I.TA. NO.3468/KB OF 1993-94, DECIDED ON 12TH DECEMBER, 1994. VS I.TA. NO.3468/KB OF 1993-94, DECIDED ON 12TH DECEMBER, 1994.
1995 P T D (Trib.) 624
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman, Tahseen Ahmad Bhatti, Judicial Member, Asad Arif, AS.K Sheerani and Mehboob Alan, Accountant Members
I.TA. No.3468/KB of 1993-94, decided on 12/12/1994.
(a) Income-tax Act (XI of 1922)--
----S. 4(2-A to 2-F)---Income Tax Ordinance (XXXI of 1979), S.13(1) & (2)-- Resume of law and concept relating to cash credits and unexplained investments, expenditure etc. as applicable in Pakistan---Provisions of S.4 (2-A to 2-F), Income-tax Act, 1922 and S.13(1) & (2) of the Income Tax Ordinance, 1979 compared.
(b) Income Tax Appellate Tribunal Procedure Rules, 1981--
----R. 14---Appeal before Tribunal---Tribunal is not bound to confine its finding on the grounds taken by the parties---Tribunal, however, shall not rest its decision on any ground, unless the party who may be affected thereby had a sufficient opportunity of being heard on that ground.
(c) Income Tax Ordinance (XXXI of 1979)
----S. 13(1) & (2)---Deemed income---Unexplained investment -Addition-- Notice--- Purpose---While making addition under S.13(1) or 13(2) of the Income Tax Ordinance, 1979 the Assessing Officer is not required to issue two separate and distinct notices at two different stages---In either situation, the issuance of one notice is sufficient provided the requirements of law are complied with.---[1991 PTD (Trib.) 758 overruled].
The legislature has postulated two situations in the context whereof the notices are required to be issued. The first situation is when no estimate is to be made which falls under subsection (1) of section 13 of the Income Tax Ordinance, 1979 and the second situation is when an element of estimate is involved and notwithstanding the use of different expressions the intention is that in either situation only one notice is to be issued with the difference that in the first situation the assessing officer shall call upon the assessee to explain the nature and source of investment etc. only while in the second situation the Assessing Officer shall call upon the assessee id addition to the explanation regarding nature and source of investment the explanation on the point of valuation of the property as well by confronting with the material forming basis of his opinion that the declared investment etc. is too low. The intention of legislature is that in either situation the assessee should know the case which he is required to meet and the reasonable opportunity of being heard should be provided so that the requirements of natural justice are fulfilled. The legislature has not deemed fit to prescribe any specific procedure in this behalf and has left the discretion with the assessing officer, therefore, the Tribunal in exercise of its appellate jurisdiction can examine if the intent and purport of the legislation has been fulfilled or not, but is not empowered to embark on prescribing a procedure which amounts to travelling beyond the realm of interpretation and tantamounts to entering into the field of legislation which is not permitted in law. In exercise of the appellate jurisdiction the scrutiny and decision should be confined to the limits whereby the finding is given on the point if the facts have been properly appreciated, the law has been properly appreciated and applied and the intention of the legislature has been properly understood and implemented. The Courts are not supposed to enter into the field of legislature or to relegate themselves to the authority to exercise the authority of delegated legislation. The authority of enacting any statutory law is vested exclusively in the legislature while the rules can be made either by the legislature or by the authority to whom the legislature has authorised to exercise the powers of delegated legislation. In any case the framing of rules or procedure does not come within the purview of exercise of judicial authority. For example, the Income-tax Appellate Tribunal is empowered to frame rules under subsection (8) of section 133 to regulate its own procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions. These rules have been framed by the Tribunal but not in exercise of judicial authority as an appellate forum but in exercise of administrative authority. On the other hand, C.B.R. has been empowered under section 165 to make rules for carrying out the purpose of the Income-tax Ordinance. In exercise of this authority the C.B.R. has framed Income Tax Rules, 1982. Under various other sections the C.B.R. has been empowered to frame rules for carrying out the purposes of those provisions. The result of exceeding the limits of interpretation and entering the realm of legislation is that various Benches of the Tribunal have given their own view on the point of procedure which has caused confusion.
In a situation where subsection (2) of section 13 is applicable the assessing officer is not required to read the provisions contained in subsection (1) of section 13 separately but to read the provisions contained therein as a part of subsection (2) of section 13 with the result that whenever a case falls within the situation envisaged under subsection (1). of section 13 the assessing officer shall be required to issue notice to an assessee calling upon him to offer explanation about the nature and source of such sum, investment etc. In the cases falling under the situation envisaged under subsection (2) of section 13 the assessing officer shall issue a notice to the assessee under subsection (2) only with the difference that while issuing notice under subsection (2) he will disclose his mind to an assessee in respect of the value of investment or article or the amount of expenditure and shall call upon the assessee to give explanation about the nature and source of such value of investment or article etc. It requires no emphasis that in either situation the assessing officer shall provide necessary time as required according to the circumstances of each case to adduce evidence if any, and produce documentary evidence or other material as deemed fit by an assessee. It means that the reasonable opportunity of being heard is to be provided in both the eventualities and that will serve the requirements of law and the principles of natural justice. When subsection (1) of section 13 has been made a part and parcel of subsection (2) then in the cases falling under the situation envisaged under subsection (2) a combined notice shall serve the purpose and combined enquiry on the point of valuation of the investment or property as well as the nature and source of the investment shall be substantial compliance of the law. The issuance of a single notice fulfilling the requirements of law shall not cause any prejudice to any assessee. It is established principle of law that nobody has any vested right in a procedure until and unless there is statutory provision in this behalf. If under the specified provisions of legislation or a subordinate legislation a particular procedure is required to be observed then an authority saddled with the responsibility of exercising the law is bound to observe the procedure as contained in main statute or rules. However, if no specific procedure is enacted in an Act of Parliament or in exercise of delegated legislature then no Court or Tribunal is authorised to prescribe a procedure and then give it the force of statutory law or rule. If any such attempt is made it would amount to travelling beyond the realm of interpretation and discerning the intention of legislation and would tantamount to entering into the realm of legislation which is beyond the pale of authority vested in a Court. It is a well known principle of the interpretation of statutes that the machinery section is to be interpreted in such a way that it is made to work. The technicalities relating to procedure should not be taken to the extent where law is made unworkable. Any interpretation of any procedural law whereby the very intent and purpose of the legislation is negated or the working is made so complicated and confused that the very purpose of the law is throttled, is not permissible.
Since the two prior approvals referred to in subsections (1) and (2) have been dispensed with by virtue of amendment introduced by Finance Act, 1992 now no justification whatsoever has been left for issuance of two notices one after the other, by any stretch of imagination. When the provision of two prior approvals was there in the law, there could be some justification for issuance of two notices by the assessing officer so that after an enquiry on the point of valuation if the I.A.C. was not satisfied with the view of assessing officer, he may not accord approval on the point of valuation thereby curtailing further proceedings. After the amendment in law the issuance of two notices separately and distinctly shall be an exercise in futility. It will not serve any purpose except that it will cause duplication and will make the process lengthy and cumbersome. The Courts are not supposed to make the procedure more complicated and lengthy under the garb of interpretation of the statute. On the contrary the procedure and process of law should be made easier, more comprehensible and more workable, of course, without affecting the principles of natural justice, the interest of subjects and without doing violence to any provision of law. While making addition under section 13(1) or under section 13(2) the assessing officer' is not required to issue two separate and distinct notices at two different stages. In either situation the issuance of one notice is sufficient provided the requirements of law are complied with.
Even if the issuance of two notices is the requirement of law it stands fulfilled with the issuance of combined notice.
In subsection (1) the assessing officer is required to consider the explanation about the nature and source of any sum, investment etc. offered by the assessee and in subsection (2) he is required to determine the reasonable value of any investment or article or the amount of expenditure after giving a reasonable opportunity to the assessee of being heard. Thus the combined effect of the provisions contained in the two subsections of section 13 of the Income Tax Ordinance, 1979 is that the assessing officer is required to issue notice to an assessee requiring him to lead evidence on the point of valuation and offer explanation about the nature and source of the investment. After the assessee has done so the assessing officer, after hearing an assessee and appraising the evidence shall determine the value of the investment or amount and give finding whether the explanation about the nature and source is satisfactory or not. In the case of unsatisfactory explanation and insufficient evidence in support of the declared value or amount the assessing officer will determine the reasonable value or amount and shall make the addition. The purpose can be served by issuance of one notice only and even if two combined notices are issued it shall not vitiate the proceedings.
While making addition under subsection (2) of section 13 the assessing officer was not required to issue two separate and distinct notices at two different stages and issuance of one notice was sufficient provided the requirements of law were fulfilled. It was further held that the issuance of combined notice would not vitiate the proceedings.
1987 PTD (Trib.) 300; 1989 PTD 150; 1989 PTD (Trib.) 191; 1991 PTD (Trib.) 758; 1993 PTD 1172; Legislative Interpretation by Swarap; 1985 PTD (Trib.) 178; 1971 SCMR 681; 1986 PTD' (Trib.) 578; 1987 PTD (Trib.) 300; 1989 PTD 308; 1989 PTD 150; Craies on Statute Law, 7th Edn., pp.223-224 and PLD 1962 Lah. 1018 analysed.
1991 PTD (Trib.) 758 overruled.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 134---Income Tax Appellate Tribunal Procedure Rules, 1981, R.14-- Appeal to Tribunal---Scope---Appellate Tribunal in exercise of its appellate jurisdiction can examine if the intent and purpose of the legislation has been fulfilled or not---Tribunal, however, is not empowered to embark on prescribing a procedure which amounts to travelling beyond the realm of interpretation and tantamounts to entering into the field of legislation which is not permitted in law scrutiny and decision by the Tribunal has to be confined to the limits whereby the finding given on the point of facts have been properly appreciated, the law has been properly appreciated and applied and the intention of legislation has been properly understood and implemented.
(e) Vested right--
----Procedure---No one has a vested right in a procedure until and unless there is statutory provision in that behalf---If under the specified provision of legislation or a subordinate legislation a particular procedure is required to be observed then an authority saddled with the responsibility of executing the law is bound to observe the procedure as contained in the main statute or rules-- If, however, no specific procedure is enacted in Act of Parliament or in exercise of delegated legislation then no Court or Tribunal is authorised to prescribe a procedure and give it the force of statutory law or rule.
(f) Interpretation or statutes--
---- Machinery section of an enactment---Technicalities relating to procedure-- Interpretation---Principles.
The machinery section is to be interpreted in such a way that it is made to work. The technicalities relating to procedure should not be taken to the extent where law is made unworkable. Any interpretation of any procedural law whereby the very intent and purpose of the legislation is negated or the working is made so complicated and confused that the very purpose of the law is throttled, is not permissible.
Athar Saeed, Rehan Hasan Naqvi, Qazi Anwar Kamal and Arshad Siraj for Appellant.
Basharatullah Khan, M. Yousuf Butt, Malik Bashir Ahmed, D.Rs. and Miss Seema Jabeen, D.C.I.T. for Respondent.
Date of hearing: 28th November, 1994.
ORDER
This Larger Bench has been constituted to consider the point if two notices are still required to be issued by the Assessing Officer to an assessee as a pre-condition for making addition of deemed income under section 13 of the Income Tax Ordinance, 1979, even after the amendment introduced by the Finance Act, 1992 whereby the prior approval of I.A.C. previously required under subsection (2) of section 13 and prior approval required under second proviso to subsection (1) of section 13 have been dispensed with.
2. Briefly stated the relevant facts are that the appellant an individual assailed an addition of Rs.18,50,000 made under section 13(1)(d) of the Income Tax Ordinance, 1979. During the course of arguments an objection was raised on legal plane, in addition to various other objections assailing the addition on other points of law and facts, that the assessing officer was not justified in making the addition under section 13(1)(d) without issuing two mandatory notices under section 13(1)(d) and section 13(2) of the Income Tax Ordinance, 1979. It was contended that the assessing officer was required to issue two separate show-cause notices and afford two specific opportunities to the appellant to present his explanations and defence which was not done and consequently the addition was not sustainable for want of one mandatory notice. On the other hand, the learned D.R. submitted that after the amendment introduced in section 13 by the Finance Act, 1992 issuance of two separate show-cause notices was no more the requirement of law. He further submitted that even prior to the amendment the purpose of law as it stood before 1-7-1992 stood fulfilled by issuance of one notice only ii an assessee was confronted on all the points which an assessing officer contemplated to consider for making addition under section 13 and is provided a reasonable opportunity to the assessee of being heard and sufficient material, is disclosed to an assessee enabling him to offer his explanation on all the points likely to be considered adversely against him. As the point in issue was of general importance and was likely to affect vast number of pending appeals and required appraisal and re-consideration of entire law developed during the last 30 years, therefore, this Larger Bench was constituted.
3. We have heard M/s. Athar Saeed and Oazi Anwar Kamal, Advocates for the appellant, M/s. M. Yousuf Butt, Basharatullah Khan and Malik Bashir Ahmed, learned D.Rs. assisted by Miss Seema Jabeen, Deputy Commissioner of Income Tax and M/s. Rehan Hassan Naqvi and Arshad Siraj, Advocates as amicus curiae. In this order we will consider the limited point in respect of the requirement of issuance of two mandatory notices as alleged by the learned counsel for the appellant and the remaining points on merits relating to addition shall be considered subsequently by a Division Bench of this Tribunal.
4. Succinctly stated the relevant facts for the purpose of issue before this Larger Bench are that during the course of assessment proceedings the assessing officer observed that the appellant disclosed in his wealth statement that during the year he acquired a House No.98/1, Khayaban-e-Bahria for Rs.13,20,000 on perusal of sale deed the assessing officer found that the property measuring 500 sq. yds. with construction of double storey bungalow was purchased for alleged consideration of Rs.12,00,000 only. In the opinion of assessing officer the cost of the property seemed to be grossly understated as compared to the fair market value of the property. She, therefore, deputed the Income Tax Inspector for enquiry regarding the condition of house and for collecting information from the Estate Brokers for determining fair market value of the property in this locality. The Income Tax Inspector reported that the area of plot was 1000 sq. yds. The bungalow was constructed on an area of 500 sq. yards which was connected with a lawn on an area of 500 sq. yards.. According to the information gathered from the Estate Brokers the price of a house of such description was between Rs.35,00,000 to Rs.40,00,000 at the time of its purchase. Some instances of transactions in the nearby locality were also collected by Income Tax. Inspector. The assessing officer on the basis of this material formed opinion that the fair market value of the property cannot be expected to be less than Rs.35,00,000 and, therefore, investment of Rs.23,00,o004was made out of unexplained sources. She therefore, issued a show-cause notice under section 13(2) for addition of unexplained investment under section 13(1)(d) which is reproduced below:
" .Please refer to the above-cited subject. You have shown purchase of a double-storeyed house at Khaban-e-Bahria. Defence, Phase-V, Karachi, measuring 500 sq. yds. and claimed the price at Rs.12,00,000.
Enquiries got conducted through the Inspector of this Circle. It is reported that the size of the plot is IWO sq. yds. and half of the plot is converted into a lawn. Whereas on the balance 500 sq. yds. the residential house is constructed. Considering the market value of properties in this locality it is apparent that the purchase price has been understated. It has been reported through enquiries from the Estate Brokers that the house of this size and location can be expected to be around Rs.35 to 40 lacs. The cost of plot alone is around Rs.15 lacs. This report is confirmed from some of the transactions made in the nearby locations and enumerated below:
| Property | Area | D.O. Purchase | Price |
| 1. P.No.38-C,26th Comm. St. Phase-V, D.H.A Karachi | 200 sq.yds. | 18-2-1989 | 6.25 lacs |
| 2. P.No.72, Phase-V, DHA | 981 sq.yds, | 2-10-1990 | 16.3 lacs |
| 3. H.No.48/1, 26th St. Phase V, DHA. | 967 sq. yds. | 30-12-1990 | 33.5 lacs |
| 4. B-4, 6th Comm. Lane, Phase-II DHA, Karachi | 1000 sq.yds, | 24-6-1990 | 46.8 lacs |
| 5. 41-A/11 3rdSt. Phase-II Ext. DHA, Karachi | 1227 sq.yds. | 5-9-1988 | 41.5 lacs |
From the enquiries conducted through the Estate Brokers and above transactions, it is clear that the purchase price has been grossly understated.
You are, therefore, required to show cause as to why the fair market value should not be estimated at Rs.35,00,000 and the difference of Rs.23,00,000 should not be added to your income under section 13(i)(d) being investment from unexplained sources.
Compliance may please be made on 17-5-1993 failing compliance or unsatisfactory reply, assessment would be finalized by making the addition as proposed above, without any further notice to you."
5. The A.R. of the appellant furnished explanation in reply to the above notice contending that the lawn was purchased by the appellant's wife from her own independent funds. Regarding the valuation of property it was stated that the purchase price shown in the sale deed was correct. The sale deed was duly registered and the competent authorities have charged the stamp duty on the declared price which is the market value and, therefore, the question of any under-valuation of property does not arise. The explanation was found not satisfactory by the assessing officer for the reason that as compared to the other transactions in the locality duly confronted to the appellant, the declared price was very low and hence it was rejected. The contention that investment of Rs.4,50,000 was made by wife was accepted with the observation that although (sic) the appellant ought to have declared this investment of wife in the wealth statement as she is not an independent assessee. Notwithstanding this lapse on the part of appellant the source of his investment to the extent of Rs.4,50,000 was found satisfactorily explained. After giving benefit of this investment an addition of Rs.18,50,000 was made with the approval of I.A.C. Range III.
6. The addition was assailed on various grounds before the learned C.I.T.(A) but no objection was taken to the non-issuance of two separate show cause notices before making the addition. The learned C.I.T.(A) repelled all the objections which we will not consider in the present order as all other objections raised by the appellant in addition to the point of law which is being considered by the Larger Bench shall be heard and decided by the Division Bench. The appellant being still dissatisfied preferred the second appeal raising inter alia the objection on legal plane that the addition was not sustainable for want of two separate mandatory show-cause notices. Since it is a point of law and no probe or enquiry is to be made on the point of facts for considering the point of law, therefore, the plea is allowed to be taken in second appeal.
7. The main contention of Mr. Athar Saeed, learned counsel for the appellant is that prior to the amendment introduced by Finance Act, 1992 two prior approvals from the I.A.C. were required, in a case where value of any investment or article referred to in clause (aa), (b), (c) or (d) or amount of expenditure referred to in clause (e) so subsection (1) was to be estimated by the assessing officer. This requirement was expressly provided in the provision of law itself while in order to meet this requirement a procedure was outlined in the judgments of this Tribunal according to which two separate show-cause notices were required to be issued by the assessing officer, one under the provisions of section 13(2) and the other under section 13(1) of the Income-tax Ordinance, 1979 and the combined notice was not held to be sufficient compliance of law. Mr. Athar Saeed has taken us through the following judgment of the Tribunal:
1987 PTD (Trib) 300, 1989 PTD 150, 1989 PTD 191, 1991 PTD 758, 1993 PTD 1172.
8. He has further submitted that the finding of Tribunal in the earlier judgments that two distinct and separate show-cause notices are required to be issued when any addition under section 13 is to be made on the basis of estimate by the assessing officer is based on the following expressions contained in subsections (1) and (2) of section 13 of the Income Tax Ordinance, 1979:
(a) The assessee offers no explanation about the nature and source of such investment, acquisition of the money or valuable right, excess amount or the money from which the expenditure was met as the case may be, or explanation offered by him is not in the opinion of I.T.O. satisfactory.
(b) The I.T.O. may determine, after giving a reasonable opportunity to the assessee of being heard.
9. Mr. Athar Saeed vehemently argued that even after the amendment introduced by the Finance Act, 1992 whereby the condition of prior approval of the IA.C. contained in proviso to subsection (1) of section 13 has been totally omitted and the condition of prior approval prescribed to subsection (2) of section 13 has been done away with and now one approval only is to be taken in the cases where subsection (2) of section 13 is attracted, the expressions on the basis of which the earlier judgments of the Tribunal held that two separate and distinct show-cause notices are required to be issued to an assessee for making addition under section 13 on the basis of estimate, are still intact and, therefore, the only effect of the amendment would be that now no two prior approvals are required and the effect of amendment would not be extended to dispense with the issuance of two mandatory notices. He has submitted that an amendment introduced in statute is to be restricted to the extent which has actually been made and it shall not be extended to enhance its effect by way of implication to the other provisions which has been left intact. In support of his contention he has placed reliance to some observations in the Treatise, "Legislative Interpretation by Swarap". He has, thus, submitted that when the legislature by amendment under section 13 has not done away with the issuance of two separate and distinct show-cause notices the right of an assessee to two notices remains unaffected. When asked whether any prejudice is caused to an assessee if all the requirements of law are fulfilled by issuance of one combined notice, Mr. Athar Saeed has stated that it is the mandatory right of an assessee and, therefore, it is immaterial whether any prejudice is caused or not. He has further submitted that notwithstanding this legal right a prejudice may be caused to an assessee as he will be deprived of submitting explanations at two stages. When asked if any party has any vested right in the matter of procedure Mr. Athar Saeed has contended that it is not a mere matter of procedure but it is substantive right .of an assessee to receive two distinct and separate notices which is the mandatory requirement of law. Messrs Rehman Hasan Naqvi and Arshad Siraj, Advocates have supported the view canvassed by Mr. Athar Saeed.
10. On the other hand, the learned D.Rs. have submitted that in fact the law even prior to the amendment never enjoined upon an assessing officer to issue two separate and distinct show-cause notices to an assessee as one combined notice is sufficient to meet the requirements of law. They have submitted that the combined reading of the entire section 13(I) and (2) even as it stood prior to the amendment introduced by Finance Act, 1992 shows that the intention of legislature was that an explanation should be sought from an assessee in respect of nature and source of any sum, investment, acquisition of money or valuable article, excess amount or money from which expenditure was met as the case may be, and if no explanation is offered or explanation offered is not in the opinion of I.T.O. the addition can be made as deemed income after prior approval of the I.A.C. They have further submitted that in various judgments the Tribunal has also held that where no estimate is involved one show-cause notice and one prior approval was sufficient. After the amendment one show-cause notice required to be issued and the approval of Inspecting Additional Commissioner is also still mandatory with the difference that now prior approval of the Inspecting Additional Commissioner is not required as the word `prior' has been omitted by the Finance Act, 1992. The learned D.Rs. have further submitted that the legislature has envisaged two situations and for that purpose has enacted two subsections in section 13. The first situation is where any sum is found to be credited in the books of an assessee or an assessee is found to have made any investment or is found to be the owner of any money or valuable article or the assessee is found to have made any investment in any income year which is not recorded in the books of accounts or is not shown in the wealth statement by an assessee, is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of accounts or is not shown in any wealth statement or an assessee has made investment in any income year or is found in respect of any such year to be owner of any valuable-article and the I.T.O. finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in the books of accounts or shown in the wealth statement or an assessee has during any income year incurred any expenditure and no question of any estimate is involved and an addition has to be made on an admitted figure merely on the ground that no explanation about the nature and source of such sum, investment, acquisition of the money or valuable article, excess amount or the money from which expenditure was met is offered or the explanation offered by him is not satisfactory the provisions contained in subsection (1) of section 13 shall come into play. The other situation envisaged by the legislature is when the value of any investment or article referred to in clauses (aa), (b), (c), (d) or the amount of expenditure referred to in clause (e) of subsection (1) is in the opinion of the I.T.O. too low, the I.T.O. may determine after giving a reasonable opportunity to the assessee of being heard a reasonable value or the amount thereof as the case may be. Thus in the second situation an element of estimate is involved and, therefore, the legislature has provided that in addition to the explanation sought, a reasonable opportunity of being heard is also to be given to an assessee and there was a further restriction on the discretion of assessing officer that he was required to estimate the value of any investment or article etc. with the prior approval of the I.A.C. Thus in the case of an estimate one prior approval was required for determining/estimating the value of any investment or article etc. which was requirement of subsection (2) of section 13 and thereafter by virtue of the expression, "all the provisions of subsection (1) shall have effect accordingly," a prior approval of the IA.C. was required for making the addition as deemed income. The learned D.Rs. have thus submitted that under subsection (1) and subsection (2) of section 13 two different situations are envisaged but it does not mean that two separate and distinct notices are also required to be issued. In short the contention is that provisions contained in subsection (2) of section 13 pertains to valuation and subsection (2) is inclusive of subsection (1) of section 13 and, therefore, only one notice is required to be issued with a difference that when the question of determination/estimate is involved by virtue of this situation as envisaged under subsection (2) of section 13 the notice shall require explanation about the nature and source of investment as well as the explanation about the value of investment or article etc. and if after receiving explanation the assessing officer is not satisfied he will give an opportunity to the appellant of producing evidence in support of his valuation which is the purport of expression "opportunity of being heard" and thereafter the assessing officer can determine a reasonable value or the amount and can make addition as deemed income by virtue of authority vested under subsection (1) of section 13. However, if addition is to be made in the situation envisaged in subsection (1) then the assessing officer shall issue notice to the assessee seeking his explanation about the nature and source of such sum or investment etc. only without asking for explanation in respect of value of investment or Article etc. In any case one notice only is envisaged by the legislature. They have next contended that no notice for the sake of notice can be held to be the intention of law. According to them no prejudice is caused to an assessee if one combined notice is issued and full opportunity is afforded to an assessee for explaining the nature and source of the investment as well as offering explanation in respect of the value of investment or the Article and an opportunity to substantiate the contention with the production of evidence, if required is also afforded.
11. The learned D.Rs. have further argued that notwithstanding their contention that even prior to the amendment issuance of two distinct and separate notices was not the mandatory requirement, there could be some justification for holding the view prior to the amendment by Finance Act, 1992. The reason being that prior to the amendment introduced in 1992 the I.T.O. was not independent either in determining the value of any investment or Article etc. or in coming to the conclusion that any amount of sum, investment or value of any investment or article etc. could be added as deemed income. The reason being that under subsection (2) of section 13 he was required to determine the reasonable value of any investment or article with the prior approval of the IA.C. and before charging any deemed income to tax he was again required to obtain prior approval of the I.A.C. Thus, there was a gap in determining the reasonable value of the investment or article and charging the value of such investment or article to tax in the situations envisaged under subsection (2) of section 13. Thus, because of time lag and gap between two acts one of determining the reasonable value of investment or article etc. and the other of charging the value of any investment or article to tax as deemed income both of which were subject to prior approval of the IA.C., there could be some justification for issuance of two notices for the reason that the IA.C, before according his two approvals for two distinct purposes may have the point of view of an assessee before him distinctly and separately on both the occasions and this could be done by issuance of two distinct and separate notices. However, after the amendment introduced by Finance Act, 1992 the mandatory prerequisite of the prior approval of the IA.C. provided in subsection (2) of section 13 has been completely omitted and one approval', required to be taken under proviso to subsection (1) has been retained with they:, modification that now prior approval is not necessary and thus the only approval which remains the requirement of law can be given by the I.A.C. by; way of approval of the draft assessment as well. Thus when the conditions of two prior approvals have been omitted the reason which prevailed with the Tribunal in earlier cases where two distinct and separate notices were outlined does not hold the field. They have forcefully contested the contention of learned counsel for the appellant that in the previous judgments of the Tribunal the main reason for holding that two distinct and separate notices should be issued by the assessing officer to an assessee is merely based on the expressions, "and the assessee offers no explanation in subsection (1)" and "after giving a reasonable opportunity of being heard as used in subsection (2) of section 13 of the Ordinance. They have submitted that no doubt these expressions were considered for the purpose of forming the opinion that two distinct and separate notices are required to be issued by the assessing officer but at the same time the view was held in the context of two prior approvals by the IA.C. as well and now issuance of one combined notice should be deemed as sufficient compliance of the law.
12. We have carefully considered the contentions raised by the learned representatives for the parties. In order to appreciate the contentions of the learned representatives for the parties and to arrive at the true and correct intent of the legislature it would be appropriate to give a resume of the relevant law brought on the statute book from time to time, The law relating to cash credits and unexplained investments, expenditure etc. was already there and this concept was recognized through catena of rulings by the superior Courts in U.K., U.S.A. and the Indian sub-continent. The principle was, however, given statutory recognition in Pakistan with the insertion of section 4(2-A) and 4(2-B) in the Income-tax Act, 1922 (hereinafter referred to as the repealed Act) by Finance Act, 1965 and subsequently with the insertion of sections 4(2-C) to 4(2-F) in the repealed Act by Finance Ordinance, 1972. Thus at the time of promulgation of Income-tax Ordinance, 1979 and repeal of the Income-tax Act, 1922, the relevant provisions contained in the repealed Act were as follows:
"4(2-A). Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source therefor the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year.
(2-B). Where, in the previous year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income nor shown in any statement furnished by him under subsection (4-A) of section 22 and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investment may be deemed to be the income of the asse4see of such previous year.
(2-C). Where the assessee is found in respect of any previous year to be the owner of any money or any valuable article and such money or valuable article is not recorded in the books of account, if any, maintained by him nor shown by him in any statement furnished under subsection (4-A) of section 22, and the assessee offers no explanation about the nature and source of acquisition of the money or valuable article, or the explanation offered by him is not, in the opinion of the Income Tax Officer, satisfactory, the money and the value of the article may, with the prior approval of the Inspecting Assistant Commissioner, be deemed to be the income of the assessee for such previous year.
(2-D). Where the assessee has made investments in any previous year or is found in respect of any previous year to be the owner of any valuable article and the Income-tax Officer finds that the amount expended on making such investments or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee or shown in any statement furnished by him under subsection (4-A) of section 22, and the assessee offers no explanation about such excess amount, or the explanation offered by him is not, in the opinion of the Income Tax Officer, satisfactory, the excess amount may, with the prior approval of the Inspecting Assistant.
(2-E). Where an assessee has, during any previous year incurred any expenditure and he offers no explanation about the nature or source of the money from which the expenditure was met, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the amount of the expenditure may, with the prior approval of the Inspecting Assistant Commissioner, be deemed to be the income of the assessee of such previous year.
(2-F). Where the value of any investment or article referred to in subsection (2-B), (2-C) or (2-D) or the amount of the expenditure referred to in subsection (2-E) is, in the opinion of the Income Tax Officer too low, the Income Tax Officer may, with the prior approval of the Inspecting Assistant Commissioner and after giving the assessee a reasonable opportunity of being heard, determine the reasonable value or the amount thereof, as the case may be, and the provisions of the said subsections shall have effect accordingly."
13. With the promulgation of Income-tax Ordinance, 1979 the above provisions contained in the repealed Act were redrafted and re-enacted in section 13(1) & (2) which read as follows till the promulgation of Finance Act, 1992:
13. Unexplained investments, etc. deemed to income.--(1) Where, in the course of any proceedings under this Ordinance---
(a)any sum is found to be credited in the books of an assessee maintained for any income year; or
(aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable article, in any year; or
(b)the assessee is found to have made any investment in any income year which is not recorded in the books of account maintained for that income year or is not shown in the wealth statement furnished under section 58 in respect of that year; or
(c)the assessee is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of account, if any, maintained by him or is not shown by him in any wealth statement furnished under section 58 in respect of that to year; or
(d) the assessee has made investment in any income year or is found in respect of any such year to be the owner of any valuable article and the Income-tax Officer finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement furnished under section 58 in respect of that year; or
(e)an assessee has, during any income year, incurred any expenditure,
and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of the money or valuable article, excess amount or the money from which the expenditure was met, as the case may be, or the explanation offered by him is not, in the opinion of the Income Tax Officer, satisfactory, the sum so credited, the value of investment, the money or the value of the article, the excess amount or the amount of the expenditure, as the case may be, shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance:
Provided that, where any act referred to in clauses (a) to (e) is discovered after the assessment or income of the income year to which the said act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in which the said discovery is made:
Provided that in cases referred to in clauses (aa) to (e) such income shall not be chargeable to tax unless prior approval of the Inspecting Assistant Commissioner has been obtained.
(2)Where the value of any investment or article referred to in clause (aa), (b), (c) or (d), or the amount of expenditure referred to in clause (e) of subsection (1) is, in the opinion of the Income Tax Officer, too low, the Income Tax Officer may determine, after giving a reasonable opportunity to the assessee of being heard and with the prior approval of the Inspecting Assistant Commissioner, a reasonable value or the amount thereof, as the case may be, and all the provisions of subsection (1) shall have effect accordingly."
14. Clause (aa) in subsection (1) of section 13 was inserted by Finance Ordinance, 1980. Some other minor amendments were also made be Finance Ordinance, 1980 but the main amendments which were introduced were the insertion of second proviso to subsection (1) to the effect that in cases referred to clauses (aa) to (e) such income shall not be chargeable to tax unless prior approval of the Inspecting Assistant Commissioner has been obtained. In subsection (2) of section 13 the words, "and with the prior approval of the Inspecting Assistant Commissioner" in-between the words "being heard" and "a reasonable value" were also inserted by the Finance Ordinance, 1980. The first proviso to subsection (1) of section 13 was inserted by Finance Act, 1987, but it is not relevant for our present discussion. The provisions relating to prior approval of the Inspecting Assistant Commissioner (now the post has been designated as Inspecting Additional Commissioner of Income-tax) by Finance Act, 1993) came for consideration before this Tribunal in various cases and alongwith the question of prior approval of the I.A.C. the question of mandatory notices required to be issued by the assessing officer to an assessee also received consideration, which we will discuss presently. The words, "prior appearing in second proviso to subsection (1) of section 13" and "and with the prior approval of the I.A.C." were omitted by Finance Act, 1992. With the amendments introduced by Finance Act, 1992 omitting the requirement of prior approval of the I.A.C. the controversy of single approval in respect of the cases falling under subsection (1) of section 13 and subsection (2) of section 13 both was sufficient or double approval was required in respect of the cases falling under subsection (2) of section 13 has been laid to rest so far the assessments relating to the assessment year 1992-93 onwards are concerned. However, the issue is still relevant for the assessments prior to the assessment year 1992-93. As already observed the question if the assessing officer was required to issue two separate and distinct notices at separate points of time in respect of the cases falling under subsection (2) of section 13 is still relevant because no amendment has been made in the law by legislature in respect of the issuance of such notices. This Larger Bench was primarily constituted to consider the point if two notices are still required to be issued by an assessing officer to an assessee as precondition for making addition of deemed income under section 13 of the Income-tax Ordinance, 1979 even after the amendment introduced by Finance Act, 199? Whereby the prior approval of I.A.C. previously required under subsection (2) of section 13 and prior approval required under second proviso to subsection (1) of section 13 has been dispensed with. During the course of arguments it was canvassed that prior to the amendment introduced by Finance Act, 1992 there was a mandatory requirement of two prior approvals from the I.A.C. in respect of cases falling under subsection (2) of section 13 and while explaining the legislative intent a procedure was outlined in the judgment of this Tribunal wherein it was held that two separate show-cause notices were also required to be issued by the assessing officer. An argument was developed that two prior approvals and two show-cause notices were the separate and distinct requirements of law and, there, even after the amendment introduced by Finance Act, 1992 whereby the condition of two prior approvals have been omitted the mandatory requirements of issuance of two distinct and separate show-cause notices has been left intact and, therefore, if the assessing officer has not issued two separate and distinct show-cause notices at different points of time the addition made under subsection (2) of section 13 shall not be sustainable in law. On the other hand, plea has been taken on behalf of the department that even prior to the amendment by Finance Act, 1992 the law never provided for issuance of two separate and distinct show-cause notices and the only requirement of law was that in respect of the cases falling under subsection (1) of section 13 the only explanation required to be sought was in respect of nature and source of any sum, investment, acquisition of money or valuable article etc., while in the case of application of subsection (2) of section 13 the explanation is to be sought about the nature and source of such sum, investment, acquisition of money or valuable article etc., as well as explanation in respect of the value of any investment or article referred to in clauses (aa) to (e) of subsection (1) with the further requirement that an assessee has to be confronted with the opinion of assessing officer as to how the value of any investment ,or article declared by an assessee is too low and thereafter a reasonable opportunity of being heard is to be provided to an assessee, whereafter a reasonable value or the amount is to be determined which may be added to the total income of an assessee in accordance with the provisions contained in subsection (1) of section 13. The learned D.Rs. and learned representatives for the appellant both appeared to agree on the point that the obtaining of prior approval of IA.C. and issuance of show-cause notice by the assessing officer were two separate requirements of law. The point of difference between the parties is that according to the learned counsel for the appellant two separate and distinct notices were required to be issued prior to the amendment introduced by Finance Act, 1992 and the said requirements continue even after the amendment. On the other hand, the contention of department is that even prior to t4le amendment two distinct and separate notices were required to be issued by the assessing officer under the law and in the cases falling within the purview of subsection (2) of section 13 one combined notice serves purposes and requirements of law and same position continues after the amendment. In the alternative it has been contended that while interpreting the provision of law as it stood prior to the amendment of Finance Act, 1992 the various Benches of this Tribunal considered the requirements of prior approval and notices in conjunction to each other and, therefore, there could be some justification for issuance of two separate and distinct notices but after the amendment whereby the requirement of two prior approvals have been omitted. Now there is no justification at all for holding that the issuance of two separate and distinct notices is the mandatory requirement of law. Thus in the context of arguments by the learned representatives for the parties the question if two notices are still required to be issued by the assessing officer to an assessee as precondition for making addition of deemed income under section 13 of the Income Tax Ordinance, 1979 after amendment introduced by the Finance Act,. 1992 cannot be effectively decided until and unless the law as it stood prior to the amendment introduced by Finance Act, 1992 is considered in depth. We, therefore, feel that it is absolutely necessary to consider if the view held that two separate and distinct notices are required to be issued was justified in the context of law as it stood even prior, to the amendment introduced by Finance Act, 1992 and in doing so the extent of authority vested in a Court while interpreting a provision of law is also required to be examined. The question will arise as to what is the extent of authority vested in a Court while interpreting a law and what is the extent of interpretation of law and when the Court exceeds its limit of interpreting the law and travels in the realm of legislative authority transgressing the limits of interpreting a law. The question also arises if while interpreting a particular provision of law the Court is only empowered to examine if the requirement of law has been complied with or not or the Court is authorised to prescribe a procedure as well thereby adding some more requirements to the specific requirements of law and thereby creating a rigour either for the department or for assessee. In order to decide all these issues we feel it appropriate to give a resume of the case-law by this Tribunal on which the parties have placed reliance during the course of arguments.
15. The first order is reported as 1985 P T D (Trib) 178. In this case an objection was raised to the addition under section 13(1) (aa) (d) of the Income Tax Ordinance, 1979. This addition was made on the basis of valuation of shop determined by the assessing officer. An objection was raised that no specific opportunity under section 13(2) of the Income Tax Ordinance was given to the assessee for explaining the investment in purchase of shop. A Division Bench of this Tribunal comprising Mr. Muhammad Mazhar Ali, Chairman and Mr. Ghulam Sadiq, Accountant Member observed as follows:
"The I.T.O. has patently taken action under clause (d) of subsection (1) of section 13 of the Ordinance. He was thus' under statutory obligation to give a reasonable opportunity to the assessee of being heard for determining the value of investment. The learned D.R. was unable to urge before us on the basis of available on departmental record for specific and reasonable opportunity of being heard in this behalf was actually provided to the assessee. The learned C.I.T.(A) has also specifically held in the impugned order, as rightly pleaded by the learned counsel for the appellant, that the appellant was not confronted with the estimates made by the assessing officer."
16. The learned Division Bench by placing reliance on the judgment of Hon'ble Supreme Court of Pakistan reported as 1971 SCMR 681 held as follows:---
"A reference to the provisions of section 13 (2) of the Ordinance makes it absolutely clear that where the value of any investment referred in clauses (aa) or (d) is in the opinion of the I.T.O. too low, the I.T.O. may determine, after giving reasonable opportunity to the assessee of being heard, and with the prior approval of the I-A.C. a reasonable value of the amount thereof, as the case may be. The ratio decidendi of the Supreme Court-case is squarely applicable to the facts of the instant case and hence there is no course open to us but to hold that the failure to comply with mandatory provision of statute with regard to giving reasonable opportunity to the assessee has rendered the impugned order in this behalf wholly void,"
17. The second case which has been referred at Bar is reported as 1986 PTD (Trib.) 578. The addition under consideration in this case was made under the provisions of repealed Income-tax Act, 1922. A difference of opinion took place and for resolving the difference of opinion the matter was placed before Mr. Farhat Ali Khan, Judicial Member (as he then was) and he made the following observation:
"It is well-known that section 4(2-F) was brought on statute book alongwith other sections 4(2A), 4(2B), 4(2C), 4(2D) and 4(2E) though not at the same point of time. As is clear from sections 4(2A) to 4(2E) that the legislature introduced these amendments in the repealed Income-tax Act to meet such type of cases of income which is known as deemed income. Since the concept of deemed income was being introduced for the first time in the tax fabric of Pakistan, it was felt by the legislature that this taxation with the aid of fiction of law should not be used as instrument of harassment or operation by the I.T.O. It was with this idea in mind that the legislature insisted not on the prior approval of the concerned Inspecting Assistant Commissioner but the provision was, laid for hearing an assessee also after giving a reasonable opportunity for it. It appears that the legislature laid down the condition of prior approval of the concerned Inspecting Assistant Commissioner simply with a view to get him involved in the process of assessment. It also appears that the assessments framed under any of these sections were exposed to scrutiny of appellate Courts. As such the practice which was evolved in the tax department was to the effect that the I.T.O. used to consult Inspecting Assistant Commissioner from time to time whenever he thought his advice necessary in the process of making enquiry and then finally when he came to a conclusion he would send the draft assessment order to him for his approval. The Inspecting Assistant Commissioner would endorse his approval thereon and then send it back to the I.T.O. who would frame assessment accordingly."
18. The third order on which main reliance has been placed by the learned counsel for the appellant is reported as 1987 PTD (Trib.) 300. In fact this is the order which has introduced the concept of two notices for the first time and held the same as mandatory requirement for sustaining an addition under section 13. Since the issue relating to issuance of two notices cropped up with this order, therefore, we would like to make reference to this order in extenso. Briefly stated the relevant facts in the case were that the assessee partner of registered firm claimed household drawings at Rs.29,353. The assessing officer formed opinion that the drawing appeared to be very low and, therefore, served a notice on the assessee calling upon him to show as to why addition under section 13(1) (e) of the Ordinance should not be made. The assessee submitted his explanation but the assessing officer rejected it and estimated monthly expenses at Rs.5,000. Thus, he made an addition of Rs.13,665 with the approval of I.A.C. When the matter reached the Tribunal Mr. Farhat Ali Khan, the then learned Chairman, Income-tax Appellate Tribunal sitting singly examined various pleas taken on behalf of the assessee assailing the addition. We will advert to the relevant finding of the then Hon'ble Chairman pertaining to two notices only. At the time of said judgment the requirement of prior approval was also there in the law and, therefore, the two requirements have been spelt out together. Hon'ble Mr. Farhat Ali Khan after quoting his observation in the order reported as (1986) PTD (Trib.) 578 observed as follows:
"I think that the above-quoted observation applied mutatis mutandis in the case of additions to be made under section 13 of the Ordinance. Here also the legislature has taken precaution that the Inspecting Assistant Commissioner should remain involved in the assessment proceedings. This conclusion is further fortified by the requirement of two approvals as envisaged by section 13(1) and section 13(2) of the Ordinance. An Income Tax Officer is firstly required to ask an assessee to show cause as to why an addition should not be made under section 13 of the Ordinance according to the facts and circumstances of each case which is contemplated in clauses (aa) to (e) of section 13(1) of the Ordinance. When such explanation is offered to him, he should form his opinion on the basis of the material available to him and the explanation offered and if he comes to the conclusion that an addition should be made he should seek approval of the Inspecting Assistant Commissioner. Here the law requires him to offer his proposal regarding quantum of addition so that Inspecting Assistant Commissioner may scrutinise it in the light of explanation. It appears from perusal of subsection (2) that if the Inspecting Assistant Commissioner agrees to the proposal of that I.T.O., the latter should then once again serve a notice on the appellant so that he could be given a reasonable opportunity of being heard. If after giving the opportunity of hearing to an assessee the I.T.O. comes to the conclusion that the amount originally proposed by him and approved by his I.A.C. was in his opinion justifiable even then he should again seek the approval of his Inspecting Assistant Commissioner. This procedure emerges out from the use of the words `and the assessee offers no explanation in subsection (1)' and `after giving a reasonable opportunity to the assessee of being heard' as used in subsection (2) of section 13 of the Ordinance. From the use of these expressions it appears that firstly the I.T.O. calls for explanation of the assessee to form his opinion about the quantum of addition. Here the assessee does not know what is in the mind of the I.T.O. except that he was not satisfied with his drawings. When he gives the assessee an opportunity of being heard, he does so after the proposed addition. At the first instance the legislature has insisted merely on calling for an explanation but on the second occasion the opportunity of being heard is given to an assessee but as far as the Inspecting Assistant Commissioner is concerned, he has got power to superimpose his opinion on that of the I.T.O. on both occasions. He can issue such direction to I.T.O. as he deems fit but surely the I.T.O. is supposed to follow the procedure discussed above."
19. From perusal of above order it further appears that in that case the I.T.O. had not disclosed his mind regarding quantum of the addition which he proposed to add as deemed income. In addition to this defect the explanation offered by the assessee was not considered at all and the addition was made by use of stock phrases. The third objection which was taken on behalf of the assessee was that the I.A.C. instead of guiding the I.T.O. directed him to estimate monthly drawings of the asscssee at Rs.5,000 per month and thereby the discretion vested in the I.T.O. was taken away in the wake of binding direction of the I.A.C. The addition thus made by the assessing officer was liable to be deleted on account of various other defects other than the non -issuance of two notices and in fact no plea was taken on behalf of the assessee that the addition was not maintainable for want of two separate and distinct notices by the assessing officer. We will discuss this aspect of the, case presently.
20. The fourth order which has been referred during the course of arguments is reported as 1989 PTD 308 dated 1-9-1988. In this case an addition was made by the assessing officer under section 13(1) (d) on account of difference in valuation declared by the assessee and estimated by the assessing officer. The objection was raised that the addition was liable to be deleted on the ground that no notice under section 13(1) of the Ordinance was given to the assessee. It was observed in the order that the assessing officer did not ask the assessee to explain the nature and source of investment made by him as required by section 13(1) of the Ordinance. The assessing officer called upon the assessee to explain the valuation of the property 'only which was requirement of section 13(2) of the Ordinance. It was contended that since the statutory compliance of confronting the assessee with the determined amount has not been given by the Assessing Officer, therefore, the order of the assessing officer was void ab initio. Reliance was placed in this behalf on the earlier orders of the Tribunal which we have already discussed. It was ultimately held as follows:
"Since admittedly the assessee was not provided an opportunity to explain the nature and source of investment which was determined by the assessing officer under section 13(2) of the Ordinance, this addition made by the assessing officer was void ab initio. Consequently we direct that this addition should be deleted."
21. After a few days of the above judgment the point again came for consideration before a Full Bench comprising Mr. Farhat Ali Khan, Chairman, Mr. Abrar Hussain Naqvi, Judicial Member and Mr. A.A. Zuberi, Accountant Member which was decided on 4th of September, 1988 (1989) PTD 150). In this case the relevant facts were that the assessing officer made an addition under section 13(1) (d) on account of difference in the value of property as declared by the assessee and determined by the assessing officer. On appeal the C.I.T.(A) set aside the assessment on the ground that the assessee was not given an opportunity under section 13(2) of the Ordinance. The grievance of the assessee before the Tribunal was that after giving a finding that the assessee was not confronted with the value determined by the assessing officer as required under section 13(2) of the Ordinance, the learned C.I.T.(A) should have annulled the assessment instead of remitting it back to the assessing officer for fresh assessment. The appeal was allowed by unanimous opinion, however, the reasonings, differed. The majority view was expressed by Mr. Abrar Hussain Naqvi, Judicial Member with whom Mr. A.A. Zuberi, Accountant Member concurred. It was observed as follows:
"Section 13 of the Income Tax Ordinance as it was applicable for the assessment year under consideration, speaks of various situations where the assessee found to have acquired some money or valuable article or to have made some investment or incurred some expenditure etc. In any such situation, by fiction of law, the assessee would be deemed to have earned the income chargeable to tax under the Ordinance. Before making such an addition as deemed income the law has, however, prescribed certain conditions. The first condition which is laid down under subsection (1) of section 13 is that the assessee's explanation has to be obtained about the nature and source of such amount or investment etc. If the assessee fails to give any explanation or the explanation given is unsatisfactory in the opinion of the I.T.O. only then the income could be added. Another condition which has been laid down is under the proviso to subsection (1) of section 13 which required that before making such an addition prior approval of the I.A.C. has to be obtained. Now this situation is where there is no dispute in regard to the sum to be added. Another situation which has been envisaged by law is where the assessing officer is of the opinion that the value of any investment or valuable article of the amount of expenditure etc. is too low. In that case I.T.O. has been empowered under section 13(2) of the Ordinance to determine a reasonable value. Again before determination of the value under section 13(2) the assessing officer is required--
(i) to provide an opportunity of being heard to the assessee, and
(ii)I.A.Ca's approval has to be obtained before determining the reasonable value.
Now reading section 13(l) and section 13(2) together the I.T.O. is required to follow the following procedure:
(i) Where there is no dispute in regard to sum invested, acquisition of money or valuable article or expenditure etc.
(a)The I.T.O. has to call for the explanation of the assessee in regard to the nature and source of the money or investment etc.
(b)Before making the addition he has to obtain prior approval of the IA.C.
(ii)Where the assessing officer is at variance with the amount shown to have been invested or expenditure incurred etc. then the I.T.O. has to determine the value of such sum or investment etc. but before doing so he has to--
(i)provide a reasonable opportunity of being heard to the assessee, and
(ii)then he has to obtain prior approval of the I.A.C:
22. Considering the effect on the order of the I.T.O. if any one or all other conditions are not fulfilled it was observed as follows:
"Taking the second categories of cases first where the assessing officer is of the opinion that the value declared by the assessee is too low and he determines the value without providing a reasonable opportunity of being heard to the assessee or he does not obtain the prior approval of the I.A.C. before determining the value, the value so determined by the I.T.O. would not be in accordance with the law and, therefore, provisions of subsection (1) of section 13 would not be applicable because the provisions of subsection (1) of section 13 under which the addition is made, or applicable only when the assessing officer determines the value of the investment or expenditure etc. in accordance with subsection (2) of section 13 in such a situation the addition has to be deleted straightaway. Similarly, if before making an addition under section 13(1) no explanation of the assessee in regard to the nature and source of investment or expenditure etc. was obtained or prior approval of Inspecting Assistant Commissioner has not been obtained, again in the same way the order of the I.T.O. in making the addition is not only illegal but also without jurisdiction. Therefore, in such a situation the addition has to be deleted as well. In these circumstances, the assessment cannot be set aside and remitted back to the I.T.O. to provide him another opportunity to cover up the lacuna as he had been negligent in not complying with the provisions of law."
23. Ultimately it was held that since the assessee was not provided an opportunity under section 13(1) to explain nature and source of her investment the addition made under section 13 was illegal. The then Hon'ble Chairman Mr. Farhat Ali Khan agreed with the conclusion arrived at by the two other Members of the Bench that the addition was liable to be deleted but did not agree with the interpretation of subsections (1) and (2) of section 13 of the Income Tax Ordinance, 1979. He disagreed with the observations which have been reproduced by us and referred his own interpretation which he gave sitting singly in the order reported as (1987) PTD (Trib.) 300. We have already cited the observation of Mr. Farhat Ali Khan in the order reported as (1987) PTD (Trib.) 300 in which he has outlined a procedure which the assessing officer is required to observe while making addition under section 13. We have already reproduced his finding while referring to that order supra and, therefore, we need not to repeat the observations. Mr. Farhat Ali Khan explained his point of view once again as follows:---
"From perusal of clauses (a) to (e) of subsection (1) of section 13 of the Ordinance it appears that the deemed income has been divided in three categories, i.e.,
(i)deemed income which is recorded in the books maintained by an assessee;
(ii)deemed income which is neither recorded in the books of account nor finds place in the wealth statement; and
(iii)deemed income which is recorded in the account books or wealth statement but I.T.O. thinks that it is on lower side.
Now as far as the first category is concerned, I agree with my learned brothers that under certain circumstances the I.T.O. can make addition after finding the explanation unsatisfactory provided he has obtained the prior approval of his Inspecting Assistant Commissioner. But even in such case, let me emphatically point out, an I.T.O. may be required by law to give more opportunity to an assessee then mere calling for his explanation. Let me illustrate this point. Suppose an I.T.O. finds rupees five lakh to be credited in the books of an assessee and consequently calls upon him to offer his explanation. Further suppose that the assessee explains to him that aforesaid amount of rupees five lakh belong to five persons called A, B, C, D, E, in equal shares as they had deposited their respective amounts as advance against payments of certain goods to be purchased subsequently and in his explanation he gives full Particulars of these five persons. With due respect, I do not think that in such case I.T.O. can simply say that he finds the explanation unsatisfactory as offered by the assessee without proceeding further with the matter. But if he does so the superior Courts would not uphold such addition. In my humble opinion the I.T.O. would have to proceed with the matter and perhaps would have to call for the explanation of the assessee again and again in order to meet the requirements of natural justice.
Now as far as the deemed income falling under categories 2 and 3 are concerned, the situation would be altogether different, In the cases falling under clause (2) the I.T.O. would issue notice under section 13(1) (aa), (b) or (c) as the case may be. When he comes in possession of some information or evidence. This is essential, as the deemed income sought to be added is not reflected either in the account books or in the wealth statement. Thus, he would have to make up his mind as to how much deemed income he could legally add. Similarly, in cases falling either under clause 13(1) (b) or (e) the I.T.O. has before him the figures but he thinks that the figures so disclosed are on lower side. If he, therefore, follows the procedure laid down in 1987 PTD,(Trib.) 30(1, he would not only comply with the requirements of various principles of interpretation of statutes but also make his action compatible with the policy of law which apparently emerges out from the close reading of both subsections of section 13. After all we have to keep in mind that the legislature has deliberately used the expression---
(a)"excess amount or money",
(b)"excess amount or the amount of money" which finds place in subsection (1) of section 13 of the Ordinance, and
(c)the expression "all the provisions of subsection (1) shall have effect accordingly" which finds place in subsection (2) of section 13 of the Income Tax Ordinance. Moreover, section 13 lays down the exceptional rule of deemed income and if an I.T.O. is required to seek double approval from his Inspecting Assistant Commissioner as discussed in 1987 PTD 300 (Trib.) it would not only lead to more additions which are found sustainable by appellate forums but also would spare so many assessees from unnecessary harassment. Unfortunately, my learned brothers have not considered all these aspects. I, therefore, feel myself very much reluctant to subscribe their point of view."
24. The next order on which reliance has been placed is again by Mr. Abrar Hussain Naqvi, Judicial Member and Mr. A.A. Zuberi, Accountant Member, 1989 PTD (Trib.) 191. In this case also an addition was made as a result of estimation of the value of property purchased by the assessee. The appeal was disposed of with the following finding:
"The assessee has taken number of objections of factual as well as legal plane. However, this appeal can be disposed of on the short ground that the learned assessing officer had issued a notice to the assessee under section 13(2) of the Income Tax Ordinance issuing a show-cause notice that as to why the value of the property should not be estimated at Rs.1,20,000. However, after determining the value of the property under section 13(2) of the Ordinance the assessing officer had to issue a notice under section 13(1) of the Ordinance so as to call for the explanation of the assessee to explain the nature and source of the investment. This has not been done and the learned D.R. conceded that no notice so as to confront the assessee with an amount of Rs.1,20,000 determined under section 13(2) of the Ordinance was issued to the assessee. The learned D.R. relied upon the notice dated 31st January, 1988 but that notice was issued under section 13(2) and reply of which was submitted by the assessee on 4th February, 1988. Subsequently without issuing further notice under section 13(1) the assessment was finalized on 22nd February, 1988. The Tribunal in a recent Full, Bench decision in ITA No. 2506/LB/1986-87 has held that such a notice is sine qua non before making an addition and failing which the addition has to be deleted. We, therefore, direct that the addition made by the I.T.O. should be deleted." (The order referred to has been reported as 1989 PTD 150 (Trib.) which has been cited by us).
25. The last order which has been referred is reported as 1991 PTD 758 (Trib.). In this case various objections were made to the addition made under section 13(1) (d). One of the objections was that the assessing officer has not followed the procedure as laid down in the Tribunal's decision reported as 1987 PTD 300 and 1989 PTD 150. It was observed by the Bench comprising Mr. Abrar Hussain Naqvi, Judicial Member and Mr. Inam Elahi Sheikh, Accountant Member as follows:---
"According to the procedure laid down in the above reported cases the assessing officer has to determine the value of a property under section 13(2) of the Ordinance and before doing so he has to first provide an opportunity of being heard to the assessee and then he has to take prior approval of the I.A.C. The value of any investment etc. so determined under section 13(2) of the Ordinance has then to be confronted to the assessee and his explanation has to be called for as to the nature and source of the determined amount. After obtaining the explanation of the assessee under section 13(1)(d) if the assessing officer is unsatisfied with the explanation then again he has to take prior approval of the I.A.C. and only then could make the addition."
26. Referring to the facts of the case it is stated in the order that the assessing officer issued a show-cause notice to the assessee under section 13(1) Pro of the Income-tax Ordinance on 22-5-1988. The assessee was called upon to give an explanation in regard to the excess of the amount of Rs.1,75,000. It may be noted that by that time the assessing officer had not determined the value of the property purchased by the assessee under section 13(2) of the Income Tax Ordinance. On 24-5-1988 the assessing officer sought the prior approval of the IA.C. which was given on 26-5-1988. Before doing so no notice under section 13(2) was issued by the assessing officer. This notice under section 13(2) was issued on 2-6-1988 i.e., after determining the amount and taking prior approval of the I.A.C. Again after issuing notice on 2-6-1988 no further notice under section 13(1) of the Income-tax Ordinance calling for the assessee's explanation in regard to the nature and source of investment was called for by the assessing officer. It appears that the learned assessing officer had issued combined notices and not one after the other as explained above and as laid down by earlier rulings, of the Tribunal. The contents of notice dated 2-6-1988 have been reproduced in the order which shows that the assessing officer called upon the assessee to show cause specifically saying that he was being given an opportunity to explain as to why the value of plot should not be estimated under section 13(2) at Rs.26,00,000 and he was further required to explain as to why the balance amount should not be added in his total income, under section 13(1) (d) as unexplained investment. In the above facts it was held as follows:
"It, therefore, follows that instead of first determining the value under section 13(2) and the procedure to be followed as stated above, and then to ask for the explanation of the assessee in regard to the nature and source of the amount so determined under section 13(2), the assessing officer had issued a combined notice under sections 13(1) and 13(2) of the Income Tax Ordinance. It may be noted that no further notice had been issued after the notice dated 2-6-1988. If we treat the notice dated 2-6-1988 a notice under section 13(2) then notice under section 13(1) would be missing and if we treat notice as under section 13(1) then notice under section 13(2) would be missing. The assessing officer should have first issued a notice under section 13(2) and after receiving the assessee's reply and with the prior approval of the I.A.C. the assessing officer should have first determined the amount under section 13(2). After such determination the notice under section 13(1) should have been issued and after taking the explanation of the assessee and with the prior approval of the I.A.C., the addition should have been made Since no such procedure had been followed the addition of Rs.11,25,000 has been illegally made and is, therefore, directed to be deleted."
27. A perusal of the statute law as reproduced above shows that at the time of promulgation of income Tax Ordinance, 1979 the relevant provisions contained in section 4(2A) to section 4(2F) were similar as re-enacted in sections 13(1) and 13(2) of the Income Tax Ordinance, .1979, so far the procedure required to be adopted for purpose of making additions is concerned. The re-enacted provision was, of course, redrafted but the contents remained almost similar and particularly in respect of the procedure. For the sake of convenience I will compare the contents of subsection (2B) of section 4 of the repealed Act only with the contention of subsection '(1) 'of section 13 and particularly for the reason that this provision was inserted in the repealed Income-tax Act in the year 1965. It is provided in subsection (2B) of section 4 as follows:
"The assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not in the opinion of the I.T.O. satisfactory. The value of the investments may be deemed to be the income of the assessee of such previous year."
28. The corresponding provision in subsection (1) of section 13 of the Income-tax Ordinance, 1979 is as follows:
"The assessee offers no explanation--or the explanation offered by him is not in the opinion of I.T.O. satisfactory. The sum so credited----shall be deemed to be the income of the assessee for such income year chargeable to tax under this Ordinance." (It may be kept in mind that in this order we are not considering the provision relating to the prior approval by I.A:C., therefore, the provisions in this regard are not being discussed).
29. So far the addition on account of estimate by the assessing officer is concerned the relevant provision was contained in subsection (2F) of section 4 of the repealed Act and the analogous provision is contained in subsection (2) of section 13 of the Income Tax Ordinance, 1979. The relevant provisions have been reproduced in paras. 12 and 13 of this order and, therefore, for the sake of brevity the provisions are not being reproduced again. A comparison of the two provisions shows that the two provisions are almost identical. In both the provisions it is provided that if the value of any investment or article referred to in the earlier subsections/clauses is in the opinion of I.T.O. too low the I.T.O. may determine the reasonable value or the amount thereof after giving the assessee a reasonable opportunity of being heard and that the provisions of subsections (2B) to (2E) of section 4 of the repealed Act and subsection (1) of section 13 of the Income Tax Ordinance, 1979 shall have effect accordingly. Thus, the provisions in the repealed Act and in the Income Tax Ordinance, 1979 for issuance of notices for the purpose of making addition on account of deeming provision under consideration are couched in similar and identical words. As already stated earlier the concept of cash credits and deeming provisions were already there in the income-tax law in the sub-continent much prior to the insertion of these provisions in the statute. The provisions only gave a statutory recognition to the concepts which had earlier judicial approval. Thus, it would not be appropriate to say that the deeming provisions were being introduced for the first time in the tax fabric of Pakistan. The relevant provisions contained in the repealed Income-tax Act and the Income Tax Ordinance, 1979 came for consideration in a large number of cases before this Tribunal and the superior Courts but before the year 1987 it was never held that two separate notices were required to be issued for sustaining addition under section 13 and at least no judicial forum had held that the issuance of two separate and distinct notices was the mandatory requirement of law. The first order of the Tribunal which has been produced before us during the course of arguments is reported as 1985 P T D (Trib.) 178. The relevant facts of the case have been reproduced in para. 15 of the Order. In this case an objection was raised that nonspecific opportunity was provided to an assessee under section 13(2) of the Income Tax Ordinance for explaining the investment. By placing reliance on the judgment of Hon'ble Supreme Court of Pakistan, it was held that no reasonable opportunity of being heard was provided to the assessee and, therefore; the addition made was void. The provisions contained in section 13 were examined but it was not held that the assessing officer was required to issue two separate and distinct notices to an assessee in order to meet the mandatory requirement of law. The only condition which was spelt out was providing of reasonable opportunity of being heard to an assessee. In the second case reported as 1986 PTD 578 (Trib.) the provisions contained in sections 4(2A) to 4(2F) of the repealed Act came for consideration and on difference of opinion the matter was placed before Mr. Farhat Ali Khan, Judicial Member (as he then was). The above provisions were considered in depth and in detail. In his finding reproduced in para. 17 of this Order Mr. Farhat Ali Khan held that in order to save the assessees from harassment the legislature insisted on prior approval of the IA.C. and the provision was laid for hearing the assessee also after giving a reasonable opportunity for it. In this case also it was not held that the issuance of two specific and distinct notices to an assessee was he mandatory requirement of law.
30. Thereafter I come to the third order reported as 1987 PTD 300 (Trib.). This order is the starting point from where the concept of issuance of two notices came to light for the first time. A perusal of the order shows that no contention was raised on behalf of the assessee that the addition was not sustainable in law for want of two mandatory notices to the assessee. The objections were raised that the addition was not maintainable because evidence on record was not considered. The opportunity was not afforded to the assessee for submitting explanation, the initiative for making addition was made by I.A.C. and it had not originated from the I.T.O. and in these circumstances the approval was not proper. The relevant observations in para. 7 of the order reported as 1987 PTD 300 (Trib.) is reproduced below:
"7. This discussion takes us to the last point involved in these appeals. It appears that the learned counsel for the appellant as well as learned Departmental Representative have crossed their words on three points, viz.
(1)Whether the direction of learned Inspecting Assistant Commissioner to Income Tax Officer to estimate the monthly expenses at Rs.5,000 per month without considering the evidence on record and without affording an opportunity to the appellant to show cause was illegal?
(2)Whether the initiative regarding proposed addition under section 13(1) (e) of the Ordinance should have originated from the Income Tax Officer, and
(3)Whether the approval of the assessment order made pursuant to the direction of learned Inspecting Assistant Commissioner concerned was legal although it was not accorded specifically regarding addition made under section 13(1) (e) of the Income Tax Ordinance?
31. From the above quotation it is abundantly clear that the procedure contemplating two mandatory notices was evolved without any such plea on the part of Mr. I.N. Pasha, Advocate, who was appearing for the assessee and without any view of the department on this issue. However, there can be no objection on the finding of the Tribunal for the reason that some plea was not taken on behalf of the parties, as under Rule 14 of the Income-tax Appellate Tribunal Procedure Rules, 1981 the Tribunal is not bound to confine its finding on the grounds taken by the parties. At the same time under proviso to Rule 14 the Tribunal shall not rest its decision on any ground, unless the party who may be affected thereby had a sufficient opportunity of being heard on that ground. Be that as it may, we are for the time being concerned with the procedure evolved suo motu by the Tribunal. According to the procedure evolved in this order it was held that the assessing officer should first issue a notice as contemplated in clauses (aa) to (e) of section 13(1) of the Ordinance. When such explanation is offered to him he should form his opinion on the basis of the material available to him and the explanation offered and if he comes to the conclusion that an addition should be made he should seek approval of the IA.C. At this stage he will offer his proposal regarding quantum of addition and if I.A.C. agrees, the assessing officer shall issue second notice under subsection (2) of section 13 so that he could be given a reasonable opportunity of being heard. Further explaining the procedure it was observed that, "at the first instance the legislature has insisted merely on calling for an explanation but on the second occasion the opportunity of being heard is given to an assessee." From perusal of this order it appears that two notices were required to be issued whether an addition was made under section 13(1) only without any estimation on the point of valuation by the assessing officer or under section 13(2) read with section 13(1) after estimation of the value of any investment, article or property etc. However, in subsequent judgments the position was further clarified and it was held that two notices and two approvals were required in a case involving estimate on the part of assessing officer meaning thereby that in the cases falling under subsection (1) of section 13 one notice and one approval was sufficient while in the cases coming within the purview of subsection (2) two notices and two approvals were required. In this order the procedure evolved, envisaged first notice under section 13(1) and the second notice under section 13(2). I will presently show that in subsequent orders the majority view was that the first notice should be issued under section 13(2) and the second notice should be issued under section 13(1). The learned D.Rs. have argued with sufficient force that in the order reported as 1987 PTD 300 it has been observed that in the first instance the legislature has insisted merely on calling for an explanation but on the second occasion the opportunity of being heard is given to an assessee. This observation has been made in the context of two notices. According to the learned D.Rs. this interpretation is not in consonance with the law as according to them the legislature has postulated two situations in the context whereof the notices are required to be issued. The first situation is when no estimate is to be made which falls under subsection (1) of section 13 and the second situation is when an clement of estimate is involved and notwithstanding the use of different expressions the intention is that in either situations only one notice is to be issued with the difference that in the first situation the assessing officer shall call upon the assessee to explain the nature and source of investment etc. only while in the second situation the Assessing Officer shall call upon the assessee in addition to the explanation regarding nature and source of investment the explanation on the point of valuation of the property as well by confronting with the material forming basis of his opinion that the declared investment etc. is too low. I find sufficient force in the contention of learned D.Rs on this point. A similar view was expressed by majority in a Full Bench judgment to which I will refer presently. The learned D.Rs. have further argued with vehemence that the intention of legislature is that in either situation as discussed above the assessee should know the case which he is required to meet and the reasonable opportunity of being heard should be provided so that the requirements of natural justice are fulfilled. The legislature has not deemed fit to prescribe any specific procedure in this behalf and has left the discretion with the assessing officer, therefore, the Tribunal in exercise of its appellate jurisdiction can examine if the intent and purport of the legislation has been fulfilled or not, but is not empowered to embark on prescribing a procedure which amounts to travelling beyond the realm of interpretation and tantamounts to entering into the field of legislation which is not permitted in law. I am persuaded to agree with the contentions of learned D.Rs. because in exercise of the appellate jurisdiction the scrutiny and decision should be confined to the limits whereby the finding is given on the point if the facts have been properly appreciated, the law has been properly appreciated and applied and the intention of the legislature has been properly understood and implemented. The Courts are not supposed to enter into the field of legislature or to relegate themselves to the authority to exercise the authority of delegated legislation. The authority of enacting any statutory law is vested exclusively, in., the legislature while the rules can be made either by the legislature or by the authority to whom the legislature has authorised to exercise the powers of delegated legislation. In any case the framing of rules or procedure does not come within the purview of exercise of judicial authority. For example, the Income-tax Appellate Tribunal is empowered to frame rules under subsection (8) of section 133 to regulate its own procedure and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions. These rules have been framed by the Tribunal but not in exercising judicial authority as an appellate forum but in exercise of administrative authority. On the other hand, C.B.R. has been empowered under section 165 to make rules for carrying out the purpose of the Income-tax Ordinance. In exercise of this authority the C.B.R. has framed Income-tax Rules, 1982: Under various other sections the C.B.R. has been empowered to frame rules for carrying out the purposes of those provisions. The learned D.Rs. have further argued that the result of exceeding the limits of interpretation and entering the realm of legislation is that various Benches have given their own views on the point of procedure which has caused confusion. The contention of the learned D.R. is correct and I will advert to this fact while considering the judgment reported as 1989 PTD 150.
32. The fourth order which has been referred before us is reported as 1989 PTD 308. In this case the addition was deleted but not for the reason that two notices were not issued. The reason for deleting the addition was that the assessee was not provided an opportunity to explain the nature and source of investment. The next case is a Full Bench decision reported as 1989 PTD 150. In this case the majority view was expressed by Mr. Abrar Hussain Naqvi, Judicial Member (as he then was) wherein it was held that sub sections (1) and (2) deal with different situations. It was observed as follows:
"Now reading section 13(1) and section 13(2) together the I.T.O. is required to follow the following procedure:
(i) Where there is no dispute in regard to sum invested, acquisition of money of valuable article or expenditure etc.
(a) The I.T.O. has to call for the explanation of the assessee in regard to the nature and source of the money or investment etc.
(b)Before making the addition he has to obtain prior approval of the I.A.C.
(ii)Where the assessing officer is at variance with the amount shown to have been invested or expenditure incurred etc. then the ITO has to determine the value of such sum or investment etc. but before doing so he has to---
(i) provide a reasonable opportunity of being heard to the assessee; and
(ii) then he has to obtain prior approval of the I.A.C."
33. According to the majority view the procedure which the Income-tax Officer is required to follow in the situations falling under subsection (2) of section 13 is that first he should provide a reasonable opportunity of being heard to the assessee and then he has to obtain prior approval of I.A.C. In this procedure the majority has not expressed that two notices are required to be issued. According to the majority view in the cases falling in subsection (1) of section 13 the only requirement of law is that the I.T.O. has to call for the explanation of the assessee in regard to the nature and source of money or investment and has to obtain prior approval of IA.C. In second situation falling under section 13(2) the assessing officer is required to provide a reasonable opportunity of being heard to the assessee and then he is required to obtain prior approval. In this case the minority view on the point of procedure was expressed by Mr. Farhat Ali Khan, Chairman, Income-tax Appellate Tribunal. With regard to the interpretation of subsections (1) and (2) of section 13 of the Income Tax Ordinance, while expressing his opinion he referred to the observations made by him in the order reported as 1987 PTD (Trib.) 300. The learned Chairman explained the nature of opportunity which is to be afforded to an assessee while making addition, While expressing his opinion, he observed that, "I.T.O. would have to proceed with the matter and perhaps would have to call for the explanation of the assessee again and again in order to meet the requirements of natural justice.". He has not explained as to how long and for how many times an assessing officer is required under the law to call for the explanation from assessee. Mr. Farhat Ali Khan observed that if the procedure laid down in 1987 PTD 300 (Trib.) is followed the assessing officer would not only comply with the requirements of various principles of interpretation of statutes but also make his action compatible with the policies of law. In any case his opinion was a minority view. The learned D.Rs. have contended that the law has never enjoined upon an assessing officer to call for the explanation of the assessee again and again. In fact the requirement of law is that an assessee should be confronted seeking his explanation and giving him opportunity to explain the nature and source of investment as well as valuation of investment and the property. All these purposes can be achieved by issuance of one notice and thereafter affording opportunity of leading evidence, if any.
34. Another order reported as 1989 PTD 191 (Trib.) has been produced during the course of arguments but in this case also it has not been held thattwo notices are required to be issued. It only contains that the assessing officer is required to confront an assessee on the point of nature and source of the investment and if there is variation on the point of valuation the valuation of the property and the amounts sought to be added. In this case the assessee was confronted on the point of valuation of property but no explanation was sought with regard to the nature and, source of investment and, therefore, the addition was deleted.
35. The last order on which reliance has been placed by the learned counsel for the appellant is reported as 19<)1 PTD 758 (Trib.). In this case it was held for the first time that the combined notice issued by the assessing officer was not proper. The learned D.Rs. have submitted that the statute law is very clear on the point that in the case where there is variance between an assessee and the assessing officer on the point of valuation of investment or property etc., the assessing officer should confront an assessee with the proposed valuation as well as the nature and source of the investment and shall afford opportunity to the assessee to substantiate his explanations on both the points by production of evidence documentary or oral as the circumstances of the case may require. They have further submitted that although the issuance of two notices is not requirement of law, the assessing officer issued two notices though combined; thereby fulfilling the requirement of law but still the intent and purpose of law has been sacrificed, at the altar of procedure evolved by way of judicial interpretation. They have further pointed out that the result of travelling beyond the limits of interpreting the law and entering into the realm of legislation is that an utter confusion has been created. They have taken us through the various orders in support of their contention. In the order reported as 1987 PTD 300 (Trib.) from which the entire controversy has started contemplates that the assessing officer should issue a notice under section 13(1) in the first instance and thereafter a separate notice under section 13(2) should be issued in the second instance. In the Full Bench decision reported as 1989 PTD 150 it was held by the majority that assessing officer should provide a reasonable opportunity of being heard to the assessee and thereafter shall obtain prior approval of the I.A.C. In his minority view Mr. Farhat Ali Khan, the then learned Chairman reiterated his views expressed in the order reported as 1987 PTD 300 (Trib.) observing that the procedure laid down in the said order should be followed. On the other hand, in the order reported as 1991 PTD '758 (Trib.) it has been held that the assessing officer should first issue notice under section 13(2) and thereafter he should issue a notice under section 13(1). The learned D.Rs. have submitted that there are conflicting views expressed by various Benches in respect of the sequence in which the two notices are required to be issued and, therefore, the requirement of law is required to be clarified from this aspect as well.
36. We have very carefully considered the relevant law introduced initially in the year 1965 with the insertion of subsections (2A) and (2B) in section 4 of the repealed Income-tax Act, 1922 and as it stood after amendment from time to time till the amendment of section 13 by Finance Act, 1992. A comparison of the provisions contained in section 4(2A) to (2F) of the repealed Income-tax Act and section 13(1) and (2) of the Income Tax Ordinance shows that the two provisions are almost similar. There is no substantial change in law, Subsection (2F) of section 4 of the repealed Income-tax Act, 1922 which is analogous to the provisions contained in section 13(2) of the Income Tax Ordinance, 1979 was introduced in the year 1972 and up to the year 1987 there was no concept of double approval and two separate notices. During this entire period in all the cases which came for consideration before this Tribunal two different situations were always envisaged and even in the judgment reported as 1989 PTD 150 (Trib.) the majority view of the members comprising Full Bench was that subsections (1) and (2) of section 13 envisaged two different situations. The view of Mr. Farhat Ali Khan, the then learned Chairman while sitting in Single Bench when he delivered the order reported as 1987 PTD 300 (Trib.) was that notice envisaged under section 13(1) and section 13(2) pertained to two instances during the course of same assessment. However, Mr. Abrar Hussain Naqvi, the then Judicial Member, who, while speaking for majority in the judgment reported as 1989 PTD 150 (Trib.), had not expressed any view that two separate and distinct notices are required to be issued by the assessing officer for the purpose of making addition falling under the purview of section 13(2), expressed the different view in the order reported as 1991 PTD 758 (Trib.) by referring to the decisions reported as 1987 PTD 300 and 1989 PTD 150. In both these orders the issuance of two notices was held to be a requirement of law by Mr. Farhat Ali Khan only. It appears to us that the Division Bench which delivered the judgment reported as 1991 PTD 758 (Trib.) relied on the minority view and the majority view expressed in the decision reported as. 1989 PTD 150 escaped notice with the result that it was held that the assessing officer is not merely required to issue, two notices but he is further required to issue two distinct and separate notices at two different stages. The learned Members of the Division Bench went to the extent of observing that the issuance of combined notice was illegal and consequently the addition was deleted. Mr. Farhat Ali Khan while supporting his view expressed in 1987 PTD 300 and further elaborating his point of view in the order reported as 1989 PTD 150 (Trib.) referred to the expression, "all the provisions of subsection (1) shall have effect accordingly" occurring in subsection (2) of section 13. However, the true intent and purpose of this expression wags neither' considered nor interpreted in the said order or any other order of the Tribunal so far: A perusal of the statute law shows that in subsection (2) of section 4 of the repealed Income-tax Act, 1922 the following expression finds place, "the provisions of said subsections shall have effect accordingly".
37. In subsection (2) of section 13 the following expression is contained---
"all the provisions of subsection (1) shall have effect accordingly."
38. The expressions contained in both the statutes are couched in similar language. The legislature by using the above expression resorted to the legislation known as legislation by incorporation or legislation by reference. While dealing with the subject it has been observed in the "Craies on Statute Law", Seventh Edition, pages 223 and 224 as follows:.
"The effect of bringing into a later Act, by reference, sections of an earlier Act is to introduce the incorporated sections of the earlier Act into the later Act as if they had been enacted in it for the first time. Consequently, when an Act of 1855 incorporated sections of an earlier Act of 1840 those sections were read so as to take effect as if they had been passed in 1855, and Lord Esher M.R. said: "If a subsequent Act bring into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen, or printed in it, and the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all. For all practical purposes therefore, those sections of the Act of 1840 are to be dealt with as if they were actually in the Act of 1855."
39. The same principle as enunciated above shall apply in case of legislation by reference whereby the provisions of one section or subsection which are referred in another subsection or section, are to be read as part of the subsequent subsection or -section of the same Act. Thus, by resorting to the legislation by reference the legislature has made all the relevant provisions of subsection (1) as part of subsection (2) whenever the assessing officer is of the view that the value of any investment or article referred to in clauses (aa), (b), (c) or (d), or the amount of expenditure referred to in clause (e) of subsection (1) is too low. If humble view of mine as stated above is correct then in a situation where subsection (2) of section 13 is applicable the assessing officer is not required to read the provisions contained in subsection (1) of section 13 separately but to read the provisions contained therein as a part of subsection (2) of section 13 with the result that whenever a case falls within the situation envisaged under subsection (1) of section 13 the assessing officer shall be required to issue notice to an assessee calling upon him to offer explanation about the nature and source of such sum, investment etc. In the cases falling under the situation envisaged under subsection (2) of section 13 the assessing officer shall issue a notice to the assessing officer under subsection (2) only with the difference that while issuing notice under subsection (2) he will disclose his mind to an assessee in respect of the value of investment or article or the amount of expenditure and shall call upon the assessee to give explanation about the nature and source of such value of investment or article' etc. It requires no emphasis that in either situation the assessing officer shall provide necessary time as required according to the circumstances of each case to adduce evidence if any, and produce documentary evidence or other material as deemed fit by an assessee. It means that the reasonable opportunity of being heard is to be provided in both the eventualities and that will serve the requirements of law and the principles of natural justice. When subsection (1) of section 13 has been made a part and parcel of subsection (2) then in the cases falling under the situation envisaged under subsection (2) a combined notice shall serve the purpose and a combined enquiry on the point of valuation of the investment or property as well as the nature and source of the investment shall be substantial compliance of the law. The issuance of a single notice fulfilling the requirements of law shall not cause any prejudice to any assessee. It is established principle of law that nobody has any vested right in a procedure until and unless there is statutory provision in this behalf. If under the specified provisions of legislation or a subordinate legislation a particular procedure is required to be observed then an authority saddled with the responsibility of executing the law is bound to observe the procedure as contained in the main statute or rules. However, if no specific procedure is enacted in an Act of parliament or in exercise of delegated legislation then no Court or Tribunal is authorised to prescribe a procedure and then give it the force of statutory law or rule. If any such attempt is made it would amount to travelling beyond the realm of interpretation and discerning the intention of legislation and would tantamount to entering into the realm of legislation which is beyond the pale of authority vested in a Court. It is a well-known principle of the interpretation of statutes that the machinery section is to be interpreted in such a way that it is made to work. The technicalities relating to procedure should not be taken to the extent where law is made unworkable. Any interpretation of any procedural law whereby the very intent and purpose of the legislation is negated of the working is made so complicated and confused that the very purpose of the law is throttled, is not permissible.
40. By giving an elaborate account of the history of legislation and the history of case-law I have shown that the concept of issuance of two notices has developed in a very chequered manner and probably without proper and adequate assistance from the Bar. I have shown that the idea was promoted for the first time by a Single Bench suo motu without any arguments at the Bar on this point. Subsequently in a Full Bench decision reported as 1989 PTD 150 (Trib.) the procedure required to be adopted by the law was considered and the majority of the Members came to the conclusion that subsection (1) of section 13 and subsection (2) of section 13 envisaged two different situations. In this case the majority view does not contain that the issuance of two separate notices was the requirement of law. However, as stated earlier, another Bench while deciding the case reported as 1991 PTD 758 (Trib.) followed the view expressed in 1987 PTD 300 (SB) and 1989 PTD 150 (minority view) without adverting to the real purport and intention of the legislature. However, in all the earlier orders of this Tribunal the question of issuance of two notices was considered in the context of the concept of double prior approvals. Since the two prior approvals referred to in subsections (1) and (2) have been dispensed with by virtue of amendment introduced by Finance Act, 1992 now no justification whatsoever has been left for issuance of two notices one after the other, by any stretch of imagination. I am persuaded to agree with the contentions of learned D.Rs. that when the provision of two prior approvals was there in the law there could be some justification (although they have not conceded on this point) for issuance of two notices by the assessing officer so that after an enquiry on the point of valuation the IA.C. was not satisfied with the view of assessing officer, he may not accord approval on the point of valuation thereby curtailing further proceedings. After the amendment in law the issuance of two notices separately and distinctly shall be an exercise in futility. It will not serve any purpose except that it will cause duplication and will make the process lengthy and cumbersome. I am of the view that the courts are not supposed to make the procedures more complicated and lengthy under the garb of interpretation of the statute. On the contrary the procedure and process of law should be made easier, more comprehensible and more workable, of course without affecting the principles of natural justice, the interest of subjects and without doing violence to any provision of law.
41. For the foregoing reasons I am of the considered opinion that while making addition under section 13(1) or under section 13(2) the assessing officer is not required to issue two separate and distinct notices at two different stages. In either situation the issuance of one notice is sufficient provided the requirements of law as explained earlier are complied with.
42. Before parting with this order I would like to observe that even if the issuance of two notices is requirement of law it stands fulfilled with the issuance of combined notice and the view held to the contrary in the order reported as 1991 PTD 758 (Trib.) does not appear to be correct. I say so with all respects and due reference 'to the learned Members of the Bench who delivered the said judgment. The question of validity of combined notices came for consideration before the superior Courts in sub-continent after the promulgation of repealed Income-tax Act, 1922. In the case of Rajmani Devi v. C.I.T., U.R. (1937) -5 ITR 631, it was observed as follows:
"It is now well settled on the authorities of several High Courts in India that a notice under section 22(4) can be issued on the assessee at any stage and at any time and the only limitation that is fixed is that the assessee must have been served with a notice under section 22(2): see the case of Pallumal Bhola Nath: in re, Ramaswami Chettiar v. Commissioner of Income-tax, Muhammad Hayat Haji Muhammad Sardar v. Commissioner of Income-tax, Punjab, Harmukharai Dulichand: in re. and Ram Khelawan Ugan Lal v. Commissioner of Income-tax. Some of the above cases also lay down that a combined notice under sections 22(4) and 23(2) can be issued after an assessee has made a return, and it was held in the case of Harmukhrai Dulichand that where an assessee had made a return in compliance with a notice under section 22(2) and thereafter a notice has been served upon him under section 23(2) and also a notice under section 22(4) and the assessee has complied with the terms of the notice under section 23(2) by producing the evidence upon which he relies, but has failed to comply with the notice under section 22(4) to produce account books, the Income-tax Officer is entitled to make an assessment under section 23(4) for failure to comply with the notice under section 22(4), and a somewhat similar view was held in the case reported in I.L.R. 52 Mad. page 194 (Ramaswamy Chettiyar's case)."
43. Again the question of validity of issuance of combined notices came for consideration before the erstwhile West Pakistan High Court, Lahore Bench in the case of Satluj Cotton Mills Ltd. PLD 1962 Lahore 1018. In this case only one notice was issued under sections 23(2) and 23(3) of the repealed Income-tax Act, 1922. The plea was taken before the Appellate Assistant Commissioner that the two notices were issued simultaneously and it had rendered the assessment illegal. The Appellate Assistant Commissioner set aside the order for fresh assessment. The assessee preferred appeal before the Tribunal contending that the AA.C. has held notices under sections 23(2) and 23(3) as illegal and invalid and, therefore, the assessment ought to have been annulled instead of being set aside. The contention prevailed with the Income-tax Appellate Tribunal in consequence of which the entire assessment proceedings were annulled. On reference before the Hon'ble High Court, it was held that the finding of Appellate Assistant Commissioner that the notices under section 23(2) and 23(3) were vitiated as both of them were issued simultaneously was erroneous. The relevant subsections of the repealed Income-tax Act, 1922 are reproduced below:
"23(2).---1f the Income-tax Officer is not satisfied without requiring the presence of the person who made the return or the production of evidence that a return made under section 22 is correct and complete, he shall serve on such person a notice requiring him, on a date to be therein specified, either to attend at the Income Tax Officer's office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return.
"23(3): ---On the day specified in the notice issued under subsection (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment."
44. A perusal of the above provision shows that in subsection (2) a notice is required to be issued and in subsection (3) the I.T.O. is required to have such evidence as such person may produce and such other evidence as the I.T.O. may require on specified points. In view of these provisions his Lordship Mr. Justice Yakoob Ali, J. (as he then was) held that, "it will be seen that in both these subsections only one notice is contemplated, namely, under subsection (2) requiring the assessee to attend the office of the I.T.O. for examination or to produce, or cause there to be produced, any evidence as the assessee may rely upon in support of his return. After this requirement has been fulfilled, under subsection (3) except in case where the I.T.O. may require some more evidence to be produced, he shall, by order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment. It is true that Mr. S.A. Karim issued two separate notices, one purporting to be under section 23(2) and the other under section 23(3) but the requirements of both were to be fulfilled originally on the 29th of March and subsequently on 30th of March, 1954. In substance, therefore, the assessee was required to reply to the 15 questions formulated by the I.T.O. as a result of the examination of account books of the assessee, and to produce such evidence as they were advised in support of correctness of their return. We, therefore, fail to see how the learned Appellate Assistant Commissioner concluded that the notice under section 23(3) was to be issued after Mr. Brijlal Jajoo had been examined and the issuance of two notices together had vitiated the entire assessment, proceedings."
45. Now if we compare the provisions contained in subsections (2) and (3) of section 23 of the repealed Income-tax Act, 1922 and the provisions contained in subsections (1) and (2) of section 13 we find that in subsection (1) the assessing officer is required to consider the explanation about the nature and source of any sum, investment etc. offered by the assessee and in subsection (2) he is required to determine the reasonable value of any investment or article or the amount of expenditure after giving a reasonable opportunity to the assessee of being held. Thus the combined effect of the provisions contained in the two subsections of section 13 of the Income-tax Ordinance, 1979 is that the assessing -officer is required to issue notice to an assessee requiring him to lead evidence on the point of valuation and offer explanation about the nature and source of the investment. After the assessee has done so the assessing officer after hearing an assessee and appraising the evidence shall determine the value of the investment or amount and give finding whether the explanation about the nature and source is satisfactory or not. In the case of unsatisfactory explanation and insufficient evidence in support of the declared value or amount the assessing officer will determine the reasonable value or amount and shall make the addition. As observed by the Hon'ble West Pakistan High Court, Lahore Bench in the case cited above the purpose can be served by issuance of one notice, only and even if two combined notices are issued it shall not vitiate proceedings.
46. As a result of above discussion it is held that, while "making addition under subsection (2) of section 13 the assessing officer was not required to issue two separate and distinct notices at two different stages and issuance of one notice-is sufficient provided the requirement of law is fulfilled. It is further held that the issuance of combined notice shall not vitiate the proceedings.
47. This Larger Bench was constituted to consider the question of issuance of two notices as discussed above and, therefore, it is directed that the appeal be fixed before Division Bench for disposal of appeal on other points agitated by the appellant.
(Sd.)
MUHAMMAD MUJIBULLAH SIDDIQUI,
CHAIRMAN.
(Sd.)
AS. K. SHEERANI,
ACCOUNTANT MEMBER.
(Sd.)
TAHSEEN AHMED BHATTI,
JUDICIAL MEMBER.
M.BA./80/T Order accordingly