I.T.AS. NOS.8(HB) TO 11(HB) OF 1973-74, DECIDED ON 12TH MARCH, 1975. VS I.T.AS. NOS.8(HB) TO 11(HB) OF 1973-74, DECIDED ON 12TH MARCH, 1975.
1995 P T D (Trib.) 19
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mazhar Ali, Judicial Member and M. Z. Farrukh, Accountant Member
I.T.As. Nos.8(HB) to 11(HB) of 1973-74, decided on 12/03/1975.
Income-tax Act (XI of 1922)---
----S. 34---Re-assessment---Violation of principles of natural justice ---Re assessment was made after the expiry of the prescribed period---Income-tax Officer having failed to confront the assessee with the statements of the parties who had been examined by him behind the back of the assessee and upon whose testimony he had placed reliance, acted in flagrant violation of the principles of natural justice and fairplay and thus rendered his order bad in law.
Abdul Tahir, I.T.P. for Appellant.
G.A. Khan, D.R. for Respondent.
ORDER
MUHAMMAD MAZHAR ALI (JUDICIAL MEMBER).---The facts in brief, giving rise to these four appeals pertaining to the charge years 1965-66 to 1968-69 are as follows.
2. The assessee deals in sale and purchase of biscuits and confectionary items. It filed returns for the years under appeal disclosing income of Rs.3,232 in each year. The assessments were completed in agreement with the assessee at Rs.15,608 for 1965-66, Rs.18,000 for 1966-67, Rs.20,000 for 1967-68 and Rs.24,406 for 1968-69 in respect of sale and purchase business of the assessee. Later on, the Income-tax Officer learnt that the assessee was also engaged in manufacturing business of confectionary and that no income therefrom was returned. He therefore, with the permission of the Inspecting Assistant Commissioner of the Income-tax, Hyderabad Range, re-opened the proceedings by issuing notices under section 34 of the Income-tax Act which were served on the assessee in respect of all these years on 12-5-1970. In response thereto the assessee filed the returns disclosing the same incomes Which he had initially returned. The Income-tax Officer thereupon served notices under sections 23(2) and 22(4) upon the assessee, who expressed his inability to produce the sale and purchase bills etc. on the plea of their having been taken by the ex-Accountant, Aziz Ahmed while leaving the service of the assessee some times back. The returns filed in response to the notice under section 34 did not accompany any computation sheet. The assessee's stand before the Income-tax Officer was that he had no manufacturing business of confectionary and that the accounts as filed with the original returns be considered for re-assessment purposes as well. Since the incomes of the assessee in respect of sale and purchase business had been determined in agreement, the Income-tax Officer did not disturb the same. However, on the basis of the evidence recorded by him during the inquiry proceedings the Income-tax Officer was of the view that the assessee also ran confectionary plant in the bogus name and style of M/s. Ayub Rewri Works, Sukkur. His inquiry further revealed that Mr. Ayub was son-in-law of Mr. Nijat Hussain, a partner of the assessee firm, and that with a view to evade proper taxation he had made this arrangement. On the basis of the statements recorded by him of one Mr. Ghulam Qadir of M/s. Ghulam Qadir Karim Bux, Til Merchants, Sukkur and that of Mr. Muhammad Sultan, Sugar Merchant, Sukkur in the assessment year 1965-66 and so also of several other merchants in the remaining three assessment years under appeal, the Income Tax Officer reached the conclusion that the assessee had purchased tiles and sugar from the said parties. It may, here be noted that the statements of the said persons were recorded by the assessing officer behind the back of the assessee during the initial inquiry proceedings. On account of assessee's failure to produce the books of accounts he declined to accept the contention of the assessee that it had nor carried the manufacturing business of confectionary. He also did not find the plea of the ex-accountant's having taken the books of accounts to be correct. Relying upon the evidence of the parties recorded by him and disbelieving the contention of the appellant, the Income-tax Officer estimated the net income of the assessee from the manufacturing business by adopting the sales of self manufacturing confectionary items at Rs. one lakh, in each of the first two years and at Rs.3 lakh in the remaining two years and applying thereto a uniform rate of 25%. After allowing the expenses at Rs.5,221 in each year he added an income of Rs.20,000 to the assessed income in the first two years and Rs.55,000 to the-assessed income in the other two years. Thus the total income of the assessment years 1965-66 to 1968-69 were determined at Rs.35,608, Rs.38,000, Rs.75,000 and 79,401 respectively.
3. The appellant's Authorised Representative appearing before us assailed the re- assessments of the first two years under appeal as being bad in law or having been framed after the expiry of the prescribed period of six years. The original assessments for the years 1965-66 and 1966-67 were admittedly frames on 12-12-1965 and 23-12-1967 respectively whereas the revised assessments under section 23(3) read with section 34 were completed on 28-6-1973 in respect of all these years. His second argument was that the original assessments having been framed on agreement basis, the Income-tax Officer was not justified to reopen them. The next objection which he agitated in respect of all the years under appeal was that the Income-tax Officer had recorded the evidence of certain parties behind the back of the assessee and that he had based his conclusions on the said evidence without confronting the assessee therewith or providing him a chance to controvert the same. Thus the revised orders were passed in violation of the principle of natural justice. He also laid much emphasis on the fact that M/s. Ayub Rewri Works was also assessed in respect of all these years in the status of un-registered firm vide GIR/22-Sukkur. The Income-tax Officer, he also pointed out, had neither cancelled the assessments of M/s. Ayub Rewari Works for these years nor did he examine any of the part of the said unregistered firm. The appellant's representative also drew our attention to the fact that the assessment of M/s: Ayub Rewri Works had in fact been framed up to the assessment year 1973-74. The last assessment for the year 1973-74 was completed on 23-3-1974, namely, after the assessment under appeal had been completed. He also submitted before us a copy of the assessment order in respect of the charge year 1969-70 wherein the Income Tax Officer observed "that as far as the manufacture of confectionary is concerned, the inquiries are underway but are inconclusive. In the light of the declared amendments in the Income-Tax Act the assessment for the year under consideration will be getting time-barred after 30th June, 1973. Hence the assessment for the year under consideration is being finalised in this case, only taking into account the sale and purchase business of confectionary, declared by the assessee and the manufacture side which is not declared or admitted by the assessee firm will be dealt with at the subsequent stage in the light of the evidence collected at that time and according to the rules."
The Authorised Representative, therefore, laid great stress upon the fact that the Income-tax Officer was not decisive with regard to the assessee's carrying on the manufacturing business even up to the framing of an assessment in the year 1969-70 and of the subsequent years although these assessments were completed almost at the same time when the revised assessments under appeal were made. In this view of the matter the Income-tax Officer's action in holding that the assessee was engaged in manufacturing business in these years was contradictory in terms of assessment orders for the charge years 1969-70 to 1973-74. The learned Authorised Representative also drew our attention to the fact that the assessee had also filed appeals against the orders of assessment for the charge years 1969-70 to 1973-74 before the Tribunal challenging the excessiveness of the estimates of turnover and the Gross Profit rate and the Tribunal vide its order dated 23-10-1974 passed therein has allowed relief to the assessee. Alternatively, the assessee's Authorised Representative also challenged the excessiveness of the estimates of sales of the alleged self-manufacturing confectionary and the application of 25% Gross Profit rate thereto.
4. The learned Departmental Representative, on the other hand, supported the impugned orders. In his submission, the revised assessment orders in respect of the first two charge years under appeal were not barred by time inasmuch as, in his submission, section 34(IA)(b) is applicable only to original assessment and not to re-assessments. Hey also argued that subsection (2) of section 34 was an exception to this rule. He made his submissions on the same basis which were adopted by the Income-tax Officer in making the re-assessments and including the manufacturing income to the already assessed income of the assessee. He had however to conceded on the basis of the record available with him that the appellant had not been assessed in respect of manufacturing activity in the assessment years 1969-70 to 1974-75. He had also to admit that M/s. Ayub Rewri Works has been assessed right from the assessment year 1959-60 to assessment year 1973-74 and the case of M/s. Ayub Reweri Works was completed on 20-3-1973 whereas the assessments for the charge year 1970-71 too was completed on 26-6-1973 and that of the assessment years 1971-72 and 1972-73. both on 19-12-1973.
5. Having heard the arguments of the respective representatives of the parties and after a careful perusal of the provisions of section 34 of the Income tax Act we have not the least hesitation in agreeing with the contention of the appellant's Authorised Representative that the reassessments of the first two years have been made after the expiry of the prescribed period of six years. Moreover we are clearly of the view that the Income-tax Officer having failed to confront the assessee with the statements of the parties who had been examined by him behind the back of the assessee and upon whose testimony he had placed reliance, acted in flagrant violation of the principles of natural justice and fairplay and thus definitely rendered his orders bad in law. Besides, it is clearly borne out from the departmental record of the assessee-appellant before us that the Income-tax Officer was not yet clear with respect to the assessee being engaged in the manufacturing business as it is obviously clear from the observations made by him in the assessment orders for the charge years 1969-70 to 1973-74, which are duly and extensively reproduced hereinabove. It has been admitted before us by the Departmental Representative on the basis of the departmental record available with him that M/s. Ayub Rewri Works who was supposed to be a bogus party by the assessing officer while framing reassessments in the years under appeal, was actually an assessee vide GIR No.22/Sukkur ever since 1959-60 and that it had been regularly assessed for all the years up to the assessment year 1973-74 (inclusive of the four assessment years under appeal). We fail to understand as to how could the Income-tax Officer feel justified in taxing income of M/s. Ayub Rewri Works in the hands of the assessee without first cancelling or annulling the assessments already framed for these years in the case of the said assessee. Judged therefore from every point of view, there is no escape front the conclusion that the Income-tax Officer has proceeded arbitrarily and obviously acted illegally in reopening the agreed assessments in the case of the assessee-appellant before us in the years under consideration. Moreover it is further to be noted that the Income-tax Officer did not care the least to examine any of the partners of M/s. Ayub Rewri Works whose names were available to him.
6. In the aforesaid circumstances and for the foregoing reasons we would quash the orders under appeal with the result that the original orders of assessment framed in respect of these years shall stand restored.
In the result, all the four appeals succeed and are allowed as described above.
M.B.A./65/T.T.Appeals allowed.