I.T.AS. NOS. 509(IB), 510(IB), 513(IB), 552-A(IB) OF 1988-89, DECIDED ON 10TH OCTOBER, 1992. VS I.T.AS. NOS. 509(IB), 510(IB), 513(IB), 552-A(IB) OF 1988-89, DECIDED ON 10TH OCTOBER, 1992.
1993 P T D (Trib.) 1093
[Income-tax-Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Mukhtar Ali Khan, Accountant Member
I.T.As. Nos. 509(IB), 510(IB), 513(IB), 552-A(IB) of 1988-89, decided on 10/10/1992.
(a) Practice and procedure---
---- Where an order is set aside or annulled on account of some procedural infirmities committed by the Authority making such an order, the Authority can take up the proceedings afresh unless either the statute debars taking up fresh proceedings or it would, under circumstances of the case, be unfair that the second proceedings are undertaken.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.65---Re-opening of case---Once an issue has been re-opened the Assessing Officer can go into all issues including the issues on the basis of which the assessment was not re-opened.
1992 P T D (Trib.) 10 fol.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.13---Deemed income---Double approval of Inspecting Assistant Commissioner when required---If the assessing officer confines himself to the value of the investment declared by the assessee there is no need for obtaining the double approval of the Inspecting Assistant Commissioner.
1987 PTD (Trib.) 300 fol.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.13(2)---Deemed income---Approval of the Inspecting Assistant Commissioner---If there is no dispute regarding the value or quantum of the investment no second approval an envisaged by S.13(2) of the Ordinance is needed.
If there is no dispute regarding the value or quantum of the investment no second approval as envisaged by subsection (2) of section 13 of the Ordinance is needed. In such a case, only one approval regarding the satisfaction of the explanation of the assessee's source of income is required to be obtained from the IAC under subsection (1) of section 13 of the Ordinance.
1987 PTD (Trib.) 300 and 1989 PTD (Trib.) 105 distinguished.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---Deemed income---Approval of Inspecting Assistant Commissioner---If the assessing officer had not obtained prior approval of the IAC for adopting the value of the investment, Commissioner of Income Tax (Appeals) could proceed to examine whether or not the assessee had satisfactorily explained the source of income which he himself admitted the value of the investment---Commissioner of Income Tax (Appeals) was not justified in deleting the entire amount of the addition made by the assessing officer under S.13(1)(d) of the Ordinance without being satisfied that assessee had been able to explain the source of his income satisfactorily to make the investment of the value admitted by the assessee.
If the assessing officer had not obtained prior approval of the IAC for adopting the value of the investment the CIT (Appeals) could proceed to examine whether or not the assessee had satisfactorily explained the source of income which he himself admitted the value of the investment. The CIT (Appeals) was not justified to delete the entire amount of the addition made by the assessing officer under section 13(1)(d) of the Ordinance. If the CIT (Appeals) was satisfied that the assessee had not been able to explain the source of his income satisfactorily he should have deleted only that portion of the addition which was in excess of the amount.
G. Abbas Chatha and Miss Qamar-un-Nisa Hameed Qureshi for Appellant (in ITAs.Nos.509(IB), 510(IB) and 513(IB) of 1988-89).
Mrs. Zareen Saleem Ansari, D.R. for Respondent (in ITAs.Nos.509(IB), 510(IB) and 513(IB) of 1988-89).
Mrs. Zareen Saleem Ansari, D.R. for Appellant (in ITA No. 552 A(IB) of 1988-89).
G. Abbas Chatta and Miss Qamar-un-Nisa Hameed Qureshi for Respondent (in ITA No. 552-A(IB) of 1988-89)..
Date of hearing: 10th October, 1992.
ORDER
CH. IRSHAD AHMAD (JUDICIAL MEMBER).---The assessee, an individual, derives income from house property (letting out of shops) as well as business of running a hotel styled as `Marjan Hotel'. In the returns of income filed under the Self-Assessment Scheme relating to the assessment years 1982-83, 1983-84 and 1984-85, the assessee had declared the net income at Rs.13,368. Rs.20,000 and Rs.21,000 respectively. The said returns were accepted under the Scheme. Later, an information was received by the income Tax Officer that the assessee had made substantial investment in the construction of the hotel building and shops which could not be explained in the context of computation chart filed alongwith the returns of income. Accordingly, the ITO reopened the assessments under section 65 of the Income Tax Ordinance, 1979, after obtaining the prior approval of the Inspecting Assistant Commissioner of Income Tax on 25-10-1986. The Assessing officer keeping in view the total covered area of the building (6,859 'sq. ft.) and the Inspector's report came to the conclusion that the total value of the investment made in the form of construction was Rs.1,058,858. The assessing officer also found that the construction was completed during the period relevant to the assessment year 1984-85 and as such the investment was required to be explained only in respect of the aforesaid assessment year. The assessing officer found that in the returns of income for the aforesaid assessment years the assessee had claimed certain deductions in respect of his business income but there was no evidence in support of the claimed deduction. The assessing officer accordingly made certain additions to the assessee's income from the business in respect of each year. Since these appeals, are not being contested on the basis of the substance or extent of the said additions, therefore, their details are being omitted. As noted earlier the assessing officer formed the opinion that the value of the construction raised by the assessee was Rs.1,058,858. The assessee had explained that he had incurred an expenditure of Rs.890,000 on the construction of the building for which he had collected money from the following sources:--
| (i) Rent received in advance | Rs.270,000 |
| (ii) Loan obtained. from one Mst. Nighat Sultana | Rs.250,000 |
| (iii) Loan obtained from bank and others | Rs 375,000 |
| | Rs. 890,000 |
In this way the assessee sought to explain the investment to the tune of Rs.890,000. The assessing officer believed that the assessee had received advance rent to the tune of Rs.270,000 and obtained loan from bank to the tune of Rs.20,124 but the assessing officer did not believe the assessee that he had obtained loan from Mst. Nighat Sultana or from any other person. In this way giving the allowance of Rs.290,124 (Rs.270,000 received as advance rent `plus' Rs.20,124 obtained as loan from bank) added the sum of Rs.738,726 (the balance of Rs.1,058,858 i.e., estimated value of the construction minus Rs.290,124 i.e., advance rent and bank loan) to the income of the assessee for the assessment year 1984-85 under section 13(1)(d) of the Income Tax Ordinance.-The above orders of the assessing officer were challenged by the assessee before the C I T (Appeals) who, by a consolidated order dated 28-2-1988, remitted the case back to the assessing officer for de novo proceedings. The CIT (Appeals) remitted the case to the ITO because he was of the view that the order culminating into the additions made by the assessingofficer under section 13(1)(d) of the Ordinance in the income of the assessee relating to the assessment year 1984-85 was flawed on account of defective service of notices issued to the assessee under section 65 of the Ordinance. The assessment orders relating to the assessment years 1982-83 and 1983-84 made by the ITO were also annulled with clear indications that the ITO might pass fresh orders and make valid assessments for the said years. The assessee objected to the above order of the CIT (Appeals) through Appeals No. 25 to 27/113 of 1988-89 before this Tribunal. It was contended that once the CIT (Appeals) had annulled the assessment he could not direct that the ITO shall be at liberty to decide the case afresh in accordance with law. The said appeals of the assessee were dismissed by this Tribunal by its order, dated 5-9-1990. The ITO as permitted by the CIT (Appeals) in his order, dated 28-2-1988 took the proceedings afresh and made afresh assessments. So far as the income from business was concerned, the additions made earlier were reiterated. But, so far as the addition made to the income for the assessment year 1984-85 under section 13(1)(d) of the Income Tax Ordinance was concerned, it was reduced to some extent. As noted earlier originally the ITO had estimated the value of the construction equal to Rs.1,058,858 out of which he accepted the explanation to the tune of 290,124 and had made an addition equal to the balance amounting to Rs.738,726. This time the assessing officer estimated the value of the construction equal to Rs.994,555 and giving the allowance to the extent of Rs.290,124 which the assessee had satisfactorily explained added the balance equal to Rs.704,431 to the income of the assessee. On appeal by the assessee the CIT (Appeals) deleted the addition made by the assessing officer under section 13(1)(d) of the Ordinance on the sole ground that the assessing officer had not obtained the "double approval" of the IAC as envisaged in this Tribunal's decision reported 1987 PTD (Trib.) 300 before adopting the value of the investment at Rs.994,555. The remaining parts of all the three assessment orders were maintained.
The assessee has objected to the order of the CIT(A) on the grounds firstly, that after the original assessment orders made under section 65 of the Ordinance had been annulled by the CIT (Appeals) by his order, dated 28-2-1988 no power rested with the tax authorities to continue with the proceedings or to start afresh proceedings, and secondly, that the assessments which were reopened only to inquire into the source of income from which the investment in the form of the construction of hotel was made by the assessee, could not be gone into to inquire into and to assess the assessee's income from business. The Department has also objected to the order of the CIT (Appeals) relating to the assessment year 1984-85 through a separate appeal on the ground that the CIT (Appeals) was not justified to delete the addition made by the assessing officer to the income of the assessee relating to the assessment year 1984-85 under section 13(l)(d) of the Ordinance.
We have heard Mr. G. Abbas Chatha, Advocate for the assessee and Mrs. Zareen Salee Ansari, D.R. for the Department.
The learned counsel for the assessee contended that when the original assessment orders made under section 65 of the Ordinance were annulled by the CIT(A) by his order, dated 28-2-1988 no power was left with the assessing officer to make the assessments de novo. We have noticed that although regarding the assessment orders for the years 1982-83 and 1983-84 the CIT (Appeals) had used the word `annulment' but he had clearly indicated that the "ITO may pass fresh orders and valid assessment orders for the said years". The above point was also earlier agitated by the assessee through appeals before this Tribunal but as indicated above, he did not succeed. In view of this Tribunal's finding on this issue we are of the view that the assessee cannot raise the same issue again. Even otherwise we are of the view that in view of the clear indications given by the CIT (Appeals) that the ITO will be at liberty to pass fresh orders, the word `annulment' by its own force could not debar the tax authorities to pass fresh orders. It is obvious that the CIT (Appeals) had not annulled the assessments after reviewing the material on the record and findings that the basis on which the ITO had made reassessments were either wrong or non-existent. Rather he had annulled the order on the basis that the assessment orders suffered from certain procedural infirmities. Ordinarily, where an order is set aside or annulled on account of some procedural infirmities committed by the authority making such an order, the authority can take up the proceedings afresh unless either the statute debars taking up fresh proceedings or it would, under the circumstances of the case, be unfair that the second proceedings are undertaken. No such circumstance appears to exist in this case.
The learned counsel for the assessee also contended that since the proceedings under section 65 of the Ordinance were initiated to inquire into only one point i.e., source of assessee's income to make the investment the assessing officer could not have delve upon other points and to reassess the assessee's income from business. In support of the above contention the counsel has relied upon on the following precedents:---
(1) 4 ITC Madras High Court;
(2) 5 ITC 194 Rangoon High Court;
(3) 5 ITR 466 Allahabad High Court;
(4) 152 ITR 26 Gujarat High Court;
(5) ITA No. 1006 and 1007/113 of 1986-87, dated 12-7-1988;
(6) ITA No. 399/113 of 1986-87, dated 3-11-1987;
(7) ITA No. 463/IB of 1984-85, dated 15-12-1985;
(8) R.A. No.48 to 54/113 of 1988-89, dated 17-12-1989.
It is, however, regrettably noted that the counsel has not referred to a quite recent decision of this Tribunal reported 1992 PTD (Trib.) 10 in which it has been held that once an issue has been reopened the assessing officer can go into all issues including the issues on the basis of which the assessment was not reopened. Following the recent precedent of the Tribunal we would reject the above arguments of the assessee's counsel.
So far as the substance of additions made to the business income of the assessee are concerned, the counsel for the assessee could not show us that any of the said additions were unjustified. Accordingly, all the three appeals filed by the assessee are rejected.
So far as the appeal of the Department is concerned the point is whether the CIT(Appeals) was justified to delete the addition made by the assessing officer under section 13(1)(d) of the Ordinance on the sole ground that the assessing officer had not obtained the double approval' of the IAC as envisaged in this Tribunal's decision reported as 1987 PTD (Trib.) 300. Let us proceed to examine under what circumstances an assessing officer is required to obtain double approval of the IAC as required by section 13 of the Income Tax Ordinance and explained by this Tribunal in the precedent case.
We may take a case of an assessee who builds a house in any year. The assessing officer after reviewing the assessee's returns of income forms an opinion that the declared income cannot justify the building of the house. He asks the assessee to explain how he built the house. The assessee states that he has built the house by expending Rs.100,000 for which he had sufficient source of income. The assessing officer may accept the value of the building stated by the assessee and then only to proceed to examine the genuineness of the source of income. If the Assessing Officer takes up this line there is no need to obtain the prior approval of the IAC under section 13(2) of the Ordinance. However, if the assessing officer is of the view that the value of the house built by the assessee is not Rs.100,000 but more than stated by the assessee, then he has to arrive at the definite figure taking into account the relevant material and get it approved from the IAC before the assessee is asked to explain the source for meeting the said expenditure. It will be seen that if the tax authorities confine themselves to the value of the investment declared by the assessee there is no need for obtaining the "double approval" of the IAC as envisaged by this Tribunal's decision reported 1987 PTD (Trib.) 300.
Coming to the facts of the present case one will notice that the assessing officer called upon the assessee to explain the source of income from which he constructed the hotel. The assessee came forward with the explanation that he had met the expenditure by borrowing Rs.890,000 as follows:---
| (i) Advance rent | Rs.270 000 |
| (ii) Loan from Mst. Nighat Sultana | Rs.250,000 |
| (iii) Loan from bank and others | Rs.375.000 |
| | Rs.890.000 |
The assessing officer was satisfied that the assessee had collected advance rent amounting to Rs.270,000 and had obtained loan from bank of Rs.20,124. The assessing officer however was not satisfied that the assessee had obtained any loan from Mst. Nighat Sultana or from any other person. He therefore, as stated earlier, added a sum of Rs.704,431 to the income of the assessee under section 13(1)(d) of the Income Tax Ordinance. The CIT (Appeals) set aside the addition only on the ground that the assessing officer before adopting the value of the investment at Rs.994,555 had not obtained the prior approval of the IAC. In support of his order the CIT (Appeals) has made reference to this Tribunal's decisions dated 11-1-1989 in ITA No.857/IB of 1986-87, dated 1-1-1989 in ITA No.475(IB) of 1986-87 and dated 3-1-1989 in ITA No.892/IB of 1987-88 which all are based on this Tribunal's decision reported as 1987 PTD (Trib.) 300.
We have gone through the reported decision of this Tribunal. In our view the principle that has been laid down by the Tribunal in the said case extends only to that part of the value of the investment which is disputed between the assessing officer and the assessee. If there is no dispute regarding the value or quantum of the investment no second approval as envisaged by subsection (2) of section 13 of the Ordinance is needed. In such a case, as observed earlier only one approval regarding the satisfaction of the explanation of the assessee's source of income is required to be obtained from the IAC under subsection (1) of section 13 of the Ordinance. In the precedent case the assessing officer was satisfied regarding the assessee's source of income to incur the expenditure declared by the assessee. However, the assessing officer found that the expenditure was undervalued. In that eventuality, and naturally so, before any addition could be made the approval of the IAC under subsection (2) of section 13 of the Ordinance was needed. The facts of the precedent case are clearly distinguishable from the facts of this case. In this case the value of the investment at Rs.890,000 can be accepted without any approval from the IAC because the assessee himself sought to explain the source of the investment to that extent. In another often quoted decision of this Tribunal reported as 1989 PTD (Trib.) 105 too the controversy rested against that amount of the investment which was disputed betty-.en the assessing officer and the assessee.
The CIT(Appeals) has deleted the addition only on the ground that the assessing officer had not obtained "double approval" of the IAC for adopting the value of the said investment at Rs.994,555 but he did not record any finding whether or not the assessing officer in the facts and circumstances of the case, was justified to hold that the assessee had not obtained loan from Mst. Nighat Sultana and others. If the assessing officer had not obtained prior approval of the IAC for adopting the value of the investment at Rs.994,555 as found by the assessing officer the CIT (Appeals) could proceed to examine whether or not the assessee had satisfactorily explained the source of income to the tune of Rs.890 000 which he himself admitted the value of the investment. In view of above position we are satisfied that the CIT (Appeals) was not justified to delete the entire amount of the addition made by the assessing officer under section 13(1)(d) of the Ordinance. In our view if the CIT (Appeals) was satisfied that the assessee had not been able to explain the source of his income satisfactorily he should have deleted only that portion of the addition which was in excess of the amount of Rs.890,000. The appeal of the Department/relevant to the assessment year 1984-85 is accepted and the CIT (Appeals)'s order regarding the deletion of the entire amount of the addition made by the assessing officer under section 13(1)(d) of the Ordinance is set aside with the direction that taking the value of the investment at Rs.890,000 sought to be explained by the assessee the CIT (Appeals) would dispose of the appeal after recording his findings regarding the genuineness or otherwise of the loan allegedly obtained by the assessee from Mst. Nighat Sultana and others.
M.B.A./2312/TOrder accordingly.