Period of reference us 144B-144BA to be excluded for limitation u/s 153 except where IAC/CIT exercises powers, performs functions of ITO-Supreme Court

Period when reference was made to IAC u/s 144B (now 144BA) to be excluded while computing the period of limitation u/s 153. Section 144B not to apply only in that case where the IAC exercises the powers or performs the functions of an ITO-Supreme Court. 

Case Law Details:
Civil Appeal Nos 2984/2008 with Civil Appeal Nos 4971/2016
Commissioner of Income Tax (Appellant)  vs. Saurashtra Cement & Chem. Industries Ltd. (Respondent) , and
M/s Saraya Sugar Mills Pvt. Ltd. (Appellant)  vs. Commissioner of Income Tax (Respondent
Date of Judgment: 02/05/2016
Coram: Justice A. K. Sikri and Justice Rohinton Fali Nariman

Important Judgment Cited:
CIT vs. Shree Digvijay Woollen Mills Ltd. [1995] 212 ITR 310] Gujarat HC
CIT vs. Shree Digvijay Woollen Mills Ltd.

Brief Facts of the Case:

Saurashtra Cement
In Saurashtra Cement case, the appellant Revenue was aggrieved by the judgment of Gujarat High Court whereby the High Court had dismissed the appeal of the Revenue and affirmed the order of the ITAT holding that the assessment order dated 01.09.1984 passed by the Assessing Officer in respect of Assessment Year 1981-82 was time barred.

As per Income Tax Act, 1961, the time limit for completion of the assessment under Sections 143 or 144 is two years from the end of the relevant Assessment Year in which the income is first assessable. Thus in the present case, the time limit for passing assessment order was 31.03.1984 which was however, passed on 01.09.1984.

The Revenue claimed that this assessment order was still within the prescribed period of limitation because of the reason that on 13.03.1984 draft assessment order was passed pertaining to the aforesaid Assessment Year and forwarded to the Inspecting Assistant Commissioner (IAC) on 13.03.1984 (i.e. before 31.03.1984). The IAC issued instructions under Section 144B of the Act on 31.08.1984 and based on that the Assessing Officer completed the assessment on 01.09.1984 under Section 143(3). The Revenue took the position that the period when the matter was before the IAC, 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.

Contention of the respondent was that CIT by order passed u/s 125A(1) dated 29.08.1983 had assigned all the powers and functions of the Income Tax Officer to the IAC and by virtue of the order passed by the CIT, the IAC was conferred concurrent jurisdiction, along with ITO. Thus there was no need of forwarding the draft assessment order by the ITO to the IAC and this unnecessary and superfluous exercise could not be excluded while calculating the period of limitation u/s 153. In brief , the submission was that the conferment of the powers of the Assessing Officer upon the IAC, he is in the same position as the ITO and draft assessment order could not be sent to him who was brought at par with the ITO.

Saraya Sugar Mills
In the above case, on the same question, the Allahabad High Court had taken a contrary view. The High Court upheld the stand taken by the Revenue and excluded the period during which the draft assessment was forwarded to the IAC till the date of receiving the instructions from the IAC under Section 144B of the Act.

Thus there were two conflicting views of two High Courts. on the issue of  said limitation.

The Apex Court did not agree with the contentions of the assessee and observed that 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 had 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 continue to be applicable. The Court further observed that it has nowhere been provided that, if some directions by the Inspecting Assistant Commissioner were issued , then provisions requiring approval or sanction of the Inspecting Assistant Commissioner will not be applicable. 

Important Excerpts from the Judgment:

In the instant case, we find that it is not the IAC who exercises the powers or performs the functions of the ITO, even when such a power was conferred upon him, concurrently with the ITO. The significant feature of Section 125A of the Act is that even when the IAC is given the same powers and functions which are to be performed by the ITO 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 ITO does not stand denuded of those powers. With conferment of such powers on the IAC gives him “concurrent” jurisdiction which means that both, ITO as well as the IAC, are empowered to exercise those functions including passing assessment order. It is still open to the ITO to assume the jurisdiction and pass the order in case the IAC does not exercise those powers in respect of the assessment year. Provisions of Section 144B would not apply only if the IAC exercises powers or performs the functions of an ITO. 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.

The position becomes abundantly clear when we read Section 144B, particularly, sub-Section (7) thereof, though for the sake of clarity we reproduce hereunder the entire provision:

“(7) Nothing in this section shall apply to a case where an 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.”

Sub-Section (7), in no uncertain terms, mentions that Section 144B will not apply only in that case where the IAC “exercises the powers or performs the functions of an ITO” in pursuance of an order made under Section 125 or Section 125A.

Sub-Section (7), in no uncertain terms, mentions that Section 144B will not apply only in that case where the IAC “exercises the powers or performs the functions of an ITO” in pursuance of an order made under Section 125 or Section 125A.

Held:
(a) Judgment of Gujarat High Court was set aside.

(b) Judgment of Allahabad High Court affirmed.

Period of reference us 144BA excluded for limitation us 153

download full judgment

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