BANARSIDAS BHANOT AND SONS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the I.T. Act, 1961, referring for our answer the following questions of law :

(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order passed by the Income-tax Officer and the Appellate Assistant Commissioner and directing the Income-tax Officer to frame a fresh assessment after duly complying with the provisions of Section 144B of the Income-tax Act?"

(3.) THE issuance of a draft order as required by Section 144B is not necessary to clothe the ITO with jurisdiction to make the assessment. THE ITO has jurisdiction to make the assessment under Section 143. Section 144B provides special procedure to be followed in cases where the variation in the income or the loss returned which is prejudicial to the assessee exceeds the amount fixed by the Board, i.e., Rs. 1 lakh. In such a case, a draft order is required to be served on the assessee and if the assessee takes objection within seven days, the ITO has to seek the directions of the IAC by forwarding the draft order and the objections to him. A direction issued by the IAC for the guidance of the ITO is binding on him and he has to complete the assessment in the light of such a direction. THE entire scheme of Sections 143 and 144B will go to show that the jurisdiction to assess continues in all cases with the ITO; but in cases where the variation in the income or loss returned is to exceed Rs. 1 lakh, a special procedure has to be followed and if the assessee files an objection within the time fixed, the guidance of the IAC has to be obtained. THE object behind the issuance of a draft order is to give a comprehensive opportunity to the assessee to object to the proposed variations in the income or loss returned by the assessee. THE question whether a defect in the draft order is fatal to the assessment has to be decided having regard to the object behind the issuance of the draft order. It is true that a. draft order of assessment like the final order of assessment should contain the quantification of the total income but the omission to quantify the total income in every case will not nullify the assessment if no prejudice was caused to the assessee. In the instant case, the draft order contained the various additions and disallowances which the ITO proposed in making the assessment under different heads and, therefore, there was full opportunity to the assessee to meet the proposed variations in the income returned by it. THE draft order was wanting merely in the computation of total income, the necessary material for which was already mentioned in the order. THE defect in the draft order was, therefore, not such which could have in any way caused prejudice to the assessee. Indeed the assessee had no difficulty in filing its objections but as it did not do so within 7 days, the assessment order was made before the receipt of the objections by the ITO. THE assessment order passed by the ITO in the instant case could not be said to be a nullity even though the draft order suffered from the defect that it did not contain the computation of total income.