1982 (3) TMI 103 - AT - Income Tax

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 144B of the Income-tax Act, 1961.
2. Whether the draft order must be served on the assessee within the period of limitation.
3. Whether the Income Tax Officer (ITO) was required to forward the assessee's objections to the Inspecting Assistant Commissioner (IAC) despite being received out of time.
4. Whether the ITO should have heard the assessee before treating the objections as time-barred.

Issue-wise Detailed Analysis:

1. Validity of the assessment order under section 143(3) read with section 144B of the Income-tax Act, 1961:
The appeal concerns the assessment year 1977-78, where the ITO proposed a variation in the income exceeding Rs. 1 lakh, invoking section 144B. The ITO finalized and despatched the draft assessment order on 28-3-1980, which the assessee received on 2-4-1980. The assessee filed objections on 11-4-1980, beyond the seven-day period prescribed by section 144B(2). The ITO ignored these objections and completed the assessment on 19-4-1980 under section 144B(3). The Commissioner (Appeals) annulled the assessment, deeming it time-barred as the draft order was served after the two-year period prescribed by section 153. The department contended that despatch within the two-year period suffices.

2. Whether the draft order must be served on the assessee within the period of limitation:
The core issue is whether "forwarding" the draft order within the two-year period suffices or whether it must be "served" within this period. The assessee argued that "forward" means "serve," citing rulings where "issued" was interpreted as "served." The department relied on the Punjab and Haryana High Court ruling in Jai Hanuman Trading Co. (P.) Ltd. v. CIT, which held that "issued" should be given its natural meaning, i.e., "despatched," not "served." The Tribunal preferred this interpretation, holding that "forward" means "despatched" and not "served."

3. Whether the Income Tax Officer (ITO) was required to forward the assessee's objections to the Inspecting Assistant Commissioner (IAC) despite being received out of time:
The assessee contended that the ITO should have forwarded the objections to the IAC even if received late, arguing that section 144B(4) does not specify that objections must be timely. The Tribunal rejected this, stating that sections 144B(3) and 144B(4) must be read together. Sub-section (4) applies only when objections are received within the prescribed time. Accepting late objections would render sub-section (3) ineffective and create uncertainty and discrimination.

4. Whether the ITO should have heard the assessee before treating the objections as time-barred:
The assessee argued that the ITO should have heard them before deeming the objections time-barred. The Tribunal overruled this, noting that the records showed the draft order was served on 2-4-1980, and the objections were indeed out of time. Therefore, it was not necessary for the ITO to hear the assessee on this aspect.

Conclusion:
The Tribunal set aside the Commissioner (Appeals)'s order, holding that the ITO correctly treated the objections as time-barred and completed the assessment within the permissible period by excluding 30 days as provided under section 153. The matter was remanded to the Commissioner (Appeals) to address any remaining grounds in the appeal. The appeal was allowed for statistical purposes.

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