G.P. Singh, C.J.
1. The questions of law referred in this reference by the Income-tax Appellate Tribunal are as follows :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the Commissioner of Income-tax is not competent to set aside the assessment order in a case where the Income-tax Officer failed to comply with the provisions of Section 144B of the Income-tax Act, 1961?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the assessment order passed by the Income-tax Officer was not prejudicial to the interest of the Revenue ?'
2. The facts, briefly stated, are that for the assessment year 1973-74, the assessee returned loss of Rs. 32,388, which was revised later by showing Rs. 62,314 as loss. The ITO by order dated 9th January, 1976, made the assessment under Section 143(3) of the I.T. Act, 1961, and assessed the income at Rs. 2,74,200. As the variation in the income returned and assessed exceeded the amount of rupees one lakh, the provisions of Section 144B were applicable which were not followed by the ITO. The assessee, however, accepted the assessment. The assessee did not go up in appeal. The Commissioner, acting under Section 263 of the Act, revised the order of the ITO on the ground that it was prejudicial to the interest of the Revenue. The Commissioner's order was set aside in appeal by the Tribunal holding that the order of the ITO was accepted by the assessee and it was not prejudicial to the interest of the Revenue.
3. As already mentioned, Section 144B provides a special procedure to be followed in cases wheie the variation in the income or loss returned exceeds the amount of rupees one lakh. In such a case a draft order is required to be served on the assessee. If the assessee accepts the assessment made in the draft order, the ITO finalises the assessment accordingly. In case the assessee takes any objection to the draft order, the ITO has to seek the directions from the IAC by forwarding the draft order and the objections to him. The directions issued by the IAC for the guidance of the ITO are binding on him and he has to complete the assessment in the light of the said directions. If an objection is taken to the draft order by an assessee, the IAC may direct the ITO to enhance the income provisionally assessed in the draft order. But the question of directing the enhancement of the income assessed in the draft or provisional order of the ITO can arise only when the assessee does not accept the provisional order. In the instant case, the only mistake committed by the ITO was that he did not issue a draft order, and issued a final order which was accepted by the assessee. As the assessee was prepared to accept the assessment made by the ITO, even if he would have issued a'draft order, the same result would have followed and the matter would not have gone to the IAC for direction. In such a situation, when the assessment has been accepted by the assessee it cannot be said that the failure to follow the procedure under Section 144B made the order of the ITO prejudicial to the interest of the Revenue, as, in such a case, there could be no occasion for enhancement of the assessment by the IAC. The procedure requiring the issuing of a draft order is essentially for the benefit of the assessee so that he may raise all his objections before the assessment is finalised. When an assessee, in spite of the omission to issue a draft order, accepts the assessment, no question of prejudice to the Revenue arises.
4. For the reasons given above, we answer the question as follows:
1. The Commissioner of Income-tax was not competent to set aside the assessment for non compliance of Section 144B.
2. The Appellate Tribunal was justified in holding that the assessment order was not prejudicial to the interest of the Revenue. There will be no order as to costs of this reference.