1982 (6) TMI 10 - HC - Income Tax

Summary

Issues:
1. Competency of the Commissioner of Income-tax to set aside assessment for non-compliance with section 144B of the Income-tax Act, 1961.
2. Whether the assessment order passed by the Income-tax Officer was prejudicial to the interest of the Revenue.

Analysis:
The High Court of Madhya Pradesh addressed two key issues in this judgment. Firstly, the court examined the competence of the Commissioner of Income-tax to set aside an assessment due to non-compliance with section 144B of the Income-tax Act, 1961. The court highlighted that section 144B mandates a specific procedure when the variation in income or loss exceeds one lakh rupees. It requires the issuance of a draft order to the assessee, allowing them to raise objections before finalizing the assessment. In this case, the Income-tax Officer (ITO) failed to follow this procedure, issuing a final order instead of a draft order. However, since the assessee accepted the assessment without objection, the court concluded that the failure to issue a draft order did not prejudice the Revenue's interest. The court emphasized that the procedure under section 144B primarily benefits the assessee by providing an opportunity to raise objections before final assessment.

Secondly, the court examined whether the assessment order passed by the ITO was prejudicial to the interest of the Revenue. The Commissioner, under section 263 of the Act, revised the ITO's order, deeming it prejudicial to the Revenue's interest. However, the Tribunal overturned the Commissioner's decision, stating that since the assessee accepted the assessment and did not appeal, the order was not prejudicial to the Revenue. The court agreed with the Tribunal's reasoning, emphasizing that in cases where the assessee accepts the assessment, even if the procedure under section 144B is not strictly followed, it does not result in prejudice to the Revenue.

In conclusion, the High Court ruled that the Commissioner of Income-tax was not competent to set aside the assessment due to non-compliance with section 144B. Additionally, the court upheld the Tribunal's decision that the assessment order passed by the ITO was not prejudicial to the interest of the Revenue. The judgment provides clarity on the application of procedural requirements under the Income-tax Act and the impact of assessee acceptance on the assessment process.