1996 P T D (Trib.) 777
[Income-tax Appellate Tribunal Pakistan]
Before Abdul Rashid Qureshi, Nasim Sikandar, Judicial Members and Inam Elahi
Sheikh, Accountant Member
ITA Nos.42/LB and 43/LB of 1991-92, decided on 04/06/1995.
Per Nasim Sikandar, Judicial Member agreeing with Inam Ellahi Sheikh, Accountant Member---
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of revision by I.A.C---Scope---Assessment order to be revised has to be both erroneous as well as prejudicial to the interest of revenue---Officer exercising his powers under S. 66-A, Income Tax Ordinance, 1979 is to look for a justification from the assessment order and not from the notices served upon the assessee or the order-sheet maintained in respect of the proceedings---Mere contention that assessment record was not before the Officer when it exercised the jurisdiction would not signify anythingrevising an extra-technical objection without crystallizing a prejudice resulting except from the alleged absence of record.
An assessment order to be revised has to be both erroneous as well as prejudicial to the interest of revenue.
An assessment order is the most vital document of assessment proceedings as it manifests all the steps taken therein, the view point of the assessee and its consideration by the assessing officer as well as the final result in the form of computation of income or loss. Record of proceedings does not a copy or copies of notices issued, the power of attorney or otherwise a imp y pack of documents submitted by an assessee. An Officer exercising his powers under section 66-A, is to look for a justification from the assessment order and not from the notices served upon the assessee or the order-sheet maintained in respect of .the proceedings. In the present case the IA.C. had frequently quoted from the assessment order to reach a conclusion. It was not. the case of the assesee that the revising authority did not at all consider or consult the assessment orders which were declared to be erroneous and prejudicial to the interest of revenue. It was also not the case of the assessee that any particular document or aspect of the assessment proceedings was ignored or was not considered at the time of issuance of a notice under section 66-A or when the order in question was passed. Mere claim that assessment record was not before the revising authority when it exercised the jurisdiction, hardly signifies anything except an extra-technical objection without crystallizing a prejudice resulting from the alleged absence of record. The objection was overruled.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of revision by I.A.C---Nature and scope---Assessment orders revised by I.A.C. were prejudicial to the interest of revenue in that the declared sales were accepted by the Assessing Officer in spite of there being no record to support the same and the error committed by the Assessing Officer was that as a result of application of rate the sales in fact fell below the figure on which these were declared---Such assessment orders, held, did not come up to the minimum of the standard expected in such proceedings---If the revisional powers could not be exercised in such a situation then same could never be exercised in any condition whatsoever---Revising Authority, thus, had successfully been able to bring home all the conditions necessary for the exercise of the jurisdiction under S. 66-A, Income-Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A--Powers of revision by I.A.C.---Opportunity of being heard to the assessee---Revising Authority in its order had reproduced the replies made by the assessee after being served with notices indicating its intention to exercise the revisional jurisdiction---Mere fact that such order also contained an additional reason for setting aside the assessments would not by itself nullify the exercise of jurisdiction--If the assessee was confronted with only one reason and while recording the order the Revising Authority added another that could not be said to have caused prejudice to the assessee, for assessee after the order of setting aside the assessments to, be made de novo, would certainly be served with fresh notices after remand, and it would have adequate opportunity to controvert the way it liked.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of revision by I.A.C.---Principle of change of opinion is not applicable to .the revisional proceedingsunder S. 66-A, Income Tax Ordinance, 1979.
1990 PTD 914 ref.
1984 PTD 137 distinguished.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers of revision by I.A.C.---Reference to a parallel. case by I.A.C. while considering the applied rate to be on the lower side, was not illegal.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Powers or revision by I.A.C.---Scope---Words "after making or causing, made such enquiry as the circumstances of the case justify"-- Significance---I.A.C. can indulge in deep inquiry while exercising powers under S. 66-A, Income Tax Ordinance, 1979.
Messrs United Builders Corporation, Mirpur v. C.I.T., A1&K 1984
PTD 137 ref.
(g) Income Tax Ordinance (XXXI of 19'19)---
----S. 138---Powers of revision by Commissioner---Extent---Such jurisdiction can be invoked only in respect of "final" order and not an "interim order"-- Order passed outside the contours of the revisional jurisdiction conferred under S.138(l) of the Income Tax Ordinance, 1979, cannot serve as a precedent for the lower Revenue Authorities either.
Regional jurisdiction of a Commissioner under section 138(1), Income tax Ordinance, 1979 pertains only to an "order" which one way or the other affects tax liability of an assessee. The provisions of section 138(1) when read as a whole alongwith subsection (2) leave no room for a doubt that such jurisdiction can be invoked only in respect of a "final" and not an "interim" order.
The provisions of subsection(2) of section 138 contain the qualifications or restrictions on the exercise of revisional jurisdiction. These provisions also make an unequivocal indication that interim orders shall not be liable to be interfered with under these provisions
An order passed outside the contours of the revisional jurisdiction conferred under section 138(1) of the Ordinance will not serve as a precedent for the lower Revenue Authorities either.
(h) Income Tax Ordinance (XXXI of 1979)---
---S. 66-A---Issuance of notice to an assessee under S. 66-A, Income Tax Ordinance, 1979 does not by itself fix or determine `the tax liability of an assessee.
(i) Income Tax Ordinance (XXXI of 1979)---
---Preamble---Issuance of notice to assessee under any provision of Income Tax Ordinance, 1979 does not by itself fix or determine any tax liability of an assessee.
Per Abdul Rashid Qureshi, Judicial Member---Minority view---
Per Inam Elahi Sheikh, Accountant Member, Nasim Sikandar, Judicial Member agreeing.---
M.S. Babar and M. M. Akram for Appellant.
D.R. and Shahbaz Butt, Legal Advisor for 15th March, 1995
ORDER
ABDUL RASHID QURESHI (JUDICIAL MEMBER). ---These two appeals have been filed by the appellant against the order of IAC cancelling the assessment orders and section 66-A in respect of assessment years 1988-89 and 1989-90. Both the appeals will be disposed of by the same order in view of the identical nature of the facts from which the common objection arises.
2. The brief facts leading to these appeals are that the assessee in this case filed the income-tax return in the status of individual deriving income as importer declaring net income at Rs.170,200 and Rs.183,700 for the years 1988-89 and 1989-90 respectively. The ITO rejected the declared version of the appellant and completed the assessment at the income of Rs.214,292 and Rs.255,500 for the assessment years 1988-89 and 1989-90 respectively. The trading result declared by the assessee were as under:--
| | 1988-89 | 1989-90 |
| Sales declared | 2,25,15,208 | 2,45,17,433 |
| G.P Rate | 4,62,500 | 5,16,100 |
| G.P | 2.5% | 2.10% |
3. The ITO did not accept the declared version of the appellant and after considering the evidence obtaining on record and explanations/evidence furnished by the appellant completed the assessments wherein accepting the declared sales he applied G.P. Rate of 2.25% and 2.30% for the years 1988-89 and 1989-90 respectively and adding back certain P&L expenses. Finally the ITO determined the refund at Rs.401,271 and Rs,385,567 . in respect of assessment years 1988-89 and 1989-90 respectively. Thereafter the said refunds according to law, on the application of the appellant, were made on the proposal of ITO and IAC with the approval of Commissioner of Income Tax, Zone-A,
4. After the final conclusion of the matter as mentioned above the IAC issued show-cause notices under section 66-A of the Income Tax Ordinance, 1979 for both the years i.e. 1988-89 and 1989-90. In these notices the appellant was required to show cause as to why the assessments should not be reopened because according to the IAC while passing the assessment order the ITO had applied low G. P. Rate to the assessee as compared to certain other parallel cases, claimed by the IAC to be parallel, therefore, the orders of the ITO were erroneous so far as those were prejudicial to the interest of revenue. In response to the notices tinder section 66-A, the appellant filed the written reply dated 9,4-1991 stating therein that a completed assessment cannot be reopened either under section 65 or cancelled under section 66-A on the ground of lowness of G. P. Rate. But the IAC allegedly not finding the said reply to be satisfactory cancelled the assessment orders for both the years vide order under section 66-A, dated 13-5-1991.
5. Aggrieved by this treatment, the appellant has come up in the appeal and also- filed the additional grounds at the time of hearing inter alia assailing the action of, IAC under section 66-A on both the legal as well as factual premises. .
6. These appeals. were fixed for out of turn hearing on .the application of the learned Commissioner of Income Tax, Zone A, Lahore. The learned legal; devisor as well as learned DR attended on behalf of the department and haveraised the preliminary objections regarding maintainability of these appeals and the issue of additional grounds filed by the appellant at the tine of hearing.
7: The learned Legal Advisor for the Department, Mr. Shehbaz Butt, raised the preliminary objections that firstly these appeals are not maintainable as pending the present appeals the Assistant Commissioner of Income Tax made the assessment under section 62/66-A in obedience to the order of the IAC, therefore, the order of the IAC merged into the order of the ITO. Further when against the aforementioned orders under section 62/66-A the appellant filed the revision petition before the Commissioner of Income Tax, the appeals have become infructuous and are liable to be dismissed and secondly the additional grounds filed by the assessee are in the shape of arguments and not in accordance with the Rule 10 of the Income Tax Appellate Tribunal Rules, 1981.
8. The learned counsel for the appellant, Mr. M.S. Babar, Advocate assailed the objections raised by the learned Legal Advisor of the Department as well as order of the learned IAC on a number of grounds as under.
9. The learned counsel for the appellant, replying to the objections emphatically contended that the action of Assistant Commissioner of Income Tax as to finalize the re-assessment proceeding pending the appeal before the Hon'ble Income Tax Appellate Tribunal was without jurisdiction, lawful authority and mala fide for totally ignoring the established principles of law in respect of appeals that when the legislature provides an hierarchy for .the determination of a dispute is real providing one complete procedure for such determination, proceedings before different authorities being only steps in this procedure
Mr. M.S. Baber further submitted that on filing of revision the appeal before ITAT did not become infructuous because when the Assistant Commissioner of Income Tax, though illegally and without jurisdiction, completed the assessments in compliance to the directions of the IAC contained in the order under section 66-A, and determined huge tax demand to be payable by the appellant then he had no option but either to prefer the appeal or opt for revision otherwise the tax so determined would have been confirmed and the recovery thereof must have caused irreparable loss, therefore, the appellant opted for filing revision petition and even otherwise such a construction would tantamount to frustrate the power of the superior Court just by, passing, an order by the subordinate authority. He further emphatically stressed that the re assessment being void ab initio; as argued above, it cannot have any kind of bearing on the appeal under consideration and further submitted that the contention of LA regarding merger of LAC' s order into that of ITO is quite unheard of as under the doctrine of merger it is always the order of the lower Court which merges into the order of the superior Court end not vice versa.
10. While dealing with the next objection of the Legal Advisor to the Department with regard to the nature of additional grounds the learned counsel for the appellant vehemently urged that the grounds were specific to the possible extent and not in the narrative forms, however, he filed the revised additional grounds further concising them.
11. Arguing the case on merits and assailing the order of the IAC the learned counsel for the appellant in support of these appeals submitted that under section 66-A of the Income Tax' Ordinance, 1979 the conditions precedent for pressing into service, the provisions of section 66-A are as under:--
(i) The IAC may call for and examine the record of any proceedings under the Ordinance before the Income Tax Officer.
(ii) The IAC considers that any order passed therein by the Income Tax Officer is erroneous and at the same time it is prejudicial to the interest of revenue.
(iii) The IAC after giving the assessee opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, passes such order thereon as the circumstances of the case justifies, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made.
12. Mr. Babar vehemently argued that the above mandatory conditions, as envisaged and contemplated in section 66-A in the instant case were not satisfied at all. With regard to the condition (i) it was; submitted that at the time of issuance of show-cause notice under section .66-A, i.e. the initiation of proceedings under section 66-A, the IAC did not have before him the assessment record, therefore, the assumption of jurisdiction by the IAC was without examining the record of the assessment proceeding without lawful authority as. the learned IAC was not justified to hold that the assessments were erroneous in so far as those were prejudicial to the interest of revenue without examining the assessment record. At this point of time he requested the Court to ask the; apartment, having complete record, to show as if any record .was called for byIAC prior to the issuance of show-Cause notice under section 66-A. On, requisition by the Bench the learned Legal Advisor and DR scrutinized the record and failed to find and provide any kind of evidence showing that the record was called for the IAC or it was in his possession of the IAC at the time Issuance of show-cause notice under section 66-A. Mr. Babar relied on the dictum of 1990 PTD (Trib.) 524.
As far as condition No. (ii) is concerned it was argued by him that both the editions of the order to be erroneous as well as prejudicial to the interest of venue must co-exist. Loss of revenue arising out of the assessment order made strict compliance of provision of law cannot be reopened under section 66-A id vice versa. In contending so he has relied on the authorities reported as 1991 P-D (Tribe. ) 321 and 1969 PTD(Trib.) 144. It was submitted that original assessment order was not erroneous as it was made in strict compliance of law the assessing officer attending to the facts and circumstances of the case, fully -plying his mind and reaching to the conclusion after considering the evidence record and the explanations/documents provided by the appellant which was the in strict compliance of provision of section 62 of the Income Tax ordinance. The expression "erroneous" used in section 66-A contemplates and envisages the error of law as explained in the case reported as 1984 PTD 137 139/13, 140/C and 141/F, 1988 PTD 29 at 33 and 1969 PTD (Trib.) 114.
With regard to Condition No.(iii) it was submitted that when the IAC did not confront the assessee with all the material used against him, which was a mandatory condition. the order is liable to be quashed in terms of the authorities the Supreme Court of Pakistan reported as 1971 SCMR 681, PLD 1971 SC 24 and 1964 SC 410.
13. Learned counsel objected to the jurisdiction of IAC of taking extraneous material into consideration for invoking the provision of section 66-A. i.e. IAC, he continued, had no authority in law to make the comparison of the e of the appellant to some other cases. Further the record appearing in action 66-A does not mean the record as it stands at the time of examination by i.e. IAC but it means the record as it was at the time, the order in question was used by the ITO. He, in support of his contention relied on the followingauthorities of NTR 1990 Trib 29, 1990 PTD.914 and 1991 PTD 321(Trib.).
14. It was further argued by the counsel for the appellant that IAC was not stifled to press into service the provision of section 66-A on the basis of meretinge of opinion because when on conclusion of the original assessment the fund was determined and the same was issued with the approval of the CIT onproposals of ITO and IAC in terms of instructions of CBR and in the process in sent the complete assessment record to the IAC alongwith order under section 99(3) accompanied by a requisite certificate, amongst others, to the effect that:--
(1) There is no technical or other defect/flaw. in the assessment as from which the refund arises that could warrant recourse to section 65.
(2) There is no calculation error in computation given in assessment order (s) and I.T. 30 Forms.
The JAC thoroughly examined the record including the aforesaid certificates, the validity/sanctity of the assessment orders was confirmed by the conduct of both the IAC as well as CIT. In this regard, as requisitioned by the Tribunal, the copies each of the certificate and instructions of CBR regarding approval for issuance of refund were provided by the learned counsel for the appellant.
15. The next contention of the learned counsel for the appellant was that the action under section 66-A is hit both by the doctrine of sever ability as well as principles of natural justice. According to him and as verified from record when the notice was issued the appellant was confronted only with the issue of lowness of G.P. rate whereas when the order is received it is based on so many other factors as well as which were neither in the mind of JAC at the time of issuance of notice nor they were confronted to the appellant. Learned counsel continued to submit that when the show-cause notice was issued only on the point of lowness of G.P. Rate and later on while making the final order the reliance has been placed on other factors as well to establish the assessment order to be erroneous and prejudicial to the interest of revenue, it is difficult to ascertain as to what exactly influenced the mind of the JAC at the time of issuance of notice to arrive at such conclusion. Secondly, when the appellant was not confronted with the material relied upon against him, the condition precedent, the order stands vitiated in terms of the authorities of Hon'ble Supreme Court in the case of Collector, Sahiwal and others v. Muhammad Akhtar, Mansab Ali v. Amir and 3 others and Commissioner of Income Tax, East Pakistan v. Fazalur Rahthan reported as 1971 SCMR 681, PLD 1971 SC 124 and PLD 1964 SC 410 respectively.
16. It was further submitted that the action of IAC is not justified as in another identical case at NTN: 05-20-116935, the CIT, Zone-A (the concerned Zone), cancelled the show-cause notice under section 66-A issued by the IAC on the similar grounds and in the identical pro forma. The copies of the notice, reply and the order on revision petition by the CIT Zone-A, Lahore quashing the show-cause notice were submitted by Mr. Babar to establish his contention.
17. Mr. Shahbaz Butt learned Legal Advisor of the Department, on his turn, raised another objection that the appeal was not maintainable as the same was not accompanied by _ the orders of the ITO subject of action under section 66-A. When confronted, Mr.. Babar argued that all the necessary enclosures were filed alongwith the memorandum of appeal. However, had there been any deficiency the Tribunal should have returned the memorandum for necessary amendment under rule 15 and when it was not done the irresistible presumption is that the said documents were filed. Further Mr. Babar submitted that when the order for assessment year 1988-89 was obtaining on file of one of the Honourable members it may be a case of misplacement of the documents acid act of non-filing. However, on the requisition of the Court, he filed the copies of the assessment orders alongwith assessment Forms IT-30 for both the years. The appellant's contention having force, is accepted.
18. Dealing with the contentions of the appellant on merit Mr. Shehbaz contended that the assessment order under section 62 was erroneous as the same was self-contradictory inasmuch as after observing that in the absence of accounts the declared result is not reliable, the Income Tax Officer accepted the sales declared by the assessee. He continued the arguments submitting on the one hand that the Dandikar formula is not applicable to the no account cases but at the same time he argued that when the Income Tax Officer applied the higher G.P. rate from that of declared he should have enhanced the sales to the extent of increase in gross profit.
19. The learned counsel for the appellant, at this point with the permission of the Court submitted that as far as the contention of Mr. Shehbaz that the assessment order was erroneous- due to self-contradiction of order is concerned it is incorrect and in conflict to the finding/conclusion of the IAC as in the body of the order under section 66-A the JAC has himself given this reason to establish the order to be prejudicial to the interest of revenue and not to be erroneous and, reiterating his arguments, he submitted that the loss of revenue from an order made in strict compliance of law does not warrant the JAC to invoke the provisions of section 66-A. He further submitted on the same issue that even otherwise there is no self-contradiction in the assessment order as, though the ITO accepted the sales but did not accept the declared version however, so far as estimation of sales to the extent of increase in gross profit is concerned the same is self-contradicted as he himself has argued that the Dandikar formula does not apply to the no account cases. But if at all according to Mr. Shehbaz there was any arithmetical error the same could have been rectified instead of invoking the provision of section 66-A by the IAC and even otherwise this could at the best be called an order prejudicial to the interest of revenue but not the "ERRONEOUS" and here he reiterated his argument that the loss of revenue arising out of an order made in strict compliance of law cannot be subjected to the mischief of section 66-A.
20. We have heard both the parties and have given careful consideration to the arguments adduced before us. We are satisfied that the appeals filed before us are fully competent particularly when the CIT, Zone-A, Lahore has himself requested the Tribunal to first adjudicate the issue of action under section 66-A before he adjudicates the assessment orders before him in revision petitions. Even otherwise pending the appeals before this Tribunal the ALIT had no lawful authority to reframe the assessments because this would tantamount to ,an attempt to frustrate the authority of the superior authority and the principles of appeals established by the superior Courts. The Supreme Court of Pakistan in the case of F.A. Khan v. Government of Pakistan, PLD 1964 SC 250 held:--
In respect of the nature of an appeal the following prepositions may be regarded as established:--
(i) When an appeal is filed the matter becomes sub judice and is reheard by the Appellate Court which does not act merely as a court of error;
(ii) After there has been appeal even though an Appellate Court simply affirms the order of the original Court the only decree or order in existence is the order of the Appellate Court;
(iii) The original and appellate proceedings are steps in one proceedings.
The Legislature when it provides an hierarchy of tribunals for the determination of a dispute is, really providing one complete procedure for such determination, proceedings before different tribunals being only steps in this procedure.
It is only when a litigation in one forum is completed that the litigation in the other forum should start and that an order really becomes an order when the appeals to which it is subject are exhausted.
Although the above discussion as to the nature of an appeal relates to Courts there is no reason why the principles stated therein should not apply to quasi-judicial- tribunals.
The Honourable Supreme Court of Pakistan decided the above case relying on the case of Garika Pativeeraya v. N. Subiah Chaudhry and another cited as PLD 1975 SC (Ind.) 448 wherein it was observed as under:--
"That the legal pursuits of a remedy, suit, appeal and second appeal are really but steps in a series of proceedings all connected by an intrinsic unity and are to be regarded as one legal proceedings. "
The principle enunciated as above was followed in the case cited as 1990 PTD 948.
Our Tribunal in another case reported as 1986 PTD (Trib.) 92 at page 94/C has observed as under:
"Looking the case from another angle of interpretation of statute i.e. construction by implication the established principle of law is that where a superior authority is exercising its jurisdiction and seized of the case, jurisdiction of subordinate authority in that case is barred in the absence of an express provision in the statute to the contrary. In
somewhat similar circumstances, this issue was decided by the Supreme Court of India in the case reported as 1981 SCC Tax 253 as holding:--
"Now it seems to us past question that when the appellate jurisdiction of Superior Authority is invoked against an order and that authority is seized of the case, it is inconceivable for a subordinate authority to claim to exercise jurisdiction to revise the very order. The Tribunal is the Supreme Appellate and Revisional Authority under the statute. It cannot be divested of its jurisdiction to decide on the correctness of an order, it cannot be frustrated in the exercise of that jurisdiction, merely because the subordinate authority, has also been vested with jurisdiction over that order. Unless the statute plainly provides to the contrary, that appears to us to be incontrovertible. "
In the case of Mst. Inayat Begum v. CIT, Zone B, Lahore cited as 1985 PTD 375, their Lordships observed as under:--
"The Income Tax Authorities are not prevented from passing a fresh assessment order, but he fails to notice that the Appellate Tribunal did not simply set aside the first assessment order, but not preferred the matter to the High Court to seek its opinion on the question ' whether the learned Tribunal was right in setting aside the order instead of cancellation'. While this reference is pending it is not open to the Income Tax Authorities to treat the assessment order as simply set aside or even cancelled. They have no choice but to wait for the answer to the reference."
In the case of Kamakshya Narain Singh v. CIT Bihar, cited as AIR (34) 1947 Federal Court 48 it was observed as under:--
"The assessment proceedings had not come to an end nor were they dead. The appellant had kept the proceedings alive by filing appeals and the proceedings were thus pending for decision."
We feel convinced that the revised additional grounds fulfil the requirements of the rules, and therefore, are allowed to be taken at the time of hearing.
21. Dealing the case on merits, we find force in the argument of learned counsel for appellant and satisfied from record that at the time of issuance of show-cause notice under section 66-A, the IAC did not have ITO's record before him which leads to irresistible presumption that the JAC issued the notice without examining the record, the condition precedent. This Court has already decided in the case cited as 1990 PTD (Trib.) 524. that the issuance of notice under section 66-A without examining the record vitiates the action as a whole under section 66-A and so renders it void ab initio.
22. We have gone through the wording of section 66-A and the authorities on the issue and are of the considered opinion that the wording of the relevant section leaves us in no manner of doubt that it is only that order which can be the subject of review by the JAC which is not only erroneous but is also prejudicial to the interest of the revenue. Both the conditions must co-exist. An order may be prejudicial to the interest of the revenue but if it is not erroneous or the vice versa if the order is erroneous but not prejudicial, to the interest of revenue it cannot be considered to be erroneous in so far as it is prejudicial to the interest of revenue so as to authorise the IAC to exercise the powers under section 66-A. The expression "erroneous" as contemplated or envisaged in section 66-A means an order not in accordance with or deviating from law and the expression "prejudicial to the interest of revenue" connotes the loss suffered by the Revenue in consequence of an erroneous order as discussed above. Now putting the case under consideration to the aforesaid litmus test we find that the assessment orders both in respect of assessment years 1988-89 and 1989-90 by no stretch can be regarded as erroneous in so far as those are prejudicial to the interest of revenue as ITO made the orders under section 62 considering the evidence on record and the evidence provided by the assessee on specific points as confronted by the Assessing Officer on various issues. We do not find any deviation from or non-compliance of the provisions of law. At this juncture we deem it expedient to reproduce hereunder the relevant provisions of section 62 of the Income Tax Ordinance, 1979:--
"62. Assessment on production of accounts evidence etc--- (1) The Income Tax Officer, after considering the evidence on record (including evidence, if any, produced under section 61) and such other evidence as the Income Tax Officer may require, on specific points, shall, by an order in writing, assess the total income of the assessee and determine the tax payable by him on the basis of such assessment. "
23. As far as the contention of the learned Legal Advisor to the Department regarding assessment order to be erroneous due to self-contradiction in the assessment order is concerned, this does not hold good because from the order under section 66-A it clearly emerges that such fact, though not at the time of issuance of notice under section 66-A, influenced the mind of the JAC to consider the order to be prejudicial to the interest of revenue and not to consider the orders to be erroneous and, therefore, this contention being ill-founded and just an afterthought cannot be accepted. There is a very clear law that . any loss of revenue arising out of the assessment order made in strict compliance of law does not warrant the JAC to assume the powers under section 66-A.
24. The action of JAC under section 66-A suffers from yet another fatal infirmity that the JAC did not provide an opportunity of being heard to the assessee/appellant to present his case on all the points used against him by the JAC which was a condition precedent. The Supreme Court of Pakistan in the case reported as 1971 SCMR 681 at page 685 has observed asunder:--
"This Court has gone to the extent of pointing out that the mere absence of a provision in a statute as to notice cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without an opportunity of hearing and also held that where the giving of notice is a necessary condition for the proper exercise of jurisdiction then failure to comply with this requirement renders the order void and the entire proceedings which follow also become illegal. The principle, so far as this country is concerned, is accordingly well settled that where notice required to be given by the statute is a mandatory notice, then failure to comply with such mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute. Furthermore any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage. "
25. The contention of the learned counsel of the appellant has weight that the action under section 66-A was not justified as at the time of issuance of show-cause notice, the IAC had in his mind and confronted the appellant only with the issue of lowness of G.P. rate whereas after initiating the action he was influenced by the factors on which he has mainly relied in his order under section 66-A to justify the assumption of jurisdiction under section 66A.
26. The submission of Mr. Babar sounds strong and well build that when the refunds determined vide the orders under section 62, under appeal, were issued with the approval of CIT, Zone-A, Lahore and this was done on the proposal of ITO and JAC after thoroughly examining the record sent by the ITO alongwith the proposal for refund, the JAC confirmed the validity of the order and subsequently he cannot. hold the same order, to be erroneous in so far it is prejudicial to the interest of revenue. The JAC cannot invoke the provisions of section 66-A adopting the procedure that the ITO sent the proposals of refund through IAC alongwith assessment record including a certificate mentioned in para. (14) above, the IAC examined the record and forwarded the proposal to the CIT for issuance of refund thereby confirming the validity of the assessment i order particularly in the light of the certificate above referred. Therefore, on issuance of refund, the assessment stood confirmed by ITO, IAC and CIT by implication, thus it would not be cancelled simply for the change of opinion.
27. The submission of the learned counsel for the appellant that the JAC was not justified to resort to the action under section 66-A taking extraneous material into consideration as he has no authority in law to make the comparison of the case to some other cases is also well founded particularly this being the established proposition of law that the power conferred on JAC under section 66-A is in the nature of the supervisory power. In exercising the supervisory authority the IAC was not expected to indulge in deep enquiry by assuming the role of ITO. In the case reported as 1984 PTD 137 (HC) their lordships have observed as under:--
"The other aspect of the case is that power conferred on Inspecting Assistant Commissioner under section 34-A, is just in the nature of supervisory power. In exercise of supervisory authority, Inspecting Assistant Commissioner was not expected to indulge in deep enquiry by assuming the role of Income Tax Officer. The distinction between their positions was obvious. "
28. The submissions made by Mr. Babar, though not directly related to this case, have some significance that in identical case at NTN: 5-1-1169935 the show-cause notice under section 66-A issued was cancelled by the CIT, Zone A, Lahore.
29. In the light of the above discussion we are satisfied that the impugned orders of IAC under section 66-A in respect of assessment years 1988-89 and 1989-90 are not sustainable being void ab initio, therefore, are annulled.
30. The appeals succeed to the extent indicated above.
(Sd.)
(Abdul Rashid Qureshi),
Judicial Member
(Sd. )
(Inam Ellahi Sheikh),
Accountant Member.
INAM ELAHI SHEIKH (ACCOUNTANT MEMBER).---I have carefully perused the above order proposed by my learned brother, Judicial Member. Although, it is well-reasoned and elaborate order, I would like to record some different views of mine in this regard. The relevant facts of the case have already been narrated above by the learned Judicial Member. The learned Judicial Member has ordered for the annulment of the impugned orders of the IAC passed under section 66-A of the Ordinance after holding the same to be void ab initio and not sustainable. The learned Judicial Member has given weight to the contention of the learned counsel of the assessee that at the time of issuance of show-cause-notice the JAC had only the lowness of G.P. Rate in his mind whereas he is said to have been influenced by the other factors in his order under section 66-A of the Ordinance to justify the assumption of his jurisdiction. The learned counsel of the assessee has also taken an objection that at the time of issuance of a notice under section 66-A of the Ordinance, the IAC did not have the assessment records before him. However, the learned counsel has also taken contradictory argument that the IAC approved the refund before the issuance of notice under section 66-A of the Ordinance and at that time the assessment record was available for his examination. Thus the contention of the learned counsel of the assessee that the IAC did not have the assessment records at the time of issuance of notice under section 66-A of the Ordinance fails. Another contention taken by the learned counsel of the assessee is that the action under section 66-A could only be taken if assessment order was not only erroneous but also perjuries to the interest of the revenue. The plea of the learned counsel of the assessee is that the assessment was not erroneous as it was made strictly in compliance of law. In this regard, it was further argued by the learned counsel that the expression "erroneous" used in section 65-A contemplated only the error of law and he has relied on certain cases of law mentioned in paragraph 12 of the order proposed by the learned Judicial Member. The learned counsel of the assessee has also submitted that the IAC did not confront the assessee with all the materials used against him which was said to be the mandatory requirement of section 66-A of the Ordinance. It is also the objection of the learned counsel that the IAC had no authority to make comparison of the case of the appellant to some other cases.
2. The contention of the learned A.R. of the assessee that the order under consideration had not only to be erroneous but also prejudicial to the interest of the revenue to invite interference under section 66-A of the Ordinance cannot be disputed. However, I find that the IAC had held the assessment order not only to be erroneous but also prejudicial to the interest of the revenue, while recording his order under section 66-A of the ordinance in both the years under consideration. The contention of the learned A.R. of the assessee that the expression 'erroneous' only contemplated to the error of law is not convincing.
The IAC has rightly pointed out that once the declared G.P. Rate has been rejected, the declared sales could not be accepted especially in a no account case. It would be interesting to note that the assessee has declared sales at Rs.2,25,15,208 which indicates that this is not an estimated figure. Thus it would appear that the assessee has deliberately withheld the accounts. The IAC has also observed that the claim of the expenses was disproportionately high in this year. I am also not convinced by the argument of the learned A.R. of the assessee that the IAC had no authority to make a comparison of the case of the appellant to some other cases. There is no bar in the law against such action. In my considered view, the learned IAC has rightly exercised his jurisdiction under section 66-A of the Ordinance while cancelling the assessment under question. I may also add here that the learned A.R. of the assessee had submitted at the time of hearing of the appeals that the assessing officer himself could exercise his Powers under section 158 of the Ordinance to apply what is generally called Dana' formula to enhance the sale. This argument submission itself shows that the orders passed by the assessing officer were not only erroneous but also prejudicial to the interest of the revenue.
3.Another argument taken by the learned counsel of the assessee is that the assessing officer sent a certificate to his superiors at the time of the approval of the refund indicating that no action under section 65 of the Ordinance or under section 66-A of the Ordinance are warranted. It was further argued by the learned counsel that IAC having approved this refund, and the simplicity certificate, he was debarred from invoking the provisions of section 66-A of the Ordinance as this would amount to change of the opinion. This argument of the learned counsel of the assessee is not at all convincing. The assessing officer has no jurisdiction to give a certificate whether any action under section 66-A of the Ordinance is warranted as any action under that section can be taken only by the IAC. This is also indicated by the letter dated 21-6-1990 issued by the assessing officer to the IAC in respect of the assessment year 1989-90 whereby the approval of the refund was solicited. Also this could not be treated as the change of opinion as the approval of the refund is an administrative matter.
4. The learned counsel has also raised an objection that in another case, where the circumstances were said to be similar, the notice issued under section 66-A of the Ordinance had been cancelled by the learned CIT. A copy of the order of the CIT in that case has been filed. The facts and circumstances in that case are different and also such order is not binding on the Tribunal. Even otherwise in that case the High Court had allowed the assessee to file a revision petition whereas the assessee in the present case has chosen to file the appeal against the order under section 66-A of the Ordinance whereas the re-assessment has been challenged in revision.
5. Considering all these circumstances, I am of the view that orders passed by the IAC should be upheld and the appeals should be dismissed.
(Sd.)
(Inam Ellahi Sheikh),
Accountant Member.
As difference of opinion amongst the Members has arisen, therefore, the matter is placed before the Hon'ble Chairman under subsection (7) of section 133 of the Income Tax Ordinance for nomination of third Member to resolve the controversy.
QUESTION OF DIFFERENCE:
"Whether on the facts and in the circumstances of the case, the orders of the IAC issued under section 66-A of the Ordinance should be annulled?"
(Sd.)
(Inam Ellahi Sheikh),
Accountant Member.
(Sd.)
(Abdul Rashid Qureshi),
Judicial Member.
NASIM SIKANDAR (JUDICIAL MEMBER).---The above question has been referred to me under section 133(7) of the Income Tax Ordinance on account of difference of opinion between the learned Division Bench which originally heard the appeal.
2. Brief facts of the case are that the assessee is an individual and derives income from imports. For the assessment years under review viz. 1988-89 and 1989-90 sales were respectively returned at Rs.2,25,15,208 and Rs.2,45,17,433. The rates disclosed stood at 2.05% and 2.10%. In terms of money gross profits were declared at Rs.4,62,000 and Rs.5,16,100. Net income in these two years were shown at Rs.1.70.200 and Rs.1,83,700. This was a no accounts case. The imports were found verifiable. However, sales were not fully verifiable. On a requisition that the capital available only at Rs.5.55,000 in the year 1988-89 did not permit the achieved turnover, particularly on certain dates, the assessee pleaded a number of cash loans as well as bank credit facility. Some of the alleged creditors were summoned and examined and the bank credit facility was also found satisfactory, As to the decrease in margin of profit the assessee contended that the turnover having almost doubled, the profit rate was bound to fall. Apparently the assessing officer was satisfied as he accepted the declared sales and subjected them to a slightly higher rate at 2.25%. In the next year an almost identical assessment order was framed indicating some expression and degree of satisfaction qua various explanations made by the assessee. The only change being application of a rate of 2.30% as against declared at 2.1017.
3. The Revising Authority, IAC, Range-II, Zone-A, Lahore through orders recorded on 13-5-1991 revised both of these assessments on the ground of there being erroneous and prejudicial to the interest of revenue and directed the assessing officer to make de novo assessments. His reasons on facts being:--
(a) That the applied rate was ridiculously low;
(b) That much higher rate was being applied in parallel cases (of which one was quoted in the order) and that the kind of imports made by the assessee i.e. Chemicals and machinery admitted of a higher rate when compared with the parallel case in which 7 % rate was declared by the assessee himself;
(c) That acceptance of declared sales in spite of this being a no accounts case was total improper;
(d) That the assessing officer ought to have at least increased the sales to the extent of the applied rate;
(e) That the accepted sales were found mathematically wrong when seen in the perspective of the rates opted as in final analysis these were reduced to some extent;
(f) That profit and loss expenses were accepted without a strain in spite of there being presence of element of personal use as well as the fact that these had registered an abnormal increase when compared with the earlier year; and
(g) That no parallel case was cited and considered while adopting the aforesaid rates.
4. In reply to the notice earlier served upon the assessee some general objections were pleaded; that completed assessment could not be revised on mere lowness of G.P. Rate and that departmental instructions issued in this behalf also militated against the proposed action. The revising authority repelled these objections and as said above, both of the assessments were directed to be made de novo. This brought the assessee in appeal before the learned Division Bench.
5. According to the learned Judicial Member learned AR for the assessee was right in pointing that the requirements of section 66-A were not complied with before exercising of jurisdiction by IAC, an instance of this infirmity being alleged non-availability of "record" before the IAC at the time of issuance of notice under section 66-A. Also learned Judicial Member appears impressed with the contention put forth at the bar that an order sought to be revised should be both erroneous as well prejudicial to the interest of revenue and these qualifications were not available in this case. Further that IAC did not confront the assessee with all the material used against him. According to learned Judicial Member the IAC took into consideration extraneous element, a parallel case, while exercising the impugned jurisdiction. The case was also found to be that of change of opinion inasmuch as after framing of assessments in question the assessee was-allowed refund and at that stage every aspect of the matter was duly examined even at the level of the revising authority. The contention of the learned: AR for the assessee that the assessee was confronted only with the objection of lowness of G.P. but the order, as subsequently revealed, was based on various other considerations which resulted in a serious prejudice to the interest of the assessee was accepted. Learned Judicial Member also accepted the premises that the assessee had been discriminated against inasmuch as in an identical case, the Commissioner of Income Tax ordered cancellation of notice issued under section 66-A while exercising his revisional jurisdiction under section 138(I) of the Ordinance.
6. Learned Accountant Member on the other hand did not subscribe the views expressed and the findings recorded by learned Judicial Member on any of the above cited issues. He found the assessment orders to be both erroneous as well as prejudicial to the interest of revenue. On merits also he found the assessments framed to be incorrect and also that the IAC could legally consider a parallel case as no bar existed in law against such consideration. The submission made qua change of opinion was also rejected and the alleged parallel case in which the CIT cancelled the notice was found to be irrelevant and not binding upon the Tribunal.
7. Parties, have been heard. The contentions, by and large remains the same which were earlier made by the learned counsel for the assessee before the learned Division Bench. After hearing the parties and going through the impugned order as well as the assessment order, I find no merit in any of the submissions made for the assessee. While I fully agree with the observations and findings recorded by the learned Accountant Member that the impugned order should not be interfered with, my reasons for the conclusion follow as under.
8. The first submission is that while setting aside the assessment older, learned IAC did not have assessment "record" before him which coloured his judgment as well as the resultant order. The contention is vague and in any case not based upon any sound legal premises. Learned A.R. for the assessee has not been able to define the term "record". His reliance on 1990 PTD (Trib.) 524 is also of no help. An assessment order is the most vital document of assessment proceedings as it manifests all the steps taken therein, the view point of the assessee and its consideration by the assessing officer as well as the final result in the form of computation of i!7con1c car losses Record of proceedings does not imply a copy or copies of notices issued, the power of attorney or otherwise a pack of documents submitted by an assessee. An officer exercising his powers under section 66-A is to look for a justification from the assessment order and not from the notices served upon the assessee or the order-sheet maintained in respect of the proceedings. In this case the concerned IAC has frequently quoted from the assessment order to reach a conclusion. It is not the case of the assessee that the revising authority did not at all consider or consult the assessment orders which were declared to be erroneous and prejudicial to the interest of revenue. It is also not the case of the assessee that any particular document or aspect of the assessment proceedings was ignored or was not considered at the time of issuance of a notice under section 66-A or when the order in question was passed. Mere claim that assessment record was not before the revising authority when it exercised the impugned Jurisdiction hardly signifies anything except an extra-technical objection without crystallizing a prejudice resulting from the alleged absence of record. The objection is overruled.
9. The contention that an assessment order has to be both erroneous as t well as prejudicial to the interest of revenue must be allowed on the face of it. The proposition is by now well settled both in India and Pakistan. Therefore, there is no need to refer to any reported decision. However, how this proposition and the objector. based upon it helps the assessee has not made clear by the learned counsel for the assessee. The IAC has divided the impugned order in two portions, one devoted to his findings with respect to the prejudice caused to the revenue and the other to the errors committed by the assessing officer. Men he joined them together to reach the conclusion that the orders passed by .he assessing officer were erroneous in so far as these were prejudicial to the nearest of revenue. In a nutshell, according to the revising authority, the assessment orders were prejudicial to the interest of revenue in that the declared sales were accepted in spite of there being no record to support them and the error committed by the assessing officer was that as a result of application of rate the sales in fact fell below the figure on which these were declared. I have seen the assessment orders and find myself in total agreement with the findings recorded by the learned Accountant Member and as a result thereto also with the reasons of the revising authority. The assessment orders recorded in both of the years certainly do not come up to the bare minimum of the standard expected in such proceedings. I need not make a detailed order as to the legal and factual flaws and the improprieties that crept into these orders as these have already met their fate. It is correct that powers of an IAC under section 66-A are not unfettered. It is equally correct that these powers are not subject to the kind of restrictions and far-fetched technical objections that the learned AR for the assessee is attempting to bring in. Accepting any of these contentions would mean to nullify the provisions contained in section 66-A and to' strip of an authority of its legitimate power which the legislature clothed it with. The power vested under these provisions is necessarily discretionary and in absence of a strong evidence of use of the power in an arbitrary manner no exception can possibly be taken to the manner and modus operandi in which it was exercised. Also these powers are fairly wide and do not admit of any of the vague or imaginary clogs, factual or technical which are being attempted to be dogged out in this case. Plainly, speaking if the revisional powers could not be exercised in the situation before us then these could never be exercised in any condition whatsoever. From a bare reading of the impugned order I find that the revising authority has successfully been able to bring home all the conditions required to be present for the exercise of the jurisdiction. Therefore, I will refuse the objection that the assessments in question were not erroneous or that these were not prejudicial to the interest of revenue.-
10. The objection of the assessee that it was not allowed adequate opportunity is factually wrong. The impugned orders have reproduced the replies made by the assessee after being served with notices containing expressions of intention to exercise the revisional jurisdiction. The phrase used by the learned counsel for the assessee that the assessee was not heard on "all the points involved" is again vague and uncertain. The case relied upon in this regard and detailed in para. 23 ante at page 13 of the proposed order is clearly distinguishable because in that case the Supreme Court of Pakistan examined the issuance of notice, in the perspective of the maxim audi altrem partem. In the case before us the service of a notice, its reply by the assessee and its consideration by the revising authority is not denied. It is, however, claimed that the revising authority did not confront the assessee on all the points in its mind. Mere fact that the impugned order also contains an additional reason for setting aside the assessments in question will not by itself nullify the exercise of jurisdiction. In other words if the assesee was confronted with only one reason and while recording the order the revising authority added another cannot be said to have caused prejudice to the assessee. I would have taken the objection seriously if the revising authority had itself framed the assessments under section 66-A instead of remanding the case. Here the revising authority after considering; various aspects of the issues involved set aside the assessments to be made de novo. The assessee is certainly going to be served with fresh notices after remand and it will have adequate opportunity to controvert the way it likes. The submission made at the bar that if the other reasons were also confronted to the assessee it could have come up with better defence and the authority may well have decided to drop the proceedings is too optimistic to be accepted. According to record the assessee was served with the notice, required opportunity was availed and he made legal as well as factual objections which were considered in details. Therefore, no prejudice at all resulted even if one of the several reasons was not detailed in the notice issued. As said above, he revising authority though fully competent to frame assessment after setting aside the earlier one did not go for that option and instead remanded the matter to the assessing officer where the assessee again will have a chance to be confronted with the contemplated action. It may again be noted that the net result of the impugned order is that the assessee will be asked to establish his declared version in the proceedings to follow. No immediate tax liability has been created. In these circumstances one cannot say that the assessee was denied the reasonable opportunity contemplated in section 66-A. In the circumstances no case is made out for interference with the impugned order on this score as well.
11. The contention that the impugned order is hit by the mischief of principle of change of opinion again has no legs to stand upon. Firstly it is not clear that the IAC while exercising powers under section 66-A ever considered the assessments from the angle he did subsequently through the impugned order Even if that be so proceedings or action on a request for refund are totally different from those held under the said provisions. The principle of change of opinion is applicable only in cases of reopening of assessment under section 65 of the Ordinance and not to the revisional proceedings under section 66-A. The view of this Tribunal in this connection cannot be better explained than the one contained in 1990"P T D 914 a case relied upon by the assessee himself. In that case it was found that order of an IAC or CIT while exercising powers under section 66-A would not be hit by the concept of change of opinion. I am also not inclined to agree that in this case there is only some kind of disagreement. between the assessing officer and the IAC on the result of the assessment. Here is a case in which the assessing officer framed an assessment which the IAC successfully demonstrated to have resulted in prejudice to the revenue on account of its being erroneous both legally a$ well as factually. Therefore, the case relied upon to this connection 1984 PTD 137 is not attracted to the facts before us.
12. Next contention that the IAC took into consideration some extraneous material while taking action under section 66-A which was legally improper is also devoid of any substance. The basis of contention is that the IAC while considering the applied rate to be on the lower side referred to a parallel case which he could not do. I do not find any illegality in his having done so. After all when an authority will come to the conclusion that an order was wrong or that it was prejudicial to the interest of revenue there has to be a comparable case or a standard on which the result will rest. The other part of the submission that an IAC is not excepted to indulge in deep inquiry again offends the words of section 66-A which permit making of an order, "after making or causing to be made such inquiry as the circumstances of the case justify xxxx. " The observations of their lordships of the AJ&K High Court in 1984 PTD 137 re: M/s. United Builders Corporation, Mirpur v. CIT, AJ&K relied upon and referred to in para. 27 (ante) therefore, are not relevant in the facts and circumstances of this case.
13. Coming to the reliance of the assessee on the alleged precedent whereby the Commissioner, Income Tax in his revisional jurisdiction under section 138(1) cancelled a notice earlier issued by the concerned IAC under section 66-A. The order in question appears legally informative ex facie. The revisional jurisdiction of a Commissioner under the said provisions pertains only to an "order" which one way or the other affects tax liability of an assessee. The provisions of section 138(1) when read as a whole alongwith subsection (2) leave no room for a doubt that such jurisdiction can be invoked only in respect of a final and not an interim order. Issuance of a notice to an assessee under section 66-A or for that matter under any other provision of the Ordinance does not by itself fix or determine the tax liability of an assesee. Therefore, exercise of revisional jurisdiction against issuance of a notice in fact presupposes that an order adverse to the interest of the assessee shall invariably be passed ultimately. Law does not permit such kind of contemplation. The provisions of subsection (2) of section 138 contain the qualifications or restrictions on the exercise of revisional jurisdiction. These provisions also make an unequivocal indication that interim orders shall not be liable to be interfered with under these provisions. Therefore, besides my agreement with the learned Accountant member that such an order cannot be relied upon as a precedent before this Tribunal, I will hold that an order passed outside the contours of the revisional jurisdiction conferred under section 138(1) of the Ordinance will not serve as a precedent for the lower Revenue Authorities either.
14. In view of what has been said above, my answer to the question is in the negative. The assessee having failed to bring a legitimate legal challenge, no interference with the impugned order is called for.
15 Both of these appeals shall be dismissed
M. B. A./169/TOrder accordingly