P.V.B. Rao, Judicial Member -
(1.) THIS appeal has come up for hearing before a Special Bench, in view of the following question referred to by the President:
Whether an assessee who fails to object to an addition or disallowance made in a draft order under Section 144B, loses his rights to agitate against the said addition or disallowance in an appeal filed under Section 246 ?
The above question was obviously referred in view of the conflicting views expressed by different Benches of the Tribunal.
(2.) So far as the question for consideration before the Special Bench is concerned, the facts relevant to the same are very limited and it may be stated now. The assessee is a partnership firm carrying on business of distribution, production and exhibition of films. It filed a return of income on 27-11-1976. A draft assessment order was served on the assessee on 30-3-1979 under Section 144B of the Income-tax Act, 1961 ("the Act"). Since there was variation in the income returned and the income proposed to be assessed by more than a lakh of rupees, the assessee by its letter dated 3-4-1979 requested for extension of time of two weeks for submission of objections and the ITO allowed the time. However, no objections were filed by the assessee. The ITO, therefore, completed the assessment under Section 144B(3), read with Section 143(3) of the Act. The assessee filed an appeal before the Commissioner (Appeals) and inasmuch as objections against the assessment were accepted, the revenue has come up in appeal before the Tribunal. At the time of hearing of the appeal by the Division Bench, the learned departmental representative filed an additional ground stating that the assessee's appeal before the Commissioner (Appeals) was not maintainable, since the assessee did not file any objections after having received the draft assessment order. The additional ground was admitted. But when the question was sought to be decided the Bench hearing the matter found conflict between the decisions of different Benches of the Tribunal on the issue arising out of the additional ground. That is why the President was pleased to constitute a Special Bench for resolving the conflict.
The revenue was represented by Shri R.J. Joshi, standing counsel for the department. At the outset he pointed out that the purpose behind enactment of Section 144B is to reduce the appeals by having a higher forum for the purpose of processing an assessment and thereby making the assessments on agreed basis. He further pointed out that Section 144B is intended to be like a mini appeal. In that context, if the assessee does not raise any objections to the draft assessment order, it would amount to acceptance of the draft and the variations suggested by the ITO. This would, according to Shri Joshi, mean that the assessee has agreed and as such has no grievance against the assessment. If there is no grievance, the assessee cannot possibly feel aggrieved to file an appeal under Section 246. This is the sum and substance of his submission. He mainly relied on the decision of the Bombay High Court in the case of Jivatlal Purtapshi v. CIT  65 ITR 261. He has also referred to the Allahabad High Court decision in the case of Sterling Machine Tools v. CIT  123 ITR 181. He relied on some passages from the case reported in AIR 1971 SC 385. He further read out a few passages from the book of Income-tax Law by Chaturvedi and Pithasaria as also from the book of Income-tax Law by Sundaram which deal with the idea behind the enactment of Section 144B. In reply the learned counsel, Mrs. Shobha Jagtiani, submitted as follows : There was no acquiescence or acceptance of the draft assessment order by merely not filing objections. The assessment was made under Section 143(3) and as such is appealable under Section 246(1)(c). It is a procedural section and is intended for the purpose of completing the assessment. It is not a substantive section. Reference to the IAC is a matter of procedure for finalising the assessment. If the assessee fails to file the objections, he loses the chance of getting the assessment tested before a higher authority and nothing else. This, according to the assessee, might mean that losing certain benefits which the assessee otherwise would have got if the assessee filed objections and the matter was heard by (he IAC. Not objecting to the draft assessment order cannot be the same as agreeing to the order. There is no express provision in the statute barring an appeal. The scheme, of Section 144B itself does not contemplate foregoing of a right of appeal in a case where no objections are filed. Finally, it is pointed out that even if there is an admission it can be explained away and an appeal could be filed and more so in a case where there is no admission expressly or by implication. The learned counsel also pointed out that the issue that was involved in the assessment was contested and the assessee produced all the evidence that it was capable of.
(3.) BEFORE we look to the provisions of Section 144B, we may initially point out that the provisions of Section 144B were enacted for the purpose of reducing the mounting arrears of appeals in tax cases. This is what has been stated by the Finance Minister while introducing the amendment by way of Section 144B. When finally the amendment came into statute book, the relevant provisions of the section reads as follows :
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 by the Board under Sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.
(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft 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 binding on the Income-tax Officer.
On a bare perusal of the above provisions, it is manifest that in a case where the variation between the income returned and the income sought to be assessed as proposed by the draft assessment order is more than Rs. 1 lakh [prescribed by the Board of Direct Taxes under Section 144B(1)], the ITO is not to finalise the assessment. He has to make a draft of the assessment and forward it to the assessee in the first instance. The assessee can raise objections to the draft assessment order and bring his point of view. The moment the assessee files objections to the draft, the ITO is precluded from completing the assessment. He has to send the draft along with the objections raised by the assessee to the IAC. The IAC will then looking to the draft order as well as the objections and after going through the entire records will give such directions as he feels fit. The IAC will have to hear the assessee before any directions are given which are prejudicial to the assessee. In other words, before the IAC accepts the draft assessment order overruling the objections raised by the assessee, he will have to give an opportunity of hearing to the assessee.
In this case the assessee having initially thought of filing objections took time which was granted by the ITO, but for reasons unknown (reasons being not on record) objections were not filed. The question, therefore, to be considered is whether in these circumstances the assessee can be precluded from filing an appeal or that the assessee's appeal before the first appellate authority is not maintainable. This question can be answered naturally by looking to the provisions of Section 246 which gives the right of appeal along with the provisions of Section 144B. The interaction of these two provisions will give us a clue to the controversy raised in this appeal. At this stage, it will be relevant to refer to the provisions of Section 246 (which are necessary for our purpose) :
246. (1) Subject to the provisions of Sub-section (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order :
(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed or to the status under which he is assessed ;
(2) Notwithstanding anything contained in Sub-section (1), any assessee aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against such order :
(f) an order of assessment under Sub-section (3) of Section 143 or Section 144 made on the basis of directions issued by the Inspecting Assistant Commissioner under Section 144B ;
(i) an order made by an Income-tax Officer under the provisions of this Act in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct.
By a mere reading of Section 246(1)(c) it is evident that an assessment made under Section 143(3) is appealable. In this case obviously the assessment was made under Section 143(3) though read with Section 144B. The point is whether that would make any difference as to the maintainability of appeal. Ordinarily appeal lies to the AAC under Section 246(1) against the various orders mentioned therein. But after the creation of the new posts of the Commissioner (Appeals) appeals lie to the Commissioner in regard to certain orders mentioned under Sub-section (2). Clause (i) provides an appeal to the Commissioner (Appeals) against an assessment made under Section 143(3) read with Section 144B. In this case no doubt the assessment was not made on the basis of directions issued by the IAC under Section 144B as there are no directions in fact. Ordinarily, therefore, appeal would lie to the AAC, but the appeal came to be heard by the Commissioner (Appeals) because of Clause (i) of Sub-section (2) of Section 246. It appears that the Board directed that where the additions made by the ITO are more than a lakh of rupees, the appeals would lie to the Commissioner (Appeals) and that is the reason why in this case the Commissioner (Appeals) heard the appeal. We have given these details only to make the matter clear, as some doubts arose in the course of hearing as to why and how the Commissioner (Appeals) heard the appeal. Be that as it may, we will have to come to the basis and real issue raised before us.;