2010 (6) TMI 646 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the service of notice under section 143(2) of the Income-tax Act, 1961.
2. Service of notice by affixture without exhausting other means.
3. Compliance with the procedure laid down in the CPC for service by affixture.
4. Timing and manner of service of notice under section 143(2).

Issue-wise Detailed Analysis:

1. Validity of the Service of Notice under Section 143(2):
The primary contention raised by the assessee was that the notice under section 143(2) was not served within the prescribed time limit. The return of income was filed on 31-10-2005, and the notice under section 143(2) was required to be served on or before 31-10-2006. The notice dated 31-10-2006 was served by affixture and sent through speed-post, which was received by the assessee on 2-11-2006. The CIT(A) upheld the validity of the notice, stating that the Assessing Officer had made sincere efforts to serve the notice within the time limit.

2. Service of Notice by Affixture Without Exhausting Other Means:
The assessee argued that the notice served by affixture was invalid as other means of service were not exhausted. The CIT(A) noted that the Assessing Officer had limited time to serve the notice and had dispatched it through speed-post on 31-10-2006. Due to the closure of business premises on account of a local holiday, the notice was served by affixture. The CIT(A) found that the Assessing Officer had acted promptly and made the best possible efforts to serve the notice.

3. Compliance with Procedure Laid Down in CPC for Service by Affixture:
The assessee contended that the service by affixture did not follow the procedure prescribed in the CPC, 1908. Specifically, the names and addresses of persons identifying the place of business and witnessing the affixture were not mentioned. The Tribunal analyzed the provisions of Order V, Rule 17 of the CPC, which requires the serving officer to use due diligence and provide details of witnesses. The Tribunal found that the IT Inspector's report was witnessed only by another IT Inspector, without any independent witness, and there was no evidence that the place of business was personally known to the Inspectors.

4. Timing and Manner of Service of Notice under Section 143(2):
The Tribunal examined whether the service of notice by affixture on 31-10-2006 was in accordance with the law. The Tribunal referred to several judicial precedents, including the cases of Ess Aar Exports and Avi-Oil India (P.) Ltd., which emphasized the necessity of following the prescribed procedure for substituted service. The Tribunal concluded that the notice served by affixture was invalid as it did not comply with the CPC requirements. Consequently, the subsequent notice received on 2-11-2006 was beyond the permissible time limit, rendering it invalid.

Conclusion:
The Tribunal held that the first notice served by affixture was invalid and the second notice served beyond the 12-month period was also invalid under section 143(2) of the Act. Therefore, the assessment was annulled. As the assessment was annulled, the Tribunal did not address the merits of the other grounds raised by the assessee. The appeal was allowed, and the assessment was set aside.