Punjab-Haryana High Court
Commissioner Of Income-Tax vs Gheru Lal Bal Chand on 25 September, 1997
Equivalent citations: [1998]233ITR82(P&H)
Author: Ashok Bhan
Bench: Ashok Bhan
JUDGMENT N.K. Agrawal, J.
1. The following question has been referred by the Tribunal at the instance of the Department under Section 256(1) of the Income-tax Act, 1961 (for short "the Act") :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that reference made under Section 144B of the Income-tax Act was bad in law and the assessment made on September 3, 1983, is barred by limitation ?"
2. The assessee-firm derived income from business as commission agents. A return was filed, declaring income of Rs. 83,639 for the assessment year 1977-78 (accounting year ending on October 1, 1976). A revised return was filed by the assessee showing an income of Rs. 83,540.
3. A survey under Section 133A of the Act was conducted at the business premises of the assessee on April 11, 1978. Certain books of account were impounded but were, later on, returned to the assessee. The Assessing Officer, during the course of assessment proceedings, proposed additions exceeding Rs. 1,00,000. He, therefore, forwarded a draft assessment order to the assessee under Section 144B(1) of the Act on March 15, 1983. The assessee filed objections on March 30, 1983, after seeking extension of time. The draft assessment order together with the objections filed by the assessee, was forwarded to the Inspecting Assistant Commissioner on April 6, 1983, under Section 144B(4). Directions from the Inspecting Assistant Commissioner were received through letter dated September 2, 1983. The Assessing Officer thereafter on September 3, 1983, framed assessment, keeping in view the directions issued by the Inspecting Assistant Commissioner, on a total income of Rs. 9,18,491.
4. The assessee went in appeal before the Commissioner of Income-tax (Appeals) challenging the various additions and disallowances made by the Assessing Officer. The appeal was partly allowed. Both the assessee and the Department went in appeal before the Tribunal. The assessee raised a plea that the assessment was made on September 3, 1983, and was, therefore, barred by limitation. The normal period of limitation for assessment in respect of the assessment year 1977-78 was available up to March 31, 1983. Originally, an ex parte assessment was made on March 28, 1980, and the assessment was set aside by the Commissioner of Income-tax (Appeals) on September 27, 1980. Therefore, fresh assessment was to be completed on or before March 31, 1983, under Section 153(2A) of the Act. The assessee also raised a plea before the Tribunal that Section 144B was wrongly invoked by the Income-tax Officer inasmuch as Sub-section (7) of the said section did not permit the same. The Tribunal followed the view of its Special Bench in Saraya Sugar Mills (P.) Ltd. v.
ITO [1985] 23 TTJ (All) 196 ; [1985] 13 ITD 163 (All), and held that the Income-tax Officer had wrongly followed the procedure laid down in Section 144B of the Act.
5. The controversy raised by the Department is with regard to the applicability of Sub-section (7) of Section 144B of the Act to the case of the assessee. The Commissioner of Income-tax had under Sub-section (1) of Section 125A, conferred concurrent jurisdiction on the Inspecting Assistant Commissioner. Thus, the Inspecting Assistant Commissioner had also the jurisdiction and power which were conferred on the Income-tax Officer under the Act. Section 144B required the Income-tax Officer to follow the procedure laid down in that section in a case where he proposed any variation in the income or loss returned by the assessee and the amount of such variation exceeded the amount fixed by the Central Board of Direct Taxes. However, the procedure laid down in Section 144B was not required to be followed where the Inspecting Assistant Commissioner exercised the powers or performed the functions of an Assessing Officer in pursuance of an order made under Section 125 or Section 125A of the Act. The question, therefore, arose whether the Income-tax Officer rightly followed the procedure laid down in Section 144B or he was not required to do so in the light of the exemption/exception contained in Sub-section (7) of that section.
6. In a case where the Income-tax Officer proposed to make additions or disallowances exceeding Rs. 1,00,000, he has to forward a draft of the proposed order of assessment to the assessee. The assessee may forward his objections to the proposed variation within 7 days of the receipt of the draft order or within the extended period. After the objections are received, the Income-tax Officer has to forward the draft order together with the objections to the Inspecting Assistant Commissioner who shall, after considering the draft order and the objections filed by the assessee and also after giving an opportunity of hearing to the assessee, issue directions for the guidance of the Income-tax Officer to enable him to complete the assessment. The Income-tax Officer shall thereafter frame the assessment in accordance with the directions received from the Inspecting Assistant Commissioner.
7. As has been mentioned earlier, assessment had been initially made under Section 143(3) read with Section 144 of the Act. Since it was an ex parte assessment, the Commissioner of Income-tax (Appeals) allowed the assessee's application under Section 146. Thus the ex parte assessment was set aside by an order of the Commissioner of Income-tax (Appeals), dated September 27, 1980. The normal period of limitation in such a case has been laid down in Sub-section (2A) of Section 153 of the Act. In a case where fresh assessment is required to be made, following an order of the Commissioner of Income-tax (Appeals) under Section 250, assessment has to be completed before the expiry of two years from the end of the financial year in which the order under Section 146, cancelling the assessment, is passed. Thus, the normal period of limitation expired on March 31, 1983. Fresh assessment was made by the Assessing Officer on September 3, 1983.
8. In a case where procedure under Section 144B is followed by the Income-tax Officer, the normal period of limitation gets an extension. Clause (iv) of Explanation 1 below Section 153 lays down that the period, not exceeding 180 days, from the date on which the draft assessment order is forwarded by the Income-tax Officer to the assessee up to the date on which directions are received by the Income-tax Officer from the Inspecting Assistant Commissioner, shall be excluded while computing the period of limitation.
9. The case of the Department is that the Income-tax Officer rightly followed the procedure specified in Section 144B while completing the assessment and, therefore, the extended period of limitation for completing the assessment was available. If the extended period of limitation is allowed, the assessment framed on September 3, 1983, would not be treated to be barred by limitation. In case it is held that the Income-tax Officer wrongly followed the procedure laid down in Section 144B, the extended period of limitation would not be available to him and the assessment framed on September 3, 1983, would be treated to be a time-barred assessment.
10. The Commissioner of Income-tax has the power under Sub-section (1) of Section 123 of the Act to issue directions as to how the Inspecting Assistant Commissioners shall perform their functions in respect of the areas, classes of persons, classes of income or classes of cases. The Commissioner of Income-tax may also, under Sub-section (2) of the said section, distribute and allocate the work amongst the Inspecting Assistant Commissioners. Where the same area, the same classes of persons, the same classes of income or the same classes of cases have been assigned to two or more Inspecting Assistant Commissioners, all such Inspecting Assistant Commissioners shall have concurrent jurisdiction but they shall perform their functions in accordance with the distribution and allocation of work made by the Commissioner of Income-tax. The Commissioner of Income-tax may further, under Section 125(1), by general or special order, direct that the powers conferred on the Income-tax Officer under the Act shall be exercised by the Inspecting Assistant Commissioner in respect of any specified case or class of cases or any specified person or class of persons. Section 125A further empowers the Commissioner of Income-tax to give concurrent powers to the Inspecting Assistant Commissioner for any area, persons or classes of persons, incomes or classes of income or cases or classes of cases. In such a situation, all or any of the powers or functions, conferred on or assigned to the Income-tax Officer under the Act, shall be exercised or performed concurrently by the Inspecting Assistant Commissioner also.
11. It would be seen that the powers conferred on the Income-tax Officer under the Act, can either be given by the Commissioner of Income-tax to the Inspecting Assistant Commissioner exclusively under Section 125(1) or concurrently under Section 125A(1) of the Act. Where concurrent powers have been given both to the Income-tax Officer and the Inspecting Assistant Commissioner it is for the Inspecting Assistant Commissioner to issue further directions to the Income-tax Officer as to how the Income-tax Officer shall exercise the powers and perform the functions under the Act. Sub-section (2) of Section 125A empowers the Inspecting Assistant Commissioner, enjoying concurrent jurisdiction together with the Income-tax Officer in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases, to issue directions to the Income-tax Officer. It would be thus evident that, in a case of concurrent jurisdiction, the Inspecting Assistant Commissioner has been given the power to issue necessary directions to one or more Income-tax Officers, having concurrent jurisdiction together with him, in respect of the exercise of powers and performance of functions. As has been seen, similar power of distribution and allocation of work amongst the Inspecting Assistant Commissioners has been given to the Commissioner of Income-tax under Sub-section (2) of Section 123 of the Act. In a case of Inspecting Assistant Commissioner's jurisdiction, the Commissioner of Income-tax, under Sub-section (2) of Section 123, may distribute the work amongst two or more Inspecting Assistant Commissioners having concurrent jurisdiction and, similarly, the Inspecting Assistant Commissioner may, under Sub-section (2) of Section 125A, issue necessary directions to the Income-tax Officers having concurrent jurisdiction together with him. The scheme of the Act thus lays down that, in all cases of concurrent jurisdiction, directions may be issued by the Commissioner of Income-tax or the Inspecting Assistant Commissioner, as the case may be, for the proper performance of the functions. An Inspecting Assistant Commissioner, on whom concurrent powers of the Income-tax Officer have been conferred by the Commissioner of Income-tax under Sub-section (1) of Section 125A may, without acting as the Assessing Officer in a given case, issue any directions to the Income-tax Officer in connection with the exercise of powers or performance of functions by the Income-tax Officer.
12. Section 144B also empowers the Inspecting Assistant Commissioner to issue directions to the Income-tax Officer in a case where the Income-tax Officer proposes to make any variation in the income of the assessee exceeding Rs. 1,00,000. Sub-section (7) of Section 144B creates an exception and exempts the Inspecting Assistant Commissioner from following the procedure laid down under that section, where he exercises the powers or performs the functions of an Assessing Officer.
13. Sub-section (7) of Section 144B of the Act reads as under :
"(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."
14. Shri B. S. Gupta, senior counsel for the Department, has argued that the exemption from following the procedure specified in Section 144B has been given to the Deputy Commissioner of Income-tax/Inspecting Assistant Commissioner only when he actually exercises the powers or performs the functions of an Assessing Officer. Where the Inspecting Assistant Commissioner, having concurrent jurisdiction under Section 125A, did not choose to perform the function of making assessment, he would not then act as an Assessing Officer making assessment and, therefore, the question of exemption under Sub-section (7) would not arise. Shri Gupta has argued that where the Income-tax Officer proceeded to make additions or disallowances exceeding Rs. 1,00,000, he was under an obligation under Section 144B to prepare a draft assessment order and to forward the same to the assessee inviting objections. Such objections and the draft order are to be forwarded to the Inspecting Assistant Commissioner seeking directions. If the Inspecting Assistant Commissioner had been given concurrent jurisdiction by the Commissioner of Income-tax under Section 125A of the Act, that would neither create a bar against the Inspecting Assistant Commissioner giving directions under Sub-section (4) of Section 144B nor give any exemption to the Income-tax Officer from complying with the mandatory provisions of Section 144B. There is nothing in Sub-section (7) which would extend the exemption to the Income-tax Officer in a case where the Income-tax Officer had concurrent jurisdiction over that case together with the Inspecting Assistant Commissioner.
15. Powers to issue directions to the Income-tax Officer, having concurrent jurisdiction, have been conferred on the Inspecting Assistant Commissioner under Sub-section (2) of Section 125A of the Act. Such powers are independent powers of the Inspecting Assistant Commissioner, enabling him to issue necessary directions to the Income-tax Officer for the performance of functions by the latter under the Act. If it is assumed that the Inspecting Assistant Commissioner had no powers to issue directions under Section 144B because he had been given concurrent jurisdiction under Section 125A, it would imply that the powers conferred on him under Sub-section (2) of Section 125A are rendered nugatory or ineffective. The principle of harmonious construction demands that the powers conferred on the Inspecting Assistant Commissioner under Section 125A(2), to issue directions to the Income-tax Officer for the exercise of powers or performance of functions under the Act, should be allowed to be exercised in such a way that such powers did not become futile in a case where the Inspecting Assistant Commissioner is also required to issue directions to the Income-tax Officer proceeding under Section 144B of the Act. If the powers conferred on the Inspecting Assistant Commissioner under Section 125A(2) can be exercised, the Inspecting Assistant Commissioner cannot be denied the powers to issue directions under Section 144B also.
16. The object of Sub-section (7) of Section 144B is that the Inspecting Assistant Commissioner need not follow the procedure under that section, if he proceeds to exercise the powers or performs the functions of an Assessing Officer, because, in that situation, the question of seeking directions from the Inspecting Assistant Commissioner for completing the assessment would not arise. If he actually performs the functions of an Assessing Officer, he would indeed be not required to follow the procedure and would be exempted. The language used in Sub-section (7) does not raise a presumption that an Inspecting Assistant Commissioner, to whom all or any of the powers conferred on the Income-tax Officer under the Act have been given, shall not exercise jurisdiction under Section 144B when a draft of the proposed order is received from the Income-tax Officer seeking directions. Sub-section (7) does not say that the procedure, laid down in Section 144B, shall not be followed by the Income-tax Officer where power had been conferred on the Inspecting Assistant Commissioner under Section 125A of the Act. On the other hand, Sub-section (7) excludes the applicability of Section 144B where the Inspecting Assistant Commissioner exercises the powers or performs the functions of an Assessing Officer. If Sub-section (7) is read in the light of the scheme of the Act and of the object of the provisions of Section 144B, it would not be possible to say that, in all cases where the Income-tax Officer exercised jurisdiction together with the Inspecting Assistant Commissioner, procedure laid down in that section shall not be followed by the Income-tax Officer. If all cases in respect of which the Income-tax Officer and the Inspecting Assistant Commissioner exercised concurrent jurisdiction are excluded from the purview of Section 144B, that would amount to causing violence to Sub-section (2) of Section 125A and also to Sub-section (7) of Section 144B. When independent powers to issue necessary directions have been conferred on the Inspecting Assistant Commissioner under Section 125A(2), the denial of powers under Section 144B would not be permissible. It would not meet the object of Section 144B if the exception created in Sub-section (7) thereof is enlarged and extended to all such cases where the Income-tax Officer, having concurrent jurisdiction with the Inspecting Assistant Commissioner, proceeds to make variation in the income of the assessee exceeding Rs. 1,00,000. Sub-section (7) creates a limited exception only for the situation where the Inspecting Assistant Commissioner having concurrent jurisdiction over a case under Section 125A proposed to make any variation in the income of the assessee while acting as an Assessing Officer. The said sub-section should be read in the light of the object behind it and also in keeping with the scheme of Section 144B.
17. A similar question about the scope of applicability of Sub-section (7) of Section 144B was examined by the Gujarat High Court in CIT v. Shree Digvijay Woollen Mills Ltd. [1995] 212 ITR 310 (Guj). It has been held that an Income-tax Officer had to follow the procedure prescribed under Section 144B even if he had the concurrent jurisdiction together with the Inspecting Assistant Commissioner. If procedure under Section 144B is followed, the extended period of limitation, as specified in Clause (iv) of Explanation 1 below Section 153, shall be available for completing the assessment.
18. The Central Board of Direct Taxes have, in Circular No. 197, dated April 17, 1976 (reproduced in [1977] 110 ITR (St.) 17), clarified that Section 144B shall hot be applicable where the Inspecting Assistant Commissioner having concurrent jurisdiction under Section 125A, proceeded to make an assessment. Paragraph 6 of the circular reads as under (page 19):
"The provision contained in Section 144B will be applicable in respect of all assessment proceedings which were pending on January 1, 1976, or which are initiated on or after that date. It will, however, not be applicable to any case where the assessment is made by the Inspecting Assistant Commissioner under Section 125 or Section 125A."
19. The Income-tax Officer, in the case in hand, followed the procedure under Section 144B of the Act and sought directions from the Inspecting Assistant Commissioner having concurrent jurisdiction over the case. The procedure followed by the Income-tax Officer is upheld. Since the Inspecting Assistant Commissioner was not performing the functions as an Assessing Officer, Sub-section (7) of Section 144B was not attracted.
20. The question is, therefore, answered in the negative, i.e., in favour of the Department and against the assessee.