2019 (7) TMI 941 - HC - Income Tax

Service of notice u/s 148 - reopening of assessment - notice dated 15.3.2018 was despatched to the petitioner s address as contained in her PAN card but returned by the postal department on or around 22.3.2018 with the remark left - HELD THAT - It is also an admitted position that the petitioner had not intimated to the Department about her change of address. After receiving the envelope containing the notice from the postal department, till 31.3.2018 which was the last date for service of such notice, the department took no further steps. Since the delivery of the notice could not be made at the address of the assessee available in PAN database, by virtue of the further proviso to sub-rule (2) of Rule 127, the communication had to be delivered at the address as available with the banking company. It is undisputed that the Department had access to the petitioner s bank account. It is precisely from the activities in such bank account that the department had gathered the material prima facie believing that the income chargeable to tax had escaped assessment. In terms of Rule 127 and in particular, sub-rule (2) therefore, having regard to the further proviso therein, the Department had to deliver the notice of reassessment at the petitioner s address given by her to the bank where her account was maintained No such steps were taken. Service of notice, therefore, was not complete. In absence of service of notice before the last date envisaged under section 149 for such purpose, the AO could not have proceeded further with the reassessment proceedings. His consequential steps of attempting to serve the notices of scrutiny assessment were of no consequence. Reopening of assessment was invalid. No valid assessment thereon could have been framed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice of reopening the assessment.
2. Service of the notice of reopening the assessment.
3. Compliance with the procedure prescribed under the Income Tax Rules, 1961.
4. Consequences of non-service of notice on reassessment validity.

Detailed Analysis:

1. Validity of the notice of reopening the assessment:
The petitioner challenged a notice dated 13.2.2019, issued for reopening the assessment for the Assessment Year 2011-2012. The notice was dispatched by the Assessing Officer on 15.3.2018 but returned with a remark "left." The Department argued that the notice's issuance complied with section 148 of the Income Tax Act. However, the court emphasized that mere issuance is insufficient; service of the notice is mandatory as per section 148(1) of the Act.

2. Service of the notice of reopening the assessment:
The petitioner contended that she never received the notice because she had changed her address, which was not updated in her PAN. The court noted that the Department attempted to serve the notice at the PAN card address, which was returned undelivered. The court cited precedents, including Y. Narayan Chetty & Anr. vs. Income Tax Officer, Nellore & Ors., and Shanabhai B. Patel vs. R.K. Upadhyaya, emphasizing that service of notice is a condition precedent for a valid reassessment.

3. Compliance with the procedure prescribed under the Income Tax Rules, 1961:
Section 282 of the Act and Rule 127 of the Income Tax Rules outline the procedure for service of notice. The court observed that the Department followed the procedure under section 282(1)(a) by attempting postal delivery. However, Rule 127(2) specifies alternative addresses for service if the primary address fails. The Department did not attempt to serve the notice at the petitioner’s bank account address, which was available to them.

4. Consequences of non-service of notice on reassessment validity:
The court concluded that the Department's failure to serve the notice at the alternative address rendered the service incomplete. Consequently, the reassessment proceedings were invalid. The court set aside the impugned notice dated 15.3.2018 and the consequential reassessment order. All subsequent recovery actions, including the attachment of the petitioner’s bank accounts, were nullified.

Conclusion:
The court allowed the petition, emphasizing the necessity of proper service of notice for valid reassessment proceedings under the Income Tax Act. The Department's failure to follow the prescribed procedure for service invalidated the reassessment and subsequent recovery actions.