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TMI Blog1992 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, etc., were sold by the assessee for a consideration of Rs. 95 lakhs. It opted to adopt the fair market value of these assets as on January 1, 1964, as the cost of acquisition for the purpose of computation of capital gains under section 55 of the Act. Such market value was determined at Rs. 59,46,000 as per certificate of the approved valuer, Messrs. Talbot and Co. It submitted on October 17, 1979, a return showing business loss of Rs. 3,12,215. In the course of hearing before the Income-tax Officer, various contentions were raised regarding assessability of the capital gains and bank interest earned by the assessee during the year. The Income-tax Officer made a reference on November 25, 1981, to the Inspecting Assistant Commissioner under section 144A of the Act. In the course of hearing under section 144A before the Inspecting Assistant Commissioner, the assessee gave a long explanation about the facts of the case and the stand taken by it. The Inspecting Assistant Commissioner, by his letter dated March 15, 1982, gave certain directions to the Income-tax Officer under section 144A. Thereafter, the Income-tax Officer made out a draft assessment order computing the capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. (ii) Further, according to the assessee, it was a company in liquidation which is not a person within the meaning of section 2(31) of the Act and as such it was not assessable to tax. Even further objections were raised that the return of income signed and verified by one of the liquidators was non est in law and the assessment made on that basis was ab initio void ; that, in view of the winding up of the company with effect from February 15, 1978, no capital asset was held by it after that date and as such no capital gains tax could be imposed upon it or the liquidators and that there being no rate of tax prescribed for companies in liquidation in the relevant Finance Act, no income of the assessee could be charged to tax. It was also contended before the Tribunal that the Income-tax Officer, after having received directions under section 144A had no jurisdiction to again seek directions of the Inspecting Assistant Commissioner under section 144B and, therefore, the time occupied in obtaining directions under section 144B could not be excluded under section 153, Explanation 1(iv), of the Act. The assessee also agitated the claim to deduction of the entire expenses out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961 ? (c) that, in view of the winding up of the company with effect from February 15, 1978, no capital asset was held by it after that date and as such no capital gains tax could be levied ? (d) that there being no rate of tax prescribed for companies in liquidation in any of the relevant Finance Act, no income of the assessee could be charged to tax under section 5 of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction of the entire expenses on salaries, audit fees, miscellaneous expenses and bank charges out of the income of interest assessed under the head "Income from other sources" except the proportionate expenses incurred for earning that income of interest in the assessment years 1979-80 and 1980-81? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reference under section 144B of the Income-tax Act, 1961, was legally made by the Income-tax Officer and as such the assessment was not barred by limitation ?" The first question is now concluded by the decision of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the assessee that the assessee did not receive any income in this year nor is it the case of the assessee that there has been no accrual of income. The expenditures, which are specifically allowable have to be allowed under the provisions of the Income-tax Act. There is no general principle on the basis of which the expenditure claimed as deductible can be allowed as deduction. It is true that income-tax is not chargeable on gross profits. The profits must be computed in accordance with the provisions of the Income-tax Act be specific provision as to deductions from business income laid down in sections 30 to 43A of the Act cannot be disregarded on any assumed principle of real income." Our attention has also been drawn to a decision in the case of CIT v. Benaras Electric Light and Power Company Ltd. (I. T. Ref. No. 44 of 1988), [1993] 204 ITR 804 (Cal), where judgment was delivered on January 14, 1991. The question in that reference was as to whether the Tribunal was correct in law in holding that the expenses relating to salary and wages and rent would have to be allowed in full. There, the assessee company was also in voluntary liquidation. In that case, this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any interference. We, therefore, answer the third question in the affirmative and in favour of the Revenue. We are, therefore, concerned with the only question, being question No. 4, in this reference. Mr. Guha has highlighted that, on November 25, 1981, the Income-tax Officer made a reference under section 144A to the Inspecting Assistant Commissioner. On March 15, 1982, the Inspecting Assistant Commissioner gave directions under section 144A to the Incometax Officer for his guidance to enable him to complete the assessment. On March 15, 1982, the Income-tax Officer made a draft assessment order under section 144B and forwarded the same to the assessee. On March 30, 1982, the assessee wrote a letter to the Income-tax Officer stating that it had already been heard by the Inspecting Assistant Commissioner under section 144A of the Act and that the assessment should have been completed in accordance with the directions given under section 144A of the Act and the Income-tax Officer no longer had any jurisdiction to proceed under section 144B of the Act. Similar contentions were made before the Inspecting Assistant Commissioner in the course of the proceedings under section 144B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, could not "propose" to make any variation. The assessment should have been completed on or before March 31, 1982, under section 143(3) read with section 144A of the Act. The meaning of the word " propose" as given in the Concise Oxford Dictionary (sixth edition) is "put forward for consideration",-"intend". When, on March 15, 1982, the Income-tax Officer had received directions under section 144A of the Act which are binding on him for his guidance to enable him to complete the assessment, he could not again propose to make any variation. To do so would be to wipe out section 144A of the Act and that Is what the Income-tax Officer has done in the case by making the, assessment on September 18, 1982, under section 143(3)/144B of the Act. (ii) The Inspecting Assistant Commissioner in his letter dated September 7, 10, 1982, to the Income-tax Officer wrote as follows: "that, on a plain reading of the provisions of sections 144A and 144B, it is not possible to accept that both the provisions cannot be independently applied, particularly when the latter section starts with the expression 'notwithstanding anything contained in this Act'." The use of the non obstante clause "notwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect and the differentia of the two legislative measures. "Powers of the Inspecting Assistant Commissioner to issue pre assessment directions [new section 144A]. 2. The Amending Act has inserted a new section 144A empowering the Inspecting Assistant Commissioner to issue pre-assessment directions to the Income-tax Officer. It provides that the Inspecting Assistant Commissioner may, either on his own motion or on a reference from the Income-tax Officer or on the application of the assessee, call for and examine the assessment record of any assessee in which an assessment is pending, and issue such directions to the Income-tax Officer as he deems fit so as to enable the Income-tax Officer to complete the assessment. The directions shall be issued only where the Inspecting Assistant Commissioner considers it necessary or expedient to do so having regard to the nature of the case or the amount involved or for any other reason. The directions in question shall be binding on the Income-tax Officer. However, any directions which are prejudicial to the assessee shall be issued by the Inspecting Assistant Commissioner only after the assessee has been given an opportunity of being heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspecting Assistant Commissioner will have to give an opportunity of being heard to the assessee. The directions issued by the Inspecting Assistant Commissioner shall be binding on the Income-tax Officer. The Board is empowered to fix the amount (which shall not be less than Rs. 25,000) variations in excess whereof proposed by the Income tax Officer will attract the provisions of this section. The Board is also empowered to fix different amounts for different areas. By its order F.No. 201/121/75-IT(A-II), dated December 23, 1975, the Board has fixed an amount of Rs. 1 lakh for the purpose." The object of the provisions of section 144B is the same as that of section 144A. The real object appears to be to provide competent scrutiny at the level of the Inspecting Assistant Commissioner and to reduce relatively the finality of free play at the level of the Income-tax Officer. The provisions of section 144B can be said to have reduced the area of dispute between the Income-tax Officer and the assessee so that unnecessary appeals against the order need not be filed. We may note at this stage the underlying difference between sections 144A and 144B. Section 144A though having as its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing open and at large before him once the proceedings under section 144A are set in motion. But, that is not the case under section 144B. The Inspecting Assistant Commissioner cannot look beyond the additions which the Income-tax Officer has pro posed in the draft order. Learned counsel for the assessee contends that the assessment which the Income-tax Officer frames in terms of the directions of the Inspecting Assistant Commissioner under section 144A preclude the provisions of section 144B, even if such assessment contains additions to the tune of Rs. 1 lakh or more. According to him the law is clear that the direction of the Inspecting Assistant Commissioner under section 144A is binding on him. That being the case, the assessment framed by him accordingly cannot be an assessment that he "proposes". Section 144B opens with the words "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 . . .". It is contended that section 144B can be switched on only where the Income-tax Officer proposes to make any variation. But, under section 144A, he does not propose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give rise to a situation where he proposes additions, in his own right. In such a contingency, the question of the Income-tax Officer proposing to make variations shall arise and it will certainly attract the provisions of section 144B. Therefore, the contention on behalf of the assessee that section 144A excludes the operation of section 144B is not tenable. We cannot agree with the contention that prior operation of the provisions of section 144A cancels the scope for the operation of section 144B. If the assessment made on the basis of directions under section 144A are of the order of Rs, 1 lakh or more, resort to section 144B can, by no means, be assailed as illegal. Rather such a course will be beneficial to the assessee inasmuch as it will give the assessee a further opportunity of contesting the additions. The interpretation of the beneficial provisions meant for protection of the assessee from an arbitrary and hasty assessment should be interpreted liberally so as to avail to the assessee the maximum benefit from such scheme of the law. The income-tax Officer by sending the draft order under section 144B to the assessee after incorporating directions, of the Inspecting Ass ..... 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