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TMI Blog1983 (3) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... r percentage in allocating the deduction in respect of other items. Accordingly, the Commissioner initiated proceedings under section 263 of the Act. The assessee raised several objections but all of them have been overruled. The Commissioner set aside the assessment and directed the ITO to pass a fresh order in regard to the allowance of weighted deduction but, however, holding that the assessee is not entitled to the weighted deduction in respect of ocean freight. 3. The order of the Commissioner is in appeal. One of the grounds raised is that since the assessment was made in accordance with the directions of the IAC under section 144B of the Act the Commissioner has no jurisdiction to revise such an assessment. This point has arisen in a number of appeals in the country. Since it was considered to be important and repetitive and Since there is also conflict of views expressed by different Benches, the President of the Tribunal was pleased to constitute a Special Bench to decide the matter. Having learnt about the hearing by the Special Bench several assessees whose appeals are pending before the different Benches of the Tribunal, came as interveners as similar point is involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irections of the IAC. 6. Mr. Swaminathan for another assessee also endorsed the arguments advanced by his predecessors. He, however, wanted us to take into account the scope of the revisional jurisdiction under section 263 bearing in mind the scheme of the Act especially with reference to sections 264, 123 and 144A. According to him section 144B is a sort of mini-appeal conferring revisional jurisdiction prior to the passing of the final order. He called it an appeal preponed. In this connection he referred to the memorandum explaining the introduction of section 144B in the Parliament. Mr. Swaminathan further stated that once the IAC exercises power under section 144B (iv), the revisional power gets exhausted. He also relied on the decision of the Supreme Court in 48 STC 375. He further referred to the explanatory note to the Finance (No. 2) Bill, 1977 whereby creation of new appellate authority, namely, the Commissioner (Appeals), was contemplated. 7. Mr. Abrol for an assessee in Srinagar apart from adopting the earlier arguments further took us to the meaning of the word 'directions' and pointed out that the word 'directions' is used synonymous with the word 'orders' in vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns therein are fulfilled does not mean that the assessment is not made under section 143(3) by the ITO. The ITO alone will be dealing with the assessment and he is the person to complete it, no doubt he gets the guidance from the IAC in accordance with the provisions of section 144B(4) but they are only for guidance and nothing else. The assessment is to be made by the ITO only and that the provisions of section 144B are merely procedural and they form a part in the assessment-making process. Section 144B does not curtail the power of the ITO to pass an assessment order. This is the sum and substance of his arguments. He further referred to section 263 and laid stress on the word 'proceedings'. The 'proceedings' according to him are conducted by the IAC partly and the other part is by the ITO culminating in the final order of assessment. The learned standing counsel stated that the IAC is only taking part in the proceedings and nothing else. He also referred to section 246(2)(b) and (f). He brought to our notice the decision in the case of H.H. Maharaja Raja Pawer Dewas v. CIT [1982] 138 ITR 518 (MP). Mr. M. Suryanarayanamurthy also contended that following the directions of the IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263. On this ground the assessee would succeed in this case. 12. So far as the claim for weighted deduction on merits is concerned, the matter is fully covered by the decision of the Tribunal for an earlier year and the assessee would not be entitled to the weighted deduction relating to ocean freight and that it would be entitled only to weighted deduction in respect of the balance but in the view we have taken on the question of merger, the decision on merits loses its importance so far as this year is concerned. 13. The above discussion will dispose of the appeal, but in fairness to all the parties it is proper to decide the main controversy for which the Special Bench is constituted. First of all we may dispose of the point raised by Mr. Ramachandran, namely, that there is a merger of the ITO's order with the order of the IAC. It does not appeal to us. We entirely agree with the learned standing counsel that the principle of merger has no application to a situation covered by the provisions of section 144B. There cannot be a merger of an order of an appellate authority with the order of the original authority. It can be only the reverse. One cannot say that the IAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment and such directions shall be binding on the Income-tax Officer : Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation : For the purposes of this sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee. (2) The provisions of this section shall be in addition to, and not in derogation of, the provisions contained in sub-section (3) of section 119. 144B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prejudicial to the interests of the revenue. One is aware that if an ITO passes an order and he commits an error which results in loss of revenue, there is no appeal, the reason being that the Income-tax Officer not only represents the revenue but is the sole arbiter. There are no two parties before him. If he commits an error and the assessee is affected, a right of appeal is provided under the Act as per the provisions of section 246. But if an error is committed by the ITO himself, there is no right of appeal as such. It is for this purpose and rightly so, that power of revision is vested in the Commissioner under section 263. The said section reads as follows : "263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if be considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner. However, there are certain limitations for exercising that power as mentioned in section 264(4) of the Act. The wording of section 264(1) is necessary to be seen : "264. (1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as be thinks fit." The Commissioner can revise an order subordinate to him and for the purpose of section 264 the AAC is considered to be subordinate to the Commissioner as per Explanation 2 to that section. A perusal of sections 263 and 264 reveals that section 263 is invoked in favour of the revenue while section 264 can be invoked for giving relief to assessees if on account of the mistake committed by subordinate authorities the assessee is deprived of some benefit. Section 263 contemplates revision of orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Undoubtedly the IAC has to act judicially and objectively in deciding the matter in the light of what the ITO has stated in his draft assessment order and in the light of what the assessee has stated in his objections. The decision so arrived at by the IAC is conveyed to the ITO in the form of directions which are to be taken into account for the purpose of completing the assessments, inasmuch as, till then the assessment is not completed and it remained only at a proposal stage. The moment the ITO receives the directions from the IAC, he will be entitled to complete the assessment in accordance with the directions or decision given by the IAC. In order to make the decision or the directions of the IAC sacrosanct sub-section (5) of section 144B specifically lays down that every direction issued by the IAC shall be binding on the ITO. This clearly shows that the ITO cannot go beyond what the IAC has directed him to do in a matter covered by the objections raised by the assessee. The ITO cannot act on his own in respect of such matter any longer. Whatever he had done earlier was in the shape of a draft and thereafter it will be an order in accordance with the directions of the IAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in substance such an order can be said to have been passed both by the IAC as well as the ITO. In many cases, and rightly so, the directions of the IAC are attached to the order of assessment. The ITO, as already pointed out, has no say in the matter at all once the directions come from the IAC. They become part and parcel of the assessment order. In such a situation it is difficult to accept that the order of assessment is that of the ITO alone. 18. Once the assessment has passed the test of the IAC, some sort of sanctity and finality is attached to it in so far as the revenue is concerned. Otherwise the very purpose of creating one more hierarchy in the process of assessment is lost. At this stage it is worthwhile comparing the powers that have been given to the IAC by the insertion of section 144A which has come into the statute book along with section 144B. The IAC is either on his own notion or on the reference made by the ITO or on the application made by the assessee can examine any assessment proceedings which are pending and can act. This is a sort of revisional power but only with one difference, namely, that this power is exercised before the assessment is complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revisional authority can exercise its powers. But in no other case, it is possible. That means in a case where the IAC exercises his power in the matter of assessment, other than those that are covered by the provisions of section 125 or 125A or 144A, the order of the IAC cannot be the subject-matter of revision by the Commissioner. Positively the directions given under section 144B which amount to an order passed by him cannot be the subject-matter of revision by the Commissioner. Mr. Abrol is right when he pointed out that the word 'direction' is used synonymous with 'order' at different places. Though the word 'directions' is used in section 144B and they are to be given for the guidance of the ITO, in the context it is used it would amount to an order passed by the IAC. The ITO merely authenticates that order under his signature. 20. The argument of the learned standing counsel that the assessment order bears the signatures of the ITO and, therefore, the order is made by the ITO alone may look ex facie alright but that is not the correct approach. One has to go behind the order and find out the content of it. It is not enough if we just go by the signatory with the designat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by an ITO cannot be said to be erroneous so as to clothe jurisdiction with the Commissioner. The matter may be expressed in a slightly different language. The Commissioner is precluded from contending that such an order of the ITO is erroneous. Take for instance, a case where the ITO is refusing to comply with the directions of the IAC issued under section 144B. The assessee then goes to the Commissioner. The Commissioner cannot say that the ITO is right and he need not follow the directions. The Commissioner will have to say that the directions issued by the IAC are to be followed. When such is the position, how can the Commissioner say that the order of the ITO is erroneous when be complies with the directions issued by the IAC and completes the assessment ? The Commissioner, in our opinion, cannot exercise his powers under section 263 in a case where the ITO follows the directions of the IAC under section 144B and completes the assessment. This would further strengthen the arguments of the assessee that an order of assessment passed by the ITO in accordance with the directions issued by the IAC under section 144B cannot be the subject of revision by the Commissioner under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, for in such a case it would well nigh be impossible to say that the order passed by the ITO was erroneous and caused prejudice to the interests of the revenue, for, then the ITO is only giving effect to an appellate direction, which he is bound to give under the Act. The direction given by the IAC under section 144B is also now being elevated to the same status as that of an appellate direction. It is in this area I had some initial difficulty. But I came over it by reconciling that when the ITO was performing a duty, which he was bound to do under the Act, be it giving effect to an appellate direction or implementing any other direction given by any authority superior to him, it should not be open for any other authority to say at that stage he committed an error and thereby caused prejudice to the interests of the revenue. On a closer examination at the direction, that the ITO had to give effect to, and in the light of certain other considerations or material it might appear to be erroneous, but the point to be seen for the assumption of jurisdiction by the Commissioner under section 263 is whether at the point of time when the ITO was giving effect to a direction give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason is obvious. In this case, the IAC is given specifically the power of making assessment like an ITO. He does not receive instructions or seek the same under section 144B as the ITO does. There is every possibility that errors may have been committed by the IAC acting as an assessing officer. There should be a way to correct such erroneous assessments. Therefore, power is taken to revise such assessments under section 263, by making a specific provision for this purpose, by deeming the references to the ITO as references to the IAC. The absence of a provision enabling the Commissioner to act under section 263 even under the present circumstances of section 144B is an indication, that such a revision is not contemplated. It is not necessary also, because the IAC hears the objection of the assessee, and after considering the material and the objections, arrives at his own conclusion. Such a conclusion is akin to a conclusion reached in an appellate proceeding. When under the Act, the conclusions reached in appellate proceedings are specifically put beyond the revisional jurisdiction of the Commissioner, the same consequence is to be given to a direction under section 144B, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the ITO may make an assessment, obviously the instruction given by the IAC falls outside the scope of evidence to be considered under section 143(3), in which case that stands totally on a different footing, and to revise that direction treating it as causing prejudice to the interests of the revenue falls beyond the scope of the revisional jurisdiction of the Commissioner. It was perhaps the reason why section 144B is started with a non obstante clause by stating that "notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the ITO proposes to make any variation in the income or loss returned ...". This shows that on the basis of the material gathered by the ITO, if he comes to the conclusion that there was a scope to vary the income returned by the assessee, then only the material will be put before the IAC, for his direction subject to the satisfaction of the conditions laid down in section 144B. Then on the basis of such evidence gathered by the ITO and placed before the IAC, it is the satisfaction of the IAC, which comes to the ITO, by way of a direction, and because that is going to affect the interests of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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