Income Tax Ordinance (XXXI of 1979)--

----Ss.65 & 59---C.B.R. Circular No.13 of 1986---Self-Assessment Scheme (1986-1987)---Assessee's case having been selected for total audit the preconditions imposed under S.65(2) could not be pressed into service for vitiating the re-opening of the case.

Edulji Dinshaw's case PLD 1990 SC 399; Arfat Woollen Mills Ltd.'s case PLD 1990 SC 390; Republic Motor's case 1990 PTD 889; M/s. Ramzan Sons v. Income Tax Officer 1991 PTD 503; H.M. Abdullah v. Income Tax Officer 1991 PTD 217 and 1990 PTD 873 ref.

Fazle Ghani Khan for Petitioner. Shaikh Haider for Respondents.

Dates of hearing: 15th and 16th January, 1991.

JUDGMENT

SALEEM AKHTAR, J.--- The petitioner is the sole proprietor of M/s. Ismail Ibrahim & Co., and was assessed under the self-assessment scheme. In the assessment year 1986-1987 the petitioner filed his return of income on the basis that no accounts were maintained. The Income Tax Officer passed the assessment order under section 59(1). On 9th May, 1987 respondent No.l issued notice for commencing proceedings under section 65 of the Income Tax Ordinance. While pointing out to calculations and figures he stated that in the return filed under section 55 the petitioner had not disclosed true particulars of his income which had remained under-assessed. The petitioner denying the allegations stated that his case was covered by no account estimate case as contemplated by Circular No.13 of the Central Board of Revenue, and therefore, there was no such discrepancy which may warrant the threatened action. Respondent No.l by letter, dated 25-8-1987 then called upon the petitioner to produce documents, details of sales, bank statement, particulars of the bonded warehouse where goods were kept and break up of the capital as required by note 4(b) of the Wealth Statement. The petitioner sought several adjournments and ultimately wrote a letter on 15-10-1987 to Inspecting Assistant Commissioner of Income-tax requesting that the proceedings may be dropped. As no favourable reply was received, the petitioner filed this petition on 24-10-1987. When notice of this petition was served for hearing of stay application on 4-11-1987 Mr. Shaikh Haider informed the Court that the assessment order had already been passed before service of the notice. The petitioner has filed an appeal against this order which is pending.

Mr. Fazle Ghani Khan the learned counsel for the petitioner submitted that the petitioner had disclosed all the particulars and filed return of income on the basis of which assessment order was passed. On the same facts and record respondent No.l had issued notice under section 65 of the Income Tax Ordinance which is based on change of opinion and is therefore without jurisdiction. In the estimated trading profit and loss account filed by the petitioner, purchases through imports were shown at Rs.3,63,00,000 and sales at Rs.3,69,00,000. The gross profit was declared at Rs.6,00,000 and after deducting the expenses the net profit was arrived at Rs.4,10,000. According to this calculation Rs.1,36,200 was the tax payable. The petitioner thus claimed a refund of Rs.3,53,151. Respondent No.l in his notice under section 65 pointed out that the petitioner had paid Rs.16,879 as tax @ 2% and Rs.4,72,472 @ 1.50% of the value of the imported goods. Thus according to this calculation the imported value of the goods came to Rs.3,23,42,083 and the expenses incurred on bonded warehouse where the goods were kept have also not been shown. According to the petitioner the estimated accounts were filed and the amounts of the warehouse charges were included in the cost but this was not acceptable on the face of it. In this background the question arises whether action under section 65 has been taken on the basis of change of opinion.

The law on this question is well-settled. Mr. Fazle Ghani Khan has referred to Edulji Dinshaw's case PLD 1990 SC 399, Arfat Woollen Mills Ltd. 's case PLD 1990 SC 390, Republic Motors case 1990 PTD 889.

On the other hand Mr. Shaikh Haider the learned counsel for the respondents has also relied on the observations made in these authorities and also referred to an unreported judgment of this Court namely (Constitution Petition No.209/90 M/s. Ramzan Sons v. Income Tax Officer 1991 PTD 503 and C.P. No.D-340/88 H.M. Abdullah v. Income Tax Officer 1991 PTD 217. In these two judgments all the cases relied upon by the parties have been considered. In the last referred case it was observed:--

" It is well-settled that on the basis of change of opinion action under section 65 cannot be initiated. However, in cases where assessment order has been passed without investigation into the correctness of the return filed by the assessee without applying mind and the assessment order is not a conscious order passed by him, the question of change of opinion will not arise. The change of opinion arises only when there exists an opinion expressed by the assessing officer in regard to the controversy or matter under consideration. If no opinion has been expressed earlier, the question of change of opinion will not arise. According to Mr. Shaikh Haider the first assessment was made without applying mind to the correctness of the return. The copies of the assessment orders for the relevant three years have been filed which clearly show that it was a case under the self- assessment scheme and the assessments were made in a mechanical manner without applying any mind. The declared income was accepted without any investigation and taxes were determined accordingly. Therefore, it is clear that during these three assessment years the assessing officer did not apply his mind and did not pass any conscious assessment order after investigation or scrutiny of the return. In these circumstances the plea of change of opinion cannot sustain.

Mr. Muhammad Nasim has referred to 1990 PTD 873 where the assessment was made under the self-assessment scheme still notice under section 65 was declared to be invalid. In this case although the case was under the self-assessment scheme, the assessment was made, as is obvious from the observation, after scrutiny of the documents which had been supplied to the Income Tax Officer. Therefore, this case will be distinguishable as the assessment had been made under the self-assessment scheme after due scrutiny. The learned counsel also referred to the judgment in Constitution Petition No.447/88 Bhambore Ceramic Industries v. Income Tax Officer but in this judgment it has been clearly observed that the assessing officer had framed a conscious assessment after scrutiny of the records, documents and account books. The observation in this judgment will not apply to the facts of the case."

These observations fully apply to the facts of the case as from the return and the assessment order it is clear that the Income Tax Officer had not applied his mind and had passed the order in a routine and mechanical manner. Therefore, on this ground, the jurisdiction of the respondent cannot be challenged.

Mr. Fazle Ghani Khan contended that under the self-assessment scheme if the case is not selected for total audit, full immunity and protection has been granted to the assessee and it cannot be reopened. Self-assesment scheme is framed under section 59 of the Income Tax Ordinance from time to time which prescribes the conditions under which a person will qualify for self-assessment. The scheme issued under Circular No.13 of 1986 for Income tax year 1986-87 provided that all returns filed for assessment year 1986-87 will be self-assessment returns except the following:---

(a) Returns which are not filed voluntarily by the due dates, including the extended dates.

(b) Returns where the declared income, before any adjustment for brought forward assessed loss does not exceed Rs.24,000.

(c) Returns of existing tax-payers in whose cases a legal issue is pending in an appeal/reference in respect of a previous assessment and the same issue exists for the assessment year 1986-87, unless the appeal/reference is withdrawn by the tax-payer or the Department.

(d) Returns selected for Total Audit.

(e) Returns in cases where evidence of concealment is available.

(f) Returns where the requirements as specified in para.2 are not fulfilled and the tax-payer fails to provide such particulars/documents within one month of the date of service of a letter from the Income Tax Officer."

Then para 2 of the scheme prescribed the requirements of the return which were to be mentioned or filed alongwith it. So far business income is concerned it is covered by pare 2-D(a) according to which where no accounts were maintained the trading and profit and loss account on estimate basis could be filed. The evidence of investment allowance and payment of tax under section 54 was also to be furnished. Under para 5 the selection of cases for total audit was to be made on the basis of random sample through the computer. Para 6 gives a list of categories of cases which shall be exempt from selection for total audit subject to fulfilment of the conditions mentioned therein. The petitioner did qualify for total exemption as income declared for the assessment year 1986-87 was higher by 20% as compared to the last assessed income and the tax payable for the income declared for the 1986-87 was not less than the tax payable on the last income. It is true that protection has been given to the persons who qualify for self assessment, but it does not mean that the operation of section 65 is suspended or it is not applicable to such cases. In fact section 65 specifically provides for reopening of cases assessed under section 59(1). The relevant portion is reproduced as follows:--

"65. Additional assessment.--(1) If, in any year, for any reason,--

(a)................................

(b) ................................

(c) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance.

The Income Tax Officer may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and ail the provisions of this Ordinance shall, so far as may be, apply accordingly,

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made.

(2) No proceedings under subsection (1) shall be initiated unless definite information has, come into the possession of the Income Tax Officer (and) he has obtained the previous approval of the Inspecting Assistant Commissioner of Income Tax in writing to do so.

??????????? Explanation. As used in this subsection, `definite information includes information in respect of sales and purchases, made by the assessee, of any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money, asset or valuable article, or any investment made or expenditure incurred by him.

(3) ................................

(3-A)?????????????????????????????????????????????????????????????????????????????????????????????????????????????????

(4) Nothing contained in subsection (2) shall apply to any such case or class of cases to which clause (c) of subsection (1) applies as may be specified by the Central Board of Revenue".

A perusal of subsection 65(1)(c) will show that where an assessment has been made under section 59(1) and subsequent to that another assessment is made under any other provision of this Ordinance including section 65 then the case cannot be opened under this section 65 for any reason. This protection has been given to a person who has been assessed under section 59(1).

Subsection (4) of section 65 bars the applicability of subsection (2) in respect of cases to

which clause (c) of subsection (1) applies as spewed by the Central Board of Revenue. In Circular No.13 the Central Board of Revenue has taken the view that subsection (4) is applicable to cases which have been selected for total audit. The effect of this subsection is that cases which qualify for self-assessment but have been selected for total audit and assessment has been made, can be reopened under section 65. However, in such cases while reopening the case the precondition imposed by subsection (2) of section 65 will not be applicable In view of this legal position, in the facts and circumstances of the case as petitioner's case has been selected for total audit the preconditions imposed under subsection (2) cannot be pressed in service for vitiating the impugned action.

The petition is dismissed.

M.BA./1-175/K????????????????????????????????????????????????????????? Petition dismissed.