Scope of review in draft assessments restricted: Inspecting officers cannot enhance income beyond the draft order; extraneous notices invalid.

Inspecting Assistant Commissioners are constrained to the matters contained in a draft assessment and the assessee's objections when exercising powers under the statutory scheme governing draft assessments and complementary review; they may not on their own motion issue notices or give directions that enhance or treat additional amounts as income beyond the scope of the draft order forwarded by the assessing officer. Complementary examination mechanisms permit review where proceedings are prejudicial to revenue, but enhancement beyond the forwarded draft assessment is invalid; accordingly, notices issued beyond those limits are quashable without prejudice to the Revenue pursuing lawful proceedings with opportunity to the assessee.

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Issues: Whether the Inspecting Assistant Commissioner could, under sections 144B and/or 144A read with section 144 of the Income-tax Act, 1961, issue notices or give directions treating amounts as income beyond the scope of the draft assessment forwarded under section 144B, and whether the impugned notices dated June 6, 1977, September 20, 1977 and September 30, 1977 were valid.

Analysis: The Court examined the statutory scheme created by sections 144B and 144A read with section 144 and the operation of a draft assessment under section 143(3) read with section 144B. The Court analysed the jurisdictional limits imposed by section 144B on the Inspecting Assistant Commissioner when hearing objections to a draft assessment forwarded by the Income-tax Officer, and the complementary role of section 144A when the Inspecting Assistant Commissioner examines pending assessment records suo motu or on reference. The Court considered authorities addressing the scope of recomputation or enhancement by the Inspecting Assistant Commissioner and whether he may travel beyond items covered by the draft assessment and the assessee's objections. The Court found that no steps contemplated by section 144A were validly invoked in the present proceedings and that, while section 144A permits examination of proceedings where action is prejudicial to revenue, the Inspecting Assistant Commissioner, while considering a draft assessment under section 144B(4), cannot on his own motion issue notices or give directions that go beyond the matters covered by the draft order and the objections; enhancement beyond the draft assessment is invalid to the extent it is not within the draft order forwarded by the Income-tax Officer.

Conclusion: The impugned notices dated June 6, 1977, September 20, 1977 and September 30, 1977 issued by the Inspecting Assistant Commissioner are quashed. The writ petition is allowed to that extent; this does not preclude the Revenue from initiating appropriate proceedings in accordance with law with opportunity to the assessee and without being barred by limitation arising from the pendency of the writ.

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