1992 (12) TMI 221 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessment order without compliance with Section 144B.
2. Procedural nature of Section 144B.
3. Jurisdiction of the Income Tax Officer (ITO) in the assessment process.
4. Legal consequences of non-compliance with Section 144B.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order Without Compliance with Section 144B:
The primary issue was whether the Tribunal was correct in upholding the CIT(A)'s order, which set aside the assessment for non-compliance with Section 144B and directed a fresh assessment. The assessee argued that the assessment order was a nullity due to the ITO's failure to send a draft assessment order to the assessee and refer the matter to the Dy. CIT as required by Section 144B when the variation in income exceeded Rs. 1 lakh.

2. Procedural Nature of Section 144B:
The court examined whether Section 144B was substantive or procedural. The provision required the ITO to forward a draft assessment order to the assessee if the proposed variation in income exceeded Rs. 1 lakh. The court noted that Section 144B was procedural, incorporating principles of natural justice to ensure a senior officer reviewed substantial variations in income. The court cited multiple precedents, including J.P. Aggarwal vs. CIT and Smt. Mohinder Jaspal Singh vs. CIT, which held that non-compliance with Section 144B was a procedural irregularity, not rendering the assessment order null and void.

3. Jurisdiction of the Income Tax Officer (ITO) in the Assessment Process:
The court clarified that the ITO retained jurisdiction to pass an assessment order even when Section 144B was applicable. The Dy. CIT's role was limited to providing binding directions to the ITO, but the ultimate authority to pass the assessment order remained with the ITO. The court emphasized that non-compliance with Section 144B did not divest the ITO of jurisdiction but constituted a procedural irregularity.

4. Legal Consequences of Non-compliance with Section 144B:
The court discussed the legal consequences of non-compliance with Section 144B. It referred to several cases, including Guduthur Bros. vs. ITO, where procedural irregularities did not render the proceedings null and void but required rectification. The court held that the failure to comply with Section 144B resulted in a procedural irregularity, allowing the assessment process to continue from the stage before the irregularity occurred. The court disagreed with the Gauhati High Court's view in Sonai River Tea Co. Ltd. vs. CIT, which held that non-compliance with Section 144B rendered the assessment order a nullity.

Conclusion:
The court concluded that Section 144B was procedural, and non-compliance with it constituted a procedural irregularity, not rendering the assessment order null and void. The ITO retained jurisdiction to pass the assessment order, and the CIT(A) was correct in setting aside the assessment and directing a fresh assessment. The question of law was answered in the affirmative, in favor of the Revenue, with no order as to costs.