1. This is the appeal by the assessee by which the order of the Commissioner (Appeals) is challenged. The first ground of appeal is that the entire assessment is illegal, arbitrary and unsustainable on the facts of the case. It is urged by the assessee that the Commissioner (Appeals) has misconstrued the provision of Explanation I, Clause (iv), of Sub-section (3) of Section 153 of the Income-tax Act, 1961 ('the Act'), Briefly speaking, the case of the assessee is that the ITO has completed the assessment in the present case after the limitation period was over. It may be stated that for the assessment year 1977-78, the ITO completed the assessment on 24-9-1980 under Section 143(3) read with Section 144B of the Act, Amongst other things he noted that a draft assessment order was made and forwarded to the assessee under Section 144B(1) vide his letter dated 24-1-1980 which was received by the assessee on 28-1-1980. The assessee sent his objection to the variation of the total income as returned by the assessee vide his letter dated 8-2-1980. Thereafter the ITO forwarded the draft, assessment order along with the assessee's objection to the IAC on 21-2-1980 under Section 144B(4). The IAC in his turn gave the assessee several opportunities of being heard. Ultimately the IAC gave directions to the ITO under Section 144B on 23-9-1980 and the ITO, accordingly, completed the assessment finally on 24-9-1980.
2. Along with other grounds of appeal, the assessee took up this point before the Commissioner (Appeals) contending that the assessment was barred by limitation. It was argued before him that on reading of Section 153(3) the assessment was barred by limitation because the IAC took more than 180 days, i.e., from 8-2-1980 to 23-9-1980 and, therefore, the assessment order passed as a result of such instructions from the IAC was beyond the time limit.
3. The Commissioner (Appeals) examined the submissions with reference to the facts of the case closely. He noted that it was true that the IAC has taken more than 180 days but Section 153(3) does not impose a blanket restriction on the time to be taken by the IAC. He observed that there is no express provision or mention of the time to be taken by the I AC as all that is stated is that the limitation shall not exceed beyond 180 days on account of the IAC's direction. On the facts of the case the Commissioner (Appeals) found that the ITO has passed the draft order on 8-2-1980 while the limitation would have expired on 31-3-1980 but for Section 144B. He, therefore, concluded that the ITO made the assessment well ahead of time by 52 days and this 52 days' period was available to the ITO even after receiving the IAC's instruction. This ground of appeal was rejected by the Commissioner (Appeals). Hence, this appeal before us.
4. It is submitted by the assessee's learned counsel that the Commissioner (Appeals) misconstrued the provisions of the above section and if the facts have been correctly appreciated, the Commissioner (Appeals) would have found that the assessment was barred by limitation and the same requires to be annulled. It is urged that since the jurisdiction matter was involved, the provisions should be strictly construed. In the instant case it is urged that the IAC has taken more than 180 days and, therefore, the action of the ITO in pursuance of the direction of the IAC was beyond time. According to the assessee's learned counsel, the order of the Commissioner (Appeals) on the point requires to be set aside.
5. The learned departmental representative supports the order of the Commissioner (Appeals) while stressing the fact that the relevant dates have been noted by the Commissioner (Appeals) for the purpose of Section 144B and his findings are quite justified and valid on the facts of the case and, therefore, the appeal by the assessee on this point requires to be dismissed.
6. We have heard both sides at length and we have perused the orders of the authorities below for our consideration. Admittedly, Section 144B envisages procedure to be followed by the ITO in order to safeguard the interest of the assessee by giving the assessee an opportunity at the earliest occasion to raise objections against the additions proposed to be made by the ITO. This scheme was introduced in the Act with effect from 1-1-1976 and the assessment year with which we are concerned is the assessment year 1977-78. Section 153 prescribes a time limit within which assessments and reassessments are to be completed. Different periods of limitation are prescribed for the operation of different Sections. Sub-section (3) of Section 153 provides that the provision of Sub-sections (1) and (2) would not be applicable to certain classes of assessments narrated therein. Furthermore Explanation 1(iv) states that in computing the period of limitation for the purpose of Section 153 the period (not exceeding 180 days) commencing from the date on which the ITO forwards the draft order to the assessee under Section 144B(1) and ending with the date on which the ITO receives directions from the IAC or in any case where no objections to the draft order are received from the assessee, a period of 30 days shall be excluded. In other words, the period taken by the IAC in giving the direction to the ITO under Section 144B(4) subject to the maximum period of 180 days shall be excluded. In computing the period of limitation the ITO would be entitled to take into account the period of 180 days only and not the entire period taken by the IAC beyond the period of 180 days. It is not the case of the assessee before us that the order passed by the ITO on 24-9-1980 was beyond the prescribed period of limitation under Section 153. In fact the Commissioner (Appeals) has given a finding that the ITO has completed the assessment well before time and a period of 52 days was still available to the ITO even after the receipt of the IAC's instructions. This finding of the Commissioner (Appeals) remains uncoatroverted. The only grievance of the assessee is that the IAC has taken more than 180 days as sanctioned by the section. To our mind there is no merit in this point of contention raised on behalf of the assessee. The period as prescribed above is that the maximum period of 180 days would be excluded under Section 153 in cases where draft assessment along with the assessee's objection are forwarded to the IAC who gives instructions under Section 144B(4). It is our opinion that it is immaterial if the IAC takes more than 180 days in giving instructions to the ITO if the ITO completes the assessment within the limitation period prescribed under Section 153. In the instant case the Commissioner (Appeals) has given a clear finding of facts as briefly narrated above. The above provisions simply stipulate that for purpose of Section 144B(4) a period of 180 days should be excluded for the purpose of computing limitation period under Section 153(3). On the above facts and findings, as recorded by the Commissioner (Appeals) in the impugned order, we find that the appeal by the assessee on the point cannot be accepted. This point of appeal is rejected.
7. The next point of appeal by the assessee is that the Commissioner (Appeals) was wrong in ignoring the ground disputing the rejection of books of account and the estimate of income by applying the proviso to Section 145(1) of the Act and that the book results have been rejected without specifically mentioning under which proviso to the Act the book result was rejected. It is also the appeal by the assessee that the Commissioner (Appeals) failed to consider the ground in his appellate order.
8. Briefly speaking, the assessee complied with the notice issued under Section 143(2). Books of account were produced and were examined by the ITO. The ITO discussed the different sources of income and the different contracts carried on by the assessee during the year and also the gross profit and the net profit disclosed in such contracts. The profit show was not accepted as it was found to be low. The ITO also noted the withdrawal made by the assessee for his domestic expenses and after considering his standard of living, the withdrawals were considered to be inadequate. He concluded that this fact considered along with non-furnishing of details of hire charges, details of machinery utilised and the low profit disclosed and it indicated that the assessee suppressed the major part of the profit from his own business. Accordingly, the profit disclosed by the assessee was not accepted as correct and the ITO estimated the net profit from the contract at 15 per cent and from the sub-contract at 10 per cent. That was the background on which the ITO proceeded to complete the assessment under Section 143(3) read with Section 144B.9. Along with other grounds of appeal, the assessee raised various contentions. The Commissioner (Appeals) at para 6 of his order noted that he had considered the assessee's argument and in his view, the ITO's basic finding that the book results could not be accepted was quite justified and that it was correct that the net profit of 1.3 per cent was unacceptable and unduly low. There is no more discussion on the point in the impugned order.
10. The case of the assessee before us is that the Commissioner (Appeals) erred in ignoring the specific points of appeal raised before him in respect of the application of Section 145 briefly narrated above. Before us copy of grounds of appeal before the Commissioner (Appeals) is placed in the paper book from which it is seen that the assessee took up this point before the Commissioner (Appeals) against ihe application of proviso to Section 145. It was also submitted before the Commissioner (Appeals) that the ITO had rejected the book results without specifically mentioning under which section of the Act the book results were rejected. It is the appeal by the assessee before us that no specific defect was detected in the accounts and, therefore, the book result should not have been rejected. The defects pointed out related only to hiring charges, low drawings, etc. It is submitted that the Commissioner (Appeals) was not justified in law or on the facts of the case to dispose of the appeal by the assessee without dealing with the specific ground of appeal.
11. The learned departmental representative supports the order of the Commissioner (Appeals). We have perused the orders of the authorities below for our consideration along with other papers placed in our file.
Proviso to Section 145(1) stipulates that if the accounts of the assessee are correct and complete to the satisfaction of the ITO but the method employed is such that, in the opinion of the ITO, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the ITO may determine.
Sub-section (2) of Section 145 contemplates a different situation in which the ITO is not satisfied about the correctness or completeness of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee, the ITO may make an assessment io the manner provided in Section 144 of the Act. In our opinion, there is substance in the contentions raised by the assessee before us. The ITO has briefly discussed the different sources of income of the assessee and in fact he examined the books of accounts. There is no other finding that whether proviso to Section 145(1) or Sub-section (2) of Section 145 was appicable. From a copy of the grounds of appeal before the Commissioner (Appeals), it is seen that specific grounds of appeal have been taken by the assessee before the Commissioner (Appeals). This involved investigation and verification of facts before one could come to any conclusion whether Section 145(1) or 145(2) would be applicable.
There is no finding in the present case that any of the entries in the books of account was not correct, there was no finding that the assessee was not employing a method of accounting and there was no finding that such method of accounting had been regularly employed by the assessee. In our opinion, the findings of facts in respect of the accounts, the method employed by the assessee would be very material for deciding the present dispute before us since the Commissioner (Appeals) has not dealt with the specific grounds of appeal raised by the assessee. It is necessary for the Commissioner (Appeals) to bring on record the relevant facts basically required for this purpose and to dispose of the grounds of appeal by the assessee before him. In this view of the matter, we consider that it is necessary that the matter should be restored to the file of the Commissioner (Appeals) for finding of facts before the grounds of appeal are dealt with by him and after giving both sides an opportunity of being heard.
12. The other grounds of appeal relate to the application of net profit rate from contract and from sub-contract, etc. In our opinion, since we have set aside the order of the Commissioner (Appeals) on the reasons recorded by us in the preceding paragraphs, the other grounds of appeal cannot be decided now at this stage unless basic facts, as pointed out in the preceding paragraphs, have been brought on record and have been dealt with by the Commissioner (Appeals). Accordingly, the other grounds of appeal are not considered. The assessee is at liberty to take up such points before the Commissioner (Appeals) when the appeals are being heard afresh by him.
13. In the result, the appeal by the assessee is treated as allowed for statistical purposes.