1985 (11) TMI 102 - AT - Income Tax

Issues Involved:
1. Validity of the IAC's directions under Section 144A without providing an opportunity to the assessee.
2. Legality of the assessment annulled by the Commissioner (Appeals).
3. Applicability of precedents cited by both parties.

Issue-wise Detailed Analysis:

1. Validity of the IAC's Directions under Section 144A without Providing an Opportunity to the Assessee:

The revenue's representative, Mr. S.S. Ruhela, argued that the IAC's directions given to the ITO were invalid as they did not provide an opportunity to the assessee, which is a requirement under Section 144A of the Income-tax Act, 1961. He cited the Supreme Court decision in Guduthur Bros. v. ITO [1960] 40 ITR 298, stating that the ITO had jurisdiction to continue proceedings from the stage where the irregularity occurred. Mr. Ruhela contended that the Commissioner (Appeals) overlooked this Supreme Court decision and wrongly annulled the assessment order.

On the other hand, Mr. B.K. Vyas, representing the assessee, argued that the IAC's directions were given merely to buy time, which is against the provisions of the statute. He emphasized that the ITO and IAC could not decide on the quantum addition, and the draft order passed consequently was flawed. He relied on CIT v. T.P. Asrani [1980] 122 ITR 735 (Bom.) to support his argument that the directions were bad in law and the annulment of the assessment was justified.

2. Legality of the Assessment Annulled by the Commissioner (Appeals):

The Tribunal examined the IAC's directions under Section 144A, which were issued without giving an opportunity to the assessee. The directions included estimating the gross profit rate based on the assessment year 1976-77 and making additions to the trading account. The Tribunal noted that the IAC's directions were intended to buy time and were, therefore, illegal as they bypassed the statutory requirement of providing an opportunity to the assessee.

The Tribunal referred to the Supreme Court's decision in Guduthur Bros.' case, where it was held that the ITO could continue proceedings from the stage where the illegality occurred. The Tribunal concluded that the IAC's directions were illegal due to the lack of opportunity given to the assessee, but the ITO was bound to follow these directions. Therefore, the assessment should not have been annulled but should have been corrected from the stage of the illegal direction.

3. Applicability of Precedents Cited by Both Parties:

The Tribunal considered the precedents cited by both parties. Mr. Ruhela relied on the Supreme Court decision in Guduthur Bros.' case, which allowed the continuation of proceedings from the stage of irregularity. Mr. Vyas cited CIT v. T.P. Asrani and other decisions to argue that the IAC's directions were invalid and the annulment was justified.

The Tribunal found that the cases cited by the assessee were not directly relevant to the issue at hand, as they dealt with the failure of the ITO to make an assessment within the period of limitation. The Tribunal held that the Supreme Court's decision in Guduthur Bros.' case was applicable and allowed the department's appeal. The Tribunal set aside the order of the Commissioner (Appeals) and directed the IAC to proceed afresh with the examination of the case from the time the reference was made to him.

Conclusion:

The Tribunal concluded that the IAC's directions under Section 144A were illegal due to the lack of opportunity given to the assessee. However, the assessment should not have been annulled but corrected from the stage of the illegal direction. The Tribunal allowed the department's appeal for statistical purposes and directed the IAC to proceed afresh with the examination of the case.

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