K KESAVA REDDIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following two questions have been referred to us by the Tribunal, Cochin Bench :

(2.) QUESTION No.1 has been referred at the instance of the assessee and question No. 2 at the instance of the Revenue. The assessment for the year 1974-75 was completed by the ITO under s. 143(3) r/w s. 144B of the IT Act, 1961. The assessee's returns disclosed a total income of Rs. 69,119 for the relevant accounting year. Since the officer was of the view that an addition in excess of Rs.1 lakh would have to be made, a draft assessment order was issued to the assessee on March 15, 1976. The assessee filed objections on April 5, 1976. The draft order together with the objections were forwarded by the ITO on April 5, 1976, to the IAC. The IAC by his letter dated July 8, 1976, informed the ITO that a fresh opportunity had to be given to the assessee so as to enable him to prove his rate of profit with reference to the purchase and sales memos. Such opportunity was accordingly afforded to, the assessee. After hearing the assessee, the ITO forwarded the amended draft assessment order dated January 10, 1977, (wrongly, in our view, referred to as the second draft assessment order) to the IAC. On the basis of the objections and the draft order, as amended, the IAC issued directions in terms of s. 144B(4) on April 28, 1977. On the strength of these directions, the assessment was completed by the ITO on May 2, 1977, by adding a sum of Rs. 7,75,813. Aggrieved by the additions made, the assessee appealed to the AAC. The AAC by his order dated October 29, 1977, deleted a sum of Rs. 6,75,813 out of the total additions, thereby sustaining an addition of only Rs.1 lakh. The assessee as well as the Revenue appealed to the Tribunal. It had been contended before the Tribunal by the assessee that the assessment was completed out of time. This contention was rejected by the Tribunal. The Tribunal, however, held that, on the facts and circumstances of the case, no addition was justifiable. Accordingly, the Tribunal deleted the additions completely.

(3.) THE fallacy of this argument is, in our view, the assumption that there were two draft assessment orders. If there was a second draft assessment order, and such order was non est counsel's submission would be right. But, in our view, there was only one draft assessment order. That was the order which was issued on March 15, 1976. Objections were filed against that draft order and the objections were considered by the IAC. Under sub-s. (4) of s. 144B, he was empowered to issue directions prejudicial to the assessee only after affording the assessee a second opportunity of being heard. Since the directions which he contemplated were of a prejudicial character, he could not issue them until a fresh opportunity was afforded. It was so afforded before January 10, 1977. On the basis of the second hearing, directions were issued by the IAC as contemplated under sub-s. (4) of s. 144B. Those directions form part of the original draft assessment order. It is that order, as amended by the directions, which forms the basis of the assessment made by the ITO on May 2, 1977. In our view, although wrongly referred to by all concerned as the second draft assessment order, there was only one draft order and that is the order dated March 15, 1976. It was on the basis of that order, directions were issued and the assessment made, all within time, if time is computed by recourse to Explanation 1(iv) to s. 153 (3). Accordingly, we are of the view that the assessment made on May 2, 1977 was perfectly valid. Question No. 1 is answered in favour of the Revenue and against the assessee.