2017 (7) TMI 1046 - AT - Income Tax

Non service of notice - validity of assessment - service by way of affixture - Held that - For resorting to affixture, efforts have to be made to serve the notice upon the assessee and only after reaching a finding that the notice cannot be served upon the assessee, the mode of affixture can be resorted to. Further rule 17 of order V of CPC mandates that an independent local person be the witness of service through affixture and for the purpose of having been associated with the identification of the place. However a perusal of the affixture report shows that there was no independent local person as a witness and there is no evidence that anyone identified the place as belonging to the assessee before such affixture. It is seen that the Income Tax Inspector has signed as the local independent person but such witness cannot be considered to be a local independent person for the purposes of rule 17 of order V of CPC. Department has failed to prove a valid service of notice on the assessee before embarking upon the assessment proceedings. Since the entire reassessment proceedings were based on assumption of jurisdiction through the issue of notice under section 143 (2) of the Act, which was not validly served on the assessee, we hold that the assessing officer was patently wrong in completing the assessment without effecting the service of notice in accordance with section 282 (1) of the Income Tax Act, 1961 read with order V rule 12 and order V rule 17 of the CPC. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice and proper opportunity for the assessee.
2. Addition of unexplained deposits.
3. Addition of unexplained investment in Mohali property.

Analysis:

Issue 1: Validity of notice and proper opportunity for the assessee
The appeal was filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) for the assessment year 2008-2009. The assessee contended that they did not receive any notice from the Department regarding the assessment proceedings. The Ld. CIT (Appeals) dismissed the grounds related to the service of notice and lack of proper opportunity, but partly allowed the appeal on merits. The ITAT considered the legal issue of the validity of the notice. It was established that a valid service of notice is a mandatory requirement for the assessing officer to assume jurisdiction. The ITAT referred to legal precedents and highlighted that the notice was affixed at an address not belonging to the assessee, which did not constitute valid service. As all notices remained un-served, the assessment proceedings were deemed invalid. Consequently, the ITAT quashed the assessment proceedings in favor of the assessee.

Issue 2: Addition of unexplained deposits
The assessee contested the addition of ?13,44,500 on account of unexplained deposits. The ITAT noted that the CIT (A) confirmed the addition without appreciating the source of cash deposit filed before him. However, due to the decision on the legal issue regarding notice validity, the ITAT did not adjudicate on the merits of this addition, deeming it academic in nature.

Issue 3: Addition of unexplained investment in Mohali property
Another ground raised by the assessee was the addition of ?8,67,900 on account of unexplained investment in the purchase of Mohali property. The ITAT observed that the issue before the CIT (A) was related to long-term capital arising from the sale of property in Delhi, not the investment in Mohali property. As the legal issue regarding notice validity was decided in favor of the assessee, the ITAT did not delve into the merits of this addition, considering it academic.

In conclusion, the ITAT allowed the appeal of the assessee based on the invalidity of the notice served by the assessing officer. The ITAT quashed the assessment proceedings as the notice was not validly served, in accordance with the legal requirements. The other grounds raised by the assessee were not adjudicated upon due to the decision on the legal issue.