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REPORTABLE IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL  NO(S).2984/2008

COMMISSIONER OF INCOME TAX, GUJARAT CENTRAL        APPELLANT(S)

                               VERSUS

SAURASTHRA CEMENT & CHEM. INDUSTRIES LTD           RESPONDENT(S)

WITH CIVIL APPEAL  NO(S).4971/2016

(Arising out of SLP(C) No. 13766/2011)   M/S. SARAYA SUGAR MILLS PVT. LTD. APPELLANT(S)                                 VERSUS COMMISSIONER OF INCOME -A WARD, GORAKHPUR RESPONDENT(S)

J U D G M E N T A.K. SIKRI,J.

Leave granted in SLP(C) No. 13766/2011.

2. The Commissioner of Income Tax, Gujarat Central, Ahmedabad- the  appellant  (hereinafter  referred  to  as  “the  Revenue”),  is aggrieved by the judgment dated 20.01.2005 passed by the High Court of Gujarat whereby the High Court has dismissed the appeal of the Revenue affirming the order of the Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”) holding that the assessment

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order dated 01.09.1984 passed by the Assessing Officer in respect of Assessment Year 1981-82 was time barred. We may mention at the outset that 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 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,  Central  Range-II,  Ahmedabad (hereinafter referred to as “the 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.

3. 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

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contention of the respondent/assessee, on the other hand, was that, by order dated 29.08.1983, the Commissioner of Income Tax, Central, Ahmedabad  (hereinafter  referred  to  as  “the  CIT”)  passed  under Section  125A(1)  of  the  Act  had  assigned  all  the  powers  and functions  of  the  Income  Tax  Officer,  Central  Circle,  Jamnagar (hereinafter referred to as “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.   4. The  Assessing  Officer  was  not  amused  by  the  aforesaid contention  of  the  assessee  and  repelled  the  same  resulting  in framing of the assessment order dated 01.09.1984. However, the ITAT found force in the said submission of the assessee and allowed the appeal thereby setting aside the assessment order. The High Court, as pointed out above, has upheld this view of the ITAT, resulting

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in the dismissal of the appeal of the appellant.

5. Before proceeding further, we may mention that in the appeal arising  out  of  SLP(C)  No.13766/2011  which  is  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 IAC till the date of receiving the instructions from the IAC under Section 144B of the Act. We are, thus, faced with two conflicting views and to decide as to which High Court has correctly decided the issue of limitation.

6. We have already stated, in detail, the facts of Civil Appeal No. 2984 of 2008. Before we embark upon our detailed discussion on the issue, we would like to place on record the relevant provisions of the Act which have bearing on the issue. As mentioned above, Section  153  prescribes  limitation  of  two  years  for  making assessment under Section 143 or Section 144 of the Act. Avoiding those portions of these Sections with which we are not concerned, the material provisions are re-produced below:  

"153. Time-limit for completion of assessments and reassessments. - (1) No order of assessment shall be made under section 143 or section 144 at any time after -  (a) the expiry of - ...  (iii) two years from the end of the assessment year

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in which the income was first assessable, where such  assessment  year  is  an  assessment  year commencing on or after the 1st day of April, 1969; or....  whichever is latest. . . .  (3)  The  provisions  of  sub-sections  (1)  and  (2) shall  not  apply  to  the  following  classes  of assessments,  reassessments  and  re-computations which may, subject to the provisions of sub-section (2A), be completed at any time - ... (ii)  where  the  assessment,  reassessment  or re-computation is : made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act;...  Explanation  1.  -  In  computing  the  period  of limitation for the purposes of this section - . . . (iv)  the  period  (not  exceeding  one  hundred  and eighty 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  (4)  of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or (iva) the period (not exceeding sixty days) commencing from the date on which  the  Income-tax  Officer  received  the declaration under sub-section (1) of section 158A and ending with the date on which the order under sub-section (3) of that section is made by him, or. . . .  shall be excluded. . . ."  

7. Section 123 of the Act lays down the jurisdiction of the IAC and reads as under:  

"123.  Jurisdiction  of  Inspecting  Assistant Commissioners  -  (1)  The  Inspecting  Assistant Commissioners  shall  perform  their  functions  in respect of such areas or of such persons or classes of persons or of such incomes or classes of income

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or  of  such  cases  or  classes  of  cases  as  the Commissioner may direct.  (2) Where any directions issued under sub-section (1)  have  assigned  to  two  or  more  Inspecting Assistant Commissioners, the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform such functions in relation to the said  area  or  persons  or  classes  of  persons  or incomes or classes of income or cases or classes of cases  as  the  Commissioner  may,  by  general  or special  order  in  writing,  specify,  for  the distribution  and  allocation  of  the  work  to  be performed.”  

8. Section 124, on the other hand, deals with the jurisdiction of the Income Tax Officer and reads as under:  

“124. Jurisdiction of Income-tax Officers. - (1) Income-tax Officers shall perform their functions in  respect of  such areas  or of  such persons  or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct.  (2) Where any directions issued under sub-section (1)  have  assigned  to  two  or  more  Income-tax Officers,  the  same  area  or  the  same  persons  or classes of persons or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform  their  functions  in  relation  to  the  said area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, in accordance with such general or special orders in writing as the Commissioner or the Inspecting Assistant  Commissioner  authorised  by  the Commissioner  in  this  behalf  may  make  for  the purpose  of  facilitating  the  performance  of  such functions.  (3) Within the limits of the area assigned to him, the Income-tax Officer shall have jurisdiction -  (a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area,  or  where  his  business  or  profession  is

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carried  on  in  more  places  than  one,  if  the principal place of his business or profession is situate within the area, and  (b) in respect of any other person residing within the area.  (4) Where a question arises under this section as to whether an Income-tax Officer has jurisdiction to  assess  any  person,  the  question  shall  be determined  by  the  Commissioner;  or  where  the question  is  one  relating  to  areas  within  the jurisdiction  of  different  Commissioners,  by  the Commissioners  concerned  or,  if  they  are  not  in agreement, by the Board.  (5) No person shall be entitled to call in question the jurisdiction of an Income-tax Officer -  (a) after the expiry of one month from the date on which he has made a return under sub-section (1) of section  139  or  after  the  completion  of  the assessment, whichever is earlier :-  (b) where he has made no such return, after the expiry  of  the  time  allowed  by  the  notice  under sub-section (2) of section 139 or under section 148 for the making of the return.  (6) Subject to the provisions of sub-section (5), where  an  assessee  calls  in  question  the jurisdiction  of  an  Income-tax  Officer,  then  the Income- tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination  under  sub-section  (4)  before assessment is made.  (7)  Notwithstanding  anything  contained  in  this section  or  in  section  130A,  every  Income-tax Officer shall have all the powers conferred by or under this Act on an Income-tax Officer in respect of  any  income  accruing  or  arising  or  received within the area for which he is appointed.

9. Likewise, Section 125 of the Act prescribes the powers of the Commissioner with respect to specified areas, cases, persons etc. Section 125A of the Act, to which we shall advert at a later stage, discusses the concurrent jurisdiction of IAC and ITO under certain circumstances.  Further,  Section  130A  of  the  Act  deals  with competency of the ITO to perform any function or functions under

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certain specified circumstances. Sections 131  to 136 provide for various powers of the Income Tax Authorities with which we are not concerned in the present case. The important provisions directly relevant for the controversy in issue are contained in Chapter XIV, namely, Sections 144A and 144B of the Act. Section 144A authorises the IAC to issue directions in certain cases and Sections 144B provides that in certain cases reference is to be made to the IAC by the ITO before framing the final assessment order. Under Section 144A, the IAC may, on his own motion or on a reference being made to him by the ITO or on the application of an assessee, call for and examine the record of any proceedings in which the assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the ITO to enable him to complete the assessment. Directions so issued are binding on the ITO.

10. 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,

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is empowered to issue such directions as he thinks fit  for the guidance of the ITO to complete the assessment.

11. 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.

12. 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.  To appreciate  this  contention,  we  at  this  stage,  reproduce  the provisions of Section 125A of the Act under which concurrent powers can be assigned to the IAC as well.  

“125A.  Concurrent  jurisdiction  of  Inspecting Assistant  Commissioner  and  Income-tax  Officer.  - (1)  The  Commissioner  may,  by  general  or  special order in writing, direct that all or any of the powers or functions conferred on, or assigned to, the Income-tax Officer or Income-tax Officers by or under this Act in respect of any area, or persons or classes of persons, or incomes or classes of income,  or  cases  or  classes  of  cases,  shall  be exercised  or  performed  concurrently  by  the Inspecting Assistant Commissioner.

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(2)  Where  under  sub-section  (1),  an  Inspecting Assistant  Commissioner  exercises  concurrent jurisdiction with one or more Income-tax Officers in respect of any area, or persons or classes of persons, or incomes or classes of income, or cases or  classes  of  cases,  the  Income-tax  Officer  or Income-tax Officers shall exercise the powers and perform  the  functions  under  this  Act  in relation-thereto  as  the  Inspecting  Assistant Commissioner may direct.  (3)  Without  prejudice  to  the  generality  of  the provisions contained in sub-section (3) of section 119, every Income-tax Officer shall also observe and follow such instructions as may be issued to him for his guidance by the Inspecting Assistant Commissioner within whose jurisdiction he performs his  functions  in  relation  to  any  particular proceeding  or  the  initiation  of  any  proceeding under this Act :  Provided  that  no  instructions,  which  are prejudicial to the assessee, shall be issued before an  opportunity  is  given  to  the  assessee  to  be heard.  Explanation.  -  For  the  purposes  of  this sub-section,  no  instruction  as  to  the  lines  on which  an  investigation  connected  with  the assessment should be made shall be deemed to be an instruction prejudicial to the assessee.  (4) Where an order is made under sub-section (1) and 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, 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  any  provision  of  this  Act requiring approval or sanction of the Inspecting Assistant Commissioner shall not apply.

12. From the aforesaid sections, it is apparent:

(i) Under section 123 of the Act, the Inspecting Assistant  Commissioners  have  jurisdiction  in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as per the direction of the Commissioner. Where there are two

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or  more  Inspecting  Assistant  Commissioners,  they are having concurrent jurisdiction and are required to  exercise  their  powers  and  perform  their functions as per the order in writing made by the Commissioner  specifying  for  the  distribution  and allocation of the work to be performed.  (ii)  Similarly,  under  section  124(1),  the Income-tax Officers are also required to perform their  functions  as  per  the  direction  of  the Commissioner. If there are two or more Income-tax Officers, they are having concurrent jurisdiction and are required to perform their functions as per the general or special orders in writing made by the  Commissioner  or  Inspecting  Assistant Commissioner authorised by the Commissioner in this behalf. Sub-section (3) provides that within the limits of the area assigned to him, the Income-tax Officer shall have jurisdiction in respect of any person carrying on business or profession, if the place  at  which  he  carries  on  his  business  or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession  is  situate  within  the  area  and  in respect of any other person residing within the area.  Sub-section  (4)  provides  as  to  who  shall decide  the  dispute  arising  with  regard  to  the jurisdiction of an Income-tax Officer to assess any person.  Sub-section  (5)  provides  that  no  person shall  be  entitled  to  call  in  question  the jurisdiction of an Income-tax Officer beyond the time-limit prescribed therein;

(iii) In section 125, an exception is carved out with regard to the jurisdiction of an Income-tax Officer which provides that the Commissioner may by general or special order in writing direct that the powers conferred on the Income-tax Officer by or under the Act shall, in respect of any specified case or class of cases or of any specified person or class of persons, be exercised by the Inspecting Assistant  Commissioner.  By  an  order  of  the Commissioner  under  section  125(1)(a),  the Income-tax Officer is divested of his jurisdiction to deal with the specified case or class of cases or specified person or persons. Hence, even though the Income-tax Officer is having jurisdiction in respect  of  any  specified  case  or  person,  the Commissioner is empowered to direct that the said powers  shall  be  exercised  by  the  Inspecting Assistant Commissioner. Where such order is made

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under section 125(2)(a), any provision of the Act requiring approval or sanction of the Inspecting Assistant Commissioner will not be applicable.

(iv) Section 125A carves out further exception with regard  to  the  jurisdiction  of  an  Income-tax Officer.  It  does  not  oust  the  jurisdiction  of Income  Tax  Officer  but  confers  concurrent jurisdiction  on  the  Inspecting  Assistant Commissioner.  It  provides  that  the  Commissioner may, be general or special order in writing, direct that  all  or  any  of  the  powers  or  functions conferred  on,  or  assigned  to,  the  Income-tax Officer or Income-tax Officers by or under this Act in respect of any are, or persons of classes of persons, or incomes or classes of income, or cases or  classes  of  cases,  shall  be  exercised  or performed concurrently by the Inspecting Assistant Commissioner. Sub-section (2) of section 125A also empowers the Inspecting Assistant Commissioner to issue direction to the Income-tax Officer and the Income-tax  Officer  is  required  to  exercise  his powers and perform his functions under the Act as per  the  said  direction.  Sub-section  (3)  thereto clarifies  that  the  Income-tax  Officer  is  also required to observe and follow such instructions as may  be  issued  to  him  for  his  guidance  by  the Inspecting  Assistant  Commissioner  within  whose jurisdiction he performs his functions in relation to any particular proceedings or the initiation of any proceeding under the Act. The proviso clarifies that no instructions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.“

13. 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 IAC are not applied and, therefore, the provisions of Section 144B seize to apply and should not have been invoked by the ITO in  the instant case. It was also argued that the High Court in the impugned judgment has rightly discussed that with the passing of a specific order dated 29.08.1983 by the CIT

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directing that all the powers and functions assigned to the ITO, Central Circle, Jamnagar are thereby available to the IAC, Central Range  II,  Ahmedabad,  the  IAC,  Central  Range  II,  Ahmedabad  was brought  at  par  with  the  ITO,  insofar  as  it  pertains  to  the assessment of the assessee herein and he did not remain an Officer higher in status than ITO insofar as assessment of the assesse is concerned and for this reason also no such reference to the IAC was called for.

14. These arguments are without any force and the result which the respondent/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.

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15. 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.  

16. 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

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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.

17. 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."

 18. 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.

19. 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

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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.

20. For  these  reasons,  the  Civil  Appeal  arising  out  of SLP(C)No.13766/2011 filed by the assesee against the judgment of the Allahabad High Court is dismissed affirming the view in the said  case  which  is  reported  as  Commissioner  of  Income  tax  vs. Saraya Sugar Mills P. Ltd. [2011] 336 ITR 572 (All).

21. The Revenue shall be entitled to costs in both the appeals.  

......................J. [A.K. SIKRI]

......................J.    [ROHINTON FALI NARIMAN]

NEW DELHI; MAY 02, 2016.