Invalid service of notice if AO knowingly posts notice at old address where assessee isn't residing anymore

Where Assessing Officer came to know that assessee is not residing at his last known address, he should follow procedure of substituted service of notice under CPC; service by affixation at said last known address would be invalid

HIGH COURT OF PUNJAB AND HARYANA

Commissioner of Income-tax-I, Ludhiana

v.

Sher Singh*

RAJIVE BHALLA AND DR. BHARAT BHUSHAN PARSOON, JJ.

IT APPEAL NO. 6 OF 2011 (O&M)†

JULY  19, 2013 

Section 282, read with section 158BD, of the Income-tax Act, 1961 - Service of notice [Notice by affixation] - Assessee sold his house and shifted his residence - At time of service of notice, Assessing Officer came to know that assessee is not residing at his last known address - Whether Assessing Officer would be required to search for assessee's new address and if it was not available, serve assessee in accordance with procedure for substituted service, publication, etc. prescribed by Code of Civil Procedure - Held, yes - Whether since service of notice to assessee by way of affixation of notice at previous house, resulted into ex parte assessment order, same would be illegal for want of valid service - Held, yes [Paras 6 & 7] [In favour of assessee]

FACTS

■		The assessee sold his house and shifted to new place of residence.
■		At time of service of notice, the Assessing Officer came to know about this fact.
■		The Assessing Officer passed an ex-parte order on the ground that notice was affixed at last known address but assessee did not appear.
■		On appeal, the Commissioner (Appeals) as well as the Tribunal held the assessment order as illegal and void on the ground that since the revenue department was aware of the fact that assessee has sold his house and shifted his residence, service of notice by affixing same at old premises would be invalid.
■		On revenue's appeal:

HELD

■		The report of service in respect of issue of notice leaves no ambiguity that the Assessing Officer was aware that the respondent is not residing at his last known address but surprisingly persisted in ordering service by affixation, at this address. At this stage it would be appropriate to clarify that if the revenue is aware that an assessee is not residing at his last known address, an Assessing Officer, would be required to search for the assessee's new address and if still not available, serve the assessee in accordance with procedure for substituted service and publication etc. prescribed by the Code of Civil Procedure. [Para 6]
■		If service upon an assessee is held to be illegal the Commissioner (Appeals) or the ITAT would be required to restore the show cause notice to the Assessing Officer from the stage of service, for adjudication afresh and in accordance with law, subject, however to any legal objections that may be available to the assessee to be raised at the appropriate stage before the Assessing Officer. [Para 8]
■		In this view of the matter, while affirming orders passed by the Commissioner (Appeals) or the Tribunal with respect to illegality of the assessment order for want of valid service, the matter is remitted to the Assessing Officer to adjudicate the show cause notice afresh from the stage prior to initiation of ex-parte proceedings. [Para 9]

CASES REFERRED TO

CIT v. Naveen Chander [2010] 323 ITR 49 (Punj. & Har.) (para 3), Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 (SC)(para 3), CIT v. Dewan Kraft-System (P.) Ltd. [2007] 165 Taxman 139 (Delhi) (para 3) and CIT v. Pawan Gupta [2009] 181 Taxman 299 (Delhi)(para 3).

Rajesh Katoch for the Appellant. S.K. Mukhi for the Respondent.

JUDGMENT

Rajive Bhalla, J. - The revenue challenges order dated 31.03.2010 passed by the Income Tax Appellate Tribunal, Chandigarh affirming order dated 17.12.2008 passed by the Commissioner of Income Tax (A), Chandigarh.

2. Counsel for the revenue submits that the respondent sold his house and shifted to his new place of residence without informing the department about his new address. The Assessing Officer could not serve the assessee personally and therefore ordered substituted service. A notice was affixed at the last known address of the respondent but as the respondent did not put in appearance the Assessing Officer passed an ex-parte assessment order. The Commissioner of Income Tax (Appeals) as well as the Income Tax Authority have reversed the assessment order by holding that as the department was aware that the respondent has sold his house and shifted his residence, service at the last known address and as a result the assessment order are illegal and void. Counsel for the appellant submits that as no other address was available with the Assessing Officer he had no option but to serve the assessee at his last known address. It is also contended that if an order is set aside for want of valid service, the show cause notice would still subsist but as neither the CIT (Appeals) nor Income Tax Appellate Tribunal have restored the matter to the Income Tax Officer, the following additional questions of law may be framed and answered:—

(1)		"Whether defect in service would entail setting aside of the show cause notice along with the assessment order; and
(2)		Whether in such a situation the CIT(A) or the I.T.A.T should have directed the Assessing Officer to proceed from the stage of service?"

3. Counsel for the respondents submits that findings of fact recorded by the Commissioner of Income Tax (Appeals) duly confirmed by the Income Tax Appellate Tribunal do not call for interference and as no substantial question of law arises, the appeal should be dismissed. The Assessing Officer was admittedly aware that the respondent had sold his house and shifted to another place but persisted in serving the respondent at his old address. The ex-parte assessment order passed after affixing notice at the old address of the respondent was rightly set aside. It is further submitted that no useful purpose would be served by allowing the Income Tax Officer to proceed afresh but if such an order is to be passed the Income Tax Officer may be directed to decide the matter after taking into consideration all relevant decisions on the subject, namely CIT v. Naveen Chander [2010] 323 ITR 49 (Punj. & Har.) Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 (SC), CIT v. Dewan Kraft System (P.) Ltd. [2007] 165 Taxman 139 (Delhi)CIT v. Pawan Gupta [2009] 181 Taxman 299 (Delhi).

4. We have heard counsel for the parties perused the impugned orders as well as the substantial questions of law, framed by revenue which read as follows:—

"(i)		Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in holding that the notice under section 158BD was not serviced by affixture at the correct address of the assessee without appreciating the facts that all the notices and correspondence was made at the last known address of the assessee as mentioned in ikrarnama dated 20.4.1998?
(ii)		Whether on the facts and in law, the Hon'ble Tribunal was justified in holding that due diligence had not been exercised in the case to find out the whereabouts of the assessee so as to warrant service by affixture, when the assessee had shifted from the place and that nobody disclosed the present whereabouts of the assessee during the inquiries made by the Income Tax Inspector and that the assessee had been using two different names i.e Shri Sher Singh son of Shri Gurdev Singh and Shri Balsher Singh son of Shri Gurdev Singh to avoid the service of notice under Section 158 BD of the Income Tax Act, 1961?
(iii)		Whether on facts and in law has not the Hon'ble Income Tax Appellate Tribunal failed to perform its minimum function of the highest fact finding authority by not even looking at Annexure A-1 to Annexure A-V routinely kept on the Assessment records, which seems to have resulted in a perverse finding?"

5. The questions framed by the revenue are neither "substantial" nor "questions of law" but simple questions of fact, that have been suitably dealt with by the C.I.T(A) and the I.T.A.T. A perusal of the impugned orders would reveal that the assessing officer was aware that the assessee had sold this house and was no longer residing at this address. A reference in this regard may be made to a relevant paragraph from the order passed by the Commissioner of Income Tax, which makes reference to the service report and reads as follows:—

"On the face of the notice issued under Section 158 BD of the I.T Act dated 29.4.2002, placed at page 47 of the paper book, there is a report of the Inspector, which is as under:—

Sir, The notice has been affixed on the wall of residential house which was purchased by Shri Gurnam Singh of Village Bhamian

	Sd/- Inspector	Sd/- Inspector
	5.8.2003"	5.8.2003

6. The report leaves no ambiguity that the Assessing Officer was aware that the respondent is not residing at his last known address but surprisingly persisted in ordering service by affixation, at this address. At this stage it would be appropriate to clarify that if the revenue is aware that an assessee is not residing at his last known address, an Assessing Officer, would be required to search for the assessee's new address and if still not available, serve the assessee in accordance with procedure for substituted service and publication etc. prescribed by the Code of Civil Procedure. In the absence of any error of jurisdiction of law in the impugned orders, we express our inability to entertain the appeal on the questions of law as set out in the memorandum of appeal but proceed to consider whether questions of law framed by counsel for the revenue in court should be answered. The questions are as under:-

(1)		"Whether defect in service would entail setting aside of the show cause notice along with assessment order; and
(2)		Whether in such a situation the CIT(A) or the I.T.A.T should have directed the Assessing Officer to proceed from the stage of service?"

7. A due consideration of the arguments addressed for and against these questions reveals that they raise substantial questions of law as setting aside of an assessment order would not entail setting aside of the show cause notice. The order passed by the Assessing Officer was held to be illegal for want of valid service. The show cause notice, however, has not been held to be invalid and, therefore, subsists. The C.I.T(A) of the Tribunal, were, therefore, required while setting aside order passed by Assessing Officer for want of valid service to restore the matter to the office of the Assessing Officer for proceeding afresh from the stage of service of show cause notice, instead of allowing the assessee to go scot free. Failure to adopt such a course has led the Appellate Authority and the I.T.A.T to commit an error of jurisdiction.

8. The questions of law are, therefore, answered by holding that if service upon an assessee is held to be illegal the CIT(A) or the ITAT would be required to restore the show cause notice to the Assessing Officer from the stage of service, for adjudication afresh and in accordance with law, subject, however to any legal objections that may be available to the assessee to be raised at the appropriate stage before the Assessing Officer.

9. In this view of the matter, while affirming orders passed by the CIT(A) or the I.T.A.T, with respect to illegality of the Assessment order for want of valid service, the matter is remitted to the Assessing Officer to adjudicate the show cause notice afresh from the stage prior to initiation of ex-parte proceedings, and while doing so consider relevant provisions of law as well as objections and judgments, referred to by the respondent. The appeal stands disposed of accordingly.
[2013] 37 taxmann.com 418 (Punjab & Haryana)