1985 (4) TMI 102 - AT - Income Tax

Assessment Order, Assessment Year, Capital Gains, Company In Liquidation, Reference To IAC, Time Limit For Completion

Summary

Issues Involved:
1. Validity of assessment under section 144B after directions under section 144A.
2. Time-barred assessment under section 153.

Detailed Analysis:

1. Validity of Assessment under Section 144B after Directions under Section 144A:
The assessee-company, incorporated in 1909, was engaged in running a railway line and decided to close its operations in 1978. During the winding-up process, the company sold its assets and opted to adopt the fair market value of these assets as on 1-1-1964 for computing capital gains under section 55 of the Income-tax Act, 1961 ('the Act'). The assessee filed a return showing a business loss and did not show any profit under capital gains or section 41(2). The ITO made a reference to the IAC under section 144A, who directed the ITO to compute capital gains by taking the difference between the sale price and the value as on 1-1-1964.

The ITO then made a draft assessment order and submitted it to the IAC under section 144B. The assessee contended that the ITO had no jurisdiction to make a reference under section 144B after receiving directions under section 144A. The Commissioner (Appeals) held that sections 144A and 144B are not mutually exclusive and that the ITO is required to send the draft assessment order to the IAC if the variation exceeds the prescribed limit. The assessment was therefore not invalid as being time-barred.

In the further appeal, the assessee argued that the ITO was bound by the directions under section 144A and could not make a further reference under section 144B. The department contended that sections 144A and 144B operate on different planes. Section 144A is an administrative review at the pre-assessment stage, while section 144B is a review of the final act of the ITO. The Tribunal found that the facts in the case of N. Krishnan, cited by the assessee, were distinguishable and that the ITO followed the correct procedure. The Tribunal held that the ITO was duty-bound to make a reference under section 144B when the variation exceeded Rs. 1 lakh, notwithstanding anything contained in section 144A.

2. Time-barred Assessment under Section 153:
The assessee contended that the assessment made on 18-9-1982 was without jurisdiction as it was beyond the regular period of limitation, i.e., 31-3-1982. The Commissioner (Appeals) held that if section 144B was validly invoked, the time taken for obtaining instructions under section 144B adequately explained the delay, making the assessment within the prescribed time.

The Tribunal found that the directions under section 144A in this case did not relate to any specific item of addition but were general guidelines. The ITO, following these directions, arrived at an income with a variation of more than Rs. 1 lakh, necessitating a reference under section 144B. The Tribunal concluded that the ITO followed the correct procedure and the assessment was not time-barred.

Conclusion:
The Tribunal upheld the validity of the assessment under section 144B, despite earlier directions under section 144A, and found that the assessment was not time-barred under section 153. The ITO followed the correct procedure, and the assessee's contentions were rejected.