TMI Blog1997 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure scheme. For the assessment year in dispute, initially an income of Rs. 19,000 was returned from pawning which was revised at Rs. 25,000. Under the voluntary disclosure scheme an income of Rs. 12,000 was also declared for the assessment year in dispute. As the income returned was not found acceptable by the Income-tax Officer, he drew up a draft assessment order under section 144B(1) of the Act and forwarded it together with the objections of the assessee to the concerned Inspecting Assistant Commissioner as contemplated under section 144B of the Act, proposing an assessment on a total income of Rs. 1,84,470 after giving allowance of proposed reduction of Rs. 58,116 for possible savings. Sub-section (4) of section 144B as it stood at the relevant time provided as under : "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 matters covered by the objections, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and challenged the assessment order in appeal before the Commissioner of Income-tax (Appeals), in which a preliminary objection was taken that the assessment order was passed contrary to the procedure prescribed under the Act and in violation of the principles of natural justice. The appellate authority found that the assessment order was completed without confronting the assessee with the directions under section 144A of the Act and without providing an opportunity to the assessee to produce evidence in connection with the plea of savings. The appellate authority opined that if any further additions were called for to the returned income then another draft assessment order should have been prepared and sent to the assessee, inviting its directions and the procedure contemplated under section 144B should have been followed afresh. As this procedure was not followed, the appellate authority set aside the assessment order with the following directions: "...The assessment, thus suffers from a procedural lacuna. The assessee has not been given reasonable opportunity of hearing showing cause. The assessment, therefore, is set aside to be made afresh giving due opportunity to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions carefully. The contention that no assessment on an amount in excess of what was proposed in the draft assessment order, on the facts of the case, was admissible, is wholly misconceived. It is true that the jurisdiction of the Inspecting Assistant Commissioner under sub-section (4) of section 144B is confined only to the material covered by the objections but in the instant case, as already stated, the Inspecting Assistant Commissioner had taken recourse to section 144A of the Act. Separate instructions under section 144A were given which have already been extracted above. Those instructions were in addition to the instruction under section 144B of the Act. It may be observed that sub-section (1) of section 144A postulates that the Inspecting Assistant Commissioner may, either on his own motion or on a reference from the Income-tax Officer or on the application of the assessee, call for and examine the assessment record of any assessee in which an assessment is pending and issue such directions to an Income-tax Officer, as he deems fit so as to enable the Income-tax Officer to complete the assessment. The proviso attached to sub-section (1) of section 144A mandates that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question whether it was open to the Inspecting Assistant Commissioner to issue directions under section 144A of the Act when a draft assessment order had been submitted to him by the Income-tax Officer under section 144B on the ground that the assessment proceedings are still pending before the Income-tax Officer. The view taken was that the provisions of section 144A can be invoked while exercising the power under section 144B subject to the assessee being heard in the matter. It was observed that there could be no doubt that an assessment is not complete when only a proceeding under section 144B is pending. In fact, under section 144B only a draft order is prepared. The assessment is to be completed only after the Inspecting Assistant Commissioner issues appropriate directions under section 144B(4), after which, the Income-tax Officer will have to complete the assessment. Similarly, under section 144A(1) the direction that may be issued by the Inspecting Assistant Commissioner is to enable the Income-tax Officer to complete the assessment and until an assessment is completed, the proceedings for assessment will be treated as pending. Having said go it was held as under: "It ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain expenditure in the preparation of a feasibility report in connection with a project to produce raw materials required by it and had claimed it as a revenue expenditure. The claim was allowed by the Income-tax Officer in the draft assessment order. However, the Inspecting Assistant Commissioner disallowed the claim and directed its being added back to the income of the assessee. The Tribunal upheld the addition. On a reference, it was held that in the draft assessment order the amount claimed as expenditure was not disallowed by the Income-tax Officer and, therefore, the question of its disallowance did not arise as the matter was not covered by the objections raised by the assessee. It may be observed that it was not a case in which the provisions under section 144A were resorted to by the Inspecting Assistant Commissioner, as in the case before us. In fact, the decision in the case of N. Krishnan [1988] 172 ITR 604 (Ker) which was cited, was distinguished on this ground alone. Moreover, on the merits the revenue nature of the expenditure was upheld by the High Court. In Manipal Industries Ltd.'s case [1991] 188 ITR 445 (Kar), what had happened was that in the draft assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under section 144A or section 144B or both. The only effect is that making of the final assessment order is deferred or kept in abeyance so long as the matter is under consideration of the Inspecting Assistant Commissioner subject to the period of limitation provided under section 153 of the Act. In our opinion, where an assessment is completed pursuant to the directions under section 144A without affording an opportunity to the assessee or without following the procedure under section 144B afresh, it would not render such an assessment non est or ab initio void. A proceeding is a nullity when the authority taking it had no jurisdiction of any kind either for want of pecuniary or territorial jurisdiction or otherwise there was inherent lack of jurisdiction over the subject-matter of the proceedings. There is a clear-cut distinction between jurisdiction and procedure. A defect in procedure will not ordinarily amount to lack of jurisdiction. As already observed earlier, both the provisions in section 144B or section 144A are procedural in nature and part of the assessment machinery. Any procedural omission or irregularity in observing these provisions in a given case would not ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, falls in Chapter XIV which bears the caption 'procedure for assessment'. It is, therefore, manifest that sections 139 to 158 falling in Chapter XIV relate to procedure for making assessment. Section 144B is, therefore, procedural in nature, noncompliance with which cannot render an assessment a nullity. Section 144B was enacted with a view to ensuring that the assessment made by the assessing authority is not arbitrary, whimsical, capricious or unreasonable. It does not confer jurisdiction on the assessing authority to make the assessment and, therefore, non-compliance with it cannot render the assessment void." In the ultimate analysis it was held that the order of the appellate authority in setting aside the assessment for fresh assessment was valid in law. The ratio decidendi of the aforesaid case applies on all fours to the facts of the instant case. There are several other pronouncements of different High Courts in which a similar view has also been taken and some of them have been referred to in the case of Vishwanath Prasad Bhagwati Prasad [1993] 202 ITR 469 (All), but it is not necessary to refer to them again in this judgment. Section 251(1)(a), inter ali ..... 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