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2009 (8) TMI 808 - AT - Income TaxReopening - Validity of notice - Whether the notice was served on the assessee as per law or not. If so, to what effect - The return of income for asst. yr. 2001-02 was filed by the assessee on 8th Oct., 2001 disclosing an income of Rs. 1,63,890 and agricultural income of Rs. 1,65,260 - it was submitted before the CIT(A) that no notice under s. 148 was served on assessee, as at the relevant point of time, the assessee was seriously ill and he was hospitalized for intensive treatment - Referring to s. 282 of the Act and also the provisions of CPC, it was observed that as per order 5 rr. 12 and 19A of CPC, service by post means that the notice has to be served by registered post with acknowledgement due addressed to the assessee or his agent empowered to accept the service of such notice - When the question of service is disputed, then only s. 27 of General Clauses Act and the provision of s. 114 of the Indian Evidence Act will come into play which provides, for rebuttable presumption - notice under s. 148 of the Act was validly issued and served on the assessee and there was nothing in the reasons which could invalidate the initiation of reassessment proceedings.
Issues Involved:
1. Validity of proceedings under section 148 of the Income Tax Act, 1961. 2. Validity of the notice under section 148 and its service on the assessee. 3. Validity of the reasons for reopening the assessment. 4. Disallowance of interest claimed by the assessee. 5. Acceptance of agricultural income claimed by the assessee. 6. Acceptance of the gift received by the assessee. Detailed Analysis: 1. Validity of Proceedings under Section 148: The assessee challenged the initiation of proceedings under section 148 on the grounds that the notice was not served on him or his representative. The Tribunal held that a notice under section 148 is a jurisdictional notice, and its defect cannot be cured under sections 292B or 292BB. The Tribunal emphasized that the service of notice is mandatory and must be duly served as per law, either by post or as a summons issued by a Court under the Code of Civil Procedure, 1908. 2. Validity of the Notice under Section 148 and its Service: The Tribunal examined the assessment records and found no evidence of service of notice under section 148 on the assessee or his authorized representative. The Tribunal noted that the notice was sent by speed post, but there was no acknowledgment due on record. The Tribunal referred to section 282 of the Income Tax Act, section 27 of the General Clauses Act, and section 114 of the Indian Evidence Act, concluding that the presumption of service is rebuttable. The Tribunal found that the assessee had rebutted this presumption by stating under oath that no notice was served on him. Therefore, the Tribunal held that the reassessment order could not survive due to the lack of valid service of notice. 3. Validity of the Reasons for Reopening the Assessment: The Tribunal evaluated the reasons recorded by the Assessing Officer (AO) for reopening the assessment. The AO had cited three reasons: disallowance of interest on loans, agricultural income, and a gift received by the assessee. The Tribunal found that the reasons were not specific, relevant, or had a direct nexus with the assessment year in question. The Tribunal referred to the decision in the case of India Steamship Co. Ltd. vs. Jt. CIT, where it was held that reassessment proceedings could not be initiated based on a mere change of opinion. The Tribunal concluded that the reasons recorded by the AO were vague and not valid for initiating reassessment proceedings. 4. Disallowance of Interest Claimed by the Assessee: The AO disallowed the interest claimed by the assessee on the grounds that the loans were not utilized for earning the disclosed income. The Tribunal noted that the AO had made a similar disallowance in the subsequent assessment year. However, the Tribunal found that the AO's reason for disallowance was based on suspicion rather than a belief. The Tribunal referred to the decision in the case of CIT vs. Radico Khaitan Ltd., where it was held that interest on borrowed capital must be allowed if the assessee had sufficient funds. The Tribunal concluded that the disallowance of interest was not justified. 5. Acceptance of Agricultural Income Claimed by the Assessee: The assessee claimed agricultural income of Rs. 1,65,260. The AO observed that the assessee did not own any agricultural land and had not shown such income in subsequent assessment years. The Tribunal found that the assessee had provided proper evidence, including agreements with agriculturists, copies of Khasra Khatauni, and details of agricultural income and expenditure. The Tribunal held that the AO was not justified in disallowing the agricultural income claimed by the assessee. 6. Acceptance of the Gift Received by the Assessee: The assessee received a gift of Rs. 2,75,000 from an individual through an account payee cheque. The donor was produced before the AO and admitted to making the gift. However, the AO did not accept the gift as genuine. The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the gift. The Tribunal held that the AO was not justified in disallowing the gift received by the assessee. Conclusion: The Tribunal quashed the reassessment proceedings and held that the reassessment order was null and void ab initio due to the lack of valid service of notice under section 148 and the invalid reasons recorded by the AO for reopening the assessment. The Tribunal allowed the appeal of the assessee.
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