TaxTMI 
TaxTMI 
1982 (12) TMI 73
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....requisite directions on 5-9-1977. 3. It transpires that some months after the receipt of objections under section 144B through the ITO, the IAC on 10-8-1977 sent a notice to the assessee in purported exercise of powers under section 144A and after hearing the assessee in that regard, sent separate directions to the ITO under section 144A(1) as well. These directions also bore the same date as the directions under section 144B, namely, 5-9-1977. 4. Pursuant to the IAC's directions under section 144A(1), the ITO sent to the assessee, a notice calling upon it to explain the discrepancy of Rs. 1,10,021 as pointed out by the IAC between the balance sheet entry of Rs. 1,51,935 regarding the sundry creditors, and the figure in separate accounts of such creditors, namely, Rs. 2,61,955. According to the ITO, the assessee offered no explanation as to the nature and/or source of the differential sum. Consequently, the ITO added Rs. 1, 10,021 as the assessee's deemed income from undisclosed sources. Similarly, additions of Rs. 31,515 (figure of Rs. 31,550 mentioned in para 3 of the AAC's order is erroneous) and Rs. 47,998 also came to be ultimately added by the ITO, pursuant to the IAC's....
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....s, in respect of pending assessment proceedings and in exercise of those powers, he can issue appropriate directions for the guidance of the ITO to enable him to complete the assessment. We are of the view that the said provision does not go beyond laying down a certain procedure available to the IAC in respect of pending assessment proceedings. That being the position, section 144A could be pressed in aid and made use of by the IAC if the assessment proceeding is found to be pending on the day when he issues notice to the assessee under section 144A(1). In other words, non-availability of the said provision as on 1-4-1974, namely, the date of commencement of the assessment year under consideration was no bar to the IAC against exercise of the power and adoption of the procedure contemplated in the said section. 9. Next contention raised on assessee's side was that even if section 144A(1) is found to contain procedural provision only and is hence held to have retrospective effect so as to apply to the assessment for the assessment year under consideration as well, even then the IAC had no jurisdiction to issue notice or directions under section 144A(1) on 10-8-1977, as normal pe....
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....rovision in any case, whatever after the expiry of normal two year period of limitation. 11. Next we proceed to examine the effect of the Board's Circular dated 29-4-1978. The Board's answer to Question No. 4 as reproduced herein above, is specific and clearly supportive of the proposition advanced on the assessee's side. That, however, is not enough. In this regard, it should suffice to note that section 119(1) envisages that the Board may 'from time to time' issue orders, instructions and directions to other income-tax authorities for the proper administration of this Act. The expression 'from time to time' used in the said provision is according to us, crucial. We say so, as it is not unknown that the Board issues one set of instructions at one time, later it modifies the same and sometimes the Board withdraws those instructions altogether. This aspect which is so frequently observed in practice by the Board, clearly brings out the significance of the expression 'from time to time'. In the present case, the facts are that the circular under consideration could not and did not exist on 1-4-1974, the day of commencement of the assessment year and that it did not exist on 1-1-19....
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....y, involving a difference of more than Rs. 1,00,000, he, on 18-3-1977, sent a draft order to the assessee as contemplated under section 144B(1). The assessee's objections to the said draft order were received by the ITO on 13-4-1977 and the same were forwarded by him to the IAC, who in turn, sent the requisite direction on 5-9-1977. When the matter was pending with the IAC, he, on 10-8-1977, sent a notice to the assessee in terms of section 144A and after hearing the assessee in that regard, he sent separate directions to the ITO under section 144A(1) as well. These directions also bore the same date as the directions under section 144B, namely, 5-9-1977. 18. Pursuant to the directions under section 144A(1) given by the IAC, the ITO asked the assessee to explain a discrepancy of Rs. 1,10,021 as pointed out by the IAC between the balance sheet entry of Rs. 1,51,935 regarding the sundry creditors and the figure in separate accounts of such creditors, namely of Rs. 2,61,956. According to the ITO, the assessee offered no explanation as to the nature and/or source of the differential sum. Consequently the ITO added Rs. 1,10,021 as the assessee's deemed income from undisclosed sources....
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....otice to the assessee under section 144A(1). I am, with respect, unable to agree with my learned brother. Provisions of section 144A could be invoked at the instance of the assessee, the ITO as also the IAC suo motu. The invoking of provisions of section 144A by the IAC meant an enhancement of the assessment and this power was not available to the IAC earlier. Power to enhance was available to the AAC and to the Commissioner under section 263 of the Act. The power of enhancement was to act against the interest of the assessee and the provisions of section 144A having not been made operative with retrospective effect, the IAC could not be said to be competent to exercise such power of enhancement under section 144A in respect of the year which commenced prior to 1-1-1976. It was also argued that the IAC had no jurisdiction to issue notice or directions under section 144A(1) on 10-8-1977, as the normal period of limitation for completing the assessment within two years was already over. The assessee's contention was that proceeding of assessment could not be said to be pending on 10-8-1977 within the meaning of the said provision of section 144A(1). In support of this the assessee ha....
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.... order is communicated to the assessee, the assessment can be regarded as not pending. If, however, the order of assessment passed by the ITO is not communicated to the assessee and the time limit for completion of assessment has expired, the proceedings for assessment cannot be regarded as pending. The point for consideration is that in the scheme of draft assessment under section 144B, whether an assessment reached finality, so far as the ITO is concerned when the draft assessment framed and the order thereof is communicated to the assessee and if that is so whether in the course of exercise of the powers confirmed under section 144B the IAC can exercise also the powers conferred on him under section 144A. This would lead to the further question whether section 144A and section 144B are mutually exclusive or not. Wherever objections are received from the assessee in respect of any matter concerning the assessment for which a draft order has already been passed by the ITO, the assessment for all practical purposes reaches a finality so far as the ITO is concerned because the ITO is not competent under law to deal with the objections himself and/ or to make any modification whatsoe....
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....e further strengthened if the directions were given by the IAC under section 144A during the period of 6 months extended under section 144B, only. For the purposes of section 144A the limitation would be as laid down under section 153(3). 22. I am otherwise in respectful agreement with my learned brother that the assessment could be set aside and not annulled as was prayed for but my agreement goes to the extent of the additions to be made in pursuance of section 144B only. The items considered under section 144A as per the directions of the IAC could not be considered in the assessment to be reframed in pursuance of the direction of the Commissioner (Appeals) for reframing the assessment. 23. In the result, the appeal is partly allowed. THIRD MEMBER ORDER Per Shri P.V.B. Rao, Vice President--The following points of difference have been referred to me as Third Member for my opinion by the President under section 255(4) of the Income-tax Act, 1961 ('the Act') : "1. Whether, on the facts and in the circumstances of the case, it could be considered that the assessment proceedings were pending during the period of 6 months extended under section 144B for issuance of inst....
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....refer to the provisions of section 144A(1) as also section 144B : "144A. (1) An Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income-tax Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment and such directions shall be binding on the Income-tax Officer : Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation : For the purpose of this sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee. (2) The provisions of this section shall be in addition to, and not in derogation of, the provisions contained in sub-section (3) of section 119. 144B. (1) No....
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....Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under section 125 or section 125A." These provisions have been introduced by the Taxation Laws (Amendment) Act, 1975 which came into force with effect from 1-1-1976. It is also worthwhile noting that section 125A of the Act, has, also come into the statute book on 1-10-1975. From a bare perusal of the above provisions, it is clear that the Legislature wanted a superior authority to deal with the assessments at the initial stage. The inference or the guidance by the superior officer is contemplated in different ways. Section 125 gives a general power of concurrent jurisdiction of the IAC along with the ITO. Section 144A is again a general provision giving power to the IAC to issue directions to the ITO in respect of any pending assessment proceeding. He may do it on his own motion or on a reference made either by the ITO or by an assessee. The directions are meant for the guidance of the ITO to enable him to complete the assessment. The ITO has no choice but to follow the directions of the IAC. Section 144B starts with non obstante clause. In oth....
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.... to the period of limitation prescribed for completing the assessment. Section 153 deals with the different period of limitation for different situations. We are concerned with the assessment year 1974-75 and the period of limitation prescribed under section 153(1)(a)(iii) is two years from the end of the assessment year. Explanation 1 envisages exclusion of certain periods for the purpose of calculating the limitation within which the assessment has to be completed. One such provision is contained in clause (iv) which is reproduced as under : "(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or" The exclusion of the period contemplated under clause (iv) is confined only to a situation arising under section 144B as the provisions are very clear. In other words whe....
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....fice to send the draft order and the objections to the IAC. Then the IAC comes into picture. He has to consider the objections of the assessee vis-a-vis the draft order and after giving an opportunity to the assessee decides the matter, in one way or the other. In accordance with that decision, the directions are issued to the ITO. The ITO then has no option whatsoever except to incorporate the directions. The directions are to be followed by the ITO and he once again acts as a mere conduit pipe to put the directions of the IAC in his order. So far as he is concerned, there is nothing that can be said to be pending with him. He washes off his hands as soon as the reference is made by him to the IAC. Thereafter, whatever, he does, he does it as a matter of routine with no application of judicial mind. He has to incorporate merely the directions of the IAC. Therefore, for the purpose of issuing of directions under section 144A, it cannot be said that the assessment is pending merely because the matter is lying with the IAC for the limited purpose of considering the objections of the assessee and for issuing the directions to the ITO. 7. There may be some situations in which sectio....
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....se coming under section 144A. Then the question again is mooted as to whether the IAC acting under section 144A having issued directions is competent to dispose of the matter under section 144B, as he has applied his mind under section 144A before issuing the directions. It looks as though there may be several situations where it is difficult to reconcile the provisions of section 144A and section 144B. At the same time it is clear that the IAC in order to act under section 144A must give directions before the period for completing the assessment is over and before the ITO makes a draft assessment wherein the variation suggested is more than the amount prescribed. There may be also another solution, namely, that where section 144A directions are issued and the variation is more than one lakh, the ITO has to send fresh draft order if a draft has already been sent. However, a second draft order does not appear to have been contemplated in view of the decision of the Delhi High Court in Sudhir Sareen v. ITO [1981] 128 ITR 445. The learned departmental representative pointed out that in a case where section 144A directions are issued there is no need for a draft and the directions issu....