ITAS NOS. 6686/KB OF 1991-92 AND 2272/KB OF 1993-94 VS ITAS NOS. 6686/KB OF 1991-92 AND 2272/KB OF 1993-94, 1994 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1288 (1994)

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

----S.65(2)---Additional assessment---Definite information ---Any information in respect of sales and purchases, made by the assessee, of any goods would be termed as "definite information".

1993 PTD 1680 distinguished.'

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

----S.165---Circular by Central Board of Revenue---Central Board of Revenue has ho power to issue circulars which can override, modify or in effect amend the provisions of the Act.

(1985) 152 ITR 39; 1986 PTD 793 (Trib.) and (1961) 4 Tax 154 (Trib.) ref.

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

----Ss.65 & 59---C.B.R. Circular No. 3 of 1985 dated para 6 and Note 7--- Self-assessment---Additional assessment--Approval of Inspecting Assistant Commissioner and permission of Central Board of Revenue- --Terms "approval" and "permission"---Connotation---Income Tax Officer after applying his mind by a letter submitted his proposal for additional assessment of the assessee to the Inspecting Assistant Commissioner who also 'applied his mind before forwarding the said letter to Commissioner of Income Tax for forwarding the same to Central Board of Revenue for permission to make the additional assessment---Inspecting Assistant Commissioner having been associated with the whole exercise had approved the action of the I.T.O. and compliance of S.65, Income Tax Ordinance, 1979 was thus made in circumstances.

Oxford Dictionary and Chamber's Dictionary ref.

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

----Ss.65 & 154(6)---Additional assessment---Service of notice---Where the assessee had filed return in response to. notice issued under S. 65, Income Tax Ordinance, 1979, he could not challenge the validity of such notice in view of S.154(6) of the Income Tax Ordinance, 1979.

(1989) 59 Tax 108 ref.

(e) Income tax---

---"Dandakar formula"---Application---If the purchases are verifable, Dandakar formula can be applied.

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

----S.13(1)(aa)---Addition---Separate addition will only be made if it is over and above the intangible addition made in trading account---If the intangible addition made in trading account is more than that figure then no separate addition would be made.

PLD 1978 Kar. 408 and 1992 PTD 739 (Trib.) ref.

Mehtab Khan, ITP for Appellant.

Khawar Butt, D.R. for Respondent.

Date of hearing: 7th March, 1994.

ORDER

SYED KABIRUL HASAN (JUDICIAL MEMBER): --By this order we intend to dispose of these two appeals, which are filed by an individual who is a, commercial importer. Assessment years involved are 1985-86 and 1989-90.

ASSESSMENT YEAR 1985-86:

1. In this assessment year the original assessment was finalised under section 59 (1) of the Income Tax Ordinance, 1979 under Self-Assessment Scheme. Later on, the record of the assessee was perused and it was noted that the assessee's import involved huge amount, which did not commensurate with the capital available with him, therefore, the Assessing Officer made certain enquiries through letters. The assessing officer found the explanation offered by the assessee not plausible, therefore; the permission was obtained from the CBR for the initiating of the proceedings under section 65 of the Income Tax Ordinance, 1979 and ultimately a notice was issued on 17-12-1987 which was duly served. The assessing officer finally determined the income at Rs.18,89,012 as against the declared income of Rs.127,500 under section 59(1) of the Income Tax Ordinance, 1979.

2. The assessee preferred an appeal against the order of assessing officer before the learned A.A.C. who vide his order dated 9-12-1991 confirmed the order of the ITO and dismissed the appeal.

3. Mr. Mehtab Khan, the learned counsel for the assessee has firstly attacked the initiation of proceeding under section 65 on two grounds; firstly that there was no definite information; and secondly that no prior approval of the IAC was obtained before the issue of notice.

Elaborating his point the learned counsel for the assessee has submitted that the information on which notice was issued was not definite information but a fishing inquiry and moreover the assessee had explained all the points vide his letter dated 4-7-1987 which was not properly appreciated. The learned D.R. on the other hand has submitted that as the net wealth of the assessee was only of Rs.2,51,000 but during the assessment year he imported, goods worth Rs.1,44,00,000 and all the goods were sold for a consideration of Rs.1,46,15,200, therefore, the assessing officer- was right in asking the explanation of the assessee that from what source he funded those imports.

4. We have examined the letter dated 16-5-1987 issued by the ITO and we have also taken into consideration the reply of assessee dated 4-7-1987. In our opinion the reasons given in the said letter by the assessing officer were not merely based on guess of gossip. Moreover, in view of explanation added to subsection (2) of section 65 any information in respect of sales and purchase, made by the assessee, of any goods would be termed as definite information and in view of this we are of the opinion that the information in possession of the assessing officer was a definite information and hence the objection of the learned counsel for the assessee is repelled. The case relied upon by the learned counsel for the assessee 1993 PTD 1680 is not attracted to the facts of this case.

Elaborating his second objection the learned counsel for the assessee has drawn our attention to note 7 attached to para. 6 of Circular No.3 of 1985 relating to Self-Assessment Scheme of Income Tax 1985-86. It would be pertinent to reproduce this `note' which is as under:

"Cases where the returned income is accepted under immunity provisions would be reopened only with the prior permission of the Central Board of Revenue."

According to him this Circular has laid down that where the returned income is accepted under immunity clause of the Self-Assessment Scheme of 1985-86 then such cases would be reopened only with the prior permission of Central Board of Revenue. He has referred to section 65 of the Income Tax Ordinance, 1979 wherein it is mentioned that where an assessment is reopened then the same can be done by the assessing officer with the prior approval of the IAC and according to him CBR cannot issue any Circular overriding, modifying or in effect amending the provision of the Income Tax Ordinance. Secondly he has also submitted that if this submission is found correct then in this case the ITO has not obtained prior approval of the IA.C. and hence reassessment proceedings have not been validly initiated.

5. We have considered the submission of the learned counsel for the assessee and we are in agreement with him on the point that CBR has no power to issue circulars which can override, modify or in effect amend the provision of the Act. This position is too well-settled to need any citation. The cases relied upon by the learned counsel for the assessee and reported as (1985) 152 ITR 39, 1986 PTD 793 (Trib.) and (1961) 4 Tax 154 (Trib) also support his case. Mr. Mehtab Khan, the learned counsel for the assessee on the point of approval of the IAC has submitted that in this case no doubt permission was obtained from the CBR as required in Para 6 of the Self-Assessment Scheme Circular issued by the CBR but no prior approval from the IAC was obtained for reopening the assessment, in order to differentiate between word "approval" and "permission" he has referred to the dictionary meaning. .

The word approval is defined as under:

In Oxford Dictionary

"approval means the act of approving, approval consent"

In Chamber's Dictionary:

"sanction or ratification"

The word "permission" is defined as under:

In Oxford Dictionary

"consent, authorisation".

In Chamber's Dictionary:

"the act of permitting."

According to him these two words have different meanings and their impact is also quite different. Therefore, before reopening a case finalised under section 59 the assessing officer is not only required to obtain approval from the IA.C. but he is also required to obtain permission from CBR. Since in this case no approval has been obtained from the IAC, therefore, the notice issued by the assessing officer is invalid.

6. We have examined the contention of the learned counsel for the assessee and have taken into consideration the facts of this case. The contention of the learned counsel for the assessee that in cases where the assessment is finalised under section 59 and immunity is granted then the assessing officer not only is required to obtain prior approval from the LAC but the permission of the CBR is also necessary. But after taking into consideration the fact we are of the view that the approval of IAC and permission of CBR was obtained in this case. From the secrutiny of letter dated 3-9-1987 written by the ITO to CIT East Zone for the purpose of obtaining permission of the CISR it would appear that the 1'1'O has mentioned in .the said letter that the facts of the case justify the reopening of the assessment under section 65. Since this letter was sent through IA.C. therefore, it would appear that the IAC also applied his mind before forwarding the letter to the CIT who ultimately obtained the permission of the CBR under para 6 of the Circular No.3 of 1985. In our view their can be many conceivable modes regarding approval and each case can be examined on the basis of documentary evidence available. In our opinion in this case the ITO had made up his mind after considering the explanation offered by the assessee vide his, letter dated 4-7-1987 that there was a case of issuing notice under section 65. The ITO after applying his mind submitted hit proposal to IAC who also applied his mind before forwarding the letter to CIT. The IAC was associated with the whole exercise and had approved the action of the ITO before forwarding his proposal to the CIT who ultimately obtained permission from the CBR. In our opinion all these facts suggest that the compliance of provision of section 65 was made by the assessing officer, therefore, the submission of learned counsel for the assessee on this point is not tenable.

7. Moreover, it has also been noticed by us that the assessee had filed return in response to notice issued under section 65, therefore, in view of provision contained in subsection (6) of section 154, the assessee cannot challenge the validity of the notice. This position has been settled by Hon'ble Karachi High Court in a decision reported as (1989) 59 Tax 108. The objection of the learned counsel for the assessee as regards to validity of notice is also not tenable in view of this decision.

8. Now we take up the submission of the learned counsel for the assessee as regards to merit of the case. According to learned counsel for the assessee during the assessment year the assessee declared sales of Rs.1,46,15,200 with- GP rate of 1.47%., This GP rate was considered low by the assessing officer and he after rejecting the trading version estimated the sales at Rs.1,55,67,500 and applied GP rate of 7.5% on this point the learned counsel for the assesee submitted that GP rate applied is excessive and secondly purchases being imports are verifiable, therefore, the DANDAKAR Formula should have been applied. He has also provided a parallel case (NTN 10-51-2567520) wherein in similar trade a GP rate of 4.25% is applied.

9. We have considered the contention of the learned counsel for the assessee and have also perused the record. In our opinion the rejection of declared version is justified under the facts and circumstances of this case as ample evidence is available, therefore, but we think that GP rate applied is excessive and considering the history of the assessee and relevant facts the same is refused to 6%. The contention of the learned counsel for the assessee that since purchases are verifiable, therefore, the Dandakar Formula should be applied appears to be reasonable. The assessing officer is, therefore, directed to proportionately adjust the sales considering GP rate applied.

10. As regards addition of Rs. 8,09,150 under section 13(1)(aa) of the Income Tax Ordinance, 1979 it has been submitted by the learned counsel for the assessee that this addition was made on account of purchases and since sales and GP rate have been estimated, therefore, the addition made in trading account covered this addition also and hence this amounted to double taxation and may be deleted.

11. We have considered the contention of learned counsel for the assessee and are of the view that it has some force. It would be pertinent to refer to decision reported as PLD 1978 Karachi 408;1992 PTD 739 (Trib) wherein it is observed that separate addition will only be made if it is over and above the intangible addition made in trading account and in case the intangible addition in trading account is more, than that figure then no separate addition would be made. In view of this we direct the ITO to restrict the addition on this account which is over and above the intangible addition which would arrive after readjustment in the light of observation made above.

ASSESSMENT YEAR 1989-90:

11. In this year the assessee declared sales at Rs.27,59,000 with GP rate of 5%. The assessing officer after rejecting the declared version estimated the sales at Rs.53,00,000, and applied GP rate at 7.5%. In appeal the learned AAC confirmed the order of the assessing officers.

12. We have considered the arguments of both the representatives. We find that rejection, of declared version is justified under the facts and circumstances of the case. `We also find that the GP rate applied is excessive and would be reduced to 6%. and accordingly direct the ITO to apply Dandakar Formula and adjust the estimate of sales accordingly.

13. As regards addition of Rs. 879,300 under section 13, it is observed that this issue has already been discussed in assessment year 1989-90 and since the facts having remaining the same, the finding would apply for this year also. This addition would, therefore, be restricted to any amount over and above the intangible addition made in trading account.

14. These appeals are disposed of in the manner as indicated above.

M.B.A./49/T.T. Order accordingly.