S.D. Wad, J.
1. A short question for decision in this petition is whether an ITO acting s. 144B, is empowered to confront an assessed with more than one proposed draft orders of assessment, each time raising the amount of assessment or whether he can do the said exercise only once. The petitioner's contention is that s. 144B restricts the power of the ITO only to one draft order of assessment and not more. He further contends that any other interpretation would expose an assessed to unjustified harassment.
2. Section 144B read as follows :
'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 assessed 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 assessed.
(2) On receipt of the draft order, the assessed 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 assessed 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 assessed shall be issued under this sub-section before an opportunity is given to the assessed 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 that different amounts may be fixed for different areas :
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.'
3. The said section was inserted by the T. L. (Amend.) Act, 1975, which took effect from January 1, 1976. The Notes on Clause in the Amending Bill do not throw much light on the need for enacting s. 144B. However, in the counter-affidavit filed, the object is stated as follows :
'The purposes of this section is to reduce the area of dispute between the Income-tax Officer and the department making the assessment and the assessed so that unnecessary appeals against the order need not be filed.'
4. The contention of the petitioner is that the language of the section is very clear. The petitioner refers to the words 'in the first instance', 'a draft' in s. 144B(1). The petitioner argues that they point out to only one draft and not more. He submits that the singular 'a draft' does not include plurality of drafts. He further takes support from the words 'the draft order' used in sub-s. (2). He argues that the draft order referred to in sub-s. (2) makes the draft order referred to in sub-s. (1) more definite. He further submits that if the ITO is empowered to have unlimited number of drafts orders, there will be no finality and the petitioner would be exposed to permanent harassment. Such interpretation, according to the petitioner, should enable the I.T. department to bypass the period of limitation prescribed by s. 153. The petitioner submits that the interpretation suggested by him would bring the section in conformity with s. 153 of the I.T. Act.
5. On the other hand, the revenue contends that the words 'in the first instance' appearing in sub-s. (1) merely mean that every time when an assessment is to be revised, a draft order would be served on the assessed. The revenue submits the here are no limiting words in s. 144B in regard to the number of draft orders that can be served on the assessed. The revenue then points out that so far as the petitioner was concerned there was no question of extending the period of limitation under s. 153, because the normal period for completing assessment proceedings in the petitioner's case was up to 31st March, 1982. The revenue then contends that no pre-justice is caused to an assessed because every time a new draft order is served on him he is entitled to an opportunity of being heard. The revenue suggests that their interpretation is in keeping with the object of the amending provision.
6. The T. L. (Amend.) Act, 1975, introduced two new sections - namely, ss. 144A and 144B. Though the said sections an IAC is given power to issue directions to an ITO. In the absence of legislative authority, the IAC could not have given any directions to the ITO in the discharge of his quasijudicial functions. Both the sections provide that if an IAC wants to give a direction, which is prejudicial to an assessed, he must be given an opportunity of being heard before such direction is issued. The directions given under both the sections are binding on the ITO.
7. There is a difference between the circumstances in which powers under ss. 144A and 144B can be invoked. Under s. 144A(1) the IAC can suo motu call for the record of any proceeding pending assessment. He can do so on a reference from an ITO or by an assessed also. Under s. 144B, on the other hand, there is no suo motu power to call for the records. It can be exercised only where a reference is made by an ITO proposes to make any variation in the income or loss returned and which exceeds the limit prescribed by the Board. The Board has fixed the amount of variation at Rs. 1,00,000.
8. The object of the sections appear to be to avoid multiplicity of proceedings and unnecessary appeals. We are here concerned only with an order passed under s. 144B(1). The first draft order was issued by the ITO on March 30, 1979, for Rs. 3,27,870. The assessed filed his objections. The draft order along with objections was sent to the IAC. According to the assessed, there were 5/6 hearings before the IAC and thereafter the hearing was completed. This hearing was on the basis of the figure mentioned in the draft order and the petitioner's objections and not for any other sum. The ITO sent a second draft order to the assessed on September 10, 1979, for Rs. 4,10,030. It was thus an order for enhancement of the amount and naturally an order prejudicial to the assessed. Admittedly, this is an order on the directions of the IAC. Admittedly also, the IAC did not give an opportunity of being heard to the assessed before issuing the said directions. This was contrary to the proviso to sub-s. (4) of s. 144B. The opportunity of being heard is a condition precedent to the issuance of any prejudicial directions. The provision for being heard is mandatory as is indicated by the word 'shall' used in the proviso.
9. The procedure followed by the revenue in this case was illegal and in violation of the express provisions. The second draft assessment order is the result of the illegal directions given by the IAC. The entire proceedings from the stage of the directions given by the IAC onwards are, thereforee, quashed.
10. Even otherwise, the second draft assessment order is bad in law. The revenue contended that an ITO can issue more than one draft assessment orders under sub-s. (1) of s. 144B. This might lead to multiplicity of proceedings resulting in additional harassment to an assessed. The object of the provisions cannot be to reduce the number of regular appeals before the AAC but to increase the volume of proceedings before the IAC. The real object appears to be to provide competent scrutiny at the Assistant Commissioner's level and to reduce relative finality and free play at the ITO's level. The language of the section also does not permit any interpretation favoring more than one draft order. If an assessed accepts the variation the matter ends there. In other words, there is no prejudicial order against the petitioner. But where he raises objections, he gets an opportunity of persuading the revenue at a higher level to his own point of view. Supposing, the IAC is not persuaded and agreed with the draft order, a final order would be passed by an ITO on such directions from the IAC. These two cases illustrate that there is only one draft order contemplated by sub-s. (1). But there is a third contingency envisaged in sub-s. (4). If after hearing the objections of an assessed to the proposed assessment order, the IAC wants to enhance the assessment still further, he must give an additional opportunity of being heard to the assessed. The objection of the assessed could be that in any case the assessment does not exceed the draft order and the proposed increase by the IAC was not justified. If this objection is upheld by the IAC under sub-s. (4) there is no need for a second draft order. On the other hand, if the IAC sticks to his own objections, the ITO is bound to obey the direction. After this stage only a final order can be issued by the ITO. There is no question of a draft assessment again.
11. If at the second stage an ITO again issues a draft assessment order that will be contrary to the provisions of sub-s. (5). This analysis would show that under s. 144B(1) and ITO has no power to issue more than one draft order.
12. Section 153 prescribes the period of limitation for completing an assessment. Explanationn 1(iv) provides for the exclusion of time in relation to assessment under s. 144B. The said Explanationn runs as follows :
'(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 assessed 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 assessed, a period of thirty days.'
13. Section 153 prescribes the normal period of limitation. Under the said Explanationn 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 s. 144B is taken by the department. The period excluded is between the date on which the ITO forwards the draft order to the assessed and the date on which the directions are received by the ITO form the IAC. The counsel for the assessed submits that if the revenue's interpretation is to be accepted they might claim the additional period up to 180 days for each of the draft orders, in addition to the first draft order. He submits that this would be clearly contrary to the statutory limitation imposed by Expln. 1 to s. 153. He further submits that considering the period of limitation laid down in the said proviso it can fairly be concluded that only one draft order is contemplated by sub-s. (1) of s. 144B.
14. The statutory period not exceeding 180 days mentioning the Expln. 1(iv) is mandatory. This period cannot be extended by any device. Section 153, by itself, does not support the assessed's contention. If more than one draft order is permissible under s. 144B, s. 153 will not stand in the way if the two periods (normal and additional 180 days) are not extended. On the construction of s. 144B I have come to the conclusion that sub-s. (1) of s. 144B does not authorise an ITO to issue more than one draft assessment orders. Section 153 does not render any additional assistance. The contention of the revenue that in the present case even the normal period is up to 1982, also does not have any direct bearing on the question involved.
15. For the reasons stated above, the impugned order is set aside. The department is free to restart the proceeding at the stage of IAC under the proviso to sub-s. (4) of s. 144B. The petition succeeds with costs. Rule is made absolute.
16. Petition allowed, Rule made absolute.