CIT vs. Saurashtra Cement & Chemical Industries Ltd (Supreme Court)

In terms of Section 153 of the Income Tax Act, 1961, time limit for completion of the assessment to be made under Sections 143 or 144 of the Act is at any time after 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 01.04.1969. On this reckoning, the date by which assessment should have been carried out by the Assessing Officer in respect of Assessment Year 1981-82 was 31.03.1984. The assessment order 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 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. The contention of the respondent/assessee, on the other hand, was that, by order dated 29.08.1983, the CIT passed under Section 125A(1) of the Act had assigned all the powers and functions of the ITO to the IAC. This order was passed specifically in the case of the respondent herein which became effective from 01.09.1983. It was their submission that once, by virtue of the aforesaid order dated 29.08.1983 passed by the CIT, the IAC is conferred concurrent jurisdiction, along with ITO, empowering him to make assessment order in the case of the assessee, there was no question of forwarding the draft assessment order by the ITO to the IAC and this unnecessary and superfluous exercise would not enure to the advantage of the Revenue giving it the benefit of the period from 13.03.1984 to 31.08.1984 while calculating the period of limitation of two years provided under Section 153 of the Act. In nutshell, 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. The High Court dismissed the appeal of the Revenue 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. On appeal by the Revenue to the Supreme Court HELD allowing the appeal:

(i) The arguments are without any force and the result which the assessee wants does not flow from the reading of Section 125A of the Act. 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 thereunder to the Income-tax Officer shall be construed 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.

(ii) 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 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.

(iii) 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.

(iv) The position becomes abundantly clear when we read Section 144B, particularly, sub-Section (7) thereof. 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.

(v) In the instant case, as already noted above, 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.