SEN, J. - (1.) THE Tribunal has referred the following question of law to this Court under S. 256 (1) of the IT Act, 1961 ('the Act') : "Whether, on the facts and in the circumstances of the case, and on the true and correct interpretation of S. 144B of the IT Act, 1961, there is a legal bar for the ITO to send a second draft assessment order and for the IAC to issue second set of directions and/or that the ITO had no power and authority to make a second draft assessment and complete the assessment on the said basis?" The facts relevant for the purpose of the case as stated by the Tribunal in the statement of the case are as under: The year of assessment involved is 1976-77 for which the previous year ended 31st Dec., 1975. In that year, the assessee was carrying on business of stevedoring under the name and style of C. Laurie & Co.. The assessee died in the course of the assessment proceedings on 2nd March, 1979. Pursuant to the search conducted at the Business premises and the residence of the deceased- assessee on 7/8th Jan., 1976 under S. 132 of the Act, cash, fixed deposit receipts and other documents and papers including a diary were seized during that search. An order under S. 132 (5) was made on 5th April, 1976 and the appeal against the order is still pending. After the search, the deceased-assessee filed the return for the year under consideration on 25th March, 1977. The said return was processed by the ITO and thereafter a draft assessment order was prepared by the ITO. A copy of the said order was forwarded by the ITO to the assessee on 23rd March, 1978 inviting his objections, if any, to the following additions, among others, as income from undisclosed source in the said draft order: (i) Payments of illegal gratification of Rs. 1,22,032 mainly made to M.L. Jha and Capt. Sikand of Angus Co Ltd., Since the source of the payments of the said illegal gratification to the aforesaid two persons of Angus Co. Ltd. with whom the deceased-assessee had business connection could not be explained, the ITO had proposed to treat those payments amounting to Rs. 1,222,032 as the deceased-assessee's income from undisclosed sources; and (ii) Investment in fixed deposit account in the name of Mrs. Basanti Lahiri, wife of the deceased- assessee, of Rs. 17,000 which was also.
(2.) THE assessee by his letter dt. 30th March, 1978 objected to the aforesaid additions proposed in the draft assessment order. On 31st March, 1978, the ITO forwarded the draft order along with the assessee's objections to the IAC, Range-III, Calcutta. During the course of hearing under S. 144B of the Act before the IAC, the assessee had requested the IAC to issue summons under S. 131 to the aforesaid parties to whom payments of the illegal gratification were alleged to have been made. The IAC, however, did not consider it worthwhile to summon them. According to the IAC , the diary seized in the course of the search being in the own hand writing of the assessee himself containing detailed records of mostly unaccounted money, should be taken as a genuine document. It was not for the Department to prove that the diary was not genuine. According to the IAC , the assessee did not adduce any evidence to show that the diary and the entries recorded therein were in any way bogus or fictitious. Under these circumstances, the IAC approved the aforesaid addition of Rs. 1,22,032. He also approved the addition of Rs. 17,000 being the fixed deposit in the name of the deceased-assessee's wife. The order covering the approval of the IAC was sent to the ITO on 18th Sept., 1978 and a copy thereof was endorsed to assessee . After the receipt of the aforesaid approval of the IAC, the ITO on 26th Sept., 1978 wrote a letter to the assessee seeking clarification in respect of certain entries made by him in the diary from January, 1975 to Dec., 1975. After some adjournments, on 30th Jan., 1979 some explanation was given regarding the expenses recorded in the said diary. At the same time, the assessee's son prayed for further time on the ground of serious illness of the assessee . This was not acceded to by the ITO, who on 23rd Feb., 1979 drew up another draft assessment order contemplating a further proposed addition of Rs. 1,68,590 found to be noted in the said personal diary of the deceased-assessee under the head 'Personal and domestic expenses', unaccounted for in regular books of account maintained by the assessee. A copy of the said draft order was once again forwarded to the assessee inviting his objections, if any, to the additions proposed in the draft assessment order. In the mean while, the assessee died. The ITO brought his legal heirs on the records. He, therefore, invited objections, if any, from the said legal heirs of the deceased- assessee to the additions proposed in the second draft order. The legal heirs, vide their letter dt. 10th July, 1979, objected to the additions proposed in the draft order. On 12th March, 1979, the ITO forwarded the second draft assessment order along with the objections, referred to herein- before, to the IAC , Range-III, Calcutta. The IAC , after due hearing in accordance with law, made certain adjustments and reduced the additions proposed for the first time in the second draft order from Rs. 1,68,590 to Rs. 1,48,490. On receipt of the second approval of the IAC , the ITO passed the assessment order under S. 143 (3) of the Act on 30th March, 1979 on a total income of Rs. ,58,129 against the legal heirs of the deceased-assessee. 3. Aggrieved by the said order, the legal heirs brought the matter by way of appeal before the CIT (A) -IX Calcutta. The first point take before him was that after the issue of the directions by the IAC on the first occasion in September, 1976, in respect of the first draft order, the ITO had no option but to complete the assessment in accordance with such instructions. He (ITO ) after receiving these instructions could not once again re-embark on fresh enquiry. As such, proceedings resulting in the second draft assessment order and culminating in the directions by the IAC in respect of the second draft order were illegal and void ab initio. The ITO, according to the legal heirs of the deceased-assessee, traveled outside his jurisdiction when he started fresh investigation after receipt of the first set of instructions from the IAC. The assessment order passed on 31st March, 1979 should be annulled.
(3.) THE CIT (A) held: "I am unable to accept the proposition that the ITO is precluded from submitting more than one draft order within the period of limitation fixed under S. 153, but without taking into account the period referred to in cl. (iv) of Explanation I to S. 144B. The section does not say that the IAC is not competent to issue more than one set of directions. Sec. 144B (5) states that the directions of the IAC shall be binding on the ITO but there is nothing in the section to suggest that the IAC is precluded from issuing more than one set of directions." ;