1992 (5) TMI 54 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) should have canceled the assessment instead of setting it aside.
2. Whether the assessment was barred by limitation and a nullity.

Issue-Wise Detailed Analysis:

1. Whether the CIT(A) should have canceled the assessment instead of setting it aside:

The assessee, a company engaged in the export of fish products and cartons, filed a return disclosing a loss of Rs. 13,90,590 for the assessment year 1980-81. The assessment was completed on a total income of Rs. 5,35,580. Due to the significant variation between the returned income and the assessed income, a draft assessment order under section 144B was issued on 16th Nov., 1982. The assessee filed objections and sought extensions, which were granted. Subsequently, the IAC initiated suo moto proceedings under section 144A and issued directions to the ITO, leading to a second draft assessment order on 24th March, 1983. The CIT(A) found the issuance of a second draft order to be illegal and set aside the assessment. The Tribunal agreed with the CIT(A) that section 144B does not contemplate more than one draft assessment order and upheld the decision to set aside the assessment.

2. Whether the assessment was barred by limitation and a nullity:

The Tribunal examined the time limits for framing the assessment order. Normally, the time limit for the assessment year 1980-81 would expire on 31st March, 1983. The first draft assessment order was issued on 16th Nov., 1982. According to section 144B, the ITO can issue only one draft order. The Tribunal referred to the Delhi High Court's decision in Sudhir Sareen vs. ITO, which held that there can only be one draft assessment order under section 144B. The ITO did not receive directions from the IAC on the first draft order, and thus, the benefit of the extended period of 180 days under section 153 could not be claimed by the Department. The Tribunal concluded that the assessment was time-barred as no directions were given by the IAC on the first draft order within the extended time limit, which would have expired on 15th May, 1983. Consequently, the assessment was held to be a nullity and was canceled.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, holding that the assessment was time-barred and thus canceled. The CIT(A)'s decision to set aside the assessment was upheld, and the issuance of a second draft assessment order was deemed illegal.