Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : Draft Order Under Section 144B Of Income Tax Act Should Be Referred To IAC Conferred Concurrent Jurisdiction.
JUDGEMENT TITLE : C.I.T. Allahabad Vs. M/S. S. Sugar Mills Pvt. Ltd., Gorakhpur On 11/23/2010 By Allahabad High Court
CASE NO : INCOME TAX REFERENCE NO. 57 OF 1986
CORAM : Hon'ble Yatindra Singh,J. And Hon'ble Prakash Krishna,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

AFR
Court No. 37
Income Tax Reference No. 57 Of 1986
Petitioner :- C.I.T. Allahabad
Respondent :- M/S. Saraya Sugar Mills Pvt. Ltd., Gorakhpur
Petitioner Counsel :- Sri Shambhu Chopra
Respondent Counsel :- Sri Anil Sharma, Sri VB Upadhaya

Hon'ble Yatindra Singh, J.
Hon'ble Prakash Krishna, J.

1. The Main Question Involved In This Reference Is,
Whether Under Section 144(B) Of The Income Tax Act, 1961 (the Act) The Draft Assessment Order Was Required To Be Sent To,
The Inspecting Assistant Commissioner (IAC) Having Territorial Jurisdiction (or Administrative Control) Over The Income Tax Officer (ITO); Or
The IAC, Who Was Also Conferred Powers And Functions (jurisdiction) Of The ITO Jurisdiction Under Section 125A Of The Act.

THE FACTS
Some Observations
2. There Is Difference In The Dates In The Statement Of The Case As Well As The Orders Passed By The Different Authorities. The Statement Of The Case Mentions One Set Of Dates; Whereas, The Orders Indicate The Other Set Of Dates. The Counsel For The Parties Are Also Not Able To Make Statements Regarding The Correct Dates. Luckily, It Does Not Effect The Decision Of The Case.

3. In The Judgement, We Have Indicated The Date That Appeared To Be Correct And The Other Date (either In The Statement Of The Case Or In The Different Orders) Are Mentioned In The Brackets. We Say No More, Except, A Greater Care Ought To Have Been Taken; We Leave It Here.

Facts Of The Case
4. M/s Saraya Sugar Mills Pvt Ltd. Gorakhpur (the Assessee) Is A Private Limited Company, It Manufactures And Sells Sugar. The Assessee Filed Its Return For The Assessment Year (AY) 1977-78 Before The Income Tax Officer A-ward, Gorakhpur (the ITO-Gorakhpur). He Was The Assessing Officer For The Assessee. According To The Territorial Jurisdiction, The Inspecting Assistant Commissioner, Gorakhpur (the IAC-Gorakhpur) Had The Administrative Control Over Him.

5. The Commissioner Income Tax (the Commissioner) By Notification Dated 31.7.1977 (31.1.1977) Under Section 125A Of The Act, Conferred Powers And Functions Of The ITO-Gorakhpur Regarding The Assessee On The Inspecting Assistant Commissioner, Range-II, Allahabad (the IAC-Allahabad) Rather Than On The IAC-Gorakhpur.

6. The IAC-Gorakhpur Sent A Letter Dated 1.9.1977 To The ITO-Gorakhpur Informing Him To Assess The Assessee Keeping In Touch With The IAC-Allahabad. This Was Also Acknowledged By The ITO-Gorakhpur By His Letter Dated 5.9.1977.

7. The IAC-Allahabad Issued Guidelines Dated 8.11.1979 And 23.11.1979 For Assessment Of The Assessee. Subsequently, As The Variation On The Income Was To Exceed More Than One Lakh Rupees {the Amount Fixed By The Board Under Section 144 B(1) Of The Act}, The ITO-Gorakhpur Prepared A Draft Copy Of The Assessment Order On 27.3.1980 (25.3.1980) And Sent It To The Assessee For Objections.

8. The Assessee Filed Its Objections. Thereafter, A Copy Of The Draft Order Alongwith The Objections Was Sent To The IAC-Allahabad, Who Issued The Directions On 23.9.1980 (25.9.1980).

9. In Pursuance Of The Directions Of The IAC-Allahabad, The ITO-Gorakhpur Passed An Assessment Order On 25.9.1980 (27.9.1980) Assessing The Income To `38,58,904.00.

10. The Assessee Filed An Appeal Before The Commissioner Income Tax Appeals, {CIT-A). He Vide His Order Dated 2.3.81 Held That:
The Assessment Order Was Not Barred By Time. {He Also Awarded Some Relief (not Relevant Here) On Merit To The Assessee};
The Assessee Was An Industrial Company; And
It Should Be Taxed Accordingly.

11. The Assessee Filed An Appeal Before The Income Tax Appellate Tribunal, Allahabad Bench Allahabad (the Tribunal). It Was Referred To A Special Bench. The Special Bench Vide Its Order Dated 6.3.1985 Held That:
Once Concurrent Jurisdiction Is Conferred On The IAC Then He Is Deemed To Have Exercised The Powers And Performed The Functions Vested In Him Under Section 125A Of The Act;
In Any Case, The IAC-Allahabad Had Exercised The Powers And Performed The Functions Vested In Him Under Section 125A Of The Act;
In View Of Section 144B(7) The Provisions Of Section 144B Were Not Applicable;
The Assessment Order Was Barred By Time And Assessment Order Was To Be Set Aside.

12. On The Aforesaid Finding, The Appeal Of The Assessee Was Allowed. This Judgement Of The Special Bench Of The Tribunal Is Reported In Saraya Sugar Mills (P) Ltd. Vs ITO (1985) 25 ITJ (All) 196= (1985) 13 ITD 163 (All)1.

13. The Income Tax Department (the Department) Filed An Application Under Section 256(1) Of The Act For Referring 17 Questions To The High Court For Opinion. It Was Partly Allowed On 11.4.1986 And Six Questions Were Referred To The High Court.

THE QUESTIONS REFERRED
14. We Have Heard Sri Shambhu Chopra, Standing Counsel For The Department And Sri VB Upadhyaya, And Sri Anil Sharma For The Assessee. The Following Six Questions Have Been Referred For Our Opinion:
(i)Whether The Tribunal Was Justified In Holding That Under Section 144B The Draft Assessment Order Can Be Referred To The IAC Within Whose Territorial Jurisdiction The ITO Performs His Functions And Not To The IAC On Whom Jurisdiction Has Been Conferred Under Section 125A Of The Act?
(ii)Whether Under Section 125A Once A Concurrent Jurisdiction Has Been Conferred Upon The IAC The ITO Can Exercise Only Such Powers And Functions To Make The Assessment Which The IAC Allows Him To Do So, Even Though Inspite Of Concurrent Jurisdiction Having Been Conferred Under Section 125A., The IAC Has Neither Assumed The Jurisdiction Of ITO Nor Has Performed The Functions Of The ITO In Pursuance Of An Order Under Section 125A?
(iii)Whether Admittedly The Proceedings For Assessment Being Pending Only Before The ITO And No Proceeding Being Pending Before The IAC And All The Statutory Notices As Well As The Non-statutory Letters And Notices Having Been Issued By The ITO Only To The Assessee And All The Letters And Applications Having Been Filed And Given By The Assessee Only To The ITO And Not To The IAC Till The Stage Of Passing Of The Order Dated 27th March, 1980, The Tribunal Was Not Justified In Overlooking This Fact And Coming To The Conclusion That The IAC Has Exercised The Powers And Performs The Functions Of The ITO?
(iv)Whether The Assessee's Case Is Not Covered Under Section 144B(7) Of The Act?
(v)Whether Every Page Of The Assessment Order Dated 27.3.80 Having Been Signed And Sealed By The ITO The Said Order Dated 27.3.1980 Was A Valid Order In View Of Section 292B Of The Act?
(vi)Whether Even Assuming Without Admitting That The Order Dated 27.3.1980 Was Not A Valid Order Under Section 143(3) The Tribunal Instead Of Annulling The Order Should Have Set Aside The Case With A Direction To The ITO To Treat The Order Dated 27.3.1980 As A Final Order?

1st QUESTION: REFERENCE TO IAC HAVING CONCURRENT JURISDICTION--PROPER
15. Sections 125 And 125A Of The Act Were Titled As 'Powers Of Commissioner Respecting Specified Areas, Cases, Persons Etc.' And 'Concurrent Jurisdiction Of Inspecting Assistant Commissioner And Income-tax Officer. They Empowered The Commissioner To Confer Powers Of An ITO On An IAC With Different Consequences.

16. Section 125 (see Below)2 Of The Act Empowered The Commissioner To Confer Powers And Functions Of An ITO On An IAC In Respect Of Any Area Or Person Or Class Of Persons Or Cases Or Class Of Cases Or Incomes Or Classes Of Income. This Was Subject To The Conditions Mentioned In The Order. In Such A Situation, Subject To Any Condition Mentioned In The Notification, It Was Only IAC, Who Could Exercise The Power And Performs The Functions But Not The ITO.

17. Whereas, Section 125A (see Below)3 Of The Act, Empowered The CIT To Confer Concurrent Powers On An IAC In Respect Of The Same Subject Matter. In Case The Power Was Conferred On The IAC Under Section 125A Then It Could Be Exercised Concurrently By An ITO Or An IAC. Both Could Assess An Assessee. There Is Nothing In The Act To Prohibit An ITO From Exercising The Power Or Performing The Functions.

18. Sub-section (2) And (3) Of Section 125A {Section 125A (2) Or 125 (3)} Of The Act Provided That In Case Concurrent Jurisdiction Was Conferred Then The IAC Could Issue Binding Directions And Guidelines To The ITO.

19. Sub-section (1) Of Section 144B {Section 144B (1)} (see Below)4 Of The Act Provides That Where ITO Was To Vary The Assessment Under Section 143 (3) Of The Act By An Amount More Than The Amount Fixed By The Board Then He Was To Forward The Draft Order To The Assessee. The Assessee Could File His Objections Against The Draft Order Under Section 144B (2) Of The Act.

20. In Case The Assessee Did Not Object To The Same And Accepted The Variation Then The ITO Could Pass The Assessment Order On The Basis Of Draft Order {see Section 144B (3) Of The Act}. Otherwise, The Draft Order Along With Objections Were To Be Sent To The IAC Who Could Issue The Directions For The Guidance Of The ITO. {see Section 144B (4) Of The Act}. These Were Binding Upon Him {see Section 144B (5) Of The Act}.

21. The Intention Of The Legislature Behind Section 144B Appeared To Be That In Case Of Large Variation, The Case Should Be Decided Under The Guidance Of A Senior Officer And An Assessee Might Also Object To The Same Before It Was Finalised. This Was For The Benefit Of An Assessee To Save Him From Unnecessary Harassment. It Was For This Reason That His Objections Were Invited And The Draft Order Was Required To Be Sent To The IAC. It Was Also For Safeguarding The Interest Of Revenue: An Experienced And Senior Officer Was Less Likely To Commit A Mistake.

22. Similar Intention Was Behind Section 125A Of The Act. It Was For This Reason That The IAC, A Higher Officer, Was Given Concurrent Jurisdiction. He Could Issue Binding Directions And Guidelines.

23. If The Intention Of The Legislature Was As Indicated In The Preceding Paragraphs, Then It Seems Strange That An ITO Should Work Under The Guidelines And Directions Of One IAC And To Get The Draft Order Finalised By Another IAC: The One Who Was Supervising And Could Pass The Order Himself, Should Be The One To Finalise It Too.

24. In Our Opinion, The Draft Order Along With Objections Was To Be Sent To The IAC Who Was Conferred Concurrent Jurisdiction With The ITO And Under Whose Supervision And Guidance The ITO Was To Work.

25. The ITO-Gorakhpur Was Under The Administrative Control Of The IAC-Gorakhpur As He Had The Territorial Jurisdiction. However, The Concurrent Jurisdiction Was Conferred On The IAC-Allahabad. The IAC-Gorakhpur Also Sent A Letter On 1.9.1977 To The ITO-Gorakhpur That He Should Make Assessment, Keeping In Touch With The IAC-Allahabad. The IAC-Allahabad Had Also Issued Guidelines Regarding The Assessee. In Our Opinion, The Draft Order Along With Objections Were Rightly Sent To IAC-Allahabad And Not To IAC-Gorakhpur.

26. In View Of The Above, The Question No. 1 Is Answered In The Negative, In Favour Of The Department And Against The Assessee.

2nd To 4th QUESTIONS: IAC-ALLAHABAD HAD NOT PERFORMED FUNCTIONS OF ITO
27. The IAC-Allahabad Was Not Only Conferred Concurrent Jurisdiction Under Section 125A Of The Act But Had Also Issued Guidelines. In Light Of These Facts, The Counsel For The Assessee Submitted That:
(i) The ITO-Gorakhpur Should Have Passed The Assessment Order In Consonance With The Guidelines. There Was No Necessity To Refer The Case To The IAC-Allahabad;
(ii) The Time Spent In Forwarding The Draft Order To The Assessee Till The Directions Were Received From IAC -Allahabad Could Not Be Excluded In View Of Section144B (7) Of The Act As Section 144B Was Not Applicable For The Following Reasons:
(a) If An IAC Is Conferred Concurrent Jurisdiction Under Section 125-A Of The Act, Then He Ipso Facto Exercises The Powers And Performs The Functions Of An ITO;
(b) In This Case The IAC-Allahabad Not Only Issued Guidelines Specific To The Case Of Assessee, But The Guidience Dated 23.11.1979 States:
'I Will Assume Jurisdiction Over The Case And Complete The Assessment'
It Shows That He Had Exercised The Powers As Well As Functions Of The ITO-Gorakhpur;

(i) Case Had To Be Referred
28. It Is Correct That Section 125A Of The Act Was Applicable And The IAC-Allahabad Had Issued The Guidelines But This Does Not Mean That Section 144B Of The Act Was Not Applicable; Or Its Applicability Was Excluded.

29. Section 144B (1) Of The Act Was Titled As 'Reference To Inspecting Assistant Commissioner In Certain Cases'. It Provided That In Case The Variation In Income Or Loss In The Assessment Under Section 143 (3) Of The Act Was More Than The Amount Fixed By The Board Then,
The ITO Was To Prepare The Draft Order And Send It To The Assessee; And
If The Assessee Objected To The Same Then The ITO Was To Send The Draft Order Alongwith The Objections To The IAC For His Directions And Guidance.

30. Sub-sections, Namely (1) And (4) Of Section 144B Used The Word 'shall' And Not 'may'. This Indicated Mandatory Nature Of The Duty Cast Upon The ITO. He Was Bound To Refer The Draft Order To The IAC: He Had No Choice In This Regard Unless The Case Fell Under Section 144B (7) Of The Act.

31. In Our Opinion,
Section 144B(1) And 144B(2) Were Mandatory;
The ITO Was Bound To Refer The Draft Order Alongwith The Objection To The IAC Unless The Case Fell Under Section 144 B(7) Of The Act; And
If The ITO Did Not Refer The Draft Order Alongwith Objections To The IAC-Allahabad Then His Order Would Have Been Liable To Be Set Aside On This Ground Alone.

32. Section 147 B(7) Of The Act Provided That In Case The IAC Exercised The Powers Or Performed The Functions In Pursuance Of Notification Under Section 125 Or 125 A Of The Act Then Other Provisions Of Section 144 B Did Not Apply. Let's Consider If Section 144B(7) Applied Or Not.

(ii) (a) Jurisdiction Conferred On IAC--does Not Exercise The Powers
33. In The Present Case, The Notification Was Not Issued Conferring The Exclusive Jurisdiction On The IAC-Allahabad Under Section 125 Of The Act But It Was Issued Under Section 125A Of The Act Conferring Concurrent Jurisdiction Upon Him. There Was Difference Between These Two Sections (see Discussion On The First Question).

34. There Is Nothing In The Act To Indicate Or Even Suggest That Mere Conferment Of Concurrent Jurisdiction On The IAC Under Section 125A Of The Act Would Mean That He Was Exercising The Powers Or Performing The Functions Of The ITO. In Fact, He Had To Exercise The Powers Or Perform The Functions Of An ITO Before Section 144 B (7) Could Be Applied. This Has Also Been Held By The Other High Courts (see First Foot Note).

35. In Our Opinion, Whether, The IAC Exercised Such Powers Or Performed The Functions Of The ITO Depended On The Facts Of Each Individual Case. The General Proposition As Laid Down By The Tribunal Is Incorrect. Let's Consider, Whether IAC- Allahabad Exercised The Powers Or Performed The Functions Of An ITO In This Case?

(ii) (b) : IAC-Allahabad Had Not Performed The Functions
36. We Have Gone Through The Guidelines Dated 8.11.1979 As Well As 23.11.19795. These Are Merely Guidelines To The ITO-Goprakhpur As To How The Assessment Of The Assessee Might Be Completed. It Nowhere Indicates That IAC-Allahabad Exercised The Power Or Performed The Functions Of The ITO- Gorakhpur..

37. IAC-Allahabad Did Say That He Would Pass An Assessment Order But He Chose Not To Pass It. The Assessment Order Was Ultimately Passed By The ITO-Gorakhpur And Not The IAC-Allahabad. Had The IAC-Allahabad Done So, Then The Matter Would Have Different.

38. In Our Opinion,
Merely Because Concurrent Powers Were Conferred Upon The IAC Or He Issued The Guidelines, Did Not Lead To The Conclusion Or Meant That He Exercised The Powers Or Performed The Functions Of An ITO;
In This Case, The IAC-Allahabad Neither Exercised The Powers Nor Performed The Functions Of The ITO-Gorakhpur;
The Case Is Not Covered Under Section 144B(7) Of The Act.

39. In View Of Above, The Questions 2 To 4 Are Answered In The Affirmative, In Favour Of The Department And Against The Assessee.

5th & 6th QUESTIONS: NOT NECESSARY TO ANSWER
40. We Have Answered Questions-1 To 4 In Favour Of The Department And Against The Assessee. The Counsel For The Parties Agree That In View Of This, The Answer To The Questions 5 And 6 Have Become Academic And It Is Not Necessary To Express Any Opinion On The Same.

41. Accordingly, We Refrain From Answering Them.

CONCLUSIONS
42. Our Conclusions Are As Follows:
(a)The Draft Order, Under Section 144B, Was To Be Sent To The Inspecting Assistant Commissioner Who Was Given Concurrent Jurisdiction Alongwith The Income Tax Officer Under Section 125A Of The Act And Not To The Inspecting Assistant Commissioner Who Might Be Having Territorial Jurisdiction Or Administrative Control;
(b)The Draft Order Was Rightly Sent To IAC-Allahabad And Not To IAC-Gorakhpur;
(c)Merely Because Concurrent Powers Were Conferred Upon The Inspecting Assistant Commissioner Or He Had Issued Guidelines, Did Not Lead To The Conclusion Or Mean That He Exercised The Powers Or Performed The Functions Of An Income Tax Officer;
(d)In This Case, The IAC-Allahabad Neither Exercised The Powers Nor Performed The Functions Of The ITO-Gorakhpur;
(e)The Case Of The Assessee Was Not Covered Under Section 144B(7) Of The Act.
(f)In View Of Our Answers To Questions 1 To 4, The Answer To Questions No. 5 And 6 Have Become Academic And We Refrain From Answering It.
In View Of Our Conclusions, The Question Number 1 Is Answered In Negative And Question No. 2 To 4 Are Answered In Affirmative I.e. All Questions Are Answered In Favour Of The Department And Against The Assessee.

43. Let Our Opinion Be Sent To The Tribunal For Passing The Appropriate Consequential Order.

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