1985 (3) TMI 83 - AT - Income Tax

Tribunal allows appeal, annuls assessment order due to limitation, deems section 144B inapplicable.

The Tribunal allowed the appeal, determining that the assessment order dated 25-9-1980 was barred by limitation and needed to be annulled. The application ... Applicability of section 144B and exclusion under sub-section (7) of section 144B - concurrent jurisdiction conferred under section 125A and deemed exercise of powers by the Inspecting Assistant Commissioner - territorial/administrative jurisdiction of the Inspecting Assistant Commissioner over an Income-tax Officer - effect of draft assessment order served under section 144B(1) vis-a-vis time-bar under section 153 - annulment of time-barred assessment orderApplicability of section 144B and exclusion under sub-section (7) of section 144B - concurrent jurisdiction conferred under section 125A - Whether section 144B applied to the assessee's assessment for AY 1977-78, having regard to sub-section (7) of section 144B and the conferment of concurrent jurisdiction on the IAC, Allahabad, under section 125A. - HELD THAT: - The Tribunal held that sub-section (7) of section 144B excludes the section's application where an Inspecting Assistant Commissioner 'exercises the powers or performs the functions' of an Income-tax Officer pursuant to orders under section 125 or 125A. The Court construed the scheme of sections 123, 125 and 125A and rejected a narrow factual-only reading of sub-section (7). It held that where concurrent jurisdiction is conferred under section 125A the IAC within whose administrative jurisdiction the ITO functions is the authority to give directions, and the IAC who has been conferred concurrent jurisdiction may, by issuing directions, be regarded as exercising the powers or performing the functions contemplated by sub-section (7). Applying the facts, the Tribunal found that the IAC, Allahabad, had in fact issued detailed directions and guidelines to the ITO (including a comprehensive letter of instructions), thereby having exercised powers and performed functions under section 125A. Consequently the case fell within the exclusion in sub-section (7) and section 144B did not apply. [Paras 7, 8, 9, 10, 16]Section 144B did not apply to the assessment because the IAC, Allahabad, had exercised the powers/functions under section 125A and the case was therefore excluded by sub-section (7) of section 144B.Territorial/administrative jurisdiction of the Inspecting Assistant Commissioner over an Income-tax Officer - deemed exercise of powers by the Inspecting Assistant Commissioner upon conferment of concurrent jurisdiction - Which IAC is to be treated as having jurisdiction for purposes of section 144B where concurrent jurisdiction under section 125A is conferred and whether an IAC is deemed to have exercised powers once concurrent jurisdiction is conferred. - HELD THAT: - The Tribunal interpreted the statutory scheme to hold that, assuming section 144B were otherwise attracted, jurisdiction for purposes of section 144B is that of the IAC within whose administrative territory the ITO performs his functions (and not merely the IAC who is nominally given concurrent jurisdiction). It further held, as a general legal proposition, that upon conferment of concurrent jurisdiction under section 125A the IAC is to be treated as having exercised the powers vested in him even if he allows the ITO to exercise assessment powers, because sub-section (2) of section 125A circumscribes the ITO's powers by the directions of the IAC. The Tribunal added that on the facts the IAC, Allahabad, had in any event in fact exercised such powers by issuing directions to the ITO. [Paras 5, 7, 8, 16]The IAC within whose jurisdiction the ITO functions is the relevant authority; where concurrent jurisdiction is conferred under section 125A the IAC is deemed to have exercised powers so as to attract the exclusion in sub-section (7) of section 144B, and on the facts the IAC, Allahabad, had exercised those powers.Effect of draft assessment order served under section 144B(1) vis-a-vis time-bar under section 153 - effect of non-signature and incompleteness of draft assessment order - Whether the draft assessment order prepared and forwarded by the ITO in March 1980 amounted to a valid assessment order under section 143(3) (and thereby saved the assessment from being time-barred), or whether the final assessment dated 25-9-1980 was time-barred. - HELD THAT: - The Tribunal examined the draft assessment document and found each page initialled but the last page (showing computation of total income) unsigned and without determination of tax; the document was explicitly marked and forwarded as a draft and the assessee was invited to file objections. On those facts, and having regard to section 292B, the Tribunal concluded the draft could not be treated as a final assessment under section 143(3). Since the substantive assessment order was ultimately made on 25-9-1980, after the statutory time-limit applicable under section 153(1)(a)(iii) (which required completion by 31-3-1980), the assessment was barred by limitation. [Paras 11, 12, 16]The draft order of 27-3-1980 was not a valid assessment under section 143(3); the final assessment dated 25-9-1980 was barred by limitation.Annulment of time-barred assessment order - Whether the time-barred assessment should be set aside for fresh decision or annulled. - HELD THAT: - After reviewing precedent and statutory principles, the Tribunal distinguished authorities relied upon by the department and observed that where no valid assessment was passed within the statutory time-limit the later order is void by reason of time-bar and must be annulled rather than merely set aside for fresh proceedings. The Tribunal noted cases where irregular but in-time orders were remade by appellate authorities do not assist when no order was validly passed within time. Applying those principles, and given that no valid assessment existed within the prescribed period, the Tribunal concluded annulment (and not mere setting aside) was the appropriate remedy so that assessment proceedings may be redone in accordance with law. [Paras 13, 14, 15, 16]The time-barred assessment order is to be annulled and not merely set aside.Final Conclusion: The appeal is allowed: section 144B does not apply because the IAC, Allahabad, had exercised powers under section 125A and the assessment completed on 25-9-1980 is barred by limitation; the March 1980 draft was not a valid assessment and the time-barred assessment is annulled. Issues Involved:1. Whether the assessment made on 25-9-1980 u/s 143(3) read with section 144B of the Income-tax Act, 1961 is barred by limitation.2. Applicability of section 144B provisions.3. Authority and jurisdiction of Inspecting Assistant Commissioner (IAC) under sections 125 and 125A.4. Validity of the draft assessment order.5. Consequences of the assessment being barred by limitation.Summary:Issue 1: Limitation of AssessmentThe main issue was whether the assessment made on 25-9-1980 u/s 143(3) read with section 144B of the Income-tax Act, 1961 ('the Act') is barred by limitation. The assessment's validity depended on the applicability of section 144B provisions.Issue 2: Applicability of Section 144BThe assessee argued that section 144B does not apply due to sub-section (7) of section 144B. The Commissioner (Appeals) rejected this argument. The Tribunal noted that section 144B provisions are excluded if an IAC exercises the powers or performs the functions of an ITO under sections 125 or 125A. It was concluded that the IAC, Allahabad, had exercised such powers, making section 144B inapplicable.Issue 3: Authority and Jurisdiction of IACThe Tribunal examined sections 123, 124, 125, and 125A to determine the scope and jurisdiction of IACs and ITOs. It held that the use of the article 'the' before 'Inspecting Assistant Commissioner' in sections 125 and 125A was significant, indicating that jurisdiction could be conferred on a particular IAC. The Tribunal confirmed that concurrent jurisdiction over the assessee was validly conferred on the IAC, Allahabad, along with the ITO, and the IAC, Gorakhpur, retained administrative jurisdiction over the ITO.Issue 4: Validity of Draft Assessment OrderThe draft assessment order prepared by the ITO on 27-3-1980 was not signed on the last page and was forwarded to the assessee as a draft. The Tribunal held that this draft order could not be treated as a valid assessment order u/s 143(3), even considering section 292B of the Act.Issue 5: Consequences of Assessment Being Barred by LimitationSince the assessment order was passed on 25-9-1980, beyond the ordinary time limit of 31-3-1980 prescribed u/s 153(1)(a)(iii) of the Act, it was barred by limitation. The Tribunal concluded that such an order must be annulled and not merely set aside.Conclusion:The Tribunal allowed the appeal, holding that the assessment order dated 25-9-1980 was barred by limitation and required annulment. The provisions of section 144B were deemed inapplicable due to the IAC, Allahabad, exercising powers under section 125A.