2005 (1) TMI 54 - HC - Income Tax

Service of notice - question of service of notice on the assessee may assume some significance if the Assessing Officer proceed to make an ex parte assessment by holding the alleged service to be good on the assessee. It is in such case, when the assessee suffers an ex parte assessment that he is entitled to question the manner of effecting service on him of by the Assessing Officer which had the effect of depriving him of an opportunity to participate in the assessment proceedings. But in a case where the assessee participates in the proceedings, contests the issue on the merits and does not raise any objection, the authorities have no jurisdiction to set aside the orders on the ground of irregularity in service.

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 143 of the Income-tax Act, 1961.
2. Validity of service of notice under Section 143(2) of the Income-tax Act, 1961.
3. Jurisdiction of the Income-tax Appellate Tribunal to set aside the assessment based on non-service of notice.
4. Legality of the Tribunal's order quashing the assessment on the grounds of non-service of notice.
5. Overall legality of the Tribunal's judgment and orders.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 143 of the Income-tax Act, 1961:
The Tribunal's decision to entertain the challenge regarding the jurisdiction of the Assessing Officer based on the validity of service of notice was questioned. The court held that the Tribunal erred in annulling the assessment on the ground of invalidity of service of notice dated November 24, 1997, issued under Section 143(2). The assessee did not raise any objection regarding the legality or invalidity of the notice before the Assessing Officer or the Commissioner of Income-tax (Appeals). Therefore, the issue could not be decided in favor of the assessee.

2. Validity of service of notice under Section 143(2) of the Income-tax Act, 1961:
The court emphasized that the question of whether a particular notice is properly served is a mixed question of law and fact, not a pure question of law. The Tribunal should not have allowed the assessee to raise the plea of service of notice for the first time in the second appeal. The court noted that the assessee had participated in the proceedings without raising any objections regarding the service of notice, indicating a waiver or abandonment of the objection.

3. Jurisdiction of the Income-tax Appellate Tribunal to set aside the assessment based on non-service of notice:
The Tribunal's jurisdiction to set aside the assessment on the ground of non-service of notice was challenged. The court held that the Tribunal should not have examined the question of service of notice for the first time in the second appeal. The issue should have been addressed by the Assessing Officer and the Commissioner of Income-tax (Appeals) through a factual inquiry.

4. Legality of the Tribunal's order quashing the assessment on the grounds of non-service of notice:
The court found that the Tribunal's decision to quash the assessment based on the non-service of notice was not legally sustainable. The court noted that the assessee had participated in the assessment proceedings and was given full opportunity to contest the issues on the merits. The court held that any irregularity in the service of notice did not cause prejudice to the assessee.

5. Overall legality of the Tribunal's judgment and orders:
The court held that the Tribunal's focus on the issue of notice was too technical and not substantial. The court emphasized that the assessee had disclosed an income of Rs. 5,97,920, whereas the assessment determined the income at Rs. 1,20,26,780. The court upheld the Tribunal's decision to remand the case for further inquiry on certain matters but set aside the finding related to the service of notice. The court directed the Assessing Officer to complete the inquiry within six months and pass final assessment orders, giving the assessee enough opportunity to participate in the proceedings.

Conclusion:
The appeal was allowed in part, setting aside the Tribunal's finding regarding the service of notice. The court held that the service of notice was proper, and the assessment made by the Assessing Officer was legal and valid. All other findings recorded by the Tribunal were upheld, and the Assessing Officer was directed to complete the inquiry as per the Tribunal's directives within six months. No costs were awarded.

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