INA. NO.1767/KB OF 1986-87, DECIDED ON 12TH SEPTEMBER, 1990. VS INA. NO.1767/KB OF 1986-87, DECIDED ON 12TH SEPTEMBER, 1990.
1991 P T D (Trib.) 226
[Income-tax Appellate Tribunal]
Before Muhammad Mujibullah Siddiqui, Judicial Member and Manzurul Haque,
Accountant Member
INA. No.1767/KB of 1986-87, decided on 12/09/1990.
Income Tax Ordinance (XXXI of 1979)---
----S. 65---Re-assessment---When a legal and valid re-assessment proceeding is initiated the original assessment becomes non-existent---Mere initiation of reassessment proceedings, valid or invalid, shall not have the effect of wiping out the original assessment.
If a legal and valid re-assessment proceeding is initiated the original assessment becomes non-existent. However, the mere initiation of re-assessment proceedings, valid or invalid, shall not have the effect of wiping out the original assessment.
The law contemplates that the income of an assessee is to be taxed once only and through one assessment order only. Neither an income can be taxed twice nor by two assessment orders atone and the same time. Thus, if an income is already taxed in the hands of one assessee and subsequently it transpires that it was wrongly done and actually it is liable to be taxed in the hands of another assessee, the assessment in the hands of first assessee is to be cancelled and thereafter, it can be assessed in the hands of another assessee, Likewise, if total income of an assessee is determined and assessment order is finalised but subsequently the assessing officer receives information that the income determined was under-assessed or some income escaped assessment or it has been assessed at too low a rate, meaning thereby that either the entire income has not been assessed or the income has not suffered the entire incidence of tax according to law, the re-assessment proceedings can be initiated. The re-assessment of proceedings contemplates determination of income afresh and determination and computation of tax afresh. This cannot be done until and unless the previous determination of income and levy of tax is removed from the field giving jurisdiction to the I.T.O. for determining the income and levying the tax. For this reason the Supreme Court of India has held, that once valid re-assessment proceedings are started by issuing a notice for the re-assessment of proceedings the jurisdiction of I.T.O. is extended to the entire income, profits or gains of an assessee, the previous assessment ceases to exist and the whole assessment proceedings are started afresh. However, it is to he kept in mind that all these consequences shall follow the initiation of a valid and legal re-assessment proceedings. The reason being that law recognises only such acts which are competent in law and have legal sanction. If a public functionary takes any action which is not warranted in law it shall have no legal consequences. An invalid, illegal and unauthorised act is deemed to be void ab initio and action would be treated as not to have been taken at all. Thus, if re-assessment proceedings are held to be illegal, invalid and void for want of jurisdiction, it would be deemed that such proceedings have never been initiated and as such it shall have no legal consequences. The result would be that an invalid and illegal initiation of re-assessment proceedings shall not have the effect of wiping away the valid and legal assessment proceedings because an invalid act cannot invalidate the valid act.
Re-assessment proceedings, having been held to be illegal by the appellate authority, it would be deemed that the assessment was never re-opened in law. As the re-assessment proceedings itself had been held to be never validly initiated in law, therefore, the original assessment would continue to hold the field.
As a result of cancellation of re-assessment order the original assessment order stands restored and shall always be deemed to be validly existing.
V. Jag Mohan Rao v. C.I.T. (1970) 75 ITR 373 not applicable.
Qurban Ali Bugti, D.R. for Appellant.
Rehan Hassan Naqvi for Respondent.
Date of hearing: 29th August, 1990.
ORDER
MUHAMMAD MUJIBULLAH SIDDIOUI (JUDICIAL. MEMBER).-- This appeal is directed against the order dated 3-9-1986 by the learned C.IT.(A) Zone 3, Karachi in I.T.A. No.253/C.I.T.(A)/Z-3 of 1984-85.
2. The only objection agitated by the department is to the reduction of gross profit rate from 15% to 10% by the learned C.I.T.(A).
3. Briefly stated the relevant facts are that the assessee (hereinafter referred to as the respondent) is a company carrying on construction and development work on a housing project at Fatima Jinnah Road. In the assessment year 1982-83 the I.T.O. worked out receipts on work-in- progress basis and applied provisional gross profit rate at 15% subject to adjustment on completion of project. The learned C.I.T.(A) reduced the gross profit rate to 10% on the basis of past history.
4. We have heard Mr. Qurban Ali Bugti, learned representative for the Department and Mr. Rehan Hassan Naqvi, learned counsel for the respondent. Mr. Bugti has conceded during the course of arguments that the respondent has the history of application of gross profit rate at 10%. He has further conceded that the gross profit rate applied is subject to adjustment on the completion of project. The learned D.R. is not able to point out any infirmity in the impugned order of learned C.I.T.(A) and consequently it is held, that the learned C.I.T.(A) was justified in reducing the gross profit rate to which no exception can be taken.
5. Mr. Rehan Hassan Naqvi, learned counsel for the respondent has submitted that although the respondent has not preferred any appeal but the assessment in this case would be deemed to be non-existent and has submitted that it should be held, accordingly. He has raised this contention in the background of re-opening of the assessment. Mr. Rehan Hassan Naqvi has contended that the original assessment completed under section 62 of the Income Tax Ordinance, 1979 was re-opened by the I.T.O. by issuing a notice under section 65 of the Income Tax Ordinance, 1979. He completed re-assessment which was challenged before the learned C.I.T.(A) by way of first appeal and the re-opening of assessment was held, to be invalid. The re-assessment was ultimately annulled. In these circumstances the contention of Mr. Rehan Hassan Naqvi is that as soon as re-assessment proceedings were initiated the original assessment ceased to exist and it should be held, accordingly in these proceedings which have culminated out of the original assessment order. In support of his contention Mr. Rehan Hassan Naqvi has placed reliance on the observations of Supreme Court of India in the case of V. Jag Mohan Rao v. C.I.T. (1970) 75 I T R 373. He has drawn our attention specifically to the following observation:--
"Once proceedings under section 34 are taken to be validly initiated with regard to 2/3rd share of the income, the jurisdiction of the I.T.O. cannot be confined only to that portion of the income. Section 34 in terms says that once the I.T.O. decides to reopen the assessment he could do so within the period prescribed by serving on (he person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or re-assess such income, profits or gains. It is, therefore, manifest that once assessment is re-opened by issuing a notice under section 22(2) the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the I.T.O. had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."
5-A. On the other hand, the learned D.R, has submitted that the contention of Mr. Rehan Hasan Naqvi is not tenable because the re-opening of assessment has already been held to be invalid and thus, there is only one assessment in existence. If the contention of Mr. Naqvi is accepted there would be vacuum, as no assessment order shall remain in field, and it can never be intention of law, because it will negate the entire scheme of taxation of income.
6. We have carefully considered the contentions raised by the learned representatives for the parties. We are persuaded to agree with the submission of Mr. Naqvi to the extent that if a legal and valid re-assessment proceeding is initiated the original assessment becomes non-existent. However, we are unable to accept his contention that the mere initiation of re-assessment proceedings valid or invalid shall have the effect of wiping out the original assessment. It appears that while raising the contention Mr. Rehan Hasan Naqvi has ignored the expression used by the Supreme Court of India which is to the effect that, "once valid proceedings are started under section 34(1)(b) (of Repealed Income-tax Act, 1922) the whole assessment proceedings start afresh". The Supreme Court of India has not held, that even if the re-assessment proceedings is invalid it will have the effect of wiping away the original assessment. The raison d'etre is not difficult to discern which is explicit in the, ruling of Supreme Court of India. The law contemplates that the income of an assessee is to be taxed once only and through one assessment order only. Neither an income can be taxed twice nor by two assessment orders at one and the same time. Thus, if an income is already taxed in the hands of one assessee and subsequently it transpires that it was wrongly done and actually it is liable to be taxed in the hands of another assessee, the assessment in the hands of first assessee is to be cancelled and thereafter, it can be assessed in the hands of another assessee. Likewise, if total income of an assessee is determined and assessment order is finalised but subsequently the assessing officer receives information that the income determined was under-assessed or some income escaped assessment or it has been assessed at too low a rate, meaning thereby that either the entire income has not been assessed or the income has not suffered the entire incidence of tax according to law, the re-assessment proceedings can be initiated. The re-assessment of proceedings contemplates determination of income afresh and determination and computation of tax afresh. This cannot be done until and unless the previous determination of income and levy of tax is removed from the field giving jurisdiction to the I.T.O. for determining the income and levying the tax. For this reason the Supreme Court of India has held, that once a valid re-assessment proceedings are started by issuing a notice for the re-assessment of proceedings the jurisdiction of I.T.O. is extended to the entire income, profits or gains of an assessee, the previous assessment ceases to exist and the whole assessment proceedings is started afresh. However, it is to be kept in mind that all these consequences shall follow to the initiation of a valid and legal re-assessment proceedings. The reason being that law recognises only such acts which are competent in law and have legal sanction. If a public functionary takes any action which is not warranted in law it shall have no legal consequences. An invalid, illegal and unauthorised act is deemed to be void ab initio and action would be deemed/treated as not to have been taken at all. Thus, if re-assessment proceedings are held to be illegal, invalid and void for want of jurisdiction, it would be deemed that such proceedings have never been initiated and as such it shall have no legal consequences. The result would be that an invalid and illegal initiation of re-assessment proceedings shall not have the effect of wiping away the valid and legal assessment proceedings because an invalid act cannot invalidate the valid act. It is, therefore, held that in the facts and circumstances of this case the ratio of Supreme Court of India's judgment in the case of V. Jagan Mohan Rao v. C.I.T. (supra) is not attracted. Since the re-assessment proceedings have been held to be illegal by the appellate authority, therefore, it would be deemed that the assessment was never re-opened in law. As the re-assessment proceeding itself has been held, to be never validly initiated in law, therefore, the original assessment shall continue to hold the field. We find substance in the contention of Mr. Bugti that it can never be the intention of law to create a vacuum as Mr. Rehan Hasan Naqvi has suggested to be. For the foregoing reasons, we do not find any substance in the contention of Mr. Rehan Hasan Naqvi, which is hereby repelled. It is held that as a result of cancellation of re-assessment order the original assessment order stands restored and shall always be deemed to be validly existing.
7. With the above observations the departmental appeal on the point of reduction in gross profit rate stands dismissed.
M.B.A./952/T Appeal dismissed.