I.TA S. NOS. 2280/LB TO 2082/LB OF 1991-92 VS I.TA S. NOS. 2280/LB TO 2082/LB OF 1991-92, 1994 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 593 (1993)

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

----S. 56---Where no assessment had been made nor any return filed, the proceedings had to be initiated under S.56, Income Tax Ordinance 1979 and not under S.65 of the Ordinance.

1990 PTD (Trib.) 260 fol.

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

----Ss. 64(1) & 62---Assessment---Limitation---No assessment under S.62, Income Tax Ordinance, 1979 could be made after the expiry of two years from the end of the assessment year in which total income was first assessable--- Where the assessment for assessment year 1986-87 had been made under S.62 of the Ordinance on 30-6-1990 whereas limitation as per S.64(1) of the Ordinance had expired on 30-6-1989, prima facie the assessment was time barred and was liable to be cancelled.

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

----S. 13(1)(e)---Addition---Deemed income ---Assessee was alleged to have declared the purchase price of property at lower rate---Income Tax Officer was empowered under S.13(2), Income Tax Ordinance 1979 to determine a reasonable value of such property if in his opinion the value declared by assessee was too low.

1991 PTD 294 fol.

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

----S. 13(1)(d)---Addition---Deemed income ---Assessee was alleged to have declared the purchase price of property at lower rate---Assessing Officer while making addition adopted the value as fixed by the Registration Authority for registration purposes, completed various formalities and the assessee could not point out any infirmity in the order of Assessing Officer on the issue---Addition was maintained by the Tribunal.

(e) Income Tax Ordinance (XXXIX of 1979)---

----S.13(1)(e)---Addition---Deemed income ---Assessee was alleged to have declared lower expenses on house-hold---Explanation offered by assessee was not supported by any evidence on the fact to substantiate his explanation-- Addition was maintained by the Tribunal in circumstances.

Fayyaz Ahmad Ch. for Appellant.

Muhammad Athar, D.R. for Respondent.

Date of hearing: 5th April, 1993.

ORDER

INAM ELLAHI SHEIKH (ACCOUNTANT MEMBER).--An individual, who derives income as a partner of various Registered Firms, has filed these three further appeals against the order, dated 30-10-1991 recorded by the learned CIT (Appeals) Zone-I, Faisalabad to agitate the following additions which were confirmed by the first appellate authority.

The Assessee has also filed additional grounds to challenge the legality of these assessments. These grounds did not specify the assessment years to which they pertain. However, ground No.3 which challenged the assessment on the point of limitation mentions the assessment years 1985-86 and 1986-87. The additional ground No. l agitates that the assessing officer did not issue notice for explanation of source of investment whereas additional ground No.2 challenged the validity notice under section 65 of the Income Tax Ordinance. Additional ground No. 4 is on the issue of opportunity of being heard whereas grounds Nos. 5 and 6 are regarding th1k procedure under section 13 of the Ordinance. Additional ground No. 7 agitates that no notice had been given for fixed date of hearing. In the original grounds of appeal. the Assessee only challenged the excessiveness of the additions in all the three years under consideration. The learned counsel of the Assessee only argued the original ground as well as the proceedings under section 65 of the Ordinance at the time of the hearing of the appeals.

The facts in brief, are that the Assessee purchased certain property as mentioned above. No return was filed for the assessment year 1985-86 whereas for the assessment years 1986-87 and 1987-88 the Assessee declared income of Rs.14,342 and Rs.14,118 in the respective years including share from registered firms as well as property income. For the year 1985-86 the Assessee filed in response to notice under section 65 to declare income of Rs.16,617 including shares from two registered firms and property income. The Assessee declared to have purchased various properties and the declared value was not accepted by the assessing officer. On the basis of enquiry and the Inspector's report the assessing officer made his own estimate as already reproduced above, resulting in various additions under section 13(1)(d) of the Ordinance. In the assessment year 1987-88 the declared house-hold expenses were also not accepted and enhanced as indicated above. The first appellate authority dismissed the assessee's appeal.

The learned counsel of the Assessee initially argued the case on the quantum of additions which were agitated to be excessive. The addition under section 13(1)(e) of the Ordinance was also challenged by the learned counsel of the assessee to have been made without any basis and on general observation. The learned counsel of the Assessee finally attacked the proceedings -under section 65 of the Ordinance. The main argument of the learned counsel of the Assessee was that the notice under section 65 had been issued illegally as the Assessee had filed no return nor was there any assessment in the field. The learned D.R. on the other hand defended the orders of the Departmental official with the plea that reasonable estimates had been made and the legal requirements had been met. For the proceedings under section 65 of the Ordinance in the Assessment year 1985-86 the learned D.R. defended the action of the assessing officer relying on section 155.

We have considered the arguments of both the parties. We have also perused the relevant orders. In the assessment year 1985-86 we find substance in the assessee's appeal on the issue of proceedings under section 65 of the Ordinance. A larger Bench of the Tribunal has already decided, vide order reported as 1990 PTD (Trib.) 260 that where no assessment had been made nor any return filed; the proceedings had to be initiated under section 56 of the Ordinance. The plea of the learned D.R. is without any merit as illegality cannot be cured by an action of the Assessee. Hence on this ground alone we cancel the assessment for the year 1985-86 without going into the merits of the case.

In the assessment year 1986-87 the Assessee had taken an additional ground to agitate that the assessment was barred by time. Under the provisions of section 64(1) of the Ordinance, no assessment under section 62 could be made after the expiration of two years from the end of the assessment year in which the total income was first assessable. For the assessment year 1986-87 the assessment has been made under section 62 of the Ordinance on 30-6-1990 whereas the limitation as per section 64(1) of the Ordinance expired on 30-6-1989. Thus prima facie the assessment is time-barred and is liable to be . cancelled. Hence, we accept the assessee's appeal for the year 1986-87 on this legal ground and we cancel the assessment for that year.

In the assessment year 1987-88, the assessment has agitated the valuation of the properties mentioned above and also an addition under section 13(1)(e) of the Ordinance. In the first addition of Rs.75,000 in this year in respect of Sarfraz Colony the assessee has agitated the addition of Rs.75,000 and declared purchase price of Rs.400,000 could not be maintained as the declared value could not be said to be too low in terms of section 13 of the Ordinance. Reliance has been placed on a decision of Tribunal reported as 1991 PTD 294. In that case a single bench of the Tribunal held that declared value of Rs.507,870 could not be regarded too low when the assessing officer estimated the value at Rs.576,082. It may be mentioned here that under the provisions of section 13(2) of the Ordinance, an ITO is empowered to determine a reasonable value if in his

opinion the declared value was too low Relying on this case we delete the addition of Rs.75,000 made under section 13(1)(e) of the Ordinance.

Another addition of Rs.20,000 was made under section 13(1)(d) of the Ordinance, in respect of a plot measuring 4 Marlas in Chak No. 124/JB, Faisalabad purchased on 1-12-1986 with a declared value of Rs.5,000 per marla. According to the assessment order, the registration authority had fixed the value at Rs.10,000 per marla for registration purposes. Hence, the assessing officer adopted the value at Rs.10,000 per marla resulting in an addition of Rs.20,000. The addition was made after completing various formalities. The learned counsel of the Assessee could not point out any infirmity in the order of the assessing officer on this issue. Hence, this addition is maintained.

The assessee has also agitated an addition of Rs.23,124 made under section 13(1)(d) of the Ordinance. The assessee had declared house-hold expenses at Rs.26,878 which were considered by the assessing officer to be too low for a family of 7 members. The assessing officer estimated such expenses at Rs.50,000 under section 13(2) of the Ordinance and confronted the assessee with the same. The assessee explained that his wife and family members remained with his mother-in-law throughout the year under consideration, as a result of which the house-hold expenses remained too low. This explanation was not accepted. The assessee has agitated that the assessing officer has made the addition on the basis of general observations and it has been contended that the addition under the circumstances could not be maintained. We do not find any substance in this argument of the learned counsel. 'Although the assessing officer has not revolved a proper basis for estimating the house-hold expenses, the declared expenses are prima facie low for a family comprising of 7 members. The explanation offered by the assessee before the assessing officer is not supported by any evidence on the fact and also the financial capability of the mother-in-law to support the assessee's family. The learned counsel of the assessee has not produced any detail of the house-hold expenses declared by the assessee or evidence to substantiate the claim of expenses having been borne by mother-in-law. In these, circumstances, we maintain addition under section 13(1)(e) of the Ordinance.

As a result the assessee's appeals for the years 1985-86 and 1986-87 are accepted and the assessments in question are cancelled whereas for the year 1987-88 it is partly accepted to the extent indicated above.

M.BA./20/T.T.Order accordingly.