Court rules assessment order void for non-compliance with mandatory procedural requirement in Income-tax Act

The court determined that section 144B of the Income-tax Act, 1961, prescribed a procedural requirement and held that its provisions were mandatory. The court annulled the assessment order due to the Income-tax Officer's failure to comply with section 144B, emphasizing the significant procedural lapse. The court concluded that the assessment order was void and ruled in favor of the assessee, denying the Revenue's appeal for oral leave to the Supreme Court.

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Issues Involved:
1. Whether the provisions of section 144B of the Income-tax Act, 1961, are procedural or substantive.
2. Whether these provisions are directory or mandatory.
3. Whether the Income-tax Appellate Tribunal was correct in law in upholding the remand order by the Appellate Assistant Commissioner.
4. Whether the Tribunal was bound to follow its earlier decision on identical facts regarding section 144B.

Summary:

Issue 1: Procedural or Substantive Nature of Section 144B
The court examined whether section 144B of the Income-tax Act, 1961, is procedural or substantive. The court noted that section 144B was incorporated to strengthen the administration but was later repealed. During the relevant period, the procedure in section 144B had to be followed for assessments involving an addition of more than one lakh rupees. The court concluded that section 144B prescribed a procedure.

Issue 2: Directory or Mandatory Nature of Section 144B
The court considered whether the procedural provisions of section 144B are directory or mandatory. It was noted that the Income-tax Officer (ITO) did not follow the procedure in section 144B, which led to the setting aside of the assessment order. The court held that non-compliance with section 144B is not a mere irregularity but a significant procedural lapse, thereby implying that the provisions are mandatory.

Issue 3: Legality of the Remand Order
The court addressed whether the Appellate Assistant Commissioner was correct in setting aside the assessment and directing the ITO to make a fresh assessment. The court observed that the ITO's failure to follow section 144B rendered the assessment order void. The court held that such an assessment order should be annulled, not merely set aside, as the ITO had no jurisdiction to continue the proceedings without following the mandatory procedure.

Issue 4: Binding Nature of Tribunal's Earlier Decision
The court examined whether the Tribunal was bound to follow its earlier decision on identical facts regarding section 144B. The court noted that the Tribunal had dismissed the appeal by following a previous decision. However, the court emphasized that the failure to follow section 144B was a significant procedural lapse, warranting annulment of the assessment order. Therefore, the Tribunal's reliance on its earlier decision was not justified in this context.

Conclusion:
The court reframed the questions into one and concluded that the assessment order passed by the ITO in ignorance of section 144B warranted annulment under section 251 of the Act. The court held that the omissions and transgressions of the ITO were not mere irregularities but significant procedural lapses. Consequently, the court answered the reframed question in the negative, in favor of the assessee, and against the Revenue. The court refused oral leave to appeal to the Supreme Court.

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