1997 (7) TMI 95 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order under section 144B of the Income-tax Act, 1961.
2. Jurisdiction of the Assessing Officer to estimate the share income of a partner based on a draft assessment order of the firm.
3. Extension of the period of limitation for completing the assessment.

Issue-wise Detailed Analysis:

1. Validity of the assessment order under section 144B of the Income-tax Act, 1961:

The core issue was whether the Income-tax Appellate Tribunal erred in law by holding that the assessment order passed by the Income-tax Officer for the assessment year 1975-76 on September 16, 1978, was barred by time and, as such, liable to be annulled. The Tribunal had annulled the assessment order, agreeing with the assessee's contention that the Assessing Officer could not take the assessee's share income from the partnership firm unless the assessment was completed in the case of the firm. The Tribunal held that the application of section 144B was not valid because the Assessing Officer had estimated the share income based on a draft assessment order of the firm, which was still pending.

2. Jurisdiction of the Assessing Officer to estimate the share income of a partner based on a draft assessment order of the firm:

The court examined whether the Assessing Officer had the jurisdiction to estimate the share income of the assessee from the partnership firm based on a draft assessment order of the firm. The court noted that section 144B was inserted by the Taxation Laws (Amendment) Act, 1975, and was procedural in nature. It allowed the Assessing Officer to propose any variation in the income or loss returned by the assessee, provided the variation exceeded Rs. 1,00,000. The court held that there was no legal bar in section 144B against estimating the share income of a partner. The Assessing Officer had followed the procedure under section 144B by forwarding the draft assessment order to the assessee and then to the Inspecting Assistant Commissioner, who issued directions after considering the objections.

3. Extension of the period of limitation for completing the assessment:

The assessee contended that the Assessing Officer resorted to section 144B with mala fide intentions to extend the period of limitation for completing the assessment. The court examined clause (iv) of Explanation 1 to section 153, which provided an extended period of limitation not exceeding 180 days when section 144B was invoked. The court found no substance in the assessee's charge of mala fides, noting that the Assessing Officer had a larger period of four years available under section 155(1) for recomputing the share income of a partner. The court concluded that the assessment completed on September 16, 1978, was within the extended period of limitation provided under section 144B.

Conclusion:

The court held that the exercise of jurisdiction by the Assessing Officer under section 144B was not bad in law or invalid. The application of section 144B could not be ousted due to the existence of other provisions for amending the order of assessment of the partner. The court answered the question of law in the affirmative, in favor of the Revenue and against the assessee, thereby upholding the validity of the assessment order.