2016 (3) TMI 1199 - AT - Income Tax

Validity of assessment proceedings - absence of proper service of notice issued u/s. 143(2)- service of notice through substituted manner - Held that - There is no mention in the Panchnama that enquiries were made from neighbors of the assessee in respect of his whereabouts. The reasons for joining the witness from far of location and whether the witnesses were able to identify the name and address of the assessee, the reasons for not joining the witness from local area are also not specified. Thus, raising a cloud of suspicion on the genuineness of service even through affixation. Order V of Rule 20 clearly states that the court shall order for substitute service if it is satisfied that there is reason to believe that the defendant is purposely avoiding service or the summons could not be served or there are any special reasons that summons could not be served in ordinary way. In the present case we find that no such satisfaction has been recorded by the Assessing Officer before directing service of notice through substituted manner. In the present case, since, the notice u/s. 143(2) has not been validly served on the assessee the proceedings arising there from are vitiated. Thus, in view of the provisions of the Act we are of considered view that proper service of notice u/s. 143(2) is mandatory. The Department cannot take the shelter of section 292BB where there is no proper service of notice u/s. 143(2) and the assessee has participated in assessment proceedings. Non-service of notice u/s. 143(2) is fatal to the assessment proceedings. In the absence of proper and valid service of notice, the proceedings arising therefrom are null and void and are thus liable to be annulled. - Decided in favour of assessee

Issues Involved:
1. Validity of assessment proceedings due to improper service of notice under section 143(2) of the Income Tax Act, 1961.
2. Taxability of salary received by the assessee under the India-China Double Taxation Avoidance Agreement (DTAA).

Issue-wise Detailed Analysis:

1. Validity of Assessment Proceedings Due to Improper Service of Notice under Section 143(2):

The primary issue raised by the assessee was the validity of the assessment proceedings due to improper service of notice under section 143(2) of the Income Tax Act, 1961. The assessee contended that the notice was not served in accordance with the provisions of section 282 of the Act. Specifically, the notice was served through affixation in the first instance, which is not permitted under the law.

The Tribunal examined the provisions of section 282 and the relevant rules under the Code of Civil Procedure (CPC) regarding the service of notice. It was noted that the notice should be served either by post or as if it were a summons issued by a court. The procedure for substituted service, such as affixation, is only permissible when the defendant cannot be found or refuses to accept the service after due diligence.

In this case, the Tribunal found that no effort was made by the Revenue to serve the notice to the assessee through registered post or in the normal course. The service report and Panchnama did not provide valid reasons for adopting the substituted method of service. The witnesses to the affixation were not from the vicinity of the assessee’s residence, raising doubts about the genuineness of the service.

The Tribunal referred to several judicial precedents, including the decisions of the Hon'ble Delhi High Court in the cases of Commissioner of Income Tax Vs. Hotline International P. Ltd. and Commissioner of Income Tax Vs. Chetan Gupta, which emphasized the importance of proper service of notice. The Tribunal concluded that the absence of proper service of notice under section 143(2) vitiated the assessment proceedings, rendering them null and void.

2. Taxability of Salary Received by the Assessee under the India-China Double Taxation Avoidance Agreement (DTAA):

The second issue pertained to the taxability of the salary received by the assessee from Honeywell Automation India Limited during his assignment in Beijing, China. The assessee argued that the salary received in India was not taxable under the provisions of the Income Tax Act, 1961, as well as under the India-China DTAA.

The Assessing Officer had included the salary received in India and China, aggregating to ?41,95,468/-, in the taxable income of the assessee. The Commissioner of Income Tax (Appeals) upheld this decision, stating that the provisions of the India-China DTAA were not applicable to the assessee.

However, since the Tribunal found that the assessment proceedings themselves were invalid due to improper service of notice, it did not adjudicate on the merits of the taxability of the salary received by the assessee. The Tribunal's decision on the first issue rendered the second issue academic.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the impugned order due to the invalidity of the assessment proceedings arising from the improper service of notice under section 143(2). The Tribunal emphasized that proper service of notice is mandatory and non-compliance with this requirement is fatal to the assessment proceedings. Consequently, the grounds challenging the taxability of the salary under the India-China DTAA were not adjudicated. The appeal was allowed, and the order was pronounced on March 31, 2016.

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