A. KALYANASUNDHARAM, A. M.: These are cross appeals by Department and by assessee against order of ld. CIT (A) dt. 29th Sept., 1983. Mr. H. Singh for Department submitted that matter had come up before Tribunal and Tribunal vide its order dt. 18th July, 1980 had remitted matter back to ITO for making afresh assessment after considering directions of IAC under s. 144B. ITO made assessment again after taking into account directions contained in above mentioned Tribunal s order. According to Mr. Singh, ITO s duty was strictly to comply with directions of ITAT which he had done in instant case. CIT (A) was, therefore, not justified in setting aside order of ITO for not following provisions of s. 144B and holding that same is mandatory. According to Mr. Singh, substance is more important than nomenclature for which proposition he relied on Punjab State Cooperative Supply & marketing Federation Ltd. vs. CIT (1980) 18 CTR (P & H) 71: (1981) 128 ITR 189 (P & H). Mr. G. D. Gargieya, ld. counsel for assessee submitted that direction of ITAT was limited to considerations of facts and pass order again. ITAT can never suggest to overrule mandatory statutory provision and as its objective is limited to application of law as such, even in instant case its suggestion to take into account direction of IAC under s. 144B cannot be taken to mean that ITO can flout law and refuse to follow certain mandatory provisions of law while making assessment. ITO is tax administrator who is duty bound to follow law as has been provided by law-makers. By Tribunal s order, earlier order of ITO has been vacated and ITO was advised to make fresh assessment. While making fresh assessment, if ITO finds that addition proposed by him is going to vary income returned by more than Rs. 1 lakhs, then he has no option at all but to make draft assessment under s. 144B and follow procedure of sending draft order and await objections of assessee against such order as well as directions of IAC under s. 144B and finally pass order under s. 143(3) r/w s. 144B. ITO by passing order under s. 143(3) has clearly flouted law and therefore order passed under total regard to provisions of law is void and needed to be quashed. income returned was Rs. 80,070 and income, as has been assessed is Rs. 2,01,120. addition therefore, is clearly over Rs. 1,00,000. He relied on H. H. Maharaja Pawar Dewas vs. CIT (1982) 138 ITR 518 MP, T. Soosai vs. ITO (1981) 12 TTJ 170 (Mad) Mrs. Meeraben P. Desai vs. Union of India (1981) 130 ITR 922 (Guj). re: proposition of mandatory complacence of law. He relied on Kundan lal Maru vs. CIT (1982) 135 ITR 84 (MP) for proposition that once order has been set aside, original Tribunal s order becomes non-est. He also relied on Tribunal s judgment reported in 8 Taxaman 41 (Bom-Trib). He also relied on P. V. Doshi vs. CIT 113 (1978) ITR 22 (Guj). He further pointed out that certain additional facts which were brought before ITO have so been totally disregarded by him. According to Mr. Gargieya, ld. CIT (A) must have quashed order and held same to be illegal and invalid. Mr. Gargieya also submitted facts: 188 kg of stones found in premises of assessee and finally accepted by tax authorities as belonging to sister concern M/s Indo Foreign Export Corporation. We have heard rival submissions and considered various materials on record. In original order of Tribunal, questions raised were regarding excess stock of stones of value of Rs. 47.148 addition account of foreign exchange difference Rs. 49,784 deduction under s. 35B of Rs. 16,220 and sales tax penalty of Rs. 9430 while ITO made assessment under s. 143(3) after obtaining directions of IAC under s. 144B and assessed income at Rs. 2,01,120. Tribunal had set aside order of ITO with following observations: "Thus without giving any reasons for various additions or disallowances made, assessment order has been passed by ITO was supported to pass order well considered and complete in all respects keeping in view directions given by ld. IAC. Since order passes by ITO is not order passed in this manner, we are unable to consider, properly various issues, which have been revised by assessee in this appeal. We have no other alternative but to set aside his order and restore matter to ITO so that well considered and speaking order is passed according to law keeping in view directions given under s. 144B by ld. IAC. We cancel orders of CIT (A) and that of ITO and restore assessment to ITO for making fresh assessment in light of observations made by us". (Emphasis Italicized in print, supplied) above directions and observations go only toe indicate that assessment made earlier has been vacated and therefore is non-est from date of order of this Tribunal. Madhya Pradesh High Court in case of Kundanlal Maru vs. CIT (1982) 135 ITR 84 (MP) has categorically held on identical issue that once order has been set aside by appellate authorities, original order becomes non-est. natural corallory that follows is that earlier directions under s. 144B given during original proceeding also becomes non-est as IAC s directions merges into ITO s order, as it is against ITO s order assessee had preferred appeal to appellate authorities. second question which arises at this juncture is- "whether while following directions of ITAT wherein advice has been given to keep in view of directions of IAC under s. 144B, ITO has to follow procedure under s. 144B again in case income be assessed varies by Rs. 1 lac?" At out set, due to doctrine of merger, since IAC s direction has merged with that of ITO which order of ITO has been vacated, it is only natural to conclude that even direction under s. 144B of IAC has been vacated. This being position, ITO is now faced with fresh assessment proceedings. IT Act has been provided certain procedures to be followed by ITO while making assessment. Sec. 144B reads as under: "144B (1) Notwithstanding anything contained in this Act, where, in assessment to be made under sub-s. (3) of s. 143, ITO proposes to make any variation in income or loss returned which is prejudicial to assessee and amount of such variation exceeds amount fixed by Board under sub-s (6), ITO shall, in first instance, forward draft of proposed order of he assessment (hereafter in this section referred to as draft order) to assessee. (2) On receipt of draft order, assessee may forward his objections, if any, to such variation to ITO within seven days of receipt by him of draft order or within such further period not exceeding fifteen days as ITO may allow on application made to him in this behalf. (3) If no objections are received within period or extended period aforesaid or assessee intimates to ITO shall complete assessment on basis of draft order. (4) If no objections are received, ITO shall forward draft order together with objections to IAC and IAC shall, after considering draft order and objections and after going through (wherever necessary) records relating to draft order, issue, in respect of matters covered by objections, such directions as he thinks fit for guidance of ITO to enable him complete assessment: Provided that no directions which are prejudicial to assessee shall be issued under this sub-section before opportunity is given to assessee to be heard. (5) Every direction issued by IAC under sub-s. (4) shall be binding on ITO." According to s. 143 (1) ITO can make assessment as per return of assessee. For passing assessment under s. 143(3), ITO is duty bound to follow provisions contained in s. 143(2) to core of letter. But while making assessment under s. 143(3), if ITO finds that income to be assessed varies returned income by Rs. 1 lakh, then he must resort to s. 144B provisions. As regards following this procedure, statute does not provide for any discretion to ITO. When statute does not allow ITO any discretion, then only conclusion is that ITO must compulsory follow set procedure. It is compulsion, then provisions are mandatory, Their Lordships of Madhya Pradesh High Court in case of H. H. Maharaja Raja Pawar vs. CIT (1982) 138 ITR 518 (MP) have observed that procedure prescribed under s. 144B is only to safeguard interest of assessee by giving him opportunity to raise objections against additions proposed to be made by ITO. If assessment is made without service of t h e draft assessment order on assessee and inviting his objections as provided under s. 144B, assessment say prejudice assessee. There cannot be any prejudice to Revenue on A/c of ITO s failure to follow procedure prescribed under s. 144B. Madras Tribunal in case of T. Soosai vs. ITO (1981) 12 TTJ 170 (Mad) has also held that compliance of provisions of s. 144B is mandatory. Similar view has also been taken by Their Lordships of Gujarat High Court in case of Mrs. Meera Ben P. Desai vs. Union of India & Others (1981) 130 ITR 922 (Guj). Therefore, there can be denial that ITO must comply with provisions of s. 144B while taking assessment or reassessment. next important question that arises is (a) when ITO fails to comply with provisions of s. 144B whether CIT (A) was justified to set aside ITO s order and direct him to comply with provisions s. 144B and redo assessment? Their Lordships of Supreme Court in case of Y. Narayan Chetty vs. ITO (1959) 35 ITR 388 (SC) while considering issue regarding issuing of notice under s. 34 of 1922 Act (corresponding to ss. 147 & 148 of 1961 Act) have held that before proceeding to make re-assessment, it is condition precedent to issue notice under s. 34. In case ITO fails to comply with such conditional procedure, proceedings taken by ITO is illegal and with such conditional procedure, proceedings taken by ITO is illegal and void. Their Lordships of Gujarat High Court in case P. V. Doshi vs. CIT 1977 CTR (Guj) 853: (1978) 113 ITR 22 (Guj) , have held that where requirements are condition precedent or mandatory to passing order, they cannot be waived or and jurisdiction cannot be conferred in appellant order of Tribunal as ITO s order giving rise to appeal did not exist. Their Lordships of Madras High Court in case of CIT vs. Estate of Late Sri N. Veeraswamy Chettiar (1963) 49 ITR 131 (Mad) observed that AAC while setting aside order of ITO appealed against, and directing ITO to make fresh assessment contemplated assessment proceedings which had been validly initiated. They further held that AAC could not make direction which conferred jurisdiction upon ITO if he was not lawfully seized of jurisdiction. All above mentioned judgment go only to indicate that ITO having failed to comply with provisions of s. 144B which are mandatory and conditions precedent before passing valid order, ITO clearly lacked. Jurisdiction when he made assessment. Thus his order became totally invalid. When he had lacked jurisdiction and his order being anullity in view of above mentioned orders of Supreme Court and High Court, which we respectfully follow, we hold that CIT(A) was not at all justified in direction and in his attempting to confer on jurisdiction on ITO to redo assessment. We, therefore, quash his order for his direction to redo assessment and hold that assessment made by ITO is without jurisdiction and is invalid and bad in law. Similar view has been taken by Bombay Bench in case of Rajendra vs. ITO 8 TAXMAN 61 (Bom Trib). Bombay Bench of Tribunal in case of Third ITO vs. Shivaji Park Gymkhana (1983) 4 ITD 462 (Bom) considered this very issue and also considered all other High Court decisions. observation of ld. Member was that at time when ITO started reassessment, he verywell had jurisdiction. If initial jurisdiction to proceed is validly assumed any lapse, irregularly or omission in following prescribed procedure even though mandatory will not make order nullity void ab initio. They, therefore, held that assessment order can only be set aside with direction to be re-done by following mandatory provisions. Such issue involved in instant case being identical with that of case before, Special Bench, we respectfully following Special Bench, uphold order of CIT(A) in setting aside order of ITO to be redone in manner prescribed by statute by applying mandatory provisions. In result, Departmental appeal stands dismissed and assessee s appeal is also dismissed. *** INCOME TAX OFFICER v. M. KHAJULAL & CO.