Draft assessment procedure and limitation extension failed where no effective directions were issued, rendering the assessment time-barred.

Section 144B draft-assessment procedure extended limitation under Explanation 1(iv) to section 153 only where a draft order was followed by effective directions under section 144B(4) on the objections raised. The Tribunal held that the limitation clock ran from forwarding of the draft order until receipt of valid directions, and that the statutory mechanism was not completed here because no effective direction was issued on the first draft order and the second draft order did not cure the defect. The assessment was therefore treated as time-barred and could not be sustained.

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Issues: Whether the assessment was barred by limitation because the draft assessment procedure under section 144B of the Income-tax Act, 1961 was not validly completed and no effective directions were received from the IAC so as to extend time under Explanation 1(iv) to section 153.

Analysis: The assessee's return was subjected to the draft assessment procedure. The Tribunal held that section 144B contemplated a draft order followed by objections and then directions from the IAC on the matters covered by those objections. It further held that the period of extension under Explanation 1(iv) to section 153 could be computed only from the forwarding of the draft order under section 144B to the assessee until the receipt of directions under section 144B(4). On the facts, no valid direction was given on the first draft order, and the second draft order did not cure the defect. The Tribunal accepted the view that more than one draft assessment order was not contemplated in the circumstances.

Conclusion: The assessment was held to be time-barred and was cancelled, in favour of the assessee.

Final Conclusion: The assessment could not be sustained because the statutory draft-assessment mechanism and the corresponding limitation extension were not validly triggered and completed.

Ratio Decidendi: Under the draft-assessment procedure, the limitation extension under Explanation 1(iv) to section 153 operates only when a draft order under section 144B is followed by effective directions under section 144B(4); absent such directions, the assessment becomes time-barred.

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