Sec.292BB- Service of Notice- Objection raised prior to completion of reassessment is valid

Brief of the case

In case of CIT Vs. Chetan Gupta, Delhi High Court held that where objection to effect, that notice for reassessment was not served on his last known address of assessee, was taken prior to completion of reassessment, proviso to Section 292BB was attracted and therefore, revenue could not take advantage of main portion of Section 292BB.

Facts of the case

• The assessee’s return of income assessed u/s 143.
• During reassessment proceedings the concerned officer has tabulated the information and some amount of credit totalling to Rs.40,49,77,905/- along with interest has been shown. The Assistant Commissioner of Income Tax (ACIT) issued a notice under Section 148 .The notice was addressed to the assessee but the address indicated therein was C/o Kiran Cinema, Sector-22, Chandigarh. It appears that the said notice was served upon one Mr. Ved Prakash, an Accountant at Kiran Cinema on that very date.
• The ACIT computed the assessment under Section 143(3)/148 and made an addition of Rs.30,50,48,745

Contention of Assesse

• The AO erred in law in framing the impugned assessment order “without assuming jurisdiction as per law and without serving the mandatory notices under Sections 143 & 148.
• The Assessee, inter alia, contended before the CIT(A) that service of notice had not been effected properly in accordance with the legal requirements specified under Section 282(1) of the Act; that Section 292 BB did not have retrospective operation and further that the Assessee had in any event raised an objection in that regard prior to the completion of re-assessment by the AO.

Held by CIT(A)

The CIT(A) rejected the above contentions by observing that the Assessee was silent on the issue as to why notices in the case of family members and other group cases were received at the address of Kiran Cinema. The CIT (A) concluded that it appeared that the Assessee and his group “for their own convenience prefer to receive notice at this place instead of so called address of care of Jagat Theatre.” The purpose of the notice was to make the Assessee aware of the proceedings and that purpose had been fulfilled. Further, Section 292BB was a procedural provision which had come into effect from 1st April, 2008 whereas the notice was issued thereafter and assessment had been made on 29th December, 2008. Accordingly, the above ground was rejected. Thereafter the CIT (A) proceeded to discuss the merits of the additions made and upheld it.

Contention of Revenue

In the order of dismissing the Assessee‟s appeal, the CIT(A) noted that a letter had been faxed by the ACIT, New Delhi to ACIT, Circle-3, Chandigarh regarding issue of notice under Section 148 of the Act. In response, the ACIT Chandigarh by a fax letter inter alia stated that notice in the name of the Assessee had been served “at the only available address of the Assessee, i.e. C/o Kiran Cinema, Sector-22, Chandigarh.” It was further stated that Mr. Ved Prakash who has been working as regular Accountant for the last five-six years received the notice on behalf of the Assessee as the Assessee himself is rarely available at the given address.” It was further mentioned that service of all notices pertaining to “the Assessee Group” was effected at the above address at Kiran Cinema and that different employees of Kiran Cinema had received the said notices. Further, in the case of Ms. Vandana Gupta, the Assessee’s daughter, service of notices had been effected at Kiran Cinema. Even in the other group case of M/s. Jagtumal Kundan Lal, C/o Jagat Theatre, service of notice had been effected at Kiran Cinema. It was accordingly asserted by the Revenue that proper compliance had been made.

Held by ITAT

The ITAT, by the impugned order, reversed the order of the CIT (A) and came to the conclusion that with the Assessee‟s contention that Ved Prakash is neither his employee nor his authorized representative remaining uncontroverted, and with that AO failing to take note of the Assessee‟s objections about non-service of notice under Sections 148 and 143 (2), it could not be said to be proper service upon the Assessee.

Held by High Court

• No attempt appears to have been made by the Revenue to serve the Assessee at the address provided by him i.e. “c/o Jagat Theatre, Sector 17, Chandigarh”. All the notices were addressed to him at the address “C/o Kiran Cinema, Chandigarh” which was in Sector-22. Therefore, this is not a case where an attempt was made by the Revenue to serve the Assessee at his known address, and upon not finding him there the Revenue learnt of the address where he would be found. Merely because other notices sent to the ‘Assessee group’ were received by the employees of Kiran Cinema it does not automatically lead to the inference that the Assessee’s place of business was also Kiran Cinema. In any event, there could not be an inference that Mr. Ved Prakash was duly empowered by the Assessee to receive notices on his behalf. In the very first notice dated 28th March 2008 the endorsement made by Mr. Ved Prakash shows him describing himself as “Accountant, Kiran Cinema, Sector-22, Chandigarh” and nothing more.
• In the present case, prior to the completion of the reassessment, the Assessee has raised an objection that he has not been duly served in accordance with Section 148 of the Act. Consequently, the proviso to Section 292 BB is attracted and Revenue cannot take advantage of the main portion of Section 292 BB.
• Under Section 148 of the Act, the issue of notice to the Assessee and service of such notice upon the Assessee are jurisdictional requirements that must be mandatorily complied with. They are not mere procedural requirements.
• For the AO to exercise jurisdiction to reopen an assessment, notice under Section 148 (1) has to be mandatorily issued to the Assessee. Further the AO cannot complete the reassessment without service of the notice so issued upon the Assessee in accordance with Section 282 (1) of the Act read with Order V Rule 12 CPC and Order III Rule 6 CPC.
• Although there is change in the scheme of Sections 147, 148 and 149 of the Act from the corresponding Section 34 of the 1922 Act, the legal requirement of service of notice upon the Assessee in terms of Section 148 read with Section 282 (1) and Section 153 (2) of the Act is a jurisdictional pre-condition to finalizing the reassessment.
• The onus is on the Revenue to show that proper service of notice has been effected under Section 148 of the Act on the Assessee or an agent duly empowered by him to accept notices on his behalf. In the present case, the Revenue has failed to discharge that onus.
• The mere fact that an Assessee or some other person on his behalf not duly authorised participated in the reassessment proceedings after coming to know of it will not constitute a waiver of the requirement of effecting proper service of notice on the Assessee under Section 148 of the Act. Reassessment proceedings finalised by an AO without effecting proper service of notice on the Assessee under Section 148 (1) of the Act are invalid and liable to be quashed.
• Section 292 BB is prospective. In any event the Assessee in the present case, having raised an objection regarding the failure by the Revenue to effect service of notice upon him, the main part of Section 292 BB is not attracted.

• On the facts of the present case, the Court finds that the ITAT was right in its conclusion that since no proper service of notice had been effected under Section 148 (1) of the Act on the Assessee, the reassessment proceedings were liable to be quashed. Consequently, the question framed is answered in the affirmative, i.e., in favour of the Assessee and against the Revenue.