R.L Narang v. Commissioner Of Income-Tax, New Delhi.

Leila Seth, J.:— These are four references at the instance of two assessees, R.L Narang and M.L Narang. Income-tax References Nos. 205 and 206/72 pertain to the assessment years 1967-68 and 1968-69 in the case of R.L Narang and Income-tax References Nos. 211 and 212/72 pertain to M.L Narang for the same assessment years. The questions referred in all the four cases are the same which are as follows:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that, before levying the penalty, the assessee was allowed a reasonable opportunity of being heard?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the absence of an affidavit in the case denying the service on oath, led to the conclusion that there was a valid and a proper service of the notices sent both by post and as a summons issued by a court under the Civil Procedure Code?”

2. As such, it is apparent that the point in issue is, whether the assessees were afforded an opportunity of being heard, before the imposition of penalty, under s. 140A(3) of the I.T Act, 1961 (to be referred to in brief as “the Act”). From the record, it appears, that on assessments being made, it was found that the tax payable, on the basis of the return, exceeded Rs. 500 despite giving credit for taxes paid. In these circumstances, it was incumbent upon the assessees to make a voluntary payment within 30 days from the date of furnishing the return of income. But the assessees failed to do so. The ITO, therefore, issued show-cause notices on 31st January, 1969. These are said to have been served on 3rd February, 1969. Subsequently, reminders were issued on 2nd April, 1969, to the assessees under certificate of posting. Thereafter, on 12th June, 1969, ex parte orders under s. 140A(3) of the Act were passed by the ITO in all the four cases and penalties imposed.

3. Before the AAC the assessees challenged the imposition of penalty primarily on the ground that they had not been given any opportunity of being heard. They contended that no notices were served on or received by them. The AAC found that though the notices dated 31st January, 1969, had been served through the process server, on someone signing for the assessee, there was nothing on record to indicate the identity of the persons on whom the said notices were alleged to have been served on 3rd February, 1969. Despite the ITO being alerted on this aspect, he did not show that the persons were either employees or authorised representatives of the assessees or persons who had received such notices in the past and acted for the assessees. As such, the AAC accepted the contention of the assessees that no opportunity of a hearing had been given to them. He, therefore, cancelled the orders imposing penalties and allowed the appeals.

4. The revenue then preferred appeals before the Income-tax Appellate Tribunal contending that the ITO had been justified in treating the service effected on 3rd February, 1969, and reminders sent under postal certificate as sufficient service, thereby giving the assessees a reasonable opportunity of being heard. The Tribunal accepted this contention, mainly based on the fact that the assessees had not filed affidavits categorically asserting that they had not received the notices and that these were delivered to some other persons. It was also of the view that in the normal course notices sent under postal certificates should have reached the assessees at the address mentioned. The appeals were, therefore, allowed.

5. Before us, it has been urged on behalf of the assessees that service was not effected and as such the assessees had no opportunity of being heard.

6. In order to appreciate this contention, it is necessary to examine the provisions of s. 282 of the Act and s. 27 of the General Clauses Act, 1897.

7. Section 282 of the Act provides that the service of a notice can be effected either by serving the person concerned by post or as if it were a summons; if the latter, then the procedure to be adopted would be as under the Code of Civil Procedure.

8. In the present case, with regard to the service through the process server, it appears that there is neither a service report nor any other information indicating that service was effected on 3rd February, 1969, either on the assessees concerned or on any of their employees, relatives or on any authorised representatives. In fact, as noticed above by the AAC, there is nothing on the record to show the identity of the persons on whom the service was effected. Nor is there any indication that service had been made on the said persons in the past on behalf of the assessees or that they had acted on such service. In these circumstances, when it is neither clear as to who these persons were, nor how they signed for the assessees nor what their authority was to do so, it would appear to us that service was not properly effected on the assessees concerned on 3rd February, 1969.

9. Coming to the next question of service by post, the provisions of s. 27 of the General Clauses Act, 1897, are relevant. Section 27 provides that where any Central Act or Regulation authorises or requires any document to be served by post, then, unless a different intention is drawn, the service shall be deemed to be effected properly if a correctly addressed and stamped letter containing the document is despatched by registered post; and unless the contrary is proved, such a letter would be deemed to have been delivered in the ordinary course of post. The I.T Act is a central act and s. 282 provides for service by post. As such the provisions of s. 27 of the General Clauses Act, 1897, are applicable. From perusing s. 27 of the General Clauses Act, it is apparent that in order to presume service having been effected, the document or letter should be sent by registered post. In the present cases, as noticed above, the reminders were issued under certificate of posting and not by registered post. It would, therefore, appear to us that there is nothing on the record to indicate that proper and valid service was, in fact, effected nor can any presumption be drawn. We also feel that not much importance can be attached to the non-filing of an affidavit by the assessees as the AAC accepted their version without an affidavit. Once their statement with regard to non-service had been accepted by the AAC and no affidavit had been asked for thereafter at the stage of the Tribunal, we think that the lack of an affidavit is not material.

10. We are, therefore, of the opinion that the assessees were not given the requisite hearing to which they were entitled. In the result, both the questions are answered in the negative and in favour of the assessees. The assessees will be entitled to costs. Counsel's fee Rs. 200 in one set.