Allahabad H.C : Shri G.K. Lath, chartered accountant possessed the requisite ‘authority’ to receive the notice under section 143(2) on behalf of the assessee and in rejecting the assessee’s plea against the validity of assessment on the ground of non-service of notice under section 143(2)

High Court Of Allahabad

Harsingar Gutkha (P.) Ltd. vs. CIT

Assessment Year 2000-01

Section 282

Rajes Kumar And S.S. Chauhan, JJ.

ITA No. 1 Of 2005

May  22, 2008

JUDGMENT

Rajes Kumar, J. – This is an appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), directed against the order of the Tribunal dated August 25, 2004, for the assessment year 2000-01. The appeal has been admitted on the following questions of law :

“1. Whether the Tribunal was legally correct in holding that Shri G.K. Lath, chartered accountant possessed the requisite ‘authority’ to receive the notice under section 143(2) on behalf of the assessee and in rejecting the assessee’s plea against the validity of assessment on the ground of non-service of notice under section 143(2) within the stipulated period of one year ?

2. Whether the view taken by the Income-tax Appellate Tribunal in the matter of service of notice dated November 21, 2001, is not vitiated in law by the reason of non-consideration of relevant material and information as was placed on record and as had been specifically referred to during the course of hearing of appeal ?

3. Whether on the facts and circumstances of the case, it can be validly held that the Revenue had discharged its onus of proving service of jurisdictional notice under section 143(2) within the stipulated period of one year and in upholding, in principle, the validity of assessment order dated March 28, 2003 ?”

2. Heard Sri S. K. Garg, learned counsel for the appellant and Sri D. D. Chopra, learned senior standing counsel, appearing on behalf of the Revenue.

3. At the time of hearing the appellant has pressed the following question only :

“1. Whether the Tribunal was legally correct in holding that Sri G.K. Lath, chartered accountant possessed the requisite authority to receive the notice under section 143(2) on behalf of the assessee and in rejecting the assessee’s plea against the validity of assessment on the ground of non-service of notice under section 143(2) within the time stipulated period of one year ?”

4. The brief facts of the case giving rise to the present appeal are as follows :

The appellant is a private limited company incorporated under the Companies Act, 1956 and involved in the business of manufacture and sale of pan masala and gutkha of specified brand. The appellant is an income-tax assessee since long and assessed to tax regularly. It is claimed to have maintained books of account and relevant records in regular course of business and the same were subjected to statutory audit under the Companies Act, 1956 and also tax audit under section 44AB of the Act along with annual statements of account. The appellant has filed the income-tax return for the assessment year 2000-01 on November 30, 2000 showing an income of Rs. 35,95,050. Along with the return the report of statutory audit as well as tax audit along with annual statements of account in the form of balance-sheet as on March 31, 2000, the profit and loss account were filed. It appears that a search was made by the Central excise officials on July 4, 2001 at the premises of the appellant. The assessing authority issued notice under section 143(2) of the Act and after taking the explanation of the appellant the assessment was made on March 28, 2003 on a net income of Rs. 11,02,48,770. Being aggrieved by the assessment order, the appellant filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) vide order dated December 4, 2003 dismissed the appeal. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the appellant filed a second appeal before the Tribunal. The Tribunal by the impugned order allowed the appeal and deleted the addition.

5. It appears that before the Commissioner of Income-tax (Appeals), for the first time, the appellant contended that the notice under section 143(2) of the Act, which was mandatory, had not been served upon the appellant within a period of one year as required under the proviso to section 143(2) of the Act. The Commissioner of Income-tax (Appeals) has dealt with the issue and decided against the appellant. It transpires that the first notice under section 143(2) of the Act was issued on November 21, 2001, addressed to the company and was served on one Sri G. K. Lath, chartered accountant sitting in the business premises. The record reveals that a second notice dated December 2, 2001 was also issued but it was beyond the stipulated time. The Commissioner of Income-tax (Appeals) held the service of the first notice dated November 21, 2001 on Sri G. K. Lath, chartered accountant as a valid service. The view of the Commissioner of Income-tax (Appeals) has been confirmed by the Tribunal. The Tribunal held as follows :

“It is in the said factual background that the learned Commissioner of Income-tax (Appeals) has recorded the following findings :

‘8.2 The perusal of the report shows that the notice dated November 21, 2002 issued under section 143(2) was served on Shri G. K. Lath, chartered accountant, auditor of the company present in the business premises of the assessee. Shri G. K. Lath, chartered accountant is one of the partners of the firm M/s. A. Sachdeva and Co. and this firm of chartered accountants is not only company auditor of the appellant-company but also representing the appellant in the assessment proceedings not only in the assessment year 2000-01 but in earlier years also. It is pertinent to mention here, that in the assessment proceedings for the assessment year 2000-01, Shri Dinesh Singh, chartered accountant represents the assessee-company in the assessment proceedings, who is one of the partners of M/s. A. Sachdeva and Co.

8.4 . . . in the case of the appellant Shri G. K. Lath was not only an authorised company auditor of the appellant-company for statutory audit, but also representing the assessee in the assessment proceedings as well as in appellate proceedings before me also.

8.5 The appellant has not raised this ground during the assessment proceedings and complied all notices issued by the Assessing Officer during the assessment proceedings. No reason has been given for not taking the ground before the Assessing Officer. The appellant has also not formulated any ground of appeal to challenge the validity of the assessment on account of proper service on the appellant in the grounds of appeal. In view of the decision of the hon’ble Income-tax Appellate Tribunal, Lucknow Bench, Lucknow in the case of Commercial Motors Finance Ltd. v. Asst. CIT [2002] 82 ITD 176 , and the decision of the hon’ble Calcutta High Court in the case of CWT v. Mrs. Illa Pal Choudhury [1971] 82 ITR 936 (Cal), there was a valid service on the appellant. Thus, the contention raised by the appellant has no force, hence rejected.’

We do not find any infirmity in the view taken by the learned Commissioner of Income-tax (Appeals) to the effect that service of notice dated November 21, 2001 on Shri G. K. Lath on November 23, 2001 was a valid service on the assessee itself. Service of the said notice being within the stipulated period of one year, the Assessing Officer was well within her right to pass the regular assessment order dated March 28, 2003. As to the case law cited by the learned counsel for the appellant, we only wish to add that the same are not applicable on the facts of the present case as here Shri G. K. Lath (or whom the notice dated November 21, 2001, was served on November 23, 2001) was possessed of the requisite authority. Therefore, the assessment order as passed by the Assistant Commissioner of Income-tax cannot be said to be invalid on this ground. Accordingly, we uphold the validity of the assessment order dated March 28, 2003, in principle.”

6. Section 143(1) and (2) of the Act, as they stood at the relevant time, are reproduced below :

“143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,-

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly ; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee :

Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him :

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made :

Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31st day of March, 2002…

(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return :

Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”

7. Sri S. K. Garg, learned counsel for the appellant states that the service of notice within 12 months from the end of the month in which return is furnished is mandatory. In the absence of notice being served within the period prescribed the income disclosed in the return is deemed to have been accepted and the proceeding comes to an end and the matter stands final. In support of his contention, he relied upon the decisions in the cases of CIT v. M. Chellappan reported in [2006] 281 ITR 444 (Mad), Vipan Khanna v. CIT [2002] 255 ITR 220 (P&H), CIT v. C. Palaniappan reported in [2006] 284 ITR 257 (Mad), CIT v. Bhan Textiles P. Ltd. reported in [2006] 287 ITR 370 (Delhi), CIT v. Lunar Diamonds Ltd. reported in [2006] 281 ITR 1 (Delhi) and Deputy CIT v. Mahi Valley Hotels and Resorts reported in [2006] 287 ITR 360 (Guj). He has also referred the Board Circular No. 549, dated October 31, 1989 (see [1990] 182 ITR (St.) 1) published in Income-tax Law by Chaturvedi and Pithisaria, fifth edition, volume 3, page 4742 in which the Board has categorically stated that the notice under the proviso to section 143(2) of the Act must be served and in case, it is not served, the assessee can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. He submitted that in the present case, the notice was issued on November 21, 2001, which is claimed to have been served within the period prescribed under the proviso to section 143(2) of the Act on one Sri G. K. Lath, chartered accountant was not in accordance with law. He submitted that admittedly, the notice was not sent by post, therefore, as per section 282 of the Act, notice was to be served as summons issued under the Code of Civil Procedure. He submitted that Sri G. K. Lath was neither the employee nor the authorised agent and, therefore, the serve of notice on him was not in accordance with law. He further submitted that it is not clear from the perusal of the order of the Tribunal on which basis the Tribunal has recorded the finding that Sri G. K. Lath possessed the requisite authority.

8. Sri D. D. Chopra, learned senior standing counsel submitted that the notice dated November 21, 2001 was served by Sri Munna, process server on Sri G. K. Lath sitting in the business premises of the assessee who represented himself to be an authorised person who received the notice. Thus, treating Sri G. K. Lath as authorised person and the agent of the assessee, the notice was served by the process server on Sri G. K. Lath, therefore, the service of notice on him was in accordance with law. He further submitted that Sri G. K. Lath, chartered accountant represented the assessee in the assessment proceeding in the previous years.

9. Having heard the learned counsel for the parties, we have gone through the order of the Tribunal and given our anxious consideration to the rival submissions.

10. A perusal of the provisions of section 143(2) of the Act shows that the service of the notice on the assessee within the period provided under the proviso is mandatory. In the absence of the notice being served within the stipulated period under section 143(2) of the Act, the assessment proceeding comes to an end and is deemed to have become final. Reliance is being placed on the decisions in the case of CIT v. M. Chellappan [2006] 281 ITR 444 (Mad), Vipan Khanna v. CIT [2002] 255 ITR 220 (P&H), CIT v. C. Palaniappan [2006] 284 ITR 257 (Mad), CIT v. Bhan Textiles P. Ltd. [2006] 287 ITR 370 (Delhi), CIT v. Lunar Diamonds Ltd.[2006] 281 ITR 1 (Delhi) and Deputy CIT v. Mahi Valley Hotels and Resorts [2006] 287 ITR 360 (Guj).

11. Admittedly, the notice dated December 2, 2001 was issued beyond the stipulated time, therefore, the question for consideration is whether the first notice issued on November 21, 2001 addressed to the company served on one Sri G. K. Lath, chartered accountant sitting in the business premises amounts to service of the notice under section 143(2) of the Act on the assessee in accordance with law.

12. Section 282 of the Act provides as to how the notice under the Act is to be served. The relevant provision of this section reads as under :

“282. Service of notice generally.-(1) 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 (5 of 1908).”

13. So, according to it, any notice under the Income-tax Act has to be served on the person named therein either by post or as if it were a summons issued by the court under the Code of Civil Procedure.

14. Order V, rule 12 of the Code of Civil Procedure, 1908, provides that wherever it is practicable, service shall be made on the defendant in person or on his agent. The relevant provision reads as under :

“12. Service to be on defendant in person when practicable, or on his agent.-Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient.”

15. Order V, rule 17 of the Code of Civil Procedure lays down the procedure when the defendant refuses to accept service, or cannot be found and it reads as under :

“17. Procedure when defendant refuses to accept service, or cannot be found.-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 (who is absent from his residence at the time when service is sought to be effected on him at his residence and there is no likelihood of his being found at the residence within a reasonable time), 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.”

16. Order V, rule 19A provides for simultaneous issue of summons for service by post in addition to personal service. It reads as under :

“19A. Simultaneous issue of summons for service by post in addition to personal service.-(1) The court shall, in addition to, and simultaneously with, the issue of summons for service in the manner provided in rules 9 to 19 (both inclusive), also direct the summons to be served by registered post, acknowledgment due, addressed to the defendant, or his agent empowered to accept the service, at the place where the defendant, or his agent, actually and voluntarily resides or carries on business or personally works for gain :

Provided that nothing in this sub-rule shall require the court to issue a summons for service by registered post, where, in the circumstances of the case, the court considers it unnecessary.

(2) When an acknowledgement purporting to be signed by the defendant or his agent is received by the court or the postal article containing the summons is received back by the court with an endorsement purporting to have been made by a postal employee to the effect that the defendant or his agent had refused to take delivery of the postal article containing the summons, when tendered to him, the court issuing the summons shall declare that the summons had been duly served on the defendant :

Provided that where the summons was properly addressed, prepaid and duly sent by registered post, acknowledgement due, the declaration referred to in this sub-rule shall be made notwithstanding the fact that the acknowledgement having been lost or mislaid, or for any other reason, has not been received by the court within thirty days from the date of the issue of summons.”

17. Now, who are the recognized agents of the parties, the same has been defined in Order 3, rule 2 of the Code of Civil Procedure, which reads as under :

“2. Recognised agents.-The recognised agents of parties by whom such appearances, applications and acts may be made or done are,-

(a) persons holding power-of-attorney, authorizing them to make and do such appearances, applications and acts on behalf of such parties ;

(b) persons carrying on trade or business for and in the names of parties not resident within the local limits of the jurisdiction of the court within which limits the appearance, application or act is made or done, in matters connected with such trade or business only, where no other agent is expressly authorized to make and do such appearances, applications and acts.”

18. Learned standing counsel provided the report of the process server, which reads as follows :

** ** **

19. From the perusal of the order of the Tribunal it is not clear that on which basis the Tribunal has recorded the finding that Sri G. K. Lath possessed requisite authority. In this view of the matter, we are of the view that the matter requires reconsideration by the Tribunal. The Tribunal being the fact finding authority should examine the material on record and give basis for coming to a conclusion that Sri G. K. Lath possessed requisite authority to receive the notice. The Tribunal has not considered Order V, rule 12 of the Code of Civil Procedure, which contemplates the service of the summons referred to hereinabove.

20. Moreover, the assessee has not disputed the service of the notice before the assessing authority and raised this issue for the first time before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has observed that no reason has been given for not taking the ground before the Assessing Officer. The appellant has also not formulated any ground of appeal to challenge the validity of the assessment on account of proper service on the appellant in the grounds of appeal. A perusal of the order of the Tribunal reveals that the Tribunal has not addressed the aforesaid observation/findings of the Commissioner of Income-tax (Appeals). The Tribunal is directed to consider this aspect of the matter also.

21. In view of the above, we are of the view that the matter should be remanded back to the Tribunal for fresh adjudication.

22. In the result, the appeal is allowed. The order of the Tribunal is set aside and the matter is remanded back to the Tribunal to decide the appeal afresh in the light of the observations made above.

[Citation : 336 ITR 90]

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