INCOME TAX OFFICER v. MUKAND LAL & SONS
[Citation -2006-LL-0331-10]

Citation 2006-LL-0331-10
Appellant Name INCOME TAX OFFICER
Respondent Name MUKAND LAL & SONS
Court ITAT
Relevant Act Income-tax
Date of Order 31/03/2006
Assessment Year 1993-94
Judgment View Judgment
Keyword Tags reassessment proceedings • unexplained investment • status of individual • agricultural income • condition precedent • status of assessee • undisclosed income • service of notice • registered post • issue of notice • working capital • belated return • profit margin • taxable limit • valid notice • sale deed
Bot Summary: On 9/14-12-1998, letter No. 3384 was sent to Shri Lakhwinder Singh S/o Shri Gurdev Singh by registered post intimating therein that the notices under section 148 were issued in the name of M/s. Mukand Lal Sons for all the assessment years under appeal which was served on 25-3-1998 and that the income-tax returns in response to these notices had not been received. The additions were challenged before the CIT(A) and it was submitted that no notice is validly served on Shri Lakhwinder Singh and in the absence of a n y service of the notice under section 148 of the Income-tax Act, the reassessment proceedings are bad in law and the Assessing Officer has not assumed the jurisdiction validly in accordance with law. The combined reading of the aforesaid provisions would clearly prove that before making the reassessment under section 147, the Assessing Officer shall serve on an assessee notice requiring him to furnish within such period as may specify in the notice, return of his income assessable under the Act. Copies of the notices under section 148 have been filed on record along with the report of the I.T.O., T.D.S., Ferozepur dated 3-2-2006 in which it is stated that the signatures on the notice under section 148 are of Notice Server Shri Palla Singh. The notices under section 148 do not contain the status of the assessee whether he is Individual, HUF, Firm or an AOP. The notices are addressed to M/s. Mukand Lal Sons, G.T. Road, Ferozepur. The provisions in the Civil Procedure Code make it clear that the service of notice on a person can be effected by serving the notice on his agent who has been specifically empowered or authorised to receive the notice in writing by that person. 13.1 The Hon'ble Calcutta High Court in the case of Chandi Prasad Modi considered the validity of reassessment and considered the fact in which there was no indication in notice of status of assessee, file No. or whether notice was intended for HUF or partnership, both of whom carried on business under same name and style and at same premises - ITO aware of existence and separate identity of two concerns and no denial of this fact in affidavit filed by department - notice is vague and invalid.


1. This order shall dispose of all above five appeals filed by Revenue and assessee against common order of CIT(A), Bhatinda dated 7-11-2000 for assessment years 1993-94 to 1996-97. 2. I have heard learned representatives of both parties and gone through observations of authorities below and material available on record. 3. learned representatives of both parties stated that facts are common in all appeals. learned representatives mainly argued appeal of assessment year 1993-94. facts of case are that Assessing Officer framed reassessments in name of M/s. Mukand Lal & Sons, Petrol Pump, G.T. Road, Ferozepur through Shri Lakhwinder Singh S/o Shri Gurdev Singh in status of A.O.P. under section 144 of Income-tax Act. assessee is stated to running petrol pump. No return was furnished under section 139. Notice under section 148 was issued after recording reasons which was served upon assessee on 25-3-1998. Later on, vide letter dated 22-11-1998 Shri Karaj Singh S/o Shri Iqbal Singh, partner of M/s. Mukand Lal & Sons on enquiry intimated Assessing Officer that they had purchased petrol pump on 17-12-1997 from Shri Lakhwinder Singh S/o Shri Gurdev Singh n d tax matter may be negotiated with Shri Lakhwinder Singh S/o Shri Gurdev Singh for assessment years in question. Therefore, on 9/14-12-1998, letter No. 3384 was sent to Shri Lakhwinder Singh S/o Shri Gurdev Singh by registered post intimating therein that notices under section 148 were issued in name of M/s. Mukand Lal & Sons for all assessment years under appeal which was served on 25-3-1998 and that income-tax returns in response to these notices had not been received. He was requested to intimate if said notices have been received by him or by firm or its representative etc. It was also stated that failing to furnish intimation, it would be presumed that notices have been received by firm as constituted during period relevant to assessment years for which notices under section 148 had been issued. It is stated that on 22-3-1999, Shri Lakhwinder Singh happened to attend office of Assessing Officer and same letter was delivered to him but Shri Lakhwinder Singh did not furnish his reply. Earlier owners of firm M/s. Mukand Lal & Sons were also contacted for this purpose, who intimated Assessing Officer on 9-4-1999 that they have sold petrol pump etc. to Shri Lakhwinder Singh on dated 25-10-1991. statement of earlier owner Shri Ved Parkash was also recorded to that effect. Assessing Officer therefore, observed from above facts that petrol pump in question was sold to Shri Lakhwinder Singh on 25-10-1991 and as such for all assessment years in question Shri Lakhwinder Singh shall be responsible for all tax matters after sale of petrol pump to him. 4. In response to notice under section 142(1), Shri Lakhwinder Singh furnished letter dated 29-2-2000 claiming therein that he had purchased land for Rs. 1,60,000 on 25-10-1991 from Shri Ved Parkash etc. and that he had no concern whatsoever with petrol pump being attorney and is not liable to account for profits. However, Shri Lakhwinder Singh did not furnish copy of power of attorney. Assessing Officer, therefore, observed that Shri Lakhwinder Singh maintained bank accounts and was responsible for aforesaid business of petrol pump and from sale deed dated 9-12-1997 Shri Lakhwinder Singh has mentioned ownership and running petrol pump but name of other shareholder is not mentioned. Assessing Officer was, therefore, satisfied that Shri Lakhwinder Singh S/o Shri Gurdev Singh was owner of petrol pump and he ran business in collaboration with some other persons, therefore, status of business of petrol pump was taken as AOP through Shri Lakhwinder Singh S/o Shri Gurdev Singh. Assessing Officer further issued notice under section 142(1) in reply thereto. Shri Lakhwinder Singh stated that he was not owner of petrol pump. Assessing Officer in absence of any material on record from side of Shri Lakhwinder Singh had proceeded to make assessment under section 144 of Income- tax Act ex parte and estimated working capital of Rs. 2,50,000 which was required to run petrol pump and made addition in assessment year 1993-94. Similarly undisclosed income from sale of petrol pump was worked out at Rs. 84,485. In remaining assessment years, Assessing Officer estimated undisclosed income at Rs. 1,03,657, Rs. 1,24,430 and Rs. 1,22,520 for assessment years 1994-95, 1995-96 and 1996-97 respectively. 5. additions were challenged before CIT(A) and it was submitted 5. additions were challenged before CIT(A) and it was submitted that no notice is validly served on Shri Lakhwinder Singh and in absence of n y service of notice under section 148 of Income-tax Act, reassessment proceedings are bad in law and Assessing Officer has not assumed jurisdiction validly in accordance with law. On merits, it was submitted that Shri Lakhwinder Singh has subsequently filed return of income in status of individual on 18-7-2000 declaring income below taxable limit and that Shri Lakhwinder Singh has income from agriculture, therefore, additions are unwarranted and assessment order so framed under section 148 of Income-tax Act is bad in law. CIT(A) however dismissed appeal of assessee as regards taking status of AOP. CIT(A) also upheld issue of notice under section 148 as well as resultant proceedings. However, addition on account of unexplained investment in purchase of petrol pump in sum of Rs. 2,50,000 was modified and addition was confirmed in sum of Rs. 1,50,000 and remaining addition of Rs. 1,00,000 was deleted out of addition. As far as undisclosed income from sale of petrol and diesel is concerned, CIT(A) gave relief to assessee in sum of Rs. 10,000 in each assessment year. appeals of assessee were accordingly partly allowed. 6. Revenue is in appeal challenging deletion of additions of Rs. 1,00,000 and Rs. 10,000 on account of undisclosed sale of petrol and diesel in assessment year 1993-94. However, assessee is in appeals for all assessment years challenging validity of reassessment under section 148 of Income-tax Act as well as challenging additions on merits. 7. learned counsel for assessee at outset submitted that notice under section 148 of Income-tax Act was never served upon Shri Lakhwinder Singh. He has further submitted that since Shri Lakhwinder Singh sold petrol pump on 17-12-1997, therefore, there was no question of service upon Shri Lakhwinder Singh of notice under section 148 on 25-3-1998. He h s submitted that since no notice under section 148 is served upon Shri Lakhwinder Singh. Therefore, Assessing Officer has not validly assumed jurisdiction for purpose of framing assessment under section 148 of Income-tax Act. He has submitted that service of notice is condition precedent before proceeding to make reassessment under section 148 of Income-tax Act and in support of his contention, he has relied upon following decisions:- 1. P.N. Sasikumar v. CIT [1988] 170 ITR 801 (Ker.). 2. ITO v. Chandi Prasad Modi [1979] 119 ITR 340 (Cal.). 3. Jayanthi Talkies Distributors v. CIT [1979] 120 ITR 576 (Mad.). 4. Shri Sidh & Co. v. ITAT [1992] 194 ITR 7472 (All.). 5. P.V. Doshi v. CIT [1978] 113 ITR 22 (Guj.). He has also referred to other decisions, which are not directly applicable to present case. learned counsel for assessee also argued on merits and submitted that Shri Lakhwinder Singh earned agricultural income for which proper details were filed before CIT(A) but no proper reliance has been placed. He has further submitted that copies of Jamabandi of land holding of Shri Lakhwinder Singh was also filed which is not properly considered by CIT(A). He has submitted that subsequently Shri Lakhwinder Singh filed belated return on 18-7-2000 showing profit margin which was below taxable limit and, therefore, authorities below were not justified in making additions. He has further submitted that petrol pump was controlled by Indian Oil Corporation and profit margin should have been verified by Assessing Officer before making addition in matter. He has submitted that profit margin as declared by Indian Oil Corporation is very meagre and as such huge addition is unwarranted in matter and same is excessive and unreasonable. 8. On other hand, learned D.R. relied upon orders of authorities below and submitted that status of assessee was correctly taken as AOP and that notice under section 148 were validly served and that Shri Lakhwinder Singh has not shown agricultural income in belated returns. Therefore, no further benefit can be given to assessee. learned D.R. was directed to file copies of notices under section 148 of Income-tax Act dated 9-3-1998 along with letter of Assessing Officer dated 14-12-1998 addressed to Shri Lakhwinder Singh. learned D.R. was also directed to file addressed to Shri Lakhwinder Singh. learned D.R. was also directed to file copy of order sheet entry dated 22-3-1999 showing if Shri Lakhwinder Singh appeared before Assessing Officer. learned D.R. filed copies of notices under section 148 dated 9-3-1998 for all years along with reply of ITO (TDS), Ferozepur dated 3-2-2006 and also filed copy of letter of Assessing Officer dated 14-12-1998. learned D.R. also filed copy of reasons recorded for reopening assessment in matter. However, learned D.R. submitted that there is no order sheet entry available on record showing that Shri Lakhwinder Singh appeared before Assessing Officer on 22-3-1999. learned D.R. went on to say that Shri Lakhwinder Singh never appeared before Assessing Officer on 22-3-1999. 9. I have considered rival submissions and material available on record. facts are not in dispute as regards Shri Lakhwinder Singh purchased petrol pump in question from Shri Ved Parkash etc. on 25-10-1991. name and style of business remains same as M/s. Mukand Lal & Sons. It is also not in dispute that Shri Lakhwinder Singh sold same petrol pump to Shri Karaj Singh and others on 17-12-1997. Therefore, Shri Lakhwinder Singh was responsible for affairs of business of M/s. Mukand Lal & Sons during assessment years under appeal i.e., 1993-94 to 1996-97. Section 148 of Income-tax Act provides:"148. (1) Before making assessment, reassessment o r recomputation under section 147, Assessing Officer shall serve on assessee notice requiring him to furnish within such period, as may be specified in notice, return of his income or income of any other person in respect of which he is assessable under this Act during previous year corresponding to relevant assessment year, in prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed; and provisions of this Act shall, so far as may be, apply accordingly as if such return were return required to be furnished under section 139.(2) Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 10. Section 282(2)(c) provides service of notice in case of any other association or body of individuals, to principal officer or any member thereof. combined reading of aforesaid provisions would clearly prove that before making reassessment under section 147, Assessing Officer shall serve on assessee notice requiring him to furnish within such period as may specify in notice, return of his income assessable under Act. Therefore, it is condition precedent that before making reassessment under section 147/148, Assessing Officer shall have to serve notice under section 148 of Income-tax Act upon assessee. In case of A.O.P. or other association such notice shall have to be served upon principal officer or any other member thereof. In this case, nothing is specified as to who else were Members of A.O.P. M/s. Mukand Lal & Sons. Therefore, at most Assessing Officer should have served notices under section 148 upon Shri Lakhwinder Singh. Copies of notices under section 148 have been filed on record along with report of I.T.O., T.D.S., Ferozepur dated 3-2-2006 in which it is stated that signatures on notice under section 148 are of Notice Server Shri Palla Singh. Adjacent to his sign there is another signature but no name or designation or any other information is available. This report of Revenue clearly shows that even it is not clarified as to upon whom notices under section 148 have been served. I find from copies of notices as well as from assessment records produced by learned D.R. that only some initial is there on notice without giving any detail therein as to upon whom such notices have been served by Assessing Officer. No service report is available on record to show that upon whom notices under section 148 have been served. notices under section 148 do not contain status of assessee whether he is Individual, HUF, Firm or AOP. notices are addressed to M/s. Mukand Lal & Sons, G.T. Road, Ferozepur. Even in reasons recorded for initiating proceedings under section 148 of Income-tax Act, Assessing Officer has nowhere mentioned status of assessee. Shri Lakhwinder Singh is stated to have sold petrol pump on 17-12-1997 and as per record notice under section 148 dated 9-3-1998 is stated to be served upon somebody on 25-3-1998. address contained in notice is of petrol pump at G.T. Road, Ferozepur Cantt. where presence of Shri Lakhwinder Singh cannot be presumed by any stretch of imagination on day of service of notice. Therefore, it is clear from above facts that notice under section 148 was not served upon Shri Lakhwinder Singh on 25-3-1998. Revenue has also failed to prove as to upon whom such notice has been served. This fact is also strengthened by issue of letter by Assessing Officer on 14-12-1998 to Shri Lakhwinder Singh in which Assessing Officer himself asked Shri Lakhwinder Singh to intimate whether in fact notice under section 148 is served upon him or not and in case no reply is given then he would presume that notices have already been received. Such language in letter dated 14-12-1998 would clearly prove that despite Assessing Officer was aware of fact from statement of Shri Ved Parkash and intimation of Shri Karaj Singh that Shri Lakhwinder Singh is responsible for affairs of petrol pump in question for years under appeal but Assessing Officer did not make any effort to issue any notice under section 148 of Income-tax Act for purpose of service upon Shri Lakhwinder Singh S/o Shri Gurdev Singh. learned D.R. admitted that only one notice dated 9-3-1998 under section 148 has been issued and it is not known as to upon whom it is served. Assessing Officer observed that on 22-3-1999 Shri Lakhwinder Singh attended office but learned D.R. admitted before me that there is no order sheet available for 22-3-1999 to confirm above fact. Therefore, it is clear that Shri Lakhwinder Singh did not appear before Assessing Officer in connection with reassessment proceedings. No return is filed in response to notice under section 148 of Income-tax Act. Assessing Officer never tried to issue or serve any notice under section 148 of Income-tax Act upon Shri Lakhwinder Singh through whom assessment is now framed. 11. Hon'ble Kerala High Court in case of P.N. Sasikumar (supra) held:-". . . .that assessments were made on association of persons, entity distinct and different from various persons who were members of association of persons. There was no material to show that notices were sent to any association of persons or to S as representing association of persons. Therefore, notices under section 148 were not served in accordance with law and S who was assessed was not called upon to file returns. notice was addressed only to individual, S. Income-tax Officer did not make it plain or clear that notice was to assess association of persons consisting of S and others and hence Income-tax Officer had no competence to assess association of persons consisting of S and others. Therefore, entire proceedings were illegal and without jurisdiction." 12. Hon'ble Allahabad High Court in case of Shri Sidh & Co. (supra) held:-" Notice to firm served on individual not connected or concerned in any manner with firm is no service; service will be valid only when said order is handed over to partner of firm." 13. Hon'ble Madras High Court in case of Jayanthi Talkies Distributors (supra) held:- "Held, (1) that ITO will have no jurisdiction to make assessment under section 147 unless notice under section 148 is validly issued to and served on assessee.(2) As notice in instant case was by notice- server of department and not by post, procedure contemplated by Code of Civil Procedure should have been followed as per section 282(1). provisions in Civil Procedure Code make it clear that service of notice on person can be effected by serving notice on his agent who has been specifically empowered or authorised to receive notice in writing by that person. manager on whom notice had been served in this case had no written authority from partners to receive notices on behalf of firm.Consequently, notice under section 148 had not been validly served on assessee and reassessment made under section 147 cannot be held to be valid." 13.1 Hon'ble Calcutta High Court in case of Chandi Prasad Modi (supra) considered validity of reassessment and considered fact in which there was no indication in notice of status of assessee, file No. or whether notice was intended for HUF or partnership, both of whom carried on business under same name and style and at same premises - ITO aware of existence and separate identity of two concerns and no denial of this fact in affidavit filed by department - notice is vague and invalid. It was further held:"It is well-settled that ITO's jurisdiction to reopen assessment under section 147 (section 34 of 1922 Act) would depend upon issuance of valid notice. If notice issued by him is invalid for any reason then entire proceedings that would be taken by him pursuant to such notice would be void for want of jurisdiction. service of valid notice is condition precedent to jurisdiction of ITO to take further proceedings under section 147 of 1961 Act or section 34 of 1922 Act." 13.2 It is settled law that issue of notice under section 148 of Income- tax Act is condition precedent to validity of any assessment order to be passed under section 147 of Income-tax Act. It is also settled law if no such notice is issued or if notice issued is invalid or not in accordance with law or is not served on proper person in accordance with law, assessment would be illegal and without jurisdiction. 14. Considering above discussion, it is clear that Revenue has failed to prove that notice under section 147/148 dated 9-3-1998 was served upon Shri Lakhwinder Singh. Therefore, Assessing Officer did not validly assume jurisdiction under section 148 of Income-tax Act. As result, entire reassessment proceedings are invalid and bad in law. I accordingly set aside and quash reassessment proceedings under section 147/148 of Income-tax Act in all assessment years. Resultant reassessment proceedings are also quashed. 15. As far as question of additions on merits is concerned in departmental appeal as well as in assessee's appeals, point has now become academic in nature because of fact that reassessment proceedings have been set aside and quashed. 16. As result, all appeals of assessee are allowed and appeal of Revenue is dismissed. *** INCOME TAX OFFICER v. MUKAND LAL & SONS
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