Income-tax Reference No. 295 of 1980

Decided on May 11, 1982

The Judgment of the Court was delivered by

Sabyasachi Mukharji, J.:— In this reference under s. 256(1) of the I.T Act, 1961, for the assessment year 1974-75, the following questions have been referred to us:

“(1) Whether, on the facts and in the circumstances of the case, the amount of Rs. 44,937 credited in the printed accounts as the miscellaneous income of the assessee was rightly subjected to tax as the income of the assessee during the assessment year in question?

(ii) Whether the amount of Rs. 6,077 incurred by the assessee in connection with the proposed amalgamation with another company, which never took place, was of a capital nature and could not be allowed as a revenue deduction?

(iii) Whether because of the enhancement of assessment as a result of directions issued by the Inspecting Assistant Commissioner under section 144B(4) on items not covered by the draft assessment order, the assessment became altogether invalid, even though the impugned enhancement had been deleted on appeal by the Commissioner of Income-tax (Appeals)?”

2. It appears that the assessee filed a return disclosing income of Rs. 4,70,830. The ITO forwarded a draft order under s. 144B(1) of the I.T Act proposing assessment on a total income of Rs. 5,75,656. On receipt of directions, the assessment was completed on an income of Rs. 6,61,561, because while the ITO proposed to allow a deduction of Rs. 3,51,105 under s. 80M the same was reduced to Rs. 2,65,300 under the directions of the IAC, though this matter was not the subject-matter of reference to him. We shall deal with this aspect of the matter a little later. So far as the first question is concerned, it would be necessary to refer to certain basic facts. It appears that though the amount of Rs. 44,937 was credited in the printed accounts as miscellaneous income, it was sought to be claimed that such sum should not be considered as part of the assessee's total income, because this represented surplus of credit balance in the insurance premium account and was not part of its commission accruing on account of business in insurance agency. The assessee acted as an insurance agent for general insurance for the J.K Group of companies. Over the years, there appeared to have been certain credits, if the account copy furnished for this year was any basis, mostly in the names of National Insurance Co. and Hindusthan Commercial Bank, which had then ceased as claims of dues by the said companies. These two were also formerly of the J.K Group. After their integration due to nationalisation, there was hardly any doubt that these sums shown to the credit, when the return of the year came, had become the property of the assessee, according to the ITO. The assessee's explanation regarding the actual transactions providing the source of these credits was somewhat garbled and vague. The ITO was of the view that if these sums were in fact a spill-over of reimbursements received from its constituents, because the liability of such constituents to pay premia were undertaken in a timely manner by the assessee itself, such sums ought to be in every sense the income of the assessee-company. The ITO further held that the problem got somewhat complicated because strict accounting for this as well as other transactions between the assessee, its constituents and the insurance companies at best could be termed as expedient, considering that they all belonged to the same group. In the opinion of the ITO, the assessee was trying to make out a case where none existed and the amount was rightly taken in the account as income.

3. On this point, there was an appeal before the Commissioner of Income-tax (Appeals). He held as follows 1

“In these grounds, the assessee disputes the ITO's action in including Rs. 44,937 credited in the profit & loss account as miscellaneous income. In course of the general insurance agency business the assessee collects sums on account of insurance premium from his clients and pay the same to the insurance companies. In the process of rendering this service to the clients, the assessee collected some excess amounts from his clients over the years, which, for various reasons, were neither paid to the insurance companies nor refunded to the clients. The clients also did not claim these excess amounts back. Such unclaimed amount stood at Rs. 39,887 as on 1st July, 1972 (beginning of the previous year) and at Rs. 44,937 on 30th June, 1973 (end of the previous year) when the same was transferred to the credit of the profit & loss account as miscellaneous income. The assessee argues that he did not receive the insurance premium as a trading receipt. That the amount represented liability to the clients which remained unclaimed for years and this liability has been adjusted in accounts this year. That the amount is not taxable as income. The assessee cites the case of Morley v. Tattersall, [1938] 22 TC 51; [1939] 7 ITR 316 (CA), and says that a receipt which is not in the first instance a trading receipt cannot become a trading receipt by any subsequent process.

I do not agree with the assessee. The sums which were being regularly collected from the clients in course of the business were certainly in the nature of trading receipts. It has been held by the Allahabad High Court in the case of Pioneer Consolidated Company of India Ltd., [1976] 104 ITR 686, that even unclaimed deposits from customers, when treated as income and transferred to the profit & loss account by the assessee, was rightly assessed as income by the ITO. The assessee has shown the unclaimed balance of Rs. 44,937 as income without any qualification in his profit & loss account. Under the circumstances, and in the light of the above discussion, I uphold the ITO's action.”

4. From this, there was a further appeal before the Tribunal. On this aspect of the matter the Tribunal, after referring to the relevant authorities, which were cited before the Tribunal, observed, inter alia, as follows:—

“In the present case insurance was the business of the assessee. No doubt the amounts were received from the constituents for payment of premium but the savings were more due to the vigilance of the assessee to pay the same within a prescribed period. In this behalf, the Allahabad High Court had an occasion to consider this question and came to a similar conclusion even earlier in [1972] 85 ITR 410, and somewhat similar is the decision of the Hon'ble Supreme Court of India in V.S.S.V Meenakshi Achi v. Commissioner Of Income Tax, Madras, [1966] 60 ITR 253, where the amounts received by the assessee were earmarked on the basis of the rubber produced by them although they related to cesses collected under the Rubber Industry (Replanting) Fund Ordinance, 1952. There is another distinguishing feature in our mind. In the Calcutta High Court case the assessee was a firm of solicitors and the amount was directly apportioned by the partners in their profit-sharing ratio. They could be individually held liable to their clients even though the ordinary period for recovery of some of the amounts may have expired. Here the assessee is a limited concern, nobody would be individually liable for the excess amounts retained by the assessee and there can be no dispute that these amounts were transferred to the profit and loss account of the assessee. The general principle of law is that even an illegal income which has been pocketed by an assessee can be brought to tax and it is not the case of the assessee that the amounts may have to be refunded to the clients at any later period of time. In view of all these circumstances we are of the opinion that there is no ground for interference with the conclusion arrived at by the Commissioner (Appeals).”

5. And thus the Tribunal upheld the order of the Commissioner (Appeals).

6. Upon this, the first question has been referred to us. In order to determine the essential point involved in the first question, it is necessary to determine that when the income of the amount-in-question was received by the assessee, in what character the amount was received. Did the assessee receive the amount as an income or as a trading receipt? For the purpose of taxation the taxable event occurs on the occasion of the receipt of the money by the assessee. Now, in this case, as we have seen, the assessee was an agent of the insurance company. Indeed, on behalf of the Revenue our attention was drawn to s: 2(10) of the Insurance Act, which stated that “insurance agent” meant an insurance agent licensed under s. 42 of the said Act who received or agreed to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance. If the premium or premia were paid in time, rebates are allowed for such prompt or timely payment. Now, this rebate belonged to the person in whose favour the premium is paid. Therefore, when the assessee who was the agent on behalf of the insurance policyholder was receiving the premium, he was receiving it as an agent for and on account of the principal, the policyholder. He was liable to return the same. The insurance agent, obviously the assessee in this case, did not do so. But the fact that neither the policy-holder nor the insurance company took any step against the assessee, did not indicate that this amount was given as remuneration for any prompt action taken by the agent. Indeed, we have set out in detail the findings of the different authorities and none of the authorities has found this as a fact. The fact that the assessee in the year of receipt of the sum did not treat it as its own income indicated that at the time of the receipt of the income it was not the income of the assessee. There was a fiduciary relationship between the agent and the principal. The insurance agent received the amount of rebate on behalf of an agent of the principal. The taxability must be determined on the nature of the receipt, in what capacity was the amount received, was it received as a trading receipt or income of the assessee? The subsequent writing off or subsequent conduct or subsequent entry in the books of account will not affect the position, in our opinion. This principle is well settled and recognised. Reference, in this connection, may be made to the observations of the Court of Appeal in Morley v. Tatersall, [1938] 22 TC 51, at p. 65; [1939] 7 ITR 316, 322, Sir Wilfrid Greene, M.R, observed as follows;

“Now the Crown put forward two arguments. The learned Solicitor-General put forward one argument and adumbrated another argument, which he only sketched and did not develop. Mr. Hills would have none of the Solicitor-General's argument and developed at considerable length the argument which the learned Solicitor-General had only adumbrated. Both arguments proceeded on the footing that it was impossible to say that the sums when received were trade receipts. That was subject to a qualification, I think, in the Solicitor-General's argument, as will appear when I come to describe it. It might, I think, be more convenient to deal with Mr. Hills' argument first, because that is the one which starts off with this perfectly clear admission, that the money when received from the purchasers was not a trade receipt. That proposition, I should have thought, in any case, was quite incontestable. The money which was received was money which had not got any profit-making quality about it; it was money which, in a business sense, was the client's money and nobody else's. It was money for which they were liable to account to the client, and the fact that they paid it into their own account, as they clearly did, and the fact that it remained among their assets until paid out do not alter that circumstance. It would have been for Income Tax purposes, in my judgment, entirely improper to have brought those receipts into the account at all for the purpose of ascertaining the balance of profits and gains. Indeed, as I have said, the Crown did not suggest that that would have been proper. But what was said was this: Mr. Hills' argument was to the effect that, although they were not trading receipts at the moment of receipt, they had at that moment the potentiality of becoming trading receipts. That proposition involves a view of Income Tax law in which I can discover no merit except that of novelty. I invited Mr. Hills to point to any authority which in any way supported the proposition that a receipt which at the time of its receipt was not a trading receipt could by some subsequent operation ex post facto be turned into a trading receipt, not, be it observed, as at the date of receipt, but as at the date of the subsequent operation. It seems to me, with all respect to that argument, that it is based on a complete misapprehension of what is meant by a trading receipt in Income Tax law. No case has been cited to us in which anything like that proposition appears. It seems to me that the quality and nature of a receipt for Income Tax purposes is fixed once and for all when it is received. What the partners did in this case, as I have said, was to decide among themselves that what they had previously regarded as a liability of the firm they would not, for practical reasons, regard as a liability; but that does not mean that at that moment they received something, nor does it mean that at that moment they imprinted upon some existing asset a quality different from what it had possessed before. There was no existing asset at all at that time. All that they did, as I have already pointed out, was to write down a liability item in their balance sheet, and how in the world by effecting that operation you can be said to have converted a sum received years and years ago into something which it never was is a thing which, with all respect, passes my comprehension.”

7. Relying on the aforesaid observation, this principle was accepted by this court in the case of CIT v. Sandersons and Morgans, [1970] 75 ITR 433. In that case, in its profit and loss account, the assessee in the said reported decision, a firm of solicitors, had credited a sum of Rs. 4,078, representing the aggregate of the unclaimed balances in as many as 83 personal ledger accounts of the assessee's clients, who had advanced money to them in connection with cases entrusted with the assessee some years back. Even after final adjustments of bills, small balances continued to be carried forward from year to year till December 31, 1956, when the assessee thought of closing the accounts of the clients and transferred the balances to the profit and loss account. This amount of Rs. 4,078 was ultimately apportioned as between the partners of the assessee in their respective profit-sharing ratio. The ITO added the said amount to the total assessable income of the assessee for the assessment year 1957-58 as being in the nature of professional income. On appeal, the AAC deleted the sum of Rs. 4,078 from the total income of the assessee, accepting the assessee's contention that the relationship between solicitors and clients was the relationship between a trustee and a beneficiary and since the Limitation Act did not apply in the matter of recovery of amount deposited by clients, the liability of the assessee continued in spite of the fact that certain unclaimed balances had been written off and transferred to the profit and loss account. On further appeal by the Revenue, the Tribunal held that the unclaimed balance in the clients' accounts were “obviously liabilities” of the asses-see-firm when first received and no subsequent operations could turn them into “professional receipts”, and dismissed the appeal. On a reference to this High Court, it was held that the sum of Rs. 4,078 was not revenue receipt liable to income-tax. When a solicitor received money from his client, he did not do so as a trading receipt, but he received the money of the principal in his capacity as an agent and that also in a fiduciary capacity. The money thus received did not have any profit-making quality about it when received. It remained money received by a solicitor as “client's money” for being employed in the client's cause. The solicitor remained liable to account for this money to his client. The fact that the money was paid to the solicitor by a client would not make any difference, if initially the money was not received as trade receipt. It was further observed that even though the remedy of some of the clients might have become barred by limitation, the barred debt did not become an income of the assessee and could not be taxed under the I.T Act. Reliance was placed on the aforesaid observations of Sir Wilfrid Greene M.R, which we have set out hereinbefore. In the said decision, this High Court noted the decision of the Supreme Court in the case of Punjab Distilling Industries Ltd. v. CIT, [1959] 35 ITR 519, and expressed the view that the principles laid down by the Supreme Court could not be applied to the facts of this nature, because the Supreme Court was concerned with the situation where the receipt was the price of the bottles, which price was included in the security deposit. There only remained a contingency for which a part of the price was to be returned to the wholesalers. Such a situation was different from the situation where the assessee received the amount for and on behalf of another in the fiduciary capacity, as in the instant case before us.

8. This principle was followed in a subsequent decision of the Calcutta High Court in the case of CIT v. Karam Chand Thapar & Bros, (Coal Sales) Ltd., [1979] 117 ITR 621, and also by the Allahabad High Court in the case of Bijli Cotton Mills (P.) Ltd. v. CIT, [1971] 81 ITR 400. The Tribunal had relied on a certain decision of the Delhi High Court in the case of Commissioner Of Income-Tax…Petitioner v. M/S. Motor & General Finance Ltd.…, [1974] 94 ITR 582. But that decision, in our opinion, would not be of much relevance to the present controversy.

9. Reliance was placed by the Tribunal on certain observations of the Supreme Court in the case of V.S.S.V Meenakshi Achi v. CIT, [1966] 60 ITR 253. There, the assessees had owned rubber plantations in the Federated Malay States outside Penang. Out of a fund into which cesses collected under the Rubber Industry (Replanting) Fund Ordinance, 1952, on rubber produced in Penang and rubber exported from the Federation other than Penang, were paid, proportionate parts of the cesses so collected, after defraying expenses, were credited to the accounts of the assessees, corresponding to the amount of rubber produced by them, and payments were made to the assessees from the amounts so credited against expenditure incurred on the maintenance of the plantations. It was held that as the amounts from the fund earmarked for the assessees on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantations and producing the rubber, the amounts received by the assessees were revenue receipts and, therefore, liable to be included in their assessable income. There, as the narration of the facts would indicate, there was no question involved like the present one with which we are concerned, viz., when an agent received an amount on behalf of the principal in a fiduciary capacity for and on account of the principal. In such a case, the subsequent treatment in the subsequent year by the agent of the amounts so received as his income unilaterally would not transform what was not received as revenue receipt to be an income or a trading receipt. In any event, this could not be receipt in the year-in-question.

10. Reliance, however, had been placed by the Tribunal on certain observations of the Allahabad High Court in the case of Pioneer Consolidated Co. of India Ltd. v. CIT, [1972] 85 ITR 410. There it was held that money due by the assessee-company to its constituents, not claimed by them, and transferred to the profit and loss account of the assessee-company was income of the assessee in the accounting year in which it was so transferred. We are not concerned with the rest of the observations in the said decision. We are unable, however, to accept this as a principle. It appears that the attention of the Allahabad High Court in this decision was not drawn to the previous decision of the Allahabad High Court in the case of Bijli Cotton Mills (P.) Ltd. v. CIT, [1971] 81 ITR 400, relying on the decision in the case of Pioneer Consolidated Co. of India Ltd. v. CIT, [1972] 85 ITR 410 (All). The Allahabad High Court in the subsequent decision in the case of Pioneer Consolidated Co. of India Ltd. v. CIT, [1976] 104 ITR 686, held that though the amount was not income when it was realised, when it was not claimed by the customers and the assessee chose to treat the items as its income it could not be said that the I.T authorities had committed an error in accepting the statement of the assessee. This view however, in our opinion, with great respect, we cannot accept. The way the assessee treats an income is quite irrelevant because the nature of the receipt must be judged on the true nature of the receipt, not how the parties treated it. This principle is well settled and it has recently been so held by the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT, [1979] 116 ITR 1, at page 5 where it is observed as follows:

“But it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The asses see may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Here, it is clear that the assessee earned Rs. 36 lakhs……”

11. In the case of CIT v. Planters Co. (P.) Ltd., [1980] 123 ITR 648, where the Madras High Court observed that the income was liable to be taxed on the basis of its accruing or arising to the assessee on its receipt by the assessee during the relevant previous year. The accrual or arising of the income is generally dependent on the method of accounting employed by the assessee. There the sales tax collected by the assessee on its sales of tea during the years 1956 to 1959 was credited to a “sales tax reserve account” and payments of sales tax were debited to the account. The excess which was kept in the said account between June 30, 1960, and June 30, 1969, was credited to the profit and loss account as on June 30, 1970. The ITO assessed this sum as the income of the assessment year 1971-72. This was confirmed by the AAC. The Tribunal, however, held that since the excess sales tax realised related to the assessment years 1954-55 to 1958-59, it could constitute its trading receipt only for those years and hence could be assessed in those years and not in 1971-72. On a reference it was held that the sales tax collected was a trading receipt of the year in which it was received. The fact that it was credited to a separate account did not in any manner affect its quality or character as a trading receipt. Once the quality of its receipt was determained, it would have to be assessed only in the year in which it was collected. The assessee would be entitled to claim deduction for the amount paid as sales tax and the deduction would have to be allowed in the year in which the liability was created or the amount paid to the sales tax authorities, as the case may be. The Madras High Court followed a decision of the Court of Appeal in Morley (Inspector of Taxes) v. Tattersall, [1938] 22 TC 51; [1939] 7 ITR 316 referred to hereinbefore.

12. In the view of the facts found by the several authorities below, in our opinion, the Tribunal was in error in coming to the conclusion on this aspect of the matter and question No. 1 must be answered in the negative and in favour of the assessee.

13. This brings to the second question which is about the deductibility of Rs. 6,077 incurred by the assessee in connection with the purposed amalgamation. It appears that the law charges, being the amount to seek advices in the matter of granting this Rs. 6,077, was disallowed by the ITO. The Commissioner (Appeals), however, observed that these expenses were incurred in connection with the proposed amalgamation of the assessee-company with another concern, Madhya Pradesh Industries Ltd. The whole scheme of amalgamation was, however, dropped. The Commissioner was of the view that the legal expenses had nothing to do with the carrying on of the present business of the assessee. They were, according to the Commissioner (Appeals) in the nature of non-business capital expenses. Therefore, he upheld the ITO's view on this aspect of the matter. The Tribunal observed as follows:

“In the present case insurance was the business of the assessee. No doubt the amounts were received from constituents for payment of premium but the savings were more due to the vigilance of the assessee to pay the same within a prescribed period. In this behalf, the Allahabad High Court had an occasion to consider this question and came to a similar conclusion even earlier in [1972] 85 ITR 410 and somewhat similar is the decision of the Hon'ble Supreme Court of India in V.S.S.V Meenakshi Achi v. Commissioner Of Income Tax, Madras, [1966] 60 ITR 253, where the amounts received by the assessee were earmarked on the basis of the rubber produced by them although they related to cesses collected under the Rubber Industry (Replanting) Fund Ordinance, 1952. There is another distinguishing feature in our mind. In the Calcutta High Court case, the assessee was a firm of solicitors and the amount was directly apportioned by the partners in their profit sharing ratio. They could be individually held liable to their clients even though the ordinary period for recovery of some of the amounts may have expired. Here the assessee is a limited concern, nobody would be individually liable for the excess amounts retained by the assessee and there can be no dispute that these amounts were transferred to the profit and loss account of the assessee. The general principle of law is that even an illegal income which has been pocketed by an assessee can be brought to tax and it is not the case of the assessee that the amounts may have to be refunded to the clients at any later period of time. In view of all these circumstances we are of the opinion that there is no ground for interference with the conclusion arrived at by the Commissioner (Appeals).”

14. In this connection our attention was drawn to the decision of Modi Spinning and Weaving Mills Ltd., [1973] 89 ITR 304 (All) and Elphinstone Spinning and Weaving Mills Co. Ltd., [1975] 100 ITR 139 (Bom). These decisions deal with the purpose of the alterations of the memorandum and articles of association. In the case of CIT v. Modi Spg. & Wvg. Mills Co. Ltd., it was held that certain amount paid to a lawyer for advising a company on amendments to the articles of association and for drafting a special resolution so that the articles could be amended to bring them into accord with changes brought about in the law relating to companies was an allowable expenditure under s. 10(2)(xv) of the Act as it was incurred in order that the company should continue to function in accordance with law and was not capital expenditure. Similarly, in the case of CIT v. Elphinstone Spinning & Weaving Mills Co. Ltd., [1975] 100 ITR 139, it was held by the Division Bench of the Bombay High Court that the amount expended by a company for making alterations in its memorandum and articles of association in order to bring them into accord with changes brought about in the law relating to companies was expenditure incurred by the assessee solely and exclusively for the purpose of its business. It was incurred in order that the company should continue to function in accordance with law. It was allowable as a deduction. Where the alteration of the articles of amalgamation succeeds different considerations would apply. Such expenditure, in appropriate cases, may be considered as facilitating the carrying on of the business.

15. On behalf of the Revenue our attention was also drawn to the observation of the Supreme Court in the case of CIT v. Delhi Safe Deposit Co. Ltd., [1982] 133 ITR 756. Where the Supreme Court observed that the true test whether an expenditure was laid out wholly and exclusively for the purposes of trade or business was that it was incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. The expenditure incurred on the preservation of a profit earning asset of a business was always a deductible expenditure.

16. It is also necessary to reiterate that whether the expenditure yielded any result or proved abortive is not always a determinative factor. What is determinative of the question is the object and purpose of incurring the expenditure. Any expenditure which facilitates only the business to go on more profitably or to make earning of the profit would undoubtedly be a revenue expenditure. But the difficulty arises where the expenditure, apart from yielding profit, brings in an asset of an enduring nature or makes such basic alterations in the profit earning structure of the company or the very structure of the company that could be considered to be bringing into existence an asset of an enduring nature. The purpose and object irrespective of whether it succeeded or not in the instant case appears to us was to alter the framework of the structure under which the assessee was carrying on the business. If that is the true purpose of incurring the expenditure, then in our opinion, it would have affected the very structure of the profit earning machinery and it should, therefore, be considered as an expenditure on the capital side. In that view of the matter we are of the opinion that the Tribunal came to the correct conclusion on this aspect of the matter. Question No. 2 must, therefore, be answered in the affirmative, but we make it clear that this is irrespective of whether the amalgamation took place or not. This question is answered in favour of the Revenue. On the next question the Tribunal observed as follows:

“In this case although the difference between the return and the proposed assessment figure was more than Rs. 1 lakh and the assessment order had been passed on 25th February, 1976, i.e, after coming into force of the provisions of section 144B, it was held by the A AC that the assessment proceedings had been validly initiated and there was no illegality or invalidity at this stage. He had, therefore, set aside the order of the ITO and directed him to pass a fresh order. The assessee had come in appeal before this Bench and the Bench (to which one of us was a party held) that the irregularity had supervened after valid assessment proceedings had been initiated. The order of the AAC was, therefore, upheld. In the present case whatever be the defects in the original assessment, the grievance of the assessee has already been removed by the CIT (Appeals) and, therefore, the directions of the IAC even if they are held to be contrary to law have not prejudiced the assessee in any manner whatever. We may also refer to the provisions of section 292B as introduced from 1st of October, 1975, according to which no return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. Since after the effect of the CIT's order, the net result is in conformity with and according to the intent and purpose of the Income-tax Act, we are not inclined to interfere with the said order. This ground, therefore, fails.”

17. Having regard to the provisions of s. 144B(4) it appears to us that the correct view would be that the enhancement of the assessment as a result of the direction issued by the IAC under s. 144B(4) on the items not covered by the draft assessment order would be invalid to the extent “it was not covered by the draft”. In the facts and circumstances of the case, the fact that it was deleted on appeal by the Commissioner is quite irrelevant. We answer the question accordingly. In the facts and circumstances of this case, the parties will pay and bear its own costs.

Suhas Chandra Sen, J.:— I agree.