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

----S. 13(1)(aa)---Addition---Deemed income---Purchase of property by assessee---Allegation of Benami transaction---Onus to prove Benami transaction---Principles---Property was purchased in the names of assessees and his two brothers---If income from property was taxable the department was to notify the owners of the property and ask them to explain as to who had paid the consideration---Where no such notice was issued to the brothers of the assessee who were living abroad at the relevant time though that fact was sufficiently brought to the notice of the department and stood established beyond doubt that the sale-deed was in the name of three persons (assessee and said two brothers) as owner of the acquired property which fact was also reported by the Inspector of the Department, addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 was not tenable.

Heavy burden lies on the taxing authorities to prove that the person in whose name the property stands registered is not the real owner but is only a Benamidar for another and that the assessee had also no burden to show that the property purchased from third party standing in the name of others is not his property. It is to be presumed that owner of the property is that person in whose name the property stands.

Nevertheless the source whence the purchase money came is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another. The mere rejection of an explanation would not entitle the department to claim that the consideration for the purchase of the property in the name of another was provided by the assessee. Apart from the relationship between the parties, there must be some evidence or material to support the case of the Benami nature of the transaction.

If income from the property was taxable the Department was to notify the owners of the property and ask them to explain who had paid the consideration. However, in the present case no such notice was issued to the brothers of the assessee who were living abroad at the material time though this fact was sufficiently brought to the notice of the Department and stood established beyond doubt that the sale-deed was in the name of three persons as owners of the acquire:' property which fact was also reported by the Inspector of the Department.

Onus of proof that the transaction was Benami lay upon the Department and without discharging this onus addition under section 13 was not lawful.

1986 PTD 37; (1982) 134 ITR 364 and 1990 PTD (Trib.) 622 ref.

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

----S. 13(1)(aa)---Addition---Deemed income---Purchase of property by assessee---Allegation of Benami transaction---Sources of investment were duly explained to the Department and all the owners of property as mentioned in the purchase deed were not assessed---Addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 was not liable to be sustained.

1992 PTD 79 ref.

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

----S. 13(1)(d)---Addition---Deemed income---Purchase of property by assessee---Allegation of understatement of consideration as shown in the registered sale-deed---No notice under S.13 of the Income Tax Ordinance, 1979 was issued to the assessee but only a notice under S.62, Income Tax Ordinance, 1979 was sent which could not be equated with the statutory notice compulsorily required under S.13, Income Tax Ordinance, 1979---No evidence of unimpeachable nature and from independent source was available on record to show that the assessee had really expended more money to acquire the property than what was shown in the registered sale-deed---Addition was made by revaluation of the property by the value which appeared to be mala fide-- Held, in circumstances, value declared in the registered sale-deed could not be brushed aside merely on the basis of the whims of the taxing Authorities, once the registered deed -had been provided to the Department---Addition on the allegation of understatement of consideration in the registered sale-deed thus was not tenable and as such consideration evidenced by the sale-deed was to be adopted.

1989 PTD 1233; 1995 PTD (Trib.) 1170; 1995 PTD (Trib.) 1182 and 1995 PTD (Trib.) 1179 ref.

(d) Income-tax---

----Appeal to Appellate Tribunal---Validity of assessment order---Objection raised by assessee about validity of assessment order though was raised before Commissioner of Income Tax (Appeals) who had recorded findings in that behalf but it was not agitated in the ground of appeal filed before the Appellate Tribunal---Such being a legal position pertaining to jurisdiction, Tribunal allowed the same to be raised before it for adjudication.

1987 PTD 485 ref.

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

----Ss. 56 & 65---Existing assessee---Notice for furnishing return of total income---Validity---Notice for furnishing return of total income under S.56 of the Income Tax Ordinance, 1979 whose assessment of the relevant year had been finalised was not lawful---Case of such assessee could, however, be reopened under S.65 of the Income Tax Ordinance. 1979.

(f)Income Tax---

---Penalty---Parent order out of which the penalty order had arisen had beer annulled by the Tribunal--- Latter order (penalty order) was thus bound to pale into insignificance and same was also to be annulled.

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

----Ss. 113 & 13---C.B.R. Circular Letter No.l(1)DT-14/91, dated 28-4-1991--Penalty---Concealment of income---Addition---Deemed income---No wilful fraud or gross or wilful neglect by assessee was found---Penalty under S.111, Income Tax Ordinance, 1979 could only be imposed for defined concealment and not on the basis of opinionated addition under S.13 of the Income Tax Ordinance, 1979.

1994 PTD 675 and 1994 PTD (Trib.) 688 ref,

Dr. Ilyas War for Appellant. Ajmal Malik, D.R. for Respondent.

Date of hearing: 11th April, 1995.

ORDER

MUHAMMAD ZAMAN KHAN (JUDICIAL MEMBER).--- The captioned two appeals have been filed by the assessee against the joint order, dated 29-1-1995 passed by C.I.T.(A), Zone IV, Lahore. The assessment pertains to the assessment year 1988-89 and the impugned orders relate to section 62/111 of the Income Tax Ordinance, 1979. The assessee, an individual 1, derives income from running a Jewellery shop at Liberty Market, Lahore.

2. The brief facts of the matter are that on 20-11-1989 a verification note in this case was received by the I.T.O. that the assessee, Shahzad Iqbal, had purchased a house bearing Property No.89, Shadman Colony, Lahore, on 2-6-1989 for an amount of Rs.24,00,000. The assessee at that time was allegedly not borne on the records of the Department. Since the information received indicated that the assessee was earning taxable income a notice under section 56 was issued to him by the I.T.O. The assessee did not comply and as such no return was filed by him in response thereof.

3. The I.T.O. also appears to have formed an opinion that the admitted purchase price of the house was under-stated. He, therefore, made a reference to a value in this regard who reported that the house had an aggregate value of Rs.38,46,240 (Rs.32,00,000 cost of land plus value of built-up area Rs.6,36,240).

4. According to the wealth statement filed by the assessee as on 30-6-1988 the assessee had disclosed 1/3rd share in the said house at Rs.9,00,000 and the balance investment was attributed to his two brothers, War lqbal and Javed lqbal who were cited as working abroad.

5. Thereafter, the I.T.O. issued a notice to the assessee confronting him with the valuation as made by the value and indicated his intention to bring to tax the difference of Rs.14,36,240 under section 13(1)(d) of the Ordinance, as against valuation of the property declared by the assessee. The assessee also allegedly did not comply with the terms of another notice to explain the sources of investment and thus the I.T.O. drew adverse inference that the investment in the property was that of the assessee himself who did not have adequate resources , to finance the acquisition and had thus resorted to attributing part of investment to his two brothers to the extent of 2/3 share. The assessee, however, appears to have taken up the plea that the declared price of property was correct and that the property was purchased by him and his two brothers.

6. The I.T.O. instead concluded that the assessee has failed to furnish the sources of investment of his two brothers amounting to Rs.18,00,000 and also for his remaining 1/3rd share failed to produce documentary evidence with regard to the reconciliation statement filed on 30-6-1988. As such the investment attributed to brothers was treated as unexplained and also Benami transaction whereas the amount of Rs.9,44,956 pertaining to the assessee was treated as unexplained investment. Similarly the difference of value declared by the assessee and as per valuation report formulated by the valuer was also treated as unexplained investment by the assessee.

7. Assessment was, therefore, finalized by the I.T.O. under section 62 of the Ordinance as under:-

8. In the meanwhile the assessee was served with a notice under section 116 and penalty under section 111 of the Income Tax Ordinance, .1979, was imposed on him equal to the amount of Income-tax levied i.e. Rs.18,33,238.

9. As indicated above the assessee had filed two appeals before the C.I.T.(A) against the orders rendered by the assessing officer under sections 62 and 111 of the Ordinance respectively which were disposed of by the first appellate authority through a common order which is now the subject-matter, of the two second appeals in hand.

10. As both the appeals before us are interlinked we also proposed deride them through a consolidated order.

11. We have heard the learned representatives of both the parties for the disposal of both the appeals and have also minutely gone through the relevant record.

12. It appears from the perusal of the order passed by the C.I.T.(A) that almost all the objections which have been raised before us on behalf of if assessee were also agitated before the first appellate forum. In nutshell the objections related to the validity of notice issued under section 56, failure issue notice under section 13, failure to take into consideration the evidence, about the investment made by the assessee and the foreign rernittan.c, amounting to Rs.20,00,000 from Abu Dhabi on 25-5-1988 sent by Zafar lqbal, the brother of the assessee, the mala fide report of the value, to treat the purchase transaction as benami in the presence of registered sale-deed, the value of the property adopted and the additions made under section 13.

13. Be that as it may, it is manifest from the order of the C.I.T.(A) that most of the contentions raised by the assessee did not find favour with the C.I.T.(A). In any case the C.I.T.(A) has directed, though without any sound legal basis, that total value of the property acquired shall be taken at Rs.30,00,000 (Value of the land Rs.24,00,000 plus value of construction Rs.6,00,000). He has further observed that as. the assessee failed to explain the sources of admitted investment at Rs.24,00,000, the same shall constitute unexplained investment in the assessee's hands and shall be brought to tax under section 13(1)(aa). Similarly the difference of Rs.6,00,000 between the value of the property as declared and as adopted shall be treated as unexplained investment under section 13(1)(d) and shall be brought to tax accordingly. It is, however, worth mentioning that the C.I.T.(A) has practically discarded the report of the value the, same being not based on proper corroborative evidence or any parallel case. The remarks made by the assessing officer with regard to the source of investment of the assessee's two brothers who were residing abroad at the material time have also been disapproved by the C.I.T.(A) and they being have no legal sanction have been directed to be ignored.

14. The order of penalty has also been maintained by the first appellate authority. However, due to partial relief granted to the assessee whereby the C.I.T.(A) has directed the total income to be computed at Rs.30,00,000 as against Rs.41,81,196 assessed by the I.T.O. the assessee has been held entitled to the consequential relief also in the matter of penalty which now stands reduced to'Rs.14,31,870 from Rs.18,33,328.

15. After having given a resume of all the relevant facts and circumstances, we now proceed to decide the appeals.

16. Dr. Ilyas War, the learned A.R. of the assessee, has vehemently attacked tile vires of the orders passed by the departmental officers for a variety of reasons which we shall discuss in the lines hereinafter. He has termed the impugned orders being perverse and based on mere surmises and conjectures.

17. First of all we take up the matter of the registered sale-deed executed on 30-5-1988 and got registered on 2-6-1988, which is the very basis of the dispute. This sale-deed clearly indicates that the acquired house property was purchased by the assessee and his two brothers, laved Iqbal and Zafar lqbal, for a consideration of Rs.24,00,000 in three equal shares respectively. There is also recital in the sale-deed that the sale price has been paid by all the three purchasers. Subsequently the property was sold away by the purchasers through a registered sale-deed on 31-5-1989. Javed Iqbal and War Iqbal, the brothers of the assessee, were represented through the assessee at the time of this sale on the basis of a valid general power of attorney, they being at Abu Dhabi at the relevant time. These facts alone in the normal course of events are sufficient to conclude that all the three brothers were owners of the property to the extent of 1/3rd share each and had also borne the expenses thereof equally. With these circumstances in the background it has been argued by the learned A.R. of the assessee that the Department could not change the nature of registered sale-deed or go behind the document in any manner whatsoever, as per their own whims and fancies, as was held in NTR 1991 SC 40. The argument is that the registered sale-deed contained the names of the three brothers and this fact could not be rejected without solid proof. Learned A.R. of the assessee has also referred to Circular No.L568-S(WT)/80, dated 22-9-1980 issued by C.B.R. and reported as (1980) 42 Tax 289 (Statutes), the relevant portion of which is as under:--

"the right, title or interest to or in any immovable property is determinable in the eye of law on the basis of position obtaining in Government records. The registration documents shall, therefore, be treated as the final evidence in this regard."

Learned A.R. of the assessee has also rightly referred to Articles 85 and 102 of Qanoon-e-Shahadat Order, 1984, and has submitted that documentary evidence which being a registered deed was also a public document and thus it could not be ignored as the Ordinance also applies to the income-tax proceedings as held by Lahore High Court in NTR 1992 HC 86.

18. Regarding the Benami transaction it has been submitted on behalf of the assessee that the burden of proof to show that purchase money was paid by the assessee was on the Department and since there was no evidence worth the name on the record to lend support to the version of the department in this respect the findings of the Department were erroneous. Learned A.R. has also relied upon 1986 PTD 37 in which it has been held clearly that heavy burden lies on the taxing authorities to prove that the person in whose name the property stands registered is not the real owner but is only a Benamidar for another and that the assessee had also no burden to show that the property purchased from third party standing in the name of others is not his property. It has been further held in the said authority that it is to be presumed that owner of the property is that person in whose name the property stands. It was further observed that if income from the property was taxable the Department was to notify the owners of the property and ask them to explain who had paid the consideration. However, is the present case no such notice was issued to the brothers of the assessee who were living abroad at the material' time though this fact was sufficiently brought to the notice of the Department and stood established beyond doubt that the sale-deed was in the name of three persons as owners of the acquired property which fact was also reported by the Inspector of the Department vide his report dated 28-3-1993. Learned A.R. of the assessee has also referred to (1982) 134 ITR 364 in which the said principle of law regarding the discharge of burden of proof has also been recognized and in which, the formula or the acid test has been laid down to find if any person was Benami or not. Besides some other observations it has also been said in this authority as under:--

"Nevertheless the source whence the purchase money came is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another. The mere rejection of an explanation would not entitle the department to claim that the consideration for the purchase of the property in the name of another was provided by the assessee. Apart from the relationship between the parties, there must be some evidence or material to support the case of the Benami nature of the transaction."

19. Similarly the learned A.R. of the assessee has relied upon 1990 PTD (Trib.) 622 in which it has also been held that onus of proof that the transaction is Benami lies upon the Department and without discharging this onus addition under section 13 is not lawful.

20. Reverting to the facts of the case in hand it has been submitted on behalf of the assessee that reply was duly filed by the assessee in which the investment was explained by him on his own behalf and that of his brothers. Regarding the investment of brothers the assessee had explained that they had remitted Rs.20,00,000 through proper banking channels from abroad and necessary proof was also furnished to the I.T.O. on 27-2-1994, which fact was also acknowledged by the assessing officer in his order-sheet entry. It has been submitted that in these circumstances the observations of the authorities below that the assessee has failed to furnish the source of investment of his two brothers was incorrect and, therefore, their conduct in ignoring the foreign remittances dated 25-5-1988 was contained and based on mala fides.

20-A. Regarding the addition which has been made on account of assessee's unexplained investment the assessee had already given his wealth statement as on 30-6-1988 before the I.T.O., Wazirabad, and had also furnished the proof thereof including the affidavit of Muhammad Tufail,, his father,, and Zafar Iqbal, his brother, but this aspect of the matter also appears to have been wrongly ignored by the authorities concerned. In the wealth statement the business capital of Al-Mutawakal Roller Flour Mills, Wazirabad, was shown by the assessee and these facts duly stand corroborated from the photo copies of the wealth statement and the assessment order passed by the I.T.O., Wazirabad, in respect of the assessee. In these circumstances, it has been argued on behalf of the assessee that additions under section 13(1)(aa) of the Ordinance could not be made as the sources of investment were duly explained to the authorities concerned. We find that in the light of the observations made by us in the foregoing lines of this order the submission made on behalf of the assessee is 'not devoid of force. As such the additions under section 13(1)(aa) are not liable to be sustained at law and also for the reason that all the real owners were not assessed which was necessary as held in 1992 PTD 79. We, therefore, delete the additions made under section 13(1)(aa) of the Income Tax Ordinance, 1979. It appears to us that the I.T.O. was satisfied with the said documentary evidence and it was probably for this reason that he did not issue notice for these additions and changed his opinion due to some ulterior motives on the last date of making the assessment, by shutting his eyes to the real facts of the case, and in a slipshod manner and without proper application of mind.

21. As regards the addition made under section 13(1)(d) only a notice under section 62 was issued and it -has been rightly submitted by the learned A.R. of the assessee that the same could not be equated with the statutory notice compulsorily required under section 13 of the Ordinance as held in 1989 PTD 1233. It is an admitted fact that no notice under section 13 was given for making this addition. This addition was made by revaluation of the property made by the value. It appears that in the given state of affairs the value declared in the registered deed could not be brushed aside merely on the basis of the whims of the taxing authorities; once the registered deed had been provided to the Department. Besides this it may be stated here that in this case the valuation made by the value appears to be mala fide and has also been discarded by the C.1.T.(A) as is manifest from the impugned order. Apart from this no evidence of unimpeachable nature forthcoming from some independent source was existing on record to the effect that the assessee had really expended more money to 'acquire the asset than what was shown in the registered deed. Hence, we find force in the submission made by the learned A.R. of the assessee that addition on the allegation of understatement of consideration in the registered sale-deed was not tenable in this case and as such the consideration evidenced by the sale-deed should be accepted. Reliance in this behalf can be placed on cases reported as 1995 PT D (Trib.) 1170, 1995 PTD (Trib.) 1182 and 1995 PTD (Trib.) 1179. This addition as such is also deleted.

22. Now we would like to dispose of the legal objection raised by the learned A.R. of the assessee about the validity of the assessment under consideration. It may be stated here that though this point was raised before the C.I.T.(A) and he has also recorded his findings in this behalf in the impugned order yet it was not agitated in the grounds of appeal filed before the Tribunal. As it is a legal point and pertains to jurisdiction, as held in 1987 PTD 485 we have allowed the same to be raised before us for adjudication.

23. The contention of the assessee is that at the material time he was an existing assessee and as such proceedings against him could not be initiated by having recourse to the provisions of section 56. It has been submitted that in the case of the assessee the assessment for the year under review had already been completed by the I.T.O., Wazirabad, and as such proceedings against the assessee if at all warranted under the law could only the commenced by issuance of notice under section 65 of the Ordinance. Learned A.R.' of the assessee has challenged the propriety of the observations made by the C.I.T.(A) in the impugned order in which he has said that no proof has been given in this behalf. It has been stated at the Bar that copy of the relevant assessment order was also referred to before the C.I.T.(A). Be that as it may, a photo copy of the said order has also been produced before us which supports the contentions raised on behalf of the assessee. We, therefore, hold that action under section 56 was not valid. The case could however, be reopened under section 65 against all the three brothers including the assessee.

24. As a sequel to the above, for the reasons recorded above by us in this order we are irresistibly driven to conclude that the assessment order under appeal deserves to be annulled and we order accordingly. The appeal filed by the assessee against the assessment order formulated under section 62 of the Ordinance, therefore, succeeds in the above terms.

25 APPEAL UNDER SECTION 111 OF THE ORDINANCE--ASSESSMENT YEAR 1988-89

The relevant facts and circumstances .of this appeal have also been mentioned above and as such the same need not to be recapitulated here.

26. Suffice it to say that since the parent order out of which the penalty order had arisen has been annulled the latter mentioned order is also bound to pale into significance and thus the same is also liable to be annulled.

27. Besides the above we do not find any inkling of willful fraud or gross or wilfull neglect in this case on the part of the assessee, as has been discussed above. In addition to this penalty under section 111 could only be imposed for defined concealment and not on the basis of opinionated additions under section 13 of the Ordinance which were fraught with mala fide intention. Hence in the instant case there was also no justification for the imposition of the impugned penalty. The relevant authorities in this behalf are 1994 PTD 675,1994 PTD (Trib.) 688 and C.B.R. Circular Letter No.l(1)/Dt-14/91, dated 28-4-1991 reported as NTR 1991 St. 338.

28. On account of what has been observed above the penalty is also deleted and this appeal also succeeds.

29. Both the appeals, therefore, stand decided as above.

M.BA./125/TOrder accordingly.