Prakash Narain, Accountant Member -
(1.) SINCE the above appeals relate to the same assessee, they are taken up together for disposal by this consolidated order, for the sake of convenience.
(2.) We will first take the assessee's appeal. The main contention in this appeal relates to the jurisdiction of the ITO for passing the assessment order on 15-3-1976. The assessee which is a limited company is engaged in the business of manufacturing railway wagons, aircraft refuelers and LPG cylinders. It filed its return of income on 31-7-1972, declaring an income of Rs. 4,76,654. Subsequently, a revised return was filed on 17-2-1975 declaring an income of Rs. 4,73,125 (somewhere mentioned as Rs. 4,77,125). On 23-1-1976, the ITO wrote a letter to the assessee requiring it to furnish among others, details of unsecured loans with a separate list of fresh loans (including squared up loans) and confirmations of the parties with their permanent account numbers. This was replied by the assessee on 30-1-1976 when required details were furnished to the ITO. However, on 9-2-1976, the assessee suo motu wrote a letter to the ITO by which it surrendered the peak of the various loan accounts, being Rs. 2,66,700, for inclusion in its total income. It was stated in this letter that the assessee was facing difficulty in producing the necessary evidence to prove the genuineness of the credits in its books of account and had, therefore, decided to offer the above amount for inclusion in its total income. The letter, inter alia, also stated as under :
It is also with a sincere desire to settle and compromise the matter with the department that the peak amount is being voluntarily surrendered for assessment and we trust that you would be kind enough not to levy any penalty in this respect. The taxation of the peak amount which is being offered voluntarily for the purpose of assessment is to avoid litigation and also to save time both of the assessee and the department....
It is not necessary to quote further from the above letter of the assessee. Suffice it to say, that the assessee while offering the amount did not accept that the amount of Rs. 2,66,700 form part of its income. Throughout the letter, the assessee emphasised its inability to produce the necessary evidence in support of the credits and the motive to settle and compromise the matter with the department.
On 11-2-1976, the ITO made a draft assessment order on a total income of Rs. 8,13,542. In para 3 of this order, the ITO pointed out the defects noticed by him in the maintenance of the books of account as also narrated the circumstances leading to the surrender of the amount of Rs. 2,66,700. The ITO finally observed in para 4 of the order as under:
The offer of the assessee surrendering the peak amount of the loans is reasonable and accepted. The request for not levying the penalty will be considered on merits while deciding the matter of penalty.
With these observations and discussion stated above, the ITO included the sum of Rs. 2,66,700 in the total income of Rs. 8,13,542 under the head 'Income from other sources'. Besides this, the ITO also proposed the following additions in the draft order :
The ITO then proceeded to comply with the terms of Section 144B of the Income-tax Act, 1961 ('the Act'). As required under Sub-section (1) of the above section, he forwarded a copy of the proposed order of assessment to the assessee. The assessee, in terms of Sub-section (2) of the said section, submitted its objections to the ITO on 23-2-1976. One of the objections related to the observations of the ITO in para 3 of the draft order. The assessee objected to the various defects as pointed out by the ITO in para 3 of the said order on the ground that they caused prejudice to the assessee's case and, therefore, deserved to be deleted. The assessee vide above letter dated 23-2-1976, took various other objections to the other proposed additions by the ITO. It is not known when the ITO forwarded the draft order together with the objections to the IAC. However, there is no dispute that the directions of the IAC were received by him on 15-3-1976. There is also no dispute that the said directions related only to the proposed additions of Rs. 68,931 and were issued after allowing the assessee an opportunity of being heard. In these directions, the IAC also observed that the remarks of the ITO as contained in para 3 of the draft order were passed on facts and might stay in the assessment order also. The ITO finally passed the assessment order on 15-3-1976, i.e., the date on which he had received the directions of the IAC relating thereto. The assessment was made on an income of Rs. 8,09,430. This amount, inter alia, included the surrendered amount of Rs. 2,66,700 also as it was also included in the total income computed in the draft order.
(3.) THE assessee appealed to the AAC in regard to the various additions made by the ITO. An additional ground was also taken before him by which the very validity of the assessment order framed by the ITO was challenged before him. It was submitted before him that the ITO had to complete the assessment within one year from the date of filing of the revised return, i.e., by 16-2-1976, and that he could not take advantage of the extended time permitted by Clause (iv) of Explanation 1 to Section 153 of the Act. According to this clause in computing the period of limitation for the purpose of the above section, the period (not exceeding 180 days) commencing from the date on which the ITO forwards the draft order under Sub-section (1) of Section 144B to the assessee and ending with the date on which he receives the directions from the IAC shall be excluded. THE contention of the assessee before the AAC was that the provisions of Section 144B were not attracted to the case inasmuch as the variation between the income proposed and that returned did not exceed the sum of Rs. 1 lakh as was prescribed by the CBDT under Sub-section (6) of Section 144B. It was also contended before him that the assessee's submission to the wrong jurisdiction did not validate the proceedings. A number of authorities were also relied upon in this connection. On behalf of the department it was submitted that the assessee had not furnished any revised return even after surrendering the amount of Rs. 2,66,700 and that the last return submitted was only on 17-2-1975, declaring an income of Rs. 4,73,125. It was pointed out to the AAC on behalf of the department that there was variation of over Rs. 1 lakh between the income declared being Rs. 4,73,125 and Rs. 8,13,542 proposed in the draft assessment order. An alternative submission was also made before the AAC that in any case the draft order itself was the final order in the light of the principle laid down by the Punjab High Court in the case of S. Sewa Singh Gill v. CIT  46 ITR 152 and as this order was made on 11-2-1976, it was well within the period of limitation.;