K. Shivashankar Bhat, J.:— The question of law referred to us under the provisions of the Income-tax Act, 1961, reads thus:
“Whether it is open to the Inspecting Assistant Commissioner to issue directions under section 144A to the Income-tax Officer when a draft assessment order has been submitted to him by the Income-tax Officer under section 144B on the ground that the assessment proceedings are still pending before the Income-tax Officer?”
2. In the course of a proceeding under section 144B of the Income-tax Act, 1961, while considering objections of the assessee under section 144B(4), the Inspecting Assistant Commissioner also issued certain directions purporting to be under section 144A. However, before issuing such a direction under section 144A, the assessee was heard in respect of the said matter also as provided under the proviso to section 144A(1). According to the assessee, such a direction cannot be issued under section 144A because no proceeding was then pending before the assessing authority; the power under section 144A can be invoked by the Inspecting Assistant Commissioner either on his own motion or on a reference being made to him by the Income-tax Officer or on the application of the assessee and, in such a situation, he has to call for and examine the records bf any proceeding in which assessment is pending. Therefore, according to the assessee, a proceeding will have to be pending before someone else, record of which will have to be called for by the Inspecting Assistant Commissioner for the purpose of section 144A but when the records are already before the Inspecting Assistant Commissioner, in view of the proceedings under section 144B, the question of calling for any record does not arise. Further, it was contended that, when a direction is issued under section 144B, for all practical purposes, assessment is completed even though a formal order of assessment is not made and, therefore, it is not a case of a pending assessment which is a basic requirement to invoke section 144A. These contentions were accepted by the Appellate Tribunal and hence this reference is at the instance of the Revenue.
3. The Appellate Tribunal followed an earlier decision of the same Tribunal wherein it was held that section 144B opened with a non obstanteclause and, consequently, the provisions of section 144B override other provisions of the Act. Relying upon a decision of the Delhi High Court in Sudhir Sareen v. ITO, [1981] 128 ITR 445, it was held that there was no provision fora second draft assessment order and, if a direction under section 144A could be issued, it may compel the making of another draft assessment order. In these circumstances, the assessee's contention was accepted by the Tribunal.
4. In the aforesaid Delhi High Court decision, the High Court had [no occasion to consider the invocation of section 144A at the time of making an order under section 144B. The simple question was whether the assessee could be confronted with more than one proposed draft order of assessment, each time raising the amount of assessment. The learned single judge of the Delhi High Court noted that while, under section 144A, the Inspecting Assistant Commissioner can also act suo motu, under section 144B, the jurisdiction depends upon which the reference made to him by the Income-tax Officer. However, the learned judge observed that the object of these sections appear to be to avoid multiplicity of proceedings and unnecessary appeals. The ultimate conclusion was that a second draft assessment order cannot be made.
5. In G.R Steel and Alloys Pvt. Ltd. v. CIT, [1985] 152 ITR 220, a Bench of this court had occasion to consider the provisions of section 144B wherein it was held that the provisions of section 144B were only procedural and non-compliance with the said provisions would not make the assessment ab initio void. In the said case, even though the variation in income was more than rupees one lakh, the Income-tax Officer failed to make a reference under section 144B. The Bench held that failure to comply with this procedural requirement will not render the assessment invalid.
6. In Bengal and Assam Investors Ltd. v. CIT, [1983] 142 ITR 156 (Cal), it was held that because enhancement of an assessment as a result of directions issued by the Inspecting Assistant Commissioner under section 144B(4) on items not covered by a draft assessment order, the assessment will be invalid to the extent “it was not covered by the draft”. This was strongly relied upon in support of the contention that section 144B was exclusive in operation and it was impermissible for the Inspecting Assistant Commissioner to travel beyond the subject of the draft assessment order. However, from the facts of the said case, it is seen that the Inspecting Assistant Commissioner did not exercise any power under section 144A in the said case, and the directions issued by the Inspecting Assistant Commissioner were not preceded by any hearing, in that regard, of the assessee. The relevant portion of the decision is based on the interpretation of section 144B(4) only.
7. The Kerala High Court had occasion to consider almost a similar situation in CTT v. N. Krishnan, [1988] 172 ITR 604; in respect of certain disputed items, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner under section 144B. The Inspecting Assistant Commissioner considered the objections of the assessee. The Inspecting Assistant Commissioner also recomputed the amounts regarding four items in respect of which there was no reference. However, this action was upheld by the Bench by applying section 144A under which power was exercised suo motu. The respective contentions therein were mainly based on the period of limitation prescribed by section 153 to complete the assessment. While considering the question, the Bench held at page 607:
“Since the Inspecting Assistant Commissioner has power under section 144A to issue directions either suo motu or on a reference or on an application by an assessee, he may suo motu issue directions whenever he finds it necessary to do so in regard to any matter relating to the assessment. If directions are issued by him 0:1 matters not arising from the reference, as in the present case, such directions emanate from his suo motu power under section 144A.”
8. There can be no doubt that sections 144A and 144B are procedural provisions.
9. It can be safely stated that these two provisions are procedural and part of the machinery to complete the making of an assessment order. The procedural provisions are liberally construed to smoothen the working of the machinery and to advance the object behind the said provi-sions. A technical and literal approach is not normally resorted to. The two provisions empower the Inspecting Assistant Commissioner to issue appropriate directions to the Income-tax Officer, but the basic requirement is that the assessee will have to be heard before a direction is issued. In the instant case, there is no dispute that such an opportunity was given to the assessee. If there was an omission to consider any matter by the Income-tax Officer and he fails to make a reference under section 144B and thereafter it is to be held that section 144A is not applicable, the Revenue may have thereafter to resort to the power of revising an order of assessment and it is not understandable as to why only such a procedure should be permitted. By permitting the invocation of section 144A at the time of exercising the power under section 144B, no prejudice will result to the assessee.
10. The next contention pertains to the question whether the assessment should be pending before the Income-tax Officer. The substance of section 144A is that the records of the proceedings should be available to the Inspecting Assistant Commissioner. There can be no doubt that an assessment is not complete when only a proceeding under section 144B Is pending. In fact, under section 144B, only a draft order is prepared. The assessment is to be completed only after the Inspecting Assistant Commissioner issues an appropriate direction under section 144B(4), after which the Income-tax Officer will have to complete the assessment. Similarly, under section 144A(1), the directions that may be issued by the Inspecting Assistant Commissioner is to enable the Income-tax Officer to complete the assessment. Until an assessment is completed, the proceeding for assessment will have to be treated as pending. For the reasons stated above, we cannot agree with the contention of learned counsel for the assessee and we are of the view that the provisions of section 144A can be invoked even while exercising the power under section 144B subject to the assesses being heard in the matter.
11. Consequently, the question referred to us is answered in the negative and in favour of the Revenue.
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