Important Point
Section 144-B applies to assessments and reassessments under Section 147 and that, therefore, the extended period of limitation provided by Explanation 1(iv) of Section 153 is available for making such assessments and reassessments.

Headnote:Income Tax Act, 1961-Section 153 read with Sections 144B and 147-Reassessment-Time limit for completion of-Applicability of procedure under Section 144B to cases falling under Section 147-Section 144B applies to assessments and reassessments under Section 147-Therefore extended period of limitation provided by Explanation 1(iv) of Section 153 is available for making such assessments and reassessments.
       Held : Section 147 empowers an Income tax Officer to assess or reassess income chargeable to tax that has escaped assessment in any assessment year. He may do so subject to the provisions of Sections 148 to 153. Before making an assessment or reassessment under Section 147, the Income tax Officer must, by reason of the provisions of Section 148, serve on the assessee a notice to file a return of his income “and the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under” Section 139(3). Section 151 says that no notice under Section 148 may be issued by the Income tax Officer without the sanction of a higher authority as stated therein. After a notice to file a return has been issued under Section 139 a return must be filed by the assessee signed in the manner prescribed by Section 140. An inquiry must then be held as required by Section 142 and an assessment be made under Section 143. If the Income tax Officer proposes to make a variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, the provisions of Section 144-B require the Income tax Officer to forward a draft of the proposed order of assessment to the assessee. The assessee may then forward objections to such variation to the Income tax Officer. If no objections are received, the Income tax Officer may complete the assessment on the basis of the draft order. If, however, objections are received, the Income tax Officer must forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner must, after considering the draft order, the objections and the record, issue such directions as he thinks fit for the guidance of the Income tax Officer to enable him to complete the assessment, but no directions which are prejudicial to the assessee may be given before an opportunity is given to the assessee to be heard. The directions are binding on the Income tax Officer. It is to enable this procedure to be carried out that Explanation 1(iv) of Section 153 gives an extended period of 180 days to complete the assessment. (Paras 11 & 12)
       By reason of Section 148, after a notice thereunder has been served on the assessee containing the requirements which must be included in a notice under Section 139(2), “the provisions of this Act shall so far as may be applied accordingly as if the notice were a notice issued under that sub-section.” What this implies is, in our view, clear. Even after a notice is issued under Section 148, if the Income tax Officer proposes to make a variation in the income returned pursuant to such notice which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, the Income tax Officer must forward a draft of the proposed order of the assessment to the assessee. The assessee is entitled to forward objections to such variation. If he does not do so, the Income tax Officer may complete the assessment or reassessment on the basis of the draft order. If, however, the assessee does raise objections, the Income tax Officer must forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner must, after considering the draft order, the objections and the record, issue such directions as he thinks fit for the guidance of Income tax Officer to enable him to complete the assessment or reassessment, but no directions which are prejudicial to the assessee may be issued before an opportunity is given to the assessee to be heard. The directions issued by the Inspecting Assistant Commissioner are binding on the Income tax Officer. (Para 13)
       If, therefore, the procedure that is prescribed by Section 144-B is to be applied even to assessments and reassessments under Section 147 and, as we have stated, we think it must, having regard to the terms of the provisions of the Act herein before referred to as also because the provisions of Section 144-B are intended to safeguard the interest of the assessee, the extended period of limitation prescribed by Explanation 1(iv) to Section 153 must apply. It was submitted on behalf of the assessee that the provisions of Section 144-B were not applicable to assessments and reassessments under Section 147 because Section 144-B stated that it applied only to “an assessment to be made under sub-section (3) of Section 143.” The submission cannot be accepted because the words we have quoted from Section 148 cannot be ignored. A notice having been issued under Section 148, the procedure set out in the sections subsequent to Section 139 has to be followed “so far as may be”. Section 144-B is a procedural provision. It fits into the procedural scheme as hereinbefore noted and, therefore, it cannot be excluded by reason of the use of the words “so far as may be”. Nor is there any other good reason to exclude it from the procedure to be followed subsequent to a notice under Section 148. (Paras 14 & 15)
       It was pointed out by learned counsel for the assessees that no assessments could be reopened under Section 147 by the issuance of a notice under Section 148 unless sanction for such issuance had been obtained under Section 151. The authorities empowers to grant such sanction under Section 151 being higher in rank than an Inspecting Assistant Commissioner, it was submitted that it was incongruous that actual assessment or reassessment pursuant to such notice should be supervised by and be subject to the directions of only an Inspecting Assistant Commissioner. This was an indication that Section 144-B had no application to assessments and reassessments under Section 147. We do not see an incongruity. The reopening of an already completed assessment for the reason that the Income tax Officer has reason to believe that income chargeable to tax has escaped assessment is a serious matter. The Act requires the Income tax Officer to record his reasons for issuing a notice under Section 148. The Act also requires that such notice shall not be issued unless the higher authorities mentioned in Section 151 sanction its issue. The assessment or reassessment consequent upon such notice is a different matter. Different considerations apply to a situation where in making the order of assessment or reassessment the Income tax Officer proposes to vary the income returned by the assessee in a manner that is prejudicial to the assessee, the variation exceeds the amount that has been fixed by the Board, and the assessee has objected to the variation. The Inspecting Assistant Commissioner is then required to consider the proposed order, the objections and the record and give appropriate, and binding, directions to the Income tax Officer. (Para 16)
       It was submitted by learned counsel for the assessee that in response to a notice under Section 148 an assessee was likely to make a return only of the income which he had originally returned and on the basis of which the original assessment order was made. Therefore, more often than not, the Income tax Officer was likely to make a variation thereof, prejudicial to the assessee, which exceeded the amount fixed by the Board. That may well be so but, in our view, it can make no difference to the construction of the provisions. Section 144-B, provides a measure of protection to assessees-that substantial variations, prejudicial to them, should not be made in their returned incomes only by Income tax Officers : these should be made only after consideration by Inspecting Assistant Commissioners. That a larger number of assessees might get such protection is not a good reason for holding that the provisions of Section 144-B are inapplicable to assessments and reassessments under Section 147. As to the argument based upon Sections 144-A, 246 and 263, we do not doubt that assessments under Section 143 and assessments and reassessments under Section 147 are different, but in making assessments and reassessments under Section 147 the procedure laid down in Sections subsequent to Section 139, including that laid down by Section 144-B, has to be followed. (Paras 17 & 18)
       Therefore, Section 144-B applies to assessments and reassessments under Section 147 and that, therefore, the extended period of limitation provided by Explanation 1(iv) of Section 153 is available for making such assessments and reassessments. (Para 20)

Judgment

S.P. Bharucha, J.-These appeals, by certificate, impugn the correctness of the judgment of a Division Bench of the High Court at Delhi. The question is whether the additional period of 180 days given by Explanation 1(iv) of Section 153 of the Income Tax Act, 1961, is available when the assessment or reassessment is made under Section 147.

2. We are concerned with assessments/reassessments made under Section 147. In one set of appeals the Assessment Year involved is 1947-48. The notice under Section 148 was issued on 24th March, 1964. Subsequent proceedings were stayed by the High Court on 29th May, 1964, the order of stay being made on a writ petition filed by the assessee. The writ petition was dismissed, and the stay vacated, on 17th May, 1974. The draft order under Section 144B was made on 10th March, 1978 and the final order of assessment was made on 14th September, 1978. Assuming that the extended period of limitation of 180 days aforementioned was not available to the Revenue, the period for making the assessment had expired on 19th March, 1978. In the second set of appeals the Assessment Years involved are 1947-48 and 1948-49. The notices under Section 148 were issued on 24th March, 1964 and 20th March, 1965. Subsequent proceedings were stayed by the High Court on 23rd February, 1968 and 21st August, 1968, the orders of stay being made on writ petitions filed by the assessee. The writ petitions were dismissed, and stay vacated, on 27th April, 1978. The draft orders under Section 144B were made on 16th May, 1978 and 31st July, 1978 and the final orders of assessment were made on 6th September, 1978 and 7th April, 1979. Assuming that the extended period of 180 days aforementioned was not available to the Revenue, the period for making the assessments had expired on 5th June, 1978 and 7th December, 1978.

3. The assessees’ challenge to these assessments was taken to the Income Tax Appellate Tribunal. The Tribunal held that the assessments were barred by time because Section 144B, in its view, applied only to assessments made under Section 143(3) and could not be applied to assessments and reassessments made under Section 147. At the instance of the assessees as also the Revenue, the following questions were referred to the High Court at Delhi:

“1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that provisions of Section 144-B were not applicable to assessments made pursuant to the provisions of Section 147 in the case of J. Dalmia, HUF, for assessment years 1947-48 and 1948-49 and in the case of AOP for assessment year 1947-48?

2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of Section 144-B are procedural and apply to all assessments pending at the time when the said provision was introduced by Taxation Laws (Amendment) Act, 1975 w.e.f. 1.1.1976?

3. Whether on the facts and in the circumstances of the case, Tribunal was right in law in holding that assessments in the case of J. Dalmia (HUF) for A.Ys. 1947-48 and 1948-49 and in the case of AOP for A.Y. 1947-48 were barred by time limitation?”

The High Court took the view that the provisions of Section 144-B were applicable to assessments and reassessments made under Section 147 and answered the questions accordingly.

4. The High Court at Madras in Commissioner of Income-Tax v. Sundaram Spinning Mills & Ors.1, and CIT v. Simson and Mc Conechy Ltd.2, the High Court of Punjab and Haryana in CIT v. Usha Aggarwal3, and the High Court of Calcutta in Commissioner of Income Tax v. Smt. Radha Devi Poddar4, have reached conclusions similar to that reached by the Delhi High Court in the impugned judgment. The contrary view has been taken by the Kerala and Bombay High Courts in Kerala Kaumudi Pvt. Ltd. v. CIT5, and CIT v. V.D. Saraf (HUF)6.

5. Section 153 provides the time limit for completion of assessments and

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Judicial Analysis

SupremeToday

1999 Supreme(SC) 143

Important PointSection 144-B applies to assessments and reas­sessments under Section 147 and that, therefore, the extended period of limitation provided by Explanation 1(iv) of Section 153 is available for making such assessments and reassessments.

Judicial Analysis

Important Point
Section 144-B applies to assessments and reassessments under Section 147 and that, therefore, the extended period of limitation provided by Explanation 1(iv) of Section 153 is available for making such assessments and reassessments.