REFUSAL OF ASSESSEE TO TAKE NOTICE IS A GOOD SERVICE

[Mr. M. GOVINDARAJAN]

Service of notice

Service of Notice is the procedure by which a party gives an appropriate Communication to the second party of initiation of legal action. Service of Communication is an essential step of any process of law. Each law has rules regarding the appropriate mode of service of notice, summon etc.

Where the sender has dispatched the notice by post with the correct address written on it, then it can be deemed to have been served on the sendee unless he proves that it was not really served and that he was not responsible for such non-service.

Service of notice before deciding any case against any person is considered as essential so that the concerned person will be given an opportunity to give his reply to the allegations contained in the said notice.  Non service of such notices is considered as contravening the principles of Natural Justice which will be in favor of that person.

Service of notice under Income Tax Act, 1961

Section 282 of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure of service of notice to the assessee.  The said section provides that the service of a notice or summon or requisition or order or any other communication under this Act may be made by delivering or transmitting a copy thereof, to the person therein named,-

• by post or by such courier services as may be approved by the Board; or
• in such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or
•  in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000; or
•  by any other means of transmission of documents as provided by rules made by the Board in this behalf.

Refusal of service

In some cases the noticee may refuse to receive the notice issued by some Authorities.  Then the postal authorities may return the notice to the concerned authority with the remarks ‘party refused to accept’.  What is the legal position in such cases?  If the address is wrong then the party may have defence.  If he refuses the notice deliberately to avoid receiving the same then he has no escape from his liability.  In such cases the notice is deemed to be served.   The principle incorporated in section 27 of the General Clauses Act would apply to a notice sent by registered post at the correct address, and it would be for the party against whom the presumption of service is drawn to prove that it was really not served and that he was not responsible for such non- service.

The Income Tax Appellate Tribunal (‘ITAT’ for short), Delhi Bench,  held in SHRI SUKHDEV SINGH VERSUS INCOME TAX OFFICER, WARD : 1, SAHARANPUR. - 2021 (5) TMI 917 - ITAT DELHI that the refusal of notice by the assessee will be treated as a good service.

In the case of the appellant was selected by the Department on the basis of AIR information of cash deposited in the bank account to the tune of Rs.36,90,000/- which was received by the assessee from sale of agricultural land and other agricultural income as well as sale proceeds.  The Assessing Officer issued notice dated 16.05.2011 to the appellant under section 147 and 148 of the Income Tax Act, 1961.  The said notice was refused by the appellant.  Therefore the Assessing Officer passed the order.   In the assessment order indicated that the notice was returned undelivered with remarks that the same was not accepted.  Therefore, the Assessing Officer passed assessment order under Section 144 of the Act treating the cash transaction amounting to Rs.36,90,000/- as unexplained deposit and treated the same as income under Section 69A and made addition accordingly.

The appellant filed appeal before the Commissioner of Income Tax (Appeals) against the order of Assessing Officer.  The Commissioner of Income Tax (Appeals) partially allowed the appeal.  The appellant filed appeal before the ITAT against the order of Commissioner of Income Tax (Appeals) in ITA No. 7849/Del/2018.

Meanwhile the Department initiated proceedings for imposing penalty on the appellant.  A penalty of Rs.11,46,596/- was imposed on the appellant.  On appeal before the Commissioner of Income Tax (Appeals) the same was confirmed.  Being aggrieved against this order the appellant filed appeal in ITAT 7850/Del/2018 before ITAT.

The appellant submitted the following before ITAT in respect of ITA 7849/Del/2018-

• The appellant is an Individual–agriculturist and the only source of income is agricultural income.
• For the year under consideration the assessee has not filed any return of income for the reason that the assessee has only agricultural income and the same is exempt under the Income Tax Act.
• During that year the appellant sold the agricultural land of Rs.36,90,000/- in cash which has been deposited by the assessee in his bank account.
• The assessee after registering the sale deed at Rs.26,20,000/- on 24.01.2009.
• The Assessing Officer issued the verification notice dated 31.01.2011 and 8.04.2011 on the wrong address.
• The appellant  could not make compliance as the same letter was never served on him.
• The Assessing Officer has initiated the re-assessment proceedings under Section 147 and 148 of the Act on 16.05.2011.
• The assessing Officer accepted that before completion of the re-assessment proceedings the Assessing Officer was of the knowledge of correct address of the assessee.
• As such notice issued under Section 148 of the Act was not properly served and hence the whole proceeding is illegal, without jurisdiction and against the principles of natural justice.
• The re-opening of the assessment on the basis of the illegal, bad in law and defective verification notice makes the re-assessment proceedings illegal and void ab initio.
• The re-assessment cannot be made to verify the cash deposited with the bank account by itself does not lead to income in the hands of the assessee, in the absence of any material, cannot be held as sufficient reason for re-opening assessment.
• The Commissioner of Income Tax (Appeals) and the Assessing Officer has not brought on record any contrary evidence in respect of the explanation given by the assessee relating to cash deposit of the sale proceeds of agricultural land.
• In respect of penalty notice issued under Section 274 of the Act is illegal, bad in law and without jurisdiction as there is no proper limb mentioned in the penalty order whether there is concealment of income or furnishing of inaccurate particulars of income.

The Revenue submitted the following before the ITAT

• The Assessing Officer has made addition ex-parte as the assessee has received the notice but refuse the same.
• The Commissioner of Income Tax  (Appeals) has given substantial relief to the assessee as the assessee could not establish the reasoning about cash deposit to the extent of Rs.26,20,000/-.
• The Assessing Officer has rightly imposed penalty and notice under Section 274 read with Section 271(1)(c) of the Income Tax Act is valid.

The ITAT heard the arguments and submissions made by both the parties.  The ITAT observed that the notice issued to the appellant has been refused by the appellant and the Assessing Officer initiated re-assessment as ex-parte.  The ITAT held that the explanation offered by the postal authorities in the cover of the notice that ‘the appellant has refused to take notice’.  Thus it meant as a good service.  Therefore, the Assessing Officer passed assessment order under Section 144 of the Act treating the cash transaction amounting to Rs.36,90,000/- as unexplained deposit and treated the same as income under Section 69A and made addition accordingly. Therefore ITAT rejected the contents of the appellant that the notice issued to him in the wrong address and the re-assessment proceedings initiated by the Assessing Officer was bad in law and without jurisdiction.

The ITAT further observed that the explanation given by the appellant relating to sale of land for Rs.36,90,000/- was duly reflected in his bank account.  The stand of Commissioner of Income Tax (Appeals) that no explanation was offered relating to the remaining cash deposit to the extent of Rs.26,20,000/- is not correct.  The cash deposits were made according to the sale deed dated 22.07.2008 and the amount was received on 22.07.2008 and 24.01.2009 which was properly reflected in appellant’s bank account.  Therefore, the Commissioner of Income Tax  (Appeals) was not right in sustaining the remaining amount of cash deposit to the extent of Rs.26,20,000/-.  The ITAT allowed the appeal filed by the appellant.  Since the addition of Rs.26,20,000/- is set aside there is no case of penalty to be imposed on the appellant.