2015 (9) TMI 756 - HC - Income Tax

Reopening of assessment - Whether the ITAT was correct in holding that since notice under Section 148 was not served on the Assessee in accordance with law, the re-assessment made consequent thereto was without jurisdiction and liable to be quashed? - Held that - Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements. For the AO to exercise jurisdiction to reopen an assessment, notice under Section 148 (1) has to be mandatorily issued to the Assessee. Further the AO cannot complete the reassessment without service of the notice so issued upon the Assessee in accordance with Section 282 (1) of the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC.Although there is change in the scheme of Sections 147, 148 and 149 of the Act from the corresponding Section 34 of the 1922 Act, the legal requirement of service of notice upon the Assessee in terms of Section 148 read with Section 282 (1) and Section 153 (2) of the Act is a jurisdictional pre-condition to finalizing the reassessment. The onus is on the Revenue to show that proper service of notice has been effected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf. In the present case, the Revenue has failed to discharge that onus. The mere fact that an Assessee or some other person on his behalf not duly authorised participated in the reassessment proceedings after coming to know of it will not constitute a waiver of the requirement of effecting proper service of notice on the Assessee under Section 148 of the Act. Reassessment proceedings finalised by an AO without effecting proper service of notice on the Assessee under Section 148 (1) of the Act are invalid and liable to be quashed. Section 292 BB is prospective. In any event the Assessee in the present case, having raised an objection regarding the failure by the Revenue to effect service of notice upon him, the main part of Section 292 BB is not attracted. On the facts of the present case, the Court finds that the ITAT was right in its conclusion that since no proper service of notice had been effected under Section 148 (1) of the Act on the Assessee, the reassessment proceedings were liable to be quashed. Decided in favour of the Assessee.

Issues Involved:

1. Validity of service of notice under Section 148 of the Income Tax Act.
2. Jurisdictional requirement for reassessment under Section 148.
3. Applicability of Section 292 BB of the Income Tax Act.
4. Onus of proving service of notice on the Revenue.
5. Impact of participation in reassessment proceedings without proper service of notice.
6. The prospective nature of Section 292 BB.

Issue-wise Detailed Analysis:

1. Validity of Service of Notice under Section 148:
The court examined whether the notice under Section 148 was served properly on the Assessee. The notice was issued to an address different from the one provided by the Assessee and was received by an individual, Mr. Ved Prakash, who was not proven to be authorized to accept notices on behalf of the Assessee. The court emphasized that service of notice under Section 148 is a jurisdictional requirement and must be served in accordance with Section 282(1) of the Act and Order V Rule 12 CPC.

2. Jurisdictional Requirement for Reassessment under Section 148:
The court reiterated that both the issuance and service of notice under Section 148 are jurisdictional requirements. The Supreme Court's decision in R.K. Upadhyaya v. Shanbhai P. Patel was cited to affirm that reassessment cannot proceed without proper service of notice. The court held that service of notice is mandatory and not merely procedural.

3. Applicability of Section 292 BB of the Income Tax Act:
Section 292 BB, which deals with the participation of the Assessee in proceedings without objecting to the service of notice, was discussed. The court noted that this provision is prospective and not retrospective. Since the Assessee had objected to the service of notice before the completion of reassessment, the proviso to Section 292 BB applied, making the main provision inapplicable.

4. Onus of Proving Service of Notice on the Revenue:
The court held that the burden of proving that notice was served on the Assessee or his duly authorized representative lies on the Revenue. The Revenue failed to demonstrate that Mr. Ved Prakash was authorized to receive notices on behalf of the Assessee. The court referred to multiple precedents to support this principle.

5. Impact of Participation in Reassessment Proceedings Without Proper Service of Notice:
The court clarified that mere participation in reassessment proceedings by the Assessee does not constitute a waiver of the requirement for proper service of notice. The court cited cases to affirm that knowledge of proceedings does not substitute for proper service of notice.

6. The Prospective Nature of Section 292 BB:
The court confirmed that Section 292 BB is prospective and does not apply retrospectively. Since the Assessee had raised an objection regarding the service of notice before the completion of reassessment, the main part of Section 292 BB was not attracted.

Conclusion:
The court concluded that the reassessment proceedings were invalid due to the failure to serve notice properly under Section 148 of the Act. The ITAT's decision to quash the reassessment was upheld. The appeal was dismissed with no order as to costs. The court summarized that proper service of notice is a jurisdictional requirement, and the onus is on the Revenue to prove such service. Participation in proceedings does not waive the requirement of proper service. Section 292 BB is prospective and not applicable in this case.

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