Whether a notice for reassessment once issued and accepted voluntarily, can later be challenged on technical ground - NO: HC

THE issues before the Bench are - Whether a notice for reassessment once issued and accepted voluntarily, can later be challenged on technical ground; Whether in case assessee itself is guilty of misstating facts, relief under constitutional remedy can be granted; Whether participation by assessee is sufficient for accepting the validity of a notice served and Whether a technical mistake would render any proceeding invalid per se. And the verdict goes in favour of the Revenue.

Facts of the case

Assessee is a Company engaged in the manufacturing and sale of Pan Masala. During assessment, it was informed by the Central Excise Authority that search and seizure operation was conducted by them at the business premises of the assessee and its sister concern, during which, books of accounts and other relevant documents were impounded. On the basis of incriminating material, it appears that there was a suppression of production and clandestine/ unaccounted sale. Thus, AO had issued notice u/s 148, which was duly served on the assessee. The assessment order was passed u/s 143(3)/147, where various additions were made. On appeal, CIT(A) rejected the same. On further appeal, Tribunal had remanded the matter back to AO to pass the assessment order denovo. The assessee had moved an application u/s 254 before the Tribunal, where the order was recalled for the limited purpose i.e. validity of the service of notice u/s 148. Hence, by the impugned order, Tribunal had decided the validity of notice issued u/s 148 and finally observed that since there was no valid service of notice, so, the AO does not get the jurisdiction to make the assessment.

Before HC, the revenue’s counsel had submitted that Sri O. P. Nehru, who received the notice issued u/s 148 dated 25.02.2004, at the assessee's premises was the legal officer of the assessee company and earlier, on several occasions, had received the different notices issued by the department. Being legally well versed person and considering the past record that all the notices received by him were complied with, the said person may be considered as having implied authority to receive notice. In case, had he denied or refused to receive the notice, the department had adequate time to get it served by any other alternative modes. But the objection to this effect was only raised by filing M.A. before the Tribunal. It was also submitted that ITAT had ignored that service of notice on Sri O. P. Nehru for AY 1999-2000 was sufficient under the provisions of the Order 29 Rule 2 of CPC. One of the modes of service prescribed by Order 29 Rule 2 was that summons may be served by leaving/pasting at the registered office of the assessee company. The service could be affected by merely leaving the notice at the registered office of the assessee. In the instant case, even if Sri Nehru was not authorized to receive the notice, the service was valid as he does not dispute that notice was not served on him at the registered office of the assessee. It was further submitted that the acknowledgment of Sri O. P. Nehru with regard to delivery of notice at the said place was sufficient as the notice was delivered at the proper place and it will be deemed that the service of notice on the assessee was complete, proper and lawful under the provisions of the Order 29 Rule 2 CPC and it was not open to the assessee company to challenge the validity of the service.

On the other hand, assessee’s counsel had submitted that the assessee had raised the objection to the validity of the initiation of the proceedings u/s 148, by virtue of notice by AO dated 25.02.2004 pertaining to the service of the notice. It was also submitted that when AO had not decided the objection, then the issue was raised before the CIT (A), who too rejected the same. It was also pointed out that notice u/s 148 dated 25.02.2004 was not served through post but through process server on one Sri O. P. Nehru, who was neither the Principal Officer of the assessee company nor had the authority to receive such notice. Even Sri Dinesh Singh whose Power of Attorney was filed, came on the scene only after the notice u/s 143 (2) dated 30.06.2004 was served on him. At the time of service of notice, on 10.03.2004 Sri Dinesh Singh had no authority to receive such notice. On specific query from the Bench, it was admitted that Sri Dinesh Singh is a Chartered Accountant and representing the assessee company on earlier occasions. It was submitted that the valid notice for reassessment is condition precedent. Lastly, the counsel submitted that no error had been committed by the Tribunal and the appeal filed by the revenue deserves to be dismissed.

Held that,

++ a notice was served at the registered office of the assessee company. The server of the department has served the notice in good faith and now by raising the technical ground, the assessment order cannot be set aside specially when the assessee has already voluntarily participated in the appellate proceedings;

++ in the case of Sohan Singh Basi and another vs. Inspecting Assistant Commissioner of Wealth Tax and Others; (1992) 194 ITR 339 (Delhi), it was observed that where, pursuant to receipt of notice by a chartered accountant, the assessee files a return of wealth and raises no objection before the wealth - tax authorities to the effect that the chartered accountant had no authority to accept notice, it is difficult for the court to believe that such a chartered accountant would accept a reassessment notice under section 17 of the Wealth Tax Act,1957, without his being authorized to do so. The petitioner filed a writ petition challenging a notice of reassessment under section 17 of the Wealth Tax Act, 1975 and the court found that the petitioner was guilty of misstating of facts deliberately. Held, that the conduct of the petitioner was such that equitable relief under article 226 of the Constitution could not be granted to him;

++ in the instant case, the assessee is a company whose employees/consultant are the Members of the family. Thus, service of notice is sufficient as per the ratio laid down in the case of CIT vs. Smt. Kanti Devi Gupta; 274 ITR 526 (MP);

++ the assessee has participated voluntarily and peacefully in the appellate proceedings. Participation is sufficient for the validity of the notice, as per the ratio laid down in the case of CIT vs. Uttam Chandra Nahar; 295 ITR 403 Raj;

++ in the case of K. G. Thomos vs. CIT ; 303 ITR 303 Kerla; it was observed that no notice under section 143 (2) was received but opportunity was availed, then reassessment is valid. Similar views were expressed in the case of CIT vs. T.C.P. Limited (2010) 235 CTR 414 Mad. Further, in any technical difficulty, the proceeding may be irregular but not invalid. The procedural irregularity can be rectified later as per the ratio laid down in the case of Areva T. & D. India vs. CIT; 294 ITR 233 Mad;

++in the instant case, the procedural irregularity was automatically rectified when the assessee is participated in the appellate proceedings. Thus, in the light of above discussion, we set aside the impugned order dated 01.11.2010 passed in MA 131/Luc/2008 by the Tribunal and remanded the matter back to the A.O. as directed by the Tribunal vide order dated 26.10.2007 to decide the matter strictly on merit at the earliest preferably within a period of three months. The answer to the substantial question of law is in favour of the revenue and against the assessee. In the result, the appeal filed by the department is allowed.