1. This appeal has been filed by the assessee against the order dated 16-7-1983 of the Commissioner (Appeals) relating to the assessment year 1979-80, the previous year of which ended on 31-3-1979.
2. The assessee-company was incorporated on 19-10-1909 under the Companies Act, 1866 and is an existing company under the Companies Act, 1956. Under an agreement with the then Government of Bengal and subsequent agreements with the District Board of Sahabad, the assessee-company was engaged in running a Railway between Arrah and Sasaram. It appears that the company wanted to close down its operations in 1975 due to heavy loss but the Central Government offered some subsidy to keep the Railway of the assessee in operation. However, the Railway Board of the Central Government asked the company to close its operations by its letter dated 29-11-1977 and so the company closed its business operations with effect from 15-2-1978. At its extraordinary general meeting held on 29-3-1978 the assessee-company resolved for members' voluntary winding up and two liquidators were appointed accordingly. It is stated that a notice under Section 178 of the Income-tax Act, 1961 ('the Act') was given to the ITO who, however, did not respond. In the course of beneficial winding up of the affairs of the company, the liquidators took the decision to sell the assets of the company. On 26-7-1978, the assets, viz., railway track, slippers, rolling stock and plant and machinery, lying in its premises between Arrah and Sasaram, were sold for a total consideration of Rs. 95 lakhs.
The assessee opted to adopt the fair market value of these assets as on 1-1-1964 as the cost of acquisition for the purpose of computation of capital gains under Section 55 of the Act. Such market value was determined at Rs. 39,46,000 as per certificate of valuation given by Talbot & Co.
3. The assessee submitted on 17-10-1979 a return showing business loss of Rs. 3,12,235. In course of the hearing before the ITO, the various contentions were raised regarding the assessability of the capital gains and bank interest earned by the assessee during the year. The ITO made a reference on 25-11-1981 to the IAC under Section 144A of the Act. The relevant part of the said reference under Section 144A is reproduced below : So the assessee submitted a loss return of Rs. 3,12,215. The assessee has not shown any profit under capital gains or any profit under Section 41(2). in the course of the assessment proceeding the assessee objected to be assessed on the following grounds : (1) No valid assessment can be made in view of change of law to Section 140(c).
(2) The Income-tax Officer has not intimated anticipated tax liability under Section 178(2).
(3) The assessee contended, under the laws of the country, a company in liquidation has no affairs to be managed but has only affairs to be wound up. In view of this, the liquidators are obliged, after taking custody of the assets, to sell them off. Hence, the intention to sell is manifest and in view thereof, the assets are the stock-in-trade in the hands of the liquidators. Hence, the liquidators are entitled, in view of the ruling of the Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka  46 ITR 86, to substitute the market value of the assets being Rs. 95 lakhs as cost of the assets which has to be deducted from the sale price realised.
Perhaps for this proposition the assessee has not shown any profit under the head 'Capital gains' nor any profit under Section 41(2).
We have come across a Tartar in the case of the Shahdara (Delhi) -Saharanpur Light Rly. Co. Ltd. which is also assessed in this ward.
In that case at the instance of the then IAC, the case was referred to the Valuation Officer, but as physical verification of the assets was not possible the Valuation Officer declined to value the assets.
I, therefore, feel that referring to Valuation Officer will be of no avail in this case also at the -present moment. The moot question that hovers before me how to make an assessment at this stage and how to determine profit under capital gains or under Section 41(2).
This problem languishes my weary nerves. I shall be very much obliged if you would kindly instruct me as to how the question can be encountered legally. If the assessee's valuation of Rs. 39,46,900 is accepted, the net capital gains arise at Rs. 45,53,100.
With regard to the legality of the assessment the Board's instruction that has been obtained in the Shahdara (Delhi) - Saharanpur Light Rly. Co. Ltd.'s case will be of much assistance to us. Section 292B will take care for that proposition.
With regard to the claim of liquidation expenses I beg to submit that in view of the Supreme Court decision in the case of CIT v. Lahore Electric Supply Co. Ltd. [1966J 60 ITR 1, no establishment expenses are allowable as there is no business.
In the course of hearing under Section 144A before the IAC, the assessee gave a long explanation about the facts of the case and the stand taken by it (vide pages 12 to 37 in the assessee's paper book).
The I AC by his letter dated 15-3-1982 gave the following instructions under Section 144A : After perusing the assessment record, your report and discussing the matter with the assessee's representative, Shri D.K. Guha, I direct you as under : (a) Please follow the Law Ministry's opinion given in the case of the Shahdara (Delhi) - Saharanpur Light Rly. Co. Ltd. with regard to the point of valid assessment.
(b) Compute the capital gains on the sale of assets by taking the difference of sale price and the value as on 1-1-1964.
Thereafter, the ITO made out a draft assessment order computing the capital gains at Rs. 55,53,100 as shown by the assessee and bank interest at Rs. 7,927 as shown by the assessee resulting in a total income of Rs, 55,61,030 (rounded off). He submitted this draft order on 15-3-1982 to the IAC under Section 144B of the Act. In response to the draft order proposed by the ITO, the assessee wrote a letter to the ITO on 30-3-1982 (page 42 of the assessee's paper book). In this letter, the assessee took the stand that it had already been heard by the IAC under Section 144A and the assessment should have been completed in accordance with the instructions under Section 144A and that the ITO no longer had any jurisdiction to proceed under Section 144B. The assessee also replied to the IAC on similar lines in the course of the proceedings under Section 144B. The IAC gave his instructions under Section 144B as per his letter dated 7-9-1982/10-9-1982 in the following terms : The basic question raised in the objection petition is that the ITO had no jurisdiction to make reference under Section 144B when he was finalising the assessment in consequence of IAC's instruction under Section 144A in the instant case. Elaborating this point, the authorised representative submitted that the assessment has now got barred by limitation as the extended period under Section 153 (Explanation) will not be available in this case (after normal limitation period expiring on 31-3-1982). In rejecting this objection, you are required to briefly mention in the final order about your earlier reference under Section 144A and the IAC's instructions thereon during the normal time limit and then emphasize that on plain reading of the provisions of Sections 144A and 144B, it is not possible to accept that both the provisions cannot be independently applied in a given case, particularly when the latter section starts with the expression 'Notwithstanding anything contained in this Act'. The variation, in the instant case, having exceeded the limit of Rs. 1 lakh, had the interpretation of the authorised representative been accepted in not invoking the provision of Section 144B, the finalisation of assessment order would have violated the procedure prescribed in law.
After receiving the above instructions, the ITO made the assessment under Section 143(3)/144B of the Act on 18-9-1982.
4. The assessee appealed to the Commissioner (Appeals) and contended that the assessment made on 18-9-1982 was without jurisdiction. The contention raised was that the IAC having once given directions under Section 144A did not have any further jurisdiction to give directions under Section 144B. Consequently, the extended time limit available under Explanation 1(iv) to Section 153 of the Act was not available in this case. Inasmuch as the assessment was made beyond the regular period of limitation, i.e., 31-3-1982, it was urged that the assessment made on 18-9-1982 was' barred by limitation. It is to be noted that if Section 144B was validly invoked in this case then the time taken for obtaining the instructions under Section 144B adequately explained the delay in making the assessment beyond 31-3-1982 and so the assessment made on 18-9-1982 becomes one made within the prescribed time. Thus, the question posed before the Commissioner (Appeals) was whether the reference under Section 144B was valid in which case the assessment would also be valid ; or the reference under Section 144B was invalid so that the assessment would become time barred. The Commissioner (Appeals) disposed of the matter as under : Both these sections (144A and 144B) were inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-1-1976 on the recommendation of the Wanchoo Committee. Section 144A and Section 144B have been enacted for providing pre-assessment guidance to the ITO and to safeguard the interest of the taxpayer against any capricious or arbitrary exercise of jurisdiction by the ITO. While with effect from 1-10-1976 the power to issue binding directions with regard to a particular assessment is conferred under Section 144A upon the IAC, the ITO is bound to send under Section 144B the draft assessment order to the IAC if the variation exceeds the prescribed limit. The formality of sending a draft assessment order is, therefore, essential in cases where the amount of proposed addition and/or disallowance exceeds the sum of Rs. 1 lakh as prescribed by the Board under Section 144B(6). The intention behind the new provision of Section 144B seems to be to provide a forum, before the actual assessment, for the assessee to know the merits of the proposed assessment. In other words, Section 144B introduced anew concept of issue of a draft order by the ITO to the assessee setting forth additions proposed to be made to the returned income followed by consideration of assessee's objection and issue of directions by the IAC. On the aforesaid examination of the provisions of the two sections, 144A and 144B, it is difficult to agree with the contention of the appellant that these are mutually exclusive. It would not be correct to hold that once the IAC has issued certain directions under Section 144A, the ITO is not further required to send the draft assessment to the assessee and thereafter to the IAC along with the assessee's objection under Section 144B. Once this interpretation holds good, then the second part of the contention of the appellant that the extended time limit under Explanation 1(iv) to Section 153(3) does not apply must fail. In view of this matter, the asssssment cannot be said to be invalid as being time barred.
5. In this further appeal before us, Shri D.K. Guha, the learned representative for the assessee, explained the above facts. He then took us through the grounds taken in this appeal. For the sake of convenience, we start with ground No. 2 which reads as below : For that the learned Commissioner should have held that the assessment had become time barred on 31-3-1982 and in view thereof the order of assessment made by the ITO on 18-9-1982 is bad in law and without jurisdiction.
Shri D.K. Guha urged before us that the language of Section 144A was quite clear and that instructions given under Section 144A were given to the ITO to enable him to complete the assessment and such directions are binding on the ITO. Hence, he urged that instructions given under Section 144A on 15-3-1982 should have led the ITO to complete the assessment instead of making a further reference under Section 144B on the same matter and thereby crossing the date-line set by Section 153.
He, then, referred to the language of Section 144B and emphasised the word 'purposes' used in it. Section 144B says that whenever the ITO proposes to make a variation exceeding Rs. 1 lakh, he should make a reference under Section 144B. The point of Shri D.K. Guha was that the ITO was already bound by the directions under Section 144A to make the assessment in a particular way and so he is no longer free to suggest any other course than those directions. In this view of the matter, he urged that the ITO was precluded from making any 'proposal' under Section 144B. Consequently, he urged that the assessment as made by the ITO is barred by limitation because the extended time limit was not available to the ITO and the unwanted reference made under Section 144B did exceed the date of limitation for making the assessment beyond 31-3-1982. In this connection, he referred to the decision of the Tribunal in the case of ITO v. N. Krishnan. In that case, the assessee, a cashew nut exporter, had claimed a processing expenditure of Rs. 6,72,002. On the basis of erasure and overwriting in the day book and ledger seized by the department, the ITO disallowed an expenditure of Rs. 2,20,000. On appeal, the AAC reduced the addition to Rs. 30,000 only ; thus, giving a relief of Rs. 1,90,000. The department appealed to the Tribunal against the deletion, while the assessee also appealed against the reduction by the AAC. The Tribunal, on a consideration of the facts relating to the additions and alterations found in the day book and ledger, came to the conclusion that there was no cause for any addition at all because the number of bags processed were correctly mentioned in the bills and books. The Tribunal allowed the assessee's appeal on this ground. Thereafter, the Tribunal proceeded to consider another argument raised in the assessee's appeal, viz., that Section 144B did not apply to the assessment made by the ITO. The Tribunal observed that Section 144B being procedural in nature applied to pending proceedings also. Then, it considered the other aspects of the arguments raised in this ground. In that case, the return was filed on 8-6-1976. The normal period of limitation expired on 8-6-1977. The assessment order was passed on 21-9-1977. The draft order was sent on 21-3-1977. The IAC gave his instructions on 20-9-1977. These instructions were given under Section 144A. In those instructions, the IAC gave his directions relating to certain specific items of addition.
But the ITO made another reference under Section 144B proposing certain other additions. In fact, the directions of the IAC on 20-9-1977 were consolidated directions both under Sections 144A and 144B. In other words, the two references were consolidated and directions given in respect of those specific items were referred under both the sections by a consolidated order. The assessee argued that the whole assessment became time barred because the extended time limit was available only in a case of reference under Section 144B and not in a case of reference under Section 144A. The Tribunal agreed with the assessee to the extent that the directions under Section 144A, with regard to the specific items of addition mentioned therein, had become time barred and the other items of additions covered by the instructions under Section 144B were not barred by limitation ; and as the two classes of items were severable, only the first part became barred by limitation and not the second part. The argument of Shri D.K. Guha before us was that the case of the assessee is covered by the ratio of the said decision and so it must be held that the assessment made by the ITO, in the present case, is barred by limitation and so bad in law.
6. Shri S.K. Jha, the learned representative for the department, replied that the assessment made by the ITO and upheld by the Commissioner (Appeals) was quite valid in law. He stated that Sections 144B and 144A operated in different plane's. Section 144A is an administrative review at the pre-assessment stage. The ITO has to do something more after getting the instructions under Section 144A. The IAC may give directions to proceed or make enquiries on a particular line. The order under Section 144A, unlike in the case of N. Krishnan (supra), may not refer to any specific item of addition. It may consist of general directions. On the contrary, Section 144B is a review of the final act of the ITO, viz., the assessment order drawn up by him proposing additions of specific items. No directions to make general enquiries could be given under Section 144B. The IAC has neither to agree or to disagree with the proposed additions. The meaning of the word 'proposal' used in Section 144B is that the ITO 'wanted' to make certain additions. It does not necessarily mean that the amounts to be added should not have been considered by the IAC earlier. In any case, he pointed out that the IAC in this case has not given any specific direction regarding any particular item of addition under Section 144A.Secondly, the instructions under Section 144B in this case were not combined with the instructions under Section 144A but were given separately after a lapse of considerable time. Thus, the facts of this case are separate and distinguishable from those in the case of N.Krishnan (supra). Next, he urged that the language of Section 144B is mandatory and begins with a non obstante clause 'Notwithstanding anything contained in this Act'. This shows that the provisions of Section 144B have an overriding effect and cannot be ignored in spite of whatever is contained in the other provisions of the Act, including Section 144A. Hence, he urged that the ITO rightly made a separate reference under Section 144B as otherwise his assessment would have been invalid because of contravention of the provisions of Section 144B. He urged that the interpretation put by the assessee, if accepted, would render Section 144B superfluous in cases where Section 144A has been availed of. Considering the aforesaid non obstante clause, Shri S.K. Jha urged that such an interpretation could not be inferred from the plain language used in Section 144B.7. We have considered the contentions of both the parties as well as the facts on record. We find force in the contentions raised by the department. We find that the facts in the case of N. Krishnan (supra) are clearly distinguishable from the facts of this case. Firstly, the order under Section 144B has not been combined with the order under Section 144A. In fact, the order under Section 144B was given separately and after the lapse of considerable time. Secondly, the directions under Section 144A given in this case do not relate to any specific item of addition. They are general. If the IAC had given directions regarding any particular item of addition under Section 144A then perhaps the ratio of the decision in the case of N. Krishnan (supra) would have been applicable. But this is not so in the instant case. The IAC merely gave guidelines on which the assessment had to be made in his directions under Section 144A. The ITO followed those directions as best as he could. Following those directions the ITO arrived at an income with a variation of more than Rs. 1 lakh. In such circumstances, he clearly came within the purview of Section 144B which directs him to make a reference to the IAC under Section 144B, notwithstanding anything contained in Section 144A. Accordingly, he made a reference proposing specific additions. We do not see anything improper or irregular in the procedure followed by the ITO in this case. In fact, in our opinion, it would have been illegal on his part to omit the procedure laid down in Section 144B when the variation exceeded Rs. 1 lakh and the language of Section 144B begins with a non obstante clause. In our opinion, the word 'proposes' in Section 144B merely means 'wants to'. The ITO may want to make an addition of over Rs. 1 lakh either of his own accord or on account of directions from the IAC or some other competent authority. In all these cases, he is duty bound to make a reference under Section 144B as, otherwise, the assessee would be deprived of a valuable right to be heard by the IAC before the assessment is finalised. The ITO followed the correct procedure. The IAC gave an opportunity of being heard given in Section 144B to the assessee. However, it was the assessee who chose not to avail of the above opportunity on the technical ground stated above.
Considering all the facts and circumstances of the case, we are unable to accept the contentions raised for the assessee. We find support for this conclusion of ours from the decision of the Tribunal in the case of ITO v. L.K. Manathamby  7 ITD 310 (Mad.). We, therefore, reject this ground.
8 to 10. [These paras are not reproduced here as they involve minor issues.]