COMMISSIONER OF INCOME-TAX VS KALA CARTONS, 2000 PTD-KERALA-HIGH-COURT-INDIA 3297 (1998)

2000 P T D 3297

[237 I T R 694]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and K. A. Mohamed Shafi, JJ

COMMISSIONER OF INCOME-TAX

Versus

KALA CARTONS

Income-tax Reference No-78 of 1993, decided on 06/04/1998.

(a) Income-tax---

----Assessment---Draft assessment order ---I.A.C.---ITO issuing draft assessment order---Subsequent direction by I.A.C. under 5.144-A---Second Draft assessment order pursuant to such direction was valid--.Indian Income Tax Act, 1961, Ss. 144-A & 144-B.

Merely because the Income-tax Officer has issued a draft assessment order, it would not mean that the Inspecting Assistant Commissioner cannot proceed under section 144-A of the Income Tax Act, 1961. When directions are given by the Inspecting Assistant Commissioner under section 144-A sometimes the Income-tax Officer will have to make further investigation as per the directions, as a result of which, the Income-tax Officer may come across information which he did not have with him, when he originally issued a draft assessment order under section 144-B. It is not in all cases that the Income-tax Officer can immediately pass an assessment order as pre directions issued by the IAC under section 144-A. In cases where the Income-tax Officer comes across fresh materials, as a result of such investigation and the variation exceeds the amount fixed by the Board, it is open to the Income-tax Officer to issue a fresh draft assessment order and call for the objection of the assessee. Such action will be in the interest of the assessee and it will be in furtherance of the object of the provisions contained under sections 144-A and 144-B. Under section 144-A the Inspecting Assistant Commissioner is empowered to issue directions to the Income-tax Officer either suo motu or on a reference from the Income-tax Officer o on the application of the assessee. He can call for and examine the entire assessment record of any proceeding in which an assessment is pending and issue necessary directions to the Income-tax Officer. If such directions are against the ~interest of the assessee, he has to be given an opportunity of being heard. But when the Income-tax Officer takes action under section 144-B and forwards the draft assessment order to the Inspecting Assistant Commissioner, the power of the Inspecting Assistant Commissioner is limited to the proposed additions in the draft assessment order. He cannot travel beyond the draft assessment order as the assessment is not open before him as in the case of his exercising power under section 144-A. There is no reason to hold that once directions are issued by the Inspecting Assistant Commissioner to the Income-tax Officer in exercise of his power under section 144-A in no case the Income-tax Officer can issue a draft assessment order under section 144-B. It is true that the Income-tax Officer is bound by the directions given by the Inspecting Assistant Commissioner under section 144-A, but if such directions are for further enquiry it is open to the Income-tax Officer to issue a draft assessment order on the basis of the result of - the enquiry and forward the same to the Inspecting Assistant Commissioner.

The assessee filed a return for the assessment year 1980-81 disclosing a loss of Rs.13,90,950. The assessment was completed on a total income of Rs.5,53,580. Since the variation between the income returned and the income assessed was more than rupees one lakh; a draft assessment order under section 144-B was made on November 16, 1982. The assessee was called upon to file its objection, if any, within seven days of the receipt of the draft order. The assessee sought extension of time which was granted. The assessee filed a reply on January 6, 1983, stating that it had nothing more to add than what had been stated in the written reply to notice under section 144-B. In the meanwhile, the Inspecting Assistant Commissioner, Central Range, Ernakulam, initiated suo motu proceedings under section 144-A(1). Notice was issued to the assessee on January 13, 1983. The assessee did not appear before the Inspecting Assistant Commissioner passed an order, dated February 19, 1983, giving directions to the Income-tax Officer to look into the claim for investment allowance. On receipt of the directions under section 144-A(1), the Income-tax Officer considered the matter and heard the assessee's representative. Since the variation to the income returned exceeded rupees one lakh, a draft order under section 144-B was, passed on March 24,.1983, in conformity with the direction given by the Inspecting Assistant Commissioner. The Income-tax Officer passed final assessment order on August 24, .1983, after getting, directions from the Inspecting Assistant Commissioner The assessee filed an appeal contending that the assessment order was time-barred and this contention was accepted by the Tribunal. On a reference:

Held, that merely because the Income-tax Officer had initially sent a draft order under section 144-B on November 16, 1982, that would not debar him from issuing a second draft assessment order pursuant to the direction issued by the Inspecting Assistant Commissioner in exercise of his power under section 144-A(1), The draft assessment order dated March 24, 1983, issued by the Income-tax Officer under section 144-B pursuant to the direction issued by the '-Inspecting Assistant Commissioner under section 144-A was valid. The final assessment order dated August 24, 1983, was issued within the period of limitation by applying the provisions contained under clause (iv) of Explanation 1 under section 153, since the period between March 24, 1983, and August 16, 1983, had to be excluded.

Arrah Sasaram Light Railway Co. Ltd. v. CIT (1993) 204 ITR 807 (Cal.) and Shankar Lahiri v. CIT (1995) 78 Tazman 364 (Cal.) fol.

Panchamahal Steel Ltd. v. U.A. Joshi, 1T0 (1997) 225 ITR 458 (SC) distinguished.

Aspinwall & Co. Ltd. v. CIT (No.2) (1990) 220 ITR 617 (Ker.); Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC); Panchmahal Steel Ltd. v. U.A. Joshi, ITO (1994) 210 ITR 723 (Guj.); State of Kerala v. Ramunni Pannikar (V.K.) (1977) 108 ITR 120 (Ker.); Sudhir Sareen v ITO (1981) 128 ITR 445 (Delhi) and Superintendent, Central Excise v. Pratap Rai (1978) 114 ITR 231 (SC) (sic) ref.

(b) Income-tax---

----Assessment---Limitation---Extension of period of limitation---Second draft assessment order pursuant to direction of IAC---Limitation extended--?Indian Income Tax Act, 1961, S.153.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

JUDGMENT

MRS. K.K. USHA, J.---This reference; at the instance of the Revenue arises out of an order in I.T.A. No.452/Coch, of 1987. The relevant assessment year is 1980-81. The questions that are referred for the opinion of this Court are as follows:

"(1)(a) Whether, on the facts and in the circumstances of the case, the principle laid down in 128 ITR 292 (sic), has application (even indirectly), to the case and the Tribunal is justified in adopting the principle laid down in 128 ITR 292, to the facts of the case?

(b) If the answer to the above question is in the negative, is not the very approach of the Tribunal wrong and consequential order vitiated?

(2) Whether, on the facts and in the circumstances of the case, and on an interpretation of section 144-A, section 144-B read with Explanation 1(iv) to section 153 of the Income Tax Act, 1961, the assessment is time-barred and could be cancelled?

(3) Whether, on the facts and in the circumstances of the case and also considering the decision in 108 ITR 119 (sic) and 114 ITR 231 (sic), AIR 1978 SC 1244 (sic) and Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC) and the provision in section 292-B of the Income Tax Act, 1961, should not the Tribunal have remitted the case for fresh consideration?

(4) Whether, on the facts and in the circumstances of the case, if no direction is given under section 144-B, cannot be benefit of extension of time as contemplated by Explanation to section 153 of the Income-tax Act, claimed by the Revenue?"

The relevant facts are as follows: The assessee-company is engaged in export of fish products. For the assessment year 1980-81, it filed return disclosing a loss of Rs.13,90,590. The assessment was completed on a total income of Rs.5,53,580 since the variation between the income returned and the income assessed was more than Rs. 1 lakh, a draft assessment order under section 144-B was passed on November 16, 1982. The assessee was called upon to file its objection, if any, within seven days of receipt of the draft order. The assessee who received the draft order on November 27, 1982, sought extension of time for filing the objection under its letter dated December 1, 1982. Extension was granted by the Income-tax Officer pursuant thereto, the assessee filed a reply on January 6, 1983, stating that it has nothing more to add than what had been stated in the written reply to the notice under section 144-B. In the meanwhile, the Inspecting Assistant Commissioner, Central Range, Ernakulam, initiated suo motu proceedings under section 144-A(1). Notice was issued to the assessee on January 13, 1983. The assessee did not appear before the Inspecting Assistant Commissioner nor did it file any objection. There was no response to the notice. Yet another opportunity was also given to the assessee, but the assessee did not take advantage of the same. Pursuant thereto, the Inspecting Assistant Commissioner passed an order, dated February 19, 1983, giving directions to the Income-tax Officer to look into the claim for investment allowance made by the assessee bearing in mind the relevant provisions of section 32-A and the nature of the assessee's business, to look into the claim having regard to the total borrowings and funds diverted for other purposes and also to look into the claim for weighted deductions in view of the change in the relevant provisions after introduction of subsection (IA). The Income?tax Officer was directed to make the assessments after carrying out the abovementioned instructions. A copy of the order dated February 19, 1983, is produced as Annexure-C in the paper book.

On receipt of the directions under section 144-A(1), the Income-tax Officer considered the matter and heard the assessee's representative. Since the variation to the income returned exceeded Rs. I lakh, a draft order under section 144-B was passed in conformity with the directions given by the Inspecting Assistant Commissioner. It was submitted at the Bar by both sides that the draft order, Annexure-B, was passed by the Income-tax Officer pursuant to the directions issued by the Inspecting Assistant Commissioner under section 144-A(1) is dated March 24, 1983. The assessee submitted its objections to the draft assessment order under its letter, dated April 6, 1983. The draft assessment order along with the objections of the assessee was forwarded by the Income-tax Officer to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner granted opportunity to the assessee to file its objections. After hearing the assessee's representative and examining the books of account and other evidences produced, the Inspecting Assistant Commissioner under order, dated August 16, 1983, a copy of which is produced in the. paper book as Annexure-E, issued directions to enable the Income-tax Officer to frame the final assessment in the light of the directions. Thereafter, the Income-tax Officer passed the final assessment order, dated August 24, 1983, a copy of which is produced as Annexure-A. The above order 'is passed by the Income?tax Officer under section 143(3) read with sections 144-A and 144-B.

The assesee filed appeal before the Commissioner of Income-tax (Appeals) contending that the assessment was time-barred. The Department had taken the stand that even though in the normal course, assessment for the year 1980-81 could have got time-barred on March 31, 1983, since, in this case, the Income-tax Officer got time extended by 145 days by virtue of the provisions contained under clause (iv) of Explanation 1 of section 153. The appellate authority took the view that the order under appeal was not properly made. It was observed that apart from the fact that there were two orders under section 144-B in-between two years, there was a direction issued by the Inspecting Assistant Commissioner under section 144-A of the Act also. The assessment order made by the Income-tax Officer on August-24, 1984, was set aside and it was restored to the files of the Income?tax Officer with a direction that assessment be re-made after affording a reasonable opportunity to the assessee to adduce its case. Being not satisfied with the above order, the assessee filed appeal before the Tribunal contending that the assessment should have been cancelled as barred by limitation. The above contention was accepted by the Tribunal which held that the Inspecting Assistant Commissioner had not given any direction under section 144-B on the first draft order and, therefore, the time limit for completion of the assessment cannot be extended under section 153 after March 31, 1983. The reference arises out of the above finding of the Tribunal.

It is contended by learned standing counsel for the Revenue that the Tribunal has wrongly applied the decision of the Delhi High Court in Sudhir Sateen v. ITO (1981) 128 ITR 445, to the present case. The facts of the Delhi High Court decision are entirely different. In that case the Income-tax Officer issued a draft order to the assessee on March 30, 1979, to which the assessee filed his objections. The draft order along with objections was sent to the Inspecting Assistant Commissioner who heard the assessee elaborately. Subsequently, the Income-tax Officer sent a second draft order to the assessee on September 10, 1979, proposing to assess on an enhanced amount. It was admitted that the second draft order was issued by the Income-tax Officer on the direction of the Inspecting Assistant Commissioner. It was also admitted that before the Inspecting Assistant Commissioner gave direction to the Income-tax Officer for enhancement of the amount, which is an order prejudicial to the assessee, no opportunity was given to the assessee. The Delhi High Court took the view that the Inspecting Assistant Commissioner had acted against the provisions contained under the proviso to subsection (4) of section 144-B. Since the second draft order was the result of an illegal direction given by the Inspecting Assistant Commissioner, the entire proceedings from the stage of the directions given by the Inspecting Assistant Commissioner onwards were held liable to be quashed. It was then observed that there is no provision for the Income-tax Officer to send the second draft order. If the Inspecting Assistant Commissioner had given an opportunity to the assessee against his proposal to enhance the amount and if the Inspecting Assistant Commissioner was not persuaded with the objection raised by the assesee, he could give necessary direction to the Income-tax Officer and the Income-tax Officer has to pass a final order. There is no question of the Income-tax Officer issuing a second draft order, as such an action would be contrary to the provisions of subsection (5) of section 144-B. It was on this basis the learned Judge of the Delhi High Court took the view that the second draft order issued by the Income-tax Officer was unsustainable in law. It was further observed that going by the language of section -143 also it is clear that the Income-tax Officer is entitled to issue only one draft order.

Learned standing counsel for the Revenue would submit that the above decision has no application to the facts of this case, since in that case there was no parallel proceeding initiated by the Inspecting Assistant Commissioner under section 144-A. Reliance was placed by learned counsel on a Bench decision of the Calcutta High Court in Arrah Sasaram Light Railway Co. Ltd. v. CIT (1993).204 ITR 807, where there is an elaborate discussion on the scope of section 144-A and section 144-B of the Income Tax Act, 1961.

Reliance was also placed on Shankar Lahiri v. CIT (1995) 78 Taxman 364; another Bench decision of the Calcutta High Court, where the judgment of the Delhi High Court in Sudhir Sareen v. ITO (1981) 128 ITR 445, was referred to and dissented from. A reference was also made by learned counsel for the Revenue to a decision of this Court in Aspinwall & Co. Ltd. v. CIT (No.2). (1996) 220 ITR 617. On the other hand, learned counsel for the assessee contended that the correct legal position was laid down by the Delhi High Court in Sudhir Sateen v. ITO (1981) 128 ITR 445. Learned counsel also referred to a judgment of this Court in O.P. No. 10852 of 1987, a 'petition filed under section 256(2) of the Income-tax Act by the Commissioner of Income-tax for compelling reference of certain questions Learned counsel pointed out that the special leave petition filed from the above judgment by the Revenue before the Supreme Court was dismissed in limine---(1994) 207 ITR (St.) 17.

Admittedly, in the normal course, the assessment for the year 1980-81 should have been completed on March 31, 1983, whereas final assessment has been actually passed only on August 24, 1983. The question that arises -for consideration is whether for the purpose of computing the period of limitation with reference to the provisions contained under section 153, Explanation 1(iv) whether the relevant date is November 16, 1982, namely, the first draft assessment order passed by the Income-tax Officer under section 144B or the second draft assessment order, dated Match 24,. 1983, passed by the Income-tax Officer under section 144-B pursuant to the direction issued by the Inspecting Assistant Commissioner under section 144-A(1). If the period has to be computed from March 24, 1983, it is admitted by both sides that the final assessment order, dated August .24, 1985, is within the period permitted: Before we enter upon a discussion on the rival contentions raised by the parties we would refer to the relevant provisions of the Income Tax Act, 1961, with which we are concerned in this case.

Section 144-A of the income-tax Act reads as follows:--

" 144-A. Power of Inspection Assistant Commissioner to issue directions in certain cases.---(1) An Inspecting Assistand Commissioner may, on his own motion own a reference being made to him by the Income-tax Officer or on the 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 Income-tax Officer to enable him to complete the assessment and such directions shall be binding on the Income?tax Officer:

Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.

Explanation.---For the purposes of this subsection, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.

(2) The provisions o: this section shall be in addition to, and not in derogation of the provisions contained in subsection (3) of section 119."

Section 144-B reads as follows:

"144-B. Reference to Inspecting Assistant Commissioner in certain cases.---(1) Notwithstanding anything contained in this Act, where, in an assessment to be made under subsection (3) of section 143, the Income-tax Officer proposes to maker, before the 1st. day of October, 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under subsection (6); the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the- draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matter covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment:

Provided that no directions which are prejudicial to the assessee shall be issued under this subsection before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Inspecting Assistant Commissioner under subsection (4) shall be binding on the Income-tax Officer.

(6) For the purposes of subsection (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit:

Provided that different amounts may be fixed for different areas:

Provided further that the amount fixed under this subsection shall, in no case, be less than twenty-five thousand rupees.

(7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under section,125 or section 125-A."

Clause (iv) of Explanation 1 to section 153 reads as follows:

"Explanation 1.---In computing the period of limitation for the purposes of this section--- ....

(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under subsection (1) of section 144-B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under subsection (4) of that section or, in a case where no objections to the draft order are received from the assessee; a period of thirty days. "

The Tribunal has come to the conclusion that the assessment order is barred by limitation on the basis that the Income-tax Officer has no jurisdiction to issue the draft assessment order, dated March 24, 1983. The only draft assessment order that can be taken into consideration is one originally issued on November 16, 1982. Since there was no direction from the Inspecting Assistant Commissioner on the first draft assessment order, it is not possible to extend the period of time as contemplated by clause (iv) of Explanation 1 to section 153. The Tribunal has sought to ignore the draft assessment order, dated March 24, 1983, by holding the view that the Income-tax Officer has no jurisdiction to issue two draft assessment orders. In support of the above view it has relied on the decision of the Delhi High Court in Sudhir Sareen v. ITO (1981) 128 ITR 445.

We find it difficult to agree with the above view taken by the Tribunal. Merely because the Income-tax Officer had issued a draft assessment order on November 16, 1982, it cannot be taken that the Inspecting Assistant Commissioner cannot proceed under section 144-A. when directions' are given by the Inspecting Assistant Commissioner under section 144-A sometimes the Income-tax Officer will have to make further investigation as. per the directions, as a result of which, the Income-tax officer may come across information which he was not having with him, when he originally issued a draft assessment order under section 144-B. It is not in all cases that the Income-tax Officer can immediately pass an assessment order as per directions issued. by the Inspecting Assistant Commissioner under section 144-A. In cases where the Income-tax Officer comes across fresh materials, as a result of such investigation and the variation exceeds the amount fixed by the Board, it is open to the Income-tax Officer to issue a fresh draft assessment order and call for the objection of the assessee. We are of the view that such action will be only in the interest of the assessee and it will be in furtherance of the object of the provisions contained under section 144-A and section 144-B. Under section 144-A the Inspecting Assistant Commissioner is empowered to issue directions to the Income-tax Officer either suo motu or on a reference from the Income-tax Officer or on the application of the assessee. He can call for and examine the entire assessment record of any proceeding in which an assessment is pending and issue necessary directions to the Income-tax Officer.. If such directions are against the interest of the assessee; he has - to be given an opportunity of being heard. But when the Income-tax Officer takes action under section 144-B and forwards the draft assessment order to the Inspecting Assistant Commissioner, the power of the Inspecting Assistant Commissioner is limited to the proposed additions in the draft assessment order. He cannot travel beyond the draft assessment as the assessment is not open before him as in the case of his exercising power under section 144-A. We do not find any reason to hold that once directions are issued by the Inspecting Assistant Commissioner to the Income-tax Officer, in exercise of his power under section 144-A in no case the Income-tax Officer can issue a draft assessment order under section 144-B. It is true that the Income-tax Officer is bound - by the directions given by the Inspecting Assistant Commissioner under section 144-A, but if such direction are for further enquiry, it is open to the Income-tax Officer to issue a draft assessment order on the basis of the result of the enquiry and forward the same to the Inspecting Assistant Commissioner. If we examine the relevant documents in the present case itself, it will be clear that issue of such a draft assessment order under section 144-B would be required to finalise the assessment proceedings.??????

Annexure-C dated February 19, 1983, is the order passed by the Inspecting Assistant Commissioner under section 144-A(1). It can be seen from the above order that the Income-tax Officer had been directed to examine the different aspects relating to the claims made by the assessee. It was only after such examination that a view could be taken as to whether the claim of the assessee could be allowed or not. The view taken by the Income?tax Officer after the examination is reflected in Annexure-B draft order, dated March 24, 1983. Thereafter, detailed directions had been given in Annexure-E by the Inspecting Assistant Commissioner under section 144-B to enable the Income-tax Officer to frame the final assessment. A reading of Annexure-A assessment order, dated August 24, 1983, would show that the Income-tax Officer has carried out the above directions without any deviation.

In Arrah Sasaram Light Railway Co. Ltd. v. CIT (1993) 204 ITR 807 (Cal.), the facts were as follows: The Income-tax Officer made reference on November 25, 1981, to the Inspecting Assistant Commissioner under section 144A of the Act. The assessee gave certain explanations about the facts of the case in the course of hearing before the Inspecting Assistant Commissioner under section 144-A. The Inspecting Assistant Commissioner thereupon by his letter dated March 15, 1982, gave certain directions to the Income-tax Officer under 'section 144-A. Thereafter, the Income-tax Officer made out a draft assessment order and submitted the same on May 15, 1982, to the Inspecting Assistant Commissioner under section 144-B. The assessee took the stand that once the Inspection Assistant Commissioner, issues direction to the Income-tax Officer under section 144-A, thereafter the Income-tax Officer has no jurisdiction to pass a draft assessment order under section 144-B. According to the assessee, the only option before the Income?tax Officer was to pass final assessment order on the basis of the directions given under section 144-A by the Inspecting Assistant Commissioner. This contention was not accepted by he learned Judges of the Calcutta High Court. After referring . in detail to the scope of section 144-A and section 144-B and with specific reference to the Explanation below subsection (1) of section 144-A it was observed as follows (page 823):

"In such an event, the Income-tax Officer shall have to work on the lines of investigation directed. The outcome of the investigation and the conclusion drawn therefrom may give rise to a new situation for exercise of discretion by the Income-tax Officer. It, therefore, cannot be said that section 144-A intends to take away from the Income-tax Officer all power of discretion and decision-making. The assessment that he will have in his mind on the basis of the fresh materials relied upon by him will surely give rise to a situation where he proposes additions, in his own right. In such a contingency, the question of the Income-tax Officer -proposing to make variations shall arise and it will certainly attract the provisions of section 144-B. Therefore, the contention on behalf of the assessee that section 144-A excludes the operation of section 144-B is not tenable. We cannot agree with the contention that prior operation of the provisions of section 144-A cancels the scope for the operation of section 144-B. If the assessment made on the basis of direction under section 144-A are of the order of Rs.1 lakh or more, resort to section 144-B can, by no means, be assailed as illegal. Rather such a course will be beneficial to the assessee inasmuch as it will give the assessee a further opportunity of contesting the addition. The interpretation of the beneficial provisions meant for protection of the assessee from an arbitrary and hasty assessment should be interpreted liberally so as to avail to the assessee the maximum benefit from such scheme of. the law. The Income-tax Officer by sending the draft order under section 144B to the assessee after incorporating directions of the Inspecting Assistant Commissioner has not violated the law."

In a later decision of the Calcutta High Court in Shankar Lahiri v. CIT (1995) 78 Taxman 364, the question that arose for consideration was whether once the draft assessment order is made by the Income-tax Officer and directions thereon are received from the Inspecting Assistant Commissioner under section 144B whether the Income-tax Officer becomes functus officio and whether he can make further investigation and forward another draft order seeking the Inspecting Assistant Commissioner's directions before completion of assessment. The Division Bench of the Calcutta High Court took the view that section 144-B is merely a step to be taken in the completion of assessment under section 143(3). Therefore, when a reference is made to the Inspecting Assistant Commissioner under section 144-B, the Income-tax Officer does not become functus officio. After the preparation of the draft order and referring the matter to the Inspecting Assistant Commissioner, the Income-tax Officer may discover new facts or materials connected with the assessment proceedings. The Income-tax Officer cannot possibly ignore those materials only because he has forwarded the draft order to the Inspecting Assistant Commissioner. Referring to the provisions contained under section 144-B(4) it was observed that the Inspecting Assistant Commissioner can issue directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment. At this stage if any new material is found, the Income-tax Officer will be entitled to rely on the material and if that material is of such magnitude that there will be variation in income or loss in excess of the amount prescribed under section 144-B, then the Income-tax Officer will have no alternative but to follow the procedure laid down in section 144B(1) and send another draft order to the Inspecting Assistant Commissioner. Under section 144-B, the Income-tax Officer does not become functus officio by merely passing or forwarding the draft order. It is only after the final assessment order is passed that the Income-tax Officer loses jurisdiction over the assessment proceeding. Thus, the Court took the view that there was no legal bar under section 1448 for the Income-tax Officer to send a second draft assessment order and for the Inspecting Assistant Commissioner to issue a second set of directions. Their Lordships disagreed with the view taken by the Delhi High Court in Sudhir Sareen v. ITO (1981) 128 ITR 445.

We find that the abovementioned two decisions of the Calcutta High Court would support the view taken by us that merely because the Income?tax Officer had initially sent a draft order under section 144-B on November 16, 1982., that would not debar him from issuing a second draft assessment order pursuant to a direction issued by the Inspecting Assistant Commissioner in exercise of his power under section 144-A(1). The decision of this Court to O. P. No. 10852 of 1987 relied on by learned counsel for the assessee cannot be of any help to the assessee in this case. A reading of the judgment would show that the decision was rendered on the finding of facts made by the Tribunal under circumstances where all the relevant files were not made available to the. Tribunal by the Revenue. We do not find .any dictum as such laid down in the above decision. We are also of the view that the decision of the Supreme Court in Panchamahal Steel Ltd. v. U.A. Joshi, ITO (1997) 225 ITR 458, relied on by the assessee is of no application to the facts of this case. In that case the assessee filed its return for the assessment year 1977-78. Thereafter, it filed a revised return and then a second revised return. The Income-tax Officer made a draft assessment order under section 144-B and sent a copy to the assessee. The assessee submitted its objections. The matter was referred to the Inspecting Assistant Commissioner. While the matter was pending before the Inspecting Assistant Commissioner, the assessee submitted a third revised return, which was rejected by the Income-tax Officer. Affirming the decision of the High Court Gujarat in Panchmahal Steel Ltd. v. U.A. Joshi, ITO (1994) 210 ITR 723, the Supreme Court took the view that the assessee was not entitled to file a revised return after the Income-tax Officer had made a draft order and after referring the same to the Inspecting Assistant Commissioner. We do not find that the above decision can have any application in the facts of the present case. The decision of this Court in Aspinwall & Co. Ltd. v. CIT (No.2) (1996) 220 ITR 617, may not also have any direct application, since in that case there was no second order issued by the assessing authority. It was only a correction made to the first draft assessment order.

In the light of our finding that the draft assessment order, dated March 24, 1983, issued by the Income-tax Officer under section 144B pursuant to the direction issued by the Inspecting Assistant Commissioner under section 144-A is sustainable in law. We have to further hold that the final assessment order, dated August 24, 1983, was issued within the period of limitation by applying the provisions contained under clause (iv) of Explanation 1 under section 153, since the period between March 24, 1983 and August 16, 1983, has to be excluded.

In the light of the above discussion, we answer question No. l(a) in the negative, against the assessee and in favour of the Revenue. Question No. I(b) is answered in the affirmative, in favour of the Revenue and against the assessee. Question No.2 is answered in the negative against the assessee and in favour of the Revenue. We decline to answer questions Nos.3 and 4, as they are unnecessary in the light of the answers to questions Nos. l and 2.

A copy of this judgment under the seal of this Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.

M.B.A./53/FC

Answers declined.