Asian Industries vs Inspecting Assistant Commissioner of Income Tax and Others

Susanta Chatterjee, J.—The present rule was issued on October 7, 1977, at the instance of the writ petitioner, Asian Industries, a registered firm praying, inter alia, for issuance of a writ of mandamus commanding the respondents to cancel, withdraw and/or rescind the notices dated June 6, 1977, September 20, 1977, and September 30, 1977, issued by respondent No. 1, Inspecting Assistant Commissioner, Range-XX, Calcutta, and all proceedings u/s 144B of the Act relating to the assessment year 1975-76 and for other consequential reliefs on the ground that Section 144B of the Act in so far as it authorises the Inspecting Assistant Commissioner to give directions in matters of assessments which are binding upon the Income Tax Officer, is violative of Articles 14 and 19(1)(f) and (g) of the Constitution of India and as such is ultra vires. It is asserted that Section 144B of the Income Tax Act, in so far as it confers power upon the Inspecting Assistant Commissioner to give directions which are binding upon the Income Tax Officer in matters of assessment and in view of the further fact that no appeal lies against the said directions of the Inspecting Assistant Commissioner, the appeal provided u/s 246 of the Act against the order of assessment is rendered infructuous and the petitioner has no statutory right of appeal against such directions and in these circumstances the said provision is violative of constitutional safeguards, it is stated that respondent No. 1 has no jurisdiction and/or authority to issue the impugned notice dated September 30, 1977, with a view to include the sum of Rs. 9.5 lakhs in the draft assessment and give direction in respect thereof in view of the fact that the sum of Rs. 9.5 lakhs has not been treated as the income of the petitioner in the draft assessment forwarded to the Inspecting Assistant Commissioner nor is the said sum covered by the objections filed by the petitioner. It is alleged in detail by the writ petitioner that on January 27, 1976, the petitioner duly filed the return for the assessment year 1975-76 showing an income Of Rs. 53,036. In pursuance of the notice issued by respondent No. 2, the Income Tax Officer, ''A''-Ward, District-XI(I), one of the partners of the petitioner firm accompanied by an authorised advocate appeared before the said Income Tax Officer and produced all the books of accounts and documents which were duly examined. There was, however, a search and seizure of certain books of accounts in the month of December, 1974, conducted by the Income Tax Department and in the course of the assessment proceedings, the Income Tax Officer went through the said note book and other seized books of account. As the total income exceeded Rs. 1 lakh, respondent No. 2 forwarded to the petitioner a draft assessment order dated May 4, 1977, u/s 144B of the Act. By a letter dated May 10, 1977, the petitioner filed an objection and in the said objection, the petitioner disputed the estimated addition of Rs. 5,000 in the re-rolling account and the disallowance of sundry expenses. On September 30, 1977, the petitioner duly appeared before respondent No. 1 through the petitioner''s authorised representative when notice dated September 30, 1977, was handed over to it. It has been placed on record that, according to respondent No. 1, the cash credits recorded in the seized books roughly came to Rs. 9.5 lakhs. By the said notice, respondent No. 1 requested the petitioner to explain as to why the said amount of Rs. 9.5 lakhs should not be treated as concealed income of the petitioner. According to the petitioner, the provisions of Section 144B of the said Act are ultra vires Article 14 of the Constitution of India inasmuch as, under the said provisions, the assessee and/or persons similarly situated and similarly circumstanced have been discriminated and treated differently. Much emphasis is laid on the fact that there was no rational classification in Section 144B of the said Act and no proper guidelines have been issued thereunder for making a proper classification and for the purpose of applying the provisions of Section 144B of the said Act to a particular assessee, to a class of assessees or to a particular class of income group.

Dr. Pal, appearing for the writ petitioner, has strongly submitted that the Income Tax Officer, for the assessment year 1975-76, had made a draft order of assessment u/s 143(3) read with Section 144B of the Income Tax Act. In the said draft order, the Income Tax Officer considered the fact that, as a result of a search conducted on December 9, 1984, it appeared to him that total sales were not accounted for in the regular books of account amounting to Rs. 10,50,000. He also pointed out that, besides the said unaccounted sales, there were also cash credits of Rs. 9,66,000 credited on different dates. The Income Tax Officer called for an explanation regarding the aforesaid cash credits and the assessee gave an explanation that it had issued cheques on various dates to various parties whose names are there in the seized books and in view of the cheques, cash to the extent of Rs. 9,66,000 had been received and credited. The Inspecting Assistant Commissioner, however, issued a notice u/s 144B of the said Act to the assessee and fixed a date of hearing on June 27, 1977. The said date was alleged to have been adjourned to September 30, 1977. On the said date, the Inspecting Assistant Commissioner allegedly issued the impugned notice by which he wanted to treat the sum of Rs. 9,50,000 as the concealed income of the assessee-firm and gave a show cause notice to the assessee for this purpose.

Dr. Pal has brought to the notice of the court that, on a reading of the provisions of Section 144B, it is clear that the Inspecting Assistant Commissioner, while giving a direction u/s 144B(4) of the Act, has no competence, jurisdiction and/or authority to travel beyond the objections raised by the assessee in respect of the draft order of assessment. The Inspecting Assistant Commissioner, u/s 144B(4) of the Act, cannot issue any direction in respect of items not covered by the draft order of assessment and any such direction would be invalid to the extent it is not covered by the draft assessment order. The attention of the court has been drawn to the case in Bengal and Assam Investors Ltd. Vs. Commissioner of Income Tax, . He has also argued that even assuming though not admitting that the purported notice u/s 144B of the Act is to be treated as a notice u/s 144A of the Act, in that event it has to be considered (that it is not the case of the Revenue authorities that the notice dated September 30, 1977, has been issued u/s 144A of the Act. In fact, the letters issued by the Inspecting Assistant Commissioner on June 6, 1977, fixing the date of hearing and the subsequent letter dated September 20, 1977, adjourning the hearing to September 30, 1977, clearly show that the proceedings were taken and/or continued u/s 144B(4) of the Act. In this circumstance, it is not open to the Revenue authorities to take the plea that the purported notice dated September 30, 1977, is to be treated as one u/s 144A of the Act. Even if the said notice is taken as one for the purpose of Section 144A of the Act, it cannot have any application in the present case, in view of the fact that the Income Tax Officer has exercised his power u/s 144B of the Act and has made the draft order of assessment and has forwarded the same to the Inspecting Assistant Commissioner u/s 144B of the Act. He has argued further that, under the scheme of Section 144B of the Act, the Income Tax Officer can make one draft assessment order and send it to the Inspecting Assistant Commissioner u/s 144B of the Act with the objections raised by the assessee in respect of such draft order of assessment. He has also drawn the attention of the court to the case in Sudhir Sareen Vs. Income Tax Officer, Central Circle XVII, New Delhi and another, . According to Dr. Pal, even assuming that more than one draft order is permissible, the Inspecting Assistant Commissioner will have to hear the objections raised by the assessee in respect of the second draft order of assessment. The second draft order of assessment has been made in pursuance of the directions given by the Inspecting Assistant Commissioner u/s 144A of the Act. In such a case, the said Inspecting Assistant Commissioner who has given a direction for treating the amount of Rs. 9,50,000 as income will now hear the objection of the assessee u/s 144B(4) of the Act will be rendered into an idle formality (sic). If the same Officer has already made up his mind and has issued the direction u/s 144A of the Act is now to hear the objection regarding the draft order of assessment which has been made in pursuance of his own direction u/s 144A of the Act (sic). He has tried to explain the decision of the Kerala High Court in Commissioner of Income Tax Vs. N. Krishnan, , pointing out, inter alia, that the said decision has not considered at all as to whether, when the draft order of assessment has been made by the Income Tax Officer u/s 144B of the Act and the objections to the said draft order of assessment are before the Inspecting Assistant Commissioner for hearing u/s 144B of the Act, the assessment is not at all pending before the Income Tax Officer and hence the Inspecting Assistant Commissioner cannot exercise again his power u/s 144A of the Act. The said decision, on the other hand, has decided the question only as to whether the period of limitation prescribed u/s 153(1)(a) Xh''0 of the Act is extended by reason of Explanation l(iv) to that section as submitted. As soon as the draft order u/s 144B of the said Act is forwarded to the assessee by the Income Tax Officer, the assessment is open to be dealt with during the extended period in accordance with law. The said case has, therefore, only decided the question of limitation and the point on which the reference was made to the High Court with regard to the bar of limitation.

Mr. Prasad, appearing on behalf of the Revenue, has strongly urged that the point for consideration is that, having regard to Section 144A read with Section 144B of the Act, the Inspecting Assistant Commissioner can vary the addition as made by the Income Tax Officer while referring the case u/s 144B of the Act. It is submitted that the provision of Section 144B and Section 144A are complementary to each other and not mutually exclusive. Having regard to Section 144B(4) of the Act, it will appear that a correct view would be that enhancement of the assessment as a result of a direction issued by the Inspecting Assistant Commissioner u/s 144B of the Act on the terms not covered by the draft assessment order would be invalid to the extent it was not covered by the draft order.

It is placed on record that where the action of the Income Tax Officer is prejudicial to the interests of the Revenue, the Inspecting Assistant Commissioner can certainly invoke Section 144A of the Act inasmuch as Section 144A lays down that the Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income Tax Officer,. .. call for and examine the records of the proceedings in which the assessment is pending. In this case, as soon as the Inspecting Assistant Commissioner examined the records of the proceedings in which the assessment was pending, the assessee came to the writ court. The assessee could have agitated the competence of the Inspecting Assistant Commissioner in the proper forum. The attention of the court has been drawn to the decision of the Supreme Court in L. Hazari Mal Kuthiala Vs. The Income Tax Officer, Special Circle, Ambala Cantt., . In that case, the Supreme Court held that the exercise of a power would be referable to the jurisdiction which confers validity upon it and not to a jurisdiction under which it would be nugatory. It is traced that this principle has been followed from the decision in Pitamber Vajirshet v. Dhondu Navlapa ILR [1887] 12 Bom 486. Much emphasis has been made on the decision of the Kerala High Court in Commissioner of Income Tax Vs. N. Krishnan, . It is pointed out that, in that case, the Income Tax Officer, in exercise of his power u/s 144B proposing to make a variation in the income returned by the assessee for the previous year in regard to certain items, forwarded the draft order to the assessee calling for his objections. In regard to four of the items on which variation was proposed to be made, the Income Tax Officer accepted the suggestions of the assessee. In regard to other items, the Income Tax Officer forwarded the draft order and the objections of the assessee to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner, after considering the objection of the assessee, recomputed the amounts in regard to the four items on which the Income Tax Officer originally accepted the submissions of the assessee. The Hon''ble High Court of Kerala held that the recomputation of the amount by the Inspecting Assistant Commissioner, whether or not with the concurrence of the assessee on items not arising from the reference, was a perfectly valid exercise of power in terms of Section 144A(1) of the Act.

Having heard the learned lawyers for the petitioner and for the Revenue, it appears to this court that Section 144B of the Income Tax Act has since been deleted from the statute. A question was considered by this court whether, even in the absence of Section 144B of the Act, the provisions of Section 144 of the Act can be construed in such a way that the Inspecting Assistant Commissioner can exercise his power u/s 144(1) of the Act to issue the impugned notices. By looking to Sections 144A and also 144B of the Act, it transpires that if the situation arises while the matter is pending before the Income Tax Officer, the Inspecting Assistant Commissioner may, suo motu on his own motion or by way of reference, initiate proceedings for issuing the notice or notices but where the case has been disposed by the Income Tax Officer and a draft order proposed, the Inspecting Assistant Commissioner can initiate any proceedings beyond the draft order and the steps taken in this case is whether wanted or not.

Looking in between the lines, this court has found that no steps have been taken by the Inspecting Assistant Commissioner as envisaged and/or contemplated u/s 144A of the Act. While considering the draft order, the Inspecting Assistant Commissioner cannot, of his own motion, issue the notice and initiate proceedings in the manner as dore in the instant case. This court finds merit in the submission of Dr. Pal in this behalf.

For the foregoing reasons, this writ petition is allowed and the rule is made absolute to the extent that the impugned notices are quashed but this order will not prevent the Revenue authorities from initiating any other appropriate legal proceedings in accordance with law by giving opportunities to the petitioner and to adjudicate on the same and the question of limitation will not be a bar since the writ petition is pending from 1977 and there cannot be any prejudice to the rights of the Revenue due to delay in disposal of the case. There will be no order as to costs.