PANCHMAHAL STEEL LTD Vs. U A JOSHI

JUDGEMENT

(1.) THE petitioner has challenged in this petition the order dt. 5th March, 1980 passed by the ITO, respondent No. 1, whereby he refused to accept the third revised return filed by the petitioner- assessee on the ground that he had already passed a draft assessment order on 12th Dec., 1979 under s. 143(3) r/w s. 144B of the IT Act and that the assessee was already heard by the IAC with respect to the objections filed by the assessee against the said draft assessment order.

(2.) THE petitioner company had set up a mini-steel plant and commenced production in 1974. It went on making losses and, therefore, a petition was filed in this Court for winding up the petitioner company. In that proceeding, this Court by an order dt. 3rd Feb., 1976 approved the scheme of compromise and arrangement between different classes of creditors and the company. As a result thereof, there was reduction of liability of the petitioner to the tune of Rs. 29,36,811. THE petitioner's accounting period, corresponding to the asst. yr. 1977-78, ended on 30th Sept., 1976. It filed its return of income on 30th June, 1977. A part of the reduced liability was shown as income under s. 41(1) of the Act, but after carrying forward the business losses and expenses, the total income shown was nil. It is the case of the petitioner that it subsequently found some discrepancies in the return filed by it on 30th June, 1977 and, therefore, it filed a revised return on 20th Feb., 1979. This time, the income shown was Rs. 16,88,553. Again, the total income shown was nil. It then filed a second revised return on 14th Nov., 1979 revising the amount shown as income under s. 41(1). After hearing the petitioner, the ITO passed a draft assessment order on 12th Dec., 1979 under s. 144B proposing variation in the income returned by the petitioner. A copy of the said order was served upon the petitioner and pursuant to the notice given to it, objections were filed by the petitioner on 15th Dec., 1979. Hearing of the objections was fixed before the IAC, respondent No. 2, on 11th Jan., 1980. According to the petitioner, it was brought to the notice of the petitioner that out of the sum of Rs. 17,06,835 mentioned in the first return filed under s. 41 (1), a sum of Rs. 16,75,998 was not covered by that section. THErefore, the petitioner filed a third revised return on 11th Feb., 1980. According to that revised return, the amount offered for taxation under s. 41(1) was reduced to Rs. 2,72,250. It appears that the said revised return was sent by the petitioner by post. Hearing before the IAC-respondent No. 2 took place on 21st Feb., 1980. It was the petitioner's case that at the said hearing, it had requested the ITO and the IAC to consider the third revised return as the final return of the petitioner but neither of them was inclined to consider its request. On 5th March, 1980, the ITO wrote to the petitioner that as he had already passed a draft assessment order on 12th Dec., 1979, had served the same on the petitioner on 13th Dec., 1979 and objections were filed by the petitioner against the draft assessment order, he was not in a position to take any action on the said revised return. In short, he refused to accept the third revised return filed by the petitioner. This refusal, as stated earlier, is the subject-matter of this petition.

(3.) IT cannot be disputed that assessment cannot be said to be complete till the ITO determines not only the total income of the assessee but also the amount of tax payable by him. The requirement of law is that the ITO has to assess the total income or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such assessment by an order in writing. 8th September, 1993 There is also no dispute that when the ITO passes a draft order, it cannot be said that he has passed the final and effective order on the basis of which any demand can be made. However, what we have to consider is whether in the context of filing of a revised return, the ITO can be said to have made assessment or not when he makes a draft order. As indicated above, assessment means determination of the total income or loss of the assessee and the sum payable by him as tax. Therefore, it can be said that when the total income or loss of the assessee is determined and when the sum payable by him by way of tax is also determined, the ITO has made the assessment. In case where the ITO makes a draft order, what happens is that he determines the income or loss of the assessee and also the amount of tax payable by him. But that order passed by him does not become effective and he is required to make a reference to the IAC for his scrutiny and directions. But here also, he is required to follow that course if the assessee files objections against the draft order. If no objections are filed, then the ITO has to complete the assessment on the basis of the draft order. What is required to be noted is that under such circumstances, the ITO has to complete the assessment on the basis of the draft order and no change is contemplated at that stage in the assessment order. Thus, the ITO has to complete the assessment on the basis of the draft order and without taking into consideration any thing else at that stage. If objections are filed by the assessee against the draft order, then only, he is required to forward the draft order together with the objections and the ITO has to complete the assessment after receiving direction in that behalf and in accordance with law. Thus, what the ITO is required to do in such cases is to modify the order in terms of the directions that may be given by the IAC. This requirement of making a reference to the IAC does not detract from the nature of the act which the ITO performs when he passes the draft order. Even while passing a draft order, what he does is to determine the income or loss of the assessee and the amount of tax payable by him. Thus, all the requirements of making a valid assessment order stand complied with at that stage and, if this be the position, then, it would not be proper to concede the right of filing a revised return in favour of the assessee after that stage. The words used in sub-s. (5) of s. 139 are "at any time before the assessment is made"and not "at any time before the final order of assessment is made". Though whole process of assessment may not be complete in order to enable the taxing authorities to proceed further with recovery of tax, it can be said that when the ITO passes a draft order, he does make the assessment of the total income or loss of the assessee and the amount of tax payable by him. Merely because such an order is subjected to further scrutiny before it can be given effect for further action it cannot be said that the ITO has not made the assessment till such scrutiny is over. If the contention of the petitioner, that till the assessment is finalised within the period of limitation the assessee is within his right to submit a revised return, is accepted, then, that may lead to an unreasonable delay in finalising the assessment. If the words "at any time before the assessment is finalised"are construed to mean "till final and effective order of assessment is made", the assessee bent upon delaying the assessment may go on filing revised returns and that may prevent the ITO from completing the assessment for very long time. Moreover, if such a right is conceded, it would set at naught the steps taken by the ITO under s. 144B of the Act. If after the draft order is served upon the assessee or when objections are received and because of that the ITO refers the matter to the IAC and the assessee is permitted to file a revised return, then, that would set at naught all the steps taken by the ITO under s. 144B as, thereafter, he will have to consider the fresh revised return and make assessment on the basis of the fresh return. That may also lead to a situation where he would be obliged to take one view on the basis of the fresh revised return; whereas there may be a direction by the IAC to take a different view in view of the reference already made on the basis of the previous return. Therefore, if the assessee is permitted to file a revised return even after the ITO makes a draft order under s. 144B, that would lead to uncertainty and delay in finalising the assessment. Sec. 144B is now omitted w.e.f. 1st April, 1989.