Notice can be served on factory premises of Assessee on the Security Guard: Delhi HC [Read Judgment]

The Delhi High Court on 31^st May held that the assessment proceedings under sections 147/148 of the Income Tax Act are not invalid or void merely for want of proper service of notice. The High Court Reversed the decision of the Income Tax Appellate Tribunal (ITAT) that the service of notice at the factory premises of the Assessee on the security guard was not proper under provisions of section 282(2) of the Income Tax Act 1961.

The Respondent (Assessee ) Sudev Industries Ltd, had filed  Income Tax Returns declaring ‘nil’ income with the Income Tax Department, Bulandshahar on for the Assessment Year 1995-96 on 15^th 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 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.The Respondent did not file return in response to the notice, instead 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. On 27th February, 2001, while the proceedings under Section 147/148 of the Act were pending, the jurisdiction was transferred from Deputy Commissioner of Income Tax, Circle Bulandshahar to Income Tax Officer, Company Ward 3(2), New Delhi.

The Assessing Officer issued notice under Section 142(1) which was served on the Respondent 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 appearing through the chartered accountant, and sometimes with Mr. Rajeev Aggarwal, director in attendance. On 22nd March, 2001, assessment order under section 144 was passed and the total income of the Respondent was assessed at Rs.2,77,83,260/-.

In the appeal filed by the Respondent, against the assessment order the CIT(A )confirmed the action of the Assessing Officer at Bulandshahar in issuing notice under Section 147/148 of the Act. Few additions made by the Assessing Officer were deleted and others were confirmed. Aggrieved by this the Appellant had preferred n appeal before the ITAT.

The ITAT held that the service of notice 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 as per Section 282 of the Act. The Respondent contended that 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 to receive the notice but on the 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 authorized to receive notice, was, invalid and therefore the re-assessment proceedings were held entirely void and bad in law. The ITAT relied on the decision of Gauhati High Court in Commissioner of Income Tax versus Mintu Kalita, in which  it was held that service of notice was not a procedural requirement, but a condition precedent for initiation of proceedings.

Aggrieved by this order of the ITAT, the Revenue preferred an appeal before the High Court. The bench comprising Justice Sanjiv Khanna and Chander Sekhar noted that the Section 282 of the Act deals with procedure for service of notice and this provision was enacted to ensure compliance of principles of natural justice and for ease of service, and not for hairsplitting and fault finding.

The High Court observed that the use of the word “may” in sub-section (2) reflects that this provision is permissive and not mandatory.The High Court held that the ITAT was not correct in holding 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.

The High Court relied upon Agricultural Company Rampur versus Commissioner of Income Tax, in which it was held that though no notice was served on the firm, the service of was treated as a valid service as the notice was accepted by an accountant, who was working for the Assessee firm as well as for the two partner companies.

The High Court also referred to Section 292B of the Act which deals with effect of 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 lays emphasis on substance rather than form and that technicalities should not result in invalidating the proceedings, notice, orders, etc.