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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 805/2005
Reserved on : 1st February, 2018
Date of decision : 31st May, 2018
THE COMMISSIONER OF INCOME TAX-III ..... Petitioner
Through Ms. Lakshmi Gurung & Mr. Asheesh
Jain, Sr. Standing Counsel.
versus
M/S SUDEV INDUSTRIES LIMITED ..... Respondent
Through Dr. Rakesh Gupta, Mr. Somil Agarwal,
Ms. Monika Ghai & Mr. Rohit Kumar Gupta,
Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J.:
This appeal by the Revenue under Section 260A of the Income Tax
Act, 1961 (Act, for short), relates to Assessment Year 1995-96 and arises
from order dated 30th March, 2005 passed by the Income Tax Appellate
Tribunal (Tribunal, for short) in the case of M/s Sudev Industries Limited
(hereinafter referred to as, the respondent-assessee).
2. The appeal was admitted for hearing vide order dated 4 th August,
2006 on the following substantial question of law:-
ITA No. 805 /2005 Page 1 of 29
"Whether the Income Tax Appellate Tribunal is
justified in law in holding that service of notice at
the factory premises of the Assessee on the security
guard was not proper service under the provisions of
Section 282(2) of the Income Tax Act, 1961?"
3. For the Assessment Year (AY) 1995-96, the respondent-assessee had
filed Return of Income declaring ,,nil income with the Income Tax
Department, Bulandshahar on 15th May, 1997. This return being belated
and beyond statutory time was treated as non est. Consequently, after
recording "reasons to believe" in writing, Additional Commissioner of
Income Tax, Circle Bulandshahar had issued notice dated 11th September,
1998 under Section 148 read with Section 147 of the Act, calling upon the
respondent assessee to file its return for AY 1995-96. This notice was sent
registered post vide receipt No. 4896 dated 15th September, 1998 and as per
the Revenue also served on the respondent-assessee through Inspector of
Income Tax Department on 18th December, 1998 at A-7/74/1 & 2, UPSIDC
Indl. Area, Sikandarabad, Bulanshahr, Uttar Pradesh. The respondent-
assessee did not file return in response to the said notice, albeit their director
Mr. Rajeev Aggarwal had appeared before the Deputy Commissioner of
Income Tax, Bulandshahar and on his request reasons recorded for issue of
notice and a copy of the notice under Section 148 were furnished.
4. On 27th February, 2001, while the proceedings under Section 147/148
of the Act were pending, jurisdiction was transferred from Deputy
Commissioner of Income Tax, Circle Bulandshahar to Income Tax Officer,
Company Ward 3(2), New Delhi.
ITA No. 805 /2005 Page 2 of 29
5. Thereupon, the Assessing Officer, Company Ward 3(2), New Delhi
had issued notice under Section 142(1) dated 28th February, 2001, which
was served on the respondent-assessee requiring them to furnish details and
particulars, including copy of bank accounts, monthly sale/purchase - value-
wise and quantity-wise, opening and closing stock - item-wise, quality-wise
and value-wise, details of squared up accounts with confirmation, and
produce complete books of accounts. The proceedings continued with the
respondent-assessee appearing through the chartered accountant, and
sometimes with Mr. Rajeev Aggarwal, director in attendance. During the
course of the assessment proceedings, objection questioning jurisdiction of
the Assistant Commissioner of Income Tax, Circle Bulandshahar, who had
issued notice under Section 147/148 of the Act was raised. This contention
was rejected, primarily for three reasons namely, (i) the respondent-assessee
for the AYs 1994-95 and 1995-96 had voluntarily filed returns before the
Assessing Officer at Bulandshahr;(ii) during the course of the assessment
proceeding for AY 1994-95 on a query being raised by the Assessing
Officer, the respondent-assessee vide letter dated 7.4.1995 had stated that a
resolution had been passed for shifting of the registered office from Delhi to
Sikandarabad. The plea was accepted and return for AY 1994-95 was
processed by ITO, Ward 1, Bulundshahar and (iii) respondent-assessee had
filed an application dated 12.5.1997 for certificate under Section 230A(1)
with ITO ward-1, Bulandshahar, which was furnished on 28.5.1997.
6. On 22nd March, 2001, assessment order under section 144 of the Act
to the best of judgment of the Assessing Officer was passed. Profit and loss
account was not submitted and filed. Only a chart, indicating purchases and
ITA No. 805 /2005 Page 3 of 29
sales after 1st October, 1994 when the trading operations had started, and
closing stock on 31st March, 1995 was filed. The respondent-assessee had as
per the chart purchased goods worth Rs.3,06,98,078/-, sold goods worth
Rs.3,02,61,167/- and had shown closing stock of Rs. 8,74,125/- resulting in
gross profit of Rs.4,37,214/-. After referring to discrepancies on current
liabilities and unsecured loans, capitalizing preoperative interest, failure to
furnish confirmations from subscribers to share capital that had increased
from Rs.36,57,000/- to Rs. 317,60,500/- and also invoking Section 68 of the
Act, the total income of the respondent-assessee was assessed at
Rs.2,77,83,260/-.
7. Commissioner of Income Tax (Appeals) in his order dated 22 nd
March, 2002 upheld the action of the Assessing Officer at Bulandshahar in
issuing notice under Section 147/148 of the Act for reasons recorded in
detail including filing of returns of income for AY 1994-95 and 1995-96
before ITO, Bulandshahar, letter of the respondent-assessee justifying and
explaining why return for AY1994-95 was filed at Bulandshahar, issue of
certificate under Section 230A on application of the respondent-assessee by
the said assessing officer and filing of belated return for AY 1995-96 before
ITO, Bulandshahar. Commissioner of Income Tax (Appeals),
notwithstanding best judgment assessment, had also examined merits and
quantum of income earned by calling upon the respondent-assessee to
furnish details relating to transactions of purchases and sales above Rs.1 lac,
which were furnished. He noticed that the purchases or sales were not paid
for during the year, though the respondent-assessee had purportedly made
purchases and sales of Rs.3.06 crores and Rs.3.02 crores, respectively and
ITA No. 805 /2005 Page 4 of 29
had claimed net loss of Rs.24,920/-. Adverse findings were recorded on
several aspects, including failure to justify investment in purchases.
However, addition of more than Rs.2.28 crores made by the Assessing
Officer under Section 68 of the Act was deleted observing that addition
should be made in the hands of the persons who had actually advanced
money and had introduced their undisclosed income towards share capital of
the respondent-assessee. The respondent-assessee had contended that they
were a public limited company and share applications had been invited from
public at large. Few additions made by the Assessing Officer were deleted
and others were confirmed.
8. The respondent-assessee filed further appeal which has been allowed
by the impugned order of the Tribunal dated 30th March, 2005, on the
ground that notice under Section 148 of the Act dated 11 th September, 1998
issued by the Assistant Commissioner of Income Tax, Bulandshahar, and
addressed to M/s Sudev Industries Limited, A-74/142, UPSIDC Industrial
Area, Sikandarabad, District Bulandshahar, Uttar Pradesh, was not served as
per Section 282 of the Act. Service of notice affected on 8th February, 2001
through Inspector at the above address was not on any director or any person
authorised by the respondent-assessee to receive the notice but on Ajay
Pratap Singh, Security Guard. Inspector while effecting service had
recorded that the factory was not working and only security guards were
present. Service on the security guard, who was not authorised to receive
notice, it was held, was invalid and therefore the re-assessment proceedings
were entirely void and bad in law. Referring to the decision of Gauhati High
Court in Commissioner of Income Tax versus Mintu Kalita, [2002] 253
ITA No. 805 /2005 Page 5 of 29
ITR 334(Gau.), it was held that service of notice was not a procedural
requirement, but a condition precedent for initiation of proceedings.
Reliance was also placed on the decision of the Supreme Court in R.K.
Upadhyaya versus Shanabhai P. Patel, [1987] 166 ITR 163(SC). Madras
High Court in Venkat Naicken Trust and Another versus Income Tax
Officer and Another, [2000] 242 ITR 141 (Mad.) has held that when an
assessee pleads that he had not been served with notice, it was for the
department to place relevant material to substantiate and prove that the
assessee was served. Reliance was placed on the affidavit by Mr. Rajeev
Aggarwal that neither he, any of the directors nor an authorised person had
received notice dated 11th September, 1998 issued under Section 148 of the
Act. Consequently, when the notice under Section 147/148 of the Act was
not duly served, the Assessing Officer in Delhi could not have passed a valid
and legally sustainable assessment order.
9. We begin by referring to Section 282 as it was before substitution by
Finance (No.2) Act,2009. Section 282 of the Act, was as under:-
"Service of notice generally.
282. (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).
(2) Any such notice or requisition may be
addressed--
( a) in the case of a firm or a Hindu
undivided family, to any member of the firm or to
the manager or any adult member of the family ;
ITA No. 805 /2005 Page 6 of 29
( b) in the case of a local authority or
company, to the principal officer thereof ;
( c) in the case of any other association
or body of individuals, to the principal officer or any
member thereof ;
( d) in the case of any other person (not
being an individual), to the person who manages or
controls his affairs."
Section 282 of the Act dealt with procedure for service of notice and
without hesitation we would hold that this provision was enacted to ensure
compliance of principles of natural justice and for ease of service, and not
for hairsplitting and fault finding. Sub-section (1) to Section 282 had stated
that a notice or requisition could be served on the person therein named
either by post or as if it were summons issued by a court under the Code of
Civil Procedure, 1908. Clauses (a) to (d) of Sub-section (2) to the said
Section refer to whom such notice or requisition may be addressed to in
different cases such as in case of a firm or Hindu undivided family, a local
authority or company, any other association or body of individuals or any
other person. In case of a company notice may be addressed to the principal
officer. Use of the word "may" in sub-section (2) reflects that this provision
is permissive and not mandatory. Therefore, it would not be correct to hold
as held by the Tribunal that the notice under Section 148 of the Act not
being addressed to the principal officer but to the company itself was invalid
and completely illegal so as to not confer jurisdiction on the assessing
officer.
10. In Agricultural Company Rampur versus Commissioner of Income
Tax, (1974) 93 ITR 353 (Delhi), notice was issued to the dissolved firm and
ITA No. 805 /2005 Page 7 of 29
accepted by an accounts officer. Question arose whether the said notice was
served on the firm itself as it had not been issued to a specific partner or
addressed to partners. Referring to Commissioner of Income Tax (Central),
Bombay versus Devidayal and Sons, (1968) 68 ITR 425 (Bom), it was
observed that notice if not addressed to a partner would not render it invalid
if it was served and accepted and return was submitted in pursuance thereof.
In Agricultural Company Rampur (supra), though no notice was served on
the firm, yet it was treated as a valid service as notice was accepted by the
accountant, who was working for the assessee firm as well as for the two
partner companies. Reference was made to an earlier decision of Gujarat
High Court in Commissioner of Income Tax, Gujarat I, Ahmedabad versus
Bhanji Kanji's Shop, (1968) 68 ITR 416, wherein notice for re-assessment
served on a temporary employee of a dissolved firm was held to be as valid
service, observing that the conditions mentioned in Section 63 (2) of the
Income Tax Act, 1922 similar to Section 282 of the Act, i.e. Income Tax
Act, 1961, were not exhaustive and it was permissible to serve notice by
way of modes not mentioned in the said section. All that mattered was
whether notice was received on behalf of the assessee and was complied
with. When no question about validity of service was raised before the
Assessing officer or the first appellate authority but before the Tribunal for
the first time, the contention loses force. Belated objection regarding service
of notice before the Tribunal was adversely commented upon by the Delhi
High Court.
11. Appropriate for our case would be observations of the Bombay High
Court in Devidayal and Sons (supra) that provisions of Section 63 (2) of the
ITA No. 805 /2005 Page 8 of 29
Income Tax Act, 1922 requiring that the notice in case of a firm may be
addressed to any partner of the firm merely prescribes permissive mode of
service and was not intended to be either mandatory or exhaustive.
Consequently, the fact that notice to the firm was not addressed to a partner
would not render it invalid when in fact it was served on the partner and
accepted by him and a return was filed.
12. When a notice or summons are sent by registered post, the
constructions which apply are different from those which apply to service
through a process server or an Inspector, as was held in Commissioner of
Income Tax, West Bengal versus Malchand Surana, (1955) 28 ITR 684
(Cal.).
13. Service through registered letters is one of the commonest types/mode
of service. Where registered letter duly pre-paid and properly addressed is
issued, Courts invoke presumption under Section 27 of the General Clauses
Act and Illustration (f) of Section 114 of the Evidence Act. Refusal to accept
notice is treated as proper service. Referring to the said provisions, in
Malchand Surana (supra), Calcutta High Court had observed that mere fact
that the physical delivery of the notice was made to a person, other than the
addressee, who had no authority to receive the letter on the addressee's
behalf, would not be sufficient to prove lack or failure of proper service.
Presumption would still be there and would remain unrebutted
notwithstanding that the actual service had been affected on a different
person. In such a case, there could be room for rebuttal of the presumption
by further facts being proved by the addressee, who denies service but this
would depend upon facts of each case. Legality and sufficiency of service
ITA No. 805 /2005 Page 9 of 29
would depend on facts. Particular facts in the knowledge of the assessee
must be proved and established by the assessee. Thus, mere fact that notice
was served on the brother of the assessee was not sufficient to rebut the
presumption under Section 27 of the General Clauses Act. Primary question
would be whether the assessee had come to know about service at all, or
whether the assessee having come to know that some notice had been
served, had not made any further enquiry and had not been informed and
whether the presumption raised by the Sections had been rebutted according
to facts found proved in affirmative or negative [See Commissioner of
Income Tax Punjab, Haryana, Jammu Kashmir, Himachal Pradesh and
Chandigarh Patiala versus Lalita Kapur, (1970) 78 ITR 126 (P&H)]. There
have been decisions wherein service effected by registered post letter
addressed to the assessee has been held to be valid, though the
acknowledgement or service was affected on the employee or minor son or
even when there was refusal. The test as laid down in Malchand Surana
(supra) and Agricultural Company Rampur (supra) applies. In
Commissioner of Income Tax versus Vins Overseas India Ltd., (2008) 305
ITR 320 (Del), referring to the presumption under Section 27 of the General
Clauses Act, it was held that notice sent by registered post should be
presumed to be served unless rebutted by the assessee. Further, when
objection with regard to service of notice was not taken before the Assessing
Officer but before the appellate authority, the rebuttal should not be easily
accepted. Such objection should be raised at the initial stage before the
Assessing Officer and not after much delay. In the said case, affidavit
denying service of notice filed before the Tribunal was rejected on the
ground that the assessee should not be permitted to file the affidavit as per
ITA No. 805 /2005 Page 10 of 29
the assessees choice. Similar view on the question of presumption under
Section 27 of the General Clauses Act would hold good in the absence of the
proof to the contrary, were made in Commissioner of Income Tax, Delhi
(Central)-III versus Yamu Industries Ltd., ILR (2007) II Delhi 1400 and
Commissioner of Income Tax versus Madhsy Films Pvt. Ltd., (2008) 301
ITR 69.
14. We may now refer to Section 292B of the Act, which reads as under:-
"292B. No return of income, assessment, notice,
summons or other proceeding, furnished or made or
issued or taken or purported to have been furnished or
made or issued or taken in pursuance of any of the
provisions of this Act shall be invalid or shall be deemed
to be invalid merely by reason of any mistake, defect or
omission in such return of income, assessment, notice,
summons or other proceeding if such return of income,
assessment, notice, summons or other proceeding is in
substance and effect in conformity with or according to
the intent and purpose of this Act."
Section 292B of the Act deals with effect mistake, defect or omission in
service of notice, summons etc. and states that notice, order, proceedings, etc.
will not be invalid on account of any mistake, defect or omission if in
substance and effect it is in conformity with and in accordance with the
intent and purpose of the Act. The aforesaid section is a broad and wide
provision which lays emphasis on substance rather than form and that
technicalities should not result in invalidating the proceedings, notice,
orders, etc.
15. It is correct that legal dictums draw distinction between inherent
invalidity which relates to jurisdiction as when the jurisdictional pre-
conditions are not satisfied or when limitation period for passing an order
ITA No. 805 /2005 Page 11 of 29
has expired, and irregularities and mistakes in proceedings while in exercise
or during jurisdiction. We need not dilate and expound on the said
differentiation in detail in the present case, for service of notice under
Section 148 of the Act, it was held in R.K. Upadhyaya (supra) is an aspect
relating to procedure and a pre-condition for passing of an order of
assessment and not jurisdictional pre-condition which would make the
assessment order invalid when the assessee has been duly served and had
participated in the proceedings. In R.K. Upadhyaya (supra), the Supreme
Court had examined the question of difference between "issue of notice" and
"service of notice" and pointed out dissimilarities between the provisions in
the form of Sections 147 to 149 of the Act i.e. Income Tax Act, 1961, and
the differently worded provisions of the Income Tax Act, 1922 in the
following manner:-
"2..........Section 34 conferred jurisdiction on the
Income Tax Officer to reopen an assessment subject
to service of notice within the prescribed period.
Therefore, service of notice within limitation was
the foundations of jurisdiction. The same view has
been taken by this Court in J.P. Janni,
ITO v. Induprasad D. Bhatt [AIR 1964 SC 1742 :
(1964) 7 SCR 539 : 72 ITR 595] as also
in CIT v. Robert J. Sas [AIR 1964 SC 1742 : (1964)
7 SCR 539 : 48 ITR 177] . The High Court in our
opinion went wrong in relying upon the ratio
of Banarsi Debi v. ITO [AIR 1964 SC 1742 : (1964)
7 SCR 539 : 53 ITR 100] in disposing of the case in
hand. The scheme of the 1961 Act so far as notice
for reassessment is concerned is quite different.
What used to be contained in Section 34 of the 1922
Act has been spread out into three sections, being
Sections 147, 148 and 149 in the 1961 Act. A clear
ITA No. 805 /2005 Page 12 of 29
distinction has been made out between "issue of
notice" and "service of notice" under the 1961 Act.
Section 149 prescribes the period of limitation. It
categorically prescribes that no notice under Section
148 shall be issued after the prescribed limitation
has lapsed. Section 148(1) provides for service of
notice as a condition precedent to making the order
of assessment. Once a notice is issued within the
period of limitation, jurisdiction becomes vested in
the Income Tax Officer to proceed to reassess. The
mandate of Section 148(1) is that reassessment shall
not be made until there has been service. The
requirement of issue of notice is satisfied when a
notice is actually issued. In this case, admittedly, the
notice was issued within the prescribed period of
limitation as March 31, 1970, was the last day of
that period. Service under the new Act is not a
condition precedent to conferment of jurisdiction in
the Income Tax Officer to deal with the matter but it
is a condition precedent to making of the order of
assessment. The High Court in our opinion lost sight
of the distinction and under a wrong basis felt bound
by the judgment in Banarsi Debi v. ITO [AIR 1964
SC 1742 : (1964) 7 SCR 539 : 53 ITR 100] . As the
Income Tax Officer had issued notice within
limitations, the appeal is allowed and the order of
the High Court is vacated. The Income Tax Officer
shall now proceed to complete the assessment after
complying with the requirements of law. Since there
has been no appearance on behalf of the
respondents, we make no orders for costs."
(emphasis supplied)
16. Section 292B was introduced by Taxation Laws (Amendment) Act,
1975 with effect from 1st October, 1975. The object and purpose of
introducing the said section as explained in Commissioner of Income Tax
ITA No. 805 /2005 Page 13 of 29
versus M/s Jagat Novel Exhibitors Private Limited, [2013] 356 ITR 562
(Del) is as under:-
"28. The aforesaid provision has been enacted to
curtail and negate technical pleas due to any defect,
mistake or omission in a notice/summons/return.
The provision was enacted by Tax Laws
(Amendment) Act, 1975 with effect from 1st
October, 1975. It has a salutary purpose and ensures
that technical objections, without substance and
when there is effective compliance or compliance
with intent and purpose, do not come in the way or
affect the validity of the assessment proceedings. In
the present case, as noticed above, the respondent
took the plea before the Assessing Officer that they
were never served with the notices under Section
148 of the Act......
29. Object and purpose behind Section 292-B is to
ensure that technical pleas on the ground of mistake,
defect or omission should not invalidate the
assessment proceedings, when no confusion or
prejudice is caused due to non-observance of
technical formalities. The object and purpose of this
Section is to ensure that procedural irregularity(ies)
do not vitiate assessments. Notice/ summons may be
defective or there may be omissions but this would
not make the notice/summon a nullity. Validity of a
summon/ notice has to be examined from the stand
point whether in substance or in effect it is in
conformity and in accordance with the intent and
purpose of the Act. This is the purport of Section
292B. Notice/summons are issued for compliance
and informing the person concerned, i.e. the
assessee. Defective notice/summon if it serves the
intent and purpose of the Act, i.e. to inform the
assessee and when there is no confusion in his mind
about initiation of proceedings under Section
ITA No. 805 /2005 Page 14 of 29
147/148 of the Act, the defective notice is protected
under Section 292B. In such circumstances, the
defective notice/ summon is in substance and in
accordance with the intent and purpose of the Act.
The primary requirement is to go into and examine
the question of whether any prejudice or confusion
was caused to the assessee. If no prejudice/confusion
was caused, then the assessment proceedings and
their consequent orders cannot and should not be
vitiated on the said ground of mistake, defect or
omission in the summons/notice."
17. In M/s Jagat Novel Exhibitors Private Limited (supra), the Court had
also examined the question of difference between "issue of notice" and
"service of notice" as elucidated in R.K. Upadhyaya (supra), which had
pointed out the dissimilarities between Sections 147 to 149 of the Act, i.e.,
Income Tax Act, 1961 and similar provisions in the Income Tax Act, 1922
in the following manner:-
"41. The aforesaid observations are significant. In
the present case, the tribunal has not held that the
jurisdictional preconditions were missing or not
satisfied. Reasons to believe have been recorded.
Notice has also been issued within the limitation
period. The question whether the notice was
addressed to the correct person has been examined
and dealt with by us above. Service of notice is not
the jurisdictional precondition but a matter
pertaining to making of the order of assessment.
Before an assessment order is passed, the notice
must be served. As noticed above, on 21st February,
2002, Vijay Narain Seth, Director of the respondent
company appeared before the Assessing Officer. The
respondent had also filed some details before the
Assessing Officer who passed the assessment order."
ITA No. 805 /2005 Page 15 of 29
18. Thereafter, in M/s Jagat Novel Exhibitors Private Limited (supra),
reference was made to some other judgments, which are to the following
effect:-
"42. In Commissioner of Income Tax Vs. Anand and
Company (1994) 207 ITR 418 (Cal.), it has been
observed as under:-
"In our view, the Tribunal has taken an unduly
technical view of the whole matter. The
judiciary in this country has never gone on
technical triviality. Even in the litigation of
private parties, the courts have shown a wide
measure of forgiveness in similar acts of
omission or failure as pointed out by learned
counsel for the Revenue. (See Gouri Kumari
Devis case [1959] 37 ITR 220). At page 223
of the Reports, the Patna High Court has
observed as follows:
"With regard to the analogous
provisions of Order 6, rule 14, there is
authority for the view that the omission
or failure on the part of the plaintiff to
sign the plaint is a mere irregularity
which can subsequently be rectified and
the omission is not a vital defect. That is
the view expressed by the Judicial
Committee in Mohini Mohun Das v.
Bungsi Buddan Saha Das [1889] ILR 17
(Cal) 580 and by the Madras High Court
in Lodd Govindoss Krishnadas Varu v.
P. M. A. R. M. Muthiah Chetty, AIR
1925 Mad 660. "
Learned counsel for the Revenue further
cited Brahmaiah (Velivalli) v. Emperor,
AIR 1930 Mad 867 ; [1930] 59 MLJ 674,
ITA No. 805 /2005 Page 16 of 29
where the Madras High Court held that a
judgment of a Bench of Magistrates has
to be signed as required by law and the
requirements of public policy necessitate
the writing of the full name of the
Magistrate that signs the judgment and
the mere putting of the initials is not
sufficient compliance with the mandatory
provisions of section 265 of the Criminal
Procedure Code (V of 1889). At the same
time, the said High Court also held that
illustration to section 537 of the old Act,
viz., "the Magistrate being required by
law to sign a document signs it by initials
only." This illustration has been omitted
in the amended Act. According to the
court, the omission indicates that the
Legislature no longer views the
initialling of the order instead of signing
it as a defect affecting the validity of the
proceeding."
43. In Hind Samachar Limited Vs. Union of India
(2011) 330 ITR 266 (P & H) reference was made to
Section 292B and Section 139(9) of the Act. In the
said case, return of income, filed by the company
was signed by someone other than the authorized
person. It was observed that the question was of
removal of defect, which could be rectified.
Reference was made to another decision of the
Punjab and Haryana High Court in CIT Vs. Norton
Motors [2005] 275 ITR 595.
44. Bombay High Court in Prime Securities Ltd. Vs.
Varinder Mehta, Assistant Commissioner of
Income-tax (2009) 317 ITR 27 (Bom) has observed
that Section 292B of the Act makes it clear that a
return of income shall not be treated as invalid
merely by reason of any mistake, defect or omission,
ITA No. 805 /2005 Page 17 of 29
if the return of income is in substance and effect in
conformity with or according to the intent and
purpose of the Act. The return of income, if not
signed by the authorized signatory, as contemplated
under Section 140 of the Act, would be a mistake,
defect or omission stated in Section 292B of the Act.
45. We may note, observations of the Supreme
Court in Balchand Vs. ITO (1969) 72 ITR 197 (SC)
wherein it was held that in construing a statutory
notice, extraneous evidence may be looked into to
find out whether the technical defects or lacuna had
any effect on the validity of the notice. The facts had
revealed that though there were defects in drafting
the preamble of the notice, it did not affect its
validity as the notice itself clearly informed the
assessee that he had to file a return of income for the
relevant year.
46. In Chief Forest Conservator, Government of
Andhra Pradesh Vs. Collector (2003) 3 SCC 472,
the Supreme Court examined the question of
misdescription or misnomers of parties and the
effect thereof and it was held as under:-
"12. It needs to be noted here that a legal
entity -- a natural person or an artificial
person -- can sue or be sued in his/its
own name in a court of law or a tribunal.
It is not merely a procedural formality
but is essentially a matter of substance
and considerable significance. That is
why there are special provisions in the
Constitution and the Code of Civil
Procedure as to how the Central
Government or the Government of a
State may sue or be sued. So also there
are special provisions in regard to other
juristic persons specifying as to how they
can sue or be sued. In giving description
ITA No. 805 /2005 Page 18 of 29
of a party it will be useful to remember
the distinction between misdescription or
misnomer of a party and misjoinder or
non-joinder of a party suing or being
sued. In the case of misdescription of a
party, the court may at any stage of the
suit/proceedings permit correction of the
cause-title so that the party before the
court is correctly described; however, a
misdescription of a party will not be fatal
to the maintainability of the
suit/proceedings. Though Rule 9 of
Order 1 CPC mandates that no suit shall
be defeated by reason of the misjoinder
or non-joinder of parties, it is important
to notice that the proviso thereto clarifies
that nothing in that Rule shall apply to
nonjoinder of a necessary party.
Therefore, care must be taken to ensure
that the necessary party is before the
court, be it a plaintiff or a defendant,
otherwise, the suit or the proceedings
will have to fail. Rule 10 of Order 1 CPC
provides remedy when a suit is filed in
the name of the wrong plaintiff and
empowers the court to strike out any
party improperly joined or to implead a
necessary party at any stage of the
proceedings."
47. One of the questions, which arises for
consideration, in such cases is whether there was
prejudice. The test to be applied is whether the party
receiving the notice would be in doubt whether the
said notice is meant for him or not. If the recipient of
notice was not in doubt that it was meant for him,
the misnomer or misdescription is not fatal. Thus
failure to mention the words "Principal Officer" on
the notices is not fatal."
ITA No. 805 /2005 Page 19 of 29
19. It is often stated that rules of procedure are handmaid of justice for the
objective of prescribing procedure is to advance the cause of justice and not
to obstruct and give technical objections primacy and position to strike down
orders, when no prejudice or harm is otherwise caused and suffered. In
Uday Shankar Triyar versus Ram Kalewar Prasad Singh and Another,
(2006) 1 SCC 75, it was observed:-
"17. Non-compliance with any procedural
requirement relating to a pleading, memorandum of
appeal or application or petition for relief should not
entail automatic dismissal or rejection, unless the
relevant statute or rule so mandates. Procedural
defects and irregularities which are curable should
not be allowed to defeat substantive rights or to
cause injustice. Procedure, a handmaiden to justice,
should never be made a tool to deny justice or
perpetuate injustice, by any oppressive or punitive
use. The well-recognised exceptions to this principle
are:
(i) where the statute prescribing the procedure, also
prescribes specifically the consequence of non-
compliance;
(ii) where the procedural defect is not rectified, even
after it is pointed out and due opportunity is given
for rectifying it;
(iii) where the non-compliance or violation is proved
to be deliberate or mischievous;
(iv) where the rectification of defect would affect the
case on merits or will affect the jurisdiction of the
court;
ITA No. 805 /2005 Page 20 of 29
(v) in case of memorandum of appeal, there is
complete absence of authority and the appeal is
presented without the knowledge, consent and
authority of the appellant."
20. Earlier in Rani Kusum versus Kanchan Devi and Others, (2005) 6
SCC 705, after referring to the ratio in Kailash versus Nanhku and Others,
(2005) 4 SCC 480, it was observed:-
"10. All the rules of procedure are the handmaid of
justice. The language employed by the draftsman of
processual law may be liberal or stringent, but the
fact remains that the object of prescribing procedure
is to advance the cause of justice. In an adversarial
system, no party should ordinarily be denied the
opportunity of participating in the process of justice
dispensation. Unless compelled by express and
specific language of the statute, the provisions of
CPC or any other procedural enactment ought not to
be construed in a manner which would leave the
court helpless to meet extraordinary situations in the
ends of justice.
11. The mortality of justice at the hands of law
troubles a judge's conscience and points an angry
interrogation at the law reformer.
12. The processual law so dominates in certain
systems as to overpower substantive rights and
substantial justice. The humanist rule that procedure
should be the handmaid, not the mistress, of legal
justice compels consideration of vesting a residuary
power in the judges to act ex debito justitiae where
the tragic sequel otherwise would be wholly
inequitable. Justice is the goal of jurisprudence,
processual, as much as substantive. (See Sushil
Kumar Sen v. State of Bihar[(1975) 1 SCC 774] .)
ITA No. 805 /2005 Page 21 of 29
13. No person has a vested right in any course of
procedure. He has only the right of prosecution or
defence in the manner for the time being by or for
the court in which the case is pending, and if, by an
Act of Parliament the mode of procedure is altered,
he has no other right than to proceed according to
the altered mode. (See Blyth v. Blyth [(1966) 1 All
ER 524 : 1966 AC 643 : (1966) 2 WLR 634 (HL)] .)
A procedural law should not ordinarily be construed
as mandatory; the procedural law is always
subservient to and is in aid to justice. Any
interpretation which eludes or frustrates the recipient
of justice is not to be followed.
(See Shreenath v. Rajesh[(1998) 4 SCC 543 : AIR
1998 SC 1827] .)
14. Processual law is not to be a tyrant but a servant,
not an obstruction but an aid to justice. Procedural
prescriptions are the handmaid and not the mistress,
a lubricant, not a resistant in the administration of
justice.
21. We would, at this stage, refer to some facts, which were not disputed
and were recorded in the assessment order. Said facts were found to be
correct and were not overturned by the Tribunal. Notice under Section
147/148 had been sent by registered post vide receipt No.4896 dated 15 th
September, 1998 in addition to service by the Inspector of the Income Tax
Department. Secondly, upon service of the said notice, Mr. Rajeev
Aggarwal, director of the respondent-assessee had appeared before the
Deputy Commissioner of Income Tax, Circle Bulandshahar and on request
was given a copy of the notice issued under Section 148 of the Act and of
the reasons recorded for issue of notice. The third aspect is that the
respondent-assessee during the assessment proceedings before the Assessing
ITA No. 805 /2005 Page 22 of 29
Officer at Bulandshahar and then at Delhi, did not contest or object that
notice under Section 147/148 of the Act was not duly served as it was not
served on the authorized officer or director or the notice was not addressed
to the principal officer. In case, and if, the respondent-assessee had taken
the said plea, the Assessing Officer had the option to furnish and serve the
notice on the director or the authorised representative. There was no
occasion for the respondent-assessee to object as Mr. Rajeev Aggarwal was
duly furnished a copy of the notice. A company being a juristic and a legal
person, service cannot be in person on the Company, and has to be affected
by sending the notice to the registered office or at the place of business. In
the context of the present case, we would only observe that the object and
purpose of service of notice was to inform and make the company aware that
proceedings under Section 147/148 of the Act had been initiated. Initiation
of proceedings under Section 147/148 of the Act was upon recording of
reasons to believe and upon necessary approvals. Initiation to this extent
was valid and not disputed and challenged.
22. It was submitted before us that the respondent-assessee had taken the
plea and contested validity of service of notice on the security guard before
the first appellate authority, i.e., Commissioner of Income Tax (Appeals). It
was accepted and admitted that no such contention was raised before the
Assessing Officer. In support, the respondent-assessee had relied on
paragraph 2 of the order dated 22nd March, 2002 passed by the
Commissioner of Income Tax (Appeals), which reads as under:-
"2. The first ground of appeal is that as the notice
alleged to be issued to the assessee u/s 148 could not
in law be said to be served on the assessee, the
ITA No. 805 /2005 Page 23 of 29
assessment made, there under on the basis of such
notice is bad in law. That the proceedings u/s 148 of
the I.T. Act is illegal and uncalled for in view of
following facts:
a) The ITO, Bulandshahar did not have any jurisdiction
over the case to issue the notice.
b) The ITO did not have any reason to believe that the
income chargeable to tax has escaped assessment due
to omission or failure on the part of the assessee."
23. We have examined and considered order passed by the Commissioner
of Income Tax (Appeals) with reference to the aforesaid grounds.
Discussion and conclusions/findings recorded by the first appellate
authority, un-ambiguously do not reflect and show that ground of invalidity
of service in terms of Section 282 of the Act was raised. There is no
discussion on the issue; whether the service by registered post or by the
Inspector on the security guard would be valid. Legal effect and
consequences were not considered. This would un-mistakenly support the
submission of the appellant-Revenue that this ground was not taken at the
initial stage and when the first appeal was preferred and decided. Moreover,
what is important and relevant is whether this contention was raised before
the Assessing Officer. Respondent-assessee accepts that this contention was
not raised before the Assessing Officer.
24. We would now deal with the decisions relied upon by the counsel for
the respondent-assessee, which he submits support their case. In
Commissioner of Income Tax versus Rajesh Kumar Sharma, [2009] 311
ITR 235 (Del) reference was made to Section 282 of the Act and provisions
of Order V of the Code of Civil Procedure and more importantly Rules 12 to
ITA No. 805 /2005 Page 24 of 29
15 thereof. In the said case, as per the postal receipt notice was addressed to
"Sh. R.K. Prop. M/s Karol Bagh, New Delhi, Pin 110065" and it was held
that this was not the address of the assessee. The Court had also observed
that it would have been a different matter if the Revenue had been able to
show that the envelope was addressed to the correct person, but the receipt
issued by the postal department was incomplete. Contention of the Revenue
that the envelope was not returned and, therefore, it should be presumed to
have been duly served was rejected because of the categorical stand of the
assessee that he had not received the notice. Claim of the Revenue that the
notice through process server was served on one Lalmani, who was an
employeee of the assessee, was also rejected on the ground that the assessee
had stated that he did not have any employee named Lalmani and it was not
the case of the Revenue that the said Lalmani was authorised to receive
notice. Pertinently, the assessee had written a letter after he was served with
notice under Section 142(1) and 143(2) that he was unaware of any notice
issued under Section 147/148 of the Act. The facts of the case are clearly
distinguishable. Noticeably, Delhi High Court in Commissioner of Income
Tax- V, New Delhi versus Regency Express Builders Private Limited,
[2007] 291 ITR 55 (Del) had dealt with a situation where notice under
Section 143(2) of the Act had been sent to the address given by the assessee
and was served on one Gunanand. The assessee had thereafter appeared
through a chartered accountant. Question arose whether there was valid
service, as notice under Section 143(2) was required to be issued within the
stipulated period. The appeal was allowed and the contention of the
assessee was rejected, observing that the chartered accountant had appeared
ITA No. 805 /2005 Page 25 of 29
before the Assessing Officer, which would show that notice under Section
143(2) had been duly served.
25. In Venkat Naicken Trust and Another (supra), it was held that the
burden was on the Department to substantiate the plea that the assessee was
properly served. The said judgment would not be of relevance in the present
appeal in view of the fact that notices were sent by registered post as well as
through Inspector. Service was affected at the factory office of the
respondent-assessee. The case of the respondent-assessee is that notice was
served on the security guard and not on the director or authorised person.
Director of the respondent-assessee had thereafter appeared before the
Assessing Officer and was furnished a copy of the notice. In C.N. Nataraj
and Others versus Vth Income Tax Officer, Bangalore [1965] 56 ITR 250
(Mys), the assessment year involved was 1958-59 and the High Court
observed that the notices were issued in the name of minors, who could
neither sue nor could be sued and had to be represented by guardians or next
friend. In these circumstances, it was held that notices issued were wholly
invalid.
26. In the facts of the present case we would prefer to follow the decision of
the Delhi High Court in M/s Jagat Novel Exhibitors Private Limited (supra).
27. M/s Gopiram Bhagwandas, Dhanbad versus The Commissioner of
Income Tax, Bihar and Orissa, Patna, [1956] 30 ITR 8 (Pat) is an old
decision arising under the 1922 Act. The question adjudicated was whether
for the purpose of determining the starting point of limitation date of service
of the Tribunals order on the assessee himself or his lawyer would be
relevant. Issue and question in the present case is different.
ITA No. 805 /2005 Page 26 of 29
28. Commissioner of Income Tax versus Hyderabad Deccan Liquor
Syndicate, [1974] 95 ITR 130 (AP) was again a decision under the Income
Tax Act, 1922. The dispute therein had several facets, including whether the
assessing officer had elected to assess the individual members of the
Association of Persons (AOP), instead of the AOP. Reference in this
context was made to the provisions of the Income Tax Act, 1922, which as
noticed in R.K. Upadhyaya (supra) were different.
29. B. Johar Forest Works versus Commissioner of Income Tax, [1977]
107 ITR 409 (J&K) related to imposition of penalty due to non-compliance
of notices under Section 22 of the Income Tax Act, 1922.
30. Dina Nath versus Commissioner of Income Tax , [1993] 204 ITR
667 (J&K) was an extraordinary case, in which service of notice under
Section 143(2) was affected and the assessment order was passed on the
same day, making an addition of nearly Rs.36,000/- to the assessee's
income. In this case, the service had not been effected on the assessee.
Revenues contention that the notice was served on a partner of a firm in
which the assessee was a partner was rejected for several reasons. This
order takes into account cumulative facts, which established prejudice.
31. In Additional Commissioner of Income-tax, Lucknow versus Prem
Kumar Rastogi, [1980] 124 ITR 381 (All), the issue raised related to
starting point for computation of period of limitation for appeal, and in that
context it was held that the service on third person who was not an
authorized agent would not matter.
ITA No. 805 /2005 Page 27 of 29
32. In Commissioner of Income-tax, Kanpur versus Kanpur Plastipack
Ltd., [2017] 390 ITR 381 (All), notice was served on the power of attorney
holder, who was authorized to represent the assessee to conduct the case, but
was not authorized to receive notice. Apparently, the assessee had not
complied and entered appearance.
33. Decision of the Delhi High Court in Commissioner of Income-tax
versus Lunar Diamonds Ltd., [2006] 281 ITR 1 (Del.) was on the issue
whether notice under Section 143(2) of the Act was served within the
prescribed limitation period. The decision relates to difference between
,,served and ,,issued.
34. In Mintu Kalita (supra), it was observed that service of notice under
Section 147/148 of the Act was not a mere procedural requirement, but a
condition precedent for initiation of proceedings. In the present case, the
question is whether the service affected should be treated as null and void.
Ratio in Mintu Kalita (supra) has to be read in light of the pronouncement
and ratio in R.K. Upadhyaya (supra).
35. In view of the aforesaid discussion, we find sufficient justification and
reason to allow the present appeal and answer the substantial question of law
in favour of the appellant-Revenue and against the respondent-assessee. It is
held that the assessment proceedings under Section 147/148 of the Act are
not invalid or void for want of proper service of notice. However, an order
ITA No. 805 /2005 Page 28 of 29
of remand is required to be passed as the Tribunal has not adjudicated and
decided the appeal filed by the respondent-assessee on merits.
36. To cut short delay, it is directed that the Revenue and the authorised
representative of the respondent-assessee would appear before the Tribunal
on 10th July, 2018 when a date of hearing would be fixed. In the facts of the
case, the appellant-Revenue, it is held, is entitled to costs.
( SANJIV KHANNA)
JUDGE
(CHANDER SHEKHAR)
JUDGE
MAY 31st , 2018
VKR
ITA No. 805 /2005 Page 29 of 29
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