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TMI Blog2004 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... its order dated June 16, 1980, relating to the assessment year 1975-76, for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee-company was entitled to weighted deduction under section 35B(1)(b) on expenditure incurred by way of sea freight amounting to Rs. 6,41,758? 2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in expunging the following portion of the order of the Income-tax Officer passed under section 143(3) read with section 144B which did not find place in the draft order forwarded to the assessee under section 144B and approved by the Inspecting Assistant Commissioner: 'Penalty notices under sections 271(1)(c), 271(1)(a) and 273(a) have separately been issued. Charge interest under section 139(8) and under section 215." While disposing of the reference petition of the Revenue under section 256(1) of the Income-tax Act, 1961 (for short "the Act"), the Tribunal also accepted the prayer of the assessee to refer a cross-question at its instance. The question, which has been numbered by us as question No. 3, is as under: "3. Whether, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the procedure prescribed under section 144B of the Act only refers to computation of income or loss and not to the determination of sum payable by or refundable to the assessee. It was further held that tax is computed with reference to income assessed while interest is calculated with reference to the tax determined and, thus, calculation of interest is a stage following the determination of tax. The Appellate Assistant Commissioner further observed that in a case where interest is leviable, an order can be passed either along with the assessment order or independently. He, accordingly, held that the direction issued to charge interest was, in fact, an independent order for which procedure prescribed under section 144B of the Act was not required to be followed. Similarly, the Appellate Assistant Commissioner held that it is not necessary that the satisfaction for initiation of penalty proceedings should be recorded in the assessment order itself and it is enough if some evidence in the form of an order-sheet entry or an office note is recorded about his satisfaction before initiating the proceedings. Thus, it was held that the direction of the Income-tax Officer for issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf. (3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order. (4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment: Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard. (5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate undue hardship of the assessee because in that event, the Inspecting Assistant Commissioner would direct the Assessing Officer not to make the proposed changes. This provision, therefore, is a restraint on the Assessing Officer from passing a rash, arbitrary or vindictive order. We may now examine the scheme of section 144B of the Act. Sub-section (1) comes into play in cases where the Income-tax Officer proposes to make "any variation in the income or loss returned" and the amount of such variation exceeds the amount fixed by the Board under sub-section (6). It is not in dispute that that amount fixed by the Board for this purpose is Rs. 1 lakh. Thus, whenever the Income-tax Officer proposes to make additions or disallowances resulting in enhancement of income or reduction in loss by more than Rs. 1 lakh, he has to forward a draft of the proposed order of assessment to the assessee. Sub-section (2) entitles the assessee to forward his objections, if any, "to such variation" to the Income-tax Officer within the period specified thereunder. Sub-section (3) provides that if no objections are received within the stipulated period or where the assessee intimates to the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be made in their returned incomes only by the Income-tax Officers: these should be made only after consideration by the Inspecting Assistant Commissioners". It is also clear from sub-section (3) that the draft order is not an assessment order, because even if the assessee does not file any objections against the same or even if he intimates his acceptance of the proposed additions/disallowances, even then the Income-tax Officer is required to complete the assessment on the basis of the draft order. Thus, the draft order is not an order of assessment but an order quantifying the income or loss. The Income-tax Officer cannot vary the quantum while completing the assessment but has not been debarred from exercising all other powers vested in him for the completion of an assessment. Neither direction to levy interest nor initiation of penalty proceedings can result in "any variation in the income or loss returned". Thus, there is no scope for the assessee to object to levy of penal interest or to initiation of penalty proceedings as sub-section (2) entitles it only to raise objections to the "variation" proposed by the Income-tax Officer in the draft order. When the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 is leviable in case the advance tax falls short of the assessed tax. The assessed tax has again been defined as tax determined on the basis of regular assessment reduced by the tax deducted at source and the advance tax. Thus, we are satisfied that the Income-tax Officer was fully competent to exercise his powers to levy interest under sections 139(8) and 215 of the Act and also initiate proceedings under sections 271 and 273 of the Act while completing the assessment even though such actions had not been notified to the assessee in the draft order. It is true that under identical circumstances, the Gujarat High Court in CIT v. Maharaja Exhibitors [2001] 251 ITR 767 has held that in the absence of any direction to levy interest under sections 139(8) and 215 of the Act or to initiate penalty proceedings under sections 273(2)(a) and 271(1)(a) of the Act in the draft order, no such directions could be incorporated while passing the final assessment order. A perusal of the said judgment shows that the High Court has proceeded on the assumption that the assessee is entitled to raise objections under sub-section (2) not only against variation in the quantum of income or loss, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been satisfied with regard to initiation of the penalty proceedings, he ought to have incorporated the said fact in the draft order so that the assessee and the Inspecting Assistant Commissioner could have known about the said intention. The assessee could have made a representation before the Inspecting Assistant Commissioner that there was no case for initiation of penalty proceedings. It is true that the assessee could have replied to the show cause notice and in such a case the Assessing Officer could have taken a decision with regard to not initiating penalty proceedings but even in such a case, the object with which section 144B had been enacted would have been frustrated. As stated hereinabove, the Legislature wanted the assessee to get an opportunity to represent his case before passing a final assessment order. The said object has been frustrated here because even after the final assessment order, the litigation would continue and that would put the assessee to harassment and that would also increase the workload of the Department." As already observed by us, the opportunity envisaged under section 144B of the Act to the assessee to represent his case before a superior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under sections 139(8) and 215 of the Act. While doing so, the Tribunal will keep in view the judgment of the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. With these observations, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. Question No. 1: The assessee's claim for weighted deduction under section 35B of the Act on sea freight amounting to Rs. 6,41,758 has been allowed by the Tribunal by following its earlier order in the assessee's own case in the immediately preceding assessment year 1974-75. Mr. Sanjay Bansal, learned counsel for the assessee, has pointed out that the order of the Tribunal for the assessment year 1974-75 on this issue has since been affirmed by this court in CIT v. Roadmaster Industries of India Pvt. Ltd. [1993] 202 ITR 968. Weighted deduction under section 35B of the Act is admissible on the expenditure incurred wholly and exclusively for various purposes mentioned in clause (b) of section 35B(1) of the Act. Clause (b) of section 35B(1) reads as under: "(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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