V.K. Singhal, J. - (1.) AT the request of the assessee, the following five questions of law have been referred by the Income-tax Appellate Tribunal in respect of the assessment year 1978-79 under Section 256(1) of the Income-tax Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the order of the Commissioner of Income-tax (Appeals), annulling the assessment order dated August 28, 1981, and restoring the matter back to the Inspecting Assistant Commissioner to proceed afresh with the examination of the case ?
(2.) WHETHER, the Tribunal having found that the directions of the Inspecting Assistant Commissioner were purely with a view to buy time for carrying out investigations and also finalising the assessment order, the impugned order was not liable to be annulled but to be restored to the Inspecting Assistant Commissioner ? Whether, the Tribunal was right in law in reviving the proceedings when admittedly the assessment order made on August 28, 1981, was beyond time prescribed under Section 153 of the Act and was barred by time ? Whether, the Tribunal was right in law in reviving the assessment on November 14, 1985, when the assessment became barred by time on March 31, 1981, and was made on August 28, 1981, in contravention of the provisions of Section 144B of the Act and also in violation of the provisions of Section 144A of the Income-tax Act, 1961 ? Whether, the Tribunal was right in law in not annulling the assessment order dated August 28, 1981, when the assessment order became barred by time on March 31, 1981 ?" 2. The facts relevant for the proper disposal of the above questions are that the assessee is a firm engaged in the manufacture of snuff from tobacco after mixing perfumery therewith. The returns of income were filed on August 28, 1978, declaring an income of Rs. 2,76,193. The Income-tax Officer, after scrutinising the account of the assessee, found that an addition of Rs. 10,000 is called for and, therefore, he sought the guidance of the Inspecting Assistant Commissioner in accordance with the provisions of Section 144A, as per his letter written on March 5, 1981. The Inspecting Assistant Commissioner gave the direction to the Income-tax Officer on March 5, 1981, that since no time is left to give a hearing to the assessee, the Income-tax Officer may complete the assessment by estimating the gross profit rate as disclosed in the assessment year 1976-77 and the proportionate additions be made on the sale. It was further directed that since the additions would be more than Rs. 1 lakh, therefore, the matter has to be proceeded with in accordance with the provisions of Section 144B and as such there would be enough time for examination of the case by the assessee as well as by the Department. On the basis of these directions, the Income-tax Officer framed a draft order under Section 144B and served it on the assessee on March 29, 1981. The objections were filed by the assessee which were forwarded to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner also heard the assessee. According to the Income-tax Officer, the proposed additions were to the extent of Rs. 2,30,000. After hearing the assessee, the Inspecting Assistant Commissioner was of the opinion that the additions required to be made in this case should be to the tune of Rs. 39,095. The assessment order was framed by the Income-tax Officer in pursuance of the directions so received under Section 143(3) of the Act. 3. An appeal was preferred against the said order and an objection was taken that the reference under Section 144B is invalid. The assessment is barred by limitation. The Commissioner of Income-tax (Appeals) reproduced the contents of the letter dated March 5, 1981, in his order and came to the conclusion that the case had already become time-barred and the reference under Section 144B was apparently made to gain time for the Department. As the assessment had already become barred by limitation, it was directed to be annulled. The appeal was allowed. 4. The Revenue challenged this order of the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal and it was submitted that the Income-tax Officer can make a reference under Section 144A to the Inspecting Assistant Commissioner for seeking directions with regard to enhancement over and above what is proposed by the Income-tax Officer and the only thing to be complied with was that an opportunity was to be given to the assessee. The directions which were given in this case were for making the assessment on the basis of gross profit rate as was in the assessment year 1976-77 with the further direction that the additions so made would result in making a proposed draft assessment order under Section 144B, in which the assessee as well as the Revenue would get time to examine the issue. The case of the Department was that the Income-tax Officer has the power to seek directions under Section 144A as well as Section 144B and in the present case, the directions which were sought under Section 144A, the only irregularity which has been committed by the Inspecting Assistant Commissioner was that the assessee was not heard and in view of the decision of the apex court in the case of Guduthur Brothers [1960] 40 ITR 298, if the Income-tax Officer has the jurisdiction then the stage from which the irregularity has occurred is required to be corrected. The Tribunal found that in the present case, the Inspecting Assistant Commissioner has denied the opportunity to the assessee while giving directions under Section 144A and no direction prejudicial to the assessee could have been given without affording reasonable opportunity to the assessee of being heard. In these circumstances, the order of the Commissioner of Income-tax (Appeals) was set aside and directions were given to the Inspecting Assistant Commissioner to proceed afresh with the examination of the case from the time the reference was made to him. 5. Mr. Ranka has made a number of submissions including that there is no power under Section 144A of the Income-tax Act for giving directions to frame the assessment under Section 144B and that the Tribunal could not have extended the time for framing the assessment which has already become time-barred. We have considered over the arguments of learned counsel for both the parties. The provisions of Section 144A provide the procedure for the exercise of power by the Inspecting Assistant Commissioner (now Deputy Commissioner). In this section, the Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income-tax Officer or on an application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer. It has further been provided that any directions which are prejudicial to the assessee shall not be issued before an opportunity is given to the assessee to be heard. A bare perusal of the section provides that it is procedural in nature. However, in order to safeguard the interest of the assessee it has been considered necessary that an order prejudicial to the assessee cannot be passed without giving him an opportunity of being heard. This section empowers the Inspecting Assistant Commissioner to issue such directions as he thinks fit. The words "such directions as he thinks fit" are wide enough and could be in respect of any matter relevant for the purpose of assessment of the assessee. In order to obtain the necessary figures as a result of scrutiny to be made the assessment can be completed by estimating the gross profit rate as disclosed in the assessment year 1976-77 by proportionately increasing sales of the year. The discrepancies which were pointed out by the Income-tax Officer in the letter sent to the Inspecting Assistant Commissioner were also taken into consideration and it was said that the addition is likely to be more than one lakh of rupees and, therefore, the matter has to be considered when the objections under Section 144B are received. This was done without giving the opportunity. Applying the gross profit rate as disclosed in the assessment year 1976-77 and proportionately increasing the sale of the year and also highlighting the difficulties amounted to a direction which could have been given by the Inspecting Assistant Commissioner only after providing an opportunity to the assessee. This procedural lapse was sought to be rectified by the Income-tax Appellate Tribunal by following the decision of Guduthur Bros. v. ITO [1960] 40 ITR 298 where penalty proceedings were initiated and no opportunity of hearing was given. The order imposing the penalty was set aside and directions were given to continue the proceedings from the stage of notice. It was observed by the apex court that where the illegality vitiated the proceedings after the same were lawfully initiated, the notice issued did not cease to be operative and it was open to the Income-tax Officer to take up the matter at the point at which the illegality supervened and to correct his proceedings. It was held that the Income-tax Officer had jurisdiction to continue the proceedings from the stage at which the illegality had occurred.
(3.) IN the case of K. Ashok Kumar v. CIT [1986] 162 ITR 543 (Kar), the notice under Section 139(2) of the INcome-tax Act was served on the assessee (deceased) when he was alive but no returns were filed. The proceedings were validly initiated and another notice to the legal representatives under Section 139(2) was not issued. The Tribunal directed that the proceedings should be held de novo from the stage of Section 144B, since it was brought to the notice of the INcome-tax Officer that there were other legal representatives and their contentions also should be considered before making a reference to the INspecting Assistant Commissioner under Section 144B. The decision of Guduthur Bros. case [1960] 40 ITR 298 (SC) was followed and it was held that the direction of the Tribunal is in accordance with law. The Punjab and Haryana High Court in the case of Bal Erectors v. CIT [1989] 180 ITR 625 has held that the Commissioner of Income-tax is competent to set aside the assessment made without complying with the provisions of Section 144B of the Income-tax Act, 1961, and direct a fresh assessment. In the case of Des Raj Kul Bhushan v. CIT [1989] 180 ITR 297, it was held by the Punjab and Haryana High Court that failure to follow the procedure laid down in Section 144B does not make the assessment null and void which could be set aside by directing the Income-tax Officer to frame a fresh assessment in accordance with law. In the case of Joseph Kuruvila v. CIT [1989] 179 ITR 139, the Kerala High Court held that the provisions of Section 144B are only procedural and a breach of that provision is not a fundamental or jurisdictional infirmity which would render the assessment void or a nullity. The decision in the case of CIT v. Usha Aggarwal [1989] 178 ITR 406 (P & H) was a case where it was found that the provisions of Section 144B did not apply to the assessments under Section 147 read with Section 148, and the reassessment has to be made within the time-limit provided for reassessment. The notice was served under Section 148 on the assessee and the assessment was not completed within one year from the service of notice under Section 148, it was held that the said assessment is barred by limitation and the draft assessment could not be treated as a valid assessment. The draft assessment order is not to be treated as an assessment order in this case and, therefore, this decision is not applicable. ;