2021 (10) TMI 1148 - AT - Income Tax

Validity of reopening of assessment u/s 147 - notice u/s 148 was not validly served - notice u/s 148 of the Act was issued on 12-03-2014 and it was served on the assessee by way of affixture only after six days, i.e. on 18-03-2014, as per the report of the serving officer - - mandation of serving officer has to show that all due and reasonable diligent efforts were made to serve the assessee/defendant with the notice - HELD THAT - Without exhausting the regular / ordinary course of service of notice as provided under section 282 of the Act, the assessing officer has straight away proceeded to serve the notice by way of substituted service as provided under Rule 17 and 20 of Order V of CPC - there is nothing on record to suggest that before resorting to substituted service of notice issued under section 148 of the Act, the pre-conditions of Rules 17 and 20 of Order V CPC were satisfied. Nowhere in the assessment order the assessing officer has mentioned even a single sentence to indicate that either the assessee or anyone authorized on his behalf has refused to sign the acknowledgement or the assessing officer even after reasonable attempt has failed to find the assessee at the given address or the assessee has consciously avoided service of notice issued under section 148 of the Act. Thus, in our view, the notice issued under section 148 of the Act was not validly served on the assessee. Therefore, the fundamental requirement for initiation of proceedings under section 147 of the Act stands unsatisfied / unfulfilled. This being a jurisdictional error, the consequence which follows would result in invalidation of the assessment order. Therefore, we hold that the assessment order passed under section 143(3) r.w.s. 147 of the Act without valid service of notice under section 148 of the Act is void ab initio. Eligibility of reasons to believe - As reading of the reasons recorded clearly reveals that being of the view that the assessee has not filed any return of income for the impugned assessment year resulting in escapement of income, the assessing officer has reopened the assessment under section 147 of the Act. However, the facts on record reveal that the assessee, in fact, had filed his return of income for the impugned assessment year on 18-05-2010 declaring total income of ₹ 2,05,448/. It is also evident, the return of income so filed by the assessee was processed under section 143(1) of the Act on 15-04-2011 granting refund of ₹ 7,190/-. Thus, it is very much clear, the reason to believe for reopening of assessment has no nexus with the material on record. Thus due to erroneous assumption of facts while forming belief for reopening of assessment, the proceeding has been vitiated. Consequently, the assessment order passed under section 143(3) r.w.s. 147 of the Act has been rendered invalid. - Decided in favour of assessee.

Issues Involved:

1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Validity of service of notice under section 148 of the Income Tax Act, 1961.
3. Validity of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961.
4. Penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The assessee challenged the reopening of the assessment under section 147 of the Act. The assessing officer had reopened the assessment on the grounds that the assessee had not filed any return of income for the relevant assessment year and had made significant investments and incurred expenses. However, the Tribunal found that the assessee had indeed filed the return of income, which was processed under section 143(1) of the Act. The Tribunal held that the reopening was based on an erroneous assumption of facts, rendering the proceeding vitiated and the assessment order invalid.

2. Validity of Service of Notice under Section 148:

The assessee contended that the notice under section 148 was not validly served. The notice was served by way of affixture, which the assessee argued did not comply with the requirements of section 282 of the Act and the procedures laid down under Order V, Rules 17 and 20 of the Code of Civil Procedure (CPC). The Tribunal examined the report of service and found that no attempt was made to serve the notice through post or courier before resorting to affixture. The Tribunal concluded that the notice was not validly served, leading to a jurisdictional error that invalidated the assessment order.

3. Validity of the Assessment Order Passed under Section 143(3) r.w.s. 147:

Given the invalid service of notice under section 148 and the erroneous basis for reopening the assessment, the Tribunal held that the assessment order passed under section 143(3) r.w.s. 147 was void ab initio. The Tribunal emphasized that valid service of notice is a mandatory statutory requirement for initiating proceedings under section 147. Consequently, the assessment order was quashed.

4. Penalty Imposed under Section 271(1)(c):

The penalty under section 271(1)(c) was based on the additions sustained in the quantum proceedings. Since the Tribunal quashed the assessment order in the quantum appeal, the basis for the penalty no longer existed. Therefore, the Tribunal deleted the penalty imposed under section 271(1)(c).

Conclusion:

The Tribunal allowed both appeals, quashing the assessment order and deleting the penalty imposed under section 271(1)(c). The Tribunal's decision was based on the invalid service of notice under section 148, erroneous reopening of assessment under section 147, and the resulting invalidity of the assessment order.

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