1983 (10) TMI 138 - AT - Income Tax

Issues Involved:
1. Applicability of Section 144B of the Income-tax Act, 1961.
2. Interpretation of "variation in income" exceeding Rs. 1,00,000.
3. Legality of the extended period of limitation for assessment completion.
4. Role of the Income-tax Officer (ITO) and Inspecting Assistant Commissioner (IAC) in assessment variations.
5. Finality and rectification of share income assessments of partners.

Issue-wise Detailed Analysis:

1. Applicability of Section 144B of the Income-tax Act, 1961:
The primary issue was whether the reference under Section 144B to the IAC by the ITO was warranted when the difference in income exceeded Rs. 1,00,000 due to the variation in share income from the firm. The Commissioner (Appeals) held that Section 144B was not applicable as the variation was a result of statutory provisions governing the apportionment of income in a registered firm and not a proposal by the ITO. However, the Tribunal disagreed, stating that Section 144B prescribes the procedure to be adopted where there is such a difference 'notwithstanding anything contained in the Act'. The Tribunal concluded that the reference to the IAC was mandatory as the variation exceeded Rs. 1,00,000, and thus, the provisions of Section 144B applied.

2. Interpretation of "variation in income" exceeding Rs. 1,00,000:
The Tribunal examined whether the variation in income exceeding Rs. 1,00,000 should be considered in totality or broken into components. The Tribunal referenced the decision of the Calcutta High Court in New India Investment Corpn. Ltd. and the decision of the President (as Third Member) of the Tribunal in Hindustan General Industries Ltd., which held that the overall variation is to be considered. Therefore, the Tribunal concluded that any variation in income exceeding Rs. 1,00,000, whether agreed upon or not, required a draft assessment order to be forwarded to the IAC.

3. Legality of the extended period of limitation for assessment completion:
The Tribunal analyzed whether the assessments completed on 8-4-1982 were within the period of limitation, considering the provisions of Explanation 1(iv) to Section 153. The Tribunal noted that the draft order was forwarded to the assessee on 6-3-1982, and the IAC's directions were received on 31-3-1982. Therefore, excluding this period, the assessments made on 8-4-1982 were within the period of limitation. The Tribunal concluded that the extended time limit under Explanation 1(iv) to Section 153 was available for the completion of the assessments.

4. Role of the Income-tax Officer (ITO) and Inspecting Assistant Commissioner (IAC) in assessment variations:
The Tribunal discussed the roles of the ITO and the IAC in the context of Section 144B. The Tribunal emphasized that the ITO's reference to the IAC was mandatory when the variation in income exceeded Rs. 1,00,000. The Tribunal rejected the Commissioner (Appeals)'s view that the ITO's action was merely a compliance with statutory provisions and not a proposal. The Tribunal stated that any adverse variation in income or loss returned to the detriment of the assessee was sufficient to make such variation prejudicial within the meaning of Section 144B.

5. Finality and rectification of share income assessments of partners:
The Tribunal addressed the argument that the assessment of a partner should await the completion of the firm's assessment. The Tribunal referenced various judicial decisions to conclude that an assessment of a partner need not necessarily await the firm's assessment. The Tribunal also noted that the ITO could adjudicate claims of the assessee-partner regarding the allocated income. The Tribunal concluded that the provisions of Section 144B and Section 155 operate at distinct points of time, and the ITO's actions in preparing draft assessment orders for both the firm and the partners were in compliance with the statutory requirements.

Conclusion:
The Tribunal set aside the orders passed by the Commissioner (Appeals) and restored the assessments made by the ITO, concluding that the assessments were made within the period of limitation. The Tribunal allowed both appeals, emphasizing the mandatory nature of the reference to the IAC under Section 144B when the variation in income exceeded Rs. 1,00,000.

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