I.T.AS. NOS.563/IB AND 577/IB OF 1987-88, DECIDED ON 14TH MAY, 1990. VS I.T.AS. NOS.563/IB AND 577/IB OF 1987-88, DECIDED ON 14TH MAY, 1990.
1991 P T D (Trib.) 16
[Income-tax Appellate Tribunal Pakistan]
Before Syed Amjad Hussain Bokhari, Judicial Member and Junejo M. Iqbal,
Accountant Member
I.T.As. Nos.563/IB and 577/IB of 1987-88, decided on 14/05/1990.
(a) Income Tax Ordinance (XXXI of 1979)--
---S. 65(2) [as amended by Finance Act (VI of 1987)]---Amendment made in S.65(2) by Finance Act, 1987 does not affect the validity of the commencement of fresh assessment proceedings by the Income Tax Officer for the charge year under consideration through the issuance of a notice under S.65 of the Ordinance as it then stood---Substitution of the word "and" for the word "or" by amendment after the assessment under S.65 had been completed by I.T.O.---Significance.
The amendment of section 65(2) by Finance Act, 1987 does not affect the validity of the commencement of fresh assessment proceedings by the ITO-for the charge year under consideration through the issuance of a notice under section 65 of the Ordinance.
The amendment effected in subsection (2) of section 65 of the Ordinance is immaterial where appropriate actions stand already taken at the level of the Assessing Officer in the context of the law in force at the relevant stage. Since the word "and" did not occur in the un-amended provisions of subsection (2) of section 65 of the Ordinance, compliance with the existing provisions thereof on the part of the ITO by obtaining prior approval of his IAC to start the fresh assessment proceedings was out of the question. The procedural stage stood crossed by the Assessing Officer in commencing the proceedings through a notice under section 65 of the Ordinance on the basis of an information received before the change was effected in subsection (2) of section 65 of the Ordinance by substituting the word "and" for the word "or". A lawful step having been adopted by the ITO in relation to the commencement of fresh assessment proceedings, the situation has become irreversible as regards this aspect of the matter and the amendment made subsequently in subsection (2) of section 65 of the Ordinance has no adverse effect whatsoever. To argue otherwise would lead to an absurdity and a travesty of law. As the action in reopening the case for new assessment has attained finality, it is not now possible to go back to that stage and start the exercise once again.
Since under the law existing at that time, the ITO was not required to obtain previous approval in writing from the IAC concerned, the reopening of the case by him under section 65 of the Ordinance was proper as he was competent to do so on a mere information; which, in the case was in the form of uncashed cheques. There was no need to seek approval even from the Board of Revenue and the action of the ITO in this behalf does not make any difference. It is, therefore, not possible to subscribe to the contention that the entire proceedings stand vitiated for want of prior approval in writing by the IAC. As the ITO was not bound under the law to obtain previous approval in writing from his IAC to do so, his action in reopening the case under section 65 of the Ordinance on the basis of an information about the uncashed cheques is not open to any exception.
Legislative changes in procedural matters, though retrospective in application, are never intended to wash off the actions already completed under the original statutory provisions. To attribute such an intention to the Legislature would amount to stretching things too far. Procedural amendments effected in the existing laws cannot be construed to be designed to dismantle and throw apart the edifice of past actions attaining finality thereunder as fait accomplii at a particular point of time. It would not, therefore, be legally possible to reopen any such final action in the wake of an altered procedure. The action under section 65 of the Ordinance to reopen the case of the assessee having been correctly initiated under the legal provisions then in force on the strength of a definite information about the un-cashed cheques coming into the possession of the Assessing Officer, it is fallacious to assert that whatever has been done earlier should be undone and the ITO should go back to the stage already crossed in due course of law, and start the re-assessment proceedings under section 65 of the Ordinance after obtaining previous approved in writing from his IAC, in terms of the amendment introduced by the Finance Act, 1987. The transactions past and closed cannot be reversed by dint of a procedural change made in a statute. A pre-condition for the validity of an action under a procedural law prescribed through an amendment therein cannot travel back to vitiate the actions already commenced and finalised in due course before its enforcement.
PLD 1973 Lah. 849; Crescent Boards Ltd. Lahore v. Income-tax Officer, Central Circle VIII, Lahore 1985 PTD 276 and 1989 PTD (Trib.) 15a distinguished.
(1965) 56 ITR 234 ref.
(b) Interpretation of statutes---
---- Procedural amendment in a statute---Effect.
(c) Interpretation of statutes---
---- Criminal statutory provision---Procedural legislative change-- Effect.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 134---Appeal---Estoppel---Ground set up by the assessee at the stage of first appeal was not argued at the time of hearing by the appellate Authority-- Such conduct of assessee thus constituted an express estoppel and the assessee was precluded from agitating the matter before the Appellate Tribunal.-- [Estoppel].
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Addition---Receivable amount not reflected on the assets side of the balance-sheet has to be treated as a net income and added to the income of the assessee as such---No profit rate can, therefore, be applied on such amount.
Syed Saghir Tirmizey for Appellant (in I.TA. No.563/IB of 1987-88).
Shaukat Mahmood Khawaja, D.R. for Respondent (in I.TA. No.563/IB of 1987-88).
Shaukat Mahmood Khawaja, D.R. for Appellant (in I.T.A. No.577/IB of 1987-88).
Syed Saghir Tirmizey for Respondent (in INA. No.577/IB of 1987-88).
Date of hearing: 14th May, 1990.
ORDER
SYED AMJAD HUSSAIN BOKHARI (JUDICIAL MEMBER),-- These two cross-appeals have been instituted by the assessee and the Department against the order of the learned Appellate Assistant Commissioner of Income-tax, Sargodha Range, Sargodha, made in the Income-tax Appeal No.452, on 30th June, 1987. A brief account of the facts of the case is that the assessee is a registered firm deriving income from contract business. The original assessment was framed, on 27th October, 1985, at a net income of Rs.26,500, under the relevant self-assessment scheme, in terms of section 59(1) of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance). The subsequent enquiries made from the authorities concerned and a scrutiny of the bank statement revealed that two cheques for Rs.36,058 ands Rs.39,265 (totalling Rs.75,323) had been credited in the bank account of the assessee, on 3rd July, 1985 and 10th July, 1985. respectively. According to the certificate issued by the Cantonment Executive Officer, Sargodha, on 23rd June, 1985, the cheques had been received by the assessee on 30th June, 1985; but the same were not reflected as bills receivable on the asset side of the balance-sheet. In view of this discrepancy, the Assessing Officer decided to reopen the case under section 65 of the Ordinance. Since the case was immune from detailed scrutiny, approval of the Central Board of Revenue was required under Note 7 to Paragraph 6 of the Circular No.3 of 1985 to reopen it under section 65 of the Ordinance. A reference was, therefore, made to the CBR by the Commissioner of Income-tax, Faisalabad, for necessary approval, vide letter No.1-86-87/2823, dated 26-11-1987. Pursuant to the approval granted by the CBR, a notice under section 65 of the Ordinance was issued to the assessee. In compliance with the notice, the assessee furnished a fresh return, on 23rd December, 1986, reiterating the income declared earlier. A notice under section 61 of the Ordinance was then issued to the assessee. In response to that notice, Mr. Abdul Waheed Bajwa, a partner of the firm, appeared alongwith his accountant and produced the cash-book and ledger. On examining the case, the Assessing Officer noticed that the books of accounts were not only replete with various defects but had also been written in a few sittings for production before the Income-tax authorities and the purchases of material were all on cash basis and unverifiable. The drawings of the partners were also found to be too low to be believed. For all these reasons, he rejected the declared version.
2. On being confronted with the disputed cheques, the assessee took the plea that the cheques were not shown in the balance-sheet for the reason that the aggregate amount covered by them i.e. Rs.75,323 counter-poised the liabilities claimed at Rs.75,323 on account of money due to Mr. Inayat Ullah (Rs.35,000), Mr. Ijaz Masih (Rs.10,324) and Rana Abdul Hamid (Rs.30,000) and that the liabilities had also not been reflected in the balance-sheet. The assessee's stand could not, however, find favour with the Assessing Officer who was of the view that the liabilities which were in the nature of cash credits were an afterthought and had been introduced just to even up the balance-sheet with the object of concealing profit and covering up the cheques in hand. During the course of discussion, the assessee ultimately conceded that the default in disclosing the assets and liabilities in the balance-sheet was due to ignorance of law. Taking into account all these factors and treating the uncashed cheques as the assessee's assets, the Income Tax Officer computed the income as under:--
| Total verified payments. | Rs.5,75,859 |
| GP at Rs.17.5%, as in parallel cases. | Rs.1,00,775 |
| Less expenses. | Rs.14,396 |
| (Total claim of Rs.17,124 was not allowed as the P & L expenses were on cash basis and unverifiable) | |
| Balance income. | Rs. 86,379 |
| Addition on account of uncashed cheques. | Rs. 75,323 |
| Less profit on uncashed cheques. | Rs.11,299 |
| (GP = Rs.13,182 at 12.5% expenses = Rs.1,883) | |
| Total income. | Rs.1,50,403 |
3. Feeling aggrieved by the assessment order, the assessee preferred an appeal before the learned AAC, who upheld the rest of the assessment and deleted the addition of Rs.75,323 made on account of uncashed cheques by it observing that the nature and sources of cash credits appearing in the books of 'g accounts had been explained by the assessee, that when the name and exact amount due to each creditor had been provided, the onus lay on the Department to prove that these cash credits were unexplained or that the explanation offered by the assessee was not satisfactory and that the omission to mention the bills receivable and the corresponding entry in the balance-sheet pertaining to the creditors did not necessarily mean that the cash credits introduced in the books of account were unexplainable. Both the assessee and Department are now before the Tribunal to assail this decision of the appellate authority below.
4. The assessee has agitated the action in reopening the case under section 65 of the Ordinance and the addbacks out of the P & L expenses made by the ITO and confirmed in first appeal. The grievance of the Department relates to the deletion of the addition of Rs.75,323 on account of suppression of assets.
5. We have heard the learned counsel for the assessee, Syed Saghir Tirmizey and the learned Departmental Representative, Mr. Shaukat Mahmood Khawaja and have also conducted a detailed scrutiny of the record with their -; assistance.
6. The learned counsel for the assessee has maintained that the proceedings under section 65 of the Ordinance had been initiated by the Assessing Officer without obtaining the prior approval in writing from his IAC, that the approval obtained from the CBR to reopen the case is meaningless and the entire proceedings stand vitiated for want of the prior approval in writing by the IAC concerned, in terms of subsection (2) of section 65 of the Ordinance, and that the notice to reopen the case was issued under section 65 of the Ordinance, on 1-12-1986. Advancing his arguments further, the learned counsel for the assessee has submitted that under subsection (2) of section 65 of the Ordinance, as it stood before the change brought about therein through the Finance Act, 1987, by substituting the word "and" for the word "or", the ITO was competent to initiate proceedings for the reopening of a case on the basis of a definite information coming into his possession, that he could also do so even in the absence of such information by obtaining the previous approval of his JAC in writing, that the position has been changed w.e.f. 1-7-1987 by the amendment effected through the Finance Act, 1987, and no case can be reopened by the ITO under section 65 of the Ordinance unless two mandatory pre-conditions are fulfilled simultaneously namely, definite information and previous approval of the IAC in writing, that since the said amendment is m the nature of procedural change, it would apply retrospectively and the pending cases would also be hit by it, that the assessment for the charge year under consideration was undertaken and finalised on the basis of a notice issued by the ITO under section 65 of the Ordinance, on 1-12-1986, pursuant to an information about the disputed cheques, that since the proceedings had not attained finality before 1-7-1987 on account of being under the process of appeal, the amendment effective from 1-7-1987 had become applicable to the instant case and the proceedings already initiated under section 65 of the Ordinance on the basis of information coming to the knowledge of the Assessing Officer and the approval obtained from the CBR were not sustainable for want of previous written approval of the IAC concerned, that it was incumbent on the ITO to have started the proceedings afresh after obtaining the prior approval of his JAC in writing, as required by the amended subsection (2) of section 65 of the Ordinance, that after the amendment referred to above, no proceedings can be commenced on the force of a mere information and the Assessing Officer is enjoined to obtain the previous approval of his IAC in writing to do so, that the case with an amendment in a substantive provision of law is different from a procedural or remedial change as the former applies prospectively, unless expressly made applicable retrospectively, but the latter is always operative retroactively and hits even the pending proceedings, and that appeals being a continuation of the assessment process, the amendment made in subsection (2) of section 65 of the Ordinance would apply even to the assessment made before the introduction of the change and being contested in appeals. Dilating on the merits of the case, the learned counsel for the assessee has asserted that the disputed addition on account of uncashed cheques is not legally tenable as no notice under section 13(1) of the Ordinance to make an addition on account of deemed income was served on the assessee before taking action in this behalf, that when the amounts covered by the cheques in question were taken as gross receipts/income, the proper course to adopt was the application of a profit rate thereon and not an addition outright, that the additions out of the P & L expenses have not been made in accordance with law by specifying the heads of accounts separately and dealing with each item independently and that the disallowances have been wrongly upheld by the learned AAC. He has supported his contention by quoting Commissioner of Income-tax, North Zone, Lahore v. Rippon Printing Press, Lahore, reported as P L D 1973 Lah. 849, Crescent Boards Limited, Lahore v. Income Tax Officer, Central Circle VIII, Lahore reported as 1985 P T D 276 (Lah. H.C.) and 1989 P T D (Trib.) 150.
7. Vehemently supporting the order of the Assessing Officer on the issue of addition of Rs.75.323 made on account of uncashed cheques, the learned D.R. has submitted that there was no justification with the appellate authority below to delete this addition as the assessee had failed to come out with a plausible and convincing explanation regarding the nature and sources of cash credits appearing in the books of accounts, that the change brought about in subsection (2) of section 65 of the Ordinance through the Finance Act, 1987, makes no difference in so far as the case under review is concerned because appropriate action stands already taken and finalised at the level of the Assessing Officer in the context of the law applicable at the relevant point of time by issuing a notice under section 65 of the Ordinance in consequence of the reopening of the case, that there being a definite information before him about uncashed cheques, the ITO was well within his jurisdiction to reopen the case and added the unexplained amount covered by them to the assessee's income, that according to the legal provisions in force at that particular time, the ITO was competent to reopen the case simply on the basis of a positive information and no prior approval of his IAC concerned in writing was necessary and that a valid action having already been taken at the relevant point of time, the matter cannot be reopened on this issue. He has added that the addbacks are proper and reasonable.
We have given a careful consideration to the averments of the learned representatives of the parties in the context of the facts of the case and the material available on thz file. The points made by the learned D.R. in relation to the effect of the amendment made in subsection (2) of section 65 of the Ordinance by the Finance Act, 1987, are weighty and convincing. The amendment does not affect the validity of the commencement of fresh assessment proceedings by the ITO for the charge year under consideration through the issuance of a notice under section 65 of the Ordinance
9. The learned D.R. has rightly argued that the amendment effected in subsection (2) of section 65 of the Ordinance is immaterial so far as the instant case is concerned, because appropriate actions stand already taken at the level of the Assessing Officer in the context of the law in force at the relevant stage. Since the word "and" did not occur in the un-amended provisions of subsection (2) of section 65 of the Ordinance, compliance with the existing provisions thereof on the part of the ITO by obtaining prior approval of his 1AC to start the fresh assessment proceedings was out of the question. The procedural stage stood crossed by the Assessing Officer in commencing the proceedings through a notice under section 65 of the Ordinance on the basis of an information received about the uncashed cheques before the change was effected in subsection (2) of section 65 of the Ordinance by substituting the word "and" for the word "or". A lawful step having been adopted by the ITO in relation to the commencement of fresh assessment proceedings, the situation has become irreversible as regards this aspect of the matter and the amendment made subsequently in subsection (2) of section 65 of the Ordinance has no adverse effect whatsoever. To argue otherwise would lead to an absurdity and a travesty of law. As the action in reopening the case for new assessment has attained finality, it is not now possible to go back to that stage and start the exercise once again.
10. The first case cited by the learned counsel for the assessee was of registration of firms by the Income-tax authorities for the purpose of assessment. In that case, the issue before the Lahore High Court was the effect of amendment made in section 26-A(1) of the repealed Income Tax Act, 1922, by the Finance Act, 1965. It was held, by the High Court that a partnership was entitled to registration under section 26-A of the said Act because under the amended provision it was not necessary for the purpose of registration that the firm should have been created by virtue of an instrument of partnership in writing and the requirement of law was only that the instrument of partnership must be executed in writing before the end of the previous year relevant to the assessment year in question and it was immaterial whether the firm had come into existence prior to the date of the instrument or not, and that the amendment introduced on the first July, 1965, was applicable retrospectively to the applications and appeals for the registration of firms pending on this date. It is evident from the verdict of the High Court that the benefit of amendment extended even to those firms which had already applied for registration after having been constituted orally without drawing up the formal deeds of partnership in writing and this defect was cured by holding the amendment in the repealed Act to be procedural and remedial in nature applicable to the pending cases of registration as well. The position in the case under consideration is, however, quite different as no remedial step is now possible for the reason that necessary action envisaged by law at the relevant point of time stands already completed at the level of the Assessing Officer and going back to that stage has become impracticable and impossible. In the second case relied on by the learned counsel for the assessee, the High Court has ruled that section 65 of the Ordinance dealing with "additional assessment"-is in effect a machinery provision authorising the ITO to take steps to determine the total income of the assessee or the tax payable by him as may have escaped assessment earlier and that the amendment made by the Finance Act, 1982, in subsections (3) and (3-A) of section 65 of the Ordinance considerably curtailing the period of limitation was procedural in nature and applicable to the pending cases as well. The ratio decidendi in the third case quoted at the Bar by the learned counsel for the assessee is that where no opportunity of being heard has been provided to an assessee, whether under section 13(2) for determination of the value or under the proviso to section 13(1) of the Ordinance requiring an explanation of the assessee as to the nature and source of credit, expenditure or investment, etc., or where the prior approval of the IAC has not been obtained either under section 13(1) or section 13(2), an addition made under section 13 of the Ordinance has to be deleted and notwithstanding the deletion of the addition made under section 13(1) of the Ordinance the rest of the assessment order would be legal; and, as such, the entire assessment order cannot be held to be null and void.
11. Although there can be no cavil about the proposition that a procedural amendment, like the one in question, is retroactive in operation, yet the position of the assessee before us does not emerge any better as the course of events in the present case has become irreversible for the reasons hereinabove discussed. The verdicts of the Lahore High Court referred to by the learned counsel for the assessee are, therefore, of no help and advantage to him. ace under the law existing at that time, the ITO was not required to obtain previous approval in writing from the IAC concerned, the reopening of the case by him under section 65 of the Ordinance was proper as he was competent to do so on a mere information; which, in this case was in the form of uncashed cheques. There was no need to seek approval even from the Board of Revenue 4 the action of the ITO in this behalf does not make any difference. It is therefore, not possible for us to subscribe to this contention of the learned counsel for a assessee that the entire proceedings stand vitiated for want of prior approval writing by the IAC. As the ITO was not bound under the law to obtain previous approval in writing from his IAC to do so, his action in reopening the case under section 65 of the Ordinance on the basis of an information about the uncashed cheques is not open to any exception.
12. Legislative changes in procedural matters, though retrospective in application, are never intended to wash off the actions already completed under the original statutory provisions. ''" To attribute such an intention to the Legislature would amount to stretching things too far. Procedural amendments effected in the existing laws cannot be construed to be designed to dismantle and throw apart the edifice of past actions attaining finality thereunder as fait accompli of a particular point of time. It would not, therefore, be legally possible to reopen any such final action in the wake of an altered procedure. The action under section 65 of the Ordinance to reopen the case of the present assessee having been correctly initiated under the legal provisions then in force on the strength of a definite information about the uncashed cheques coming into the possession of the Assessing Officer, it is fallacious to assert that whatever has been done earlier should be undone and the ITO should go back to the stage already crossed in due course of law, and start the reassessment proceedings under section 65 of the Ordinance after obtaining previous approval in writing from his IAC, in terms of the amendment introduced by the Finance Act, 1987. The transactions past and closed cannot be reversed by cat of a procedural change made in a statute. A pre-condition for the validity of an action under a procedural law prescribed through an amendment therein cannot travel back to vitiate the actions already commenced and finalised in due course before its enforcement.
13. We have drawn support for the above: conclusions fan a decision of the Supreme Court of India reported as (1965) 56 ITR 234. In that case, the effect of amendment made in subsection (1) of section 34 of the repeated Income Tax Act. 1922, through section 18 of Act 4 of 1948 came for examination before the Supreme Court. The previous text "in consequence of definite, information which has come into his possession the Income Tax Officer discovers that" was substituted by the existing words "for any reason". Under the old provisions, the Income Tax Officer could reopen an assessment only in consequence of definite information. After the change brought about in 1948, the ITO could reopen an assessment for any reason whatsoever The facts of the case before the Supreme Court were that reassessment for the charge year 1942-43 was made in July, 1945, bringing to tax certain forest income and interest income. The assessee preferred an appeal in the Tribunal contesting the jurisdiction of the ITO to initiate reassessment proceedings in respect of the forest income on the ground that he did have knowledge of such income even when the original assessment was ` framed. The Tribunal upheld the assessee's contention but by mistake set aside. the entire assessment orders and restored the original assessment. No steps were, however, taken under section 35 of the repealed Income Tax Act, 1922, to rectify this mistake; nor was any reference to the High Court sought against the, order of the Tribunal. Thereafter, in 1950, the ITO initiated fresh proceedings under section 34 of the repealed Income Tax Act, 1922, with respect to the interest income and finalised fresh assessment for the year 1942-43 by including therein the interest income accruing to the assessee. The Supreme Court held that as the order of the Tribunal became final, its finding, even though by mistake, that the officer could not initiate the reassessment proceedings in respect of the interest income also, was binding on the Income Tax Officer and he could reopen the assessment over again to include the interest income. The Court also observed that it was not the intention of the Legislature by amending section 34(1) of the repealed Income Tax Act, 1922, in 1948 to enable the Income Tax Officer to reopen final decision made against the revenue in respect of questions that directly arose for determination in the earlier proceedings and that if that were not the legal position, it would result in placing an unrestricted power of review in the hands of the Income Tax Officer to go behind the findings given by a hierarcy of the Tribunals and even those of the High Court and the Supreme Court with his changing moods. It is abundantly clear from this decision of the Supreme Court of India that a procedural amendment in a statute cannot undo the earlier actions achieving finality under the un-amended provisions.
14. As regards the addbacks made out of the P & L expenses, suffice it to. say that although this ground was set up by the assessee in the first appeal, its learned counsel did not press the issue at the time of hearing by the -learned AAC. This constitutes an express estoppel and the assessee is now precluded from agitating the matter before the Tribunal. As a result, these additions stand confirmed.
15. We now advert to the question of deletion of the disputed addition made on account of suppression of assets in the form of two uncashed cheques covering a total amount of Rs.75,323. The assessee was bound to mention these cheques in the balance-sheet when he had included them in the declared receipts. It is. immaterial that, according to the stand taken by the assessee, the liabilities, on account of sundry creditors counter-balance the uncashed cheques: Notwithstanding this fact, the assessee was required to show the cheques in the balance-sheet as the amounts covered by them, though receivable, formed a part of its income in the charge year under consideration. The addition of Rs.75,323 on account of concealed income covered by the uncashed cheques was not made by the Assessing Officer under section 13(1) of the Ordinance as deemed income.
It was a straight addition on account of an undisclosed amount forming a part of the assessee's income from a known source i.e., contract business in the charge year under appeal. This suppression of income did not fall under any clause of subsection (1) of section 13 of the Ordinance not being in the nature of an investment or ownership of any money or valuable article or any expenditure not supported by income. The objection of the learned counsel for the assessee about the absence of notice under section 13(1) of the Ordinance in connection with the disputed addition is, therefore, not tenable. We also find no substance in this contention of the learned counsel for the assessee that the amounts covered by the cheques in question, being gross receipts/income, a profit rate, instead of an outright addition, should have been applied thereon. In a situation like the present one, a receivable amount not reflected on the assets side of the balance sheet has to be treated to be a net income and added to the income of the assessee as such. No profit rate can, therefore, be applied on it. In view of this position, the learned AAC was not justified in deleting the questioned addition of Rs.75,323.
16. For the reasons hereinabove stated, we rejected the appeal of the assessee as being without any force. The departmental appeal is, however, accepted and the impugned order of the learned AAC on the issue of deletion of the disputed addition of Rs.75,323 is hereby vacated.
M.B.A./934/TAppeal rejected.