Improper service of Section 148 notice renders assessment order invalid

Mandeep Malli Vs ACIT (ITAT Amritsar)

The Income Tax Appellate Tribunal (ITAT) Amritsar presided over the case of Mandeep Malli vs. ACIT, wherein the appellant challenged the validity of an assessment order for the Assessment Year 2010-11. The appeal was filed against the order dated 01.09.2023 from the CIT(A) National Faceless Appeal Centre (NFAC), Delhi, which originated from an assessment order issued on 30.11.2016 by the Income Tax Officer, Ward Nakodar, under Section 144 of the Income Tax Act, 1961. The primary issue in contention was the alleged improper service of notice under Section 148 of the Income Tax Act.

Key Contentions by the Appellant (Mandeep Malli):

1. Improper Service of Notice:

• The appellant’s counsel argued that the notice under Section 148, dated 27.03.2017, was invalidly served. The notice, allegedly issued on 15.03.2017 and served via affixture on 20.03.2017, did not follow the prescribed legal procedures.
• Specifically, the service was conducted without the presence or signatures of two independent witnesses from the neighborhood, violating the procedures outlined in Section 282 of the Income Tax Act, read with Rules 12, 17, and 19 of Order V of the Civil Procedure Code (CPC), 1908.
• A copy of the affixture order was provided, showing the lack of adherence to proper procedures.

2. Non-Adjudication by CIT(A):

• The appellant contended that the CIT(A) did not properly adjudicate the issue of improper service of notice raised in the appeal.
• The appellant argued that non-service of notice is a legal issue that renders the assessment order invalid. The counsel relied on the Supreme Court’s judgment in Commissioner of Income Tax v. Ramendra Nath Ghosh (1971) 82 ITR 888 (SC), which stated that improper service of notice denies the assessee a proper opportunity to present their case.

Arguments by the Respondent (ACIT):

• The Department’s representative upheld the impugned order but failed to effectively counter the appellant’s argument regarding the improper service of notice under Section 148.

ITAT’s Detailed Analysis:

1. Review of Notice:

• The ITAT scrutinized the notice dated 27.03.2017, which was purportedly issued on 15.03.2017 and served on 20.03.2017. The Tribunal found it implausible for a notice dated 27.03.2017 to be issued and served on earlier dates.
• This discrepancy in the dates indicated factual errors, undermining the foundational validity of the assessment.

2. Violation of Service Procedures:

• The ITAT found that the service by affixture did not comply with Section 282 of the Income Tax Act and Rules 12, 17, and 19 of Order V of the CPC, 1908.
• The notice was affixed by office staff (Sh. Joginder Lal, TA, and Paras Ram, Inspector) rather than two independent local witnesses, which is a legal requirement for the service of notices via affixture.

3. Precedents Cited:

• The ITAT referenced the Punjab & Haryana High Court ruling in CIT v. Naveen Chander (2010) 323 ITR 49, which emphasized strict adherence to Rule 17 of Order V of the CPC for valid service by affixture.
• The ITAT also cited the Amritsar Bench’s decision in Parshotam Singh v. ITO, Ward-1(4), Mansa, which invalidated assessments due to procedural violations in the service of notices.

4. Legal Principles:

• According to Rule 17 of Order V of the CPC, if service is performed through affixture, it must involve an independent local witness to verify the location of the assessee’s business or residence. The affixture report in this case showed non-compliance with this requirement.
• The procedural errors, particularly the absence of independent witnesses, rendered the notice service invalid. The service of notice is a critical aspect, and failure to comply with the stipulated procedures vitiates the entire assessment process.

Conclusion:

The ITAT concluded that the service of notice under Section 148 was improper and did not meet statutory requirements. Consequently, the reopening of the assessment was deemed invalid, and the assessment order was quashed as void ab initio.

Decision:

• The appeal filed by Mandeep Malli was allowed.
• The assessment order was declared void ab initio due to the improper service of notice.
• The decision was pronounced in the open court on 07.05.2024.

Impact of the Decision:

This case highlights the critical importance of adhering to procedural norms in the service of notices under the Income Tax Act. The ruling underscores that any deviation from prescribed procedures can invalidate subsequent assessment actions, ensuring that taxpayers’ rights to proper notice and opportunity to respond are protected.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The captioned appeal has been filed by the assessee against the order of the ld. CIT(A) National Faceless Appeal Centre (NFAC), Delhi dated 01.09.2023 in respect of Assessment Year: 2010-11 which is arising out of the Assessment Order passed dated 30.11.2016 by the Income Tax Officer, Ward Nakodar u/s 144 of the Income Tax Act, 1961 challenging therein validity of assessment order passed by u/s 144/47 as bad in law in view of the invalid service of notice u/s 148 of the Act as per procedure laid down as per Rule 17 of CPC Code of Civil Procedure, 1908.

2. At the outset, the ld. counsel for the assessee has submitted that the notice u/s 148 dated 27.03.2017 issued by Income Tax Officer, Ward Nakodar has been stated to be issued on 15.03.2017 and served on the assessee by way of affixture through inspector on 27.03.2017 without either presence or even signature of two independent witnesses of the neighborhood as per the procedure referred in section 282 read with Rule 12, 17 and Rule 19 of Order (v) of Civil Procedure Code, 1908. The copy of affixture order is placed on record (APB pg. 5). The ld. counsel argued that the said notice dated 27.03.2017 cannot be issued and served on 20.03.2017 i.e. one week before, by way affixture through inspector and in absence of two independent witnesses, the service of such notice is invalid as per procedure laid down in section 282 of the CPC, 1908 as above. The ld. counsel submitted that the appellant challenged the assessment order before the ld. CIT(A) that the assessment order passed by the AO is bad in law raised vide ground no. 3 which remain un-adjudicated. The counsel has contended that the non-service of notice u/s 148 is purely legal issue, renders the assessment orders invalid in absence of even improper service of notice. He contended that the ld. CIT(A) failed to appreciate the merits of the case and has not made efforts to analyze the fact regarding the service of notice and validity of the assessment order. In support, he placed reliance on the judgment delivered by the Hon’ble Apex Court in the case of Commissioner of Income Tax v. Ramendra Nath Ghosh [1971] 82 ITR 888 (SC) and submitted that the Apex Court observed that where the report of the serving officer did not mention names and addresses of person who identified place of business or assessees nor he mentioned in his report or in affidavit filed by him that he personally knew place of business of assessees, service of notice must be held to be not in accordance with law, and, therefore, assessee could not be said to have been given proper opportunity to put forward their case as there was not a proper service.

3. Per contra, the ld. DR stands by the impugned order. However, he could not controvert the contention raised by the ld. AR regarding invalid service of notice u/s 148 by way of an affixture as per procedure laid down as per Rules 20 or order (v) of CPC.

4. We have heard both the sides, perused the material on record, impugned order and case law cited before us. It is admitted fact on record that the notice u/s 148 was dated 27.03.2017 (APB pg. 2), however, the AO has stated that the notice was issued on 15.03.2017 and served upon the assessee on 20.03.2017. In our view, it is beyond human probabilities to issue and serve notice a week before a date mentioned in the alleged notice issued u/s 148 (APB pg. 2). For reference, the alleged notice is reproduced here under:

5. From the aforesaid notice, it is evident that the date mentioned on the notice issued u/s section 148 of the Act is 27.03.2017 which cannot be issued on 15/03/2017 and served on 20/03/2017. Such factual mistakes and errors in the dates mentioned on the notice, and that of date of issue and date of service discussed in the assessment order rendered the basic foundation of the assessment erroneous and void ab-initio. Further, there was gross violation of procedure in service of notice by way of affixture as laid down u/s 282 read with Rule 12, 17 and 19 or Order (v) of Civil Procedure Code, 1908 as the notice u/s 148 was served through affixture has been witnessed by Sh. Joginder Lal, TA and Paras Ram, Inspector of the office and not by two independent witnesses as required under the law.

6. AS per rule 17 of order V of CPC mandates, an independent local person be the witness for service through affixture and for the purpose of having been associated with the identification of the place. However, on perusal of the affixture report [Refer page No 5 of the PB] 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. (APB pg. 5) as evident from affixture notice which reads as under:

7. The Hon’ble jurisdictional High Court in the case of CIT v. Naveen Chander [2010] 323 ITR 49 (Punjab & Haryana), has observed that the Tribunal had record to the report issued by the process server. According to the report of the Inspector/notice server, the notice was affixed on the main door of Shop No. 33. There was no evidence of any local person having been associated with identifying the place of business of the assessee-respondent and the report was not witnessed by any person at all. It has been found to be flagrant violation of rule 17 of Order (v) of the Code which lays down a procedure to serve notice by affixture. Hence, the Tribunal was justified in holding that having regard to the report of the Inspector/notice server, the requirements of the code of Civil Procedure had not been fulfilled and the block assessment completed in pursuance to the notice was not valid.

8. In another case, the Coordinate Amritsar Bench in the case of Parshotam Singh v. ITO, Ward-1(4), Mansa [2016] (8) TMI 1180 has held as under:

“Validity of reopening of assessment – whether no laid down procedure as per CPC has been followed and also the affixture of notice in the absence ofindependent witness was not a legal service of notice – Held that: – We find that it is an undisputed fact that notice u/s 148 was issued on 30.03.2010 and on the same date it was affixed at the residence of assessee. Therefore, from the above, it is apparent that before service of notice through affixture no efforts were made earlier to service the same on the assessee through other means.

Mandeep Malli v. ACIT In the present case we find that the admittedly no effort was made by Assessing Officer to serve the notice in an ordinary way. Further there is no order passed by Assessing Officer to the effect that service by affixture was made in accordance with law. The so called notice through affixture is in utter disregard to Rule 17, 19 & 20 of order V of CPC. – Decided in favour of assessee.”

9. In the present case, there was no evidence of any local person having been associated with identifying the place of business of the assessee-respondent and the report was not witnessed by any person at all. In our view, it has been clearly flagrant violation of rule 17 of Order (v) of the Code 1908 which lays down a procedure to serve notice by affixture. Accordingly, as per the aforesaid report of the Inspector/notice server, the requirements of the code of Civil Procedure have not been fulfilled.

10. Following the Hon’ble jurisdictional High Court (supra), the reopening assessment completed in pursuance to the alleged notice u/s 148 of the Act is held to be not valid and as such, the assessment order is quashed as void ab initio.

11. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 07.05.2024