2005 (3) TMI 381 - AT - Income Tax

Income Escaping Assessment - Validity of service of notice u/s 148 on Chartered Accountant - Jurisdiction - Distinction between 'issue of notice' and 'service of notice' - HELD THAT - So far as the present case before us is concerned, the issue involved is neither of tax planning nor of the aspect as to how the provisions be construed or what is the nature of the transaction or whether the transaction will result any avoidance of payment of tax or any evasion of payment of tax. The issue before us is with respect to subject's (assessee's) right to challenge the action of a quasi-judicial authority, which is claimed by such authority to be in accordance with the provisions of law. The right to challenge the action of quasi-judicial authority, so far as Income-tax Act is concerned, and specially, the validity of service of notice u/s 148 is concerned, the same having been given by the statute itself, the observations referred to and relied upon by the ld. Sr. D.R. Thus, we are of the opinion that the notice u/s 148 of the Act for the assessment year 1988-89 in assessee's case was not validly served and therefore, the Assessing Officer could not have valid/legal jurisdiction to proceed with the subsequent assessment proceedings. Having held the service of notice u/s 148 of the Act dated 15-9-1998 made on unauthorized person, namely Mr. M.K. Tyagi, Chartered Accountant, as invalid and bad in law, the next question for our decision is as to whether the subsequent proceedings including the assessment u/s 144/148 dated 26-3-2001 were illegal in the eyes of law or were legal. After careful consideration of the provisions of section 148 of the Act, which prescribes the service of a valid notice u/s 148 on the assessee before making the assessment, reassessment or recomputation under section 147 of the Act, we are of the opinion that a valid service of a valid notice u/s 148 of the Act, is not a mere procedural requirement, but is a condition precedent to the validity of any assessment, reassessment or recomputation to be made u/s 147 of the Act and it is so because of use of words shall serve on the assessee and also the requirement to the effect before making the assessment, reassessment or recomputation u/s 147 in the section itself-meaning thereby that if no notice under section 148 is issued or if the notice so issued is shown to be invalid, or the service of notice so issued, is shown to be invalid, the Assessing Officer cannot proceed with the subsequent proceedings for making assessment, reassessment or recomputation u/s 147 of the Act. In other words, if the Assessing Officer, in such circumstances, proceeds with the subsequent proceedings, the same will be illegal and void. This proposition of law has been held by the Hon'ble Supreme Court in the cases of Y. Narayana Chetty v. ITO 1958 (10) TMI 10 - SUPREME COURT , CIT v. Thayaballi Mulla Jeevaji Kapasi 1967 (3) TMI 1 - SUPREME COURT . Under the aforesaid provisions of section 148 of the Act, it is not enough that a notice issued under section 148 some how finds its way to the proper assessee or that the proper assessee appeared and filed an objection to the proceedings. Unless, the notice is served on the proper person in the manner prescribed u/s 282, the service is insufficient and the Assessing Officer does not have jurisdiction to re-assess the escaped income. This proposition of law is supported by the decisions of Madras High Court in the case of Thangam Textiles v. First ITO 1972 (9) TMI 22 - MADRAS HIGH COURT by decision of Mysore High Court in the cases of Lakshmibai v. ITO 1971 (10) TMI 15 - KARNATAKA HIGH COURT . Respectfully following the various decisions referred to in aforesaid para, we, after having held the service of notice u/s 148 on Shri M.K. Tyagi, Chartered Accountant as invalid in the eyes of law, are further of the opinion that all subsequent proceedings including the ex parte assessment framed on 26-3-2001 in assessee's case were illegal and void ab initio. In the result, the appeal of the assessee is allowed.

Issues Involved:
1. Validity of assessment u/s 144.
2. Validity of service of notice u/s 148 on Chartered Accountant.
3. Jurisdiction conferred by notice u/s 147.
4. Interpretation of section 282 regarding service of notice.
5. Validity of ex parte assessment and notice u/s 142(1).
6. Charging of interest u/s 139(8) and 216/217.
7. Overall legality of the order dated 14-3-2002.

Summary:

1. Validity of assessment u/s 144:
The assessee objected to the assessment made u/s 144, which was confirmed by the CIT(A). The Tribunal found that the assessment was invalid due to improper service of notice u/s 148.

2. Validity of service of notice u/s 148 on Chartered Accountant:
The Tribunal examined whether the service of notice u/s 148 on the Chartered Accountant, who was not authorized for the assessment year in question, was valid. The CIT(A) upheld the service, but the Tribunal found that the Chartered Accountant was not authorized, making the service invalid.

3. Jurisdiction conferred by notice u/s 147:
The Tribunal held that for jurisdiction to be conferred u/s 147, a valid notice u/s 148 must be issued and served. The CIT(A) erred in considering section 147 in isolation from section 148(1). The Tribunal concluded that the notice u/s 148 was not validly served, thus invalidating the jurisdiction.

4. Interpretation of section 282 regarding service of notice:
The CIT(A) interpreted section 282 based on the headnote using the word 'Generally'. The Tribunal disagreed, emphasizing that sub-section (1) of section 282 provides a statutory manner for serving notices, which was not followed in this case.

5. Validity of ex parte assessment and notice u/s 142(1):
The Tribunal found that the ex parte assessment was invalid as the foundational notice u/s 148 was not validly served. The service of notice u/s 142(1) does not confer jurisdiction or cure the defect in the foundational notice u/s 148.

6. Charging of interest u/s 139(8) and 216/217:
The assessee did not press this ground, and it was rejected. The Tribunal did not address this issue further.

7. Overall legality of the order dated 14-3-2002:
The Tribunal concluded that the order dated 14-3-2002 was bad in the eyes of law due to the invalid service of notice u/s 148 and the subsequent illegal assessment proceedings.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the service of notice u/s 148 was invalid, and consequently, all subsequent proceedings, including the ex parte assessment, were illegal and void ab initio.

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