I.TAS. NOS.2887/KB, 2888/KB, 2889/KB, 2891/KB AND 2892/KB OF 1993-94, VS I.TAS. NOS.2887/KB, 2888/KB, 2889/KB, 2891/KB AND 2892/KB OF 1993-94,
1995 PTD (Trib) 580
Before Muhammad Mujibullah Siddiqui Chairman and S.M. Sibtain, Accountant Member
I.TAs. Nos.2887/KB, 2888/KB, 2889/KB, 2891/KB and 2892/KB of 1993-94, decided on 13/12/1994.
(a) Income Tax Ordinance (XXXI of 1979)--
----S.65---Re-opening of assessment---Assessment cannot be re-opened on reappraisal of same facts and as a result of change of opinion---Where the assessment was re-opened on the report of Income Tax Inspector which he had submitted on the scrutiny of record which was already available at the time of original assessment and no new information had been received by the Assessing Officer justifying the re-opening of the assessment, it was a clear case of change of opinion and re-opening of assessment was not warranted by law.
(b) Income Tax Ordinance (XXXI of 1979)--
----S. 65---Re-opening of assessment---Re-opening of assessment proceedings on the basis of audit objection is not justified.
(c) Income Tax Ordinance (XXXI of 1979)--
----S.65---Re-opening of assessment---Assessing Officer is not empowered to review his own assessment order---Such authority of review thus cannot be exercised by the subordinate official---Where the assessment was re-opened on the report of Income Tax Inspector which he has submitted on the scrutiny of record which was already available at the time of original assessment and no new information had been received by the Assessing Officer, practice of re opening of assessment, in such a way would amount to open a pendora's box thus causing harassment to the assessee and would militate against the principle of finalisation of assessment---Tribunal depricated such practice and desired that Central Board of Revenue should consider the facts of the case and if deemed fit may issue necessary instructions to the Income Tax Authorities not to encourage the subordinate officials of the Assessing Officer for initiating such reports.
(d) Income Tax Ordinance (XXXI of 1979)--
----S. 65---Re-opening of assessment---Satisfaction of Income Tax Officer in consequence of information in his possession is a precondition for re-opening of assessment---Direction or satisfaction of Commissioner or I.A.C. cannot be a substitute for the satisfaction of the I.T.O.
(e) Income Tax Ordinance (XXXI of 1979)--
----S. 65--Re-opening of assessment---Department is not authorised to conduct fishing enquiries for the purpose of re-opening of assessment ---Assessee cannot be compelled after the completion of assessment to produce and reproduce the books of accounts and other evidence at the whim of Income-tax Authorities so that they may dig out some information which may provide an exercise for re-opening the assessment.
(f) Income-tax---
----Administration of justice---Commissioner of Income Tax and Inspecting Assistant Commissioner though are supposed to protect the State Revenue but in doing so they are not supposed to bypass and overlook all the provisions of law and to violate the norms of justice and start grinding the assessee for yielding revenue which may result in perpetration of injustice.
A.S. Jafri, I.T.P for Appellant.
M. Yousaf Butt, D.R. for Respondent.
Date of hearing: 4th September, 1994.
ORDER
MUHAMMAD MUJIBULLAH SIDDIOUI (CHAIRMAN).--The above appeals are directed against two separate orders of learned C.I.T.(A), Hyderabad dated 31-1-1994 in I.T.As. Nos. 21, 22, 23, 24 and 25. Since appeals against both the orders and by both the parties arise out of the same set of facts, therefore, the appeals have been heard together and are disposed of by this consolidated order.
2. Heard Mr. A.S. Jafri, ITP, learned representative for the appellants and Mr. Muhammad Yousuf Butt, learned representative for the department.
3. The first common objection raised in all the appeals is to the reopening of assessments. The original assessments in all the assessment years under consideration were completed and were reopened in very strange circumstances. On 3-8-1988 S. Ahmed Ali, Income Tax Inspector, Tando Adam submitted a report which is reproduced below:
"REPORT REGARDING CONCEALMENT/EVASION OF TAX IN THE CASE OF M/S. SARWARY COTTON FACTORY HALA FOR THE ASSESSMENT YEARS 1985-86, 1986-87 AND 1987-88"
During the course of scrutiny of record for the purpose of recovery of arrear demand as well as current, it has found some discrepancies in statement of account which have been filed by the assessee alongwith return of income, my observation/findings are as under:
(1) that the assessee is a registered firm and engaged in Cotton Ginning and Pressing business.
(2)That the assessment for the years 1984-85 and 1985-86 has been finalized under section 62 of the Income Tax Ordinance. 1979 at Rs.50,000 and Rs.50,000 respectively. Assessment for the years 1986-87 and 198/-88 have been processed under section 59 (1) under Self-Assessment Scheme at Rs.60,300 and Rs.77,500 respectively.
(3) ASSESSMENT YEAR 1984-85:
That the assessee filed return of income for the year 1984-85 alongwith manufacturing Profit and Loss Account, chart of depreciation, loss distribution, partners account and balance-sheet and declared loss at Rs.82,243.
In manufacturing Profit and Loss Account assessee's firm shown closing stock at Rs.2,95,050 the same amount shown in balance-sheet on assets side as closing stock which is correct according to accounting principle and law, but in the following assessment years assessee has not adopted/followed this principle and found discrepancies.
(4) ASSESSMENT YEAR 1985-86:
That the assessee filed return of income for the assessment year 1985-86 at loss of Rs.1,00,424 alongwith manufacturing Profit and Loss Account, chart of depreciation allocation of loss, partners account and balance-sheet. The manufacturing Profit and Loss Account shows following sales and closing stock:---
| Sale of C/Lint: | Rs.2,03,38,835.28 |
| Sale C/Seed (54,022 Mds.) | Rs. 62,41,644.62 |
| Closing stock (7,500 Mds.) | Rs. 8,25,000.00 |
| Loss for the year | Rs. 1,00,424.15 |
Against the sales and closing stock of Rs.2,73,95,480 assessee claimed trading and profit and loss account expenditure of Rs.2,74,95,904 and resulted net loss comes to Rs.1,00,424. The scrutiny of balance-sheet shows that there is no closing stock of Rs.8,25,000 found in assets side the balance-sheet filed by the assessee is as under:
BALANCE-SHEET
LIABILTTIESASSETS
| Haji Abdul Alim | 20,526.21 | Mst. Shahzadi | 1,665.92 |
| Haji Muhammad Khan | 1,00,755.11 | Mst. Kulsoom | 15,356.34 |
| Haji Abdul Razzak | 65,324.10 | Machinery | 3,24,608.72 |
| Haji Yar Muhammad | 1,00,755.90 | Building | 4,38,037.73 |
| HBL C.D. 873 | 27,445.90 | Furniture | 2,028.88 |
| HBL C.C. A/c | 26,82,925.63 | Electric Motor | 43,163.94 |
| Haji A. Razzak | 89.09 | U.B.L. Hala | 15.56 |
| Mst. Zaibunnissa | 18,333.09 | Motor-cycle | 134,75.00 |
| Sundry Creditors | 19,89,254.48 | ABL A/c 146 | 286.63 |
| | | Advance for I.Tax | 35,266.15 |
| | | HBL Hyd. 12606 | 500.0 |
| | | Store & Stock | 23,824.85 |
| | | Hala Cotton Fac | 8,28,600.52 |
| | | Haji Abdul Alim | 1,925.21 |
| | | HBL A/c Mill | 1,251.00 |
| | | Sundry debtors | 31,98,440.85 |
| | | Cash Balance | 748.85 |
| | 50,09,197.15 | | 5,09,197.15 |
The closing stock amounting to Rs.850,000 which have not been shown/declared in balance-sheet which found unaccounted for assets in balance-sheet which may be added in total income of the assessee as speculative profit are some other manner after getting explanation by the assessee. As regard speculative profit please see the problem and solution No.17 of Registered firm in Income-tax problem and solution Volume 2 A.Y. 1981-82 written by Luqman Baig, CA. at pages No.0614 and No.153.
(5) ASSESSMENT YEAR 1986-87:
That the assessee filed return of income for the year 1986-87 at Rs.60,300 alongwith manufacturing profit and loss account, allocation of profit, partners account and balance-sheet. The manufacturing Profit and Loss A/c shows following sales and closing stock:--
| Sale of cotton lint 5,400 bales (8,80,108 Kgs.) | 1,10,15,743.08 |
| Sale of R/Oil (54,844 Kgs) | 4,70,206,65 |
| Sale of Gad (13,770 Kgs) | 28,572.75 |
| Sale of Oil-Cake (13,070 Kgs) | 6,97,785.03 |
| Sale of C/Seed (23,326 Mds.) | 17,88,640.56 |
| Closing stock 3,886 (3,886 Mds. Oil-Cake) | 2,52,591.19 |
The scrutiny of balance-sheet shows that there is closing stock of Rs.13,70,493 which is not tallying with the closing stock shown in manufacturing account at Rs.252,591.19 there is vast difference of Rs.11,17,902.
This amount of Rs.11,17,902, may be added in total income of the assessee as speculative profit or some other manner after getting necessary explanation by the assesee.
(6) ASSESSMENT YEAR 1987-88:
That the assessee filed return of income for the year 1987-88 at Rs.77;500 alongwith manufacturing Profit and Loss Account, allocation of profit, capital Accounts of partner and balance-sheet. The manufacturing profit and loss account shows following sales and closing stock;
| Sale of C/Line (7524-B) (1272032 Kgs) | 1,54,33,530.66 |
| Sale of C/Seed | 25,93,132.00 |
| Sale of Oil-Cake | 12,84,465.06 |
| Sale of Refine Oil | 7,04,983.00 |
| Sale of Gad | 63,350.00 |
| Closing stock | 7,01,522.24 |
The scrutiny of balance-sheet shows that there is found closing stock of Rs.17,33,847.27 which is not tallying with the closing stock shown in manufacturing account at Rs.7.01,522.24 there is vast difference of Rs.10,32,325.03 this amount of Rs.10,32,325.03 may be added in total income of the assessee as speculative profit or some other manner after getting necessary explanation.
7. The above discrepancies in statement of account show that there is huge concealment/evasion of tax in this case which can be unearthed.
Necessary show-cause notice in this regard may be issued to assessee's firm and thereafter case may be reopened under section 65 of he Income Tax Ordinance, 1979 for the assessment years 1985-86, 1986 87 and 1987-88.
(Sd.)
(Syed Ahmed Ali),
Income Tax Inspector,
Tando Adam.
REPORT REGARDING CONCEALMENT/EVASION OF TAX 1N THE CASE OF M/S. HALA COTTON GINNERS FAC: HALA. FOR THE ASSESSMENT YEARS 1985-86 AND 1986-87
In continuation of my previous report dated 3-8-1988 in the case of M/s. Sarwary Cotton, Ginners and Oil Mill, Hala which is the sister concern of above-named assessee s firm, scrutiny of balance-sheet and manufacturing account filed by the assessee found same discrepancies as reported in the case of M/s. Sarwary Cotton and Oil Mill, Hala details of which are as under:--
ASSESSMENT YEAR 1985:-
| Closing stock shown in manufacturing account | Rs.6,58,130 |
| Closing stock shown in balance-sheet. | Rs. NIL |
ASSESSMENT YEAR 1986-87
| Closing stock shown in manufacturing account | Rs.2,94,674.40 |
| Closing stock shown in balance-sheet. | Rs. NIL |
The above discrepancies in statement of account show that there is huge concealment/evasion of tax in this case which can be unearthed.
Necessary show-cause notice in this regard may be issued to assessee's firm and thereafter case may be reopened under section 65 of the Income-tax Ordinance, 1979 for the assessment years 1985-86 and 1986-87. D.F.A. of show-cause notice is herewith for your kind approval.
(Sd.)
(Syed Ahmed Ali),
Income Tax Inspector,
Tando Adam
It appears that proceedings were initiated on the basis of above report and a letter which is undated was issued to the appellant, calling upon the appellants to submit detailed explanation which is reproduced below:
"INCOME TAX OFFICER T. ADAM
NO.ITO/T.ADAM/ ./1989-90Dated
To
M/s. Sarwary Cotton,
Factory, Hala.
SUBJECT: ASSESSMENT YEARS 1985-86, 1986-87 AND 1987-88- INTENTION TO REOPEN THE CASE UNDER SECTION 65- EXPLANATION REGARDING
On going through the record the following discrepancies have been noted which required your explanation.
ASSESSMENT YEAR 1985-86:
The closing stock amounting to Rs.8,25,000 shown in the manufacturing account has not been disclosed in the balance-sheet correctly, please furnish your detailed explanation in this regard.
ASSESSMENT YEAR 1986-87:
You have shown closing stock amounting to Rs.13,70,493 whereas closing stock for the assessment year 1985-86 has not been accounted for in the opening stock, please reconcile the figure and explain your position as to why assessment may not be reopened and difference of closing stock be added in your income as unexplained under section 13(1)(aa).
ASSESSMENT YEAR 1987-88:
You have shown closing stock in the manufacturing account of Rs.7,01,522 whereas in the balance-sheet it stands at Rs.17,33,847 thus difference of both the accounts which comes to Rs.10,31,325. Please reconcile the figure and explain your position.
You are requested to please submit your detailed explanation for the above assessment years i.e. 1985-86,1986-87 and 1987-88 within 7 days of the receipt of this letter, failure to comply with any term of this letter shall result the reopening of the assessment under section 65 of the Income Tax Ordinance, 1979 without further correspondence.
(Sd.)
(Javed Hasan Siddiqi),
Assistant Income Tax Officer,
Tando Adam."
4. The explanation was furnished on behalf of the appellant which was probably accepted by the assessing officer but it was not acceptable to Mr. Abdul Ghafoor Junejo, the learned 1.A.C. Range-1, Hyderabad who conveyed his non-acceptance to the assessing officer vide letter dated 9-9-1989 which is reproduced below:
"OFFICE OF THE INSPECTING ASSISTANT COMMISSIONER OF
INCOME TAX RANGE-1, HYDERABAD
No.IAC/IT/R-1/Hy./692/89-90 Dated 9-9-1989.
To
The Assistant Income Tax Officer,
Tando Adam.
Subject: M,/S SARWARY COTTON GINNING FACTORY. HALA. ASSESSMENT YEARS 1985-86 TO 1987-88.
The explanation given by the Manager of the assessee vide his letter dated 2-8-1989 and accepted by you is not correct. They should prove from their books of account that the closing stock included in sundry debtors. The closing stock is closing stock, and it is not sundry debtor. If the assessee in 15 days' time fails to prove this contention from his books of account then you shall request this office for permission of action under section 65 of the Income-tax Ordinance, 1979 for all above assessment years.
(Sd.)
(Abdul Ghafoor Junejo),
Inspecting Assistant Commissioner
of Income-tax, Range 1, Hyderabad."
5. While these proceedings were going on the Income Tax Inspector became impatient probably for the reason that he was expecting some handsome reward and, therefore, he submitted an application dated 3-5-1990 to the Inspecting Assistant Commissioner, Hyderabad, Hyderabad Range, Hyderabad which is reproduced below:
"To
The Inspecting Assistant
Commissioner of Income-tax,
Hyderabad R-1, Hyderabad.
THROUGH PROPER CHANNEL
SUB: Rel2ort-regarding concealment /evasion of Tax in the case of (1) M/s Sarwary Cotton Factory Hala (2) M/s. Hala Cotton Ginners Factory Hala for the Assessment Years 1985-86. 1986-87 and 1987-88.
Respectfully I beg to submit that during my posting at Income Tax Officer, Tando. Adam I, reported two concealment/potential cases on 3-7-1988 in the interest of Government Revenue where serious discrepancies were detected in statement of account furnished by the assessee's firms named below:--
(1) M/s. Sarwary Cotton Factory, Hala.
(2) M/s. Hala Cotton Ginners Factory, Hala.
The photostat copies of my report are enclosed herewith.
In this connection I have the honour to request that the Income Tax Officer, Tando Adam may be directed to proceed reopen the revenue yielding cases and finalised the assessment, thus, I would be able to claim admissible reward.
Thanks
Yours obediently
(Sd.)
(Syed Ahmed Ali),
Income Tax Inspector,
Circle III, Hyderabad.
OFFICE OF THE INCOME TAX OFFICER,
CIRCLE III, HYDERABAD
No.ITO/CIR:(I11)/IT/HYD/89-90/468 Dated 3-5-1990
Forwarded to the Inspecting Assistant Commissioner of Income-tax, Hyderabad Range-1, Hyderabad for necessary action.
(Sd.)
(Dr. Farrukh Ansari),
Income Tax Officer,
Circle III, Hyderabad."
6. The application was forwarded to the Income Tax Officer by the IA,C. vide letter dated 5-5-1990 which is reproduced below:--
"OFFICE OF THE INSPECTING ASSISTANT
COMMISSIONER OF INCOME TAX RANGE I, HYDERABAD
No.Jud.IAC, 1: Hyd/89-90/2382 Dated 5-5-1990
To
The Income Tax Officer,
Tando Adam.
Sub: Report regarding concealment/evasion of Tax in the cases of (1) M/s. Sarwary Cotton Factory, Hala (2) M/s. Hala Cotton-Ginners Factory, Hala for the assessment years 1985-86, 1986-87 and 1987-88.
Enclosed please find herewith application of Syed Ahmed Ali, Income-tax Inspector of Circle III, Hyderabad alongwith copies of his reports in the above cases.
You are hereby asked to examine the case papers of these assessees in detail and furnish your report/comments by 15-5-1990.
(Sd.)
Encl: As above(Iqbal Ahmed),
Inspecting Assistant,
Commissioner of Income-tax,
Range 1, Hyderabad."
7. On receiving above letter the Income Tax Officer issued a letter dated 29-5-1990 to the appellant calling upon the appellant to submit explanation alongwith books of accounts failing which the assessments were to be reopened. The letter is reproduced as follows:---
"OFFICE OF THE INCOME TAX OFFICER,
TANDO ADAM
No.ITO/TDM/89-90/1126Dated 29-5-1990
M/s. Sarwary Cotton Ginning Factory, Hala.
Sub:EXPLANATION/PRODUCTION OF BOOKS OF
ACCOUNTS.
This is with reference to earlier correspondence on the basis of report of Inspector of this Circle, wherein you were required to explain that why the closing stock mentioned in trading account has been totally omitted or shown at a different figure in the balance-sheet for the assessment years 1985-86, 1986-87 and 1987-88.
Your explanation regarding inclusion of closing stock in sundry debtors is considerable only when the contention is proved from books of accounts for the years mentioned above.
You are therefore required to submit your explanation alongwith books of accounts mentioned for the relevant cotton season.
Compliance should be made not later than 5-6-1990 in case of non compliance the assessment will be reopened.
(Sd.)
(Dr. Manzoor Ahmed Memon),
Income Tax Officer, Tando Adam."
8. The report was submitted to the I.A.C. on 30-5-1990 which reads as under:-
OFFICE THE INVCOME TAX OFFICER
TANDO ADAM
No. ITO/TDM/89-90/1128
The I.A.C. of Income-tax,
Range 1, Hyderabad
Sub: Report regarding concealment /evasion of Tax in the case of (1) M/s. Sarwary Cotton Factory Hala,(2) M/s. Hala Cotton Ginners Factory -- Assessment Years 1985-86, 1986-87 and 1987-88.
Reference No.Jud.IAC, R.I: Hyd./89-90/2382 Dated 5-5-1990
I have the honour to submit my report after perusal of record of the assessee as under:--
(1) M/S. SARWARY COTTON GINNING FACTORY, HALA
In this case of R.F. Mr. Ahmed Ali, ITI, of Circle III, has reported that in the assessment years 1985-86, 1986-87 and 1987-88 closing stock shown in trading account has not been mentioned/declared on asset side, therefore, the balance-sheet actually do not tally on both sides. The difference is addable under section 13 of Income Tax Ordinance, 1979.
A show-cause was issued, in response the assessee contended that in balance-sheet, closing stock was included in sundry debtors. This explanation was accepted by the then I.T.O. However, the learned IA.C. Range-1, vide his letter dated 9-9-1989, instructed that this explanation can only be accepted after perusal of books of accounts.
(2) M/S. HALA COTTON GINNING FACTORY, HALA
In this case again, the ITI has reported regarding non-declaration of closing stock in the balance-sheet, which was declared in trading account.
No correspondence and ITI's report is available in record.
In this context, a separate letter is being issued to both the firms to produce books of accounts to verify their contention that closing stock was included in sundry debtors. The date of compliance in both cases is fixed on 5-6-1990. Report will be submitted to your good office on 7-6-1990 after compliance from the assessee.
(Sd.)
(Dr. Manzoor Ahmed Memon),
Income Tax Officer, Tando Adam."
9. The correspondence continued between the Assessing Officer and the I.A.C. and another letter dated 26-6-1990 was written by the I.A.C. to the Income Tax Officer which is reproduced below:
"OFFICE OF THE
INSPECTING ASSISTANT COMMISSIONER
OF INCOME TAX RANGE-1, HYDERABAD.
NO.JUD/IAC(R.1)/90-91/522 Dated 26-9-1990
To
The Income-tax Officer,
Tando Adam.
Sub: REPORT REGARDING CONCEALMENT/EVASION OF TAX IN CASES OF (1) M/S. SARWARY COTTON FACTORY, HALA, (2) HALA COTTON-GINNERS FACTORY, ASSESSMENT YEARS 1985-86, 1986-87 AND 1987-88
Reference. This Office Letter No. 3544 Dated 18-6-1990 on the subject noted above.
Reference above. Your report on the above subject-matter was due by return of post but you have failed to submit the same in time.
You are once again directed to please submit your detailed report on the matter alongwith your explanation for inordinate delay. The report of I.T.I. in the case of M/s. Hala Cotton-Ginners Factory, Hala is enclosed herewith for necessary action.
Your report should reach to the undersigned by return of post.
(Sd.)
(M. JAVED KHAN),
INSPECTING ASSESSMENT COMMISSIONER
OF INCOME TAX RANGE.1, HYDERABAD."
10. The assessing officer submitted his report to I.A.C. after demanding books of accounts from the assessee for the purpose of searching out the facts in order to reopen the assessments in the light of discrepancies pointed out by the Income Tax Inspector and the direction of superior officers in this behalf from time to time. The letter dated 30-9-1990 by the I.T.O. addressed to the IA.C. reads as follows:.
"OFFICE OF THE INCOME TAX OFFICER, TANDO ADAM
No.ITO: T.ADAM/90-91/183Dated 30-9-90
To
The IA.C. of Income-tax Range-1, Hyderabad.
Sub: REPORT REGARDING CONCEALMENT/EVASION OF TAX IN CASE OF (1) M/S. SARWARY COTTON FACTORY, HALA, (2) M/S. HALA COTTON GINNERS FACTORY, ASSESSMENT YEARS 1985-86,1986-87 AND 1987-88
Kindly refer to your Office Letter No. 522 dated 26-9-1990 on the subject noted above.
I have the honour to submit the report as under:
In both the above cotton ginning factories, the I.T.I. Mr. Ahmed Ali reported that the closing stock has shown in trading account of the Factory for the assessment years 1985-86 and 1986-87 is not shown in balance-sheet and balance-sheet has been tallied without mentioned any closing stock, which is a clear concealment because if the closing account is added, both sides of balance-sheet will not be tallied.
In reply to show-cause notice the assessee contended that the closing stock was in sundry debtors. This contention was accepted by the then I.T.O. but after that instruction from worthy IAC vide his Letter No.692 dated 9-9-1989 issued instructions that books of accounts should be checked to verify the contention of the assessee that the sundry debtors and closing stocks have been mentioned jointly. The assessee has not produced the books of accounts yet on the plea that the factories are not working since two years, the staff is not available and hence it is not possible to locate the books of accounts. However, the assessee has produced the books of accounts and has requested for adjournment for one month vide his letter dated 16-9-1990.
A final opportunity is being provided to the assessee and he is being asked to produce the books of accounts on or before 27-10-1990. In case the assessee again avoids the production of the books of accounts, the same will be submitted to your honour for permission to reopen the assessment for the relevant years on the basis of discrepancies pointed out by the I.T.I. mentioned above. Submitted as desired.
(Sd.)
(DR. MANZOOR AHMED MEMON),
INCOME TAX OFFICER, TANDO
ADAM."
11. Ultimately permission to reopen the assessments was granted by the IA.C. vide letter dated 13-12-1990.
12. After reopening of assessments fresh notices were issued and the additions were made which are the subject-matter of this appeal. As already stated above assessments in the case of both the assessees namely M/s. Sarwary Cotton Factory and M/s. Hala Cotton Ginning Factory were reopened on the basis of Income-Tax Inspector's report and the proceedings were undertaken simultaneously and were completed simultaneously. The appellants preferred appeals before the learned C.I.T.(A), Hyderabad and appeals in respect of both the assessees were decided on the same day, i.e., 31-1-1994. In case of both the assesses the objections were taken to the reopening of assessments which is apparent from the opening parts of the orders by the learned C.I.T.(A) in respect of both the assessees. However, a perusal of the order of learned C.I.T.(A) in respect of M/s. Hala Cotton Ginning Factory shows that the learned C.I.T:(A) in spite of having stated that objections have been taken to reopening of assessments under section 65 has omitted to give any finding on this objection and has merely considered the validity of addition on merits. In the case of M/s. Sarwary Cotton Factory the learned C.I.T.(A) has dealt with the objection in a very cursory manner and has observed that, "I have considered the position of the department as well as that of the appellant and I am of the view that the appellant has no case either against initial issuance of notices under section 65 or against the impugned additions under section 13(1)(c) in each year as after having affirmed that the closing stocks were part of the figures of sundry debtors, the books of accounts were not produced for scrutiny before the assessing officer".
13. The learned counsel for the appellant has vehemently argued before us that in the present appeals there was no justification for reopening of assessments and the resort to the provisions contained in section 65 in the circumstances obtaining on record amounts to clear harassment. The learned counsel for the appellant has submitted that the entire proceedings were initiated on the basis of a report submitted by Income-tax Inspector and in the very opening part it is stated, "during the course of scrutiny of record for the purpose of recovery of arrear demand as well as current, it has found some discrepancies in statement of accounts which have been filed by the assessee alongwith the return of income". The above observation shows that no new information came in possession of department and the proceedings were initiated on the scrutiny of record by the Income Tax Inspector. Thus, even if the report by the Income Tax Inspector is deemed sufficient for reopening of the assessment it is a clear case of change of opinion. The learned counsel for the appellant has submitted that the assessing officer was also conscious of this infirmity in the reopening of assessment and, therefore, he has observed that, "there may be dispute though it has not been raised by the assessee that as the record was available before the I.T.O. at the time of original assessment, therefore, now after lapse of such time reopening of the case is unjustified. To meet the ends of justice it is clarified that the original assessment order was not conscious order. Therefore, the case is reopened on justified grounds". The learned counsel for the appellant has contended that merely saying that the original assessment order was not a conscious order is not sufficient justification for reopening of assessment. The fact is that entire material was available on record at the time of original assessments and the second opinion is based on reappraisal of the same facts. He has further submitted that if there is any negligence (which according to the learned counsel is not there) an assessee should not be made to suffer. No Assessee should be put to harassment because of the ignorance, inefficiency or the negligence of the assessing officer. In such circumstances instead of causing harassment to the assessees the superior officers in the administrative hierarchy should take their assessing officers to task. He has further submitted that in addition to the fact that it is a case of clear change of opinion a very dangerous pattern has been set by the I.A.C. and Commissioner. The learned counsel has submitted that if the Income Tax Inspector who is a subordinate official to the assessing officer and is not an assessing officer himself is allowed to scrutinize the assessment record and examine the assessment order to find out the propriety and legality of the order then in fact it would amount to conferring the authority on him which is vested in I.A.C. under section 66-A. Thus, an officer subordinate to the assessing officer shall virtually become a revising officer and then it shall not remain confined to Income Tax Inspector only but every subordinate official in the office of I.T.O. shall start scrutinizing the record after the completion of assessment and shall venture to submit his report to the subsequent assessing officer or the superior officers in the hierarchy in the hope of getting reward as demanded by the Income Tax Inspector in the present case. The Income Tax Inspector has addressed two letters to the I.A.C. and C.I.T. dated 3-5-1990 and 24-4-1991 requesting that, "the I.T.O., Tando Adam may be directed to proceed/reopen the revenue yielding cases and finalize the assessment. Thus, I would be able to claim admissible reward" and "the I.T.O. Tando Adam may be asked to furnish necessary report in these cases for maturity of reward and reward may be sanctioned". The learned counsel for the appellant has submitted that if such practice is allowed then just for the lust of reward every subordinate official in the office of assessing officer shall start scrutinizing the assessment record and probe in every concluded assessment with the result that there would be no sanctity to the principle of finalization of assessment. The consequences would be that every assessee would be at the mercy of every subordinate official of the assessing officer on one hand which will cause unimaginable harassment and other undesirable attempts on the part of subordinate officials and on the other hand there would be no administrative or judicial discipline in the department. The learned counsel has further submitted that in the present case the assessing officer has been directed rather forced to reopen the assessments and the explanation given by the assessee and accepted by the assessing officer was not acceptable to the I.A.C. so much so that the IA.C. has asked the assessing officer to direct the assessee to produce the books of accounts in a case which already stood closed and he has been further directed to obtain permission for reopening of assessment. The learned counsel has contended that the direction of I.A.C. to ask the assessee for producing the books of accounts in a case of completed assessment is absolutely illegal, unjustified and in excess of jurisdiction because after the completion of assessment the assessing officer becomes functus officio and has no authority to direct any assessee for producing books of accounts or any other documents prior to the reopening of assessment. He has further submitted that after the completion of assessment the assessing authority cannot direct an assessee for producing the books in order to dig out further information for the purpose of reopening an assessment.
14. On the other hand, the, learned D.R. has supported the reopening of the assessment. We have given our anxious consideration to the material placed on record and the contentions raised by the learned representatives for the parties. We are persuaded to agree with the submission of learned counsel for the appellant that the reopening of the assessments was not warranted in law. The reason being that it is admitted fact that all the assessments have been reopened on the report of Income Tax Inspector which he has submitted on, the scrutiny of record which was already available at the time of original assessments. The assessing officer has himself conceded to this fact in the assessment orders. It appears that under the compulsion of circumstances whereby he was being forced by superior officers to reopen the assessments he has tried to justify the reopening in a very lukewarm manner and just as a matter of excuse, in observing that the original assessment orders were not conscious order. It would not provide sufficient justification for reopening of assessments. There is plethora of judgments on the point as to what amounts to change of opinion and, therefore, we need not to dilate on this point in detail. In short it has been held consistently that if on consideration of certain facts an assessing officer has drawn certain conclusions then the same assessing officer or his successor is not allowed to infer some other conclusions on reappraisal of same facts and same provisions of law. The reason being that the principle of finalization of assessment is one of the basic and fundamental principles of the law of taxation. On one hand the law has allowed the assessing officer to reopen the assessments on fulfillments of conditions contained in section 65 of the Income Tax Ordinance, 1979 in order to safeguard the State revenue and at the same time the law has taken care of, whereby the interest of an assessee is also safeguarded. On the basis of statutory law and the case-law on the point of reopening of assessments it is now established principle that no assessment is to be reopened on reappraisal of same facts and as a result of change of opinion. In the present case we find that no new information was received by the assessing officer justifying the reopening of assessments. Thus, it is a clear case of change of opinion.
15. In addition to the above fact we further find that the assessment has been reopened in consequence of a report initiated by the Income Tax Inspector. We find sufficient force in the contention of learned counsel for the appellant that the reopening of assessment on this report is unjustified and illegal for various reasons. First, it has been decided in a number of cases in Pakistan as well as India that the re-assessment proceedings initiated on basis of audit objection was not justified. The reason being that the audit department raises objection on appraisal of the same facts which have been examined by the assessing officer. If the proceedings initiated on the basis of audit objecti6n is not sustainable it cannot be conceived that any proceedings initiated on the basis of a subordinate official can have any legal validity. It is admitted position in law that an assessing officer is not empowered to review his own order, therefore, the question of giving such authority to a subordinate official does not arise. Such, practice would amount to open the pandora's box and is fraught with such dangerous consequences that it may lead to the destruction of entire system of assessment, if every subordinate official of the assessing officer is allowed to scrutinize the record after the completion of assessment in the hope of getting reward or with ulterior motive for causing harassment to the assessees. All the assessees would be at the mercy of all the subordinate officials in the Income Tax Department so long the period of limitation for reopening of assessment does not expire. On one hand, it would open flood gate for corruption and indiscipline in the department and on the other hand it will militate against the principle of finalization of assessment. Thirdly, the satisfaction of I.T.O, in consequence of information in his possession is a pre condition for reopening of assessment. A direction or satisfaction of Commissioner or I.A.C. cannot be a substitute for the satisfaction of the I.T.O. In the present case we have found that the assessment has been reopened p actually at the initiative of Income Tax Inspector in the hope of getting reward and on the direction of I.A.C. and Commissioner who have virtually directed time and again to the assessing officer to reopen the assessment and seek their approval in this behalf. Of course the IA.C. and Commissioner can assist, guide or instruct the I.T.O. by virtue of provision contained in section 7 of the Income Tax Ordinance, 1979 but it does not mean that they should substitute their directions for the satisfaction of I.T.O. which is a condition precedent for the reopening of assessment. Fourthly, we have observed on scrutiny of record that even the I.A.C. who was controlling the entire proceedings culminating in reopening of the assessments did not find the report of Income Tax Inspector sufficient for reopening of assessment and, therefore, he directed the assessing officer to call for the books of accounts from the assessee. It means that the assessee was required to produce the books of accounts and was further required to prove-that the assessment order contained correct appreciation of facts and correct findings. Thus, not only an uncalled for harassment was caused to the assessee by exercise of an authority which was not vested in the assessing officer having become functus officio after the completion of assessment but at the same time the assessee was saddled with the responsibility which he is not required to discharge under any provision of law. The department is not authorised to conduct fishing enquiries for the purpose of reopening of assessments and particularly the assessee cannot be compelled after the completion of assessment to produce and reproduce the books of accounts and other evidence at the whim of income-tax authorities so that they may dig out some information which may provide an excuse for reopening of assessment. In the present case we have observed that the departmental officers have acted in a manner which is not in consonance with the avowed principles of law and the spirit of the law of taxation. We have observed while going through the record that learned C.I.T., Hyderabad Zone appeared to be over-obsessed with the idea that the cases were "revenue yielding." Of course, it is the duty of I.A.C. and C.I.T. to protect the State revenue but in doing so they are not supposed to bypass and overlook all the provisions of law and to violate the norms of justice and start grinding the assessees for yielding revenue which may result in perpetration of injustice.
16. For the foregoing reasons we are convinced without any scintilla of doubt in our mind that the reopening of case on the basis of report submitted by Income Tax Inspector on scrutiny of record was not proper and the C.I.T., Hyderabad was not justified in forcing the assessing officer for reopening of the assessments.
17. In view of the above findings we need not to dilate on the merits of the case because the entire proceedings on the basis of illegal reopening of assessment shall stand vitiated. It is held that the entire re-assessment proceedings on the basis of illegal reopening of the assessments were without jurisdiction and void in law. The findings of the learned two officers below are hereby vacated and the re-assessment orders are hereby cancelled. The original assessment orders stand restored.
18. Before parting with this order we would like to observe that the C.B.R. should consider the facts of the present case and if deemed fit may issue necessary instructions to all the income-tax authorities not to encourage the subordinate officials of the assessing officers for initiating such reports which if allowed to continue shall set a very bad precedent and would destroy the entire discipline and system in the department. Such subordinate officials should be awarded necessary punishment instead of granting any reward to them as they bring only a bad name to the department.
19. The appeals are allowed as above.
M.BA./681/TAppeals allowed.