Case Law Details
Gajender Singh Jadon Vs ACIT (ITAT Delhi)
ITAT Delhi quashed the penalty order passed under section 271(1)(b) of the Income Tax Act as service of notice by way of affixture on the Assessee cannot be construed as sufficient Service of Notice.
Facts- The assessment order u/s 144/147 of the Income Tax Act, 1961 was passed on 24/01/2014 by assessing the income of the Assessee at Rs. 14,62,150/- which being cash deposited to Assessee’s bank account. Consequent to the assessment order, since the assessee has not responded to the statutory notices issued u/s 142(1) of the Act, a penalty proceedings u/s 271(1)(b) of the Act were initiated and an order of penalty came to be passed on 25/07/2014 by imposing penalty of Rs. 10,000/-.
Aggrieved by the order of the penalty, the assessee preferred an appeal before the CIT(A), however, the same was dismissed. Being aggrieved, the present appeal is filed.
Conclusion- Held that the Service of Notice by way of affixture on the Assessee cannot be construed as sufficient Service of Notice. Therefore, in our considered opinion, the A.O. has committed an error in initiating penalty proceedings. In view of the above discussion, we find merit in the Grounds of appeal of the assessee. Accordingly, the Grounds of Appeal of the assessee are allowed and the order of penalty passed u/s 271(1)(b) of the Act and the impugned order of the CIT(A) are quashed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals)-19, New Delhi [“Ld. CIT(A)”, for short], dated 31/01/2019 for Assessment Year 2006-07.
2. Grounds taken in this appeal are as under:
“1. That the order under section 250 of the Act dated 31 January, 2019 passed by the Commissioner of Income Tax (Appeals) -19 [“Ld. CIT(A)”] is erroneous and bad in law.
2. That in law and under the facts and circumstances of the case, the impugned order passed by the Income Tax Officer, Ward – 57(5), New Delhi (“Ld. AO”) under section 144/147 of the Act is without jurisdiction and thus void ab initio.
3. That the Ld. CIT(A) has erred in confirming the penalty u/s 271(1)(b) of the Act of Rs.10,000/- levied on the assessee without considering and appreciating the facts and circumstances of the case and without appreciating that the Appellant had not received the notice of hearing.
4. That the Ld. CIT (A) has grossly erred in confirming the levy of penalty under section 271 (1) (b) amounting to Rs. 10,000/- without appreciating the fact that the appellant had a reasonable cause.
5. The Appellant craves for leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
6. That all the grounds are without prejudice to each other.”
3. There is a delay of 44 days in filing the present Appeal, the assessee filed an affidavit stating that the Appeal could not be filed on time as the Counsel appeared before the CIT(A) has not provided the requisite documents to the assessee in time which caused the delay of 44 days in filing the present Appeal and prayed for condoning the same. Considering the days of delay involved in the present Appeal and also the reasons assigned in the affidavit of the Assessee, the delay of 44 days in filing the present Appeal is hereby condoned.
4. Brief facts of the case are that, the assessment order u/s 144/147 of the Income Tax Act, 1961 (‘Act’ for short) came to be passed on 24/01/2014 by assessing the income of the Assessee at Rs. 14,62,150/- which being cash deposited to Assessee’s bank account. Consequent to the assessment order, since the assessee has not responded to the statutory notices issued u/s 142(1) of the Act, a penalty proceedings u/s 271(1)(b) of the Act were initiated and an order of penalty came to be passed on 25/07/2014 by imposing penalty of Rs. 10,000/-. Aggrieved by the order of the penalty, the assessee preferred an appeal before the CIT(A) and the CIT(A) vide order dated 31/01/2019, dismissed the Appeal filed by the Assessee. As against the order of the CIT(A) dated 31/01/2019, the Assessee preferred the present appeal on the grounds mentioned above. The Ld. Counsel for the assessee submitted that, the assessee has not received the notice of hearing during the assessment proceedings and the A.O. has not followed the proper procedure to serve the notices. Therefore, the penalty proceedings initiated thereupon is against natural justice and erroneous.
5. Per contra, the Ld. Departmental Representative relied on the orders of the Lower Authorities, justified the action of the A.O. and the Ld. CIT(A) and contended that the present Appeal is devoid of merit and the same is liable to be dismissed.
6. We have heard both the parties and perused the material available on record. The order of penalty came to be passed u/s 271(1)(b) of the Act on the ground that the assessee has not complied with the notices issued by the A.O. u/s 148/142(1) of the Act. We have gone through the assessment order dated 24/01/2014 and found that the A.O. issued a first notices on 16/08/2013 to the assessee by fixing the hearing on 29/08/2013. Admittedly, the said notice has been returned unserved with the remark ‘No such person is residing in this address’. The A.O. has not made any effort to find out the proper address of the assessee and nothing is mentioned in the Assessment Order as to whether the address mentioned in the notice dated 16/08/2013 was the last known address of the assessee or the registered address of the assessee. Further, it is found from the assessment order that since the case was time barring on 31st January 2014, the A.O. opted for substitute service of notice by way of affixture and a notice dated 14/01/2014 issued u/s 142(1) of the Act claimed to be served by way of affixture through Inspector/Notice server. There is no details mentioned regarding identification of the address of the Assessee by the witness or drawing of Panchnama in compliance with Rules 17,19 and 20 of Order V of Code of Civil Procedure 1908 (‘CPC’ for short). The report of the Inspectors/Notice server has been accepted by the A.O. and held that the assessee has not complied with the notices. The observation of the A.O. are reproduced as under:-
“Since, neither the PAN nor bank account no. of the assessee with DELHI NAGRIK SEHAKARI BANK LTD is available on record, necessary confirmation could not be obtained from bank. The notice u/s 142(1)) issued to the assessee on 16/08/2013 for hearing on 29/08/2013 but notice was not served upon the assessee the same has return back unserved with remarks “NO SUCH PERSON IS RESIDING ON THIS ADDRESS”. For the sake of justice last & final opportunity was granted to the assessee by way of Issuance of notice u/s 142(1) was issued on 14/01/2014 for compliance of 24/01/2014 by way of affixture through Inspector /Notice Server. The same was also uncomplied with.”
Thus, we have to examine as to whether service of notice by way of affixture was proper in terms of order V, Rule 17 to 20 of the CPC. As per provisions of Section 282(1) of the Income Tax Act, 1961, notice under the Act is to be served either by post or in such manner as provided under the Code of Civil Procedure 1908 for the purpose of service of summons. The Hon’ble Supreme Court after taking into consideration of the above statutory provisions in the case of CIT vs. Ramender Nath Ghose (1971) 82 ITR 888, held (Page No. 890 & 891) as under:-
“Admittedly, the assessees have not been personally served in these cases. Therefore, we have to see whether the alleged service by affixation was in accordance with law. It is necessary to mention that, according to the assessees, they had no place of business at all. They claim that they have closed their business long before the notices were issued. Hence, according to them, Mr. Neogi must have gone to a wrong place. This contention of the assessees has been accepted by the Appellate Bench of the High Court. Bearing these facts in mind, let us now proceed to consider the relevant provisions of law. Section 63(1) of the Act reads:
“A notice or requisition under this Act may be served on the person therein named either by post or, as if it were a summons issued by a court, under the Code of Civil Procedure, 1908.(V of 1908).”
9. Rule 17 of Order V of the Civil Procedure Code reads:
“Where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgment, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so, and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed.” (emphasis applied)
As seen earlier the contention of the assessees was that at the relevant time they had no place of business. The report of the serving officer does not mention the names and addresses of the person who identified the place of business of the assessees. That officer does not mention in his report nor in the affidavit filed by him that he personally knew the place of business of the assessees. Hence, the service of notice must be held to be not in accordance with the law. The possibility of his having gone to a wrong place cannot be ruled out. The High Court after going into the facts of the case very elaborately, after examining several witnesses, has come to the conclusion that the service made was not a proper service. Hence, it is not possible to hold that the assessees had been given a proper opportunity to put forward their case as required by Section 33B.”
7. The relevant provision for effecting of service by different modes are contained in Rules 17, 19 and 20 of Order V of CPC, which lay down the procedure for service of summons/notice and the procedure laid down therein cannot be surpassed because the intention of the legislature behind these provisions is that the 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 of CPC has been considered in numerous cases and it has been held that unless a real and substantial effort has been made to find the party/defendant after proper enquiries, the Serving Officer cannot be deemed to have exercised ‘due and reasonable diligence’. Before taking advantage of Rule 17 of the CPC, the Serving Officer shall make diligent search for the person to be served with the notice, therefore, he must take pain to find him and also to make mention of his efforts in the report. Another requirement of Rule 17 of CPC is that the Serving Officer should state that he has affixed the copy of Notice as per this Rule. The circumstances under which he did so and the name and address of the person by whom the house/premises/address were identified and in the said premises the copy of the Notice was affixed. These facts should also be verified by an affidavit of the Serving Officer.
8. The reason for taking all these precautions is that service by affixture is substitute service and since the same is not direct or personal service upon the assessee 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.
9. In the instance case, the first notice dated 16/08/2013 has been admittedly ‘not served’ and the notice was returned with remark ‘No such person is residing in this address’. The A.O. considering the fact that the case of the assessee is going to be time barred by limitation and has to be completed before 31st January, 2014 opted for issuing notice u/s 142(1) of the Act by way of substitute service of Affixture on 14/01/2104 for compliance of the same on 24/01/2014 and on the very same day i.e. on 24/01/2014 the A.O. passed the assessment order u/s 144/147 of the Act. Apart from the same, there is no mentioning of reasons by the A.O. in the assessment order as to why the Notice has to be served through affixture and the A.O. has not mentioned anything regarding efforts of ‘due and reasonable diligence to serve the notice’ on the assessee as required under rule 17 of order V of the CPC, thus the Service of Notice by way of affixture on the Assessee cannot be construed as sufficient Service of Notice. Therefore, in our considered opinion, the A.O. has committed an error in initiating penalty proceedings. In view of the above discussion, we find merit in the Grounds of appeal of the assessee. Accordingly, the Grounds of Appeal of the assessee are allowed and the order of penalty passed u/s 271(1)(b) of the Act and the impugned order of the CIT(A) are quashed.
10. In the result, Appeal of the assessee is allowed.
Order pronounced in open Court on 25th August, 2023
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