2025 (1) TMI 373 - AT - Income Tax

Validity of reopening of assessment - AO issuing the notice u/s 143(2) who did not have the jurisdiction over the case of appellant - improper service of notice - HELD THAT - Admitted case of the assessing officer is that only one statutory notice u/s 143(2) was issued on 18.09.2013. There is no mention in the assessment order that the service was by postal mode or by substituted service. The narration of facts in assessment order only indicate that after the centralization notice was issued on 18.09.2013. Admittedly, the case was centralized by order dated 26.11.2013 from ITO, Ward 9(3), Kolkata to DCIT, Central Circle-14, New Delhi. Furthermore, if the copy of this letter dated 26.11.2013 is examined which is also made available on record with the report of the Department, this order was passed on 26.11.2013 and the endorsement was forwarded to the concerned authorities for giving effect to the order was signed on 03.12.2013. It can be observed that at Sl.No.4 a direction is issued to ITO, Ward 9(3), Kolkata with a request to intimate the concerned assessee and send compliance report to the CIT(A), Kolkata-III, Kolkata, after physical transfer of records are completed. This even makes it questionable as to how even without the communication of the letter dated 26.11.2013, the ITO, Ward 9(3), Kolkata may have forwarded the record with the Central Circle-14, New Delhi for issuance of statutory notice u/s 143(2) on 18.09.2013. Coming to the alleged fact of service of a notice dated 19.08.2013 by JAO by affixation, the affixation report dated 09.09.2013 is first of all silent with regard to the fact that the notice were actually affixed as no expression in that context is used. Now the said officer has merely mentioned Therefore, I served the notice . The report is silent of the exact places where the notice was allegedly affixed. There is no independent witness. There is no order sheet supporting the conclusion of the AO of any denial on the part of the assessee to receive the notices or that the assessee was in any way avoiding the personal service so as to order for service by affixation. In fact without specific direction to the serving inspector to serve by way of affixation there was no right with serving inspector to serve by affixation, without endorsing in report as what compelled to serve by substituted service instead of personal service. Whatever shortcoming the ld. Counsel has pointed out in context to allegation of non-compliance of rules for substituted service stand un-rebutted and only establish there was invalid mode and manner of service. In fact if this notice was part of the record when transferred to CC-14 New Delhi, in pursuance of transfer of further proceedings by virtue of section 127 of the Act, then at time of passing the assessment order it should have been made part of the assessment order to show as to how the jurisdiction was assumed at Delhi on the basis of notice u/s 143(3) of the Act served by JAO at Kollata. As jurisdictional AO has not issued the notice u/s 143(2) of the Act, in the prescribed time and mode. Consequentially all the assessment proceedings are vitiated and make the impugned assessment order a nullity. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the notice under Section 143(2) of the Income Tax Act, 1961, was validly issued and served by the jurisdictional Assessing Officer (AO) within the prescribed time and mode.
• Whether the assessment proceedings and the subsequent assessment order were valid or void ab initio due to alleged jurisdictional errors.
• Whether the additions made by the AO under Section 68 of the Act, regarding unexplained share premium and brokerage, were justified.
• The applicability and interpretation of Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, in raising jurisdictional issues not previously contested before the CIT(A).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notice under Section 143(2)

• Relevant Legal Framework and Precedents: Section 143(2) of the Income Tax Act requires a notice to be issued by the jurisdictional AO within a specific timeframe. The judgment references several precedents regarding the necessity of proper service of notice, including the requirement for affixation to be in accordance with the Civil Procedure Code.
• Court's Interpretation and Reasoning: The Tribunal found that the notice dated 18.09.2013 was not validly issued by the jurisdictional AO, as the centralization of the case to Central Circle-14, New Delhi, occurred only on 26.11.2013. The Tribunal emphasized the procedural lapses in the service of notice, including incorrect affixation.
• Key Evidence and Findings: The Tribunal noted discrepancies in the records, such as the absence of an entry for 18.09.2013 in the order sheet and the lack of independent witnesses for the affixation of notice.
• Application of Law to Facts: The Tribunal applied the legal requirements for service of notice and found that the procedural requirements were not met, rendering the notice invalid.
• Treatment of Competing Arguments: The Revenue's argument that the notice was served by affixation was rejected due to procedural deficiencies. The Tribunal also dismissed the Revenue's reliance on the case of Ashok Chaddha, as the assessment was not conducted under search provisions.
• Conclusions: The Tribunal concluded that the notice under Section 143(2) was not validly served, leading to the assessment proceedings being void ab initio.

Issue 2: Validity of Assessment Proceedings and Order

• Relevant Legal Framework and Precedents: The assessment proceedings under Section 143(3) require a valid notice under Section 143(2). The Tribunal referenced the necessity of jurisdictional compliance for valid proceedings.
• Court's Interpretation and Reasoning: The Tribunal found that the assessment order was based on an invalid notice and thus lacked jurisdictional validity.
• Key Evidence and Findings: The Tribunal highlighted the lack of jurisdictional authority of the AO who issued the notice and the subsequent procedural errors.
• Application of Law to Facts: The Tribunal applied the principles of jurisdiction and procedural compliance to invalidate the assessment order.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the assessment was part of a search case, as no notice under Sections 153A or 153C was issued.
• Conclusions: The Tribunal declared the assessment proceedings and order as null and void due to jurisdictional errors.

Issue 3: Additions under Section 68

• Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits, requiring the assessee to provide satisfactory explanations for amounts credited in the books.
• Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of the additions under Section 68, as the assessment proceedings themselves were declared void.
• Key Evidence and Findings: The Tribunal noted the procedural lapses in the issuance of notice, which precluded the need to address the substantive issues of unexplained share premium and brokerage.
• Application of Law to Facts: The Tribunal did not apply Section 68 due to the invalidity of the assessment order.
• Treatment of Competing Arguments: The Tribunal did not address the Revenue's arguments regarding the additions, focusing instead on the jurisdictional issue.
• Conclusions: The Tribunal did not uphold the additions under Section 68 due to the invalidity of the assessment proceedings.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The jurisdictional AO has not issued the notice u/s 143(2) of the Act, in the prescribed time and mode. Consequentially all the assessment proceedings are vitiated and make the impugned assessment order a nullity."
• Core Principles Established: The necessity of jurisdictional compliance and proper service of notice under Section 143(2) for valid assessment proceedings.
• Final Determinations on Each Issue: The Tribunal concluded that the notice under Section 143(2) was invalid, rendering the assessment proceedings and order void. The additions under Section 68 were not upheld due to the procedural invalidity of the assessment.