(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.56 & 68(5)---Cancellation of registration of firm---Notice given to assessee under S.56 cannot be substituted under S.68(5) of the Ordinance.

(b) Income-tax Act (XI of 1922)---

----S.26-A---Income Tax Ordinance (XXXI of 1979), S.68(5)---Registration of firm---Cancellation of registration ---Assessee was allowed registration of his firm by the I.T.O. in the preceding year under S.26-A of the Income-tax Act, 1922 on the ground that no change in the constitution of the firm had taken place---Refusal to register assessee firm during relevant assessment year ex parte without hearing the assessee and without making proper enquiry under 5.68(5) of the Ordinance, was not warranted in law.

(c) Income Tax Ordinance (X7XI of 1979)---

----Ss.56,63 & 68(5)---Where assessee had failed to furnish his return in spite of service of notice on him under S.56 and Income-tax Officer proceeded under S.63 ex parte cancelling the registration of the firm under S.68(5), without issuing notice to show cause and without giving opportunity of hearing to assessee, order of annulment of assessment passed in appeal by Appellate Assistant Commissioner, held , was without exception.

Naseer Ahmad, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 9th August, 1989.

JUDGMENT

For the assessment years 1978-79 and 1979-80 these further Departmental appeals were preferred against the impugned order, dated April 27, 1983 passed by the learned Appellate Assistant Commissioner of Income tax Range-E, Lahore on the ground that the learned Appellate Assistant Commissioner was not justified in reducing the sales from Rs.3,20,000 to Rs.2,30,000 for the charge year 1978-79 without any cogent reason and was also not justified to annul the assessment for the charge year 1979-80. The respondent/appellant, being a registered Firm, derives income from business of brick kiln and declared income of Rs.17,660 for the charge year 1978-79 and declared sales at Rs.1,41,380 with the gross profit at Rs.26,575 yielding a G.P. rate of 18-1/2%. It was contended by the assessee's counsel that only 1-1/2 round was made in the year under reference and total consumption of coal was at 150 tons. He also alleged that due to heavy rains and high demands of "Patharas" and increase in the rate of kiln the assessee suffered innumerable difficulties. The assessee could produce only 6 lacs bricks. The Income-tax Officer found the books of account defective and ultimately, sales were estimated at Rs.3,25,000 yielding a G.P. rate of 25%. Thus, net income of the assessee was worked out at Rs.72,635 for the year 1978-79. While deciding the assessment regarding 1979-80 the Income-tax officer passed an order which is as under: --

"Income tax Return was not furnished in spite of service of notice under section 56. The case was fixed for number of times but the assessee made no compliance. Finally, Registered acknowledgement letter dated 12-6-1982 was issued by virtue of which the case was fixed for 27-6-1982. It was specifically mentioned in the letter that in case of failure to attend on the fixed date the assessment would be finalized in the status of URF and further it was sounded that the letter in question should be treated as notice under section 68151 of Income-tax Ordinance. 1979. The assessee, however, did not bother to attend the office on the fixed date. Iam therefore left with no alternative but to proceed ex parte assessment under section 63 of the Income-tax Ordinance to the best of my judgment."

After doing so the Income-tax Officer estimated the net income at Rs.80,000 keeping in view the history of the preceding year.

2. The respondent/assessee felt aggrieved and went up in appeal for both the years before the Appellate Assistant Commissioner and challenged the assessments. It was argued before him that bricks once produced could be sold throughout the year but Patharas could be restricted to only the period which was required for producing the number of Katcha bricks. It was observed that the business wall discontinued from the assessment year 1979-80 and no Bhathi was undertaken. The learned First Appellate Authority also observed that in the previous assessment years. i.e., 1976-77 and 1977-78 the estimated sales were concluded much less than this time. In view of the fact that the business of the assessee suffered set back and it was discontinued, the learned First Appellate Authority reduced the estimate of sales of Rs.2,30,000 and confirmed the G.P. rate applied at 25%. Similarly, for the assessment year 1979-80 the assessment itself was claimed to be unjustified as no business was carried out for the year. It was also alleged that the Income-tax Officer had been informed accordingly on 14-7-1978 in writing that the kiln business had since been closed down and this fad could be confirmed by a spot inquiry. The Inspector of the Department made spot visit and verified the fact. The Income-tax Officer made assessment under section 63 of the Income-tax Ordinance of 1979 ex parte because of the fact that notice could not be served for obvious reasons and there was no business at all and the premises were abandoned. Keeping in view, these fads the learned First Appellate Authority annulled the assessment made under section 63 of the Ordinance by the Income-tax Officer and disposed of the appeals finally.

3. At this stage the Department felt seriously aggrieved and was not in consonance with the observations made in the final impugned order, thus assailed the same in these further appeals before the Tribunal. Mr. Naseer Ahmad, Departmental Representative argued the case at considerable length and prayed for the vacation of the impugned order as the same was made illegally and arbitrarily. None was present on behalf of the respondent/assessee to substaniate the facts of the case, although a proper notice was sent to his address well in time despite the fact that service was also got effected through the Income-tax Officer.

4. I have gone through the present available record and heard the learned Departmental Representative. I am amazad to learn from the order passed by the Income-tax Officer for the assessment year 1979-80 that the said Officer either does not follow the intention of the Legislature or he had deliberately made the impugned assessments ex parte. According to the facts there was nothing to compel him to proceed ex parte. He has not only defeated the assessee but also he tried to jeopardize the legal bona fides as envisaged in the relevant provision of the Income-tax Ordinance. His order seems to be mala fide because notice served under section 56 does not and cannot be substituted with notice under section 68(5) of the Income-tax Ordinance. His mala fides is also apparent from the impugned order passed for the charge year 1978-79, while deciding the issue of registration in a short manner. He passed an order under section 26-A for the year 1978-79 saying that no change in the constitution of the firm during the year under review was made, therefore, renewal of registration was granted for the assessment year 1978-79. Just looking at a glance the order seems to be defective that the Income-tax Officer failed to make regular proceedings for the year 1978-79 but surprisingly granted renewal of registration. In the year 1979-80 his manner of refusing the registration and proceeding ex parte is neither warranted under the law nor had any force. The order is being void, inoperative and against the facts and circumstances of the case was rightly annulled by the First Appellate Authority. It is correct that the Income-tax Officer, being the Officer of ultimate jurisdiction to judge the legality or illegality and to grant registration or renewal or revocation solely vests in him but his action should not be capricious or against the just norms of the justice. I am also inclined to make out the reasons for regular proceedings under the law of nature. It is clear from the various Injunctions of the Quran and the Sunnah that the component of justice should and must be made out before taking action against any miscreant. Condemning someone without making proper inquiry has been prohibited. The word "Tabeyyanu" in Verse 94 has been repeated twice. It is not without significance. Some commentators have laid great stress on it and gave it the meaning of "investigation" as also "interrogation". This purpose cannot be achieved without a notice and proper notice of showing cause. In fact in Islam (dispensing and receiving justice), is the fundamental right of citizens and, therefore, charging any tax for the public duty shall be against the Islamic concept if a person could not be granted any personal hearing. Islam also demands the case be decided expressly and it has prescribed the manner of providing justice quickly and not denying it, for justice delayed is justice denied. Consequently, it is duty of the Court/Tribunal that for the purpose of investigation, justice with all speed it should apply diligently, honestly and according to the facts of each case and no one should be condemned unheard. I also discern from the assessment order made for the year 1979-80 that the proceedings were not initiated according to the facts and law and the Income-tax Officer applied his mind in upshot manner and proceeded under section 63. He must have made separate proceedings under section 68(5) of the Income-tax Ordinance and proper, notice of showing cause and opportunity of personal hearing must have been afforded to the assessee before making final impugned assessment. The learned First Appellate Authority's order of annulment was, therefore, according to the facts of the case. As far as the reduction made in the sales estimated by the Income-tax Officer is concerned the First Appellate Authority reasoned his observations on the facts which were also stated before the Income tax Officer. The First Appellate Authority not only applied his mind to look into the past history of the assessee and then reduced the estimated sales of the assessee.

For the foregoing reasons and the law explained above, I do not feel any hesitation to dismiss these further Departmental appeals straightaway and maintain the impugned order dated 27-4-1983 passed by the First Appellate Authority, accordingly.

M.BA./1736/T Appeal dismissed.