I-T - Whether in a situation of concurrent jurisdiction when Inspecting AC does not exercise powers and functions of ITO, the latter is free to assume jurisdiction and pass order - YES: SC 

By TIOL News Service

NEW DELHI, MAY 18, 2016: THE issues are - Whether merely because the provisions of Sec 125A vest powers and functions of ITO in the Inspecting AC in relation to any area or classes of income, the ITO stands denuded of those powers and whether in a situation of concurrent jurisdiction when the IAC does not exercise the powers and functions of the ITO, the latter is free to assume jurisdiction and pass the order. And the verdict favours the Revenue.

Facts of the case

Revenue is aggrieved by the HC judgment affirming 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.The Revenue claimed that the assessment order was 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 framed the assessment on 01.09.1984 under Section 143(3) of the Act read with Section 144B of the Act.

The position that was taken by the Revenue was that the period from 13.03.1984 to 31.03.1984, 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.

Having heard the parties, the Apex Court held that,

++ Section 144B of the Act deals with a situation where the ITO 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 ITO 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 ITO is to forward the draft order together with the objections to the IAC. The IAC, after considering the draft order and the objections, is empowered to issue such directions as he thinks fit for the guidance of the ITO to complete the assessment;

++ from the reading of Section 153, the period (not exceeding 180 days) commencing from the date on which the ITO forwards the draft order under sub-Section (1) of Section 144B to the assessee and ending with the date on which the ITO receives the directions from the IAC under sub-Section (4) of Section 144B, is to be excluded while computing the period of limitation;

++ there is no quarrel up to this stage. However, as pointed out in the earlier portion of this judgment, as per the assessee when the IAC was vested/empowered with same powers as that of ITO, by specific order of the CIT in respect of the respondent/assessee itself and with the conferring of said powers the IAC and ITO had concerned jurisdiction over the assessee, there was no reason to send the draft assessment order by the ITO to the IAC;

++ 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 conditions (a) and (b) of Sec 125A(4) 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), then provisions requiring approval or sanction of the Inspecting Assistant Commissioner will not be applicable;

++ 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) which in no uncertain terms, mentions that 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;

++ in the instant case, no such power was exercised or function of an ITO was performed by the IAC. We would like to point out here 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 vs. Shree Digvijay Woollen Mills Ltd. [1995] 212 ITR 310], which has taken the view that we have expressed above. We agree with the view taken in CIT vs. Shree Digvijay Woollen Mills Ltd. thereby allowing Civil Appeal No. 2984 of 2008 and setting aside the impugned judgment.

(See 2016-TIOL-76-SC-IT)