1. This appeal by the assessee is directed against the order of the Commissioner (Appeals) dated 24-5-1980 relating to the assessment year 1977-78.
2. The issue in this appeal is whether, on the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in dismissing the appeal of the assessee in limine.
3. The parties have been heard. The learned counsel for the assessee submitted that for the year under appeal, the ITO forwarded to the assessee an order under Section 143(3) of the Income-tax Act, 1961 ('the Act'). This order was signed by the ITO. Against Column No. 7 of the printed form, the Section and sub-section under which assessment was made was noted as Section 143(3)/185 of the Act. In the concluding portion of the order, the ITO observed as under: This order was received by the assessee with a covering letter dated 7-3-1980 and this covering letter very clearly pointed out that the order accompanying the forwarding letter was a draft order under Section 144B of the Act.
4. On these facts, the assessee took the view that the order forwarded by the ITO having been duly signed by him was a final order. This view was taken by the assessee on the ratio of the judgment of the Punjab High Court in the case of S. Sewa Singh Gill v. CIT  46 ITR 152.
The assessee contended before us that Section 144B does not prescribe any particular form of a draft order but it is obvious that the draft order cannot be in the form in which it was sent to the assessee by the ITO. Since it was signed, it mentioned the sections of the Act under which it was made and it contained the word 'assessed' and the directions of the ITO to issue documents after giving credit for pre-paid taxes, it was a final order. The learned counsel for the assessee submitted that notwithstanding the ITO's forwarding letter, the character of the order was that of a regular order and a final order. He contended that such an order was, however, invalid and the assessee challenged its validity before the Commissioner (Appeals) However, the Commissioner (Appeals), according to the assessee, has taken it for granted that the appeal had been filed against the ITO's order under Section 144B and, therefore, has summarily dismissed it on the ground that no such appeal was provided in the Act and as such it was infructuous. The learned counsel for the assessee submitted that this view of the learned Commissioner is erroneous because the appeal was filed by the assessee with the clear understanding that the order made by the ITO was an order under Section 143(3) and was no longer a draft assessment order. The learned Commissioner, therefore, should not have brushed aside the arguments of the assessee and should have given reasoned finding as to whether the said order was an order in accordance with law or not. Since he has failed to do so, the order of the learned Commissioner is bad in law. It was contended that the order of the Commissioner (Appeals) may be cancelled and he may be directed to entertain the appeal as one against order under Section 143(3) and dispose it on merits.
5. These submissions were opposed by the revenue very strongly and effectively through M.P. Singh, the junior departmental representative.
It was contended on behalf of the revenue that the contentions taken up by the learned counsel for the assessee are untenable and are neithersound on fact nor in law. It was contended that the ratio of the judgment of the Hon'ble Punjab High Court in S. Sewa Singh Gill's case (supra) is not applicable to the facts of the case because that judgment was on the provisions of the Indian Income-tax Act, 1922, and on different set of facts. There is specific provision under the 1961 Act for a. reference of the order by the ITO to the IAC. If such a reference is made and the intention of the ITO is clear that the order being forwarded to the assessee is only a draft assessment order, nothing else is necessary to establish that is was not a draft assessment order.
6. A pertinent point made out by the learned departmental representative was that though the observations were made by the ITO that documents be issued, yet factually no demand notice and challan was sent to the assessee. The assessee had a right to object to that order by filing objection within the statutory period of time. However, instead of following the prescribed procedure under the statute, the assessee thought it better to challenge that draft order in appeal before the learned Commissioner. It was contended that the learned Commissioner rightly gave it a summary disposal. It was further emphasised that there is no prohibition in law of not signing the order which is a draft assessment order if it is understood by the ITO and it is conveyed so to the assessee that it is merely a draft, assessment order and not a final assessment order.
7. The learned departmental representative relied upon the ratio of the judgments in the cases of Banarsidas Bhanot & Sons v. CIT  129 ITR 488 (MP) and Mrs. Meeraben P. Desai v. Union of India  130 ITR 922 (Guj.).
8. In the rejoinder, the learned counsel for the assessee pointed out to the judgment of the Punjab and Haryana High Court in the case of CIT v. Sham Lal  127 ITR 816 and contended that the ratio of the said judgment supports his contentions and his case so as to justify setting aside of the impugned order of the Commissioner (Appeals) and issuance of directions to him that appeal be disposed of on merits.
9. We have given careful considerations to the rival submissions. We are of the considered opinion, after taking into consideration the authorities cited and the facts of the case, that the appeal of the assessee has to be dismissed. The judgment of the Hon'ble Punjab High Court in the case of S. Sewa Singh Gill (supra) was on a peculiar set of facts. In that case an assessment was made by the ITO on 25-1-1945 for the assessment year 1944-45. In this assessment since some of the incomes related to a construction work which was not completed, the assessment was made on a tentative basis subject to adjustment in the year when the construction was completed. This had been done by the time the assessment was made for the assessment year 1945-46, in respect of which the ITO made an assessment fixing the petitioner's total income at Rs. 55,403. On the assessee's appeal, this order was set aside by the AAC with the directions to the ITO that he should make a fresh assessment after giving the assessee a reasonable opportunity to meet the department's case and explain his own case. In the meantime the tax found due under the assessment had been paid.
10. The assessee's case was that the fresh assessment was completed in February 1954 when his profit was found to be Rs. 5,000, which meant that he became entitled to a total refund of about Rs. 20,000 on the sum which he had paid regarding the disputed assessment. After the assessment, the assessee moved the department to make the refund and on 16-11-1954, he was actually given a refund of Rs. 4,049 by the Excess Profits Tax Officer. However, after correspondence between the assessee and the department instead of the refund of Rs. 16,000 as income-tax being made, the assessee finally received a notice under Section 22(4) of the 1922 Act, from the ITO in September 1956 calling on him to produce his account books for the assessment year on 15-10-1956.
Thereafter there was further correspondence. In August 1957 the assessee received a second notice under Section 22(4) calling on him to produce his books on 20-8-1957. After this, the assessee filed a writ petition in the Punjab High Court challenging the jurisdiction of the ITO to take any further proceedings on the notice under Section 22(4) mentioned supra on the ground that the assessment had been completed in February 1954. On behalf of the ITO it was contended that although an assessment order had been prepared by the ITO in May 1954, this was only a tentative assessment which had to be approved by the IAC before it could be regarded as final. However, in fact, it was never approved, and it was decided that further investigation was necessary before the assessment could be finalised. It appears that because the assessee thought the matter was being unduly delayed he had been writing letters to the Commissioner. As a result of such letters the Commissioner by a letter dated 8-5-1954, wrote to the ITO to report immediately whether the pending assessment for the year 1945-46 in the above case had already been completed. In this letter the Commissioner directed the ITO that the draft assessment order may, however, be got approved by the IAC before finalising the said assessment. On 26-5-1954, the IAC wrote to the ITO that the draft assessment order in the above noted case had not been received by him and that he should submit the draft assessment order without further delay. On receipt of this letter, the ITO sent to the IAC assessment order with a covering letter dated 26-5-1954 saying that he was submitting the draft order for 1945-46 in the case of S. Sewa Singh Gill (supra) for favour of approval of the IAC. The accompanying assessment order was neither signed nor dated by the ITO, though nowhere in the order itself it was described as merely a draft order.
11. On the above facts, the Hon'ble Court held that there was no legal warrant for directing the ITO to make an assessment subject to the approval of the IAC or any other superior officer. The directions of the Commissioner to make a draft assessment order and submit it to the IAC for approval before the assessment was finalised was illegal and unwarranted. The so-called draft assessment, therefore, must be regarded as the final assessment of the ITO.12. The judgment cited by the learned counsel for the assessee was with reference to the powers of the ITO and that of the IAC in the making of an assessment order by the ITO. The assessment under appeal before us is for the year 1977-78 and as the law applicable to this assessment stood on the first day of April of this assessment year, there was a sea change in the procedural law pertaining to the assessments. Section 144B was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from 1.-4-1976 and this Section statutorily provides a reference by the ITO of the draft assessment order for approval to the IAC if there is variation in the income or loss returned by the assessee beyond the prescribed limits and such variation is prejudicial to the assessee. The ITO, when he made the draft assessment order and signed it and forwarded it to the assessee with a covering letter duly signed and dated 7-3-1980, clearly understood that it was merely a draft assessment order on which he had to receive the objections of the assessee within a specified time and thereafter if the objections were received, the draft assessment order and the objections were to be forwarded to the IAC. The IAC after convening the assessee, and if necessary the ITO, had to issue directions to the ITO, which were binding on him. Therefore, the order signed by the ITO could not partake the character of a final order. In the case of Banarsidas Bhanot & Sons (supra), the Hon'ble Madhya Pradesh High Court has pointed out that Section 144B provides for a special procedure to be followed in cases where the variation in the income or the loss returned which is prejudicial to the assessee exceeds the amount fixed by the CBDT. In such a case, a draft assessment order is required to be served on the assessee and if the assessee takes objection within seven days, the ITO has to seek the directions of the IAC by forwarding the draft order and the objections to him. A direction issued by the IAC for the guidance of the ITO is binding on him and he has to complete the assessment in the light of such a direction. The Hon'ble Court has pointed out that whether a defect in the draft order is fatal to the assessment has to be decided having regard to the object behind the issuance of the draft order.
13. The Hon'ble Gujarat High Court in the case of Mrs. Meeraben P.Desai (supra), has succinctly held that the signing of the proposed order itself is of no significance because what is required to be signed is the forwarding letter which authenticates that the accompaniment to the forwarding letter is the draft of the proposed order of assessment. In the case before us, the forwarding letter was duly signed. It authenticated that the accompanied order was a draft assessment order. The fact that such an order bore the signature of the ITO would not make it a final order. In view of the changed position of law, the ratio of the Hon'ble Punjab and Haryana High Court judgment in the case of S. Sewa Singh Gill (supra) has, therefore, no application to the case of the assessee. Similarly, the judgment of the Hon'ble Punjab & Haryana High Court in the case of Sham Lal (supra) has no applicability to the facts of the assessee's case. We, therefore, find the appeal of the assessee without any merit. It is dismissed.