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Shagoon Emporium Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)3ITD376(Delhi)
AppellantShagoon Emporium
Respondentincome-tax Officer
Excerpt:
1. this appeal has been preferred by the assessee against the order dated 19-1-1979 of the commissioner (appeals).2. 1974-75 is the assessment year concerned. financial year is the previous year. the assessee is a huf. assessment was completed by the ito as per order dated 12-9-1977 determining total income at rs. 2,54,531. the said assessment was still pending when section 144b of the income-tax act, 1961 ('the act'), came to be newly inserted effective from 1-1-1976. returned income was rs. 24,250. as the ito proposed to assess total income at a figure of rs. 1,31,081, namely, with a difference of more than rs. 1 lakh, he, on 18-3-1977, sent the draft order to the assessee as contemplated under section 144b(1). the assessee's objections to the said draft order were received by the ito.....
Judgment:
1. This appeal has been preferred by the assessee against the order dated 19-1-1979 of the Commissioner (Appeals).

2. 1974-75 is the assessment year concerned. Financial year is the previous year. The assessee is a HUF. Assessment was completed by the ITO as per order dated 12-9-1977 determining total income at Rs. 2,54,531. The said assessment was still pending when Section 144B of the Income-tax Act, 1961 ('the Act'), came to be newly inserted effective from 1-1-1976. Returned income was Rs. 24,250. As the ITO proposed to assess total income at a figure of Rs. 1,31,081, namely, with a difference of more than Rs. 1 lakh, he, on 18-3-1977, sent the draft order to the assessee as contemplated under Section 144B(1). The assessee's objections to the said draft order were received by the ITO on 13-4-1977 and the same were forwarded by him to the IAC, who in turn, sent requisite directions on 5-9-1977.

3. It transpires that some months after the receipt of objections under Section 144B through the ITO, the IAC on 10-8-1977 sent a notice to the assessee in purported exercise of powers under Section 144A and after hearing the assessee in that regard, sent separate directions to the ITO under Section 144A(1) as well. These directions also bore the same date as the directions under Section 144B, namely, 5-9-1977.

4. Pursuant to the IAC's directions under Section 144A(1), the ITO sent to the assessee, a notice calling upon it to explain the discrepancy of Rs. 1,10,021 as pointed out by the IAC between the balance sheet entry of Rs. 1,51,935 regarding the sundry creditors and the figure in separate accounts of such creditors, namely, Rs. 2,61,955. According to the ITO, the assessee offered no explanation as to the nature and/or source of the differential sum. Consequently, the ITO added Rs. 1,10,021 as the assessee's deemed income from undisclosed sources.

Similarly, additions of Rs. 31,515 (figure of Rs. 31,550 mentioned in para 3 of the AAC's order is erroneous) and Rs. 47,998 also came to be ultimately added by the ITO, pursuant to the IAC's direction under Section 144A(1) as aforesaid.

5. The assessee went in appeal against the said assessment. The AAC accepted the assessee's contention that proper opportunity had not been given to the assessee before the said three additions were made by the ITO. The AAC also agreed with the assessee that in view of Board's Circular dated 29-4-1978, the IAC could not, in law, issue any direction under Section 144A when normal limitation under Section 153(1)(iii) of the Act, was already over on 31-3-1977. In other words, according to the AAC the period of pendency of the assessee's objections (on draft order) with the IAC as mentioned in Clause (iv) of Explanation 1 below Section 153 was not excludable. In the result, however, the whole assessment was set aside by the AAC.6. The assessee has come up in second appeal before us. Though as many as 9 grounds are listed in the memo of appeal, the broad contention urged on the assessee's side was that the assessment made by the ITO should have been annulled and not merely set aside.

7. At this stage, we note that an add back of Rs. 12,291, as made by the ITO vide para 3 of his order on the basis of certain payment not having been proved to be genuine, was also assailed before the learned Commissioner and the said add back had no link with Section 144A(1) directions of the IAC. The Commissioner dealt with this aspect vide para 2 of his order, but recorded no specific finding on merit as to confirmation or deletion of the said add back. Second important aspect to be noted is that though the learned Commissioner discussed no item other than the aforesaid add back of Rs. 12,291 and the three income additions linked with Section 144A(1) directions of the IAC, he concluded "the whole assessment has been made perfunctorily and as such there is no option but to set (it) aside".

8. The assessee in the first instance submitted before us that the provisions of Section 144A were not applicable to the assessment under consideration inasmuch as it related to an assessment year commencing prior to 1-1-1976 with effect from which date Section 144A was inserted. In this regard, the appropriate test, according to us, would be to find whether the provisions contained in Section 144A are substantive or merely procedural. A bare reading of Sub-section (1) of the said section indicates that the IAC can exercise certain powers, in respect of pending assessment proceedings and in exercise of those powers, he can issue appropriate directions for the guidance of the ITO to enable him to complete the assessment. We are of the view that the said provision does not go beyond laying down a certain procedure available to the IAC in respect of pending assessment proceedings. That being the position, Section 144A could be pressed in aid and made use of by the IAC if the assessment proceeding is found to be pending on the day when he issues notice to the assessee under Section 144A(1). In other words, non-availability of the said provision as on 1-4-1974, namely, the date of commencement of the assessment year under consideration was no bar to the IAC against exercise of the power and adoption of the procedure contemplated in the said section.

9. Next contention raised on assessee's side was that even if Section 144A(1) is found to contain procedural provision only and is hence held to have retrospective effect so as to apply to the assessment for the assessment year under consideration as well, even then the IAC had no jurisdiction to issue notice or directions under Section 144A(1) on 10-8-1977, as normal period of limitation for completing the assessment within two years was already over. In other words, according to the assessee, the proceeding of assessment was not pending on 10-8-1977 within the meaning of the said provision. In this regard, the assessee also relied on para 6 of Board's Circular dated 29-4-1978. In the said Circular purporting to answer Question No. 4 contained the following answer: The Inspecting Assistant Commissioner can issue directions under Section 144A during the pendency of a reference before him under Section 144B(4). Such directions, however, could only be issued within the normal time limit for completion of assessment provided in Section 153. It means that in cases where the time of completion of assessment is expiring on, say, 31st March, such directions can only be given before that date even though the time for completion of assessment stands extended in view of Clause (iv) of Explanation 1 to the said section.

10. There are two aspects. Our reading and interpretation of the provisions of Section 144A(1) is that proceedings of assessment remain pending until finalisation of the assessment proceedings before the ITO even if that finalisation is made after the normal two year period of limitation as aforesaid. The reason is simple. If argument is accepted that on expiry of the said two year period assessment should be taken to be complete despite pendency of reference of assessee's objections to the draft order before the IAC under Section 144B(4), it would logically follow that the assessee should be in a position to challenge the entire proceedings held after the expiry of the said two year period as something, in addition and extraneous to the assessment.

Such, however, is obviously not the case. With respect to the assessment, the IAC can, while dealing with reference under Section 144B legitimately and lawfully hear assessee's arguments in support of objections against the draft order even after the expiry of the aforesaid two year period, provided that the IAC disposes of those objections and issues necessary directions within the maximum period of 6 months, as contemplated in Clause (iv) of Explanation 1 below Section 153. We are, therefore, inclined to reject the assessee's contention that on interpretation of Section 144A(1), the IAC should be held not to be competent to adopt the procedure envisaged in that provision in any case, whatever after the expiry of normal two year period of limitation.

11. Next we proceed to examine the effect of the Board's Circular dated 29-4-1978. The Board's answer to Question No. 4 as reproduced herein-above, is specific and clearly supportive of the proposition advanced on the assessee's side. That, however, is not enough. In this regard, it should suffice to note that Section 119(1) envisages that the Board may from time to time' issue orders, instructions and directions to other income-tax authorities for the proper administration of this Act. The expression 'from time to time' used in the said provision is according to us, crucial. We say so, as it is not unknown that the Board issues one set of instructions at one time, later it modifies the same and sometimes the Board withdraws those instructions altogether. This aspect which is so frequently observed in practice by the Board, clearly brings out the significance of the expression 'from time to time'. In the present case, the facts are that the circular under consideration could not and did not exist on 1-4-1974, the day of commencement of the assessment year and that it did not exist on 1-1-1976, when Section 144A was inserted and it did not exist even on the day when the IAC took action under Section 144A or even when the ITO, inter alia, pursuant to the IAC's directions under that provision, completed the assessment on 12-9-1977. If any other view is taken of the matter, the result would be giving a go-bye to the words 'from time to time' as occurring in Section 119(1) of the Act, as aforesaid. We, therefore, are of the view that the said circular has no relevance in the facts of the present case.

12. In the result, we are of the view that the learned IAC was within law when he took action in August 1977 and September 1977 as aforesaid under Section 144A(1). This finding of ours, however, would have but an indirect impact on the fate of the case, inasmuch as, it is not the revenue, who is in appeal before us and we have no intention to put the assessee in a position worse than the one in which it was before it came to us in appeal.

13. We are further of the view that the learned Commissioner, in view of his specific finding as to the validity of time-barred nature of the IAC's action under Section 144A, could at best, delete the three additions of income linked with the IAC's directions under that provision. There was, in our view, no justification for setting aside the whole assessment. Here again, we clearly mention that this observation also is not intended to put the assessee in a worse position as aforesaid.

14. The above observations and findings would, however, lead to the conclusion that there is no justification in assessee's contention that the assessment itself merited to be annulled. Assessee fails.

16. I am in respectful disagreement with my learned brother that the IAC could issue instructions under Section 144A to the ITO even during the period extended under the provisions of Section 144B on the ground that it had to be considered that the assessment was yet pending. The facts had been given by my learned brother in paragraphs 2 to 5. The relevant facts in brief are as under.

17. The assessee is a HUF and the matter concerns the assessment year 1974-75. The assessment for this year was completed by the ITO on 12-9-1977. The returned income was Rs. 24,250 but since the ITO proposed to assess the total income at a figure of Rs. 1,31,081, namely, involving a difference of more than Rs. 1,00,000, he, on 18-3-1977, sent a draft order to the assessee as contemplated under Section 144B(1). The assessee's objections to the said draft order were received by the ITO on 13-4-1977 and the same were forwarded by him to the IAC, who in turn, sent the requisite direction on 5-9-1977. When the matter was pending with the IAC, he, on 10-8-1977, sent a notice to the assessee in terms of Section 144A and after hearing the assessee in that regard, he sent separate directions to the ITO under Section 144A(1) as well. These directions also bore the same date as the directions under Section 144B, namely, 5-9-1977.

18. Pursuant to the directions under Section 144A(1) given by the IAC, the ITO asked the assessee to explain a discrepancy of Rs. 1,10,021 as pointed out by the IAC between the balance sheet entry of Rs. 1,51,935 regarding the sundry creditors and the figure in separate accounts of such creditors, namely of Rs. 2,61,956. According to the ITO, the assessee offered no explanation as to the nature and/or source of the differential sum. Consequently the ITO added Rs. 1,10,021 as the assessee's deemed income from undisclosed sources. He also added two other items, namely, of Rs. 31,515 and Rs. 47,998 in pursuance of the IAC's directions under Section 144A(1) as aforesaid. The assessee went in appeal against the said assessment and the AAC accepted the assessee's contention that proper opportunity had not been given to the assessee before the said three additions were made by the ITO. The Commissioner also agreed with the assessee that in view of the Board's Circular dated 29-4-1978, the IAC could not in law issue any directions under Section 144A when normal limitation under Section 143(1)(iii) was already over on 31-3-1977. The AAC thus considered that the extended period under Section 144B could not be available for the purpose of giving directions under Section 144A(1). In the result, however, the whole assessment was set aside by the Commissioner. The assessee had come into second appeal before the Tribunal. According to the assessee the assessment made by the ITO should have been annulled and not merely set aside.

19. As pointed out by my learned brother there was also an add-back of Rs. 12,291 on the basis of certain payment not having been proved to be genuine. This was also assailed before the AAC. The said add-back had no link with direction of the IAC under Section 144A(1). The Commissioner (Appeals) referred to this addition but recorded no specific finding on merit as to confirmation or deletion of the said add-back. The Commissioner (Appeals) discussed no item other than the aforesaid add-back of Rs. 12,291 and the three income additions linked with directions of the IAC under Section 144A(1) and he concluded 'the whole assessment had been made perfunctorily and as such there is no option but to set (it) aside.' 20. The first objection raised by the assessee was that the provisions of Section 144A were not applicable to the assessment for this year as this was an assessment for the year commencing prior to 1-1-1976 (the assessment year involved is 1974-75). Section 144A was inserted with effect from 1-1-1976. My learned brother had considered that the provisions of Section 144A did not go beyond laying down a certain procedure available to the IAC in respect of pending assessment proceedings and that that being the position, Section 144A could be pressed in aid and made use of by the IAC if the assessment proceeding was found to be pending on the day when he issued notice to the assessee under Section 144A(1). I am, with respect, unable to agree with my learned brother. Provisions of Section 144A could be invoked at the instance of the assessee, the ITO as also the IAC suo motu. The invoking of provisions of Section 144A by the IAC meant an enhancement of the assessment and this power was not available to the IAC earlier.

Power to enhance was available to the AAC and to the Commissioner under Section 263 of the Act. The power of enhancement was to act against the interest of the assessee and the provisions of Section 144A having not been made operative with retrospective effect, the IAC could not be said to be competent to exercise such power of enhancement under Section 144A in respect of the year which commenced prior to 1-1-1976.

It was also argued that the IAC had no jurisdiction to issue notice or directions under Section 144A(1) on 10-8-1977, as the normal period of limitation for completing the assessment within two years was already over. The assessee's contention was that proceeding of assessment could not be said to be pending on 10-8-1977 within the meaning of the said provision of Section 144A(1). In support of this the assessee had also relied on paragraph 6 of the Board's circular dated 29-4-1978 the relevant extract of which had been reproduced in paragraph 9 of the proposed order by my learned brother. It appears to be necessary to reproduce it ever again : The Inspecting Assistant Commissioner can issue directions under Section 144A during the pendency of a reference before him under Section 144B(4). Such directions, however, could only be issued within the normal time limit for completion of assessment provided in Section 153. It means that in cases where the time of completion of assessment is expiring on, say, 31st March, such directions can only be given before that date even though the time for completion of assessment stands extended in view of Clause (iv) of Explanation 1 to the said section.

I do not agree, with respect with my learned brother that because the circular was not in existence when the assessment was completed, it could not be taken note of. The Board simply clarified the true legal position which always existed. The use of the words 'from time to time' in my humble opinion is in a different context and covers the various provisions of the Act to be covered by the Board and also to alter or amend the instructions in the light of the decision of the Courts. The department had not shown that the said instructions of the Board contained in the circular dated 29-4-1978 had since been withdrawn or were altered or were amended in any manner. The Board's instructions clearly support the proposition advanced on the assessee's side. Apart from this the Cochin Bench of the Tribunal took the view that Section 144A assessment should be completed within the normal time allowed and that, therefore, the additions made under Section 144A were barred by limitation and had to be deleted-ITO v. N. Krishnan. The Tribunal further took the view that the assessment was severable under Section 144A barred by time and the other under Section 144B not barred by time.

21. It had to be noticed that the powers of the IAC in the matter of issuing directions under Section 144A, for framing an assessment could be exercised only when the proceedings for assessment are 'pending'.

The question as to when an assessment is pending has to be examined with reference to the facts of each case. Until an order of assessment is passed by the ITO and such an order is communicated to the assessee, the assessment can be regarded as not pending. If, however, the order of assessment passed by the ITO is not communicated to the assessee and the time limit for completion of assessment has expired, the proceedings for assessment cannot be regarded as pending. The point for consideration is that in the scheme of draft assessment under Section 144B, whether an assessment reached finality, so far as the ITO is concerned when the draft assessment framed and the order thereof is communicated to the assessee and if that is so whether in the course of exercise of the powers confirmed under Section 144B the IAC can exercise also the powers conferred on him under Section 144A. This would lead to the further question whether Section 144A and Section 144B are mutually exclusive or not. Wherever objections are received from the assessee in respect of any matter concerning the assessment for which a draft order has already been passed by the ITO, the assessment for all practical purposes reaches a finality so far as the ITO is concerned because the ITO is not competent under law to deal with the objections himself and/ or to make any modification whatsoever to the draft assessment order already passed by him and consequently it can be said that the assessment is not pending before the ITO and then it is pending before the IAC for his consideration and directions in the matter of dealing with the various objections raised by the assessee to the draft order of assessment. It is reasonable to infer and interpret under Section 144A as being applicable in scope only to those cases where the order of assessment is pending or in such cases which is prior to the framing and communication of a draft assessment to the assessee. A draft assessment which so far as the ITO is concerned is final for all practical purposes and it cannot be treated as an assessment proceeding still pending before the ITO warranting interference by an IAC under Section 144A to the disadvantage of the assessee especially after the limitation under Section 153 had already lapsed. The provisions of Section 144B applicable to the assessment of any particular taxpayer automatically enlarge the time limit for passing the order of final assessment under Section 143(3) by a period of 6 months, by virtue of any action, direction or guidance which the IAC may issue. Under Section 144A, however, there would be no enlargement or other modification of the time limit within which the assessment could be framed under Section 143(3) read with Section 153(3). In other words, the issue of directions under Section 144A cannot go to enlarge the time limit for completion of assessment while the issue of directions under Section 144B would increase the time limit in every case whether or not the directions so issued are in accordance with the prayers made in the draft assessment. The Bombay Bench 'D' of the Tribunal in the case of Nirmal Construction & Finance Co. v. Seventeenth ITO [1981] 7 Taxman 110 observed that under Section 144B, the powers of the IAC were limited to reject the objections and, therefore, he could not either increase or decrease the income assessed in the draft order. He could do so if he was exercising his jurisdiction under Section 144A and the powers under this section could be exercised if the assessment proceedings were pending with the ITO.But when the ITO had completed the draft order and sent the file to the IAC under Section 144B, then no assessment proceeding was pending with him for the purpose of Section 144A. This view would be further strengthened if the directions were given by the IAC under Section 144A during the period of 6 months extended under Section 144B, only. For the purposes of Section 144A the limitation would be as laid down under Section 153(3).

22. I am otherwise in respectful agreement with my learned brother that the assessment could be set aside and not annulled as was prayed for but my agreement goes to the extent of the additions to be made in pursuance of Section 144B only. The items considered under Section 144A as per the directions of the IAC could not be considered in the assessment to be reframed in pursuance of the direction of the Commissioner (Appeals) for reframing the assessment.

1. The following points of difference have been referred to me as Third Member for my opinion by the President under Section 255(4) of the Income-tax Act, 1961 ('the Act') : 1. Whether, on the facts and in the circumstances of the case, it could be considered that the assessment proceedings were pending during the period of 6 months, extended under Section 144B for issuance of instructions by the Inspecting Assistant Commissioner under Section 144A? 2. Whether the provisions of Section 144A were merely procedural so as to apply also to assessment of assessment year commencing prior to 1-1-1976 To appreciate the points involved, it is necessary to set out the dates first.

2. Assessment was completed by the ITO as per order dated 12-9-1977 determining total income at Rs. 2,54,531. The said assessment was still pending when Section 144B of the Act came to be newly inserted with effect from 1-1-1976. Returned income was Rs. 24,250. As the ITO proposed to assess total income at a figure of Rs. 1,31,081, namely, with a difference of more than a lakh, he, on 18-3-1977 sent the draft order to the assessee as contemplated under Section 144B(1). The assessee's objections to the said draft order were received by the ITO on 13-4-1977 and the same were forwarded by him to the IAC, who, in turn, sent requisite directions on 5-9-1977.

3. Before the Tribunal one of the questions raised on behalf of the assessee was whether during the period of limitation for completing the assessment under Section 153(1)(b) read with Explanation l(iv), the IAC can give directions under Section 144A on the basis of which the ITO has the power to make additions Essentially, therefore, the question is whether the assessment has been completed beyond the period prescribed under law.

4. Mr. Harihar Lal appearing for the assessee apart from submitting oral arguments also gave in writing three propositions, which he called them so. But in my opinion there is only one proposition, namely, whether the directions under Section 144A can be given to the ITO on the basis of which he can make an assessment during the period covered by Clause (iv) of Explanation 1 to Section 153(1). The other points made out by Mr. Harihar Lal are only reasons for advancing his main proposition.

Mr. B. Nagarajan pointed out that the basic question to be considered in this case is to understand the import of the crucial words 'an assessment is pending' occurring in Section 144A. His arguments proceeded on the basis that whatever may be the position until the ITO passes the final assessment order under his own signature, the assessment is pending and, therefore, directions under Section 144A can be issued by the IAC.5. Before I proceed to discuss the arguments it is useful to refer to the provisions of Section 144A(1) as also Section 144B : 144A. (1) An Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income-tax Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment and such directions shall be binding on the Income-tax Officer : Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.

Explanation : For the purposes of this sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.

(2) The provisions of this section shall be in addition to and not in derogation of, the provisions contained in Sub-section (3) of Section 119.

144B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under Sub-section (3) of Section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under Sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment : Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Inspecting Assistant Commissioner under Sub-section (4) shall be binding on the Income-tax Officer.

(6) For the purposes of Sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit : Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees.

(7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under Section 125 or Section 125A.These provisions have been introduced by the Taxation Laws (Amendment) Act, 1975 which came into force with effect from 1-1-1976. It is also worthwhile noting that Section 125A of the Act, has, also come into the statute book on 1-10-1975. From a bare perusal of the above provisions, it is clear that the Legislature wanted a superior authority to deal with the assessments at the initial stage. The inference or the guidance by the superior officer is contemplated in different ways.

Section 125 gives a general power of concurrent jurisdiction of the IAC along with the ITO. Section 144A is again a general provision giving power to the IAC to issue directions to the ITO in respect of any pending assessment proceeding. He may do it on his own motion or on a reference made either by the ITO or by an assessee. The directions are meant for the guidance of the ITO to enable him to complete the assessment. The ITO has no choice but to follow the directions of the IAC. Section 144B starts with non obstante clause. In other words, it overrides the other provisions contained in the Act. It also covers the issue of directions by the IAC and the directions are binding on the ITO. But the stage at which the directions are to be given is completely different from the provisions of Section 144A or for that matter under Section 125A. The jurisdiction of the IAC comes into operation only in certain given circumstances which are contemplated by the provisions of Section 144B. The ITO initially has to draft an assessment order and if the assessment order shows that he is likely to propose an addition of more than a lakh [as prescribed by the Board in accordance with Section 144B(1)], he has to make a draft assessment order. The assessment order is specific in regard to various additions sought to be made or various disallowances to be made by the ITO. If the variation is beyond the prescribed limit, the draft order is forwarded to the assessee who is given an opportunity to raise objections. After the objections are received, it is no longer possible to the ITO to deal with them. The whole record goes to the IAC who has to dispose of the objections and give directions in respect of the matters covered by the draft assessment order coupled with the objections. The power of the IAC under Section 144B is completely different from what is contemplated under Section 144A. His power is confined only to the draft order and the objections. He can give directions only relating to the above matters. He cannot give any directions of a general nature which he can otherwise give under Section 144A or under Section 125A. Section 144B operates in a case where the ITO had to suggest specific additions or disallowances whereas the ITO can make a reference of a general nature for getting directions. The IAC gets jurisdiction under Section 144B only when a reference is made to him and not before. One thing to be noted at the stage is that where the IAC exercises concurrent powers and performs the functions of the ITO under Section 125A, Section 144B does not apply as it is obviously so. The order of assessment itself will be framed by the IAC when powers are exercised under Section 125A.Section 144A applies to all cases irrespective of any amount to be added or disallowance to be made while Section 144B comes into play only when the variation is more than one lakh as fixed by the Board.

Let us now look to the period of limitation prescribed for completing the assessment. Section 153 deals with the different period of limitation for different situations. We are concerned with the assessment year 1974-75 and the period of limitation prescribed under Section 153(1)(a)(iii) is two years from the end of the assessment year. Explanation 1 envisages exclusion of certain periods for the purpose of calculating the limitation within which the assessment has to be completed. One such provision is contained in Clause (iv) which is reproduced as under : (iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under Sub-section (1) of Section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under Sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or The exclusion of the period contemplated under Clause (iv) is confined only to a situation arising under Section 144B as the provisions are very clear. In other words where an assessment is contemplated to be made under the provisions of Section 144B, the period commencing from the date on which the ITO forwards the draft order... is to be excluded. In this case, the draft order was forwarded on 18-3-1977. But for the provisions of Section 144B the period for completing the assessment would be 31-3-1977. Since the provisions of Section 144B are applicable, the ITO could have made the assessment on or before 18-9-1977. That is why the ITO made the assessment on 12-9-1977. There could be no quarrel if the assessment was made only under the provisions of Section 144B but the dispute has arisen because of the directions issued under Section 144A(1) by the IAC on 10-8-1977. On that date but for the provisions of Section 144B the assessment would be beyond the period of limitation prescribed. Because of the exclusion of the period as per provisions of Clause (iv) of Explanation 1 to Section 153 the assessment would be within time. But then the question is whether during the period which is to be excluded from computing the time limit for making the assessment, the IAC can issue directions under Section 144B so that the directions are to be utilised by the ITO for making the assessment as he did in the case before me. If Section 144B is obliterated from the statute book for the time being, the directions under Section 144A could not have been issued on 10-8-1977 as by that time the time limit for making the assessment would have been over. But as rightly pointed out by Mr. Nagarajan the whole question depends upon the crucial words, namely, 'an assessment is pending', occurring in Section 144A. Can it be said that the assessment is pending, when the ITO is awaiting the directions of the IAC under Section 144B(4) Answer to this question would be the answer to the point of difference referred to me.

6. Whether an assessment is pending or not depends upon the functions of an ITO vis-a-vis a particular assessment. It is difficult to lay down as a general proposition as to when an assessment is said to be pending. However, in the context of the special provisions of Section 144B, it is difficult to say that the assessment is pending after the draft is sent. So far as the ITO is concerned, he already makes a draft assessment order and he forwards it to the assessee. After the objections are received, the ITO merely acts as a post office to send the draft order and the objections to the IAC. Then the IAC comes into picture. He has to consider the objections of the assessee vis-a-vis the draft order and after giving an opportunity to the assessee decides the matter, in one way or the other. In accordance with that decision, the directions are issued to the ITO. The ITO then has no option whatsoever except to incorporate the directions. The directions are to be followed by the ITO and he once again acts as a mere conduit pipe to put the directions of the IAC in his order. So far as he is concerned, there is nothing that can be said to be pending with him. He washes off his hands as soon as the reference is made by him to the IAC.Thereafter, whatever, he does, he does it as a matter of routine with no application of judicial mind. He has to incorporate merely the directions of the IAC. Therefore, for the purpose of issuing of directions under Section 144A, it cannot be said that the assessment is pending merely because the matter is lying with the IAC for the limited purpose of considering the objections of the assessee and for issuing the directions to the ITO.7. There may be some situations in which Section 144A and Section 144B may overlap. Let us take for instance a case where reference is made by the ITO under Section 144B long before the expiry of the time limit for completing the assessment. Then the IAC examines the record and feels that he should issue directions on matters not covered by the draft order so as to enable the ITO to make some other additions or disallowances. The question is, can he do it The answer is really not simple. If he can do it and if the variation is more than the amount prescribed under Section 144B(1), should not the ITO make a reference to the IAC by sending another draft order Perhaps he has to do that because of the language of Section 144B(1) as is already pointed out.

It starts with a non obstante clause thereby overriding all the other provisions of the Act. It means that even if Section 144A directions are to be issued by the IAC and on account of such directions, the variation exceeds the amount prescribed under Section 144B(1), the ITO has to make a draft assessment order. The argument of Mr. Nagarajan at this stage was that in such a case the provisions of Section 144B would be inapplicable, inasmuch as these provisions would apply only to an assessment contemplated by the ITO and the variation is beyond the amount prescribed thereunder while on the directions issued by the IAC under Section 144A, it amounts virtually to an assessment made by the IAC. This argument is fallacious for more than one reason. Section 144A contemplates issue of directions for the guidance of the ITO and identical language is used under Section 144B but from the very nature of the proceedings under the two sections, Section 144A and Section 144B, the directions contemplated under the former do not envisage specific amount. Secondly, it does not show that the IAC is the officer making the assessment. The ITO alone has to make the assessment under Section 143(3) but according to the directions of the IAC. Same is the position even under Section 144B. The order ultimately is to be signed by the ITO under Section 143(3). Thirdly, Sub-section (7) of Section 144B specifically excludes the operation of that section to a case coming under Section 125A. There is no provision for excluding the provisions of Section 144B in a situation contemplated by Section 144A.It is, therefore, clear that Section 144B appears to have application even in a case coming under Section 144A. Then the question again is mooted as to whether the IAC acting under Section 144A having issued directions is competent to dispose of the matter under Section 144B, as he has applied his mind under Section 144A before issuing the directions. It looks as though there may be several situations where it is difficult to reconcile the provisions of Section 144A and Section 144B. At the same time it is clear that the IAC in order to act under Section 144A must give directions before the period for completing the assessment is over and before the ITO makes a draft assessment wherein the variation suggested is more than the amount prescribed. There may be also another solution, namely, that where Section 144A directions are issued and the variation is more than one lakh, the ITO has to send fresh draft order if a draft has already been sent. However, a second draft order does not appear to have been contemplated in view of the decision of the Delhi High Court in Sudhir Sareen v. ITO [1981] 128 ITR 445. The learned departmental representative pointed out that in a case where Section 144A directions are issued there is no need for a draft and the directions issued under Section 144A are different from the directions contemplated under Section 144B and both can simultaneously operate. Maybe the departmental representative is right but once again, we come to the basic question whether the assessment is pending or not.

8. The above discussion only fortifies my view that once a reference is made under Section 144B, the operation of Section 144A is excluded.

This is the only way in which the provisions of Section 144A and Section 144B can be read harmoniously especially because of the significance of the non obstante clause in Section 144B. It is also to be remembered that there cannot be two assessment orders and the assessment order should be one, whether it is under the directions given by the IAC under Section 144A or under Section 144B. The assessment has to be made under Section 143(3) ultimately by the ITO.In this connection Mr. Harihar Lal's point by referring to the provisions of Section 246(2)(f) of the Act, is also relevant. If an assessment is made under the directions under Section 144B an appeal lies to the Commissioner (Appeals) but if it is under Section 144A, the appeal does not lie to the Commissioner (Appeals). This only throws light that Section 144B overrides and in all cases including the one's coming under Section 144A has to be brought under Section 144B. In other words, action under Section 144A arises only till the draft assessment order is made.

9. The learned departmental representative relied on the decision of the Tribunal in the case of Nirmal Construction & Finance Co. v.Seventeenth ITO [1981] 7 Taxman 110. But that case does not deal with the point under consideration and as such is of no assistance. He has also referred to the decision of the Amritsar Bench in the case of Sadana Rubber & Plastic Industries [IT Appeal No. 266 (Asr.) of 1979].

The point arising in that case is totally different. The question of period prescribed for completing the assessment was not in issue in that case and it gives no guidance for deciding the matter before me.

On the other hand, I find that a Bench of the Tribunal at Cochin in the case of ITO v. N. Krishnan has taken a view similar to mine.

10. Mr. Nagarajan also tried to raise a contention that the assessment must be deemed to be pending because of the provisions of Section 153(1)(b). This argument is untenable. Apart from the fact that nowhere there is a whisper that the period for completing the assessment is covered by Section 153(1)(6), the facts themselves do not justify. In order to apply Section 153(1)(6), there must be a finding of concealment. In fact this was never the case. Merely because notice under Section 271(1)(c)was issued in the course of the assessment proceedings, it does not mean that the case is covered by the provisions of Section 271(1)(c) so that the time limit for completing the assessment would be eight years. A similar argument advanced before the Cochin Bench in the case of N. Krishnan (supra) has been rejected and in my opinion rightly.

11. I may lastly point out that even the Board has issued instructions to the departmental officers not to take proceedings under Section 144A during the pendency of Section 144B proceedings. This is clear from Board's Circular No. 201/21/1976-IT(A-II), dated 29-4-1978.

12. Before concluding I may have to state that Shri Harihar Lal did not pursue the second point referred to by the Bench by its order dated 7-7-1972 and hence the point is answered against the assessee and therefore the view of the Judicial Member prevails.

13. Accordingly, I agree with the view expressed by the learned Accountant Member so far as the first point is concerned. The case will now go back to the Bench for disposal according to law.


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