1. At the instance of the Revenue, on an application filed under Section 256(1) of the Income-tax Act, 1961 (for short, 'the Act' only), the Appellate Tribunal, Patna Bench, Patna, has referred to this court the following questions of law for its opinion for the assessment years 1977-78 and 1978-79 :
' (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of the Commissioner, who had only remanded the case back to the Income-tax Officer to make the assessment after compliance with Section 144B of the Income-tax Act which was mandatory ?
(ii) Whether the Tribunal was justified in cancelling the order of the Commissioner of Income-tax merely on the ground that the Commissioner of Income-tax had not given any finding on the subject-matter in dispute to prove that the order is prejudicial to the interests of the Revenue by cogent material before setting aside the order of the Income-tax Officer and remanding it back to him for assessment in accordance with law ?
(iii) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the Commissioner of Income-tax has no jurisdiction to set aside the order under Section 263 of the Income-tax Act and to remand hack to the Income-tax Officer to pass fresh order after following Section 144B of the Income-tax Act ?'
2. For the assessment year 1977-78, the assessee filed its return of income showing total income of Rs. 59,075. By the assessment order dated March 24, 1980, the assessee was assessed on an income of Rs. 70,980. It appears that thereafter the assessment order was rectified by the Income-tax Officer under Section 154 of the Act. That showed variation of the income of the assessee of an amount of over Rs. 1 lakh. The order under Section 154 of the Act is not a part of the paper book. The assessee filed two appeals--one against the assessment made under Sub-section (3) of Section 143 of the Act and the other against the order made under Section 154 of the Act. The Commissioner of Income-tax (Appeals) disposed of both the appeals preferred by the assessee by order dated February 15, 1982. While he confirmed the order passed under Section 154 of the Act, he allowed partly the quantum of appeal. On March 17, 1982, the Commissioner of Income-tax, in exercise of his powers under Section 263 of the Act, set aside the order of assessment as rectified by the Income-tax Officer under Section 154 of the Act. Meanwhile the assessee filed further appeal before the Income-tax Appellate Tribunal against the order of the Commissioner of Income-tax (Appeals) dismissing his appeal against the order passed under Section 154 of the Act. The Tribunal by order dated November 30, 1983, cancelled the order of the Income-tax Officer made under Section 154 of the Act. It is said that the Revenue has not filed any reference against that order and, accordingly, the order of the Tribunal cancelling the order under Section 154 of the Act has become final.
3. Then the assessee filed an appeal against the order of the Commissioner of Income-tax passed under Section 263 of the Act, which appeal was also allowed by the Tribunal vide order dated September 6, 1984.
4. For the assessment year 1978-79 as well against the order of the Commissioner of Income-tax under Section 263 of the Act, the appeal of the assessee was allowed by the Tribunal. On these facts, the aforesaid questions have been referred to this court for its opinion.
5. It is contended by Mr. Rastogi, learned counsel appearing for the Revenue, that the requirements of Section 263 of the Act were met and the Tribunal was wrong in setting aside the order of the Commissioner of Income-tax. He submitted that there was variation of income of over
one lakh of rupees and so the provisions of Section 144B of the Act were applicable and as per the provisions of that section the Income-tax Officer in the first instance had to forward a draft of the proposed order of assessment to the assessee, who, on receipt of the same is to send his objections, if any, to such variation to the Income-tax Officer. On receiving the objections, the Income-tax Officer is to forward the same to the Inspecting Assistant Commissioner, who, on consideration of the same, may issue appropriate directions for guidance of the Income-tax Officer to complete the assessment. Mr. Rastogi submitted that the action of the Income-tax Officer in not preparing the draft of the assessment order was apparently erroneous and it was prejudicial to the interests of the Revenue. He submitted that this state of affairs was not appreciated by the Tribunal.
6. In our opinion, the argument of Mr. Rastogi is based on some misconception, since there is no order under Section 154 of the Act in existence under which the Income-tax Officer found the variation of the income to be more than Rs. 1 lakh, since the order under Section 154 of the Act had been set aside by the Tribunal, which order was accepted by the Revenue, since it did not choose to file any reference application. It was the assessment order dated March 24, 1980, assessing the income of the assessee at Rs. 70,980 against which the appeal of the assessee was even partly allowed by the Commissioner of Income-tax (Appeals) as per order dated February 15, 1982, which again was not challenged by the Revenue. Therefore, there was no question of any variation of income of more than Rs. 1 lakh. The whole foundation of the argument of Mr. Rastogi, therefore, fails as the provisions of Section 144B of the Act became inapplicable. Moreover, the order of the income-tax Officer got merged with the appellate order of the Commissioner of Income-tax (Appeals). It could not be disputed that at that stage the provisions of Section 263 of the Act became inapplicable as the Commissioner of Income-tax can exercise his powers under Section 263 of the Act only if he considers that any order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. In the present case, the order is of the Commissioner of Income-tax (Appeals).
7. In this view of the matter, we answer all the three questions in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.