1998 (8) TMI 10 - HC - Income Tax

High Court clarifies limitations on IAC under section 144A in pending 144B cases; emphasizes independent exercise of power.

Commissioner Of Income-Tax Versus Dhanalakshmi Mills Ltd.

Commissioner Of Income-Tax Versus Dhanalakshmi Mills Ltd. - [2000] 246 ITR 549, 165 CTR 713, 116 TAXMANN 290 Issues Involved:1. Whether the IAC can invoke the provisions of section 144A in a proceeding pending before him under section 144B.2. Whether the provisions of section 144B authorize the ITO to make a second draft assessment order before the assessment is completed.Issue-Wise Detailed Analysis:1. Invocation of Section 144A in a Proceeding under Section 144B:The core question is whether the Inspecting Assistant Commissioner (IAC) can invoke section 144A while a proceeding is pending under section 144B. Section 144A grants the Deputy Commissioner of Income Tax (Dy. CIT) the discretionary power to issue directions for the guidance of the Assessing Officer (AO) to complete the assessment. These directions are binding on the AO and can be exercised suo motu or at the instance of the assessee or the AO. However, section 144B, which was applicable until 1st October 1984, mandates the AO to forward a draft assessment order to the assessee if the proposed variation in income exceeds a specified amount. If the assessee objects, the draft order and objections are forwarded to the Dy. CIT, who then issues binding directions to the AO.The judgment clarifies that section 144A and section 144B are distinct and separate provisions. Section 144B, with its non-obstante clause, overrides other provisions and is meant to be applied independently. The Dy. CIT cannot invoke section 144A to direct the AO to make a second draft assessment order under the guise of giving instructions. The power under section 144B must be exercised within the confines of that section, and it does not allow for the simultaneous application of section 144A.2. Authorization for a Second Draft Assessment Order under Section 144B:The second issue addresses whether section 144B authorizes the AO to make a second draft assessment order before finalizing the assessment. Section 144B outlines a specific procedure where the AO must forward a draft assessment order to the assessee, who may then file objections. The Dy. CIT considers these objections and issues directions for completing the assessment. The section does not provide for the issuance of a second draft assessment order. The judgment emphasizes that the legislative intent is to ensure expeditious proceedings under section 144B, which would be undermined if multiple drafts were allowed.The judgment refers to the Delhi High Court's decision in Sudhir Sareen vs. ITO, which supports the view that once proceedings under section 144B commence, they must conclude as specified within that section. The Calcutta High Court's contrary view in Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. vs. CIT, which allowed for a second draft order, was not endorsed. The Kerala High Court's decision in Aspinwall & Co. Ltd. vs. CIT, which permitted modifications to the draft order, was distinguished as it did not involve issuing a completely new draft order.The judgment concludes that directing the AO to submit a fresh draft assessment order is beyond the Dy. CIT's powers under section 144B. The Tribunal's rejection of the Revenue's contention that the second draft order was sustainable under section 144A was upheld. The judgment firmly states that section 144A cannot be invoked once proceedings under section 144B have commenced.Conclusion:The High Court held that:1. The IAC cannot invoke section 144A in a proceeding pending under section 144B.2. Section 144B does not authorize the AO to make a second draft assessment order before the assessment is completed.The assessee was awarded costs of Rs. 1,500.