1989 (9) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Validity of Section 144B of the Income-tax Act.
2. Jurisdiction and authority of the Inspecting Assistant Commissioner under Section 144B.
3. Competence of the Inspecting Assistant Commissioner to issue directions beyond the draft assessment order.
4. Validity of the impugned notices issued under Section 144B.

Issue-wise Detailed Analysis:

1. Validity of Section 144B of the Income-tax Act:

The petitioner, Asian Industries, challenged the constitutionality of Section 144B of the Income-tax Act, claiming it violated Articles 14 and 19(1)(f) and (g) of the Constitution of India. The argument was that Section 144B conferred power upon the Inspecting Assistant Commissioner (IAC) to issue binding directions to the Income-tax Officer (ITO) without providing an appeal mechanism, thus infringing on the petitioner's constitutional rights. The court noted that the provision had since been deleted from the statute but examined whether the IAC's actions were valid under the existing framework.

2. Jurisdiction and Authority of the Inspecting Assistant Commissioner under Section 144B:

The petitioner argued that the IAC had no jurisdiction to issue the impugned notice dated September 30, 1977, which sought to include Rs. 9.5 lakhs in the draft assessment. The petitioner contended that this amount was not treated as income in the draft assessment forwarded to the IAC, nor was it covered by the objections filed. The court found that the IAC could not issue directions on items not covered by the draft assessment order, thus lacking the jurisdiction to include the Rs. 9.5 lakhs.

3. Competence of the Inspecting Assistant Commissioner to Issue Directions Beyond the Draft Assessment Order:

Dr. Pal, representing the petitioner, argued that the IAC's competence under Section 144B(4) was limited to the objections raised by the assessee in the draft order of assessment. The IAC could not issue directions on items not covered by the draft order. The court agreed, referencing cases such as Bengal and Assam Investors Ltd. v. CIT and Sudhir Sareen v. ITO, which supported the view that the IAC's directions must be confined to the draft assessment order.

4. Validity of the Impugned Notices Issued under Section 144B:

The court examined whether the IAC's actions could be validated under Section 144A if not under Section 144B. It found that the IAC had not taken steps as envisaged under Section 144A while considering the draft order. The court concluded that the IAC could not, on his own motion, issue notices and initiate proceedings as done in this case. Consequently, the impugned notices were quashed.

Conclusion:

The court allowed the writ petition, making the rule absolute to the extent that the impugned notices were quashed. However, it clarified that this order would not prevent the Revenue authorities from initiating appropriate legal proceedings in accordance with the law, ensuring the petitioner is given due opportunities. The court also noted that the question of limitation would not bar such proceedings due to the delay in disposing of the writ petition, which had been pending since 1977. There was no order as to costs.