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TMI Blog2000 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... having mentioned in the draft order submitted to the Inspecting Assistant Commissioner under section 144B of the Act about initiating penalty proceedings under section 273 and under-section 271(1)(a) of the Act, no order for initiation of the said penalties could have been made in the final order passed thereafter with the prior approval of the Inspecting Assistant Commissioner of Income-tax The facts, in a nutshell, giving rise to the present reference are as under : The respondent-assessee filed a return of income stating that the asses see-firm had incurred a loss of Rs. 60,572 for the assessment year 1979-80. The Assessing Officer issued notice under section 143(2) of the Act and after hearing the assessee's representative and upon a perusal of the books of account, came to a conclusion that the assessee-firm was in fact having an income of Rs. 1,14,577. In the circumstances, in view of the provisions of section 144B of the Act, he prepared a draft of the proposed order of assessment ("draft order" for short) and forwarded the same to the asses see as per the provisions of section 144B(1) of the Act. The assessee had forwarded his objections, which were submitted to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no provision for challenging an order charging interest by filing an appeal. Being aggrieved by the order passed by the Commissioner of Incometax (Appeals), the assessee preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal allowed the appeal by observing that the Assessing Officer could not have made any change in the draft order, which was forwarded to the assesses and which was approved by the Inspecting Assistant Commissioner. It was observed by the Tribunal that there was a violation of the principles of natural justice because the assessee did not get any chance to make a representation against the levy of interest and issuance of a show-cause notice because in the draft order the said facts were not stated by the Assessing Officer. In view of the facts stated hereinabove, the questions referred to this court are to be considered. The question is whether it would be open to the Assessing Officer to make any change in the draft order even in the nature of levy of interest or issuance of a show-cause notice for imposition of penalty after the draft order is approved by the Inspecting Assistant Commissioner ? Before dealing with the question, one has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this sub-section shall, in no case, be less than twenty-five thousand rupees. (7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under section 125 or section 125A." The learned advocate, Shri Qureshi, appearing for the Revenue, has submitted that as per the provisions of section 144B(1) of the Act, the Assessing Officer has to forward a draft order when he proposes to make any variation in the income or loss returned by the assessee which is prejudicial to the assessee and when the amount of such variation exceeds the amount fixed by the Central Board of Direct Taxes under section 144B(6) of the Act. At the relevant time the Board had fixed a sum of Rs. 1 lakh under section 144B(6) of the Act and as in the instant case, the difference between the amount of loss returned by the assessee and the income assessed by the Assessing Officer was more than Rs. 1 lakh, the Assessing Officer had forwarded the draft order to the Inspecting Assistant Commissioner. The learned advocate has submitted that as per the provisions of section 144B(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice under the provisions of section 274 read with sections 273(2)(a) and 271(1)(a) of the Act is concerned, as section 144B of the Act refers only to variation in the income or loss and as the section is silent with regard to imposition of penalty or any other consequential action which might have to be taken by the Assessing Officer, mention of a direction with regard to issuance of a show-cause notice in the final assessment order cannot adversely affect the validity of the assessment order. It has been further submitted by him that before issuance of such a show-cause notice, it is not necessary for the Assessing Officer to hear the assessee because in reply to the notice it is open to the assessee to state the reasons for which the penalty should not be imposed. It has been further submitted by the learned advocate, Shri Qureshi, that penalty proceedings can be initiated either during the assessment or after the completion of the assessments He has relied upon the judgment delivered in the case of D. M. Manasvi v. CIT [1972] 86 ITR 557 (SC), to substantiate the submission. He has submitted that in the instant case, in the course of the assessments the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer is permitted to make any change in the draft order after it is approved by the Inspecting Assistant Commissioner. In the instant case, the assessee had objected to the draft order and the objections were duly considered by the Inspecting Assistant Commissioner and he had overruled the objections. Ultimately, the Inspecting Assistant Commissioner did not issue any direction to the Assessing Officer for making any change in the draft order, meaning thereby that the Inspecting Assistant Commissioner had approved the draft order and therefore the draft order ought not to have been changed by the Assessing Officer. It has been submitted by the learned advocate, Shri Patel, that the intention behind the enactment of the said section was to see that the assessee comes to know about the liability incurred by him with regard to payment of tax, penalty, interest, etc., for a particular assessment year. Once the assessee comes to know that his liability has been determined by the Assessing Officer, which has been approved by the Inspecting Assistant Commissioner, the Assessing Officer should not make any change in the liability of the assessee. In the instant case, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to digress from the normal practice by levying interest after the draft order was finalised. Even with regard to a direction for issuance of a show-cause notice to the assessee regarding imposition of penalty incorporated in the final assessment order, it has been submitted by the learned advocate appearing for the assessee that such a direction could not have been issued after the draft order was approved by the Inspecting Assistant Commissioner. By adding a direction with regard to issuance of a show-cause notice, the Assessing Officer had made a substantial change in the assessment order and the said change could have resulted into additional liability on the part of the assessee if ultimately penalty is imposed and therefore, even a direction for issuance of a show-cause notice could not have been incorporated in the final order. We have heard the learned advocates and have considered the facts of the case in the light of the provisions of section 144B stated hereinabove. Before dealing with the questions, let us look at the object with which the said section was enacted in pursuance of a recommendation made by the Wanchoo Committee. The relevant portion of the report of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also substantially reduced. Thus, it is very clear that by virtue of this section, in certain circumstances, the Legislature wanted the assessee to get an opportunity to represent his case before the final assessment is made. Looking to the object with which section 144B hag been enacted, it is very clear that the assessee should get an opportunity to represent his case before the Revenue in the event of substantial change being made in his liability. Had the assessee got an opportunity to know the fact that interest was being levied, he could have made a representation to the Inspecting Assistant Commissioner stating the reasons for which the interest ought not to have been levied. Moreover, had he known about the direction for issuance of a show-cause notice for imposition of penalty, the assessee could have made a representation and could have stated as to why even such a show-cause notice should not be issued. In fact, the assessee was deprived of this opportunity as the said facts were not incorporated in the draft order which was approved by the Inspecting Assistant Commissioner. There are ail chances that the Inspecting Assistant Commissioner could have taken a diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of rectification. Even in the instant case, in the draft order as the Assessing Officer did not mention anything with regard to the levy of interest, the assessee can very well presume that the Assessing Officer had exercised his discretion in favour of the assessee by not levying interest. Such a decision or such an exercise of discretion cannot be changed by the Assessing Officer after the draft order is approved by the Inspecting Assistant Commissioner. This court has also decided in Panchmahal Steel's case [1994] 210 ITR 723 that after the draft order is passed, a revised return cannot be filed by the assessee because once a draft order is made by the Assessing Officer and the same is submitted to the Inspecting Assistant Commissioner along with the objections of the assessee, the function of the Assessing Officer is practically over. This court has held that while passing a draft order, the Assessing Officer has to determine the income or loss of the assessee and the amount of tax payable by him. Even though the said draft order is subject to scrutiny of a higher officer, the draft order is practically final so far as the Assessing Officer is concerned. Unless there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate penalty proceedings. It is a settled legal position that in the course of the assessment the Assessing Officer has to satisfy himself and decide whether penalty proceedings should be initiated. If, during the course of the proceedings he had 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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