2003 (12) TMI 285 - AT - Income Tax

Validity of service of notice u/s 147/148 - Procedure for effecting service on the dissolved firm - HELD THAT - We have also considered similar issue while deciding in assessee's own case for assessment years 1985-86 and 1987 -88 to 1989-90 in the case of assessee itself, wherein service of notice was not found to be valid and the assessments were held to be invalid. In Baradakanta Mishra v. High Court of Orissa 1976 (5) TMI 105 - SUPREME COURT the Hon'ble Supreme Court has held that if the order of the initial authority is void, an order of the appellate authority cannot make it valid. In view of this position, the service of the notice u/s 148 is not a legal service and consequently the assessment order cannot have legal legs to stand. The same is to be quashed. In our view the learned CIT(A) was not justified in setting aside the matter again and again in not adjudicating the issue properly particularly when he has himself made observations regarding the validity of service u/s 148 which have been reproduced above. Thus, the findings and direction of learned CIT(A) cannot be justified in law. We, therefore, set aside the same and hold that the assessment order made by the Assessing Officer without making valid service of notice cannot survive. The same has to be quashed. Thus, ground No.1 is allowed in favour of the assessee and against the Department. In the result, all the three appeals preferred by the assessee stand allowed.

Summary

Issues Involved:
1. Validity of service of notice u/s 147/148.
2. Levy of interest u/s 139(8) and 215/217.

Summary:

Issue 1: Validity of Service of Notice u/s 147/148

The assessee firm, consisting of two partners, was dissolved following a search and seizure operation. The Assessing Officer issued a notice u/s 148, which was served on the son of a retired partner. The assessee argued that the notice was invalid as it was not served on a proper person as required by section 283(2). The CIT(A) set aside the assessment but did not quash it, prompting the assessee to appeal.

The Tribunal examined the legal provisions and precedents, emphasizing that service of notice must be on a partner or authorized person as per section 282 and 283(2). The Tribunal cited several cases, including Kanhaya Lal Surinder Kumar v. Assessing Officer and Narwana Motor Tpt. Co. v. ITO, which supported the view that service on a non-partner is invalid. The Tribunal concluded that the notice was not properly served, rendering the assessment without jurisdiction. Consequently, the Tribunal quashed the assessment, disagreeing with the CIT(A)'s decision to merely set it aside.

Issue 2: Levy of Interest u/s 139(8) and 215/217

The assessee challenged the levy of interest u/s 139(8) and 215/217. Since the Tribunal quashed the assessment due to improper service of notice, the question of interest levy became moot. The Tribunal allowed this ground in favor of the assessee.

Conclusion:

The Tribunal allowed all three appeals, quashing the assessment due to improper service of notice and rendering the issue of interest levy irrelevant.