S.B Wad, J.:— A short question for decision in this petition is whether an Income-tax Officer acting under S. 144-B, is empowered to confront an assessee with more than one proposed draft orders of assessment, each time raising the amount of assessment or whether he can do the said exercise only once. The petitioner's contention is that S. 144-B restricts the power of the Income-tax Officer only to one draft order of assessment and not more. He further contends that any other interpretation would expose an assessee to unjustified harassment.
2. S. 144-B read as follows:
“144-B. (1) Notwithstanding anything contained in this Act, where, in as assessment to be made under sub-s. (3) S. 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is pre-judicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-s. (6), the Income-tax 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 Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax 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 Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.
(4) If any objection are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Asstt. 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 Income-tax 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 Inspecting Asstt. Commissioner under sub-s. (4) shall be binding on the Income-tax Officer.
(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 tome, such amount as is 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 an Inspecting Asstt. Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under S. 125 or S. 125-A.”
3. The said section was inserted by the Taxation Laws Amendment Act, 1975 which took effect from 1-1-1976. The Notes on Clauses in the amending Bill do not throw much light on the need of enacting S. 144-B. However, in the counter-affidavit filed the object is stated as follows:
“The purpose of this section is to reduce the area of dispute between the Income-tax Officer and the Department making the assessment and the assessee so that unnecessary appeals against the order need not be filed.”
4. The Contention of the petitioner is that the language of the Section is very clear. The petitioner refers to the words “in the first instance”, “a draft” in S. 144-B(1). The petitioner argues that they point out to only one draft and nor more. He submits that the singular “a draft” does not include plurality of drafts. Her further takes support of the words “the draft order” used in sub-cl. (2). He argues that the draft order referred to in sub-cl. (2) makes the draft order referred to in sub-cl. (1) more definite. He further submits that if the Income-tax Officer is empowered to have unlimited number of draft orders, there will be no finality and the petitioner would be exposed to permanent harassment. Such interpretation, according to the petitioner, would enable the Income-tax Department to by-pass the period of limitation prescribed by S. 153. The petitioner submits that the interpretation suggested by him would bring the section inconformity to S. 153 of the Income-tax Act.
5. On the other hand the Revenue contends that the words “in the first instance” appearing in Cl. (1) merely means that every time when assessment is to be revised, a draft order would be served on the assessee. The Revenue submits that there are no limiting words in S. 144-B in regard to the number of draft orders that can be served on the assessee. The Revenue then points out that so far as the petitioner was concerned there was no question of extending the period of limitation under S. 153 because the normal period for completing assessment proceedings in petitioner's case was upto 31-3-1982. The Revenue then contends that no prejudice is caused to an assessee because every time a new draft order is served on him he is entitled to an opportunity of being heard. The Revenue suggests that their interpretation is in keeping with the object of the amending provision.
6. The Taxation Laws (Amendment) Act, 1975 introduced two new Sections — namely Ss. 144-A and 144-B. Though the said Sections an Inspecting Assistant Commissioner is given a power to issue directions to an Income-Tax Officer. In absence of legislative authority the Inspecting Assistant Commissioner could not have given any directions to the Income Tax Officer in discharge of his quasi judicial functions. Both the Sections provide that if an Inspecting Assistant Commissioner wants to give a directions which is prejudicial to an assessee, he must be given an opportunity of being heard before such direction is issued. The directions given under both the Sections are binding on the Income-Tax Officer.
7. There is a difference between the circumstances in which powers under Ss. 144-A and 144-B can be invoked under S. 144(1) the Inspecting Assistant Commissioner can suo motu call for the record of any proceeding pending assessment. He can do so on a reference from an Income Tax Officer or by an assessee also. Under S. 144-B, on the other hand there is no suo motu power to call for the records. It can be exercised only where a reference is made by an Income Tax Officer. It is mandatory for the Income Tax Officer to make a reference where the Income Tax Officer proposes to make any variation in the income or loss returned and which exceeds the limit prescribed by the Board. The Board has fixed the amount of variation at Rs. 1,00,000.
8. The object of the Sections appear to be to avoid multiplicity of proceedings and unnecessary appeals. We are here concerned only with an order passed under S. 144-B(1). The first draft order was issued by the Income-Tax Officer on 30-3-1979 for Rs 3,27,870. The assessee filed his objections. The draft order alongwith objections was sentto the Inspecting Assistant Commissioner. According to the assessee there were 5/6 hearings before the Inspecting Assistant Commissioner and thereafter the hearing was completed. This hearing was on the basis of the figure mentioned in the draft order and the petitioner's objections and not for any other sum. The Income Tax Officer sent a second draft order to the assessee on 10-9-1979 for Rs 4,10,030. It was thus an order for enhancement of the amount and naturally an order prejudicial to the assessee. Admittedly, this is an order on the directions of the Inspecting Assistant Commissioner. Admittedly also the Inspecting Assistant Commissioner did not give an opportunity for being heard to the assessee before issuing the said directions. This was contrary to the proviso to sub-s. 4 of S. 144-B. The opportunity of being heard is a condition precedent to the issuance of any prejudicial direction. The provision of being heard is mandatory as is indicated by the word “small” used in the proviso.
9. The procedure followed by the Revenue in this case was illegal and in violation of the express provisions. The second draft assessment order is the result of the illegal directions given by the Inspecting Assistant Commissioner. The entire proceedings from the stage of the directions given by the Inspecting Assistant Commissioner onwards are, therefore, quashed.
10. Even otherwise, the second draft assessment order is bad in law. The Revenue contends that an Income Tax Officer can issue more than one draft assessment orders under sub-s. 1 of S. 144-B. This might lead to a multiplicity of proceedings resulting into additional harassment to an assessee. The object of the provisions cannot be to reduce the number of regular appeals before the Appellate Assistant Commissioner but to increase the volume of proceedings before the Inspecting Assistant Commissioner. The real object appears to be to provide competent scrutiny at the Assistant Commissioner's level and to reduce the relative finality and free play at the Income Tax Officer's level. The language of he Section also does not permit any interpretation favouring more than one draft orders. If an assessee accepts the variation the matter ends there. In other words there is no prejudicial order against the petitioner. But where he raises objections, he gets an opportunity or persuading Revenue at a higher level to his own point of view. Supposing, if the Inspecting Assistant Commissioner is not persuaded and agrees with the draft order, a final order would be passed by an Income Tax Officer on such directions from the Inspecting Assistant Commissioner. These two cases illustrate that there is only one draft order contemplated by sub-s. 1. But there is a third contingency envisaged in sub-s. 4. If after hearing the objections of an assessee, to the proposed assessment order, the Inspecting Assistant Commissioner wants to enhance the assessment still further, he must give additional opportunity of being heard to the assessee. The objection of the assessee could be that in any case the assessment does not exceed the draft order and the proposed increase by the Inspecting Assistant Commissioner was not justified. If this objection is upheld by the Inspecting Assistant Commissioner under sub-r. 4 there is no need of a second draft order. On the other hand, if the Inspecting Assistant Commissioner sticks to his own proposal of enhancement after hearing the petitioner's objections, the Income Tax Officer is bound to obey the direction. After this stage only a final order can be issued by the Income Tax Officer. There is no question of a draft assessment again.
11. If at the second stage an Income Tax Officer again issues a draft assessment order that will be contrary to the provisions of sub-s. 5. This analysis would show that under S. 144-B(1) an Income Tax Officer has no power to issue more than one draft orders.
12. S. 153 prescribed the period of limitation for completing an assessment. Explanation 1(iv) provides for exclusion of time in the relation to assessment under S. 144-B. The said explanation runs as follows:
“(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-s. (1) of S. 144-B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-s. (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or”
13. S. 153 prescribes normal period of limitation. Under the said explanation a period not exceeding 180 days would be permitted to the Revenue to complete an assessment, in addition to the normal period, if an action under S. 144-B is taken by the Department. The period excluded is between the date on which the Income Tax Officer forwards the draft order to the assessee and the date on which the direction are received by the Income Tax Officer from the Inspecting Assistant Commissioner. The counsel for the assessee submits that if the Revenue's interpretation is to be accepted they might claim the additional period upto 180 days for each of the draft orders, in addition to the first draft order. He submits that this would be clearly contrary to the statutory limitation imposed by explanation 1 of S. 153. He further submits that considering the period of limitation laid down in the said proviso, it can fairly be concluded that only one draft order is contemplated by sub-s. 1 of S. 144-B.
14. The statutory period not exceeding 180 days mentioning the explanation 1(iv) is mandatory. This period cannot be extended by any device. S. 153, by itself, does not support the assessee's contention. If more than one draft orders are permissible under S. 144(B) S. 153 will not stand in the way if the two periods (normal and additional 180 days) are not extended. On construction of S. 144-B I have come to the conclusion that sub-cl. 1 of sub-s. 144-B does not authorise any Income Tax Officer to issue more than one draft assessment orders. S. 153 does not render any additional assistance. The contention of the Revenue that in the present case even the normal period is upto 1982, also does not have any direct bearing on the question involved.
15. For the reasons stated above the impugned order is set aside. The Department is free to restart the proceedings at the stage of Inspecting Assistant Commissioner under proviso to sub-s. 4 of S. 144-B. The petition succeeds with costs. Rules is made absolute.
S.V Petition Allowed.