Serving a valid notice is the corner-stone for initiating any proceedings, and the law, having regard to the advent of technology, needs to be amended to permit service of notice through the electronic media.
Section 282 of the Income-Tax Act, 1961 provides that a notice or requisition may be served either by post, or in any of the ways in which a summons issued by a court can be served under the Code of Civil Procedure. These two modes are alternatives for the I-T Department to adopt one or the other.
Where served by post, it should be by registered post. If by a letter of authorisation the assessee has duly appointed his manager to receive postal communications on his behalf, a notice sent to the assessee by registered post and delivered to the manager before the cancellation of the authorisation would be good service even if the manager has ceased to be in the service of the assessee before the delivery of the notice.
Where the notice was sent by the registered post and duly addressed to the assessee, and the postal acknowledgment was signed by an employee of the assessee on its behalf, or by the assessee's minor son who was living with his father and used to receive notices addressed to his father, the service was held to be good. Service by registered post on a foreigner who resides abroad is valid.
If the notice, duly addressed, comes back with the word "refused" endorsed thereon by the postal authorities, proper service may be presumed unless the contrary is proved by the assessee.
Ordinarily, it is the duty of the assessee who applies for an adjournment to find out the date fixed for the adjourned hearing. The Assessing Officer's reply to an application for an adjournment is not ordinarily a "notice or requisition" within the meaning of this section and may be sent to the assessee by regular post.
Where a notice is served otherwise than by post, for example through a process-server, the notice need not be served personally on the assessee. It may be served on his authorised agent.
Service at the assessee's business premises on an agent exercising authority in respect of income-tax matters, though not authorised in writing in that behalf, is valid service under this Section.
In the case of a recognised agent carrying on business in the name of the principal, the authority to accept notices on behalf of the principal would be implied.
If the assessee is absent from his house and the notice is served on his adult son residing with him, or if on the refusal of the assessee to accept service or after all due and reasonable diligence to effect personal service has been in vain, the notice is affixed on the assessee's premises in accordance with the provisions of the Code of Civil Procedure, it would be good service under this Section.
Service by affixture would be illegal if reasonable and proper attempts are not made to find the assessee and serve him personally.
Where the notice is served on the assessee's relative or agent who is not authorised to accept service, and such relative or agent forwards the notice to the assessee, the service would be deemed to be effected on the date when the notice reaches the assessee.
The presentation of the notice to the assessee's accountant under the direction and in the presence of the assessee, who was unable to sign the acknowledgment because of illness, was held to be proper personal service.
Kiran Machines case
The question of service of notice was considered in Kiran Machines v. ITO (2006; 156 Taxman 463). In this case, the Assessing Officer issued a show-cause notice to the assessee and proposed to disallow interest of a certain sum. The assessee gave no reply to the notice. The AO, thereafter, passed an assessment order by levying tax thereon. Then, the AO served notice of personal hearing under Section 282 on the chartered accountant of the assessee by affixing the assessment order along with it, at the assessee's place of business, which was not functional.
The assessee filed a writ petition and contended that no opportunity was given to him to produce further evidence to support his claim, and if notice had been served on him personally, he would have appeared and submitted his objections.
The High Court held that under Section 282 of the Act the AO can invoke the provisions of the Civil Procedure Code and order. Rule 20 of the Code provides for `substituted service'. As per this provision, before resorting to substituted service under order V, rule 20, the court should be satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service, or that for any reason the summons cannot be served in the ordinary way. In that case, the court can order the summons to be served by affixing a copy thereof in some conspicuous place, and also in some conspicuous part of the house in which the person is known to have resided or carried on business or personally worked for gain, or in such other manner as the Court thinks fit.
In the instant case, the AO had not recorded any such satisfaction in his order before causing service of notice by affixture. It is also pertinent to point out that as per Order V, Rule 20(1A), the AO could have ordered paper publication if the address of the assessee was not known or it could not be furnished by his representative. This too was not done in the instant case. When an order of assessment levying tax is passed, it is incumbent upon the AO to serve the notice. Thus, the High Court held in the aforesaid case that the principles of natural justice had been violated.
In the instant case, proper notice had not been served on the assessee to enable him to participate in the assessment proceedings and put forth its objections. In such circumstances, it was not proper to ask the assessee to take recourse to alternative remedy of appeal. When the facts of the instant case clearly showed that there was failure of principle of natural justice and the assessee had made out a strong case, the High Court should invoke the extraordinary jurisdiction under Article 226 of the Constitution.
The High Court, thus, without going into the merits of the case, on the sole ground that no proper notice had been served on the assessee before passing the impugned order and as there was failure of principles of natural justice, quashed the proceedings and allowed the writ petition.
To conclude, a valid service of notice is the corner-stone for initiating any proceedings. Failure to do so would vitiate any action under the tax law and render all proceedings void. The law, having regard to the advent of technology, needs to be amended to permit service of notice through the electronic media.
H. P. Ranina (The author, a Mumbai-based advocate specialising in tax laws)