I.T.AS. NOS.1452(IB), 1453(IB),1454(IB) OF 1995-96, 617(IB), 618(IB) AND 619(IB) OF 1992-93 VS I.T.AS. NOS.1452(IB), 1453(IB),1454(IB) OF 1995-96, 617(IB), 618(IB) AND 619(IB) OF 1992-93
1997 P T D (Trib) 1097
[Income-tax, Appellate Tribunal Pakistan]
Before Hamidullah Malik, Accountant Member and
Ch. Irshad Ahmad, Judicial Member
I.T.As. Nos.1452(IB) 1453(IB),1454(IB) of 1995-96, 617(IB), 618(IB) and 619(113) of 1992-93, decided on 02/11/1996.
Income Tax Ordinance (XXXI of 1979)---
----Ss.65 & 13---Re-opening of assessment---Addition---Purchase of property by assessee---"Finalized proceedings" and "pending proceedings"-- Distinction---Condition precedent for re-opening of finalized proceedings---Definite information---Suspicion or doubt of Assessing Officer does not constitute "definite information" ---Not legal to assume that if any one buys an asset -cheaper than its fair price market value he had necessarily bought the same at the market value but was disclosing its lesser value to suppress his real income.
There is no rule of law to ensure that if anyone buys an asset cheaper than its fair market value he had necessarily bought it at the market value but was disclosing its lesser value to suppress his real income. Finalized proceedings can be reopened under section 65 of the Ordinance only if a definite information has come to the possession of the assessing officer that the assessee's income has escaped assessment. There is a clear distinction between the cases where the assessment proceedings are pending with the assessing officer and the cases where the proceedings have concluded and are required to be reopened. In matters of pending proceedings if an assessing officer can show that an asset acquired by the assessee was acquired at the price lower than its fair market value the burden of proof to show that the assessee did not expend the money equal to the fair market value of the asset will lie on the assessee and if the assessee fails to discharge the burden that he acquired the asset at its full market value or had the reason to acquire it for a lesser price the assessing officer will be quite justified to hold that the assessee had expended more money to acquire the asset than shown in his books of accounts to suppress his real income. However, where the proceedings have been finalized whether after scrutiny or by fiction of law under any scheme before they are reopened the assessing officer has to show that he had definite information that the assessee had concealed his income and in the context of acquiring asset by the assessee the assessing officer will have to show that the assessee had in fact paid more money to acquire any asset than shown in his books of accounts. In the present case the only basis on which the proceedings were reopened was that the assessing officer doubted that the assessee might have expended more money to acquire the shop than that shown in its books of account. Whatever may be the position it was mere the assessing officer's doubt or suspicion. A suspicion or doubt does not qualify as a definite information that the assessee had in fact expended more money to buy the shop at higher price and that he had paid more money to the seller. The Assessing Officer was not justified to reopen the finalized proceedings. The assessment order made under section 65 of the Ordinance was cancelled and originally made under section 62 of the Ordinance was restored in circumstances.
I.T.O. v. M/s. Chappal Builders .1993 SCMR 1108 and 1993 PTD (Trib.) 1681 ref.
Muhammad Riaz, D.R. for the I.T.O.
Sohail Babri, I.T.P. for the Assessee.
ORDER
CH. IRSHAD AHMED (JUDICIAL MEMBER).---This order disposes of assessee's appeals relating to the assessment years 1985-86, 1987-88 and 1988-89 and ITO's cross appeals for the said years.
ASSESSEE'S APPEAL AND ITO'S CROSS APPEAL RELATING TO THE ASSESSMENT YEAR 1985-86
2. The assessee derives income from the manufacture and sale of carpets. For the above assessment year assessment was made on the assessee at net income of Rs.11,70,000 on the basis of the income declared in its return of income filed under the self-assessment scheme. The assessment proceedings were, however,, reopened under section 65 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance)' for the reason that the value of the shop purchased by the assessee shown in its books of accounts was lesser than its market value. And, after reopening the proceedings the assessing officer deduced C.P. at Rs.24,49,825 as follows:---
| Export sales as declared: | Rs.93,11,411 |
| C. P. @ 16% | 14,89,825 |
| Local sales estimated: | 1,00,00,000 |
| C. P. @ 16% | Rs.10.00,000 |
| Total C.P: | Rs.24.49,825 |
3. The I.T.O: also made on addition of Rs.57,500 to the income of the assessee under section 13 of the Ordinance for the reason that the market value of the shop purchased by the assessee for Rs.1,00,000 in fact was Rs.1,57,500, and making various add backs cut of the profit and loss account expenses made assessment at net income of Rs.15,60,465.
4. The assessee objected to the order of the assessing officer before the Appellate Commissioner on the following grounds:---
(i) That the re-opening of the case is without any basis and highly unjustified.
(ii) That the appellant was never confronted for any basis for reopening nor there was any material with the Department which could justify the proceedings under section 65.
(iii) That no parallel case relevant to year in which shop purchased has been confronted to the assessee, even otherwise the rate adopted Q Rs.700 per sq.ft. is highly excessive.
(iv) That the local sales estimated at Rs.100,00,000 is imaginatory and highly excessive.
(v) That the C.P. rate applied on exports and local sales a 16% is very much excessive.
(vi) That the following additions made out of profit and loss expenses are much excessive.
| | Claimed (Rs.) | Disallowed (Rs.) |
| (1) Entertainment | 1,01,300 | 20,000 |
| (2) Travelling | 67,774 | 20,000 |
| (3) Car expenses | 1,24,144 | 20,000 |
| (4) Tour abroad | 75,293 | 10,000 |
5.The Appeal Commissioner upheld the ITO's action regarding reopening of the proceedings and the addition made under section 13 of the Ordinance relating to the purchase of the shop. The shop sales and certain add backs out of the profit and loss account expenses were, however, reduced.
6. The assessee had objected to the order of the Appeal Commissioner on the grounds that there was no justification for the I. T.O. to reopen his case under section 65 of the Ordinance: to estimate the value the shop at Rs.1,57,500; to estimate the local sales at 97,00,000; and to deduce the G. P. on export and local sales @ 16 % .
10 7. The I.T.O. has also objected to the order of the Appeal Commissioner on the ground that he was not justified to reduce the shop sales and to reduce the add backs out of P and L Account expenses.
8. We have heard Mr. Sohail Babri, ITP for the assessee and Mr. Muhammad Riaz, D.R. for the ITO.
9. The A.R. of the assessee has contended that the I.T.O. was not justified to reopen the finalized proceedings on the ground that the value of the shop purchased by the assessee as shown in the registered sale-deed and in its books of accounts was lessor than its fair market value. The A.R. submitted, that there was no information with the I. T.O. that the assessee had in fact expended more money to purchase the shop than shown in the sale-deed and in its books of accounts. In support of the proposition that the mere tact that the assessing officer guessed that the price paid by the assessee to purchase the shop was lesser than its fair market value would not tantamount to definite information as provided for in section 65(2) of the Ordinance to justify the finalized proceedings, reliance has been placed on the decision of the Supreme Court of Pakistan in I.T.O. v. M/s. Chappal Builders 1993 SCMR 1108 and of this Tribunal reported in 1993 PTD (Trib.) 1681.
10. The assessment order does not indicate on what evidence nor the basis the assessing officer formed the opinion that the assessee had expended more money to acquire the shop than that shown in its books of accounts. It appears that he reopened the proceedings because he thought that the assessee appears to have purchased the shop cheaper as compared with other properties in the area. We have not been referred to any evidence that the assessing officer had found that the assessee had, in fact, expended more money to purchase the shop than that shown in the sale-deed and its books of accounts. Even if it is found that the assessee had purchased the shop cheaper as compared to the similar properties in the area it provided only a doubt or suspicion that the assessee might have expended more money to acquire the shop than that shop in its books of accounts. There is no rule of law to assume that if anyone buys an asset cheaper than its fair market value he had necessarily bought it at the market value but bras disclosing its lesser value to suppress his real income. Finalized proceedings can be reopened under section 65 of the Ordinance only if definite information has come to the possession of the assessing officer that the assessee's income has escaped assessment. There is a wealth of authority to establish that there is a clear distinction between the cases where the assessment proceedings are pending with the assessing officer and the cases where the proceedings have concluded and are required to be reopened. In matters of pending proceedings if an assessing officer can show that an asset required of the assessee was acquired at the price lower than its fair market value the burden of proof to show that the assessee did not expend the money equal to the fair market value of the asset will lie on the assessee and if the assessee fails to discharge the burden that he acquired the asset at its full market value or had the reason to acquire it for a lesser price the assessing officer will be quite justified to hold that the assessee had expended more money to acquire the asset than shown in his books of accounts, and had shown its lesser value in his books of accounts to suppress his real income. However, where the proceedings have been finalized whether after scrutiny or by fiction of law under any scheme before they are reopened the assessing officer has to show that he had definite information that the assessee had concealed his income and in the context of acquiring asset by the assessee the assessing officer will have to show that the assessee had in fact paid more money to acquire any asset than shown in his books of accounts. It appears that in the assessee's case the only basis on which the proceedings were reopened was that the assessing officer doubted that the assessee might have expended more money to acquire the shop than that shown in its books of account. Whatever may be the position it was mere the assessing officer's doubt or suspicion. A suspicion or doubt does not qualify as a definite information that the assessee had in fact expended more money to buy the shop at higher price and that he had paid more money to the seller. We are thus of the opinion that the assessing officer was not justified to reopen the finalized proceedings for this assessment year. The assessment order made under section 65 of the Ordinance is cancelled and originally made under section 62 of the Ordinance is restored.
11. Consequently, the assessee's appeal is allowed and the cross-appeal by the I.T.O. is rejected.
APPEALS AND CROSS-APPEALS RELATING TO
THE ASSESSMENT YEAR, 1987-88 AND 1988-89
12. The dispute relating to the above assessment years has been settled through the Income Tax Settlement Commission, Islamabad. Accordingly, the assessee's and ITO's cross appeals are dismissed as withdrawn.
M.B.A. /330/(Trib.) Order accordingly.