V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following questions of law arising out of its order dt. 18th June, 1982, in respect of the asst. year 1975 -76 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of S. 144B of the INCOME TAX ACT, 1961, which came into effect from 1st Jan., 1976, are procedural in nature and, therefore, they had retrospective effect and were applicable to all assessments pending on 1st Jan., 1976, irrespective of the year of assessment ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the assessee's claim that realisation made by the official liquidator for running the business for the beneficial winding up of the company in view of the provisions made by the Companies Act as well as the order passed by the Hon'ble Company Judge, Rajasthan High Court, were not liable to tax under the INCOME TAX ACT, 1961 ? 3. If the answer to the second question is in the negative, whether the Tribunal was justified in holding that the assessee was not entitled to deduction of interest to the creditors on the agreed rate of interest of 12% or at the rate of 4% of the amount of the claim admitted by the official liquidator ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to depreciation on immovable assets of Maratha Mandir, Bombay ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that deduction of interest under Ss. 220 and 139 of the IT Act was not allowable?"
(2.) THE brief facts of the case are that a draft order under S. 144B was forwarded to the assessee on 29th Dec., 1977, as the variation between the returned income and assessed income was more than Rs. 1 lakh. The assessee filed its objection to the draft order and the case was referred to the AAC (sic). On receipt of the direction under S. 144B on 16th March, 1978, a copy of which was also sent to the assessee, the assessment was also framed on 31st May, 1978. So far as question No. 1 is concerned, the submission of the assessee before the CIT(A) was that the provisions of S. 144B came into force only on 1st Jan., 1976, and, therefore, were not applicable for the asst. year 1974 -75. The objection which was taken before the IAC was rejected and the CIT(A) held that the said objection is only a procedural part of the enactment and, therefore, would apply to all the matters in which the assessment has to be framed after that date. The Tribunal also came to the conclusion that the provision is absolutely procedural and not substantive and, therefore, will be applicable to all assessments pending on the date of coming into force of this section.
(3.) THE provisions of S. 144B were omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), w.e.f. 1st April, 1989. The said section provided that when an assessment is to be made under sub -s. (3) of S. 143 and the ITO proposes to make variation of the income then the matter has to be referred to the IAC. As a matter of fact this provision has been inserted for safeguarding the assessee and was a beneficial legislation. If the procedural provision is enacted in a legislation, then it would apply to all pending assessments. The section as contemplated in a situation where the assessment is made under S. 143(3) and the variation proposed by the ITO is beyond the limit prescribed by the Board, then a draft of such an order has to be sent to the assessee. The assessee may submit his objections in respect of the proposed draft within a period of seven days from the receipt of the draft or within such further period not exceeding 15 days which the ITO may allow and if the objections are received within time, then the ITO has to forward the draft order to the IAC along with objections. In this section, no prejudicial order could be passed against the assessee without giving him an opportunity of being heard and thereafter the IAC may give a direction, after hearing the assessee. It would be evident from the procedure which has been given in that section that it is merely procedural and that it was intended to provide an opportunity to the assessee so that any allegation of arbitrariness or not providing proper opportunity by the ITO may not be alleged at a subsequent stage. The provision being absolutely procedural has to be followed for all the assessments where variation in the income returned was more than Rs. 1 lakh and, therefore, the Tribunal was justified in holding that the provisions of S. 144B of the Act are procedural in nature and will be applicable to all assessments which were pending on the date of coming into force of the said section.;