I.TA. NO.88/LB OF 1987-88, DECIDED ON 31ST MARCH, 1988. VS I.TA. NO.88/LB OF 1987-88, DECIDED ON 31ST MARCH, 1988.
1991 P T D (Trib.) 299
[Income-tax Appellate Tribunal Pakistan]
Before Abrar Hussain Naqvi, Judicial Member and A.A. Zuberi Accountant
Member
I.TA. No.88/LB of 1987-88, decided on 31/03/1988.
(a) Income Tax Ordinance (XXXI of 1979)--
---Ss. 134, 154 & 65---Appeal before Income-tax Appellate Tribunal---Specific plea as to non-service of notice under S.65 to assessee was not taken before Commissioner of Income Tax (Appeals) who categorically gave fording that notice under S.65 was served upon the assessee---Income-tax Appellate Tribunal declined to allow assessee to raise the plea of non-service of notice before the Tribunal.
(b) Income Tax Ordinance (XXXI of 1979)--
----S. 134---Appeal b9fore Income-tax Appellate Tribunal---Plea not taken in grounds of appeal cannot be allowed to be raised before Tribunal in appeal.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 154 & 65---Service of notice ---Assessee and his authorised representative had been attending the proceedings initiated against him pursuant to notice under S.65---Assessee's objection as to non-service of notice was untenable in circumstances.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 132, 62 & 63---Appeal---When Commissioner of Income Tax had given finding as to the illegality of ex parte assessment he had no alternative but to set aside the same.
(1969) 22 Tax 42 and (1967) 66 ITR 443 ref.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss. 132, 62 & 63---Appeal---Income Tax Commissioner (Appeal) having given finding that ex parte assessment was illegal, had no jurisdiction to convert the said assessment from under S.63 to under S.62.
(1969) 22 Tax 42 and (1967) 66 ITR 443 ref.
(f) Income-tax Act (XI of 1922)--
----S. 31(3)---Powers of Appellate Assistant Commissioner of Income Tax to pass different kinds of orders in regard to the different kinds of appeals.
From the perusal of section S. 31(3) of Income Tax Act, 1922 it is evident that the Appellate Assistant Commissioner has been empowered to pass different kinds of orders in regard to the different kinds of appeals. He can:--
(1) in case of an order of assessment--
(a) reduce, enhance, or annul the assessment; or
(b) set aside the assessment, etc.
At the end of clause (b) of section 31(3), Income Tax Act, 1922, there is word "or" and then orders in regard to registration of firms have been mentioned. Then is the power given in clause (3) in regard to those cases which is to cancel such an order and direct the I.T.O. to register the firm or set aside such an order and direct the I.T.O. to make further inquiry, etc. At the end of clause (c) again there is word "or" and then a new category of cases has been given which are "in the case of an order under subsection (2) of section 25 or subsection (1) of section 23-A or subsection (2) of section 26 or section 48, 49 or 49-F. Then clause (d) empowers the "AA.C. to cancel or vary such order". It is, therefore, clear that powers given in clauses (a) and (b) of subsection (4) are in regard to an order of assessment. In regard to their appeals against cancellation or refusal of registration of the firms the powers have been given to the A.A.C. in clause (c). The power of cancellation or varying an order is confined only in regard to the orders passed under subsection (2) of section 25, subsection (1) of section 23-A, subsection (2) of section 26 or orders under sections 48, 49 and 49-F as clause (d) refers to "such order" only.
Therefore, even under the repealed Income Tax Act, as it then stood, when the order of the Tribunal was passed, there was no such power with the AA.C. to convert the order of assessment from one section to another section. Whatever powers were available to the AA.C. in regard to assessment orders, were mentioned in clauses (a) and (b) of subsection (4). It may be noted that substantially the same powers are available to the AA.C. under the Income Tax Ordinance, 1979.
C.I.T. v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 distinguished.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 63---Assessment proceedings ---Assessee seeking adjournment before the assessment---Inspecting Assistant Commissioner putting condition for granting adjournment that the assesses should pay tax first and then adjournment be granted---Such, a demand of I.A.C, being illegal, assessment was liable to be set aside.
The I.A.C. put an illegal condition of payment of tax even before the assessment so as to grant adjournment to the assessee. Such an illegal demand could not have been made on the assessee. The assessee's request for adjournment should have been examined on merits. If the assessee had genuine reasons for adjournment he should have been granted adjournment or if the assessing officer thought that the request made by the assess" was in order to delay the proceedings or was without sound reasons, he could record the reasons for it and reject the request of the assessee. The demand of the IA.C. that first tax was to be deposited even before the assessment was completed, was certainly illegal. The case was a fit case where assessment should be set aside so that the assessee should be provided with a reasonable opportunity of being heard before the assessment was finalised against him.
(h) Income Tax Ordinance (XXXI of 1979)--
----S. 63---Valuation of property---Statement of witness recorded at the back of assessee without affording him an opportunity to cross-examine him was not worth reliance---Assessment made on the basis of such statement was liable to be set aside.
(i) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Valuation of property---Excise Department's record in respect of Capital Gains Tax assessment is a relevant factor in order to reach a definite conclusion for estimating the value of the property.
Zia H. Rizvi and Sh. Zulfiqar Ali, I.T.P. for Appellant.
Shaukat Ali Babar, A.C./D.R. for Respondent.
Dates of hearing: 14th & 16th March, 1988.
ORDER
This is an appeal filed by an individual deriving income from `Hikmat' and sale of Unani medicines and relates to the assessment year 1985-86. No accounts are maintained by the assessee.
2. Brief facts of the case under which this appeal has arisen are that the assessee declared income from business at Rs.22,200 which was assessed under section 59(1) of the I.T. Ordinance on 9-12-1985. Subsequently, a complaint was received that the assessee had purchased a property. Consequently, a notice under section 65 of the I.T. Ordinance was issued on 17-11-1986 and finally ex parte assessment was finalized by the assessing officer at net income of Rs.20,48,500. The assessment was finalized as under:--
From business, receipts were estimated at Rs.5,00,000 on which G.P. rate of 15% was applied and after allowing expenses at Rs.16,500 net income from business was assessed at Rs.5,85,000.
The assessing officer also made an addition of Rs.19,90,000 under section 13(1)(d) of the I.T. Ordinance on account of purchase of immovable property.
3. The assessee had purchased two properties in this assessment year. The first property was a `katry' consisting of some shops and residential portion with an area of 2 kanals 7 marlas, and situated at Karim Block, Katcha Ravi Road, Lahore. The assessee had declared its value at Rs.6,00,000 against which the I.T.O. estimated the value at Rs.18,00,000, which was reduced by the learned C.I.T. (A) to Rs.14,00,000. The assessee had also purchased a plot of land measuring 13 marlas at Katcha Ravi Road, Lahore and its value was declared by the assessee at Rs.1,40,000 which was, however, estimated by the I.T.O. at Rs.3,90,000. The learned C.I.T. (A) has reduced the value of this plot to Rs.2,60,000.
4. The learned counsel for the assessee has raised number of legal pleas against the assessment made by the I.T.O. ex pane under section 63 of the I.T. Ordinance. The first contention raised by the learned counsel for the assessee was that no notice under section 65 of the I.T. Ordinance was served on the assessee and, therefore, all proceedings taken against the assessee are illegal as the service of notice under section 65 of the Ordinance is sine qua non. Before proceeding further, we asked the learned D.R. to produce the record so that we could examine whether notice under section 65 was served or not. The learned D.R., however showed his inability on the ground that the relevant file for the assessment year under consideration was reportedly misplaced and inquiries are being conducted against the officials concerned. However, this point can be decided even otherwise inasmuch as the learned C.I.T. (A) before whom similar objection had been taken by the assessee has given a categorical finding that the objection regarding service of notice under section 65 was patently wrong as the notice was duly served on Hakim Ghulam Nabi and no affidavit has been filed by the assessee contesting this finding. Even in the grounds of appeal, no specific plea had been taken by the assessee that notice under section 65 had not been served on the assessee. Another reason for not entertaining the assessee's plea at this stage was that admittedly the assessee has been appearing before the I.T.O. on certain occasions. The A.R. of the assessee, Mr. Tariq Aziz, appeared before the I.T.O. on 10-2-1979 and requested for adjournment. Obviously the assessee or its A.R. could not appear before the I.T.O. unless a notice under section 65 had been issued and served on the assessee. Therefore, notwithstanding the absence of record there are strong presumptions -against the assessee that notice under section 65 had been served on the assessee. As stated above, in any case since no specific plea in regard to the service of notice under section 65 of the Ordinance has been taken by the assessee particularly in view of the fact that there was categorical finding of the learned C.I.T. (A) that notice under section 65 had been served on the assessee, this contention has no force. We, therefore, reject the plea of the assessee on this issue.
5. The second very important issue raised by the learned counsel for the assessee was in regard to the ex parte assessment. As stated above, the assessee's A.R. appeared on 10-2-1987 before the I.T.O. on which date a request for adjournment was made and the case was adjourned for 16-2-1987. Since nobody appeared on that date the assessing officer issued notices under sections 62 and 61 of the I.T. Ordinance on 1-3-1987 for 10-3-1987. On 10-3-1987 another A.R. of the assessee, namely Mr. Sarwar Naseem, I.T.P. appeared before the I.T.O. and sought adjournment. The case was adjourned to 17-3-1987. On this date again a request for adjournment was made which probably was accepted and the case was adjourned. Another request was made by the A.R. of the assessee on 25-3-1987. It appears that the I.T.O. did' not grant the adjournment and the learned A.R. made a request to the IA.C. who laid a condition that if the assessee paid handsome amount of tax only then adjournment could be given. Since no such payment was made by the assessee, the assessing officer proceeded ex parte under section 63 of the I.T. Ordinance.
6. Before the learned C.I.T. (A) this illegality was contested by the assessee and the learned C.I.T. (A) who appeared to have seen the record and the order sheet entries made the following observation:
"The last date when the case was fixed for hearing was 25-3-1987 and on that date Mr. Sarwar Naseem, Advocate, A.R. duly attended before the I.T.O. As per order sheet entry he also met the I.A.C, on that date who insisted to deposit some reasonable amount of income tax and only thereafter adjournment will be allowed. The I.T.O. completed the assessment ex parte under section 63 after six days, i.e. 31-3-1987. It is noted from the order-sheet that this case was fixed for hearing for numerous dates and the appellant's three advocates have been appearing before the I.T.O. on various dates. Copies of relevant documents were also furnished which were helpful for the I.T.O. to complete the assessment. Under the circumstances I think that the I T O was not justified to frame assessment order under section 63 Therefore it is converted into assessment order passed under section 62."
7. The learned counsel for the assessee contended that once the learned C.I.T. (A) came to the conclusion that the I.T.O. was not justified to frame the assessment under section 63 of the I.T. Ordinance he was duty bound under the law to set aside the assessment and remand the case back to the I.T.O. for fresh decision. It was submitted that finding given by the learned C.I.T. (A) that the ex parte order was unjustified, his last sentence in regard to the conversion of the assessment under section 63 to be under section 62, was without jurisdiction. In order to support his contention the learned counsel relied upon subsection (1) of section 132 of the I.T. Ordinance which deals with the powers of the Appellate Assistant Commissioner. The relevant subsection is reproduced below for reference:--
"Section 132. Decision in appeal.--(1) In disposing of as appeal, the Appellate Assistant Commissioner may,--
(a) in the case of an order of assessment,--
(i) set aside the assessment and direct the assessment to be made afresh after making such further inquiry as the Appellate Assistant Commissioner may direct or the Income Tax Officer thinks fit;
(ii) confirm. reduce, enhance or annul the assessment;
(b) in the case of an order imposing a penalty, confirm, set aside or cancel such order or enhance or reduce the penalty; and
(c) in any other case, pass such order as he thinks fit."
8. It was contended by the learned counsel that in this subsection the powers of the Appellate Assistant Commissioner have been categorised with reference to three kinds of cases. First category of cases has been given in clause (a) which is in regard to the appeals against an order of assessment. The second class of cases is given in clause (b) which is in regard to the appeal against penalty orders and clause (c) deals with any other cases. It was submitted that this being an appeal against the order of assessment, the powers of the learned C.I.T. (A) were confined to clause (a) and according to this clause the powers of the learned C.I.T. (A) were:--
to set aside the assessment, to confirm, reduce, enhance or annul the assessment.
9. It was further submitted that once the learned C.I.T. (A) came to the conclusion that the ex parte assessment made by the I.T.O. was not justified he could pass no further order except under clause (a)(i) and had to set aside theassessment.
10. We have given our careful consideration to the contention of the learned counsel for the assessee and find considerable force in it. The learned C.I.T. (A) gave a categorical finding that the assessing officer had wrongly proceeded ex parte against the assessee and he was not justified to proceed ex parte and to finalise the assessment under section 63 of the I.T. Ordinance. After giving this finding the learned C.I.T. (A) had no alternative except to set aside the assessment and he had no power to convert the assessment from one category to another category.
11. The learned counsel for the assessee has referred to two cases which are against him. The first case is that of Single Bench of the Tribunal reported as (1969) 22 Tax 42 and the second case is that of Supreme Court of India reported as (1967) 66 I T R 443. The learned counsel, however, contended that the observations of the Supreme Court in the later case are not relevant inasmuch as the wording of the Indian Income-tax Act is different than what is provided in section 132 of the I.T. Ordinance. In the first case which was decided by the Single Bench of the Tribunal, powers of the Appellate Assistant Commissioner under section 31 of the repealed Income Tax Act came under consideration with particular reference to his powers as to whether he could change the nomenclature of the assessment. While interpreting clause (d) of subsection (4) of section 31 of the repealed Income-tax Act, the Tribunal came to the conclusion that an A.A.C. is empowered to adopt different course of action under various clauses of subsection (4) of section 31 and that he had the power to cancel or vary the assessment which included the power to convert an assessment made under a particular section into one under a different section. The Tribunal observed as under:--
"The word `vary' is quite broad and comprehensive and there is no valid reason to assume that it does not envisage the power to change the nomenclature of the assessment order, it obviously implies any kind of change in the assessment order including a change in the section under which it is passed. This interpretation of clause (d) of subsection (4) of section 31 is further supported by the fact that the other clauses of subsection (4) provide for the reduction, enhancement, annulment or setting aside of the assessment and the use of the word `vary' in a separate clause clearly denotes that the intendment of the legislature was to provide for contingencies not contemplated by the other clauses."
Before dealing with the view reproduced above, it would be convenient to reproduce the relevant portion of subsection (4) of section 31 of the repealed Income-tax Act as it then was:-
"Subsection (4). The Appellate Assistant Commissioner may, in the case of an order of assessment, --
(a) reduce, enhance or annul the assessment; or
(b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment; or,
in the case of an order cancelling the registration of a firm under subsection (4) of section 23 or subsection (4) of section 26-A or refusing to register a firm under subsection (4) of section 23 or section 2G-A, --
(c) cancel such order and direct the Income-tax Officer to register the firm or set aside such order and direct the Income-tax Officer to make such further enquiry as he thinks fit or as tile Appellate Assistant Commissioner may direct, and the Income-tax Officer shall thereupon proceed to make such enquiry and shall thereafter make a fresh order registering the firm or refusing to register it or cancelling its, registration, as he may think fit; or,
in the case of an order under subsection (2) of Section 25 or subsection (1) of Section 23-A or subsection (2) of section 26 or sections 48, 49 or 49-F; -
(d) cancel or vary such order;"
12. From the perusal of the above clauses of subsection (4) it is evident that the A.A.C. has been empowered to pass different kinds of orders in regard to the different kinds of appeals. He could:--
(1) in the case of an order of assessment:
(a) reduce, enhance, or annul the assessment; or
(b) set aside the assessment, etc.
At the end of clause (b) there is word `or' and then orders in regard to registration of firms have been mentioned. Then is the power given in clause (c) in regard to those cases which is to cancel such an order and direct the I.T.O. to register the firm or set aside such an order and direct the I.T.O. to make further inquiry, etc. At the end of clause (c) again there is word `or' and then a new category of cases has been given which are "in the case of an order under subsection (2) of section 25 or subsection (1) of section 23-A or subsection (2) of section 26 or section 48, 49 or 49-F. Then clause (d) empowers the `A.A.C. to cancel or vary such order'. It is, therefore, clear that powers given in clauses (a) and (b) of subsection (4) are in regard to an order of assessment. In regard to their appeals against cancellation or refusal of registration of the firms the powers have been given to the A.A.C. in clause (c). The power of cancellation or varying an order is confined only in regard to the orders passed under subsection (2) of section 25, subsection (1) of section 23-A, subsection (2) of section 26 or orders under sections 48, 49 and 49-F as clause (d) refers to `such order' only.
13. With utmost respect, the learned Single Bench of the Tribunal who passed the aforementioned order cited above missed this aspect of the case and it was perhaps assumed that the powers of the A.A.C. referred to in various clauses of subsection (4) could be exercised in respect of all kinds of orders including the assessment order. This is not so. The powers of the A.A.C. in regard to the order of assessment were only given in clauses (a) and (b) stated above and power given in clause (d) had no reference whatsoever to the order of assessment. Therefore, even under the repealed Income-tax Act, as it then stood when the order of the Tribunal was passed, there was no such power with the learned A.A.C. to convert the order of assessment from one section to another, section. Whatever powers were available to the A.A.C. in regard to assessment] orders were mentioned in clauses (a) and (b) of subsection (4). It may be noted;, that substantially the same powers are available to the A.A.C. under the Income-',, tax Ordinance, 1979.
14. In case C.I.T. v. Rai Bahadur Hardutroy Motilal Chamaria reported as 1967) 66 I T R 443, the Supreme Court of India had observed that once an assessment comes before the AA.C., he is competent to examine all aspects of the assessment and his competency ranges over the whole of assessment and it was open to him to correct the I.T.O. on any point which had been considered by the I.T.O. and determined in the course of assessment. However, that decision of the Supreme Court is not relevant inasmuch as that decision had been made under section 251 of the Indian Income-tax Act. In that section an explanation has been given which empowers the A.A.C. to consider and decide any material arising out of the proceeding in which the order appealed against was passed "notwithstanding that such matter was not raised to the Appellate Assistant Commissioner by the appellant". It is, therefore, obvious that under the Indian Income-tax Act there is an omni-bus power with the A.A.C. to pass any order as he may deem fit in accordance with the circumstances of each case. There is no such corresponding power under section 132 of the I.T: Ordinance. Therefore, the observations made by the Supreme Court of India in the aforesaid cited case are not applicable to the case under consideration. We, therefore, feel that the learned C.I.T. (A) having given finding that the ex parte proceedings taken against the assessee were not justified, he should have set aside the assessment for fresh assessment. In any case, in this case there are peculiar circumstances. The I.A.C. put an illegal condition of payment of tax even before the assessment so as to grant adjournment to the assessee. Such an illegal demand could not have been made from the assessee. The assessee's request for adjournment should have been examined on merits. If the assessee had genuine reasons for adjournment he should have been granted adjournment or if the assessing officer thought that the request made by the assessee was in' order to delay the proceedings or was without sound reasons, he could record the reasons for it and reject the request of the assessee. The demand of the IA.C. that first tax was to be deposited even before the assessment was completed, was certainly illegal. We, therefore, think that this is a fit case where assessment should be set aside so that the assessee should be provided with a reasonable opportunity of being heard before the assessment is finalised against him. There are some other reasons which even otherwise call for setting aside of the assessment on merits as well. The assessing officer grad mainly relied upon two factors in order to evaluate the property at Rs.18,00,000. First is the assessment made by the Gains Tax Authorities in regard to the building purchased by the assessee at Rs.15,00,000. The second factor wh6ch has (weighed in the mind of the I.T.O. was an alleged. agreement of sale entered by' the assessee with the vendor in which the price settled was written 2tt Rs.18,00,000. The third factor which was the basis of estimate by the I.T.O. was the statement of the stamp vendor who also had written the agreement. The learned counsel for the assessee has pointed out that the agreement was not signed by the assessee. In regard to the Gains Tax Authorities' assessment it was submitted that the order of the original authority was finally set aside by the Director Excise and Taxation (A & I) on 29-6-1985. A photo copy of the order of the Director, Excise and Taxation has been produced before us. A photo copy of the agreement according to which allegedly Rs.18,00,000 had been agreed between the vendor and the vendee has also been produced before us to show that it is not signed by the assessee. Therefore, the assessee should have been given an opportunity to cross-examine the Wasiqa Navees whose statement was allegedly recorded at the back of the assessee.
15. For all the above reasons, we set aside the assessment with the following directions:--
(1) That fresh inquiries should be made in regard to the valuation of both the properties as well as in regard to the source of investment of the assessee. The assessing officer should summon the Wasiqa Navees again "; and his register should also be examined and the assessee should be allowed to cross-examine the Wasiqa Navees.
(2) The Excise Record may also be consulted which is also a relevant factor in order to reach a definite conclusion for estimating the value of the property.
16. The appeal is disposed of as above.
M.B.A./957/TOrder accordingly.