COMMISSIONER OF INCOME TAX Vs. SATYA NARAIN

JUDGEMENT

(1.) THE following question of law has been referred at the instance of the Commissioner of Income-tax by the Income-tax Appellate Tribunal (for short "the Tribunal"), under Section 256(1) of the Income-tax Act, 1961, (for short "the Act") :

(2.) THE assessee, in the status of an individual, derived income from his proprietary business and from house property as also share income from the partnership firm, Everest Woollen Mills, Ludhiana. He filed a return declaring total income of Rs. 63,260 including share income from the firm at Rs. 21,479 for the assessment year 1975-76 (accounting year ending on March 31, 1975). THE Assessing Officer examined the books of account of the assessee's proprietary business, Bombay Wool Agency, Ludhiana, and proposed disallowances aggregating to Rs. 71,725 under Section 144B of the Act. THEse disallowances consisted of the disallowance of interest paid on the borrowings at Rs. 57,500, disallowance of travelling expenses Rs. 2,000, disallowance of motor car expenses Rs. 11,309 and disallowances of shop expenses and charity Rs. 916. In addition, the Assessing Officer re-determined income from house property at Rs. 6,833 and the share income from the firm at Rs. 1,81,884. THE assessee had declared share of profit from the firm, Everest Woollen Mills, Ludhiana, at Rs. 21,479 but the Assessing Officer, on the basis of the draft assessment order, prepared by the Assessing Officer in the case of the firm under Section 144B of the Act, estimated the assessee's share income from the firm at Rs. 1,81,884. Since the variation in the income returned and the income proposed to be assessed exceeded Rs. 1,00,000, the power under Section 144B of the Act was invoked by the Assessing Officer and a draft assessment order in the case of the assessee in his individual status was prepared. In the said draft assessment order, the aforesaid additions and disallowances were incorporated and the draft of the proposed order of assessment was forwarded to the assessee to file objections, if any, to such variation.

(3.) THE assessee went in appeal before the Commissioner of Income-tax with the plea that the Assessing Officer could not take the assessee's share income from the partnership firm unless assessment was completed in the case of the firm. THE assessment was still pending in the case of the firm and only a draft order of assessment had been forwarded by the Assessing Officer concerned to the firm under Section 144B of the Act. THE Commissioner of Income-tax did not agree with the assessee's plea that the Assessing Officer could not take the assessee's share income at Rs. 1,81,884 from the draft assessment order in the case of the firm. THE assessee had argued that if the Assessing Officer could not validly do so, then the proposed variation would be below Rs. 1,00,000 and, consequently, Section 144B of the Act would not be attracted in the case of the assessee.