MESSRS RAMZAN & SONS VS INCOME-TAX OFFICER, ZONE "B", KARACHI
1991 P T D 503
[Karachi High Court]
Before Saleem Akhtar and Muhammad Hussain Adil Khatri, JJ
Messrs RAMZAN & SONS through its Proprietor
Versus
INCOME-TAX OFFICER, ZONE "B", KARACHI
Constitutional Petition No.D-209 of 1990, heard on 13/11/1990.
Income Tax Ordinance (XXXI of 1979)---
--Ss. 65 & 59---Self-assessment---Discrepancies in the statement of accounts and claim made by assessee existed and Income-tax Officer at no stage had applied his mind and passed conscious order after examining the record-- Income-tax Officer had obtained information subsequently from the record which he did not have at the time of making the assessment under S. 59 of the Ordinance nor he had applied his mind and determined said facts---Income-tax Officer thus, had the jurisdiction to issue notice under S. 65 of the Ordinance to the assessee in circumstances.
Edulji Dinshaw Ltd. v. The Income-tax Officer 1990 PTD 155; Chapple Builder's case 1990 PTD 1962 and Messrs Arfat Woollen Mills Ltd. v. The Income-tax Officer, Companies Circle C-1, Karachi 1990 PTD 338 ref.
Jawaid Ahmed Siddiqui for Petitioner.
Shaikh Haider for Respondent.
Date of hearing: 13th November, 1990.
JUDGMENT
SALEEM AKHTAR, J.---The petitioner has challenged the validity of notice under section 65 of the Income Tax Ordinance issued by the respondent in respect of assessment years 1986-87 and 1987-88. The petitioner is a proprietary concern and is engaged in the business of construction and engineering. The petitioner submitted the return of income-tax for assessment years 1986-87 and 1987-88 under the Self-Assessment Scheme. In the assessment year 1986-87 it declared the income of Rs.5,04,987 and in 1987-88 Rs.40,29,974. The petitioner claimed immunity from total audit in respect of both these assessment years. It has been alleged that alongwith the return of income-tax the petitioner submitted all the required and requisite documents like wealth statement, statement of account and supporting evidence in the light of self-assessment scheme and the circular issued by the Central Board of Revenue. The respondent issued notice under section 61 of the Income Tax Ordinance to which reply was sent by the petitioner. Final assessment order was made under section 59(1) in respect of assessment year 1986-87. For the assessment year 1987-88 the respondent also passed order on 4-11-1987 and accepted the declared income. The respondent issued letter dated 4-11-1987 expressing his intention to invoke section 65 of the Income Tax Ordinance separately for the both the aforesaid years. Each notice contained several allegations of mis-declaration, concealment, charging depreciation improperly and wrongly declaring the written down value by the, applicant on various machineries. The petitioner replied to both these notices denying the allegations made therein. The respondent then issued notice under section 65 alleging that the income has escaped assessment, tax has been assessed less and lesser rate of tax has been applied. The petitioner has challenged these notices issued in respect of both the years. The respondent in a counter-affidavit stated that the proceedings were initiated on the basis of definite information in his possession which were received during the course of assessment of latter years and on the basis of the correspondence and case file whose examination revealed that the petitioner had suppressed income which was not subjected to tax and excess relief has been obtained by it. On the basis of this information the respondent submitted a report to the inspecting Assistant Commissioner of Income-tax seeking permission to reopen, who has granted the permission. It was pleaded that the notices were issued in accordance with law and are within the jurisdiction of the respondent. The petitioner can appear and explain his case to whom full opportunity to defend shall be given. It has been alleged that the petitioner's cases were selected for detailed scrutiny but the petitioner approached the 'higher authorities and respondent was directed by the Commissioner of Income-tax to make assessment without scrutiny. The assessment order was accordingly passed without applying mind and without scrutiny of accounts. The respondent has also filed letters from Jafer Brothers who had sold the machinery to show that the information was received after the assessment and prima facie proved misdeclaration. Copy of the letter of the respondent to the Inspecting Assistant Commissioner of Income-tax has also been filed making out a case for reopening the assessment.
Mr. Javed Siddiqui, the learned counsel for the petitioner contended that the notices are without jurisdiction as the assessment has been made under the self-assessment scheme and is immune from scrutiny including the re-opening under section 65 of the Income Tax Ordinance. The return made under the self-assessment scheme has to comply with all the requirements laid down by the scheme which is published every year. Any discrepancy in filing document or providing particular or withholding any required information may lead to disqualification from having the benefits of self-assessment scheme. In this regard reference can be made to paragraph 9 of the Circular No. 13 of 1986, regarding self-assessment scheme of Income-tax for the year 1986-87. It provides that cases of positive concealment or excess refund during the pendency of the assessment will not be covered by the self-assessment scheme and cannot claim exemption from total audit. This can be employed only where such information or evidence becomes available during the pendency of assessment. So far the question of applicability of section 65 is concerned subsection (1)(c) provides that if in any year for any reason the total income of an assessee or the tax payable has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under section 65 or any other provision of this Ordinance, the Income Tax Officer subject to the provisions of subsections (2), (3) and (4) make additional assessment under section 65. Under subsection (2) there is a restriction placed upon the Income Tax Officer in reopening the case. According to it he cannot initiate any action under section 65(1) unless definite information has come into possession of Income Tax Officer and he has obtained the approval of Inspecting Assessment Commissioner. A perusal of section 65 (1) (c) referred above will show that in case of self-assessment the Income Tax Officer has the jurisdiction to re-assess under section 65.
Section 65' has been considered in various cases which have been relied upon by Mr. Javed Siddiqui. In Edulji Dinshaw Ltd. v. The Income Tax Officer, 1990 P T D 155 it was observed that if after examining the record the Income Tax Officer consciously makes an order of assessment then on the basis of the same evidence and record section 65 cannot be invoked, The principle enunciated in this case will not apply here as there the assessment was made under section 62 unlike the present case where the assessment was made under the self-assessment scheme without any scrutiny, and information about concealment was obtained from the correspondence and record of the subsequently year.
The learned counsel then referred to Chapple Builder's case 1990 P T D 1962 but in this case the meaning of the word `concealment' has been discussed. It was held that in the case of concealment there should be a definite finding that concealment was made, The learned counsel then referred to M/s. Arfat Woollen Mills Ltd. v. The Income Tax Officer Companies, Circle C-1, Karachi 1990 P T D 338 but this case is not applicable to the present case.
Mr. Shaikh Haider, the learned counsel for the respondent has pointed out to certain discrepancies in the account and the return filed by the petitioner during these two years. In the year 1986-87 it has been pointed out that the petitioner had declared total income at Rs. 5,04,987 which is a wrong calculation on the face of it which admittedly should have been Rs. 6,04,987. According to the learned counsel for the petitioner it is a typographical error but the respondent's counsel has pointed out that it has been repeated three times and even if it is a typographical error, it is sufficient for the purposes of re-opening the case under section 65 as no conscious assessment order was passed at any stage. The Income Tax Officer had accepted the declared income under the self-assessment scheme without scrutinizing the return. In the year 1987-88 the learned counsel for the respondent pointed out that the depreciation in respect of machinery which was purchased in August, 1987, was claimed during assessment year 1987-88. The learned counsel for the petitioner stated that the mistake was typographical in describing the machinery. Such question cannot be entertained and decided by us at this stage as it is the Income Tax Officer before whom explanation and evidence should be produced to show that it was merely a typographical error and does not affect the assessment at all. From a perusal of the petition, the counter-affidavit, the documents filed and the arguments it seems clear that there have been discrepancies in the statement of account and claim made by the petitioner and the respondent at no stage had applied his mind and passed conscious order after examining the record. Furthermore, the respondent has stated that the information was obtained by him subsequently from the record for the assessment year 1988-89 and the correspondence with the petitioner and the seller of the machinery. Therefore, the respondent did not have those information at the time of making the assessment, nor he had applied his mind and determined these facts. In these circumstances the respondent had the jurisdiction to issue notice under section 65 of the Income Tax Ordinance.
The petition is dismissed.
M.BA./R-165/K. Petition dismissed.