Madras H.C : Whether, on the facts and in the circumstances of the case and having regard to the scheme of the Act, especially the provision of s. 144B the Tribunal was right in setting aside the orders of the lower authorities and directing the AO to do the assessment de novo ?

High Court Of Madras

Express Newspapers Ltd. vs. CIT

Section 144B

Asst. Year 1970-71

R. Jayasimha babu & Mrs. A. Subbulakshmy, JJ.

Tax Case No. 65 of 1991

7th September, 2001

Counsel Appeared

V.S. Jayakumar, for the Assessee : Mrs. Chitra Venkataraman, for the Revenue

JUDGMENT

R. JAYASIMHA BABU, J. :

For the asst. yr. 1970-71, the AO made a draft order, in which, he treated the loss incurred by the assessee as normal business loss. That draft assessment order was approved by the IAC under s. 144B of the IT Act, 1961. Thereafter, the AO changed his view of the nature of the loss incurred by the assessee in his transaction relating to shares and considered those losses to be speculative loss and capital loss. The modification so made by the AO was not pursuant to any direction given by the IAC. The approval given by the IAC was for the treatment of the loss as business loss.

2. The assessee having taken the matter in appeal, the appellate authority agreed with the assessee that the AO could not have meddled with the draft assessment order after it received approval of the IAC. He directed the ITO to treat the entire loss as business loss. The matter was then taken on appeal to the Tribunal by the Revenue. The Tribunal having set aside the order of the CIT, the present reference has been brought before us by the assessee.

3. The Supreme Court in the case of Panchamahal Steel Ltd. vs. U.A. Joshi, ITO (1997) 142 CTR (SC) 178 : (1997) 225 ITR 458 (SC) : TC S9.1057 held as under (p. 462) : “A reading of s. 144B shows that once a draft order is made and the matter is referred to the IAC on receiving the objections of the assessee, the function of the ITO practically comes to and end. Therefore, the only remaining thing to do by him is to pass a final order of assessment pursuant to and in accordance with the directions given by the IAC. He cannot vary or depart from the directions given by the IAC.”

4. Having regard to the effect of the order of approval given by the IAC under s. 144B of the Act, it is clear that the AO is not to meddle with the draft assessment, except to the extent required for the purpose of complying with the directions, if any, given by the IAC. The CIT, whose order had rightly realised the import of s. 144B of the Act, and had directed the AO to treat the loss as business loss, as that was the way in which it was treated the draft assessment order to which the IAC had granted the approval. The Tribunal was in error in reversing that order of the CIT.

The question referred to us, viz. “Whether, on the facts and in the circumstances of the case and having regard to the scheme of the Act, especially the provision of s. 144B the Tribunal was right in setting aside the orders of the lower authorities and directing the AO to do the assessment de novo ?” is, therefore, answered in favour of the assessee, and against the Revenue.

[Citation : 254 ITR 472]

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