I.T.AS. NOS.119/LB TO 124/LB AND 342/1,13 TO 347/1,13 OF 1989-90 VS I.T.AS. NOS.119/LB TO 124/LB AND 342/1,13 TO 347/1,13 OF 1989-90
1997 P T D (Trib.) 2037
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Accountant Member and Abdul Rashid Qureshi, Judicial Member
I.T.As. Nos.119/LB to 124/LB of 1989-90 and 342/LB to 347/LB of 1989-90, heard on 19/12/1995.
Income Tax Ordinance (XXXI of 1979)---
----Ss.13(1)(c) & 65---Re-opening of assessment ---Benami transaction---Definite information about Benami accounts and transactions ---Addition-- Failure of Assessing Officer to issue notice to assessee under S.65, Income Tax Ordinance, 1979---Effect---Assessments against assessee were made on agreement and under Self-Assessment Scheme in relevant years---Assessing Officer, later on, came to know of two Benami accounts in the name of the assessee's minor son and operated by assessee himself---Assessing Officer treated those accounts as sales and opening the assessment under S.65, made additions under S.13(1)(c) of the Income Tax Ordinance, 1979---First Appellate Authority upheld the re-opening of assessment and as a consequence the additions made thereunder were maintained but gave a little relief regarding G.P. rate ---Assessee and department both went into cross appeals pressing their respective version---Held, Assessing Officer should have examined the assessee before issuing of notice under S.65, Income Tax Ordinance, 1979 if he wanted to establish that the accounts did not belong to assessee or his minor son and that those were Benami of the firm-- -Assessing Officer failed to establish the link between transactions in the disputed Bank accounts and business of the assessee's firm by the evidence ---Re--opening of assessment was not justified as Assessing Officer could not establish Benami nature of business before issuing notice and no concrete evidence was available to substantiate allegation of Benami nature of 'account.
1986 PTD 37; S.N. Ganguly v. CIT, Bihar and Orissa (1953) 24 ITR 16; (1982) 134 ITR 364; 1993 SCMR 1108; 1988 PTD 342; NTR 1990 (Trib.) 189 and (1983) 143 ITR 814 ref.
1993 PTD Note 281 at p.375 PLD 1972 Kar. 535; 1994 CLC 811; 1993 PTD 804 and 1992 SCMR 1799 distinguished.
Shahid Nasim, D.R. and Zahid Pervaiz, I.A. for Appellant.
Ejaz Ali Bhatti for Respondent.
Date of hearing: 19th December, 1995.
ORDER
INAM ELLAHI SHEIKH, ACCOUNTANT MEMBER---These are twelve cross appeals in the case of registered firm and arise out of a consolidated after order 10-6-1989 recorded by the learned CIT (Appeals) Zone-IV, Lahore.
2. The relevant facts in brief are that the assessee derived income from Flour Mills business. The partnership consisted of four partners. Mr. Muhammad Ahmad holding 3/8th share, Mr. Muhammad Khalid holding 1/8th share, Mst. Iqbal Begum, and Mst. Mumtaz Begum holding 1/4th share each. The original assessment in the year 1982-83 was made on agreed basis whereas in the other years under consideration these were made in Self-Assessment Scheme. The Assessing Officer received information about two bank accounts in the name of a minor Mr. Muhammad Shahid son of Mr. Muhammad Khalid. One of these Bank Accounts No.818 was with the Muslim Commercial Bank, Fruit Market Branch Lahore with the address given as C/o Ravi Flour Mills Bund Road, Lahore. The other Bank Account No.652 was with United Bank Limited, Timber Market Branch, Lahore and the address given was 110 F-Model Town, Lahore. The Assessing Officer gathered the information with regard to total deposit in these bank accounts and the peak deposits. It was ascertained that Mr. Muhammad Khalid operated the bank account. The Assessing Officer issued show-cause notice to the assessee, i.e. Ravi Flour Mills alleging the Benami nature of these accounts in the case of the assessee. The assessee denied the ownership of the bank accounts. However, the Assessing Officer re-opened these assessments under section 65 of the Income Tax Ordinance, (hereinafter called the Ordinance), after rejecting the contention of the assessee for the reasons recorded in the assessment order. After confronting the assessee and issuance of various notices the Assessing Officer treated the deposits in the bank account as a sales in each year and subjected them to a G.P. rate. The peak deposit, after adjustment for the trading addition already made in respect of a total deposits, were added under section 13(l)(c) of the Ordinance. The original income assessed was added to such income in each year. The learned CIT (Appeals) upheld the re-opening of the assessments but reduced the G.P. rate.
3. The assessee has not only/challenged the reopening of the original assessments in all the years under consideration but also the sales estimate as well as G.P. rate and the addition made under section 13(1)(c) of the Ordinance in all the years under consideration. The department on the other hand feels aggrieved against the reduction in G. P. rate from 5.5 % to 3.5 % . In all the years under consideration.
4. The learned counsel of the assessee has strongly attacked the action of the Assessing Officer under section 65 of the Ordinance. It was strongly argued by the learned counsel of the assessee that the departmental officials had failed to establish the Benami nature of these accounts and the transactions therein. The learned counsel of the assessee has relied upon the following decisions to support the contention that the onus to prove the Benami was on the person who was alleging the same.
1986 PTD 37.
(1953) 24 ITR 16.
The learned counsel of the assessee elaborated that the account was in the name of Mr. Muhammad Shahid who is alleged to be the son of Mr. Muhammad Khalid who is the partner of the registered firm. This account was allegedly operated by Mr. Muhammad Khalid. However, it was argued by the learned counsel of the assessee that the account was not in the name of the assessee and was not operated by the managing partner who is Mr. Muhammad Ahmad. The learned counsel of the assessee drew our attention to clause (6) of the partnership-deed according to which a bank account of the firm could be opened in the name of the Firm. The learned counsel of the assessee further pointed out that the assessee was maintaining bank accounts with these banks in its own name and these were operated by Mr. Muhammad Ahmad, the managing partner. It was further submitted that the department should have firstly confronted Mr. Muhammad Khalid who was said to be operating the bank account and secondly it should have established the link between the deposits in the bank account and the transactions of this assessee. The learned counsel of the assessee relied upon the decision reported as (1982) 45 Tax 172 to support this contention. The learned counsel of the assessee further argued that the mere fact that Mr. Muhammad Khalid was a partner of the registered firm, the assessee, could not establish that this was a Benami transaction of the assessee. The learned counsel of the assessee relied upon the following two decisions.
1953 24 ITR 16.
1982 134 ITR 364.
The learned counsel of the assessee further submitted that the assessee leased out mills in the assessment years 1980-81 and 1981-82 and the lease income had been declared and assessed originally. The learned counsel pointed out the treatment of the Assessing Officer in the re-assessment proceedings whereby he had added such lease income to the alleged income on the basis of sales said to be made by this assessee and deduced on the basis of the disputed bank accounts. Thus the contention of the learned counsel was that there was no definite information with the Assessing Officer to justify the action under section 65 of the Ordinance.
5. The learned counsel further supported this contention with the arguments that the Assessing Officer should have established the concealment by way of the Benami nature of account before the issuance of the notice under section 65 of the Ordinance. It was pointed out by the learned counsel for the assessee that the Assessing Officer issued the notices under section 65 of the Ordinance on 6-5-1987 whereas statement of the Mr. Muhammad Khalid, who was said to be operating the bank accounts, was recorded on 7-1-1988. This prima facie was said to indicate that the Assessing Officer had no definite information before the issuance of notices under section 65 of the Ordinance. The learned counsel of the assessee relied upon the following chars.
1993 SCMR 1108 (S.C.P.)
1988 PTD 342.
6. The learned counsel of the assessee also attacked, of an alternate plea the ex parte proceedings by the Assessing Officer. It was submitted that the last hearing was conducted by the Assessing Officer on 4-6-1988 whereas the assessment was not finalised on that day. The learned counsel also attacked the assessment on the plea that the Assessing Officer could not tax both the total deposit by applying the G.P. rate and also adding the peak deposit under section 13(1)(c) of the Ordinance. Reliance was placed on NTR 1992 (Trib.) 128. In the last three years the learned counsel of the assessee took plea that there was no justification to enhance the sales and also that such sales estimates were harsh and excessive. On the issue of G.P. rate the learned counsel submitted that the rate as fixed by the first Appellate Authority was still excessive as in other parallel cases a G.P. rate of 2.5% had been applied by the department.
7. The learned Legal Advisor, on behalf of the Department, strongly supported the Assessing Officer on the issue of re-opening of the assessment and also the ex parte proceedings as well as the quantum of income. It was argued by the L.A. that the Assessing Officer had definite information by way of the bank accounts as already mentioned above. It was specifically pointed out by the learned L.A. that the account opening firm of Muslim Commercial Bank indicated the profession of the account holder to be flour mill and address given was of Ravi Flour Mill. It was also submitted by the learned L.A. that the nature of transactions in these accounts clearly indicated that these were of business related with the assessee. It was submitted that the credits in the accounts included various transfers from Kohat as well as Mardan. The learned L.A. submitted that Mr. Muhammad Khalid who was operating the account had denied the ownership of the said account and he had no sources to finance such deposits/transactions as indicated by his wealth statement and also by the accounts of the registered firm. It was submitted that the capital of Mr. Muhammad Khalid ranged from Rs.1,61,417 in the assessment year 1981-82 to Rs.260,154 in the year 1985-86 with the income ranging from Rs.5,092 to Rs.29,448. The learned L.A. also referred the correspondence of the Assessing Officer with the U.B.L. and M.C.B. However, the copies of such corresponding were not made available although they were required by the Bench. The learned L.A. submitted that Mr. Muhammad Khalid was operating the bank account in the name of his minor son and since he has no other business, the Assessing Officer was justified in treating these bank accounts as belonging to the registered firm. The learned L.A. relied upon the following decisions to support his contention.
PLD 1972 Kar. 653 (High Court).
1993 PTD Head Notes 281.
8. The learned L.A. further emphasised that the present address of the assessee on the account opening from was prima facie the evidence to indicate that the account was the ownership of the registered firm especially because Mr. Muhammad Khalid had no other resources to finance such account. Reliance was placed on the following decisions.
(1980) 42 Tax 33
1994 CLC 1437 (Lahore High Court)
9. The learned L.A. further submitted that the onus to prove Benami was not on the department in the circumstances of this case. Reliance was placed again on the decision reported as (1980) 42 Tax 33 in addition to decision reported as 1994 CLC 811.
10. On the issue of definite information the learned L.A. submitted that the documentary evidence in possession of the Assessing Officer had merely been denied by the assessee and not rebutted. Reliance was placed on decision reported as 1993 PTD 804. The learned L.A. further submitted that the issue of re-opening under section 65 of the Ordinance in this case had been settled in the presence of two concurrent findings of the Assessing Officer as well as the First Appellate Authority. Reliance was placed on a decision reported as 1992 SCMR 1799.
11. The learned L.A. further argued that the Assessing Officer had sufficient information at the time of issuance of notice under section 65 of the Ordinance. The learned L.A. referred to the information with regard to the account opening from and the statement of the bank officials which were available in 1986 or earlier 1987 whereas the notices were issued on 6-5 1987. Thus, according to the learned L.A., the Assessing Officer was in possession of sufficient information to justify the re-opening of the assessment.
12. On the issue of ex parte assessment, the learned L.A. referred to the non-operative attitude of the assessee. It was pointed out by the learned L.A. that the Assessing Officer had fixed the final date of hearing for 4-6-1986 when no accounts were produced. It was further submitted that the Assessing Officer on that date sent the case to the I.A.C. for approval and the assessment was made on 30-6-1988. Thus the learned L.A. supported the ex parte proceedings and also placed on reliance on a decision reported as 1993 PTD 371.
13. The learned L.A. also supported the sales estimates as well as the G.P. rate as applied by the Assessing Officer.
14. Mr. Ejaz Ali Bhatti, Advocate, the learned counsel of the assessee, again emphasised that the Assessing Officer had gathered the definite information after the issuance of notices under section 65 of the Ordinance which was against the law. It was against pointed out by the learned counsel of the assessee that the statement of Mr. Muhammad Khalid, on which the Department relied upon to allege the Benami of the accounts, had been recorded after the issuance of notices under section 65 of the Ordinance. It was further submitted by the learned counsel that the assessee was not guardian of the minor in whose name the accounts had been operated. On the issue of G.P. rate the learned counsel again pointed out that the Department had applied the G. P. 2.5 % in a number of cases.
15. The arguments both of the parties have been heard. The undisputed facts are that the accounts were operated by Mr. Muhammad Khalid in the name of Muhammad Shahid who was a minor at that time, substantial amounts of deposits were discovered in these accounts; the address given in one of the accounts was that of this assessee and the nature of business was also given as flour milling business. It is also a fact that Mr. Muhammad Khalid, who was a partner of the firm, was alleged to be operating to bank accounts in dispute and was examined after the issuance of notices under section 65 of the Ordinance. It is also not denied before us that the Assessing Officer did not make any efforts to establish a link between the deposits in the disputed accounts and business of this assessee.
16. The first and foremost contention of the learned counsel is that the Department was not justified to hold that the bank accounts were actually the ownership of the registered firm and that Mr. Muhammad Khalid operated these accounts as Benami of the firm. Reliance has been placed on the case of S.N. Ganguly v. CIT, Bihar and Orissa (1953) 24 ITR 16 (supra). In that case a husband and wife had encashed high denomination notes after demonetisations of the same. The husband encashed notes worth Rs.4,000 and wife encashed notes worth Rs.11,000. The Department held that the amou4 of Rs.11,000 relatable to the husband who was the assessee. This view was upheld by the Tribunal. However, Patna High Court in the above-cited case came to a different conclusion in the following manner .
...... It is true that the onus of proof in the case of an item of cay credit in the accounts of the assessee is upon the assessee who must adduce evidence to show the source and nature of the amount pi cash credit received during the accounting year. Unless the assess furnishes satisfactory explanation, the Income-tax Authorities ate entitled to draw an inference that the receipts are of an income nature. But, in the present case, this principle can be applied only if there is material to suggest that the amount of Rs.11,000, which was encashed in the name of Hemprabha Ganguli, really belonged to the assessee. On this point, the onus is certainly not upon the assessee to show that the apparent state of things is not the real state of things To put in differently, there is no presumption in law that the amount standing in the name of she belongs to the husband. Unless there are some materials before the Income-tax Department to suggest that the amount of Rs.11,000 really belonged to the assessee, there would be no justification on the part of the Income-tax Authorities to tax this amount. The principle to be applied is a different principle, namely, that, in the absence of evidence to the contrary, the money standing in the name of the wife must be presumed to belong to her, and an assessee cannot be taxed in respect of the amount standing in the name of the wife. The onus of proof in such a case will be not on the assessee but on the Income Tax Department to show by a least some material that the amount standing in the name of the wife does not belong to the wife but belongs to the assessee. In this connection, the Appellate Tribunal has said that the close relationship of husband and wife would be a circumstance to indicate that the amount of Rs.11,000 really belonged to the assessee. In our opinion; this cannot be held to be any material at all. There must be some material, apart from the existence of the close relation of husband and wife, to suggest that the amount of Rs.11,000 did not really belong to the wife'. (Emphasis added by assessee)
17. And another case relied upon by the learned counsel is that E.B Chaudhry, Pro Late Eklasur Rehman Chowdhury v. CIT Chittagong cited Ps 1986 PTD 37. In that case it was held that "the well-settled presumption of law is that the apparent state of affairs is real unless the contrary is proved. Therefore, the burden of proving that a transaction is sham or that the person in whose name the property stands is not the real owner but is only Benamidar for another is on the Income Tax Department. Similar finding was given by a Single Bench of this Tribunal in the decision reported as NTR 1990 (Trib.) 189. In an other case reported as (1983) 143 ITR 814 a partner of registered firm was found to be carrying on a business from tie same premises as and that of it firm in which he was a partner. Thus, the business of the partner was held to be the Benami of the firm and taxed in the hands of the firm. The firm had not only made number of transactions with the assessee Firm but also was in the same business. Also no rent or shop expenses had been charged. On this basis and certain other information' this was held to be a Benami business and then was confirmed by the Tribunal. The Madhya Pradesh High Court held the burden of proof regarding Benami is on the person who alleges it and that a finding regarding Benami was a finding of fact. Certain criteria was also laid down be decide the issue of Benami. However, the reference application in that case was rejected as this was said to be finding of fact.
18. In the present case the Department started proceedings on the receipt of information regarding the two bank accounts in the name of Mr. Muhammad Shahid who was said to be the minor son of Mr. Muhammad Khalid one of the partners of the assessee's firm. In one of these accounts the address and the profession were the same and those of the assessee's firm whereas in the other account a residential address was given. The departmental official did not summon Mr. Muhammad Khalid who was operating the bank accounts on behalf of Mr. Muhammad Shahid who was said to be minor. They are said have jumped to the conclusion that these accounts belonged to the assessee firm and that Mr. Muhammad Khalid was operating these accounts as Benami of the firm in the name of Mr. Muhammad Shahid. It was only after the issuance of notices under section 65 of the Ordinance that the Assessing Officer examined Mr. Muhammad Khalid who denied the ownership of these bank accounts. The Assessing Officer should have examined Mr. Muhammad Khalid before the issuance of the notices under section 65 of the Ordinance, if he wanted to establish that the accounts did not belong to Mr. Muhammad Khalid or Mr. Muhammad Shahid and that these were Benami of the firm. The Assessing Officer has also failed to establish the link between the transactions in the disputed bank accounts and the business of the assessee's firm by any evidence. In the case reported as 1993 SCMR 1108 the Honourable Judges of the Supreme Court have discussed the connotation of definite information while deciding the case of I.T.O. v. Chappal Builders. The Honourable Judges agreed with the view of the High Court that the definite information in the context of the law under discussion cannot mean difference of opinion or further reasoning or other exercise of logic or even drawing of conclusions. The arguments of the learned L.A. on behalf of the Department are not found forceful. The learned L.A. has mainly relied on the circumstantial evidence such as contents of the account opening form in Muslim Commercial Bank indicating the nature of business as flour milling and the address of this assessee; the volume of transactions in such accounts, the affidavit of Mr. Muhammad Khalid, which was obtained after reopening of the assessments and the alleged lack of sources of Mr. Muhammad Khalid to finance such transactions. The learned L.A. has relied on a decision of the High Court (1980) 42 Tax 33 to support the contention that the circumstantial evidence could lead to the conclusion, of the Benami transaction. The learned L.A., has referred following head notes in that case;
"Income-tax Act, 1922 (XI of 1922)---Sections 3 & 10---Benami transaction ---Assessee deriving income from running power-looms, sale of yarn and cloth---Five units of twenty power-looms in the names of five different concerns installed in the same premises-- Yarn and spare-parts consumed jointly---Production and sales recorded jointly and a combined set of books maintained by assessee for five units ---Assessee's control over the entire business from the stage of procurement of raw materials till the disposal of manufactured cloth and realisation of- profits coupled with exemption of power-looms from excise duty and sales tax---Whether constitute sufficient evidence to support the Tribunal's finding that the four concerns were Benamidar for the assessee---Held yes---In face of overwhelming evidence of joint-ness of business strict proof of initial capital investment of three units, whether necessary---Held no---Onus of proof---Whether in such circumstances question of burden of proof becomes immaterial---Held yes."
19. However, it is evident that the facts of that case clearly indicated the nature of Benami whereas in the present case this has not been clearly established. Another case was cited by the learned L.A. as 1994 CLC 1437 to raise the objection that the onus of proof of Benami was not entire on the Department. However, in that case the dispute was between the husband and the wife regarding ownership of certain property and obviously that case is not applicable to the facts of this case. The learned L.A. also referred to the head notes of a decision of the Bombay High Court reported as 1993 PTD Note 281 to agitate that the burden of proving of Benami can be shifted from time to time. However, that is not the question before us. The learned L.A. has failed to establish that the onus to disprove Benami was on the assessee in the facts of this case. Another decision relied upon by the L.A. was reported as PLD 1972 Kar. 535 which again revolves on its own facts. There arose a dispute over other certain property which had been purchased and constructed by a father in the name of minor child and it was held that this could not be the property of the parent. In the present case the facts are different as there is no such relationship between the minor and the registered firm. Another decision relied on by the L.A. was reported as 1994 CLC 811 in which it was held that the question onus to prove Benami would lose importance when evidence had been led by both of the parties which had to be assessed as a whole. Even in the light of this decision one cannot reasonably conclude that there was sufficient evidence to indicate the Benami nature of bank accounts.
20. With regard to the existence of the definite information, the learned L.A. has referred to a decision of the Karachi High Court reported as 1993 PTD 804. However, questions in that case was different as that case involved exclusion of a return from the Self-Assessment Scheme and not the reopening of a case under section 65 of the Ordinance. An other plea of the learned L.A. is that in the presence of concurrent findings of the two authorities below, no inference can be made by the Appellate Tribunal. Reliance has been placed on a decision reported as 1992 SCMR 1799. Again the facts in that case were totally different. That was the case of a dispute of tenancy and ejectment. If such principle was applied to the Income Tax Appeals, then obviously the assessees would be deprived of the right of the second appeal as invariably the assessee files the further appeal after his contention has been rejected by the Assessing Officer as well as the First Appellate Authority on certain issue.
21. With regard to the ex parte assessments, the learned L.A. has pointed out that the assessee had been non-cooperative with the department and, no accounts has been produced on the final date of assessment proceedings when the Assessing Officer sent the case for the approval of the I.A.C. It was conceded that the assessment was made on 30-6-1988 after obtaining the I.A.C's. approval dated 29-6-1988. Reliance was placed on a decision reported as 1993 PTD (Trib.) 271. This contention of the L.A. has some force.
22. On the issue of G.P. rate, the learned L.A. argued that the history of the case was a better guide than a parallel case. Reliance was placed on decision reported as 1994 PTD (Trib.) 47.
23. Having considered the submissions of both the parties and the various judgments cited before us, we came to the conclusion that the reopening of the assessment under section 65 of the Ordinance was not justified as the Assessing Officer could not establish the Benami nature of business before the issuance of notices under section 65 of the Ordinance Sufficient material was also not available after the reopening to provide a concrete evidence to substantiate the allegation of the Benami nature of these accounts. Thus, we hold that the Assessing Officer did not have a definite information at the time of reopening of the assessments under consideration. Hence we cancel all the assessments under consideration. In view of this order on the issue of reopening of the assessment, we need not give any finding on the other issues. As a result all the six appeals field on behalf of the assessee are accepted whereas the departmental appeals are dismissed being devoid of any force.
M.S./363/TribOrders accordingly.