Commissioner of Income Tax vs Dhanalakshmi Mills Ltd.

R. Jayasimha Babu, J.—The factual matrix in the background of which the questions referred for our decision are required to be considered

may first be set out before we deal with the questions.

The assessee, which is a textile company, had furnished its return for the assessment year 1980-81. The return was filed on November 3, 1980,

showing a total income of Rs. 42,83,750. On November 8, 1982, the Income Tax Officer acting u/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 November 30, 1982, the assessee gave its objections. The objections along with the

draft assessment order were duly forwarded to the Inspecting Assistant Commissioner on January 7, 1983, the Inspecting Assistant Commissioner

after some discussions with the assessee, sent a memo to the Income Tax Officer pointing out that certain aspects have not been properly

considered, and requesting him to send another draft order on or before January 31, 1983. The Income Tax Officer sent a second draft

assessment order on February 1, 1983, proposing to assess a sum of Rs. 50,68,515. On February 26, 1983, the Inspecting Assistant

Commissioner gave his directions and assessment was completed on a total income of Rs. 50,41,738. The assessee, being aggrieved, appealed to

the Commissioner of Income Tax (Appeals) who upheld the assessee''s objections that Section 144B did not authorise the Income Tax Officer to

make a second draft assessment order. The Commissioner relied upon the decision of the Delhi High Court in Sudhir Sareen Vs. Income Tax

Officer, Central Circle XVII, New Delhi and another, . That order of the Commissioner was taken up in further appeal by the Revenue. The

Tribunal has rejected the Revenue''s appeal and confirmed the order of the Commissioner.

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 Inspecting Assistant Commissioner of Income Tax can invoke the provisions of Section 144A in a proceeding

pending before him u/s 144B, and direct the Income Tax Officer 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 Section 144B authorise the Income Tax Officer to make a second draft

assessment before the assessment is completed ?

It is useful to set out the two provisions, Section 144A and 144B at this point :

144A. Power of Deputy Commissioner to issue directions in certain cases.--A Deputy Commissioner may, on his own motion or on a reference

being made to him by the Assessing 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 Assessing Officer to enable him to complete

the assessment and such directions shall be binding on the Assessing 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 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 prejudical to the assessee.

144B. Reference to Deputy 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 Assessing Officer 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 Sub-

section (6), the Assessing 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 Assessing Officer within seven days of

the receipt by him of the draft order or within such further period not exceeding fifteen days as the Assessing 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 Assessing Officer the

acceptance of the variation, the Assessing Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Assessing Officer shall forward the draft order together with the objections to the Deputy Commissioner and

the Deputy 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

Assessing 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 Deputy Commissioner under Sub-section (4) shall be binding on the Assessing 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 a Deputy Commissioner exercises the powers or performs the functions of an Assessing

Officer in pursuance of an order made u/s 125 or Section 125A.

Section 144A confers wide discretionary powers on the Deputy Commissioner. The powers so conferred may be exercised by him suo motu,

or at the instance of the assessee, or at the instance of the Assessing Officer. 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 Assessing Officer, and the Deputy Commissioner 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 Deputy

Commissioner 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 Assessing Officer. 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.

Section 144B, which provision is no longer in the statute book with effect from October 1, 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 Assessing Officer 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-section (6). The draft order so made by the Assessing Officer 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 a maximum further period of 15 days. At that stage, the draft order is not required to be sent to the Deputy Commissioner

or the Inspecting Assistant Commissioner. 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 Inspecting Assistant Commissioner. 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 Deputy Commissioner,

who''shall consider the same and issue such directions as he may think fit for the guidance of the Assessing Officer 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 Assessing Officer.

There are several differences as between Section 144A and Section 144B. Section 144A vests general and unlimited power to the Deputy

Commissioner in giving directions to the Assessing Officer 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 Assessing Officer, 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 u/s 144A

will arise.

In contrast Section 144B deals with a specific situation where the Deputy Commissioner is called upon to give directions to the Assessing

Officer, and makes it mandatory for the Assessing Officer 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 Deputy Commissioner is to give directions to the

Assessing Officer for the purpose of completing the assessment, and the directions so given are to be binding on the Assessing Officer. Section

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 Section 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 situations

contemplated in Section 144B, whether in whole or in part.

Matters covered by Section 144B, therefore, are not to be dealt with by importing the powers conferred u/s 144A. Section 144A cannot be

read as supplemental to Section 144B. It is significant that Section 144B does not use words such as ""subject to"", ""without prejudice to the power

conferred by Section 144A"", or other suitable language indicating an intention for the simultaneous exercise of the powers under Sections 144A

and 144B or using Section 144A to fill in what may be regarded as gaps in Section 144B.

The draft assessment order made by the Assessing Officer as required u/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 Deputy Commissioner, 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 Assessing Officer to complete the assessment. The section does not

provide for a second draft order. It contemplates one draft assessment order 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 Deputy Commissioner, 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 Deputy Commissioner to direct the Assessing Officer 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 Assessing Officer. The object of the provision in compelling the assessee to file objections if any, within the time specified and

requiring the Deputy Commissioner to give directions, for completion of the assessment would not be served if it were to be held that the Deputy

Commissioner 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 Assessing Officer may be compelled to give pursuant to the directions issued by the Deputy Commissioner. The power

conferred on the Deputy Commissioner is required to be exercised within the four corners of the section. While exercising the power u/s 144B, it

would not be permissible for the Deputy Commissioner to import Section 144A for the purpose of directing the Assessing Officer to submit a

second draft assessment order. While it is conceivable that before the ini tiation of the proceedings u/s 144B, a prior proceeding u/s 144A may

possibly take place ; once the proceedings u/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 u/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 Vs. Income

Tax Officer, Central Circle XVII, New Delhi and another, already referred to. He also placed before us the judgments of the Calcutta High Court

in Arrah Sasaram Light Railway Co. Ltd. Vs. Commissioner of Income Tax, and Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. (in

voluntary liquidation) Vs. Commissioner of Income Tax, . In the first of these cases, it was held that an order u/s 144B can be made

notwithstanding the fact that a proceeding u/s 144A had taken place prior to the invocation of Section 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 Inspecting Assistant Commissioner to the Income

Tax Officer for further consideration and re-submission would not debar the Income Tax Officer from forwarding another assessment order to the

Inspecting Assistant Commissioner. Witb respect we are unable to subscribe to that view. Section 144B does not require the Assessing Officer to

submit the draft assessment order to the Deputy Commissioner 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 Deputy Commissioner. At that stage, it is the duty of

the Deputy Commis-sioner to consider the validity of the objections, and it would not be open to him to direct the Assessing Officer to submit a

fresh draft assessment order. Within the ambit of his powers the Deputy Commissioner is required to give the directions required for completing

the assessment, and not call upon the Assessing Officer 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 Deputy Commissioner.

Counsel placed before, us the decision of the Kerala High Court in Aspinwall and Co. Ltd. Vs. Commissioner of Income Tax (No. 2), ,

wherein the court disagreed with the view taken by the Delhi High Court and held that it was open to the successor-income tax Officer to amend

the draft assessment order after having sent the same to the Deputy Commissioner 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 Deputy Commissioner has directed the Assessing Officer 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 Deputy Commissioner u/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 Deputy Commissioner in directing the

preparation of a second draft assessment order should be regarded as being'' pursuant to the power conferred on him by Section 144A of the Act.

The Tribunal rejected that contention. The first question referred to us is the legality or otherwise of the invocation of Section 144A in a proceeding

pending before the Deputy Commissioner u/s 144B. As observed by us, the two provisions are not part of the integrated scheme. While dealing

with a case u/s 144B, the power u/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 u/s 144B. Even though a proceeding u/s 144A may precede the commencement of

proceedings u/s 144B, after the proceedings have commenced u/s 144B it is impermissible to invoke Section 144A with reference to matters,

which are required to be dealt with in terms of Section 144B. Our answer to the first question is, therefore, in the negative.

As regards the second question as we have already held that it is not permissible for the Assessing Officer 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.