Gujarat High Court
Commissioner Of Income-Tax vs Kashiram Textile Mills (P.) Ltd. on 24 March, 1995
Equivalent citations: [2001]252ITR162(GUJ)
Author: C.K. Thakker
Bench: C.K. Thakker
JUDGMENT Rajesh Balia, J.
1. By its order dated January 5, 1984, the Income-tax Appellate Tribunal, Ahmedabad Bench "B", has drawn a statement of case and referred the following three questions of law for our opinion :
"1. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the Inspecting Assistant Commissioner cannot issue directions under Section 144A during the pendency of a reference before him under Section 144B(4) ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing depreciation and initial depreciation under Section 32(l)(vi) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing relief under Section 80J of the Income-tax Act, 1961 ?"
2. The facts found by the Tribunal as appear from the statement of the case and the order of the Tribunal are that the assessee is a private limited company dealing in purchase of grey cloth, colour, chemicals, etc., and subjecting that cloth to bleaching, dyeing, printing, etc. It would then sell it as a finished product like printed cloth, poplin, etc. The assessee claimed benefit of the provisions under Section 80J of the Income-tax Act on its capital outlay. The Income-tax Officer did not agree with the same on the ground that the activity of the assessee did not qualify to be treated as an activity of manufacture, and therefore, he made a draft assessment order under Section 144B of the Act and on an objection being raised to the proposed draft order it was referred to the Inspecting Assistant Commissioner under the provisions of Section 144B(4).
3. The assessee had also claimed depreciation/initial depreciation in respect of three machines, which claim of the assessee was not put at variance by the Income-tax Officer in his draft order. It may be noted that the draft assessment order was drawn on April 28, 1978. Objections were raised by the assessee on May 15, 1978. The Inspecting Assistant Commissioner issued directions under Section 144A to withdraw the depreciation/ initial depreciation in respect of the said three machines. On an issuance of such direction, the assessment was completed by disallowing depreciation/initial depreciation for the claim in respect of the said three machines and by rejecting the claim of the assessee for deduction under Section 80J of the Act. On an appeal before the Commissioner of Income-tax, the claim of the assessee in respect of Section 80J was upheld. But, the asses-see's contention that the directions issued under Section 144A during the course of proceedings under Section 144B were wholly without jurisdiction and no assessment could be permitted for giving effect to such direction, was rejected and disallowance of depreciation/initial depreciation, was upheld. Aggrieved with the said orders, both the Department as well as the assessee had preferred appeals before the Tribunal. The Department's appeal in respect of the allowance claimed under Section 80J of the Act was rejected by the Tribunal by holding the assessee to be entitled for Section 80J relief. The appeal filed by the assessee in respect of the depreciation/initial depreciation claim was allowed. The Tribunal held following its earlier decision that once a reference under Section 144B is made the operation of Section 144A is excluded. The action under Section 144A is possible only till the draft assessment order stage. As a result of this finding, the Tribunal allowed the claim of the assessee for depreciation/initial depreciation in respect of the three machines without examining the claim on the merits. It is in this background that the aforesaid questions of law have been referred to this court for its opinion.
4. It has been candidly stated by both learned counsel that so far as question No. 3 is concerned, relating to allowing the relief under Section 80J of the Income-tax Act, the question is squarely covered by a decision of this court in C1T v. ]. B. Kharwar and Sons [1987] 163 ITR 394, wherein the court held that when the assessee subjected grey cloth to the process of dyeing and printing, it produced a distinct article having distinct use as distinguished from the grey cloth, though grey cloth still subsisted. As a result of the process to which grey cloth was subjected there was transformation of grey cloth into a new commodity commercially known as a distinct and separate commodity having its own character, use and name. Transformation of grey cloth to the extent that it became a commercially different commodity was sufficient to hold that there was manufacture or production of an Article within the meaning of clause (iii) of Sub-section (4) of Section 80J of the Act. On the aforesaid finding, the assessee was held entitled to the relief under Section 80J of the Act. The decision is founded on the decision of the Supreme Court in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 ; [1987] 64 STC 42, under the Central Excises and Salt Act. We are in respectful agreement. Accordingly, question No. 3 referred to above is answered in the affirmative, in favour of the assessee and against the Revenue.
5. This brings us to consider questions Nos. 1 and 2. In fact question No. 2 is corollary to question No, 1.
6. It wilt be appropriate here to reproduce the relevant provisions of Sections 144A and 144B of the Income-tax Act.
"144A. Power of Inspecting Assistant Commissioner to issue directions in certain cases.--(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 purposes 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. Reference to Inspecting Assistant Commissioner in certain cases.--(1) Notwithstanding anything contained in this Act, where, in an assessment to be made under Sub-section (3) of Section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under Sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this Section referred to as the draft order) to the assessee.
(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.
(3) If no objections are received within the period or the extended period aforesaid, or 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.
(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections 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."
7. The contention of the Revenue on the aforesaid two provisions is that the jurisdiction of the Inspecting Assistant Commissioner is coterminal with the completion of assessment before the Income-tax Officer. So long as the assessment proceedings are not completed before the assessing authority and are pending completion of assessment notwithstanding the draft assessment having been made and referred under Section 144B, the Inspecting Assistant Commissioner does not lose his jurisdiction qua the area not covered by the variation made in the draft assessment order. On the other hand, it was strenuously contended by Mr. Mehta for the assessee that in the context of the provisions of Sections 144A and 144B once the Income-tax Officer acts under Section 144B, by framing the draft assessment proposing variation in the income and loss, he becomes func-tus officio thereafter to make any change therein. Whether the draft assessment is ultimately referred to the Inspecting Assistant Commissioner or not for all practical purposes proceedings of assessment came to an end before the Income-tax Officer. If no objections are raised to the proposed variation he has to pass the assessment order in terms of the draft order under Section 144B(3) and in the case of objections are raised, then the Income-tax Officer has to make the assessment in accordance with the directions issued by the Inspecting Assistant Commissioner under Subsection (4) of that provision. As the income-tax Officer has not been left with the authority to deal with the assessment any further, it cannot be said that from the stage of the draft assessment order any assessment is pending before the Income-tax Officer and, therefore, the provisions of Section 144A cannot be invoked by the Inspecting Assistant Commissioner for the purpose of issuing directions in respect of the particulars not covered by variations made in the draft assessment order. At any rate on the framing of a draft assessment order, to the extent claims of the asses-see are accepted by the Assessing Officer, it becomes final.
8. We have given anxious consideration to the contention raised before us. In our opinion, on the plain reading of the two provisions the conclusion is irresistible that the assessment is not complete, until an order is passed by the Income-tax Officer, even in the case of a draft assessment framed by the Income-tax Officer, until he completes the assessment by passing an effective order under Sub-section (3) of Section 144B, where no objection to variation is raised, and where any objections to the variation proposed by the Income-tax Officer are raised, the assessment is not complete, until the Inspecting Assistant Commissioner issues such direction as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment and thereafter the Income-tax Officer makes an effective order of assessment in accordance with the directives issued from the Inspecting Assistant Commissioner. It is pertinent to note that Sub-section (3) of Section 144B specifically envisages that the Income-tax Officer shall "complete the assessment" on the basis of the draft order if no objections are received within the period. So also Sub-section (4) makes it abundantly clear that a reference being made to the Inspecting Assistant Commissioner his power exists to issue such instructions as he deems fit for the guidance of the Income-tax Officer to enable him to "complete the assessment", i.e., to say, completion of the assessment is a stage posterior to framing of the draft assessment order and assessment proceedings before the Income-tax Officer do not terminate with the formation of the draft assessment.
9. For exercising power under Section 144A to issue directions for the guidance of the Income-tax Officer which is for the purpose of enabling him to complete the assessment, exists throughout the period during which the assessment is pending. A proceeding is in pendency from the date of its institution and remains pending until its conclusion before the concerned authority. The entire period is to be treated as pendency of the proceedings concerned. That is the ordinary meaning of the word "pending".
10. This literal construction of the two provisions, in our opinion, is well supported otherwise also by well established cannon of interpretation.
11. Strand's Judicial Dictionary defines "pending" as "soon as commenced and until it is concluded, that is so long as the court having original cognisance of it can make an order on the matters in issue, or to be dealt with, therein."
12. So also the meaning of the word "pending" has been stated in Black's Law Dictionary, at page 1134, "Begun, but not yet completed ; during ; before the conclusion of ; prior to the completion of."
13. In Asgarali Nazarali Singaporewala v. State of Bombay, AIR 1957 SC 503, their Lordships of the Supreme Court quoted with approval the meaning of the word "pending" given in Stroud's Judicial Dictionary referred to above by holding that the legal proceeding is pending as soon as commenced and until it is concluded. The view was reiterated in S. K. Kashyap v. State of Rajasthan, AIR 1971 SC 1120. Their Lordships said (page 1128):
"The word 'pending' came up for consideration before this court in Asgarali Nazarali Singaporewala v. State of Bombay, AIR 1957 SC 503 ; [1957] SCR 678. The word 'pending' will ordinarily mean that the matter is not concluded and the court which has cognisance of it can make an order on the matter in issue. The test is whether any proceedings can be taken in the cause before the court or Tribunal where it is said to be pending. The answer is that until the case is concluded it is pending."
14. Thus, in the light of the aforesaid test, we have no hesitation in coming to the conclusion that the proceedings for the assessment which commence from the date of filing or issuing the notice to file a return remain pending until a final effective order is passed by the assessing authority on the basis of which tax can be recovered or the aggrieved party can exercise his right of appeal or challenge it in whichever forum it is permissible to do so. Until that stage is reached, it cannot be said that the assessment proceeding before the Income-tax Officer has come to an end. The two decisions relied on by the respective counsel for the parties which apparently gives look of conflicting decision really do not pertain to a question raised before us. Both the decisions cited at the Bar relate to the question whether a revised return filed after a particular stage can be treated as valid return required to be considered by the Income-tax Officer before completion of the assessment.
15. In Shri Vallabh Glass Works Ltd. v. ITO [1995] 212 ITR 433 (Guj), a revised return was filed during the pendency of the proceeding before the Inspecting Assistant Commissioner under Section 144B before the concerned assessing authority. The assessment order was passed by ignoring the revised return filed by the petitioner. It was that action of ignoring the revised return which was challenged before this court and the court held that the return which is filed earlier than the assessment is made, then the same is required to be considered. The Revenue did not deny the fact that the revised return was filed before the assessment order was passed by the assessing authority and in that view of the matter, the court held that the assessing authority could not have ignored the revised return and the assessment was made as it was the assessee's right to submit a revised return.
16. In Panchamahal Steel Ltd. v. U. A. Joshi, ITO [1994] 210 ITR 723 (Guj), the question raised was whether the Income-tax Officer can refuse to accept the third revised return filed by the petitioner-assessee on the ground that he had already passed a draft assessment order on December 12, 1979, under Section 143(3) read with Section 144B of the Income-tax Act, 1961. The court while accepting the contention of the Revenue that such revised return at that stage cannot be accepted was cautious to make it clear that it was only in the context of the filing of a revised return that the issue was being determined. The court said that there is no dispute that when the Income-tax Officer passed the draft order it cannot be said that he has passed the final and effective order on the basis of which any demand can be made. The court also observed that what we have to consider is whether in the context of the filing of a revised return, the Income-tax Officer can be said to have made an assessment or not when he makes a draft order and in that context the court further opined as under (page 730) :
"The words used in Sub-section (5) of Section 139 are 'at any time before the assessment is made' and not 'at any time before the final order of assessment is made'."
17. Thus, for the purpose of construing the provisions of Section 139(5) which enables an assessee to file a revised return at any time before the assessment is made, the court drew distinction between terminology of "the assessment" and the "final order of assessment." For the purpose of determining the scope and ambit of the right of the assessee to file a revised return vis-a-vis the time within which a revised return can be filed. We are here not concerned with the scope and ambit of such right of the assessee or even any right of the concerned Income-tax Officer to have made any order. What we are concerned with in the present case is the scope and ambit of the jurisdiction of the Inspecting Assistant Commissioner to issue direction for the purpose of enabling the completion of the assessment. Before a completed assessment order comes into existence power under Section 144A continues to be in existence. As we have noticed above the provisions of Section 144B envisage completion of the assessment only at a time posterior to framing of the draft assessment. Until the assessments are completed under Section 144B(3) or 144B(5) bringing in an effective order under which a demand can be raised and recovered, there remains in existence the power for issuing direction to enable the assessing authority to complete the assessment whether under Section 144A or 144B. May be that while exercising power under Section 144B the jurisdiction is confined to the variation proposed and to deal with the objections thereto. Under Section 144A jurisdiction relates to an area not covered by the draft assessment order under Section 144B and extends to issuing direction for holding inquiry. In the present case, inasmuch as the I, A. C. was also conferred concurrent power under Section 144A for making assessment. But in any case, the above two provisions leave no room for doubt that the completed assessment comes into existence only after proceedings under Section 144B are concluded and an effective order giving the right to recovery of the tax to the Revenue and the right of the aggrieved party to file an appeal comes into existence, until then proceedings are such in which assessment is pending within the meaning of Section 144A.
18. In view of the aforesaid discussion, we are of the opinion that question No. 1 referred to above has to be answered in the negative, in favour of the Revenue and against the assessee.
19. As the question about the merits of depreciation in respect of three machines was considered only in the light of the jurisdiction of the Inspecting Assistant Commissioner to issue directions under Section 144A and allowance has been made only on that basis, it is now for the Tribunal to decide the same on the merits.
20. As a result of the answer to question No. 1, the answer to question No. 2 also will be in the negative, in favour of the Revenue and against the assessee.
21. Accordingly reference is answered. There is no order as to costs.