1989 (9) TMI 390 - HC - Income Tax

Summary

Issues Involved:
1. Legal bar on the Income-tax Officer (ITO) to send a second draft assessment order.
2. Authority of the Inspecting Assistant Commissioner (IAC) to issue a second set of directions.
3. Jurisdiction of the ITO to make a second draft assessment and complete the assessment on that basis.

Issue-wise Detailed Analysis:

1. Legal Bar on the ITO to Send a Second Draft Assessment Order:
The Tribunal referred the question of whether there is a legal bar for the ITO to send a second draft assessment order under section 144B of the Income-tax Act, 1961. The facts of the case reveal that the ITO initially sent a draft assessment order to the assessee, who raised objections. The ITO forwarded the draft order and objections to the IAC, who approved certain additions. Subsequently, the ITO discovered new entries in the deceased assessee's diary, leading to a second draft assessment order, which was again forwarded to the IAC. The legal heirs of the deceased-assessee contended that the ITO had no authority to issue a second draft order after receiving the first set of directions from the IAC.

2. Authority of the IAC to Issue a Second Set of Directions:
The Commissioner (Appeals) held that section 144B does not preclude the IAC from issuing more than one set of directions. The section states that the directions of the IAC shall be binding on the ITO, but it does not limit the IAC to a single set of directions. The Tribunal upheld this view, stating that the ITO is not precluded from submitting more than one draft order within the period of limitation fixed under section 153.

3. Jurisdiction of the ITO to Make a Second Draft Assessment and Complete the Assessment on That Basis:
The Tribunal examined whether the ITO became functus officio after issuing the first draft order and receiving directions from the IAC. The Tribunal concluded that section 144B is a procedural step in completing the assessment under section 143(3). The ITO does not become functus officio after forwarding the draft order to the IAC. If new material relevant to the assessment is discovered, the ITO is entitled to rely on it and, if necessary, issue a second draft order. The Tribunal noted that ignoring new material would prevent the ITO from reopening the case under section 147 or rectifying the assessment under section 154.

Conclusion:
The Tribunal found that the ITO acted within his jurisdiction by issuing a second draft assessment order and forwarding it to the IAC for directions. The Tribunal disagreed with the Delhi High Court's decision in Sudhir Sareen v. ITO, which held that the ITO could issue only one draft order under section 144B. The Tribunal emphasized that the ITO retains the authority to make further enquiries and discoveries until the final assessment order is passed. Consequently, the question was answered in the negative and in favor of the revenue, affirming the ITO's power to issue a second draft assessment order and the IAC's authority to issue a second set of directions.

Judgment:
The question referred to the Tribunal was answered in the negative and in favor of the revenue. The Tribunal held that there is no legal bar for the ITO to send a second draft assessment order and for the IAC to issue a second set of directions. The ITO retains jurisdiction to make a second draft assessment and complete the assessment on that basis. There was no order as to costs.