This is appeal by revenue against order of Commissioner (Appeals) dated 28-8-1984. On behalf of revenue Mr. S. S. Ruhela, learned departmental representative, submitted that IAC was approached for certain guidance by ITO vide his letter dated 3-3-1981. IAC gave his direction vide letter dated 5-3-1981. In this direction, IAC apart from giving directions on questions asked for by ITO also mentioned that he should have examined case with relevance to assessment year 1976-77 and also directed him to apply gross profit rate of 1976-77. He also mentioned that since there was very little time available for giving opportunity to assessee, it would be advisable to follow above procedure and since amount is likely to exceed Rs. 1 lakh draft assessment anyway would be necessary. When that draft is made assessee would be given opportunity as is provided for under section 144A of Income-tax Act, 1961 ('the Act') also. According to Mr. Ruhela, since 144A clearly provided that enhancement could be made by IAC over and above what ITO has proposed to do but same is subject to conditions that opportunity has to be provided to assessee, directions become invalid and, consequently, irregularity crept in. Therefore, all proceedings from time of irregularity automatically become irregular. Such irregularity does not meant that assessment made is bad in law but one in which wrong procedure has been applied which could be redone. He relied on Special Bench decision in Ram Gopal Neotia v. ITO [1982] 1 ITD 160 (Cal.), Madhya Pradesh High Court decision in Kimtee v. CIT [1985] 151 ITR 73 and also Court decision in case of Guduthur Bros. v . ITO [1960] 40 ITR 298. According Mr. Ruhela, Commissioner (Appeals) had relied on certain decisions cited by assessee overlooking Supreme Court decision and, thus, his order annulling assessment order is bad on facts as well as in law. According to Mr. Ruhela, what he should have done is to cancel all proceedings from IAC's stage and restore it back to state of ITO. 2. On other hand, Mr. B. K. Vyas relying of orders of authorities below and also various decisions relied on by him before Commissioner (Appeals) relied on CIT v. T. P. Asrani [1980] 122 ITR 735 (Bom). According to Mr. Vyas, Commissioner (Appeals) was fully justified in coming to conclusion that directions given by IAC was to buy time which is against provisions of statute itself. According to Mr. Vyas, it is abundantly clear that this was intention as neither ITO could make up his mind not IAC could make up his mind regarding quantum addition to be made in trading result. In draft order passed consequent to IAC's direction under section 144A addition of Rs. 2.5. lakhs was made to trading account. IAC under section 144B of Act proceedings reduced addition and retained addition of Rs. 39,000 only. final order that is passed has aggregated addition of less than Rs. 1 lakh. According to Mr. Vyas, if addition of Rs. 1 lakh only was required to be made then Act requires officer to make order under section 144(3) of Act. Under these circumstances, since it is apparent that direction was given to gain time, which is clearly defeating provisions of law is therefore, bad and has been rightly held to be bad and consequent to such bad direction assessment has been rightly annulled. 3. We have heard parties. direction of IAC given under section 144A vide his letter dated 8-3-1981 is given below: "I am sorry at outset to say that reference under section 144A has been made to me so late which leaves very little time for me to make any useful contribution. Under section 144A time limit is not extended under section 153. You were directed by Commissioner as early as 4-9-1980 to made detailed scrutiny under IAC's guidance. This is no way of seeking guidance from IAC. You should have prepared detailed scrutiny not in month of September and then submitted records to me for further directions and guidance. case was fixed several times by you without much purpose. On 11-8-1980 you had examined case and adjourned it to 12-8-1980 you had examined case and adjourned it to 12-8-1980 but strangely enough there is strangely you had issued again notice under section 143(2) for 26-9-1980. Subsequently entries also do not indicate any progress, when case was fixed for 29th July and 11th August and account books were produced, you should have yourself noted down relevant figures of quantitative details and examined that with reference to results shown in assessment year 1976- 77 and then submitted me detailed note. IAC's note was before you even 77 and then submitted me detailed note. IAC's note was before you even in months of April 1980, wherein assessment made for 1977-78 was assailed as underassessment. In your present reference. you have compared results of assessment year 1978-709 with result of assessment year 1977-78, which itself was not proper assessment. You should have compared results of this year with that of assessment year 1976-77. You should have obtained price list of 1976-77 as well as price list of this year and should have calculated extra amount of sale price which would have been realised by assessee on account of said price rise. You should have then also obtained increase in cost of production and other items on debit side and calculated extra cost with reference to that then compared whether increase in cost during year as compared to assessment year 1976-77, keeping in view increased sale price. You have not stated that increase in ittar consumption has been checked with reference to increase in price of perfumery but you have failed to quantify effect of this increase in price. You have mentioned that product of assessee is costlier than product of other dealers and also mentioned that quantitative details regarding perfume consumed and of containers is not maintained. You have also mentioned that there is no effective check on consumption of ittar, etc., and you have accordingly suggested addition of Rs. 10,000 without giving any basis as to how you arrived at figure of Rs. 10,000. case has not been properly examined and all details are not there to enable me to issue directions on your suggested figures of additions. As there is no time now left to give hearing to assessee and to obtain necessary figures as result of scrutiny to be made by you again, you may complete assessment by estimating gross profit rate as disclosed in assessment year 1976-77 on proportionately increased sale of this year. You may highlight defects, as pointed out in your letter under reference. Since addition is likely to be more than Rs. 1 lakh, you will have to send draft of assessment order to assessee and then refer case to me along with objections raised by assessee as provided in section 144B. This will automatically give time for giving opportunity to assessee. Assessment records are returned. above directions are issued under provisions of Explanation to section 144A." 4. In case relied on by learned departmental representative that is in Guduthur Bros.' case (supra), their Lordships of Supreme Court were faced with situation where ITO in penalty proceedings called for certain replies from assessee. assessee filed reply in regard to levy of penalty and, therefore, ITO without affording opportunity to assessee went ahead and levied penalty of Rs. 16,000. In appeal, AAC deleted penalty and directed that refund should be granted of penalty amount. Since AAC had held that proceedings were defective, ITO proceeded to correct defect and issued notice to assessee calling him to give his explanations. 5. In meanwhile, assessee filed writ petition which was dismissed by High Court as remedy of appeal has not yet been fully exhausted by assessee. Special leave was asked for by assessee which was granted and in this special leave their Lordships were confronted with manner of levy of penalty by ITO. Their Lordships observed thus in regard to manner: "There is no question here that requirements of section 28(1) (a) of Income-tax Act were not completely fulfilled. If appellants had not filed their return, as they were required by law to do, omission would attract clause (a) of sub-section (1) of section 28. We say nothing as to that. Sub-section (3) of section 28 , however, requires that penalty shall not be imposed without affording to assessee reasonable opportunity of being heard. This opportunity was denied to appellants, and, therefore, order of Income-tax Officer was vitiated by illegality which supervened, not at initial stage of proceedings, but during course of it. order directing refund of penalty, if recovered, cannot but be interpreted as correcting error and leaving it open to Income-tax Officer to continue his proceedings from stage at which illegality occurred. No express remand for this purpose, as is contended, was necessary. Our attention was drawn to decision of learned single Judge of Kerala High Court in Jos Chacko Poothokaran v. ITO [1957] 32 ITR 648. in which, in similar circumstances, it has been held that since appeal was not taken by Commissioner of Income-tax to Appellate Tribunal under sub- section (2) of section 33, order of Appellate Assistant Commissioner became final and Income-tax Officer could no longer proceed to reassess penalty. reason given is, in our opinion. beside point. What Appellate Assistant Commissioner did was to vacate order and direct refund of penalty in view of illegality which had occurred during course of assessment proceedings. On receipt of record it was open to Income-tax Officer to take up matter from point at which illegality supervened and to correct his proceedings. It was pointed out in course of statement of case by appellants that such proceedings could only be taken during course of assessment proceedings and those proceedings are concluded. In our opinion, notice issued to appellants to show cause why penalty should not be imposed on them did not cease to be operative, because Appellate Assistant Commissioner pointed out illegality which vitiated proceedings after it was lawfully initiated. That notice having remained still to be disposed of, proceedings now started can be described as during course of assessment proceedings, because action will relate back to time when first notice was issued. In our opinion, Income-tax Officer is well within his jurisdiction to continue proceedings from stage at which illegality has occurred and to assess appellants to penalty, if any, which circumstances of case may require." (p. 300) Now, in instant case, situation is almost identical with issue before their Lordships of Supreme Court. only difference is in present case it is IAC who has denied opportunity to assessee. It is at this stage that illegality has stepped in. Section 144A clearly provides that no directions which are prejudicial to assessee shall be issued before opportunity is given to assessee to be heard. Therefore, directions are, no doubt, illegal but subordinate officer has necessarily to follow directions, which in instant case, ITO had done. Merely for reason that superior officer has bypassed provisions of law and had given directions to ITO, ITO has not been given any powers under statute to overlook directions of IAC, assessment should not have annulled. ITO is bound by directions given by IAC under section 144A. The ITO is bound by directions given by IAC under section 144A. Explanation to section 144A reads as under: "Explanation: For purposes of this sub-section, no direction as to lines on which investigation connected with assessment should be made, shall be deemed to be direction prejudicial to assessee." Reading conclusive paragraph of IAC's directions, it is clearly indicative of fact that certain additions were necessary to be made but since there was very little time available to make investigations IAC had directed to take results of 1976-77 as base and complete assessment. He further mentioned that since addition made is in excess of Rs. 1 lakh, draft would have to be made and assessee would get opportunity to establish his case automatically. No doubt, this particular direction of IAC clearly indicates that it is purely with view to buy time for carrying out investigations and also finalising assessment order but since addition so made was consequent to invalid or illegal direction by IAC illegality having come in due to assessee not having been given opportunity of being heard as required under Act, assessment from stage of illegal direction is not proper. Now question that remains is to whether assessment could be revived at all or not. As has been held by their Lordships of Supreme Court in case of Guduthur Bros. (supra), IAC would be will within his jurisdiction to continue proceedings from stage at which illegality has occurred. other cases relied upon by assessee before Commissioner (Appeals) as well as before us are not directly on issue. They are all on issues where ITO fails to make assessment within period of limitation which is not issue before us at all. We are of view that department must succeed in appeal and we, accordingly, set aside order of Commissioner (Appeals) and direct IAC to proceed afresh with examination of case from time reference was made to him. We, therefore, allow departmental appeal for statistical purposes. *** INCOME TAX OFFICER v. MISHRILAL GORDHANLAL