I.TAS. NOS. 486 AND 487 (PB) OF 1991-92, DECIDED ON 21ST SEPTEMBER, 1992. VS I.TAS. NOS. 486 AND 487 (PB) OF 1991-92, DECIDED ON 21ST SEPTEMBER, 1992., 1993 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1254 (1992)

Income Tax Ordinance (XXXI of 1979)---

----S. 65(b)---Expression "the income assessed at too low a rate" does not refer to a situation where the income has been computed by applying a gross profit rate which was lower than the G.P. rate that was being previously applied in an assessed's case---Principle of res judicata being not applicable to the income tax assessments and each year being an independent year the income of the assessee could be assessed by applying different rates of G.P. depending upon the conditions of the business.

Income Tax Law and Practice Vol. 2, p.1144 (4th Revised Edition) by Raza Naqvi and Law of Income Tax (4th edition), 4298 Sampath Iyengar ref.

Maqbool Ahmed Sehgal for Appellant.

Mukhtiar Ahmed Gondal D.R. for Respondent.

Date of hearing: 21st September, 1992.

ORDER

CH. IRSHAD AHMED (JUDICIAL MEMBER).---This order disposes of two appeals riled by the assessee relating to the charge year 1988 89. One appeal is for the income period from 1-7-1987 to 18-9-1987 and the second is for the income period from 19-9-1987 to 30-6-1988. In the original assessment order the income of the assessee was computed by applying 40% G.P. rate. Later the I.T.O. noticing that the assessee had the history of the application of 56.66% G.P. sought to rectify the assessment order under section 156 of the Income Tax Ordinance, 1979, and modified the assessment accordingly. On a revision application by the assessee the Commissioner of Income Tax set aside the I.T.O.'s order on the ground that the assessment could not be modified under section 156 of the Ordinance on the ground that a lower G.P. rate was applied. Thereafter, the Income Tax Officer initiated proceedings under section 65 of the Ordinance and recomputed the income by applying 56.66% G.P. rate. On appeal by the assessed, C.I.T.(A) Peshawar vide his order dated 22-3-1992 has set aside the assessment made under section 65 with the direction that further opportunity should be given to the appellant to explain its case. The assessee has riled these appeals against the above orders of the C.I.T.(A).

The assessee contends that his case would not be reopened under section 65 ibid on the ground that the assessing officer while computing his income had applied a lower rate of profit. According to the assessee neither the G. P. rate of 40% was lower in his case nor it could be the ground for initiating proceedings under section 65 of the Ordinance.

We have heard Mr. Maqbool Ahmed Seghal, Advocate for the appellant and Mr. Mukhtiar Ahmed Gondal, D.R. for the respondent.

In initiating the proceedings under section 65 of the Ordinance the assessing officer has relied on clause (b) of subsection (i) of the said section, which provides that the I.T.O. may reassess the income of an assessed if he was of the opinion that previously the income of the assessee has been assessed "at too low a rate".

Learned counsel for the assessee contends that the assessee's case was not the one in which income had been previously assessed "at too low a rate". The counsel for the, assessee tried to demonstrate that it was incorrect to hold, as the assessing officer held, that the income of the assessee had been computed by applying 65.66% G.P. rate previously. The counsel also contended that at whatever rate whether 65.66% or 40% the income of the assessee was computed it did not give jurisdiction to the assessing officer to initiate proceedings under section 65 of the Ordinance to reopen the closed transaction. The counsel for the assessee referring to the words that "too low a rate" in section 65 ibid contended that they do not refer to the rate of profit on the basis of which the income of the assessee had been computed earlier but to the rates of the tax prescribed by the law from time to time. In support of his contention the counsel has referred to Income Tax Law & Practice Volume 2 (4th Revised Edition) by Raza Naqvi which at page 1144 reads as follows;

"The rates of income tax and super tax are specified 'by the Finance Act of each year and the average rate applicable to the particular income of each. assessee is determined by the calculation tables. Any error in such calculation would lead to an assessment' at too low a rate."

Similarly the expression "income assessed at too low a rate" has been explained by Mr. Sampath Iyengar at page 4298 of his book Law of Income Tax (4th edition) which reads as follows;

"Income Assessed at too low a rate: The rate here referred to is the rate of tax applicable to the income and is not the gross-profit rate applied by the Assessing Officer on estimate while computing the business income."

After hearing the counsel for the assessee and the Departmental Representative we have formed a firm opinion that the expression "the income assessed at too low a rate" does not refer to a situation where the income has been computed by applying a G.P. rate which was lower than the G.P. rate that was being previously applied to in an assessee's case. It is a trite rule of income tax law that the concept of res judicata is not applicable to the income tax assessments. Each year being an independent year the income of the assessee can be assessed by applying different rates of G.P. depending upon the conditions of the business. In our view, therefore, the assessing officer was not permitted by law to initiate proceedings against the assessee under section 65 of the Ordinance. Since the very initiation of the proceedings under section 65 of the Ordinance was void ab initio the ensuing orders are also void. The same are hereby annulled. The appeals are accepted.

M.BA./2417/T Appeals accepted.