AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2004 (9) TMI 95
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....essee under section 144B and approved by the Inspecting Assistant Commissioner: 'Penalty notices under sections 271(1)(c), 271(1)(a) and 273(a) have separately been issued. Charge interest under section 139(8) and under section 215." While disposing of the reference petition of the Revenue under section 256(1) of the Income-tax Act, 1961 (for short "the Act"), the Tribunal also accepted the prayer of the assessee to refer a cross-question at its instance. The question, which has been numbered by us as question No. 3, is as under: "3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in not giving a finding on merits regarding chargeability of interest under sections 139(8) and 215?" Before coming to question No. 1, we shall first deal with questions Nos 2 and 3. Question No. 2: The facts relating to this question are not in dispute. The assessee filed its return of income on October 28, 1975, for the assessment year 1975-76 declaring an income of Rs. 2,28,649. Subsequently, this return was revised on January 30, 1975, showing an income of Rs. 2,03,630 on the basis of the audited accounts. Since the Income-tax Officer during the c....
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....s, in fact, an independent order for which procedure prescribed under section 144B of the Act was not required to be followed. Similarly, the Appellate Assistant Commissioner held that it is not necessary that the satisfaction for initiation of penalty proceedings should be recorded in the assessment order itself and it is enough if some evidence in the form of an order-sheet entry or an office note is recorded about his satisfaction before initiating the proceedings. Thus, it was held that the direction of the Income-tax Officer for issuance of notices under sections 271 and 273 of the Act could not be termed to form part of the draft assessment order, as contemplated in section 144B of the Act. On further appeal, the Tribunal held that it was necessary for the Income-tax Officer to indicate in the draft order that he proposed to levy interest under sections 139 and 215 of the Act and also that the proceedings under sections 271 and 273 were proposed to be initiated. According to the Tribunal, in the absence of such an indication, the assessee may accept an addition/disallowance without the knowledge of the consequences that are going to follow. This, as per the Tribunal, would b....
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....ions and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment: Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard. (5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income-tax Officer. (6) For the purposes of sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit: Provided that different amounts may be fixed for different areas: Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees. (7) Nothing in this section shall apply to a case where an 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." This ....
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....the Income-tax Officer proposes to make additions or disallowances resulting in enhancement of income or reduction in loss by more than Rs. 1 lakh, he has to forward a draft of the proposed order of assessment to the assessee. Sub-section (2) entitles the assessee to forward his objections, if any, "to such variation" to the Income-tax Officer within the period specified thereunder. Sub-section (3) provides that if no objections are received within the stipulated period or where the assessee intimates to the Income-tax Officer the acceptance of the "variation", the Income-tax Officer shall complete the assessment on the basis of the draft order. However, in case, objections are received from the assessee by the Income-tax Officer, then, as per sub-section (4), he is required to forward the draft order along with the objections to the Inspecting Assistant Commissioner, who after considering the draft order and objections and after going through the record relating to the draft order, shall issue directions as he thinks fit "in respect of the matters covered by the objections". This sub-section also provides that before issuing any directions which are prejudicial to the assessee, an....
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....ssment but has not been debarred from exercising all other powers vested in him for the completion of an assessment. Neither direction to levy interest nor initiation of penalty proceedings can result in "any variation in the income or loss returned". Thus, there is no scope for the assessee to object to levy of penal interest or to initiation of penalty proceedings as sub-section (2) entitles it only to raise objections to the "variation" proposed by the Income-tax Officer in the draft order. When the assessee is not entitled to raise any objections to such directions, then obviously the Inspecting Assistant Commissioner has also no power to issue any directions in respect thereof. His power to issue directions as per sub-section (4) is restricted to the "matters covered by the objection". Viewed in this light, the finding of the Tribunal that failure to intimate the assessee in the draft order about the proposal to levy interest or to initiate penalty proceedings, led to gross violation of principles of natural justice, cannot be sustained as the assessee had no right to raise any objections in respect of such an action under section 144B of the Act. If the draft order was meant....
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....has held that in the absence of any direction to levy interest under sections 139(8) and 215 of the Act or to initiate penalty proceedings under sections 273(2)(a) and 271(1)(a) of the Act in the draft order, no such directions could be incorporated while passing the final assessment order. A perusal of the said judgment shows that the High Court has proceeded on the assumption that the assessee is entitled to raise objections under sub-section (2) not only against variation in the quantum of income or loss, but also in respect of the proposed actions for levy of interest and initiation of penalty proceedings. The High Court has observed as under: "Thus, it is very clear that, by virtue of this section, in certain circumstances, the Legislature wanted the assessee to get an opportunity to represent his case before the final assessment is made." After arriving at the above conclusions, the court in respect of levy of penal interest in the final order has observed as under: "Looking to the object with which section 144B has been enacted, it is very clear that the assessee should get an opportunity to represent his case before the Revenue in the event of substantial change being ma....
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..... As stated hereinabove, the Legislature wanted the assessee to get an opportunity to represent his case before passing a final assessment order. The said object has been frustrated here because even after the final assessment order, the litigation would continue and that would put the assessee to harassment and that would also increase the workload of the Department." As already observed by us, the opportunity envisaged under section 144B of the Act to the assessee to represent his case before a superior officer before the final assessment, is confined to the variations proposed to be made to the returned income/loss exceeding a particular amount. It does not provide for raising any objection against any other action which the Assessing Officer is legally competent to take while completing the final assessment. Thus, when the assessee is not competent to raise any objection against levy of interest or initiation of penalty proceedings under sub-section (2) of section 144B of the H Act, there is no question of denial of any opportunity to it to represent its case in this behalf before the Inspecting Assistant Commissioner. Even the Inspecting Assistant Commissioner cannot issue a....
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.... order of the Tribunal for the assessment year 1974-75 on this issue has since been affirmed by this court in CIT v. Roadmaster Industries of India Pvt. Ltd. [1993] 202 ITR 968. Weighted deduction under section 35B of the Act is admissible on the expenditure incurred wholly and exclusively for various purposes mentioned in clause (b) of section 35B(1) of the Act. Clause (b) of section 35B(1) reads as under: "(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on- (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; (ii) obtaining information regarding markets outside India for such goods, services or facilities; (iii) distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods to their destination outside India or on the insurance of such goods while in transit; (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, ....