2010 (3) TMI 1166 - AT - Income Tax

Summary

Issues Involved:
1. Validity of service of notice under Section 158BD of the Income Tax Act, 1961.
2. Compliance with procedural requirements for service by affixture under the CPC, 1908.
3. Jurisdiction to complete assessment under Section 158BC read with Section 158BD.

Issue-wise Detailed Analysis:

1. Validity of Service of Notice under Section 158BD:

The core issue in this case revolves around whether the notice issued under Section 158BD was validly served on the assessee. The facts reveal that a search and seizure action under Section 132 was conducted on M/s S.S. Property Dealer, and during this search, an agreement involving the assessee was seized. The Assistant Commissioner of Income Tax (ACIT) proposed action under Section 158BD, and a notice was issued on 29th April 2002, which was claimed to be served by affixture.

The CIT(A) noted that the notice under Section 158BD was not served by post and that the service by affixture did not comply with the procedural requirements. The AO did not provide reasons for satisfaction that the notice could not be served in the ordinary way. Furthermore, no efforts were made to trace the assessee's whereabouts, and there were no independent witnesses to the affixture. Consequently, the CIT(A) held that the service of notice under Section 158BD was invalid, leading to the conclusion that the assessment framed under Section 158BC read with Section 158BD was bad in law.

2. Compliance with Procedural Requirements for Service by Affixture under the CPC, 1908:

The CIT(A) emphasized that the service by affixture must comply with Order 5 of the CPC, 1908. The AO's direction for substituted service lacked reasons for satisfaction that the notice could not be served in the ordinary way. The CIT(A) observed that the AO knew as early as May 2000 that the assessee had moved from the last known address. The process server's reports did not indicate any efforts to locate the assessee, and there were no independent witnesses to the affixture on 5th August 2003.

The Tribunal reiterated that service of notice under Section 158BD must comply with Section 282 of the IT Act, which allows service by post or as if it were a summons issued by a court under the CPC. The Tribunal highlighted that service by affixture must follow the procedure laid down in Order 5, Rule 17 of the CPC, which requires due diligence and verification by independent witnesses. The Tribunal found that the AO did not exercise due diligence and that the service by affixture was not valid as per the CPC requirements.

3. Jurisdiction to Complete Assessment under Section 158BC read with Section 158BD:

The Tribunal noted that the service of notice under Section 158BD is a jurisdictional requirement. The absence of valid service of notice invalidates the jurisdiction to complete the assessment. The Tribunal cited precedents, including the Hon'ble Supreme Court's decision in CIT vs. Thayaballi Mulla Jeevaji Kapasi, which held that service of notice is a condition precedent to the initiation of reassessment proceedings. The Tribunal concluded that the lack of valid service of notice under Section 158BD rendered the assessment proceedings illegal and void.

Conclusion:

The Tribunal upheld the CIT(A)'s order, confirming that the service of notice under Section 158BD was invalid due to non-compliance with procedural requirements and lack of due diligence. The Tribunal dismissed the Revenue's appeal, affirming that the assessment framed under Section 158BC read with Section 158BD was bad in law. The Tribunal emphasized the importance of valid service of notice to confer jurisdiction for assessment proceedings.