Allahabad H.C : The Inspecting Assistant Commissioner (IAC) having territorial jurisdiction (or administrative control) over the Income-tax Officer (ITO)

High Court Of Allahabad

CIT vs. Saraya Sugar Mills (P.) Ltd.

Assessment Year : 1977-78

Section : 144B

Yatindra Singh And Prakash Krishna, JJ.

ITR No. 57 Of 1986

November  23, 2010

JUDGMENT
 
1. The main question involved in this reference is,

Whether under section 144B of the Income-tax Act, 1961 (the Act) the draft assessment order was required to be sent to,

• the Inspecting Assistant Commissioner (IAC) having territorial jurisdiction (or administrative control) over the Income-tax Officer (ITO) ; or

• the Inspecting Assistant Commissioner, who was also conferred powers and functions (jurisdiction) of the Income-tax Officer jurisdiction under section 125A of the Act.

The facts

Some observations

2. There is a difference in the dates in the statement of the case as well as the orders passed by the different authorities. The statement of the case mentions one set of dates ; whereas the orders indicate another set of dates. The counsel for the parties are also not able to make statements regarding the correct dates. Luckily, it does not affect the decision of the case.

3. In the judgment, we have indicated the date that appeared to be correct and the other date (either in the statement of the case or in the different orders) are mentioned in the brackets. We say no more, except, greater care ought to have been taken ; we leave it there. Facts of the case

4. M/s. Saraya Sugar Mills Pvt Ltd., Gorakhpur (the assessee) is a private limited company, it manufactures and sells sugar. The assessee filed its return for the assessment year (AY) 1977-78 before the Income-tax Officer A-Ward, Gorakhpur (the ITO-Gorakhpur). He was the Assessing Officer for the assessee. According to the territorial jurisdiction, the Inspecting Assistant Commissioner, Gorakhpur (in short “the IAC, Gorakhpur”) had the administrative control over him.

5. The Commissioner of Income-tax (the Commissioner) by notification dated July 31, 1977 (January 31, 1977) under section 125A of the Act, conferred powers and functions of the Income-tax Officer-Gorakhpur regarding the assessee on the IAC, Range-II, Allahabad (the IAC, Allahabad) rather than on the Inspecting Assistant Commissioner, Gorakhpur.

6. The Inspecting Assistant Commissioner-Gorakhpur sent a letter dated September 1, 1977 to the Income-tax Officer-Gorakhpur informing him to assess the assessee keeping in touch with the Inspecting Assistant Commissioner-Allahabad. This was also acknowledged by the Income-tax Officer-Gorakhpur by his letter dated September 5, 1977.

7. The Inspecting Assistant Commissioner-Allahabad issued guidelines dated November 8, 1979 and November 23, 1979 for assessment of the assessee. Subsequently, as the variation on the income was to exceed more than one lakh rupees (the amount fixed by the Board under section 144B(1) of the Act), the Income-tax Officer-Gorakhpur prepared a draft copy of the assessment order on March 27, 1980 (March 25, 1980) and sent it to the assessee for objections.

8. The assessee filed its objections. Thereafter, a copy of the draft order along with the objections was sent to the Inspecting Assistant Commissioner-Allahabad, who issued the directions on September 23, 1980 (September 25, 1980).

9. In pursuance of the directions of the Inspecting Assistant Commissioner-Allahabad, the Income-tax Officer-Gorakhpur passed an assessment order on September 25, 1980 (September 27, 1980) assessing the income to Rs. 38,58,904.

10. The assessee filed an appeal before the Commissioner Income-tax Appeals, (CIT(A)). He, vide his order dated March 2, 1981, held that :

• the assessment order was not barred by time. (He also awarded some relief (not relevant here) on the merits to the assessee) ;

• the assessee was an industrial company ; and

• it should be taxed accordingly.

11. The assessee filed an appeal before the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad (the Tribunal). It was referred to a Special Bench. The Special Bench, vide its order dated March 6, 1985, held that :

• once concurrent jurisdiction is conferred on the Inspecting Assistant Commissioner then he is deemed to have exercised the powers and performed the functions vested in him under section 125A of the Act ;

• in any case, the Inspecting Assistant Commissioner-Allahabad had exercised the powers and performed the functions vested in him under section 125A of the Act ;

• in view of section 144B(7) the provisions of section 144B were not applicable ;

• the assessment order was barred by time and assessment order was to be set aside.

12. On the aforesaid finding, the appeal of the assessee was allowed. This judgment of the Special Bench of the Tribunal is reported in Saraya Sugar Mills (P) Ltd. v. ITO [1985] 25 ITJ (All) 196 ; [1985] 13 ITD 163 (All) [SB].

13. The Income-tax Department (the Department) filed an application under section 256(1) of the Act for referring 17 questions to the High Court for opinion. It was partly allowed on April 11, 1986 and six questions were referred to the High Court.

The questions referred

14. We have heard Sri Shambhu Chopra, standing counsel for the Department and Sri V. B. Upadhyaya, and Sri Anil Sharma for the assessee. The following six questions have been referred for our opinion :

“(i) Whether the Tribunal was justified in holding that under section 144B the draft assessment order can be referred to the Inspecting Assistant Commissioner within whose territorial jurisdiction the Income-tax Officer performs his functions and not to the Inspecting Assistant Commissioner on whom jurisdiction has been conferred under section 125A of the Act ?

(ii)  Whether under section 125A once a concurrent jurisdiction has been conferred upon the Inspecting Assistant Commissioner the Income-tax Officer can exercise only such powers and functions to make the assessment which the Inspecting Assistant Commissioner allows him to do so, even though in spite of concurrent jurisdiction having been conferred under section 125A, the Inspecting Assistant Commissioner has neither assumed the jurisdiction of the Income-tax Officer nor has performed the functions of the Income-tax Officer in pursuance of an order under section 125A ?

(iii) Whether admittedly the proceedings for assessment being pending only before the Income-tax Officer and no proceeding being pending before the Inspecting Assistant Commissioner and all the statutory notices as well as the non-statutory letters and notices having been issued by the Income-tax Officer only to the assessee and all the letters and applications having been filed and given by the assessee only to the Income-tax Officer and not to the Inspecting Assistant Commissioner till the stage of passing of the order dated March 27, 1980, the Tribunal was not justified in overlooking this fact and coming to the conclusion that the Inspecting Assistant Commissioner has exercised the powers and performs the functions of the Income-tax Officer ?

(iv) Whether the assessee’s case is not covered under section 144B(7) of the Act ?

(v) Whether every page of the assessment order dated March 27, 1980 having been signed and sealed by the Income-tax Officer the said order dated March 27, 1980 was a valid order in view of section 292B of the Act ?

(vi) Whether even assuming without admitting that the order dated March 27, 1980 was not a valid order under section 143(3) the Tribunal instead of annulling the order should have set aside the case with a direction to the Income-tax Officer to treat the order dated March 27, 1980 as a final order ?

First question : Reference to Inspecting Assistant Commissioner having concurrent jurisdiction-Proper

15. Sections 125 and 125A of the Act were titled “Powers of Commissioner respecting specified areas, cases, persons, etc.” and “Concurrent jurisdiction of Inspecting Assistant Commissioner and Income-tax Officer”. They empowered the Commissioner to confer powers of an Income-tax Officer on an Inspecting Assistant Commissioner with different consequences.

16. Section 125 of the Act empowered the Commissioner to confer powers and functions of an Income-tax Officer on an Inspecting Assistant Commissioner in respect of any area or person or class of persons or cases or class of cases or incomes or classes of income. This was subject to the conditions mentioned in the order. In such a situation, subject to any condition mentioned in the notification, it was only the Inspecting Assistant Commissioner, who could exercise the power and performs the functions but not the Income-tax Officer.

17. Whereas section 125A of the Act, empowered the Commissioner of Income-tax to confer concurrent powers on an Inspecting Assistant Commissioner in respect of the same subject-matter. In case the power was conferred on the Inspecting Assistant Commissioner under section 125A then it could be exercised concurrently by an Income-tax Officer or an Inspecting Assistant Commissioner. Both could assess an assessee. There is nothing in the Act to prohibit an Income-tax Officer from exercising the power or performing the functions.

18. Sub-sections (2) and (3) of section 125A (section 125A(2) or 125(3)) of the Act provided that in case concurrent jurisdiction was conferred then the Inspecting Assistant Commissioner could issue binding directions and guidelines to the Income-tax Officer.

19. Sub-section (1) of section 144B (section 144B(1)) of the Act provides that where the Income-tax Officer was to vary the assessment under section 143(3) of the Act by an amount more than the amount fixed by the Board then he has to forward the draft order to the assessee. The assessee could file his objections against the draft order under section 144B(2) of the Act.

20. In case the assessee did not object to the same and accepted the variation then the Income-tax Officer could pass the assessment order on the basis of draft order (see section 144B(3) of the Act). Otherwise, the draft order along with objections were to be sent to the Inspecting Assistant Commissioner who could issue the directions for the guidance of the Income-tax Officer. (see section 144B(4) of the Act). These were binding upon him (see section 144B(5) of the Act).

21. The intention of the Legislature behind section 144B appeared to be that in case of large variations, the case should be decided under the guidance of a senior officer and an assessee might also object to the same before it was finalised. This was for the benefit of an assessee to save him from unnecessary harassment. It was for this reason that his objections were invited and the draft order was required to be sent to the Inspecting Assistant Commissioner. It was also for safeguarding the interests of the Revenue: an experienced and senior officer was less likely to commit a mistake.

22. Similar intention was behind section 125A of the Act. It was for this reason that the Inspecting Assistant Commissioner, a higher officer, was given concurrent jurisdiction. He could issue binding directions and guidelines.

23. If the intention of the Legislature was as indicated in the preceding paragraphs, then it seems strange that an Income-tax Officer should work under the guidelines and directions of one Inspecting Assistant Commissioner and to get the draft order finalised by another Inspecting Assistant Commissioner : the one who was supervising and could pass the order himself, should be the one to finalise it too.

24. In our opinion, the draft order along with objections was to be sent to the Inspecting Assistant Commissioner who was conferred concurrent jurisdiction with the Income-tax Officer and under whose supervision and guidance the Income-tax Officer was to work.

25. The Income-tax Officer-Gorakhpur was under the administrative control of the Inspecting Assistant Commissioner-Gorakhpur as he had the territorial jurisdiction. However, the concurrent jurisdiction was conferred on the Inspecting Assistant Commissioner-Allahabad. The Inspecting Assistant Commissioner-Gorakhpur also sent a letter on September 1, 1977 to the Income-tax Officer-Gorakhpur that he should make assessment, keeping in touch with the Inspecting Assistant Commissioner-Allahabad. The Inspecting Assistant Commissioner-Allahabad had also issued guidelines regarding the assessee. In our opinion, the draft order along with objections were rightly sent to Inspecting Assistant Commissioner-Allahabad and not to the Inspecting Assistant Commissioner-Gorakhpur.

26. In view of the above, question No. 1 is answered in the negative, in favour of the Department and against the assessee.

Second to fourth questions : Inspecting Assistant Commissioner-Allahabad had not performed functions of Income-tax Officer

27. The Inspecting Assistant Commissioner-Allahabad was not only conferred concurrent jurisdiction under section 125A of the Act but had also issued guidelines. In the light of these facts, the counsel for the assessee submitted that :

(i) the Income-tax Officer-Gorakhpur should have passed the assessment order in consonance with the guidelines. There was no necessity to refer the case to the Inspecting Assistant Commissioner-Allahabad ;

(ii) the time spent in forwarding the draft order to the assessee till the directions were received from the Inspecting Assistant Commissioner-Allahabad could not be excluded in view of section 144B(7) of the Act as section 144B was not applicable for the following reasons :

(a) if an Inspecting Assistant Commissioner is conferred concurrent jurisdiction under section 125A of the Act, then he ipso facto exercises the powers and performs the functions of an Income-tax Officer ;

(b) in this case the Inspecting Assistant Commissioner-Allahabad not only issued guidelines specific to the case of assessee, but the guidance dated November 23, 1979 states :

“I will assume jurisdiction over the case and complete the assessment.”

It shows that he had exercised the powers as well as functions of the Income-tax Officer-Gorakhpur ;

(i) Case had to be referred

28. It is correct that section 125A of the Act was applicable and the Inspecting Assistant Commissioner-Allahabad had issued the guidelines but this does not mean that section 144B of the Act was not applicable ; or its applicability was excluded.

29. Section 144B(1) of the Act was titled “Reference to Inspecting Assistant Commissioner in certain cases”. It provided that in case the variation in income or loss in the assessment under section 143(3) of the Act was more than the amount fixed by the Board then,

• the Income-tax Officer was to prepare the draft order and send it to the assessee ; and

• if the assessee objected to the same then the Income-tax Officer was to send the draft order along with the objections to the Inspecting Assistant Commissioner for his directions and guidance.

30. Sub-sections, namely, (1) and (4) of section 144B used the word “shall” and not “may”. This indicated the mandatory nature of the duty cast upon the Income-tax Officer. He was bound to refer the draft order to the Inspecting Assistant Commissioner : he had no choice in this regard unless the case fell under section 144B(7) of the Act.

31. In our opinion,

• section 144B(1) and (2) was mandatory ;

• the Income-tax Officer was bound to refer the draft order along with the objection to the Inspecting Assistant Commissioner unless the case fell under section 144B(7) of the Act ; and

• if the Income-tax Officer did not refer the draft order along with objections to the Inspecting Assistant Commissioner-Allahabad then his order would have been liable to be set aside on this ground alone.

32. Section 147B(7) of the Act provided that in case the Inspecting Assistant Commissioner exercised the powers or performed the functions in pursuance of notification under section 125 or 125A of the Act then other provisions of section 144B did not apply. Let us consider if section 144B(7) applied or not.

(ii)( a) Jurisdiction conferred on Inspecting Assistant Commissioner-Does not exercise the powers

33. In the present case, the notification was not issued conferring exclusive jurisdiction on the Inspecting Assistant Commissioner-Allahabad under section 125 of the Act but it was issued under section 125A of the Act conferring concurrent jurisdiction upon him. There was a difference between these two sections (see discussion on the first question).

34. There is nothing in the Act to indicate or even suggest that mere conferment of concurrent jurisdiction on the Inspecting Assistant Commissioner under section 125A of the Act would mean that he was exercising the powers or performing the functions of the Income-tax Officer. In fact, he had to exercise the powers or perform the functions of an Income-tax Officer before section 144B(7) could be applied. This has also been held by the other High Courts (see foot note No. 1 at page 576).

35. In our opinion, whether the Inspecting Assistant Commissioner exercised such powers or performed the functions of the Income-tax Officer depended on the facts of each individual case. The general proposition as laid down by the Tribunal is incorrect. Let us consider, whether the Inspecting Assistant Commissioner-Allahabad exercised the powers or performed the functions of an Income-tax Officer in this case ?

(ii)(b) : IAC-Allahabad had not performed the functions

36. We have gone through the guidelines dated November 8, 1979 as well as November 23, 1979. These are merely guidelines to the Income-tax Officer-Goprakhpur as to how the assessment of the assessee might be completed. It nowhere indicates that the Inspecting Assistant Commissioner-Allahabad exercised the power or performed the functions of the Income-tax Officer-Gorakhpur.

37. The Inspecting Assistant Commissioner-Allahabad did say that he would pass an assessment order but he chose not to pass it. The assessment order was ultimately passed by the Income-tax Officer-Gorakhpur and not the Inspecting Assistant Commissioner-Allahabad. Had the Inspecting Assistant Commissioner-Allahabad done so, then the matter would have different.

38. In our opinion,

• merely because concurrent powers were conferred upon the Inspecting Assistant Commissioner or he issued the guidelines, did not lead to the conclusion or meant that he exercised the powers or performed the functions of an Income-tax Officer ;

• in this case, the Inspecting Assistant Commissioner-Allahabad neither exercised the powers nor performed the functions of the Income-tax Officer-Gorakhpur ;

• the case is not covered under section 144B(7) of the Act.

39. In view of the above, questions Nos. 2 to 4 are answered in the affirmative, in favour of the Department and against the assessee.

Fifth and sixth questions : Not necessary to answer

40. We have answered questions Nos. 1 to 4 in favour of the Department and against the assessee. The counsel for the parties agree that in view of this, the answer to questions Nos. 5 and 6 have become academic and it is not necessary to express any opinion on the same.

41. Accordingly, we refrain from answering them.

Conclusions

42. Our conclusions are as follows :

(a) The draft order, under section 144B was to be sent to the Inspecting Assistant Commissioner who was given concurrent jurisdiction along with the Income-tax Officer under section 125A of the Act and not to the Inspecting Assistant Commissioner who might be having territorial jurisdiction or administrative control ;

(b) The draft order was rightly sent to the Inspecting Assistant Commissioner-Allahabad and not to the Inspecting Assistant Commissioner-Gorakhpur ;

(c) Merely because concurrent powers were conferred upon the Inspecting Assistant Commissioner or he had issued guidelines, did not lead to the conclusion or mean that he exercised the powers or performed the functions of an Income-tax Officer ;

(d) In this case, the Inspecting Assistant Commissioner-Allahabad neither exercised the powers nor performed the functions of the Income-tax Officer-Gorakhpur ;

(e)  The case of the assessee was not covered under section 144B(7) of the Act.

(f) In view of our answers to questions Nos. 1 to 4, the answer to questions Nos. 5 and 6 have become academic and we refrain from answering them.

43. In view of our conclusions, question No. 1 is answered in the negative and questions Nos. 2 to 4 are answered in the affirmative, i.e., all questions are answered in favour of the Department and against the assessee.

44. Let our opinion be sent to the Tribunal for passing the appropriate consequential order.

[Citation : 336 ITR 572]

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