LTA. NO.4/LB OF 199491, DECIDED ON 15TH SEPTEMBER, 1990. VS LTA. NO.4/LB OF 199491, DECIDED ON 15TH SEPTEMBER, 1990.
1991 P T D (Trib.) 294
[Income-tax Appellate Tribunal Pakistan]
Before Abrar Hussain Naqvi, Judicial Member
LTA. No.4/LB of 199491, decided on 15/09/1990.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 2(7)---Assessment---Filing of assessment proceedings amounts to an assessment order.
1986 PTD (Trib.) 14 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Assessing Officer having already filed the proceedings under S.65 neither second notice under S.65 be issued nor second assessment order could be passed---Prerequisite to issue notice under S. 65(1)(c) stated.
Section 65(1)(c) of the Income Tax Ordinance, 1979 provides that when an income has been assessed under section 59(1) of the Ordinance "and no order of assessment has subsequently been made under this section or any other provision of this Ordinance", then the I.T.O. is empowered to reopen the assessee's case. In the present case when the I.T.O. filed the assessment proceedings started under section 65 of the Ordinance it means that an order under section 65(1) of the Ordinance had been passed by the assessing officer. To issue notice under section 65(l)(c) of the Ordinance it is prerequisite that earlier no order of assessment had been passed by the assessing officer under section 65(1) after passing the assessment order under section 59(1) of the Ordinance. When an assessment proceedings are filed that amounts to an assessment order. Therefore, in the facts and circumstances of the present case, no second notice could be issued nor any second assessment order could be passed once the assessing officer had filed the assessment proceedings under section 65 of the Ordinance.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Assessing Officer is not empowered to re-start the assessment proceedings under S.65 when the original proceedings had become barred by time.
Section 65(3-A) of the Ordinance provides that where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under thatsubsection can be passed after the expiry of one year from the end of the financial year in which such a notice was served. In the present case admittedly the notice under section 65 of the Ordinance had been issued on 28th February, 1980 and, therefore, limitation for passing the re-assessment order expired on 30th June, 1987. Once re-assessment had become barred by time the assessing officer cannot override the law and defeat the law of limitation provided by section (3-A) aforesaid by issuing afresh notice under section 65 of the Ordinance. After the expiry of limitation period on 30th June, 1987 the assessee acquired an important right which could not be taken away by the assessing officer by issuing a fresh notice under section 65 of the Ordinance. On this ground as well, the fresh notice issued by the assessing officer was illegal and so was the re-assessment order.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 65 & 13---Where the difference in the declared value and determined value was nominal and not too low, provision of S.13 of the Ordinance would not be attracted and case could not be re-opened.
Fayyaz Ahmad Chaudhry for Appellant.
Mian Masood Ahmed, D.R. for Respondent.
ORDER
ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER)---This is an appeal filed by a Private Limited Company deriving income from manufacturing and sale of artificial leather and relates to the assessment year 1985-86.
2. Brief facts of the case under which this appeal has arisen are that the assessee's original assessment was finalized under section 59(1) of the Income-tax Ordinance at an income of Rs.6,11,566. However, subsequently, the assessee's case was reopened with the prior approval of the I A C and notice under section 65 was issued on 26th February, 1786. The case was reopened on the ground that the assessee's cost of shed had been undervalued. It was stated by the learned counsel for the assessee that these proceedings under section 65 of the Income-tax Ordinance were filed by the ITO on 27th April, 1986. It was further stated by the learned counsel for the assessee that on 18th February, 1986 the assessee had applied for refund for the assessment years 1984-85 and 1985-86 to the tune of Rs.3,10,386 and it was for this reason that the assessee's case was reopened in order to disentitle the assessee for the claim of refund. It was stated that in reply to the notice under section 65 of the Income-tax Ordinance, dated 26th February, 1986 the assessee in his reply dated 3rd March, 1986 had contested the notice being invalid. The assessee had filed the return on 21st April, 1986 but as stated above these proceedings were filed on 27th April, 1986. It was further stated by the learned counsel for the assessee that fresh notice was issued under section 65 of the Income-tax Ordinance on 10th August, 1987. It was stated that the original proceedings being defective it was for this reason that the assessing officer himself filed the proceedings realising the defective nature of assessment proceedings. It was stated that original proceedings under section 65 were going to be barred by time on 30th June, 1987 and, therefore, no fresh notice under section 65 of the Income Tax Ordinance could be issued after 30th June, 1987. It was further contended by the learned counsel for the assessee that even otherwise there was no basis for reopening of the assessee's case.
3. The learned D.R, on the other hand, contended that the case of the assessee was rightly reopened on sound basis and in accordance with law. It was further stated by the learned D.R. that the case was reopened with the prior permission of the C B R and then fresh notice was issued to the assessee under section 65 of the Ordinance.
4. We have considered the arguments of the parties and have perused the record. It is not disputed that the original assessment was finalized under section 59(1) of the Ordinance. It is also not disputed that the assessee filed application for refund on 18th February, 1986. It is further Admitted that the first notice under section 65 of the Ordinance was issued to the assessee on 26th February, 1986 (within one week of the application for refund). It is again admitted that no prior permission of the C B R was obtained by the assessing officer before issuing the notice under section 65 of the Ordinance as required 3 by Note 7 of Para 6 of the Self-Assessment Scheme for the assessment year 1985-86 and finally it is also admitted that the re-assessment proceedings started under section 65 of the Ordinance were filed by the assessing officer on 27th April;. 1986.
5. It is in this background that the reopening-of the case by issuing fresh notice under section 65 of the Ordinance on 10th August 1987 is contested. The first question to be considered is whether the assessing Officer is empowered to issue again notice under section 65 of the Ordinance when he had already fled the proceedings when notice under section 65 of the Ordinance was issued. It is further to be seen as to whether the assessing officer is empowered to re-start the assessment proceedings under section 65 of the Ordinance when the original proceedings had become barred by time.
6. From perusal of the provisions of section 65 of the Ordinance, we find that under subsection (1) clause (c) it is provided that when an income has been assessed under section 59(1) of the Ordinance "and no c order of assessment has subsequently been made under this section or any other provision of this Ordinance", then the I.T.O. is empowered to reopen the assessee's case. In the present case when the I.T.O. filed the assessment proceedings started under section 65 of the Ordinance it means that an order under section 65(1) of the Ordinance had been passed by the assessing officer. To issue notice under section 65(1)(c) of the Ordinance it is prerequisite that earlier no order of assessment had been passed by the assessing officer under section 65(1) after passing the assessment order under section 59(1) of the Ordinance. The proposition that filing of the assessment proceedings is an assessment (order had already been decided by the Tribunal in a Full Bench decision reported as 1986 P T D (Trib.) 14, wherein it has been discussed in detail, supported with case law, that when an assessment proceedings are filed that amounts to an assessment order. The Tribunal in that case relied upon Supreme Court of India's decision reported as (1961) 3 Tax Part II-226. Therefore, in the facts and circumstances of the present case, no second notice could be issued nor any second assessment order could be passed once the assessing officer had filed the assessment proceedings under section 65 of the Ordinance. There is another legal hurdle in our way in maintaining the orders of the officers below. Subsection (3-A) of section 65 of the Ordinance provides that where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under that subsection can be passed after the expiry of one year from the end of the financial year in which such a notice was served. Now admittedly the notice under section 65 of the Ordinance had been issued on 28th February, 1986 and, therefore, limitation for passing the re-assessment order expired on 30th June, 1987. Once re-assessment had become barred by time the assessing officer cannot override the law and defeat the law of limitation provided by subsection (3-A) aforesaid by issuing a fresh notice under section 65 of the Ordinance. After the expiry of limitation period on 30th June, 1987 the assessee acquired an important right which could not be taken away by the assessing officer by issuing a fresh notice under section 65 of the Ordinance. On this ground as well, the fresh notice issued by the assessing officer was illegal and so is the re-assessment order. The third ground taken by the learned counsel for the assessee was that the re-assessment proceedings were started only for the reason that the assessee had filed an application for the refund of tax. The learned counsel in this regard has relied on RCIT's instructions contained in his letter No:177/PS, dated 11th December, 1989, the relevant portion of which is reproduced below:--
"Recently several cases have come to the notice of this office, in which proceedings under section 65 of the Income Tax Ordinance, 1979 were initiated at almost the same point of time when an application for issue of refund was made by the tax-payers.
In such situation, the Departmental Officers are accused of having acted in bad faith, by resorting to reopening of the assessments, instead of having issued the refunds. The Wafaqi Mohtasib has also castigated the Department for such action on the part of the Officers."
This letter supports the assessee's case that sometimes the assessing officers do take action against the assessees where refund is applied. In the present case as well, the application for refund was stated to have been made on 18th February, 1986 while the notice under section 65 of the Ordinance was issued on 22nd February, 1986. This in itself may be a co-incidence but when we look at the ground on which the case has been reopened that lends support to the assessee's contention that the possibility of action for reason other than bona fide, could not be ruled out. The basis of re-opening of the assessee's case was that the cost of construction of shed shown by the assessee was Rs.5,07,870 while according to the ITO's own estimation it was Rs.5,76,082. This certainly could not be a gross under-valuation of the cost of construction. Even while making an addition under section 13 of the Ordinance, the I.T.O. is empowered to estimate the value under section 13(2) only where in his opinion the value shown by the assessee is "too low". It is evident that even according to the estimation of the I.T.O. cost of construction of the shed is Rs.576,082 and if it is compared to the value declared by the assessee at Rs.507,870 it could not be regarded as "too low".
7. For the foregoing reasons, we are of they considered opinion that this case was reopened without any legal and sound basis and in the facts and circumstances of the case the assessing officer was not competent to reopen the case and in any case the re-assessment under section 65 of the Ordinance having become time-barred on 30th June, 1987 no subsequent order under section 65 of the Ordinance could be passed after 30th June, 1987.
8. As a result of the above discussion, the re-assessment order is cancelled and the original order is restored.
M.BA./950/T. Order accordingly.