Madras H.C : The assessee, which is a textile company, had furnished its return for the asst. yr. 1980-81.

Counsel Appeared

S.V. Subramaniam for C.V. Rajan, for the Revenue : S.A. Balasubramanian, for the Assessee

JUDGMENT

R. JAYASIMHA BABU, J. :

The factual matrix in the background of which the questions referred for our decision are required to beconsidered may first be set out before we deal with the questions. The assessee, which is a textile company, had furnished its return for the asst. yr. 1980-81. The return was filed on 3rd Nov., 1980, showing a total income of Rs. 42,83,750. On 8th Nov., 1982, the ITO acting under s. 144B forwarded a draft assessment order proposing to assess the income of Rs. 48,64,844, as the enhancement of the income for the purpose of assessment was higher by more than Rs. 1,00,000 as compared to the amount shown in the return. On 30th Nov., 1982, the assessee gave its objections. The objections along with the draft assessment order were duly forwarded to the IAC on 7th Jan.,1983, the IAC after same discussions with the assessee, sent a memo to the ITO pointing out that certain aspects have not been properly considered, and requesting him to send another draft order on or before 31st Jan., 1983. The ITO sent a second draft assessment order on 1st Feb., 1983, proposing to assess a sum of Rs. 50,68,515. On 26th Feb., 1983, the IAC gave his directions and assessment was completed on a total income of Rs. 50,41,738. The assessee, being aggrieved, appealed to the CIT(A) who upheld the assessee’s objections that s. 144B did not authorise the ITO to make a second draft assessment order. The CIT relied upon the decision of the Delhi High Court in Sudhir Sareen vs. ITO (1981) 128 ITR 445 (Del) : TC 11R.378. That order of the CIT was taken up in further appeal by the Revenue. The Tribunal has rejected the Revenue’s appeal and confirmed the order of the CIT.

The questions now brought before us by the Revenue arising out of that order of the Tribunal, are as to whether, on the facts and in the circumstances of the case, the IAC can invoke the provisions of s. 144A in a proceeding pending before him under s. 144B, and direct the ITO to make a second draft assessment order before finalising the assessment, and if the answer to that question is in the negative, whether the provisions of s. 144B authorise the ITO to make a second draft assessment before the assessment is completed ? It is useful to set out the two provisions, ss. 144A and 144B at this point : “144A. Power of Dy. CIT to issue directions in certain cases.—A Dy. CIT may, on his own motion or on a reference being made to him by the AO 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 AO to enable him to complete the assessment and such directions shall be binding on the AO : 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 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.” “144B. Reference to Dy. CIT in certain cases.—(1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-s. (3) of s. 143, the AO proposes to make, before the 1st day of October, 1984, 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 subs. (6), the AO 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 AO within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the AO 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 AO the acceptance of the variation, the AO shall complete the assessment on the basis of the draft order. (4) If any objections are received, the AO shall forward the draft order together with the objections to the Dy. CIT and the Dy. CIT 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 AO to enable him to complete the assessment :

Provided that no directions which are prejudicial to the assessee shall be issued under this subsection before an opportunity is given to the assessee to be heard. (5) Every direction issued by the Dy. CIT under sub-s. (4) shall be binding on the AO. (6) For the purposes of sub-s. (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 a Dy. CIT exercises the powers or performs the functions of an AO in pursuance of an order made under s. 125 or s. 125A.”Sec. 144A confers wide discretionary powers on the Dy. CIT. The powers so conferred may be exercised by him suo motu, or at the instance of the assessee, or at the instance of the AO. There is no compulsion on any of them to resort to this provision. It is purely optional. Option has been given to all three, the assessee, the AO, and the Dy. CIT to invoke the provision—power to be exercised before the completion of the assessment. Directions which can be issued under that section are directions, which the Dy. CIT considers to be appropriate. Though the word “guidance” is used in the section, the directions are not merely words of advice, but they are commands, which are binding on the AO. Before issuing such directions, the assessee is entitled to be heard except in cases where the direction issued is regarding the lines on which an investigation connected with the assessment should be made. The obligation to provide a hearing to the assessee arises in all cases where the direction that is proposed to be made is prejudicial to the assessee. Sec. 144B, which provision is no longer in the statute book w.e.f. 1st Oct., 1984, opens with a non obstante clause and is meant to be applied notwithstanding anything contained in any of the other provisions of the Act. It imposes a duty on the AO to make a draft assessment order where the amount of the variation in the income or loss returned by the assessee and the amount proposed in the draft assessment order is in excess of the amount fixed by the Board under sub-s. (6).

The draft order so made by the AO is to be forwarded to the assessee for its objections, if any. The assessee has been given a very limited period of seven days within which he should file the objection extendable by amaximum further period of 15 days. At that stage, the draft order is not required to be sent to the Dy. CIT or the IAC. If no objections are filed by the assessee, the assessment is to be finalised in terms of the draft. When the assessment is so finalised, the matters do not go before the IAC. It is only in cases where the objection is filed within the time prescribed, the draft assessment order together with the objections are required to be forwarded to the Dy. CIT, who shall consider the same and issue such directions as he may think fit for the guidance of the AO to enable him to complete the assessment. Directions which are prejudicial to the assessee are not to be given unless the assessee has first been given an opportunity of being heard. Directions so issued are binding on the AO.

7. There are several differences as between s. 144A and s. 144B. Sec. 144A vests general and unlimited power to the Dy. CIT in giving directions to the AO for the purpose of enabling him to complete the assessment. The power, which may be exercised suo motu or at the instance of the assessee or the AO, is not a power, which is required to be exercised in the case of every assessment. It is only when one of the three parties choose to invoke the provision that the occasion for the exercise of the power under s. 144A will arise. In contrast s. 144B deals with a specific situation where the Dy. CIT is called upon to give directions to the AO, and makes it mandatory for the AO to make a draft assessment order, and thereafter, follow the further steps outlined in the provision. The common feature in the two provisions is that under both the provisions the Dy. CIT is to give directions to the AO for the purpose of completing the assessment, and the directions so given are to be binding on the AO. Sec. 144B besides being mandatory is required to be complied with notwithstanding anything contained in the other provisions of the Act. The intention of Parliament appears to be that matters dealt with in s. 144B, to the extent provided therein, are required to be dealt with only in the manner specified in that special provision notwithstanding the existence of the other provisions of the Act, which may encompass the situationscontemplated in s.144B, whether in whole or in part. Matters covered by s. 144B, therefore, are not to be dealt with byimporting the powers conferred under s. 144A. Sec. 144A cannot be read as supplemental to s. 144B. It is significant that s. 144B does not use words such as “subject to”, “without prejudice to the power conferred by s. 144A”, or other suitable language indicating an intention for the simultaneous exercise of the powers under ss. 144A and 144B or using s. 144A to fill in what may be regarded as gaps in s. 144B.

The draft assessment order made by the AO as required under s. 144B(1) is the foundation for the further orders or order to be made under that provision. The objection which the assessee is required to file is with reference to that draft assessment order, and in the event of the objections not being filed, the assessment is to be completed on the basis of the draft assessment order. In cases where objections are filed, such objections together with the draft assessment order are required to be considered by the Dy. CIT, and he is required to examine the objections raised by the assessee and after giving due opportunity to the assessee, uphold or reject all or any part of the objections so raised, and thereafter proceed to give such directions as he considers necessary to the AO to complete the assessment. The section 144B does not provide for a second draft order. It contemplates one draft assessmentorder with reference to which objections are to be filed. The specification of the time-limit for filing the objections is because of the legislative intention that the proceedings under that section are to be dealt with expeditiously. The Dy. CIT, when he examines the draft assessment order and objections, is required to decide the validity or otherwise of the objections, and thereafter proceed to give the directions required for the completion of the assessment.

It is not permissible for the Dy. CIT to direct the AO to make a second draft assessment order under the guise of giving instructions. The directions which he is empowered to give are directions for the purpose of completing the assessment pursuant to the draft order made by the AO. The object of the provision in compelling the assessee to file objections if any, within the time specified and requiring the Dy. CIT to give directions, for completion of the assessment would not be served if it were to be held that the Dy. CIT has the freedom to call for repeated drafts of the assessment order, and the assessee is required to file objections again and again, to different drafts that the AO may be compelled to give pursuant to the directions issued by the Dy. CIT. The power conferred on the Dy. CIT is required to be exercised within the four corners of the section. While exercising the power under s. 144B, it would not be permissible for the Dy. CIT to import s. 144A for the purpose of directing the AO to submit a second draft assessment order. While it is conceivable that before the initiation of the proceedings under s. 144B, a prior proceeding under s. 144A may possibly take place; once the proceedings under s. 144B begin, they must end only in the manner contemplated in that section, although the assessment which results therefrom is one which is made under s. 143(3). Learned counsel for the Revenue relied upon the decision of the Delhi High Court, which has taken a similar view in Sudhir Sareen’s case, already referred to. He also placed before us the judgments of the Calcutta High Court in Arrah Sasaram Light Railway Co. Ltd. vs. CIT (1993) 204 ITR 807 (Cal) : TC 11R.341 and Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. vs. CIT (1994) 208 ITR 882 (Cal) : TC 51R.549. In the first of these cases, it was held that an order under s. 144B can be made notwithstanding the fact that a proceeding under s. 144A had taken place prior to the invocation of s. 144B. We are in respectful agreement with that view. In the latter case, it was held that remitting of the draft assessment order made by the IAC to the ITO for further consideration and re-submission would not debar the ITO from forwarding another assessment order to the IAC. With respect we are unable to subscribe to that view. Sec. 144B does not require the AO to submit the draft assessment order to the Dy. CIT at the initial stage. It is only if the assessee chooses to object, after the draft order has been sent, that the draft order, as also the objections are required to be placed before the Dy. CIT. At that stage, it is the duty of the Dy. CIT to consider the validity of the objections, and it would not be open to him to direct the AO to submit a fresh draft assessment order. Within the ambit of his powers the Dy. CIT is required to give the directions required for completing the assessment and not call upon the AO to submit a fresh draft assessment order. From the facts stated in the decision of the Calcutta High Court, it is not clear as to the stage at which the draft assessment order had been sent to the Dy. CIT.

Counsel placed before us the decision of the Kerala High Court in Aspinwall & Co. Ltd. vs. CIT (1996) 132 CTR (Ker) 448 : (1996) 220 ITR 617 (Ker), wherein the Court disagreed with the view taken by the Delhi High Court and held that it was open to the successor-ITO to amend the draft assessment order after having sent the same to the Dy. CIT together with the objections which the assessee had filed. The Court took the view that there was no second draft assessment order in the circumstances and that was merely a modification of the draft assessment order. What has been done in this case is that the Dy. CIT has directed the AO to submit a fresh draft assessment order, and thereby requiring him to treat the earlier draft as of no consequence, and treating the proceedings already taken as if such proceedings had not taken place at all. Such an order cannot be regarded as one within the ambit of the powers conferred on the Dy. CIT under s. 144B of the Act. Before the Tribunal, the Revenue had sought to contend that the higher figure mentioned in the second draft assessment order on the basis of which the assessment was completed, was sustainable on the ground that the power exercised by the Dy. CIT in directing the preparation of a second draft assessment order should be regarded as being pursuant to the power conferred on him by s. 144A of the Act. The Tribunal rejected that contention. The first question referred to us is the legality or otherwise of the invocation of s. 144A in a proceeding pending before the Dy. CIT under s. 144B. As observed by us, the two provisions are not part of the integrated scheme. While dealing with a case under s. 144B, the power under s. 144A cannot be freely imported, and in respect of the same matter power cannot be exercised under both the provisions even after proceedings had commenced under s. 144B. Even though a proceeding under s. 144A may precede the commencement of proceedings under s. 144B, after the proceedings have commenced under s. 144B it is impermissible to invoke s. 144A with reference to matters, which are required to be dealt with in terms of s. 144B. Our answer to the first question is, therefore, in the negative.

14. As regards the second question as we have already held that it is not permissible for the AO to make a second draft assessment before the completion of the assessment, our answer to the second question, therefore, is also in the negative.The assessee shall be entitled to costs in the sum of Rs. 1,500.

[Citation : 246 ITR 549]