2019 (6) TMI 240 - AT - Income Tax

Validity of assessment proceedings - non service of notice u/s 143(2) within the prescribed time OR served through a person, who is not authorised - objection filed before AO - HELD THAT - CIT(A) has also dismissed legal ground taken by the assessee challenging validity of assessment proceedings consequent to non service of notice u/s 143(2) only on the ground that the assessee has participated in assessment proceedings and also filed various details in respect of issues involved in assessment. There is no grievance caused to the assessee by non service of notice required to be served u/s 143(2) without appreciating the fact that, when objection was filed before AO, the provisions of section 292BB has no application. Therefore, we are of the considered view that there is merit in the argument of the assessee that the notice required to be served u/s 143(2) which had not been served on the assessee within the time prescribed under the Act. Once the notice required to be served u/s 143(2) was not served on the assessee through proper channel, even though such notice has been served through a person, who is not authorised to receive notice, it is a case that the notice required to be served was not served on the assessee. Consequently, the whole assessment proceedings become vicious. In this case, on perusal of facts available on record, it is abundantly clear that notice u/s 143(2) has been served on the person, who is not authorised to receive notice or attend any proceedings before the AO. Therefore, assessment order passed by the AO, consequent to invalid service of notice / non service of notice to the assessee is bad in law and liable to be quashed. Accordingly, we quashed the assessment order passed u/s 143(3). - Decided in favour of assessee.

Issues Involved:
1. Validity of Assessment Proceedings due to non-service of notice under Section 143(2).
2. Addition of unsecured loans as unexplained cash credit under Section 68.
3. Disallowance of loss on foreign exchange fluctuation.
4. Initiation of Penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Assessment Proceedings:
The primary issue raised by the assessee was the validity of the assessment proceedings due to the non-service of notice under Section 143(2) of the Income Tax Act, 1961. The assessee argued that the notice was not served within the prescribed time, making the assessment proceedings invalid. The assessee contended that the notice was allegedly served on a former part-time employee, Mr. Anant Dongarkar, who was not authorized to receive such notices. The assessee supported this claim with affidavits and other evidence, stating that Mr. Dongarkar left their employment on 31-03-2011, well before the notice was issued. The tribunal examined the provisions of Section 282(1) of the Act and relevant rules under the Code of Civil Procedure, 1908, which require that notices be served on the person named or an authorized agent. The tribunal found that serving the notice on Mr. Dongarkar, who was not authorized, did not constitute valid service. Consequently, the tribunal held that the assessment proceedings were invalid due to the non-service of the notice within the prescribed time, and thus, the assessment order was quashed.

2. Addition of Unsecured Loans as Unexplained Cash Credit:
The assessee also challenged the addition of ?1,20,71,301 as unexplained cash credit under Section 68 of the Act. The Assessing Officer (AO) had made this addition on the grounds that the assessee failed to furnish sufficient details to justify the creditworthiness of the lenders and the genuineness of the transactions. The CIT(A) upheld the AO's decision, stating that the assessee did not provide adequate evidence such as balance sheets or bank statements to substantiate the loans. The tribunal, however, did not specifically adjudicate this issue due to the quashing of the assessment order on the grounds of invalid service of notice under Section 143(2).

3. Disallowance of Loss on Foreign Exchange Fluctuation:
The assessee contested the disallowance of a loss of ?2,37,86,650 incurred due to foreign exchange fluctuation. The AO disallowed the loss, citing insufficient supporting documents such as sale and purchase invoices, bank certificates, and other related documents. The CIT(A) confirmed the AO's decision, noting that the assessee did not provide necessary evidence to justify the loss. The tribunal did not specifically address this issue due to the quashing of the assessment order based on the invalid service of notice under Section 143(2).

4. Initiation of Penalty under Section 271(1)(c):
The assessee also raised an issue regarding the initiation of penalty proceedings under Section 271(1)(c) of the Act. The CIT(A) did not provide reasons for the initiation of penalty proceedings. The tribunal did not specifically address this issue due to the quashing of the assessment order on the grounds of invalid service of notice under Section 143(2).

Conclusion:
The tribunal quashed the assessment order passed under Section 143(3) of the Act due to the invalid service of notice under Section 143(2), rendering the entire assessment proceedings invalid. Consequently, the tribunal did not adjudicate the other grounds raised by the assessee on the merits of the case. The appeal filed by the assessee was allowed.

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