1983 (4) TMI 73 - AT - Income Tax

Issues Involved:
1. Applicability and compliance with Section 144B of the Income Tax Act, 1961.
2. Validity of the assessment order without following the procedure laid down in Section 144B.
3. Whether non-compliance with mandatory procedural provisions results in nullity or irregularity.
4. Jurisdiction and powers of the Income Tax Officer (ITO) and Inspecting Assistant Commissioner (IAC) under Sections 144A and 144B.
5. Appropriate remedies and directions in cases of procedural non-compliance.

Issue-wise Detailed Analysis:

1. Applicability and Compliance with Section 144B of the Income Tax Act, 1961:

The provisions of Section 144B(1) were applicable in this case, as the variation between the assessed income and the income returned exceeded the amount fixed by the CBDT. The ITO should have completed the assessment after following the procedure laid down in Section 144B. The Department argued that the omission to follow this procedure was a curable procedural defect, while the assessee contended that the provisions of Section 144B were mandatory, making the assessment null and void if not followed.

2. Validity of the Assessment Order Without Following the Procedure Laid Down in Section 144B:

The Tribunal noted that Section 144B is a procedural section, but its provisions are mandatory. If an assessment is completed without following the procedure laid down in Section 144B, the assessment will not be valid. The Tribunal cited various High Court and Supreme Court decisions to support this view, emphasizing that the jurisdiction to make an assessment remains with the ITO, who must forward a draft of the proposed assessment order if the variation exceeds Rs. 1,00,000.

3. Whether Non-compliance with Mandatory Procedural Provisions Results in Nullity or Irregularity:

The Tribunal examined several cases to determine whether non-compliance with mandatory procedural provisions results in nullity or merely an irregularity. The Madhya Pradesh High Court decisions in Banarsidas Bhanot & Sons vs. CIT and H.H. Maharaja Raja Pawar Dewas vs. CIT were cited, which held that non-compliance with Section 144B is a procedural irregularity that can be cured by remanding the proceedings to the ITO. The Tribunal also considered other High Court decisions and concluded that non-compliance with procedural provisions, even if mandatory, does not make the order a nullity but requires the order to be set aside and a fresh order to be passed after curing the defect.

4. Jurisdiction and Powers of the Income Tax Officer (ITO) and Inspecting Assistant Commissioner (IAC) under Sections 144A and 144B:

Section 144A authorizes the IAC to issue directions for the guidance of the ITO to complete the assessment. The powers under Section 144A are of a general supervisory nature, including both directing relief and enhancement of assessment. In contrast, Section 144B is limited to scrutinizing the additions/disallowances proposed by the ITO in the draft assessment order. The ITO must forward the draft assessment order to the assessee if the proposed variation exceeds Rs. 1,00,000, and the assessee can object to the proposed variation.

5. Appropriate Remedies and Directions in Cases of Procedural Non-compliance:

The Tribunal concluded that in cases where initial jurisdiction is validly assumed, any lapse, irregularity, or omission in following the prescribed procedure, even if mandatory, does not make the order a nullity. However, the order cannot be sustained and must be set aside with a direction to the concerned authority to pass the order afresh according to law after curing the defect. The Tribunal modified the order of the CIT(A), set aside the assessment order, and directed the ITO to pass a fresh order according to law after complying with all legal requirements, including those of Section 144B.

Conclusion:

The Tribunal allowed the Departmental appeal, modified the order of the CIT(A), set aside the assessment order, and directed the ITO to pass a fresh order according to law after complying with all legal requirements, including those of Section 144B. The Tribunal emphasized that non-compliance with mandatory procedural provisions results in an irregularity that can be cured, rather than rendering the proceedings null and void.

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