CIT v. Saurasthra Cement and Chem. Industries Ltd. and Saraya Sugar Mills Pvt. Ltd. v. CIT (2016) 384 ITR 186 (SC)
In terms of section 153 of the Income-tax Act 1961 (hereinafter referred to as “the Act”), time limit for completion of the assessment to be made under section 143 or 144 of the Act is at any time before the expiry of two years from the end of the assessment year in which the income is first assessable, where assessment year is commencing on or after April 1, 1969. On this reckoning, the date by which assessment should have been carried out by the Assessing Officer in respect of the assessment year 1981-82 was March 31, 1984. The assessment order was, however, passed on September 1, 1984. The Revenue claimed that this assessment order was still within the prescribed period of limitation because of the reason that on March 13, 1984 draft assessment order was passed pertaining to the aforesaid assessment year and forwarded to the Inspecting Assistant Commissioner, Central Range-II, Ahmadabad on March 13, 1984 (i.e., before March 31, 1984). The Inspecting Assistant Commissioner issued instructions under section 144B of the Act on August 31, 1984 and based on that the Assessing Officer framed the assessment on September 1, 1984 under section 143(3) of the Act read with section 144B of the Act.
The Supreme Court noted that the position that was taken by the Revenue was that the period from March13, 1984 to August 31, 1984, when the matter was before the Inspecting Assistant Commissioner, had to be excluded while computing the period of limitation of two years and once the period is excluded the assessment order was passed within the period of limitation.
The contention of the responding-assessee, on the other hand, was that, by order dated August 29, 1983, the Commissioner of Income Tax, Central, Ahmedabad passed under section 125A(1) of the Act had assigned all the powers and functions of the Income Tax Officer, Central Circle, Jamnagar to the Inspecting Assistant Commissioner. This order was passed specifically in case of the respondent herein which became effective from September 1, 1983. It was the submission that once, by virtue of the aforesaid order dated August 29, 1983, passed by the Commissioner of Income-tax, the Inspecting Assistant Commissioner is conferred concurrent jurisdiction, along with the Income-tax Office, empowering him to make assessment order in the case of the assessee, there was no question of forwarding the draft assessment order by the Income-tax Officer to the Inspecting Assistant Commissioner and this unnecessary and superfluous exercise would not enure to the advantage of the Revenue giving it the benefit of the period from March 13, 1984 to August 31, 1984 while calculating the period of limitation of two years provided under section 153 of the Act.
The Supreme Court noted that the Income-tax Appellate Tribunal found force in the said submission of the assessee and allowed the appeal thereby setting aside the assessment order. The Gujarat High Court, upheld this view of the Income-tax Appellate Tribunal, resulting in the dismissal of the appeal of the Appellant.
The Supreme Court also noted that in the appeal arising out of SLP(C) No.13766 of 2001 which was preferred by the assessee M/s. Saraya Sugar Mills Pvt. Ltd., in the same circumstances, on the same question, the Allahabad High Court has taken a contrary view. The High Court of Allahabad has found merit in the stand taken by the Revenue and excluded the period during which the draft assessment was forwarded to the Inspecting Assistant Commissioner till the date of receiving the instructions from the Inspecting Assistant Commissioner under section 144B of the Act.
The Supreme Court thus, faced with two conflicting views and had to decide as to which High Court had correctly decided the issue of limitation.
The Supreme Court noted that section 144B of the Act deals with a situation where the Income-tax Officer intends to pass an assessment order which is in variation to the income or loss that is shown in the return of the assessee and the amount of such variation exceeds the amount that can be fixed by the Board under sub-section (6) thereof. In such a situation, the Income-tax Officer is under obligation to first forward a draft of the proposed order of assessment to the assessee who can file his objections within 7 days thereof and if the objections are received, the Income-tax Officer is to forward the draft order together with objections to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner, after considering the draft order and the objections, is empowered to issue such direction as he thinks fit for the guidance of the Income-Tax Officer to complete the assessment.
The Supreme Court further noted from the reading of section 153, the period (not exceeding 180 days) commencing from the date on which the Income –tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (a) of section 144B, is to be excluded while computing the period of limitation.
Before the Supreme Court, thrust of the counsel for the assessee was on sub-section (4) of section 125A with the submission that on the conferment of the concurrent jurisdiction, provisions of the Act requiring approval and the sanction of the Inspecting Assistant Commissioner were not applicable and, therefore, the provisions of section 144B ceased to apply and should not have been invoked by the Income-tax Officer in the instant case. It was also argued that the High Court in the impugned judgment had rightly discussed that with the passing of a specific order dated August 29, 1983 by the Commissioner of Income-tax directing that all the powers and functions assigned to the Income-tax Officer, Central Circle, Jamnagar were thereby available to the Inspecting Assistant Commissioner, Central Range II, Ahmedabad, the Inspecting Assistant Commissioner, Central Range II, Ahmedabad was brought at par with the Income-tax Officer, in so far as it pertains to the assessment of the assessee herein and he did not remain an Officer higher in status than the Income-tax Officer in so far as assessment of the assessee was concerned and for this reason also no such reference to the Inspecting Assistant Commissioner was called for.
According to the Supreme Court, these arguments were without any force and the result which the respondent-assessee wants did not flow from the reading of section 125A of the Act. The Supreme Court held that a bare reading of sub-section (4) of section 125A of the Act provides that where –
(a) An order is made under sub-section (1), and
(b) The Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in relation to any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases –
(i) references in this Act or in any rule made there under to the Income-tax Officer shall be constructed as references to the Inspecting Assistant Commissioner, and
(ii) any provision of this Act requiring approval or sanction of the Inspecting Assistant Commissioner will not be applicable.
The Supreme Court held that, hence, the provision of the Act requiring the approval or sanction of the Inspecting Assistant Commissioner will not be applicable only in those cases where both the aforementioned conditions (a) and (b) are are satisfied. It would mean that, even though an order is made under section 125A(1) empowering the Inspecting Assistant Commissioner to perform the functions of an Income-tax Officer, yet if he has not exercised the power or performed the function of an Income-tax Officer, the provisions requiring approval or sanction of the Inspecting Assistant Commissioner will be applicable. Sub-section (4) nowhere provides that, if some directions by the Inspecting Assistant Commissioner are issued as provided under sub-section (2), the provisions requiring approval or sanction of the Inspecting Assistant Commissioner will not be applicable.
The Supreme Court, in the instant case, found that it was not the Inspecting Assistant Commissioner who exercised the powers or performed the functions of the Income-tax Officer, even when such a power was conferred upon him, concurrently with the Incom-tax Officer. The significant feature of section 125A of the Act is that even when the Inspecting Assistant Commissioner is given the same powers and functions which are to be performed by the Income-tax Officer in relation to any area or classes or person or income or classes of income or cases or classes of cases, on the conferment of such powers, the Income Tax Officer does not stand denuded of those powers. With conferment of such powers on the Inspecting Assistant Commissioner gives him “concurrent” jurisdiction which means that both, the Income-tax Officer as well as the Inspecting Assistant Commissioner, are empowered to exercise those functions including passing assessment order. It is still open to the Income-tax Officer to assume the jurisdiction and pass the order in case the Inspecting Assistant Commissioner does not exercise those powers in respect of the assessment year. Provisions of section 144B would not apply only if the Inspecting Assistant Commissioner exercises powers or performs the functions of Income-tax Officer. What is important is the actual exercise of powers and not merely conferment of the powers that are borne out from the bare reading of sub-section (4) of section 125B.
According to the Supreme Court, the position would become abundantly clear when one reads section 144B, particularly, sub-section (7) thereof.
Sub-section (7), in no uncertain terms, mentions that section 144B will not apply in that case where the Inspecting Assistant Commissioner “exercises the powers or performs the functions of an Income-tax Officer” in pursuance of an order made under section 125 or section 125A.
The Supreme Court observed that in the instant case, as already noted above, no such power was exercised or function of an Income-tax Officer was performed by the Inspecting Assistant Commissioner.
The Supreme Court observed that the High Court of Gujarat while dismissing the appeal of the Revenue failed to take into account the earlier judgment of the Co-ordinate Bench of the High Court in CIT v. Shree Digvijay Woolllen Mills Ltd. [1995] 212 ITR 310 (Guj), which had taken the above view. The Supreme Court agreed with the view taken in CIT v. Shree Digvijay Woolllen Mills Ltd. thereby allowed Civil Appeal No.2984 of 2008 and setting aside the impugned judgment of the Gujarat High Court.
For these reasons, the Civil Appeal arising out of SLP(C) No.13766 of 2011 filed by the assessee against the judgment of the Allahabad High Court was dismissed affirming the view in the said case.
