1. This appeal by the department and the cross-objection thereto by the assessee arise out of the order dated 24-1-1984 of the learned Commissioner (Appeals), Bareilly.
2. The assessee is a HUF (specified). The main question involved is, whether the assessment order passed by the ITO on 19-7-1983 was within time or it was time barred. In that connection, the following dates are relevant.
31-3-1982 - date on which the draft assessment order prepared by the ITO. 8-4-1982 - date of service of the draft assessment order on the assessee.
13-4-1982 - date of objections filed by the assessee to the draft assessment order.
15-4-1982 - date on which the draft assessment order was forwarded by the ITO to the IAC along with the assessee's objections.
The ITO completed the assessment on a total income of Rs. 20,01,840 after making certain additions which it is not necessary to specifically deal with here. Against the said assessment, the assessee came up in appeal before the Commissioner (Appeals). Apart from challenging the following additions, the assessee also raised the ground that the assessment order passed by the ITO was time barred, and, therefore, liable to be cancelled ;17,37,460 on account of cash purchases under Section 40A(3). 2,26,710 on account of alleged purchases from Bharat Traders, Ghaziabad.
16,227 addition to the trading results.
The learned Commissioner (Appeals) held that the assessment was time barred and cancelled it. For that reason, he did not deal with the various disallowances and additions. The learned Commissioner (Appeals) took the view that the words 'ending with' used in Explanation 1(iv) to Section 153(3) of the Income-tax Act, 1961 ('the Act') meant that the period which is to be excluded while counting the normal limitation, cannot go beyond the date when the ITO receives the directions from the IAC, He was of the view that if the whole process is completed and the ITO has received the IAC's directions within the normal limitation period, the assessment will have to be completed within the normal limitat ion period. He found that the normal limitation period available under Section 153(1)(a)(iii) was available up to 31-3-1983 on which day the IAC's directions had been served on the ITO, and, therefore, the assessment order incorporating the IAC's directions should have been passed on the same date. Since the assessment order was passed on 19-7-1983, the learned Commissioner (Appeals) held that it was barred by limitation.
3. The department is aggrieved of the said decision and has come up in appeal before us. On the other hand, in the cross-objection, the assessee has supported the decision of the learned Commissioner (Appeals) and has contended that without prejudice to the same, the additions made by the ITO were arbitrary, unjust, illegal and at any rate very excessive. Shri S.K. Bansal, the learned departmental representative argued that the assessment order was passed well within time. According to him, under Explanation 1(iv) to Section 153, the ITO had time till 30-9-1983 to pass the assessment order whereas the assessment order was passed much before it, i.e., on 19-7-1983 and, therefore, the assessment order was not barred by time. Reliance was also placed by him on the decision dated 10-10-1984 of Bombay Bench 'E' of the Tribunal in Heritage Estates (P.) Ltd. v. ITO  11 ITD 519 as also on the decision of the Delhi High Court in Sudhir Sareen v. ITO  128 ITR 445. On the other hand, Shri O.P. Sapra, the learned counsel for the assessee, strongly supported the order of the learned Commissioner (Appeals). He argued that the period of 180 days, referred to in Explanation 1(iv) to Section 153 burnt itself before 31-3-1983 and, therefore, the assessment order should have been passed by the ITO on 31-3-1983 and not later than that.
4. We have considered the rival submissions as also the decisions referred to above. Under Section 153(1)(iii) the normal period of limitation for passing the assessment order was two years from the end of the assessment year in question, i.e., up to 31-3-1983. Under Explanation 7(iv) to Section 153, in computing the period of limitation for the purposes of Section 153, the period (not exceeding 180 days) commencing from the date on which the ITO forwards the draft order under Section 144B(1) of the Act to the assessee and ending with the date on which the ITO receives the directions from the IAC under Section 144B(4) shall be excluded. The true effect of the above Explanation is that the period of 180 days has to be added to the period of limitation for ascertaining the last day by which the assessment order must be passed. The effect of the Explanation is that the period that comes within it has to be added. Explanation 1 (iv) referred to above makes it clear that in a case where objections to the draft order are received by the ITO from the assessee, the ITO would have additional period (not exceeding 180 days) commencing from the date on which he forwards the draft order to the assessee and ending with the date on which the ITO receives the directions from the IAC within which to complete the assessment. The construction which was sought to be placed by the learned Commissioner (Appeals) namely that the extension of time to the extent of 180 days in cases covered under Section 144B would not cover those cases where the IAC's directions were received by the ITO within the normal limitation period does not follow from any of the provisions, referred to above. In the present case, the period between the date on which the ITO forwarded the draft order (15-4-1982) and the date on which the ITO received the directions of the IAC (31-3-1983) amounted to 349 days. Since such period of exclusion could not exceed 180 days under Explanation 1(iv), in substance the position would come to this that the ITO had only 180 days more time to complete the assessment, after the normal period which expired on 31-3-1983. In other words, the ITO could complete the assessment order up to 30-9-1983. The assessment order having been passed on 19-7-1983 was, therefore, well within time. The learned Commissioner (Appeals) was, therefore, not justified in taking the view that the assessment order was time barred. The following observations of the Delhi High Court in the case of Sudhir Sareen (supra) at page 449 support our above view : Section 153 prescribes the normal period of limitation. Under the said Explanation, a period not exceeding 180 days would be permitted to the revenue to complete an assessment, in addition to the normal period, if an action under Section 144B is taken by the department.
The period excluded is between the date on which the ITO forwards the draft order to the assessee and the date on which the directions are received by the ITO from the IAC.... (p. 449) The matter will, therefore, have to be set aside to the learned Commissioner (Appeals) for considering the assessee's appeal on merits in accordance with law, on the basis that the assessment order had been passed by the ITO within the time prescribed by law.
5. In the result, the appeal filed by the department is allowed. The cross-objection filed by the assessee fails for statistical purposes and is dismissed.