Case Law Details
Advocate Akhilesh Kumar Sah
Where Notice For Assessment Is Not Properly Served Then Assessment Made Thereupon May Be Quashed
Section 282 of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) deals with the service of notice generally, section 282A of the Act deals with the authentication of notices and other documents, section 283 of the Act deals with the service of notice when family is disrupted or firm, etc., is dissolved while section 284 of the Act deals with the service of notice in the case of discontinued business. Service of the notice properly is necessary before making an assessment.
Recently, in D.C.I.T, Cir-53, Kolkata vs. M.K Enterprise [ITA No. 181/Kol/2013 A.Y 2008-09,(vice-versa)], notice as prescribed under section 143(2) of the Act was not properly served on the assessee, the ITAT Kolkata, held, on the facts & circumstances of the case, that assessment made under section 144 of the Act was not valid & it was quashed.
Brief facts & decision in the case:
In the above-mentioned case, the assessee was a firm and engaged in the business of organizing of fairs and touring jobs. The assessee conducted its business under the name and style M.K Enterprise. The assessee filed its return of income through online declaring total income at Rs.9,89,035/-. For scrutiny, notices under section 143(2) and 142(1) of the Act were issued. According to AO there was no compliance from the assessee. Thereafter, the AO initiated penalty proceedings under section 271(1)(b) of the Act for non compliance of the procedure as contemplated under section 143(2) and 142(1) of the Act. According to AO, Shri Sanjib Sarkar, stated to be one of the partners appeared on 10-12-2010 for the first time and produced before him the auditor’s report, P & L account and balance sheet.
The AO further observed that inspite of affording several opportunities to the assessee, the assessee could not produce the books of account and other evidences in support of expenses as claimed by it. Considering the same, the AO made disallowances/additions under section 40(a)(ia) for violation of section 194I and 194C and other disallowances towards claim on payment of remuneration to partners and for non- production of details of transactions in respect of sale of assets of Rs.41,07,070/- as against Rs.9,89,035/- as returned by the assessee and to that effect an order under section 144 of the Act passed on 30-12- 2010.
Against the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) modified his order and reduced the disallowances as made by the AO under section 40(a)(ia) of the Act and confirmed the additions made on account of claim of remuneration and interest paid to partners and claim of loss on sale of assets.
Before ITAT, the Ld.AR of the assessee filed three sets of paper books, two of such paper books specifically on the direction of the Bench containing copies of pay register of the assessee for the FY’s 2007 to 09 and copies of Debit Voucher of salary for the FY’s 2007 to 09 and another with the details of Short Synopsis, order sheet, notice under section 143(2) etc. from Page No’s 1 to 220.
He submitted that the notice issued under section 143(2) of the Act was not properly served on the assessee and in absence such service which was mandatorily as required to be served under section 143(2) of the Act, the assessment was to be declared as invalid.
He referred page-1 to 3 of the paper book, which was an order sheet and stated that the AO claimed to have issued notice under section 143(2) for fixing the date of hearing on 23-11-09 and argued that such notice was served on a person by name Sh. M. Sankar who was neither authorized nor concerned person to receive on behalf of assessee and also referred to the copies of pay register and debit voucher of salary details for the FY’s 2007-09 as provided in paper books, wherein he drew attention of ITAT that no such person by that name was ever worked or employed with the assessee and the said notice was not properly served on assessee as contemplated and required under section 143(2) of the Act and urged to quash the assessment order and as confirmed by the CIT(A).
The Ld. AR further relied on the decision of the Hon’ble Gujarat High Court in the case of DCIT vs. Mahi Valley Hotels and Resorts [2006] 287 ITR 360 (Guj).
The Ld. DR submitted that the assessee participated in the assessment proceedings and did not raise such ground questioning the validity of notice issued under section 143(2) before the AO. The assessee raised such ground before the CIT(A) for the first time. He further submitted that with regard to filing of additional evidence as filed before ITAT for the first time and these documents were not before the AO and the CIT(A). Therefore, he argued that the issue on hand may be sent to the file of the AO for verification of such documents as filed before ITAT.
After hearing rival submissions and perusing the material available on record, the learned Members of the ITAT found that the main issue involves questioning the validity of notice issued under section 143(2) of the Act, was not properly served on the assessee. The submissions of the Ld. DR was to remand the issue to the AO for verification of the documents as filed by way of 2 sets of paper book. The assessee filed pay register for its employees from April 2008 to March 2009. On perusal of the same, that no such person by name Shri M. Shankar, who said to have been received said notice issued under section 143(2) of the Act.
The pay register as in paper books showed that the assessee had more or less seven employees for the said FY’s except for the months of Nov ’07 to March, 2008 the assessee has nine employees, except such minor changes found no change in strength of employees of assessee FY’s 2007-09. From the order sheet of AO, it was found that he recorded the issuance of notice issued under section 143(2) on 14-09-2009 which was at page no-4 of the paper book fixing the hearing on 23-11-09 and it was served admittedly on a person by name Shri M. Sankar on 30-09-2009 who was neither an employee nor concerned person representing the Assessee as evidently proved by the evidence as provided in paper books in the form of pay registers for FY’s 2007 to 2009.
The contention of the Ld.AR was that Shri M. Sankar was not a concerned person representing the assessee to receive such notice and the notice was served on improper person. From the assessment order, it was found that, Shri Sanjib Sarkar, one of the partners appeared on 10-12- 2010 before the AO for first time and the order sheet at page no-1 of paper book supported the same.
The AO recorded the issuance of notice under section 142(1) on 19-7-2010 for fixing the hearing on 02-08-2010 and thereafter, according to assessment order, probably, after 26-08-2010 another notice for initiation of penalty proceedings under section 271(1)(b)of the Act was issued. Therefore, it showed that a person claiming to be representing the assessee as partner appeared before the AO for the first time on 10-12-2010 in response to notice issued under section 271(1)(b) of the Act and it concluded that the service of notice under section 143(2) on 30-09-09 and issuance of notice thereafter under section 142(1) of the Act was not in the knowledge of the assessee and as rightly contended by the Ld.AR notice under section 143(2) of the Act was not properly served on the assessee.
Also, there was a gap of one year between issuance of notice under section 143(2) and appearance of partner representing Assessee before the AO. Therefore, the order sheets of assessment record as filed by the assessee by way of paper book suggested that the assessee was not appeared before the AO in response to notice issued under section 143(2) of the Act as it was not in the knowledge of Assessee. Therefore, it was held by ITAT that the statutory notice issued under section 143(2) of the Act was not properly served on the assessee, which was mandatory as per section 143(2) of the Act and order made under section 144 of the Act and as confirmed by the CIT(A) was held to be invalid and it was quashed.
