1985 (6) TMI 86 - AT - Income Tax

Issues Involved:

1. Validity of the assessment order due to procedural non-compliance under section 144B.
2. Whether the assessment order is time-barred.
3. Whether the assessment should be annulled or set aside for a fresh assessment.

Detailed Analysis:

1. Validity of the Assessment Order Due to Procedural Non-Compliance Under Section 144B:

The primary issue revolves around whether the Income Tax Officer (ITO) violated the procedural requirements under section 144B of the Income-tax Act, 1961. The ITO proposed an addition of over Rs. 1 lakh and issued a draft assessment order to the assessee. The assessee objected to the proposed additions, and the ITO noted in his order-sheet that time was granted for further objections, but this was not communicated to the assessee. Subsequently, the ITO made the final assessment without referring the matter to the Inspecting Assistant Commissioner (IAC) as required under section 144B.

The Commissioner (Appeals) found that the ITO's failure to refer the draft assessment order to the IAC constituted a fundamental infirmity, rendering the assessment illegal and void. The Tribunal affirmed this view, emphasizing that the ITO's action violated the principles of natural justice, as the assessee's objections were not properly considered.

2. Whether the Assessment Order is Time-Barred:

The assessment year involved is 1979-80, and the assessment should have been completed by 31-3-1982. The ITO issued the draft assessment order on 29-3-1982, and the final assessment was made on 24-4-1982. The Tribunal noted that the period for completing the assessment could be extended under section 144B, but only if the ITO referred the draft assessment order to the IAC and received directions within the prescribed period. Since the ITO did not refer the draft order to the IAC, the assessment was deemed time-barred.

The Tribunal concluded that the ITO's failure to follow the mandatory procedure under section 144B and the subsequent time-barred assessment rendered the assessment invalid.

3. Whether the Assessment Should Be Annulled or Set Aside for a Fresh Assessment:

The Tribunal considered whether the procedural irregularity could be remedied by setting aside the assessment and directing the ITO to follow the correct procedure. The learned departmental representative argued that the non-compliance with section 144B was a procedural irregularity that could be rectified. However, the Tribunal found that the ITO's failure to refer the draft assessment order to the IAC was not merely a procedural defect but a fundamental violation of the statutory requirements, rendering the assessment without jurisdiction.

The Tribunal also noted that setting aside the assessment and directing a fresh assessment would be inappropriate, as it would authorize the ITO to make an assessment after the period of limitation had expired, which is illegal. The Tribunal emphasized that the ITO's actions amounted to a gross violation of the principles of natural justice, further justifying the annulment of the assessment.

Separate Judgments:

Judgment by Judicial Member (A. Krishnamurthy):

The Judicial Member upheld the order of the Commissioner (Appeals) annulling the assessment, emphasizing that the ITO's actions violated the principles of natural justice and the statutory requirements under section 144B. The assessment was deemed illegal and without jurisdiction, and the procedural irregularity was found to be fatal, not curable.

Judgment by Accountant Member (T.R. Thiruvengadam):

The Accountant Member disagreed with the Judicial Member, arguing that the ITO's failure to refer the draft assessment order to the IAC was a procedural irregularity that did not displace the ITO's jurisdiction to make the assessment. He suggested setting aside the assessment and directing the ITO to make a fresh assessment according to law.

Third Member Order (T.D. Sugla, President):

The Third Member agreed with the Judicial Member, concluding that the assessment was invalid and time-barred. The non-compliance with section 144B and the expiration of the time limit for completing the assessment justified the annulment of the assessment.

Conclusion:

The Tribunal, by majority view, upheld the order of the Commissioner (Appeals) annulling the assessment. The appeal by the department was dismissed, and the assessment was deemed illegal, invalid, and time-barred.

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