Opportunity of being heard is little more than serving a notice on assessee. It is not an empty formality. Without giving a proper opportunity to assessee, revision proceedings u/s. 263 cannot be finalized as the provisions of Section 263 mandates that the CIT may pass such orders after giving an opportunity of being heard. Since the mandatory requirement of opportunity of being heard has not been provided to assessee, the order passed by CIT is void ab-initio. Further as considered above, the record do indicate that AO has examined the issue and CIT was wrong in not examining the record properly and arriving at certain conclusions without any basis. Though revisional authority considers himself to be an extended arm of Revenue department in collection of correct tax, he does not get any leverage to exercise such jurisdiction, to do, so giving a go by to the established principles enunciated in law which are inbuilt checks provided in Section 263 itself. Justice should not only be done but it should also appear to be done. In this case the haste in which the proceedings are sought to be commenced and completed indicate that paramount importance is given to bring to tax the alleged tax as capital gains and there it can only be concluded that CIT has not followed the principles of natural justice. Thus, looking at from any angle it can be concluded that the order passed by CIT u/s 263 has not followed the prescribed provisions mandated and so the same cannot be upheld. In these circumstances, we have no other option than to quash the proceedings initiated by the CIT u/s. 263.
FULL TEXT OF THE ITAT JUDGMENT
“3. Accordingly, show cause notices dated 14.03.2014 were issued separately for the above Assessment Years to the assessee to
explain as to why the assessment orders passed for the aforementioned assessment years shall not be revised u/s. 263 of the I.T. Act. The notices were sent to the A.O. for service of the same on the assessee. Apparently the A.O. could not serve the notices on assessee since whereabouts of the assessee are not known. It is also stated that the premises where the assessee was staying as per last known address were demolished and the occupants have shifted. Under the circumstances, due to the limitation expiring on 31st March, 2014, the revision proceedings are completed based onthe material available on record”.
8. Ld. CIT- DR, however, while admitting that no notice could be served on the assessee, referred to the order of the CIT to submit that CIT has attempted to serve the notice on the ‘last known address’ as assessee had failed to supply the correct address to the department when there is change of address. Therefore, the action of the CIT cannot be faulted. Since it is a procedural deficiency, Ld. CIT- DR, however, requested for setting aside the order of the CIT so that proceedings can be continued by issuing proper notice to assessee and taking objections from assessee. On merits, it was the submission that AO has not examined the said transactions, hence the proceedings are warranted.9. We have considered the rival contentions and perused the order of the CIT. As can be seen from the order itself, CIT clearly stated that no notice could be served on assessee due to reasons stated therein and order was passed ex- parte, as it is getting time barred. The provisions of Section 263 are as under:
12.2. The Code of Civil Procedure [Chapter-V, Rule 9-30] specifies the manner of service of court summons. Rule 9 specifies that a notice can be served in the following manner:
i. Personal service;
ii. Registered post acknowledgment due;
iii. Speed post;
iv. Courier service approved by High Court;
v. Other means of transmission of documents (including fax message or electronic mail service) provided by the Rules made by the High Court.
For personal service, copy of the notice is served on assessee or his empowered agent, generally in the department, by a notice server. In case the notices are not served personally, service by affixture is resorted to in two circumstances:
i. When the addressee or his agent refused to sign the acknowledgment for service of notice and
ii. When the serving official after using of due and reasonable diligence cannot find the addressee in his residential or business premises within a reasonable time and there is nobody else authorized to receive the notice.
12.3. In the above circumstances, ITI can effect the service by affixture on his own initiative, without waiting for an order from the AO. A copy of the notice should be affixed on the outer door or a conspicuous part of business or residential premises. A report is to be drawn up by the ITI on the facts and circumstances of the service by affixture, specifying date and time of service and name of the identifier if any. It should conclude with an affidavit of the ITI solemnly affirming the facts and particulars of service as reiterated. The report is to be filed as an endorsement to the original notice after being docketed in the order sheet. The report should be verified by an affidavit. In the absence of such affidavit, the officer must examine the Inspector on oath. The AO can also order service by affixture or by putting a newspaper advertisement under certain circumstances. Such service is called substituted service. This can be resorted to (a) when AO is satisfied that there is reason to believe that addressee is kept out of the way for the purpose of avoiding service and (b) the notice cannot be served in the ordinary way for any other reason. In these cases, AO is expected to pass a speaking order to the affect that he is satisfied as to the existence of the circumstances which necessitates a substituted service. A detailed noting in the order sheet to this effect will satisfy the requirements. The above procedure stated in this Para 12 is as prescribed in the Manual of Office Procedure (Volume-II, Technical), [February, 2003] of the department.
12.4. The show cause notice even though was dated 14-03-2014, the same was sent to AO for service, who reported that assessee was not available in the given address and the place of address was also demolished. That report was date 20-03-2014 as verified from the record. In those circumstances, since the place of address (last known address) was not available for service by affixture, Ld.CIT should have taken the alternate course of action i.e., substituted service. Rule 20 of Order 5 of CPC specifies as under:
“20. Substituted service: (1) Where the court is satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service, or that for any other reason the summons cannot be served in the ordinary way, the court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the court house, and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business or personally worked for gain, or in such other manner as the court thinks fit.
(1A) Where the court acting under sub-rule(1) orders services by an advertisement in a newspaper, the newspaper shall be a daily newspaper circulating in the locality in which the defendant is last known to have actually and voluntarily resided, carried on business or personally worked for gain.
(2) Effect of substituted service – Service substituted by order of the court shall be as effectual as if it had been made on the defendant personally.
(3) Where service substituted, time for appearance to be fixed – Where service is substituted by order of the Court, the Court shall fix such time for the appearance of the defendant as the case may require”.
Since place of last known address was demolished, the service should have been ordered to be effected by publication in a local daily newspaper. In that case service substituted by that manner [Rule20(1A)] shall be as effectual, as if it had been made on the assessee personally [Rule20(2)]. If local publication was given in a daily newspaper of the regional language (or in known language of assessee is familiar with), either assessee or any known person to assessee would have noticed and there would be compliance to the proceedings. None of these have been undertaken by the CIT before finalizing the proceedings u/s. 263; in other words, the Ld. Commissioner’s action in completing the proceedings within 10 days, that too, on an issue wherein facts on record indicate otherwise, indicate haste in setting aside the order without service of notice.
12.5. Specifying the procedure of service of notice, in the case of Sanjay Badani Vs. DCIT-10(3), Mumbai, Co-ordinate Bench of ITAT [35 ITR(T) 536] has held as under:
• As per sub-section (1) of section 282, the notice is to be served on the person named therein either by post or as if it was a summons issued by Court under the Code of Civil Procedure, 1908 (V of 1908). The relevant provisions for effecting of service by different modes are contained in rules 17, 19 and 20 of Order V of CPC. Rules 17, 19 and 20 of Order V of CPC lay down the procedure for service of summons/ notice and, therefore, the procedure laid down therein cannot be surpassed because the intention of the Legislature behind these provisions is that strict compliance of the procedure laid down therein has to be made. The expression after using all ‘due and reasonable diligence’ appearing in rule 17 has been considered in many cases and it has been held that unless a real and substantial effort has been made to find the defendant after proper inquiries, the Serving Officer cannot be deemed to have exercised ‘due and reasonable diligence’. Before taking advantage of rule 17, he must make diligent search for the person to be served. He therefore, must take pain to find him and also to make mention of his efforts in the report. Another requirement of rule 17 is that the Serving Officer should state that he has affixed the copy of summons as per this rule. The circumstances under which he did so and the name and address of the person by whom the house or premises were identified and in whose premises the copy of the summon was affixed. These facts should also be verified by an affidavit of the Serving Officer. [Para 13]
• The reason for taking all these precautions is that service by affixture is substituted service and since it is not direct or personal service upon the defendant, to bind him by such mode of service the mere formality of affixture is not sufficient. Since the service has to be done after making the necessary efforts, in order to establish the genuineness of such service, the Serving Officer is required to state his full action in the report and reliance can be placed on such report only when it sets out all the circumstances which are also duly verified by the witnesses in whose presence the affixture was done and thus the affidavit of the Serving Officer deposing such procedure adopted by him would also be essential. In the instant case, the whole thing had been done in one stroke. It was not known as to why and under which circumstances another entry for service of notice by affixture was made on 27-72012 when sufficient time was available through normal service till 30-9-2012. Nor there is any entry in the note- sheet by the Assessing Officer directing the Inspector for service by affixture and had only recorded the fact that the notice was served by the affixture. It appears that the report of the Inspector was obtained without issuing any prior direction for such process or mode. However, the fact remained that Serving Officer had not set out reason for passing subsequent entry nor for adopting the mode for service by affixture and without stating the reasons for doing so, the adoption of the mode of substituted service could not be legally justified. Notice was served by affixture. The reason for service through affixture has not been noted by the Assessing Officer in the note sheet nor he had issued any direction for issuing notice through affixtures. The next entry of note sheet dated 28-7-2012 just indicates that letter was filed by the Inspector regarding service of notice by affixtures, dated 17-7-2012. Thus, on 17-7-2012, the first entry was made and without recording any apprehension about the delay by such mode second entry for affixation was made on 28-7-2012 without showing justification for the same. Thus, it is clear that report of the Inspector was obtained without issuing any prior direction for such process or mode. Thus, the adoption of mode of substituted service was not legally justified. It is also clear from the Inspector’s report that there is no mention of name and address of the person who had identified the house of the assessee and in whose presence the notice under section 143 (2) was affixed. There is no evidence or indication in the report of Inspector that he had personal knowledge of the place of the business of the assessee and was, thus, in a position to identify the same. Therefore, neither the procedure laid down under Order V rule 17 had been followed nor that laid down under Order V rules 19 and 20 had been adhered to. Neither before taking recourse to service by affixture, the Assessing Officer or the concerned officer had recorded the findings to justify the service by this mode nor afterwards called for the affidavit or certificate of service by affixture from the Serving Officer. He had not certified that the service had been effected by adopting this course. [Para 14]
• In view of the above, it is clear that there was no valid service of notice under section 143(2) by way of affixation. Since in the instant case, the department has not been able to demonstrate that notice under section 143(2) was served within the statutory time limit, the assessment made on the basis of such invalid notice could not be treated to be valid assessment and, hence, such assessment order deserves to be treated as null and void and liable to be quashed and annulled. Accordingly, the assessee’s appeal on legal issue regarding non- service of notice under section 143(2) is allowed. [Para 15] ”
13. Hon’ble Supreme Court in the case of Commissioner of Income Tax, West Bengal-III and others Vs. Ramendra Nath Ghosh [82 ITR 888] (SC) has held, affirming the decision of the High Court on the facts, that the service of notices was not in accordance with law and therefore, it could not be said that assessee had been given proper opportunity to put forward their case as required by Section 33B of the Income Tax Act, 1922. In the above said case, the facts are similar, that the CIT initiated revision proceedings u/s. 33B of the Income Tax Act, 1922, corresponding to Section 263 of Income Tax Act, 1961. There the ITI who had to serve notices u/s. 33B of the said Act claimed to have served notices by affixing them on assessee’s place of business, but in his report did not mention the names and addresses of the proceedings, who identified the place of business of assessee nor did he mention in his report or in the affidavit filed by him that he personally know the place of business of assessees. Assessees, however, claimed that they had closed their businesses long before the notices were issued. In the Writ Petition filed by assessee, the High Court held that there was no proper service on assessee and the orders of Commissioner pursuant thereto could not be sustained. The Hon’ble Supreme Court upheld the judgment of Hon’ble High Court.
14. Ld. Counsel relied on the decision of ACIT Vs. Sher Singh Alias Balshear Singh [131 TTJ 1] (CHD)(UO) – ITAT Chandigarh. In the said case, the issue was whether notice was served properly when provisions of Section 158BD require service of notice on assessee. In that case, proper notice was not served on assessee under any of the procedures prescribed. Co-ordinate Bench of ITAT upheld that there is no proper service of the notice. Similarly, in the case of CIT Vs. Girdharilal [147 ITR 379] (Raj) wherein, after completion of assessment, assessee was issued show cause notice for revision of assessment order, but the same was returned with postal remark left without address. Thereafter, the commissioner issued notices to ‘R’, who is authorized to attend matters pertaining to assessment for the relevant assessment year. ‘R’ could not contact assessee and commissioner completed the proceedings ex- parte. The question was whether power of attorney did meet the requirement of proper power of attorney, after completion of assessment proceedings and therefore, notice on R did not meet requirement of ‘opportunity of being heard’ as contemplated by Section 263. The Hon’ble High Court of Rajasthan held affirmatively in favor of assessee and held that service of notice of R was not a proper service on assessee, so as to hold that assessee had opportunity of being heard for the purpose of passing order u/s. 263. The proceedings were accordingly set aside. Similar facts existed in the case of CIT Vs. Sattamdas Mohandas Sidhi [96 Taxman 263] (MP) wherein, under similar circumstances, where a telegram was issued as a substituted service, the Hon’ble Madhya Pradesh High Court upheld the ITAT order wherein it was held that telegram which was sent to assessee did not contain any reason, except directing him to appear before that authority. Accordingly, it was held that order u/s. 263 was bad in law for want of detailed show cause notice. Thus, the precedents relied on has considered the requirement of satisfying the stipulation of ‘opportunity of being heard’ as per Section 263 of the Act, before an order was passed by CIT u/s 263. In the present case, there is no attempt to serve a notice on assessee even by post or there was any attempt to serve the notice by way of affixture. There was no report on record that any of the prescribed methods for service of notice was at least attempted to. The Ld.CIT clearly states that no opportunity of being heard was given to assessee.
15. Apart from not giving an opportunity to assessee, Ld.CIT also did not verify the record properly. The proceedings u/s. 153C were initiated as the department has seized certain documents in search of M/s. MBS Jewellers Pvt. Ltd. Obviously, AO could not have completed the assessment, without examining these documents, as the very basis for issuing of notices u/s. 153C or the impugned year was the said sale deed copies. Moreover, AO issued a show cause notice, as discussed in the arguments of Ld. Counsel and assessee had given a detailed reply. It was further submitted that assessee has given GPA to one Shri Koteswara Rao and subsequently cancelled the same within two years. The said GPA copies were enclosed to letter by assessee in the course of assessment proceedings itself. The copies of sale documents obviously pertain to the period after GPA was cancelled. Therefore, as presumed by assessee and may be in the eye of law, they are not valid documents. Not only that assessee has also clearly stated that he has not sold any property and the statement of affairs do indicate that the impugned property is in assessee’s possession. Thus, if the CIT has examined the record correctly, he would not have come to a conclusion that there is no verification of the issue. In fact, AO has certainly verified this aspect as it is the very basis for assessment proceedings. AO has not made any addition nor brought to tax capital gains, if any, nor made any adverse observation in the order as the explanation was found to be acceptable. It is to be noted that this order was also approved by the Jt. Commissioner, being an assessment consequent to search and seizure proceedings. In these circumstances, it cannot be stated that AO has not verified the issue. The Hon’ble jurisdictional High Court in the case of Spectra Shares & Scrips Pvt Ltd., Vs. CIT [354 ITR 35 (AP)], Hon’ble jurisdictional High Court has held as follows:
“If there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. An assessment order made by the Income Tax Officer cannot branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than was just, has been imposed. The power of the Commissioner u/s 263(1) is not limited only to the material which was available before the AO and in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of the assessment”.
16. Opportunity of being heard is little more than serving a notice on assessee. It is not an empty formality. Without giving a proper opportunity to assessee, revision proceedings u/s. 263 cannot be finalized as the provisions of Section 263 mandates that the CIT may pass such orders after giving an opportunity of being heard. Since the mandatory requirement of opportunity of being heard has not been provided to assessee, the order passed by CIT is void ab-initio. Further as considered above, the record do indicate that AO has examined the issue and CIT was wrong in not examining the record properly and arriving at certain conclusions without any basis. Though revisional authority considers himself to be an extended arm of Revenue department in collection of correct tax, he does not get any leverage to exercise such jurisdiction, to do, so giving a go by to the established principles enunciated in law which are inbuilt checks provided in Section 263 itself. Justice should not only be done but it should also appear to be done. In this case the haste in which the proceedings are sought to be commenced and completed indicate that paramount importance is given to bring to tax the alleged tax as capital gains and there it can only be concluded that CIT has not followed the principles of natural justice. Thus, looking at from any angle it can be concluded that the order passed by CIT u/s 263 has not followed the prescribed provisions mandated and so the same cannot be upheld. In these circumstances, we have no other option than to quash the proceedings initiated by the CIT u/s. 263. Grounds raised by assessee are accordingly allowed.
17. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 23rd May, 2017.