2006 (3) TMI 219 - AT - Income Tax

Validity of Service of notice issued u/s 143(2) - HELD THAT - In view of sub-rule (3) of rule 9 of Order V of the CPC, the summons may be sent through speed post or so, in view of the amendment introduced. In fact the mode of speed post is only a faster mode of registered mail and just another mode of dispatch through registered post. In the present case, the notice was sent through speed post. The learned CIT (Appeals) has recorded the finding that the summons that was issued on 16-10-2002 was served upon the assessee on 20-10-2002. The assessee is a local resident of Delhi and therefore, it is quite reasonable to observe and infer that the notice sent through speed post must have been served upon the addressee (assessee) at least within 3-4 days. Otherwise also, the findings recorded by the learned CIT (Appeals) have not been rebutted or controverted by the assessee by making any positive statement regarding the notice sent on16-10-2002through speed post. Thus, in view of the amended provision of the CPC, firstly, the mode of sending notice through speed/registered post is recognized mode and secondly, a presumption can be drawn regarding service by speed post within 3-4 days in the present case, where the assessee was living in the city of Delhi. On this basis also we have to uphold the finding of the learned CIT (Appeals). Thus, it is held that the learned CIT (Appeals) was justified in recording the finding that notice had been validly served. We, therefore, do not find any scope to interfere in the finding of learned CIT(A) on the issue in question. Ground Nos. 1 1.1 taken by the assessee are, therefore, rejected. Disallowance of expenditure - carry forward the same to be set off in the succeeding assessment year - In the assessment order, the Assessing Officer has not examined the nature of expenses nor the aspect that the assessee was carrying on business activity in earlier and subsequent assessment years and expenditure claimed by it was allowed by the Department in earlier and subsequent years. The learned CIT(A) has also not examined these aspects. The order of the Tribunal for assessment year 1997-98, a copy of which has been placed on record was also not considered by the departmental authorities as no mention of this of order has been made. It appears that this order was not available at the time when these authorities passed orders. We are of the considered opinion that the matter has not been properly examined and the evidence filed by the assessee has not been properly appreciated. In the interest of justice, therefore, we consider it proper to set aside the finding of learned CIT(A). We, therefore, set aside the order of CIT(A) on the issue in question and restore the matter back to him for considering the entire material afresh in the light of our observations made above including the nature of expenditure and the fact that the expenditure was allowed to the assessee in earlier and subsequent years. Hence, the matter shall be decided as per law, of course, after providing opportunity to the parties of being heard. We order accordingly. In the result, assessee's appeal is partly allowed for statistical purposes only.

Summary

Issues Involved:
1. Validity of the notice issued under section 143(2) of the Income-tax Act.
2. Disallowance of expenditure claimed by the assessee and the claim to carry forward the same for set-off in the succeeding assessment year.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 143(2):

Grounds of Appeal:
- The assessee challenged the validity of the notice issued under section 143(2) on the grounds that it was not served within the statutory period of 12 months from the end of the month in which the return was filed.

Facts and Submissions:
- The return was filed on 30-10-2001, and the first notice was issued on 16-10-2002.
- The assessee argued that the notice was not received until 17-11-2003 and questioned the validity of the notice.
- The Assessing Officer and CIT (Appeals) maintained that the notice was served via speed post on 20-10-2002, within the statutory period.

Tribunal's Findings:
- The Tribunal confirmed that the notice was issued and sent by speed post on 16-10-2002 and presumed to be served within 3-4 days, i.e., by 20-10-2002.
- The Tribunal noted that the assessee did not file any affidavit or specific denial regarding the non-receipt of the notice.
- The Tribunal upheld the CIT (Appeals) finding that the notice was validly served within the prescribed period, rejecting the assessee's grounds.

2. Disallowance of Expenditure Claimed by the Assessee:

Grounds of Appeal:
- The assessee challenged the disallowance of Rs. 4,66,160 claimed as business expenditure and the denial of carrying forward the same for set-off in subsequent years.

Facts and Submissions:
- The Assessing Officer disallowed the expenditure on the basis that no business activity was carried out during the year.
- The CIT (Appeals) upheld this disallowance, stating that the assessee failed to provide evidence of carrying on business during the relevant year.
- The assessee argued that similar expenditures were allowed in earlier and subsequent years and that the business activity continued even though no trading was done.

Tribunal's Findings:
- The Tribunal noted that neither the Assessing Officer nor the CIT (Appeals) examined the nature of the expenses or the business activity in earlier and subsequent years.
- The Tribunal observed that the assessee provided evidence, including balance sheets and profit & loss accounts, which were not considered by the lower authorities.
- The Tribunal set aside the CIT (Appeals) order on this issue and remanded the matter back for fresh consideration, directing the CIT (Appeals) to examine the entire material afresh, including the nature of the expenditure and its allowance in earlier and subsequent years.

Conclusion:
- The appeal regarding the validity of the notice under section 143(2) was rejected, affirming that the notice was validly served within the statutory period.
- The appeal concerning the disallowance of expenditure was partly allowed for statistical purposes, with the matter remanded back to the CIT (Appeals) for a fresh examination of the evidence and proper adjudication.