I.TA. NOS. 145,157 AND 158/LB OF 1990-91, DECIDED ON 19TH DECEMBER, 1990. VS I.TA. NOS. 145,157 AND 158/LB OF 1990-91, DECIDED ON 19TH DECEMBER, 1990.
1991 P T D (Trib.) 643
[Income-tax Appellate Tribunal Pakistan]
Before Mian Abdul Khaliq, Judicial Member and Nasim Sabir Syed, Accountant
Member
I.TA. Nos. 145,157 and 158/LB of 1990-91, decided on 19/12/1990.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 132---Appeal---If due to any legal flaw the assessment is not acceptable to the Appellate Authority, same is to be set aside as a whole.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 32---Where an assessee had history of application of gross profit rate that had to be followed unless a case was made out by the Assessing Officer at assessment stage for deviating on fresh material---Mere fact that in other cases of the same line of trade the Income Tax Appellate Tribunal had confirmed application of a certain gross profit rate was not enough to deviate, because that was only in the cases where .no history was forthcoming.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 132---Appeal---Powers of First Commissioner of Income-tax (Appeals)-- Scope and extent.
Under section 132, Income Tax Ordinance, 1979 the Commissioner of Income Tax (Appeals) is not competent to direct the Inspecting Assistant Commissioner to initiate proceedings under section 66-A of the Ordinance. The scope of the powers of the first appellate authority is restricted to the extent of setting aside the assessment for de novo decision by the Income-tax Officer after making inquiries in the light of directions of the appellate authority, if any, or as the Income-tax Officer thinks fit and confirming, reducing, enhancing or annulling the assessment. Section 132 (1)(c) is not independent, rather is to be read in conjunction with the earlier provisions of sub-clauses (a) and (b) of subsection (1) of section 132 of the Ordinance. The established principle of law is that section is to be read as a whole subject to a proviso, if any. Provision of passing such order as he thinks fit does not include a power over and above that of sub-clauses (a) and (b) directing the Inspecting Assistant Commissioner to invoke extraordinary jurisdiction of section 66-A of the Ordinance. The reason for this conclusion is quite obvious, because the first appellate authority is dealing with the assessment impugned at the instance of an assessee and is competent to confirm, reduce, enhance or annul the assessment or to set aside the same with directions for further inquiry. Scope herein is restricted to the assessment made by the I.T.O. and powers of the Inspecting Assistant Commissioner under section 66-A of the Ordinance do not come within the ambit of assessment by the I.T.O. The law does not empower the Commissioner of Income Tax (Appeals) to invoke jurisdiction to issuance of direction to the Inspecting Assistant Commissioner. The other reason for such conclusion is that section 12 of the Ordinance does not give revisional power to the Commissioner of Income Tax (Appeals) which specifically vests with the Commissioner of Income Tax for revising the order passed by any authority subordinate to him whereas no such power vests in the Commissioner of Income Tax (Appeals) under section 132 of the Ordinance. Had that been so the legislature should have provided in sub-clause (c) of section 132(1) of the Ordinance for revision of order passed by a subordinate authority. In this view of the matter, the Commissioner of Income Tax (Appeals) while passing order under section 132 of the Ordinance had no lawful authority to direct the Inspecting Assistant Commissioner to invoke jurisdiction under section 66-A of the Ordinance.
(d) Interpretation of statutes---
---- Section of a statute has to be read as a whole subject to the proviso, if any.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 132---Commissioner of Income Tax (Appeals) cannot direct Inspecting Assistant Commissioner to exercise powers under S. 66-A of the Ordinance.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of Inspecting Assistant Commissioner of Income Tax under S. 66-A---Scope and extent---Inspecting Assistant Commissioner of Income Tax cannot assume powers under S. 66-A on the direction of Commissioner of Income Tax (Appeals).
The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under the Ordinance and if an order passed by the I.T.O. is erroneous in so far as it is prejudicial to the interest of revenue he may pass such order as the circumstances of the case justify after issuing notice to the assessee. A bare perusal of the language of the section leaves one in no doubt that power under section 66-A of the Ordinance is independent and suo motu as is apparent from the use of words "if he considers". There is no doubt in concluding that consideration is of the Inspecting Assistant Commissioner without any directions and after perusal and examination of record of any proceedings. The officer having power is required to decide himself without any directions. Issuance of notice and assumption of powers of the Inspecting Assistant Commissioner under section 66-A of the Ordinance on the directions of the Commissioner of Income Tax (Appeals) was without any lawful authority.
PLD 1972 Lah. 316 and 1990 PTD 974 fol.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---"Erroneous assessment prejudicial to the interest of revenue"-- Elements---Issuance of notice under S. fib-A by Inspecting Assistant Commissioner of Income-tax---Requirement of issuance of such notice is that the order passed by the Income Tax Officer should be erroneous in so far it was prejudicial to the interest of revenue---When in the earlier period the return filed by an A.O.P. was accepted under Self-Assessment Scheme vide a separate N.T.N. and for the subsequent period case being of a registered firm with newly-allocated N.T.N., there did not exist any element of erroneous assessment prejudicial to the interest of revenue.
1988 PTD 723; 1984 PTD 201; 1984 PTD 137 and 1969 PTD (Trib.) 144 ref.
(h) Income Tax Ordinance (XXXI of 1979)---
----Ss. 22, 23 & 32---Addbacks---Disallowance of expenses on ground of being unverifiable ---Disallowances in the profit and loss account expenses were not to be made without any basis and without examining the claim in detail---Making of disallowances in arbitrary manner by the Assessing Officer deprecated by Tribunal.
Dr. Ilyas Zafar for Appellant.
Shaukat Ali Babar, D.R. for Respondent.
Date of hearing: 25th October, 1990.
ORDER
MIAN ABDUL KHALIQ (JUDICIAL MEMBER).---These three further appeals have been filed by an assessee. Two appeals pertaining to charge year 1987-88 are directed against separate orders passed by the learned C.I.T.(A), Zone-IV, Lahore, dated 15-3-1989 and the learned I.A.C., Range-II, Zone-A, Lahore, dated 26-6-1990. .Third appeal is led against the order of the learned C.I.T. (A)-IV, Lahore, dated 29-7-1990.
2. Taking up the appeals for the charge year 1987-88 the facts are that the assessee derived income as a construction contractor. There happened to be two separate entities in this year. From 1-7-1986 to 31-8-1986 business was conducted by the assessee in the status of an AOP and for the remaining period commencing from 1-9-1986 to 30-6-1987 the same business was undertaken by a registered firm. The first appeal of the assessee calls in question the assessment made in the status of a registered firm. Therein G.P. rate of 16.5% was disclosed on recorded receipts at Rs.61,20,627. The ITO issued a notice under section 62 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) on 12-3-1988 pointing out the defects of unverifiability of purchases, inadequacy of the declared G.P. rate and low drawings of the partners. In that notice the ITO also gave his mind with specific cases for application of G.P. rate of 17.5%. In response thereto the assessee replied stating that in majority cases lesser G.P. rate of 15% having been applied, the declared G.P. rate being more than that be accepted. The assessee's explanation did not find favour with the ITO who while applying G.P. rate of 17.5% to the declared receipts and after some disallowances in the profit and loss account expenses determined the assessee's income at Rs.5,59,216 against returned income of Rs.3,22,515.
3. On appeal, the learned C.I.T.(A) vide order dated 15-3-1989 after confirming the applied G.P. rate of 17.5% remitted the matter to the ITO for examining the position of filing of two returns by the assessee in the same name. The first appellate authority observed that one return filed. by the assessee declaring income at Rs.70,520 was processed vide NTN 1303328 by accepting the returned income under section 59(1) of the Ordinance and the same assessee had filed another return declaring income at Rs.3,22,515 wherein assessment was processed by the ITO under section 62 of the Ordinance as per NTN 1303475 vide order dated 3-4-1988. The learned C.I.T.(A) was of the view that receipts pertaining to the year under review were erroneously charged to tax separately whereas entire receipts should have been included in the case of assessment made under section 62 of the Ordinance. The learned C.I.T.(A) further directed:
" In these circumstances the concerned IAC should proceed under section 66-A."
4. The grievances of the assessee's AR were regarding confirmation of G.P. rate of 17.5%, setting aside of assessment on the issue of receipts with directions of clubbing disallowances in the profit and loss account expenses and directions for initiation of proceedings by the learned JAC under section 66-A of the Ordinance. In the other appeal assailing the order passed under section 66-A of the Ordinance jurisdiction assumed by the learned IAC has been contested as to be without any lawful authority, the same having been invoked on the direction of the learned C.I.T.(A).
5. As usual the D.R. did not have the assessment record despite the fact that hearing was specifically adjourned on 10-9-1990 at the request of the D.R. for procuring the assessment record. We are constrained to bring on record that non-availability of assessment record with the Departmental Representatives has become a usual phenomena. Despite repeated reminders and adjournments no attention is being paid by the concerned authorities to ensure availability of assessment record with the D.R. It seems that there is total lack of co-operation between the Departmental Representative and the assessing officers. This unhealthy situation is prevalent in the assessee's appeals as well as in the departmental appeals. The Departmental Representative is not only without the assessment record but is also unaware of the grounds of the departmental appeals. It is high time for the concerned authorities to cure this deplorable state of affairs. Mere appearance of the Departmental Representative without assessment record and preparation of the case is of no avail.
6. The assessee's grievances about confirmation of G.P. rate of 17.5%, setting aside of the issue of receipts and disallowances made in the profit and loss account expenses carry lot of weight. Year under review happened to be first year of the firm's business. In the earlier part of this very assessment year, the assessee's declared income with lesser G.P. rate was accepted by the ITO under Self-Assessment Scheme. The learned C.I.T.(A) failed to appreciate the true facts regarding filing of two returns and passing of two assessment orders. The facts established that is this year business was done by an AOP for a period commencing from 1-7-1986 to 31-8-1986. The AOP comprised of two partners and the business was execution of contracts in the name and style of M/s. Chaudhry & Sons. Assessment for this period was made under Self-Assessment Scheme by accepting declared income at Rs.70,550. The assessment order was passed on 31-8-1988 vide NTN 05-23-1303323. On 31-12-1987 registration was granted to the assessee firm in the same name and the firm comprised of six partners. Accounting period of the firm happened to be tro1n 3-9-1986 to 3tt-6-1987. Assessment was made in the firm's case vide NTN 1303-175 on 3-4-1988 under section 62 of the Ordinance. The observations of the learned C.I.T.(A) regarding wrong taxing of the receipts is belied by the facts. On the issue of G.P. rate the learned C.I.T.(A) passed a self contradictory order by Mowing hot and cold in the same breath. On one hand applied GT, rate of 17.E was maintained whereas on the other hand issue of estimate of receipts was set aside. The established rule of law is that if due to any legal flaw the assessment is not acceptable to the appellate authority, same is to be set aside as a whole. In the instant case the assessee s plea of acceptance of declared G.P. rate of 16.5% merited consideration as the Tribunal has laid down that if an assessee has history of application of G:P. rate in contractors cases that is to be followed unless a case is made out by the ITO at assessment stage for deviating on fresh material. Mere fact that in other cases of the contractors the Tribunal has confirmed application of G.P. rate of 17.5% is not enough because that is only in the cases where no history of regular assessment of an assessee is forthcoming. In this view of the matter, we vacate the impugned order setting aside the assessment as a whole and remit the matter to the ITO for de novo decision of G.P. rate after taking into consideration the nature of the assessee's contracts and history of earlier period. Assessee's grievance about disallowances under various heads of profit and loss account expenses shall also be re-examined.
7. Taking up the appeal challenging the order of the learned IAC under section 66-A of the Ordinance, we feel no hesitation in holding that the impugned order is without lawful authority. Our decision is based on the ground that under section 132 of the Ordinance, the learned C.I.T.(A) is not competent to direct the learned IA.C. to initiate proceedings under section 66-A of the Ordinance. The scope of the powers of the first appellate authority is restricted to the extent of setting aside the assessment for de novo decision by the Income-tax Officer after making inquiries in the light of directions of the appellate authority, if any, or as the Income-tax Officer thinks fit and confirming, reducing, enhancing or annulling the assessment. Sub-clause (c) of section 132(1) of the Ordinance provides:--
"In any other case pass such order as he thinks fit."
This provision is not independent rather is to be read in conjunction with the earlier provisions of sub-clauses (a) and (b) of subsection (1) of section 132 of the Ordinance. The established principle of law is that section is to be read as a whole subject to a proviso, if any. Provision of passing such order as he thinks fit does not include a power over and above that of sub-clauses (a) and (b) directing the learned I.A.C. to invoke extraordinary jurisdiction of section 66-A of the Ordinance. The reason for this conclusion is quite obvious, because the first appellate authority is dealing with the assessment impugned at the instance of an assessee and is competent to confirm, reduce, enhance or annul the assessment or to set aside the same with directions for further inquiry. Scope herein is restricted to the assessment made by the I.T.O. and powers of the learned I.A.C. under section 66-A of the Ordinance do not come within the admit of assessment by the I.T.O. The law does not empower the learned C.I.T.(A) to invoke jurisdiction of issuance of direction to the learned I.A.C. The other reason for our conclusion is that section 12 of the Ordinance does not give revisional power to the Commissioner of Income Tax (Appeals) which specifically vests with the Commissioner of Income Tax for revising the order passed by any authority subordinate to him whereas no such power vests in the learned C.I.T.(A) under section 132 of the Ordinance. Had that been so the legislature should have provided in sub-clause (c) of section 132(1) of the Ordinance for revision of order passed by a subordinate authority. In this view of the matter, the learned C.I.T.(A) while passing order under section 132 of the Ordinance had no lawful authority to direct the learned I.A.C. to invoke jurisdiction under section 66-A of the Ordinance.
8. The other legal aspect of the matter is concerning the extent cal of powers of the learned I.A.C. for invoking jurisdiction under section 66-A of the Ordinance. Therein it has been provided that the learned I.A.C.may call for and examine the record of any proceedings under the Ordinance and if an order passed by the I T O erroneous in so far as it is prejudicial to the interest of revenue he may pass such orders as the circumstances of the case justify after issuing notice to the assessee. A bare perusal of the language of the section leaves us in no doubt that power under section 66-A of the Ordinance is independent and suo motu as is apparent from the use of words "if he considers". There is no doubt in concluding that consideration is of the learned IA.C. without any directions and after perusal and examination of record of any proceedings. In P L D 1972 Lah. 316 it was laid down that the officer having power is required to decide himself without any directions. Same view was taken in 1990 P T D 974. In this view of the matter, issuance of notice and assumption of powers of the learned I.A.C. under section 66-A of the Ordinance on the directions of the learned C.I.T.(A) was without any lawful authority.
9. This brings us to the other aspect of the matter regarding assumption of jurisdiction by the learned I.A.C. under section 66-A of the Ordinance. Requirement of issuance of notice is that the order passed by the I.T.O. Is erroneous in so far it is prejudicial to the interest of revenue. There is chain of authorities on this issue interpreting the word "erroneous and prejudicial to the interest of revenue". Reliance can be placed on 1988 PTD 723, 1984 PTD 201, 1984 PTD 137 (AJK) and 1969 PTD (Trib.) 144. The facts of the instant case sufficiently establish that assessments made by the I.T.O. under sections 59(1) and fit of the Ordinance were neither erroneous nor prejudicial to the interest of revenue being of two separate entities of an AOP and registered firm.
10. In the earlier period the return filed by an AOP having been accepted under Self-Assessment Scheme vide a separate NTN and for the subsequent period case being of a registered firm with newly-allocated NTN, there did not exist any element of erroneous assessments prejudicial to the interest of revenue. As a result, order of the learned I.A.C. dated 26-6-1990 being illegal and without lawful authority is annulled. As a result assessment made under section 59(1) of the Ordinance for first period of the year under review of an AOP holds the field.
11. This brings us to the last grievance of the assessee regarding disallowances made in the profit and loss account expenses in the charge year 1987-88 and 1988-89. A perusal of the impugned orders reveals that details of the assessee's claimed expenses were not considered. Disallowances were made in a stereotyped manner by holding the same as to be unverifiable. It is high time that the Assessing Officers should learn that disallowances in the profit and loss account expenses are not to be made without any basis and without examining the claim in detail. We have noticed that invariably in all the cases disallowances in P&L account expenses are made in a slipshod manner without assigning any reason and the assessees are constrained to contest those disallowances in first and second appeals. As in both the years disallowances have been made in an arbitrary manner,, we vacate the impugned orders and remit the matter to the I.T.O. for de novo decision of the disallowances after examining the details.
12. As a result, the assessee's appeals succeed to the extent indicated above.
M.B.A./1184/TOrder accordingly.