceedings is not a mere procedural requirement; the service of prescribed notice on the asscssee is a’condition precedent to the validity of any re-assessment made Under Section 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void.
27. R.K. Upadhyaya v. Shanabhai P. Patel 166 ITR 163 – In this case it was inter alia, held that service, under the new Act, is not a condition precedent to conferment of jurisdiction on the ITO; it is a condition precedent only to the making of the order of assessment. The contention of ld. Counsel is that since valid assessment order could not be passed without proper service of notice, therefore, the assessment order is bad in law. In this regard ld. Counsel has relied on following observations of Honble S.C. at page 165:
The mandate of Section 148(1) is that reassessment shall not be made until there has been service.
28. Addl. CIT v. Prem Kumar Rastogi 124 I 381 – In this case, the Hon’ble Allahabad High Court has held as under:
A person who is not an authorized agent of the assessee or an agent or manager personally carrying on the assessee’s business or an adult member of his family but who has merely accepted notices in the past on his behalf cannot be deemed or treated to be an authorized agent of the assessee and service on him of the assessment order of the assessee is not valid.
Relying on this decision, the contention of learned Counsel is that if the notice is not served on the assessee, who is named in the notice, the service is not proper and hence the officer will not acquire a legal or valid
29. Laxmi Narain Anand Prakash v. Commisioner of Sales Tax 190 (ST2)-GJX-011-ALL – [Full Bench]. In this case, the question before the Hon’ble Allahabad High Qourt was as under:
Whether, under these circumstances, the service of notice under Section 21 of the U.P Sales Tax Act on a stranger would be deemed to have been properly and validly effected on the petitioner and the learned Sales Tax Officer would acquire the jurisdiction to finalise the proceedings under Section 21 under the circumstances of the case?
30. Section 21 of the UP Sales Tax Act reads as under:
21. (1) If the assessing authority has reason to believe that the whole or any part of the turnover of a dealer, for any assessment year or part thereof has escaped assessment to tax or has been under-assessed or has been assessed to tax at a rate lower than that at which it is assessable under this act, or any deductions or exemptions have been wrongly allowed in respect thereof the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or reassess the dealer or lax according to law;
Provided that the lax shall be charged the rate at which it would have been charged had the turnover not escaped assessment, or full assessment, as the case may be.
(2) No order of assessment under Sub-section (1) or under any other provision of this Act shall be made for any assessment year after the expiry of for years from the end of such year.
31. Sub-section (2) of Section 148 of the Income-tax Act, dealing with issue of notice where income has escaped assessment reads as under:
148(1) …
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
32. Thus, Section 21 of the U.P Sales Tax Act is in pari materia with Section 148 of the Income-tax Act, 1961 and therefore, this decision is squarely on the issue under consideration. In this case, the plea of the ld. Standing Counsel before the Hon’ble court was that since the assessee appeared, even though after expiry of limitation and participated in the proceedings, he could not challenge it for want of notice. The learned standing counsel relied on Kalpanath Singh Suresh Saidpur v. Commissioner of Sales Tax 1978 U.P.T.C. 1 wherein it was held that service was invalid but on the question whether knowledge of proceedings had the effect of vitiating the procedure, it was held that the assessee was estopped. In order to decide the correctness of this decision, the Full Bench had been constituted. In this case, notice was served on one Shri Om Prakash, who had no concern with the assessee’s firm. We reproduce here-in-below some important passages from the judgment:
In view of these authorities it cannot be disputed that no proceedings could be initiated without issue and service of notice. Service of a notice for purpose of initiating proceedings under Section 21 is not a mere procedural requirement but is a condition precedent. If no notice is issued or the notice issued is shown to be invalid or no notice has been served on the dealer the proceedings and the consequential order under Section 21 will be illegal and void irrespective of the fact that the dealer gets knowledge of the proceedings under Section 21. The words “after issuing” also do not make any difference as it has been held to mean the entire process of sending the notice and serving it. In Banarsi Debi v. Income-tax Officer , at page 108, it was observed by the Supreme Court:
To summarize: The clear intention of the legislature is to save the validity of the notice as well as the assessment from an attack on the ground that the notice was given beyond the prescribed period. That intention would be effectuated if the wider meaning is given to the expression ‘issued’. The dictionary meaning of the expression ‘issued’ takes in the entire process of sending the notice as well as the service thereof. The said word used in Section 34(1) of the act itself was interpreted by courts to mean ‘served’. The limited meaning, namely, ‘sent’ will exclude from the operation of the provision a class of cases and introduce anomalies. In the circumstances, by interpretation, we accept the wider meaning the word ‘issued’ bears.
It cannot, therefore, be said that mere issue of notice was sufficient. The jurisdiction to proceed under Section 21 could be exercised only if the condition precedent was satisfied and notice for assessment or re-assessment under Section 21 was not only issued but validly served on the assessee. To this extent there appears to be no difficulty and even the Division Bench held that if a notice is not served properly then such service is invalid and contrary to law. It, however, digressed from more or less settled view and attempted to carve out a new approach by invoking the principle of estoppel in taxation proceedings. The question, therefore, that boils down for consideration is whether by participation of an assessee the invalidity of notice was cured and the assessing authority was clothed with jurisdiction to proceed under Section 21.
Jurisdiction is understood as the authority or power of a court or tribunal to entertain and decide in any judicial or quasi-judicial proceeding. It may be territorial, pecuniary, personal, local, etc., whatever form it may assume but it is firmly established that where a court or tribunal has no jurisdiction, no amount of consent, acquiescence or waiver can create it. It was held as far back as 1887 by the Privy Council in Ledgard v. Bull [1887] I.L.R. 9 All, 191 at 203 (P.C):
Reliance was placed by the learned standing counsel on Section 6 of the act, which is analogous to Section 21 of the Civil Procedure Code and debars an assessee from rising question of jurisdiction in appeal or revision. From this it was argued that once an assessee participates he cannot turn round and challenge the jurisdiction. This, according to the learned Counsel, was the legislative recognition of the principle of estoppel even in taxation proceedings. The argument is correct but partially. The bar created by Section 6 is in respect of territorial and pecuniary jurisdiction only. The jurisdiction exercised under Section 21 without service of notice is neither territorial nor pecuniary. It is a jurisdiction which pertains to the subject-matter and if no proceedings could be taken without issue, and service of notice then the assessing authority could not assume jurisdiction only because the assessee consented or participated in the proceedings. In Commissioner of Income-tax v. Thayaballi Mulla Jeevaji it was held by the Supreme’Court:
Service of the notice under Section 34(1)(a) within the period of limitation being a condition precedent to the exercise of jurisdiction, if the income-tax Officer is unable to prove that the notice was duly served upon the assessee within the prescribed period, any return filed by the assessee after the expiry of that period will not invest the Income-tax Officer with authority to reassess the income of the assessee pursuant to such a return.
In Mir Iqbal Hussain v. State of U.P , it has been held by this Court:
Even though an assessee filed the return in pursuance of a notice yet he can challenge the validity.
In Asit Kumar Ghosh v. Commissioner of Income-tax , it was held:
I do not, however, see how if the Act does not authorize the assessment of the assessee for the i’ndome which had neither been received by him nor received by the executors on his behalf, there could be an estoppel against the statute. Estoppel is only a rule of evidence and not a cause of action. In any event, estoppel is not a basis of liability to assessment under the Indian Income-tax Act, and, therefore, the assessment of a person for an amount of income to which he is a stranger cannot be based on the ground that he himself wanted to be assessed on it.
In the result, this revision succeeds and is allowed. The question of law raised by the assessee it decided by saying that the notice under Section 21 having been improperly served the initiation of proceedings was without jurisdiction and it could not be validated by participation of the assessee in the proceedings
33. In the present case, ITI has stated that he served the notice on a person managing the affairs at the shop but he has not been identified by ITI, therefore, it is almost akin to the service of notice on stranger as in the case of Laxmi Narain Anand Prakash [cited supra].
34. Bhagwan Devi Saraogi and Ors. v. ITO 118 ITR 906 [Cal] – In this case it was held that if no valid notice of re-assessment has been issued or if the notice issued is illegal or invalid, the entire re-assessment proceeding would be without jurisdiction and would be void and illegal.
35. ITAT Allahabad Bench decision in the case of ITO, Azamgarh v. Bal Govihd Singh 2004 (4) MTC 1101 – In this case it was held that no reasons had been given by the AC) for serving the notice on the minor son of the assessee and therefore, the assessment had rightly been cancelled by the ld. CIT(A).
36. Third Member decision dated 12.10.2004 in the case of Gorakhpur Petro Oils Ltd, Gorakhpur v. Adgl. CTT. in I.T.A. No. 1951/Alld/1996 – In this case one of the points of difference between the two learned Members of the Tribunal related to the validity of the notice Under Section 158BC of the Act and about its proper service. The ld. Third Member, after considering various case laws on this issue, held in para 54 as under:
54. The ratio of the above decisions had been consistent that acquiescence is not going to confer jurisdiction which otherwise is lacking from the very beginning. As observed earlier, the AO can proceed to complete assessment for block period only when he issued notice and served the same on the assessee/person who was subjected to search. In the case in hand the assessee company is admittedly subjected to search but as concluded earlier, the assessee was not served with notice. In view of these findings, the AO cannot assume jurisdiction to complete assessment for want of notice even though assessee had appeared before him and filed return belatedly and also participated in the assessment proceedings. I am in agreement with the observation of the ld. Accountant Member that procedural irregularities can be waived off by the assessee, but at the same time the conduct of the assessee in participating assessment proceedings will not be sufficient to confer the jurisdiction on the AO without service of notice on the assessee company. It was fundamental requirement to get the notice served on the assessee before proceeding to complete the assessment and as it is lacking this jurisdictional defect cannot be cured by conduct of persons on behalf of the assessee and thus assessment is liable to be quashed on this point:
37. Ld. Counsel referred to the decision of ITAT Special Bench in the case of Dyi CIT v. Oman International Bank SAOG 100 ITD 285, that sanctity of a Third Member decision and Special Bench decision is of the same nature and hence it is binding on the Tribunal.
38. ITAT Ipelhi Bench decision in the case of Chandra Agencies v. ITO 89 ITD 1. In this case, it was held as under:
19. The procedure of service through affixture has already been discussed above, alongwith the ratio of various decisions of Supreme Court and various High Courts and after going through the provisions regarding service by affixture, we found that there is no valid service either on the assessee firm or on its partners. Therefore, the assessment completed by the assessing Officer under sc 144/148 cannot be held as valid assessment. The jurisdiction under section 148 was not properly assumed, therefore, the assessment cannot be held as valid assessment. As we have already discussed that there was no service of notice under Section 148, accordingly, there was no jurisdiction to make assessment at the end of Assessing Officer. The finding of CIT (Appeals) that one of the partners had participated in the assessment proceedings, therefore, this was $ technical irregularity in issuing notice under Section 148, cannot be sustained because once the proper jurisdiction has not been assumed, then assessment proceedings cannot be held as valid proceedings.
20. ln the case of BaradakantaMishra (supra), the Hon’ble Supreme Court has held that if the order of the initial authority is void, i an order of the appellate authority cannot make it valid. Similar view has been taken by the Hon’ble Delhi High Court in the case of S. Krishan (supra), wherein it is held that since the jurisdiction to start assessment under Section 34 depended on very service of the notice. These two ratios are squarely applipable on the facts of the present case. Jurisdiction to start assessment in response to notice under Section 148 depends upon valid service of notice under Section 148. It has been already held that no valid service of notice under Section 148 has been made on the assessee, therefore, the assessment completed cannot be held as valid assessment. In view of all these facts and circumstances, we hold that the assessment completed under Section 144/148 was not a valid assessment. Accordingly, the same is quashed.
21. Since we have quashed the assessment completed by the Assessing Officer, therefore, we are not inclined to consider the aspect of validity of initiation of proceedings under Section 147/148, that whether the initiation was proper or whether the necessary approval was validly taken or not. As stated above, the [legal ground in regard to service has been allowed by us, therefore, we are not inclined to dispose off the grounds on merits since , we have quashed the assessment itself. Therefore, the appeal of the assessee in case of firm is allowed.
39. The ratio of these judgments is that there has to be service of notice in accordance with law and mere participation in the proceedings will not validate the assessment proceedings.
40. Per contra, the ld. DR has relied on following case laws:
41. Mahendra Kumar Agrawalla v. ITO and Ors. 103 1TR 688 [Patna] -In this case it was held that though the notice under Section 148 was served on clerk, who was not authorized to receive the notices, the assessee and his brother had acted on these notices, therefore, the proceedings were not invalid for want of proper service of notice.
42. Hon’ble Gujarat High Court decision in the case of CIT v. Bhanji Kanji’s Shop 68 ITR 416 – In this case it was held that even if there is a procedural I irregularity in the service of notice of re-assessment, if the assessee admits that he had received the notice, or from the facts it can be found that he must have received the notice, the contention on behalf of such an assessee that the notice was improperly served must be rejected. Thus, it was held that a return filed by the assessee in pursuance of the notice served on his temporary employee was proper and the re-assessment proceedings were properly instituted.
43. Hon’ble M.P. High Court decision in the case of Dr. H.R. Rai v. CIT 145 ITR 809 – In this case it was held as under:
The assessee did not file his return under Section 139(1) of the I.T. Act, 1961. The ITO issued a notice under Section 148 which was not served on the assessee personally. The assessee filed his return The assessee also complied with notices under Section 142.(1) and 143(2) and participated in the assessment proceedings. The ITO completed the assessment. On appeal to the, AAC, the assessee contended that there was no proper service of notice on him and the proceedings were illegal and bad in law, as the signatures on the office copy for receipt of the notice were not his signatures and that the receipt of the notice was by a person not authorised by him. The AAC rejected the contention of the assessee on the ground that the statement of the assessee was made at a late stage. On further appeal, the Tribunal held that the notice had in fact reached the assessee and he had filed a return in compliance with it, that the assessee also complied with notice under Section 142(1) and Section143(2) and participated in the assessment proceedings without any objection, that even though the assessee might not have\been personally served with the notice and the person who received it might not have also been authorized to receive it on his behalf, yet as the notice reached the assessee and he complied with the same, the service of the notice was valid.
44. Hindustan Transport company v. IAC of Income-tax and Ors.: 189 1TR 326 (Allahabad) (Lucknow Bench):- In this case it was held with reference to Section 124(5)(a) that the right to question the jurisdiction is lost as soon as the assessment order is passed.
45. Hon’ble Rajasthan High Court – Jaipur Bench – decision in the case of Birla Cotton Spinning and Weaving Mills Ltd v. ITO 209 ITR 434 – In this case it was held as under:
The petitioner-company appeared in the assessment proceedings in pursuance of the notice issued to the two companies by the Income-tax Officer under Section 23A. Having appeared in the assessment proceedings, the petitioner-company could not complain that the assessment was illegal because of want of notice to it.
46. Hon’ble Bombay High Court decision in the case of Messrs K.C. Tiwari & Sons v. CIT – In this case it was held that even if there is a procedural irregularity in serving the notice [such as serving the notice on a manger, who has no written authority to accept service] if the assessee admits that he has received the notice and asked for adjournment, the assessee cannot subsequently be allowed to plead that there was no valid and legal service.
47. ITAT Delhi ‘SMC Bench decision in the case of ITO v. Shahid Atiq 89 1TD 489 – In this case it was held as under:
The legal heir did not raise any objection regarding the validity of the notice under Section 148 before the Assessing Officer and the assessment was completed on merits after considering various pleas raised by the legal heir against the tax liability.
Since the notice under Section 148 was served upon one of the legal heirs who did not raise the plea of illegal assumption of jurisdiction before the Assessing Officer and, on the other hand, participated in the assessment proceedings, such a plea could not be raised at the appellate stage. The legal heir filed the appeal against the order of the Assessing Officer and other legal heirs did not challenge that order.
The assessment order was passed on the legal heir of the deceased-assessee who was representing the deceased and not against the deceased person. In fact, the ratio of the decision in the case of CIT v. Jai Prakash Singh was applicable to the facts and circumstances of the instant case. Thus, the order of the Commissioner (Appeals) was set aside.
48. ITAT Jodhpur Bench decision in the case of Sumerpur Truck Operators Union v. ITO 89 ITD 89. In this case it was held as under:
It was also contended by the assessee that there was no valid service of notice under Section 148, as the same was served on its employee and referring to the provisions of Section 282 submitted that the notice “should have been addressed to the principal officer or any member of the union. Sub-section (1) of Section 282 provides for service of notice on a person therein named, either by post or as if it were a summon issued by a court under the Code of Civil Procedure, 1908. The assessee had never objected on that ground before the Assessing Officer and the assessee had been receiving notices through the employee and all the notices had voluntarily been complied with. Therefore, the service on the employee was a valid service.
49. The ratio laid in aforementioned decisions relied upon by ld. DR is that if assessee has participated in proceedings without raising any objection relating to service of notice then even if there is some procedural irregularity, that will not invalidate the assessment order. In this regard we may observe that this decision is relevant only when there is challenge to jurisdiction of AO on the ground of territorial or pecuniary jurisdiction but not when the jurisdiction on the very subject matter is in dispute.
50. From the case laws relied upon by the ld. counsel for the assessee, [particularly the decision of the Hon’ble Allahabad High Court] Full Bench in the case of Laxmi Narain Anand Prakash v. Commissioner of Sales tax, it is evident that AO assumes jurisdiction to complete the assessment only after service of a legal and valid notice in accordance with law. It is a jurisdictional matter and AO can pass assessment order only after proper and valid service of a valid notice. Merc participation in the proceedings cannot validate the assessment proceedings.
51. It is also settled law that acquiescence on the part of the assessee cannot confer jurisdiction which otherwise is lacking from the very beginning. The AO can proceed to complete assessment only after proper service of notice in accordance with law and unless such notice had duly been served, in view of the decision of the Hon’blc Allahabad High Court decision cited supra, the AO cannot be said to have been duly clothed with the jurisdiction to pass the assessment order. In this regard, we may further refer to the decision of the Jurisdictional High Court in the case of Banarasi Silk Palace v. CIT 52 ITR 220, the relevant portion of which is as under:
Sinqe jurisdiction is conferred upon an Income-tax Officer to proceed under Section 34(1) [equivalent to 147 of the Act] only if he issues a notice, an assessee cannot confer jurisdiction upon him by waiving the requirement of a notice bec$use jurisdiction cannot be conferred by consent or acquiescence. In Commissioner of Income-tax v. Ramsukh Motilal, Chidambaram Chettiar v. Commissioner of Income-tax, R.K. Das & Co. v. Commissioner of Income-tax and Commissioner of Income-tax v. Maharaja Pratap Singh it was held that the issue of a notice is a condition precedent to the exercise of jurisdiction under Section 34(1) and that there can be no waiver of it. This view was affirmed by the Supreme Court in Narayana Chetty v. Income-tax Officer.
52. Now, we will refer to relevant statutory provisions in this regard. Firstly, we refer to Sub-section (1) of Section 148 which reads as under:
148(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice a return of his income or the income of any other person in respect of which he is assessable under this Act; during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be apply accordingly as If such return were a return required to be furnished under Section 139.
53. Thus, the mandate of Section 148 is that notice should be served on the assessee. In regard to service of notice, we have to refer to Section 282. Section 282 prescribes specific mode of service of notice. This section reads as under:
282(1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908 (5 of 1908).
54. A bare reading of this section clearly indicates that the notice under this Act can be served on the person either by post or if not by post then in the same manner in which summons issued by the court under the Code of Civil Procedure, 1908 are to be served. As the service of notice in this case was through notice server of the Department and not by post, the procedure contemplated by the Code of Civil Procedure under Order V for service of summons should have been followed. Order V and III of Code of Civil Procedure are relevant in this regard and we reproduce relevant rules from the said order in order to decide whether the service had been effected in accordance with law or not.
Rule 6 of Order III is relevant to find out as to who may be appointed as agents to accept service of processes and how. That provision is as follows:
(1) Besides the recognized agents descried in Rule 2 any person residing within the jurisdiction of the court may be appointed an agent to accept service of process.
(2) Such appointment may be special or general and shall be made by an instrument in writing signed by the principal, and such instrument, or, if the appointment is general, a certified copy thereof shall be filed in court.
Rule 9(1) of Order V.
Where the defendant resides within the jurisdiction of the court in which the suit is instituted, or has an agent resident within that jurisdiction who is empowered to accept the service of the summons, the summons shall, unless the court otherwise directs, be delivered or sent to the proper office to be served by him or one of his subordinates.
Rule 12, 13, 15, 16 & 18 of Order V
12. Service to be on defendant in person when practicable, or on his agent – Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient.
13. Service on agent by whom defendant carries on business–(1) In a suit relating to any business or work against a person who does not reside within the local limits of the jurisdiction of the Court from which the summons is issued, service on any manage or agent, who, at the time of service, personally carries on such business or work for such person within such limits, shall be deemed good service.
15. Where service may be on an adult member of defendant’s family–Where in any suit the defendant is absent from his residence at the time when the service of summons is sought to be effected, on him at his residence and there is no likelihood of his being found at the residence within a reasonable time and he has no agent empowered to accept service of ht summons on his behalf service may be made on any adult member of the family, whether male or female, who is residing with him.
16. Person served to sign the acknowledgement – Where the service officer serves or tenders a copy of the summons to the defendant personally, or to an agent or to other person on his behalf, he shall require the signature of the person to whom the copy \ is so delivered or tendered to an acknowledgement of service endorsed on the original summons.
18. Endorsement of time and manner of service – The serving officer shall, in all cases in which the summons has been served under Rule 16, endorse or annex, or cause to be endorsed or annexed, on or to the original summons, a return stating the time when and the manner in which the summons was served and the name and address of the person (if any) identifying the person served and witnessing the delivery or tender of the summons.
55. From, Rule 6 of Order III reproduced above, it is evident that written authority to receive notice is necessary either by way of special or general power given in this regard. The person should have been specifically empowered to receive notice. From the analysis of the Rules reproduced above it is evident that the mandate of legislature is that as far as possible the service of summons should be effected on the person named in the notice and, if it is not possible, then the same should be effected on the person who is duly vested with the authority to receive such notice by the person named in the summon. The legislature has further provided that in order to ensure proper service of notice, acknowledgment of the person served should be obtained and person serving should also record necessary details so as to avoid any dispute in this regard.
56. It is settled law that it is the duty of the Revenue to establish that the service of an order or a notice was made on the assessee himself or on somebody duly authorized by him in that behalf. When the assessee pleads that he has not been properly served with any notice, it is for the Department to place the relevant material to substantiate the plea that the assessee was served with proper notice. In the present case, no material is on record ;to show that person allegedly looking after in shop was specifically authorized to receive notice. If notice in some way or the other reached the assessee then it cannot be treated proper service of notice since statute prescribes specific mode of service to be followed. In this regard, we reproduce below some of the case laws noticed by the ld. Third Member in the case of M/s Gorakhpur Petro Oils Ltd v. Addl. GIT [cited supra].
45. …According to the Revenue, the service of notice on the manager should be taken to be a proper or effective service as the notice had in some way or other reached the assessee. We are not inclined to agree. When the statute provides that a notice should be served in a particular mode, it is not possible to hold that there has been a proper service of notice merely from the fact that the person to whom the notice had been addressed had received the notice through some other source or that he has become aware of the contents of the notice. It has been held in Nagry Rasappa Setti v. Hamburi Venkataratnam [1913] MWN 1029 (Mad) that where the summons has not been personally served on the party but was seryed on his gumastha, it must be shown that the requirements of Order 5, 12 or Rule 13 have been complied with and thai, it cannot be assumed without further enquiry, that service on the gumastha was sufficient. In papamma Rao v. Revenue Divisional Officer AIR 1918 Mad 589, a Division Bench of this court while dealing with the manner of service contemplated by Section 45(2) of the Land Acquisition Act, which also attracts the provisions of the Code of Civil Procedure, in the matter of service of notices; expressed the view that unless a person is appointed as agent to accept service of processes by an instrument in writing signed by the principal, the service on him cannot be said to be valid. The view taken in that case was that an oral authority is not sufficient but there should be a written authority. Similar view has been taken in CIT v. Baxiram Rodmal , CIT v. Dey Brothers [1935] 3 ITR 213 (Rang) and C.N. Nataraj v. Fifth ITO . In CIT v. Baxiram Rodmal it has been held that the mere fact that a person had accepted notices on behalf of the assessee on previous occasions and appeared for the assessee would not constitute him an agent on whom a notice or requisition under the Act would be validly served nor would any statement made by him bind the assessee. In C.N. Nataraj v. Fifth ITO , the Mysore High Court took the view that the service of notice under Section 148 on a clerk of the assessee’s father who was neither an agent of the assessee nor authorized by him to accept notices on his behalf was not valid and, therefore, the assessee would not be assessed under Section 147 in pursuance of such service of notice”.
46. Another decision of the jurisdictional High Court is in the case of Addl. CIT v. Prem Kumar Rastogi 124 ITR 381 which is on the same point as involved in the case in hand. Their Lordships have observed as under:
A person who is not an authorized agent of the assessee or an agent or manager personally carrying on the assessee’s business or an adult member of his family but who has merely accepted notices in the past on his behalf cannot be deemed or treated to be an authorized agent of the assessee and service on him of the assessment order of the assessee is not valid
47. The fapts of the above referred to case before the Jurisdictional High Court were better than to the factual position of the present case, as in that case the agent who received notice on behalf pf the assessee received notice earlier also, but their Lordships concluded that that will not be proper service as he cannot be taken as authorized agent of the assessee. In the case in hand, it is not the case of the Department that Advocate who received notice on behalf of te assessee company acted as such even in the past or was authorized to receive notice on its behalf. The ratio of the above cases is fully applicable to the facts of the case and in the absence of any authorization issued by the assessee company in favour of that Advocate who received notice, the notice cannot be taken as served on the assessee company.
57. Thus, in order that there should be a valid service, the person on whom service is effected must have a valid authorization given to him in writing to receive such notice and mere implied authority will not be enough. Alternatively, if for argument sake, it is to be held that implied authority is sufficient for service of notice, then that too is not present in the present case.
58. It is also noteworthy that the person on whom the service has been effected has not duly been identified which was necessary as per Rule 18 of Order V of Code of Civil Procedure reproduced above. In the case of Chandra Agencies v. ITO 89 ITD 1 [Delhi], it was, inter alia, held that notice served by affixture on old address when new address was available with the Department was not a valid service of notice.
59. As per Order V, Rule 20, it is the duty of the Department to discharge its onus by showing that the authority concerned has reason to believe that the assessee was keeping out of the way for the purpose of avoiding service or that otherwise there were other good reasons to come to the conclusion that the summons could not be served in the ordinary way.
60. As noted above, on 26.3.2002, the assessee personally appeared before the AO and took part in the assessment proceedings for assessment years 1997-98 and 1998-99 [page 18 of the Paper Book]. When the assessee was present before the AO, notice under Section 148 could easily be served upon him. Under these circumstances, it cannot be said that there were compelling circumstances for effecting service on the person allegedly working at the shop belonging to a partnership firm in which assessee was partner which, in any view of the matter, was not in terms of the provisions of Section 282 of the I.T. Act. There was no proper service of a valid notice on the assessee and in view of the decision of the Hon’ble Allahabad High Court in the case of Laxmi Narain Anand Prakash v. Commissioner of Sales Tax [cited supra], the assessment completed in absence of a valid service is bad in law.
61. In this regard, we may further refer to the decision of the ITAT Delhi Bench in the case of Hind Book House v. ITO 92 ITD 415, wherein it was held that service of notice on a person who was employed by the assessee was not valid unless such person was authorized specifically to receive notices on behalf of the assessee and fact that such person accepted service of notices and assessee acted on such notices in past, does not enable Department to treat such person as an authorized agent of assessee.
62. Now, we will consider the Department’s objections in brief.
63. As far as the case laws are concerned, we have earlier pointed out with reference toi the case laws relied upon by the ld. counsel for the assessee as well as the ld. DR that there are clearly two school of thoughts on this issue. All the decisions relied upon by the ld. DR are of different Hon’ble High Courts except in the case of Hindustan Transport Co., which we shall consider in subsequent para. However, the decision in the case of Laxmi Nurain Ananad Prakash v. Commissioner of Sales Tax is of the Honble Allahabad High Court [Full Bench] and, therefore, that is binding on us. One more objection raised by the ld. DR. was that the decision of the Hon’ble Allahabad High Court is contrary to the view expressed by the Hon’ble Supreme Court in the case of R.K. Upadhyaya v. Shanabhai P. Patel [cited supra].
64. In this regard, we would like to refer to the argument advanced by the ld. DR. himself that judicial ratios should also take its colour from the context in which it is delivered. In the case of R.K. Upadhyaya v. Shanabhai P.Patel, the issue was that if a notice under Section 148 was issued within period of limitation but served on assessee beyond the period of limitation then whether the assessment would be valid or not. This clearly shows that the facts before the Hlon’ble Supreme Court were entirely different and even in this context also the court, inter alia, observed that Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Service, under the new Act, is not a condition precedent to conferment of jurisdiction on the Income-tax Officer; it is a condition precedent only to the making of the order of assessment. Therefore, in our opinion, the decision of 1 lon’ble Supreme Court is not applicable to the facts the case.
65. The ld. DR. has submitted that in view of the provisions of Section 124, the objection in regard to jurisdiction cannot be raised at this stage. In this regard ld. DR has relied on the decision of Hon’ble Allahabad High Court in thp case of Hindustan Transport Co. (cited supra). In this regard, we may first refer again the following observations noticed by Hon’ble Allahabad High Court in Laxmi Narain Anand Prakash’s case:
The bar created by Section 6 is in respect of territorial and pecuniary jurisdiction only. The jurisdiction exercised under Section 21 without service of notice is neither territorial nor pecuniary. It is a jurisdiction which pertains to the subject-matter and if no proceedings could be taken without issue and service of notice then the assessing authority could not assume jurisdiction
66. These observations clearly answer to the objection raised by ld. D.R.
67. The ld. Counsel has further pointed out that Section 124 primarily deals with territorial jurisdiction of the AO and not with cases where the AO lacks inherent jurisdiction to pass the assessment order on account of not following the prescription of law. We find considerable force in this argument of the ld. counsel for the assessee because Section 124 refers to the jurisdiction assigned to an AO by the Commissioner of Income-tax under Section 120(2) and it is this jurisdiction which cannot be questioned as per the provisions of Sub-section (3) of Section 124. Further, it is noticeable that challenge to jurisdiction referred to in Section 124 can be taken before AO as per Section 124(3) itself. In the present case, we find that assessee had raised the issue regarding service of notice vide his reply dated 27.3.2003 contained at page 46 of the Paper Book the contents whereof have already been reproduced earlier in which assessee had, inter alia, raised objection regarding validity of initiation of proceedings on the basis of valid service of notice, liven otherwise, this being a jurisdictional question on the subject matter per se, can be raised at any stage of proceedings and, therefore, we do not find any merit in the argument of the ld. DR. on this count.
68. In view of above discussion, respectfully following the decision of the Hon’ble Allahabad High Court in the case of Laxmi Narain Anand Prakash v. Commissioner of Sales Tax [cited supra], quashed the assessment order.
69. As we have quashed the assessment order, all the other issues raised in the appeal of the assessee as well as of the Department for assessment year 1995-96 have become infructuous. Therefore, we do not enter into the other legal issues raised in the present appeal as well as on merits of the case.
70. In the result, the appeal filed by the assessee is allowed and that of the Department for assessment year 1995-96 is dismissed as being infructuous.
71. In assessment year 1996-97, the issues raised in the appeal filed by the assessee and the Department are identical to that of assessment year 1995-96 and, therefore, in view of our above order for assessment year 1995-96, the assessee’s appeal is allowed and the Department’s appeal is being dismissed as infructuous.
72. In the result, the appeals filed by the assessee for both the assessment years viz. 1995-96 and 1996-97 are allowed and that of the Department are dismissed as being infructuous.
73. The order pronounced in the open court on 12.2.2007.