1998 (7) TMI 82 - HC - Income Tax

Tax Tribunal Upholds Commissioner's Decision on Section 144B Compliance

The Tribunal upheld the Commissioner (Appeals)'s decision to set aside the assessment and direct the Income-tax Officer to make a fresh assessment by ... Draft, Assessment, Variation In Income, Nullity, Irregularity Issues Involved:1. Whether the Tribunal was correct in upholding the order of the Commissioner (Appeals) setting aside the assessment with directions to the Income-tax Officer to make the assessment afresh by complying with the provisions of section 144B.2. Whether non-compliance with section 144B of the Income-tax Act renders the assessment order void or a nullity.Issue-wise Detailed Analysis:1. Tribunal's Decision on Setting Aside Assessment:The Tribunal upheld the Commissioner (Appeals)'s decision to set aside the assessment and direct the Income-tax Officer to make a fresh assessment by complying with section 144B. The Commissioner (Appeals) viewed non-compliance with section 144B as a procedural irregularity, curable and not fatal to the validity of the assessment. The Tribunal agreed, leading to the question of law being referred to the High Court for further examination.2. Nature of Section 144B - Procedural or Substantive:The primary question was whether section 144B is procedural or substantive. Section 144B, inserted by the Taxation Laws (Amendment) Act, 1975, and applicable to assessments completed after January 1, 1976, required the Income-tax Officer to forward a draft assessment order to the assessee if the proposed variation exceeded Rs. 1 lakh. The assessee could object, and the draft order with objections would then be referred to the Deputy Commissioner for guidance.The court noted that Chapter XIV of the Act, which includes section 144B, deals with the procedure for assessment, indicating its procedural nature. The court referenced several cases, including Smt. Mohinder Jaspal Singh v. CIT and R. Dalmia v. CIT, supporting the view that section 144B is procedural. The rationale behind section 144B was to prevent arbitrariness and ensure senior officer guidance in significant variations, not to change the forum of assessment.3. Consequences of Non-compliance with Section 144B:The court examined whether non-compliance with section 144B renders the assessment order void or a nullity. It concluded that non-compliance constitutes a procedural irregularity, not a jurisdictional defect. The Income-tax Officer retained jurisdiction to pass the assessment order, and failure to follow section 144B did not nullify the order. The court referred to several decisions, including Banarsidas Bhanot and Sons v. CIT and G. R. Steel and Alloys P. Ltd. v. CIT, supporting this view.4. Distinguishing Relevant Case Law:The court distinguished the Supreme Court's decision in CIT v. Dhadi Sahu, which dealt with a change of forum and vested rights, from the present case. The court noted that section 144B does not change the forum of assessment, and the jurisdiction to pass the assessment order remains with the Income-tax Officer. The decisions in CIT v. Mohinder Lal and Sudhir Sareen v. ITO, which stated that section 144B is mandatory, were acknowledged but did not alter the procedural nature of the provision.Conclusion:The court concluded that section 144B is procedural, and non-compliance with it does not render the assessment order void or a nullity. The question was answered in the affirmative, in favor of the Revenue and against the assessee. The matter was to be listed before the Division Bench for recording a final answer in accordance with the majority opinion.