Income Tax Ordinance (XXXI of 1979)---

----Ss.65 & 59---Re-opening of assessment---Change of opinion---Valuation of property---Information which was received subsequent to the framing of assessment, was not available at the relevant time and neither any enquiry was made on the point of valuation of property purchased by the assessee nor any occasion arose for conscious application of mind by the Assessing Officer---Issuance of notice under S.65 of the Income Tax Ordinance, 1979 to the assessee, held, was not the result of change of opinion, in circumstances and hence justified.

C.I.T. v. Jennings Private School 1993 SCMR 96; M/s. Arafat Woollen Mills Limited v. I.T.O. 1990 SCMR 697; Edulji Dinshaw Limited v. I.T.O. PLD 1990 SC 399 = 1990 PTD 155; M/s. Crescent Art Fabric Ltd. v. CIT 1988 PD 857; Shadman International (Pvt.) Limited v. I.T.O. 1991 PTD 387.; Jaison International (Pvt.) Ltd. v. I.T.O. 1989 PTD 1141; Republic Motors Limited v I.T.O. 1990 PTD 889; Car Tunes v. I.T.O. PLD 1989 Kar. 337; I.T.O. v. Panama (Pvt.) Ltd. (1974) 97 ITR 210; M/s. Ramzan & Sons v. I.T.O. 1991 PTD 503 and 1991 PTD (Trib.) 639 ref.

Arshad Siraj for Appellant. Misri Ladhani, D.R. for Respondent.

Date of hearing: 7th January, 1998.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI, (CHAIRMAN).--- The above appeal at the instance of assessee is directed against the order, dated 22-5-1988 by the learned C.I.T.(A), Zone-IV, Karachi in I.T.A. No.CIT(A)/Z-IV of 1983-84/relating to the assessment year 1983-84.

2. Heard Mr. Arshad Siraj, learned counsel for the appellant and Mr. Misri Ladhai, learned representative for the department.

3. The first objection raised on behalf of the appellant is that the assessing officer was not justified in reopening the assessment under section 65. His contention is that it is a case of mere change of opinion and, therefore, the re-assessment proceedings have been initiated without jurisdiction.

4. The relevant facts as gleaned from the orders of the learned two officers below and the facts narrated by the learned counsel for the appellant are that the appellant is a private limited company which filed return of total income for the assessment year 1983-84 under self-assessment scheme in accordance with Circular No.8, dated June 26, 1983 containing self -assessment scheme for the assessment year 1983-84. A limited company was required to file the following statements, accounts, details and documents alongwith the return of income:

(1)Trading/manufacturing accounts, profit and loss account and balance sheet; receipt and expenditure statement, wherever applicable.

(2)Copies of personal accounts of directors.

(3)Where any depreciation allowance is claimed complete depreciation chart showing the value of assets, depreciation allowance claimed, rates at which claimed and the resultant W.D.V. may be given,

(4)Where any addition to assets is shown evidence regarding its value and source of investment.

5.The appellant fulfilled requirements of the self-assessment scheme and the return of income was accepted under the self-assessment scheme. Subsequently, a notice was issued under section 65 stating that it was reported by the Survay Vigilance, Inspection and audit that the value of Property No.SR-2/2, Madha Chamber, M.A. Jinnah Road, Karachi, shown by the appellant has been grossly understated. In the balance sheet filed alongwith the return of income the value of property was shown at Rs.6,00,000. The information was received that capital gain tax authorities assessed the value of said property for the purpose of capital gain tax vide order, dated 6-11-1982 at Rs.17,16,960. In response to the notice under section 65 the appellant explained that the building under consideration consists of three floors containing about 19 tenements occupied by as many tenants. The appellant was one of the tenants in the building. It was further stated that there were certain disputes between the family members of Madia family, the owner of the building and the owners were not getting proper rent from their tenants, nor were they able to eject any one of them from the tenements in their possession. The building was built in pre-partition days and some of the tenants were as old as building and were paying very nominal rents. It was further stated that due to adverse circumstances the value was agreed at Rs.6,00,000. It was submitted that the value as per the conveyance deed cannot be considered to be understated. It was further submitted that the property was purchased by registered sale-deed and, therefore, the sale consideration shown in the registered sale-deed should be accepted. The assessing officer, however, did not accept the contentions and proceeded on with the re-assessment proceedings.

6. In the above circumstances the first contention of Mr. Arshad Siraj is that it is a case of change of opinion because under the provisions of self- assessment scheme for the assessment year 1983-84 the appellant was required to show evidence regarding value and source of investment where any addition to asset is made and the property under consideration was purchased during the period relating to the assessment year 1983-84 and the sale-deed was produced before the assessing officer. Mr. Arshad Siraj has submitted that if there was any understatement in respect of the value of property purchased the assessing officer could exclude the return from the purview of self-assessment scheme which was note done, meaning thereby, that the assessing officer was satisfied with the declaration of value of the property, therefore, it was not justified to form any other view after a period of three years and to conclude that the value of property declared alongwith the return of income was duly supported with the production of registered sale-deed was understated. Mr. Arshad Siraj has further contended that before processing return of income under the self assessment scheme the assessing officer was required to apply his mind for the purpose of holding that a return was qualified to be processed under the self-assessment scheme. According to learned counsel it indicates that the assessment order under section 59(1) was made after due application of mind and once an assessment order under section 59(1) has been made by conscious application of mind the assessment cannot be reopened on the basis of same set of facts. In support of his contention he has placed reliance on the judgment of Hon'ble Supreme Court of Pakistan in the case of C.I.T. v. Jennings Private School (1992) 66 Tax 156. Mr. Arshad Siraj has submitted that in the appeal before Hon'ble Supreme Court of Pakistan the assessment involved was for assessment year 1984-85 and the return was processed originally under self- assessment scheme. Subsequently, assessment was reopened under section 65 and the Hon'ble Sindh High Court declared the re-assessment proceedings without lawful authority and of no legal effect. The appeal preferred on behalf of department before Hon'ble Supreme Court was dismissed. Mr. Arshad Siraj has further submitted that the provisions contained in self- assessment scheme for the assessment year 1983-84 (relevant in the appeal before us) and in the assessment year 1984-85 were same and, therefore, he has placed reliance on the judgment of Hon'ble Supreme Court of Pakistan.

7. The relevant facts in the cited case were that assessee a secondary school filed return of income under the self-assessment scheme which was accepted and subsequently, notice was issued under section 65 for the reason of understatement of income and discrepancies in the assets. The assessee challenged the issuance of notice under section 65 before Hon'ble Sindh High Court through Constitution Petition. The Hon'ble Division Bench of the Sindh High Court after referring to the case-law held as follows:

"The principles are sufficiently expounded in the above decision. For the petitioner it was contended that there had been a full and true disclosure of all the material facts by the petitioner and that these had been probed into by the officer as will be seen from Annexure-C to the petition which proceeded the assessment order, dated 15-12-1984. The Income-tax Officer after satisfying himself about the purchase price of the two plots and the sources of the credits of bank account, finalized the assessments. The officer who issued the notice had not filed any affidavit traversing the allegations of the assessee. The stand of the I.T.O. was that the assessment was finalized under the self-assessment scheme. It has come on record that the petitioner had disclosed all material facts by producing the Photostat copies of the sale-deeds, balance certificate of Habib Bank Limited and the prize winning bonds. There was no other obligation on it to instruct the Income-tax Officer about the inference to be drawn on these facts. If the Income-tax Officer felt any doubt he could have examined vendors and satisfying himself. He having not done so cannot be permitted to reconsider the same on a change of opinion, so to say. In this view of the matter we hold that the question of understatement did not arise in the instant case so as to attract the mischief of provisions of section 65 of the Ordinance. "

8. A plea was taken before the Hon'ble Supreme Court of Pakistan that section 59 of the Ordinance does not envisage detailed scrutiny of the accounts, account books and other documents, if the case is qualified under the scheme. It was submitted on behalf of assessee that the assessment was though made under the self-assessment scheme but it was framed after obtaining the relevant information and the documents, and. therefore, it is true that mere change of opinion on the part of assessing authority does not entitle it to reopen the case under section 65 of the Ordinance was very much applicable to the facts of that case.

9. The Hon'ble Supreme Court observed that the question under what circumstances a notice under section 65 of the Ordinance can be issued have been the subject-matter of judicial review in a number of cases. Reference was made to two judgments of the Hon'ble Supreme Court of Pakistan namely, (1) M/s. Arafat Woollen Mills Limited v. I.T.O. 1990 SCMR 697 (SC of Pakistan) and (2) Edulji Dinshaw Limited v. I.T.O. (PLD 1990 SC 399 = 1990 PTD 155. The following principle laid down in the case of Edulji Dindhaw Limited was cited with approval:

"Once all the facts have been fully disclosed by the assessee and considered by the Income-tax Authorities and the assessments have been consciously completed and no new facts have been discovered there could be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under-assessment, etc. in the meaning of clauses (a) or (b) of subsection (1) of section 65 of the Ordinance. On the glaring facts and circumstances of the case the mischief of section 65 of the Ordinance was not attracted at all, so s to call for the issuance of impugned notices against the appellant company, not to speak of passing the assessment orders, dated 26-12-1982 which, however, have been already declared as nullity to law by the order of this Court, dated 13-12-1992 for the reasons stated earlier."

10. The Hon'ble Supreme Court of Pakistan after citing the above principle laid down by the Hon'ble Supreme Court of Pakistan referred to the facts in the Jennings Private School and observed that it has been found by the High Court that though assessment passed under the self-assessment scheme was made after obtaining all the relevant information and documents in respect of which assessment was sought to be reopened under section 65 of the Ordinance, the plea of department that no scrutiny was made by the assessing officer at the time of completing assessment under self-assessment scheme was repelled. Reliance was placed on behalf of department on the judgment of Hon'ble Lahore High Court in the case of M/s. Crescent Art Fabric Ltd. v. CIT 1988 PTD 857 in which Hon'ble Mr. Justice Saad Saud Jan held as follows:---

"Finally it is contended on behalf of the petitioner that together with the returns it had submitted details of the construction which it had carried out. The said record was scrutinized by the I.T.O. before making assessment order. Thus, subsequent issuance of notice under section 65 of the Income-tax Ordinance could not be recorded but a mere change of opinion by the I.T.O. This contention cannot be accepted for the earlier assessments made by the assessee were made under self-assessment scheme where the statement made by the assessee are accepted on their face value. In any case assessment orders do not indicate that the cost of construction was examined in detail at the time when the assessment orders were made. "

11. After considering the case-law relied upon on behalf of the parties the Hon'ble Supreme Court held as follows:

"There cannot be any controversy that an assessment order framed under the scheme without asking for further information and documents under the relevant paras. of the scheme stands on a different footing than the assessment order made after detailed scrutiny and examination of the facts under section 61 of the Ordinance and conscious application of mind to the material facts. The principle of change of opinion cannot be made applicable to the former case as in such case upon discovery, of the factum that the income chargeable to tax under the Ordinance has escaped assessment, on the basis of definite and reliable information, assessment can be reopened by virtue of clause (c) of subsection (1) of section 65 of the Ordinance, but in the latter case, a notice under section 65 of the Ordinance cannot be sustained unless it is shown that new information or document was not available before the Income-tax Officer when the assessment order was framed and/or I.T.O. failed to apply his mind consciously to the matters in respect of which notice under section 65 of the Ordinance has issued and/or the assessee was guilty of concealment of material facts or he managed and/or manoeuvred the assessment order and/or connivance of t-he assessing officer which fact is apparent from such assessment order."

12. On the facts obtaining in the cited case the Hon'ble Supreme Court of Pakistan ultimately held that the High Court has rightly held that the principle of change of opinion was applicable and, therefore, assessing authority was not justified in reopening the assessment order under section 65 of the Ordinance.

13. On the other hand, the learned D.R. has submitted that the ratio of decision of the Hon'ble Supreme Court of Pakistan is in favour of the department on the basis of facts available on record in the present case. He has submitted that a perusal of the original assessment order framed under section 59(1) shows that neither any query or probe was made in respect of the value of property purchased by the appellant during the period relevant of the assessment of year 1983-84, nor any question about the valuation of property arose in any context and as such there was no conscious application of mind to the valuation of property. He has submitted that at the time of framing original assessment under section 59 no positive evidence of concealment was available with the department and, therefore, by virtue of the provisions contained in the self-assessment scheme the assessing officer could neither exclude the return from the purview of self-assessment scheme nor could make any detailed scrutiny or any probe/enquiry into the valuation of property declared by the appellant and as such the question relating to the valuation of property never came for consideration before or at the time of framing of assessment order under section 59(1). In support of his contention he has placed reliance on the original assessment order which is reproduced below:

ASSESSMENT ORDER

This is the case of a Private Limited Company and is enjoying income from commission on distribution of different items, return showing an income of Rs.32,72,856 has been filed on 1-8-1983. Net profit before depreciation has been shown at Rs.39,25,783. The return filed is accompanied by statement of account alongwith depreciation schedule and computation chart. The return qualifies for self-assessment scheme under immunity clause in the light of instruction contained vide para. 6-A, sub-clause (a) of C.B.R's. Circular No.8 of 1983, dated 26-6-1983. All other requirements of the scheme have been fulfilled.

The assessment is completed under section 59(1) of the Income Tax Ordinance, 1979 as under: ---

Assessed as per Income-tax 30. Issue Notice of Demand and intimation accordingly.

Income-tax Officer Cos.

Circle A-7, Karachi.

14. The learned D.R. has submitted that in the case of Jennings Private School supra reliance was placed on behalf of the department on the judgment of Justice Saad Saud Jan in the case of Crescent Art Fabric Ltd. wherein it has been held that the principle of change of opinion was not available to an assessee where the assessment orders do not indicate that the cost of construction was examined in detail at the time when the assessment orders were made and the Hon'ble Supreme Court did not disapprove the finding and as such it would be deemed to have been approved by the Hon'ble Supreme Court of Pakistan. The learned D.R. has submitted that the department initiated re-assessment proceedings after about three years of the completion of assessment, after receiving definite information in the form of assessment by the capital gain tax authorities wherein the fair market value of the property was assessed at Rs.17,16,960. The learned D.R. has submitted that in order to attract the plea of change of opinion it is necessary to order that the facts on the basis of which assessment is reopened were available before the assessing officer at the time of original assessment and a particular opinion was formed after conscious application of mind to those facts. After fulfilment of these conditions only the assessing officer is debarred from embarking to another conclusion on the consideration of same facts. The learned D.R. has submitted that in the facts and circumstances of then present case no question of any change of opinion arises.

15. We have carefully considered the contentions raised on behalf of the learned representatives for the parties and the facts obtaining on record. After very careful and anxious consideration of the entire facts we are persuaded to agree with the submission of learned D.R. The reason being that at the time of original assessment framed under section 59(1) though the appellant disclosed the value of property purchased at Rs.6,00,000 and produced the registered sale-deed also but at that time there was no positive evidence available with the assessing officer and as such he could not exclude the return from the purview of self-assessment scheme and without excluding the return from the purview of self-assessment scheme the assessing officer had no jurisdiction to conduct full-fledged scrutiny/enquiry into the valuation of property. Subsequently, when the assessing officer came into possession of the definite information about under-valuation of property then only the notice under section 65 was issued. Thus, the facts available on record indicate that the material which formed basis of the issuance of notice under section 65 (the assessment order of capital gain tax authority) was not available with the assessing officer at the time of framing of assessment under self-assessment scheme If the assessing officer would have been in possession of this assessment order and then he would have accepted the return under self-assessment scheme the appellant could validly advance plea of the change of opinion. We are fortified in our views with atleast two judgments in addition to the judgment of Hon'ble Mr. Justice Saad Saud Jan in the case of Crescent Art Fabric Limited already referred, while considering the judgment of Hon'ble Supreme Court of Pakistan in the Jennings Private School. The first judgment is by Mr. Justice Nasir Aslam Zahid in the case of Shadman International (Pvt.) Limited v. I.T.O. 1991 PTD 387 (Sindh H.C.), in that case assessment for the assessment year 1985 86 was in the first instance finalized under the self-assessment scheme under section 59 of the Income Tax Ordinance, 1979, but the same was reopened under section 65. On service of notice under section 65 the Managing Director of the assessee company furnished all details and explanations and after examination of the case the matter was compromised and an agreement was reached with the I.T.O. In pursuance of the said agreement further addition of Rs.6,00,000 was made to the total assessed income. The second assessment order was made on 28-2-1987. However, information was received from the officer of I.A.C. of Income-tax (Survey and Collation, Karachi) on 6-5-1987 that the total income for the year was under-assessed. It was informed that the assessee purchased a plot measuring 1000 sq. yards at a reported value of Rs.8,35,000 which was grossly understated as market value of the plot at the relevant time was much higher. It was further intimated that another plot admeasuring 1000 sq. yards was purchased by` N.D.F.C. on 3-11-1983 about a year before the deal by assessee for a value of Rs.59,00,000. It was intimated that both the plots were exactly comparable. A show-cause notice was issued followed by a notice under section 65 and the assessee challenged the issuance of notice under section 65 before the Hon'ble High Court through a writ petition. Before the Division Bench of the Hon'ble Sindh High Court it was contended that information received was merely an opinion of the Survey and Collation Wing of the Income-tax Department and even if it was information which related to the sale price of another property, it was a case of change of opinion, therefore, the notice was issued without jurisdiction. Reliance was placed on behalf of assessee on the following judgments:

(i) Eduljee Dinshaw Limited v. I.T.O. PLD 1990 SC 399.

(ii) Arafat Woollen Mills v. I.T.O. 1990 SCMR 697.

(iii) Jaison International (Pvt.) Ltd. v. I.T.O. 1989 PTD 1141.

(iv) Republic Motors Limited v. I.T.O. 1990 PTD 889.

(v) Car Tunes v. I.T.O. PLD 1989 Karachi 337.

(vi) I.T.O. v. Panama (Pvt.) Ltd. (1974) 97 ITR 210.

16. The Hon'ble judges of the Sindh High Court observed that in PLD 1990 SC 399, it was held that once all the facts have been fully disclosed by the assessee and considered by the Income-tax Authorities and the assessment have been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been understated. In the other judgments also same view was taken. On behalf of department a plea way taken that after issuance of first notice under section 65 and passing of order on 28-2-1987 a report was received from the office of I.A.C. (Survey and Collation) containing information that assessee has declared to have purchased Plot No.158/S, Block 2, P.E.C.H.S. Karachi measuring 1000 sq. yards for Rs.8,35,000 on 5-12-1984 while information collected by the Survey Department reveal that Plot No.158/R, Block 2, which is immediately adjacent to the plot purchased by the assessee was purchased by N.D.F.C. on 3-11-1983 for Rs.59,00,000. The area of plot purchased by N.D.F.C. is also 1000 sq. yards. The purchase price declared by the assessee is quite low as compared with the market value rate. The learned counsel for the assessee contended that the report of Survey and Collation Wing of the Income-tax Department was an opinion and further submitted that the information stated in the report related to another plot and, therefore, on the basis of this report no show-cause notice under section 65 could be issued. The Hon'ble Judges of Sindh High Court did not accept the contention and held that the plots were adjacent to each other and, therefore, the report of Survey and Collation wing of the Income-tax Department gives fresh/new factual information and on the basis of this information collected/received after the previous assessment, the I.T.O. was entitled to issue another show cause notice under section 65 of the Ordinance. It was further held that, "it is not a case where the I.T.O. lacked jurisdiction to issue a notice under section 65.

17. In the case of M/s. Ramzan & Sons v. I.T.O. (PLD 1991 PTD 503) validity of notice under section 65 of the Income-tax Ordinance was challenged. The relevant facts were that the assessee was engaged in the business of construction and engineering. The assessee filed return of total income for the assessment years 1986-87 and 1987-88 claiming immunity from total audit. Alongwith the return, the assessee submitted all the required and requisite documents like, wealth statement, statement of accounts and supporting evidence as required under the self-assessment scheme for the two assessment years. Before completion of assessment assessing officer issued notice, reply whereof was sent and finally assessments were completed under section 59(1). Subsequently, assessing officer issued notice under section 65 alongwith the letter alleging misdeclaration, concealment, charging depreciation improperly and wrong declaration of the written down value of various machineries. The assessee assailed the reopening of assessment and the department alleged that the reopening proceedings were initiated on the basis of definite information which was received during the course of assessment for the later years. It was further contended on behalf of the department that the original assessments were completed without applying mind and without scrutiny of accounts. It was contended on behalf of assessee before the Hon'ble Sindh High Court that the returns were filed by making compliance of all the requirements laid down in the self-assessment scheme and any discrepancy in filing document or providing particulars or withholding of any required information could lead to disqualification from the benefit of self-assessment scheme. In this case also the judgments of Hon'ble Supreme Court of Pakistan in the case of Eduljee Dinshaw Limited and Arafat Woollen Mills were cited. Mr. Justice Salim Akhtar did not agree with the contention that the ratio laid down in the case of Eduljee Dinshaw Ltd. and Arafat Woollen Mills was applicable to the facts of d held that the assessments were completed under self-assessment scheme without any scrutiny and information was obtained in subsequent years, therefore, issuance of notice was justified. Finally it was held by the Hon'ble High Court that, the respondent did not have those informations at the time of making the assessment, nor he had applied his mind and determined these facts. In these circumstances the respondent had the jurisdiction to issue notice under section 65 of the Income-tax Ordinance.

18. Applying the ratio of above judgments we are of the considered opinion that the issuance of notice under section 65 was not the result of change of opinion because at the time of completion of original assessment the information which was received subsequently was not available and neither any enquiry was made on the point of valuation of the property purchased nor any occasion arose for conscious application of mind by the assessing officer. The second contention raised on behalf of appellant is that the assessment order by the capital gains authority cannot be treated as definite information. Mr. Arshad Siraj has submitted that the information by the assessing officer was a mere suspicion. The point in issue already stands decided against the assessee by a Division Bench of this Tribunal sitting at Islamabad vide judgment reported as 1991 PTD (Trib.) 639. The above judgment is binding on us and, therefore, the contention of Mr. Arshad Siraj is repelled. It has been held in the judgment cited above that, "it is our considered opinion that the assessment was rightly reopened under section 65 of the Ordinance (ibid) as the I.T.O. Circle 21 Rawalpindi had received definite information from the Excise and Taxation Department Rawalpindi with regard to the amount for which property was allegedly purchased by the assessee".

19. For the foregoing reasons it is held that the assessing officer was justified in issuing notice under section 65 and in the facts and circumstances obtaining on record it is not a case of lack of jurisdiction on the part of assessing officer.

20. Mr. Arshad Siraj has next submitted that valuation of property even as reduced by the learned C.I.T.(A) is on higher side. He initially contended that the declared value may be accepted and in the alternative the estimated value should not exceed the valuation arrived at by the capital gain tax authority which is Rs.17,16,960. W e are persuaded to agree with the second submission of Mr. Arshad Siraj and direct that the value of property be adopted at Rs.17,16,960 :and after deducting the declared value at Rs.6,00,000 the addition under section13(1)(d) be restricted to Rs.11,16,960 only.

21. The appeal stands disposed of as above.

M.B.A./524/TribOrder accordingly.