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2006 (9) TMI 228 - AT - Income TaxProper service of notice u/s 148 - Notice issued by RPAD Not by Registered Post - applicability of s. 27 of the General Clauses Act - Validity of the reopening of assessment after 4 years - Difference Of Opinion between learned members - Third Member Order - (1) Whether notice u/s 148 was properly served upon the assessee? (2) Whether the Hon'ble JM was justified in setting aside the matter back to the file of the AO for re-adjudication as per the decision of the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO Ors. Or the Hon'ble AM was justified in holding that as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, the reopening of assessment beyond the period of four years was contrary to the proviso to s. 147? Third Member - HELD THAT - In this case, notice was not sent by registered post, but was issued under certificate of posting and, therefore, the Hon'ble High Court held that there was nothing on record to indicate the proper and valid service of the notice. However, their Lordships observed about applicability of s. 27 of the General Clauses Act and held that the service of the notice shall be deemed to be effected properly if a correctly addressed and stamped letter containing the document is despatched by the registered post. Thus, the Revenue has to prove that (i) the envelope was correctly addressed; (ii) it was stamped; and (iii) it was despatched by registered post. In the case before me, the Revenue has not brought any evidence with regard to above ingredients which would amount to deemed service of notice u/s 27 of the General Clauses Act. Only evidence furnished before me is the copy of the notice issued u/s 148. I also found that the learned AM also at his order has recorded that Even the proof of sending the notice through registered post AD was not filed before the Tribunal so as to prove that the notice was sent through registered post at the address of the assessee company. Thus, there was difference amongst the learned Members even with regard to the factual finding of the sending of the notice by registered post. Therefore, the question with the presumption that the notice was sent by RPAD does not bring out the correct factual finding reached by both the learned Members. I am unable to concur with the above finding of the AO. As I have already held earlier that the onus is upon the Revenue to prove the service of the notice upon the assessee, therefore, once the assessee has claimed that the notice was not served upon it, the burden was upon the AO to prove how the notice was served on the assessee. Merely saying that the notice was issued and it must have been received by the assessee, the onus cannot be said to have been discharged. In the case of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT , the Hon'ble apex Court has held that after the issue of notice, the assessee should first file the return of income and thereafter seek reasons for issuance of the notice. On receipt of reasons the assessee is entitled to file objection to the issuance of notice and thereafter the AO is bound to dispose of the same by passing a speaking order. In the case under consideration before me, I find that on the request of the assessee the AO has communicated the reasons recorded to thee assessee on 24th Jan., 2002 The assessee has furnished its objection vide letter dt. 14th Feb., 2002. The AO has considered the assessee's objection and has concluded that the conditions laid down for reopening of assessment were duly satisfied and, therefore, the initiation of proceeding u/s 147 was correct. Thus, the AO has already disposed of the assessee's objection and has come to the conclusion that initiation of proceedings u/s 147 was correct. In the above circumstances, no useful purpose would be served by setting aside the matter again to the file of the AO. Admittedly, in this case, the original assessment was completed u/s 143(3) and 4 years have expired from the end of relevant assessment year. It is also admitted position that there was no failure on the part of the assessee to furnish the return of income u/s. 139. Therefore, the assessment can be reopened only if there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The AO has recorded the reasons for reopening of assessment. After considering the facts in the assessee's case, I find that there was no failure on the part of the assessee to disclose any material facts which were necessary for the purpose of its assessment. Accordingly, with regard to question No. 2, I agree with the finding of the learned AM that there was no failure on the part of the assessee to disclose fully and truly all material facts and, therefore, reopening of assessment after 4 years from the end of relevant assessment year was not valid. Therefore, in accordance with the majority view, the issues stand decided in favour of the assessee. Accordingly, the appeal filed by the Revenue stands dismissed and the cross-objection filed by the assessee is rejected being infructuous.
Issues Involved:
1. Validity of reopening the assessment under section 147. 2. Proper service of notice under section 148. 3. Classification of expenditure as revenue or capital. 4. Deduction under section 80-I without deducting carry forward losses. Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147: The Revenue contended that the CIT(A) erred in holding that the reopening of the assessment was bad in law. The assessee argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that the reasons recorded by the AO for reopening the assessment did not indicate any failure on the part of the assessee to disclose material facts. The Tribunal concluded that the reopening of the assessment beyond the period of four years was contrary to the proviso to section 147, as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 2. Proper Service of Notice under Section 148: The Revenue argued that the notice under section 148 was sent by registered post and, therefore, should be presumed to have been served. The assessee contended that they had not received the notice and that the AO did not provide any evidence of the notice being served. The Tribunal found that the onus was on the Revenue to prove that the notice was served. Since the Revenue could not provide any evidence of the notice being served, the Tribunal held that the notice under section 148 was not properly served upon the assessee. 3. Classification of Expenditure as Revenue or Capital: The Revenue contended that the CIT(A) erred in holding that the expenditure of Rs. 12.17 lakhs on the issue of right shares was revenue in nature. The assessee argued that the expenditure was rightly allowable under the IT Act. The Tribunal did not discuss this issue in detail as the orders of the authorities below were set aside on the legal issue of the validity of the reopening of the assessment. 4. Deduction under Section 80-I without Deducting Carry Forward Losses: The Revenue contended that the CIT(A) erred in allowing the deduction under section 80-I without deducting carry forward losses. The assessee argued that the AO was not justified in deducting losses of Unit II again in the assessment year 1993-94 when the loss was adjusted against income from other units in the assessment year 1992-93 itself and was not carried forward. The Tribunal did not discuss this issue in detail as the orders of the authorities below were set aside on the legal issue of the validity of the reopening of the assessment. Conclusion: In conclusion, the Tribunal held that the reopening of the assessment under section 147 was invalid as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal also held that the notice under section 148 was not properly served upon the assessee. Therefore, the orders of the authorities below were set aside, and the appeal of the Revenue was dismissed. The cross-objection of the assessee was rejected as infructuous.
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