I.T.AS. NOS.2360/LB AND 2374/LB OF 1998, DECIDED ON 16TH APRIL, 1999. VS I.T.AS. NOS.2360/LB AND 2374/LB OF 1998, DECIDED ON 16TH APRIL, 1999.
1999 P T D (Trib.) 2346
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member
I.T.As. Nos.2360/LB and 2374/LB of 1998, decided on 16/04/1999.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.59 (1)---Self-assessment---Deemed assessment---Date of deemed assessment---Acknowledgment slip issued in respect of return of income would become "deemed assessment order" after 30th June of the relevant assessment year and not on the date on which the slip was issued.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.59 (l) & 65(1)(c)---C.B.R. Circular No.5 of 1995, dated 11-7-1995-- Self-Assessment Scheme 1995-96, para.8---Self-assessment---Concealment-- Definite information---Additional assessment---Condition---Self-Assessment Scheme 1995-96 had dispensed with this condition laid down by 5.65(1)(c) of the Income Tax Ordinance, 1979 regarding existence of assessment order under S.59 (1) before an action under S.65 of the Ordinance was taken in a case involving "definite information of concealment" ---Assessing Officer was empowered by para. 8 of Self-Assessment Scheme 1995-96 to subject assessee's return to assessment proceedings under S.65 straightaway, without first making assessment under S.59 (1) of the Income Tax Ordinance, 1979, on account of Assessing Officer having definite information of concealment.
1997 PTD 183 rel
Fakhir-ul-Islam, I.T.P. and Mian Mehmood Ahmad for Appellant (in I.T.A. 2360/LB of 1998).
Shafqat Mehmood Chohan, L. A. for Respondent (in I.T.A. 2360/LB of 1998).
Shafqat Mehmood Chohan, L. A. for Appellant (in I.T.A. 2374/LB of 1998)
Fakhir-ul-Islam, I.T.P. and Mian Mehmood Ahmad for Respondent (in I.T.A. 2374/LB of 1998).
Date of hearing: 20th March, 1999.
ORDER
MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER). ---Cross appeals have been filed by the assessee as well as by the Income-tax Department against appellate order, dated 16-5-1998 passed by Commissioner of Income-tax Appeal Zone-II, Faisalabad under section 132 of the Income Tax Ordinance, 1979. Learned A.R. of the assessee and D.R. of the Income-tax Department have been heard and relevant documents and orders have been perused. Both the appeals are taken up in this consolidated order and are decided as under:---
2. Assessee is a Director of a private limited company and derives income from salary and house property. Return for the year 1995-96 was filed under broad based self-assessment scheme declaring income of Rs.5, 07,609. The Income-tax Officer completed the assessment under section 62/65 at income of Rs.4, 07,28,309 after making addition of Rs.4, 02,20,700 under section 13(1)(aa) of the Income Tax Ordinance on 30-12-1997. Aggrieved with this assessment, the assessee preferred appeal before the Commissioner of Income-tax Appeal Zone-II, Faisalabad under section 129 of the Income Tax Ordinance. The learned C.I.T. in his impugned order, dated 16-5-1998 has set aside the assessment order of the I.T.O. on legal issue of re-opening of assessment under section 65 and on factual issue of making addition under section 13(1)(aa). Against this decision of the learned Commissioner both the parties have come up in second appeal before the I.T.A.T. Both the parties feel that the learned C.I.T. had no justification in setting aside the case on the point of reopening of assessment under section 65 and moreover he was not justified to set aside the addition of Rs.4, 02,20,700 for de novo action.
3. It has been contended by the assessee that income-tax return was filed by him for the year under consideration under Board Based Self Assessment Scheme and no order of assessment under 59(1) was passed by the Income-tax Officer before issuing the notice under section 65 - on 4-12-1995. Since no assessment order existed for the assessment year 1995-96 in case of the assessee before the date of issuance of notice under section 65, so the notice issued under section 65 is without jurisdiction and the assessment framed under this section in consequence of the notice is ab initio, illegal and void. On the other hand the stand of the Income-tax Department is that the acknowledgment slip issued by the Income-tax Officer in respect of the return of income became deemed assessment order under section 59(1) on the date on which return of income was filed by virtue of para. 5 of C.B.R. Circular No.5 of 1995, dated 11-7-1995. Thus according to the department assessment order under section 59(1) existed before issuing notice under section 65 on 4-12-1995 and, therefore, assessment made under section 65 is legally justified. This contention of the (sic) Department has not been accepted by the assessee according to whom acknowledgment slip issued in respect of income-tax return does not become a deemed assessment order under section 59(1) on the date of filing of return but it becomes a deemed assessment order after 30th June of the relevant assessment year if no order under section 59(1) is passed by that date. In support of this view the assessee relies upon proviso to section 59(4) of the Income Tax Ordinance. But department does not agree to this view of the assessee and believes that proviso to section 59(4) is not applicable on the ground that para. 5 of C.B.R. Circular No.5 of 1995, dated 11-7-1995 overrides this proviso. In favour of this proposition the department has quoted a case decided by the I.T.A.T. reported as 1997 PTD 183.
4. The C.I.T. appeals has come out with a different view. According to him the action of the Income-tax Officer under section 65 is not justified under para. 5 of the said Circular but it is justified under para. 8 of the said Circular. In the opinion of the learned C.I.T., para. 8 of the said Circular empowers the Income-tax Officer to take action under section 65 in a return involving concealment of income which is eligible under the scheme, even if no assessment order has been made under section 59. Depending on the abovementioned case of I.T.A.T. the learned C.I.T. says that since C.B.R. Circular under Self-Assessment Scheme is a 'Special Law' so it would over ride general law contained in section 65 of the Income Tax Ordinance. Thus, in the opinion of the C.I.T. the action taken by the I.T.O. under section 65 is justified because of para. 8 of the said Circular even if no assessment order exists under section 59(1).
5. We have considered the contention of both the parties. The questions of law which arise before us, briefly speaking, are:
(a) Whether acknowledgment issued in respect of return of income becomes deemed assessment order from the very date on which it was issued or from the date following 30th June of the relevant assessment year.
(b) Whether para. 8 of the C.B.R. Circular No.5 of 1995 over-rides section 65 of the Income Tax Ordinance and enables the I.T.O, to make additional assessment under section 65 without first marking assessment under section 59(1)?
In the next few paragraphs of this order, we would try to answer these two questions in the light of the Income-tax Law and facts of the case as under:
6 So far as the first question is concerned, the Income-tax Department holds that the acknowledgment slip issued to the assessee at the time of filing of the return shall be deemed to be an assessment order under section 59(1) from the very date on which it was issued i.e. on the date of filing of return of income. In support of this view, the department depends on para. 5 of C. B. R. Circular No .5 of 1995 which reads as under:
"Subject to paragraphs 6, 7, 8 and 9, if a return is eligible under paragraph 3 and meets the requirements of this scheme, it shall be accepted and no questions shall be asked from the assessee and the acknowledgment slip which will be delivered to the assessee at the time of filing of the return shall be deemed to be an assessment order under section 59(1) of the Income Tax Ordinance, 1979. "
A perusal of this para however, shows that C.B.R. does not say in this para. what the department tries to presume. The C.B.R. simply says that the acknowledgment slip issued to _the assessee at the time of filing of the return shall be deemed to be an assessment order under section 59(1). But it does not specify the date on which it would become a deemed assessment order under section 59(1). To know this date we will have to refer to the proviso to subsection (4) of section 59 of the Income Tax Ordinance. According to this proviso if no order under section 59(1) is passed by 30th June of the relevant assessment year, the acknowledgment slip issued under section 55-A in respect of the return of income shall be deemed to be an assessment order. Thus, the date on which acknowledgment slip becomes deemed assessment order falls after 30th June of the relevant assessment year. Our this view is supported by C.B.R. Circular No.9 of 1995 in which C.B.R. has explained provision of Broad-Based Self-Assessment Scheme of 1995-96 and has laid down in clause (xiii) of this Circular that acknowledgment receipt for the return shall be deemed to be the assessment order and demand notice under proviso of section 59(4).
The view of the department that para 5 of the C.B.R. Circular is in clash with the said proviso of section 59(4) is not correct. Hence, there is no question of this para to override the said proviso of the statutory law. We are, therefore, constrained to hold that acknowledgment slip issued in respect of return of income becomes deemed assessment order after 30th June of the relevant assessment year and not on the date on which it is issued. Even the action of the I.T.O. in issuing a letter to the assessee on 10-10-1995 calling upon him to submit certain documents which were not submitted with the return of income supports our view. Had the Income-tax Officer believed that acknowledgment slip issued by him became deemed assessment order on the date of filing of return of income, he would not have issued this letter of short documents to the assessee afterwards. Thus, deemed assessment order under section 59(1) in the case of the assessee came into existence on 1-6-1996 and not on the date of issuance of acknowledgment slip.
7. To answer second question which relates to legal, status of para. 8 of C.B.R. Circular No.5 of 1995 viz-a-viz section 65 of the Income Tax Ordinance, 1979, let us first of all reproduce the relevant portion of this circular:
"PROCESSING OF RETURNS FILED UNDER SELF ASSESSMENT SCHEME.
(5) Subject to paragraphs 6, 7, 8 and 9, if a return is eligible under paragraph 3 and meets the requirements of this scheme, it shall be accepted and no questions shall be asked from the assessee and the acknowledgment slip which will be delivered to the assessee at the time of filing of the return, shall be deemed to be an assessment order under section 59(1) of the Income Tax Ordinance, 1969.
(6)
(7)
(8)A return eligible under the Scheme can be subjected to tax concealment proceedings under section 65 where there is definite information of concealment of income of furnishing of inaccurate particulars.
(9)
If we read para 5 in close conjunction with para. 8 as re-produced above, it transpires that a return eligible under the Broad Based Self Assessment Scheme can be straightaway subjected to tax concealment proceedings under section 65 (without passing an assessment order under section 59) where there is definite information of concealment of income of furnishing of inaccurate particulars of income.
Relevant portion of section 65 of the Income Tax Ordinance reads as under
65Additional assessment. ---(I) If, in any year, for any reason,---
(a) any income chargeable to tax under this Ordinance has escaped assessment; or
(b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or
(c) the total income of an assessee and the tax payable by him has been assessed or determined under subsection (1) of section 59 or section 59-A or deemed to have been so assessed or determined under subsection (1) of section 59 or section 59, the (Deputy Commissioner) may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 ......
Thus section 65(1)(c) of the Income Tax Ordinance pre-supposes the existence of an assessment order under section 59 before proceedings for making additional assessment under this section are initiated in respect of a return which is eligible for acceptance under section 59..
So, para. 8 of the said C.B.R. circular makes a clear departure from the main scheme of Income Tax Ordinance which contemplates that at first stage an assessment order should be made under section 59 or any other section of the Income Tax Ordinance before proceedings under section 65 are initiated for re-opening of the already existing assessment order. In a clear contrast to this scheme of the Income Tax Ordinance, para. 8 provides that an eligible return for self-assessment scheme involving definite information of concealment can be subjected to proceedings under section 65 without passing a formal order under section 59(1). In view of this situation we believe that there is an obvious conflict between para. 8 of the C.B.R. Circular -and section 65 of the Income Tax Ordinance. Now the question arises as to which of these two provisions of law would override and take precedence over the other.
A similar question arose before the Income-tax Appellate Tribunal earlier regarding legal position of para. 6(b) of the Self-Assessment Scheme for the assessment year 1992-93 viz-a-viz section 2(7) of the Income Tax Ordinance, 1979. The learned Tribunal in its judgment reported at 1977 PTD 183 held as follows:
"Thus, there can be no cavil to the proposition that the assessment completed under sections 62 and 63 of the Income Tax Ordinance, 1979 are the normal assessments and all the general provisions contained in the Ordinance including the definitions in section 2 are applicable to such assessments until and unless specifically excluded while assessments framed under section 59 fall within the ambit of special provisions and are to be governed within the frame-work of Self-Assessment Scheme formulated by the C.B.R. for each assessment year separately. The general provisions of law contained in the Income Tax Ordinance if in conflict with the provisions contained in the Self-Assessment Scheme shall give way to the provisions contained in the Self-Assessment Scheme. In short the provisions contained in the Self-Assessment Scheme shall override the general provisions contained in the Income Tax Ordinance, 1979 on the principle that the special provisions override the general provisions of law. In fact, the Scheme framed by the C.B.R. for Self-Assessment under section 59 are complete code in themselves and any assessee desirous of availing the benefit of Self-Assessment Scheme has to adhere to the provisions contained therein and is not allowed to fall back on the general provisions contained in the Income Tax Ordinance, 1979."
Briefly speaking it has been held by the Honourable I.T.A.T. in its abovementioned judgment that Self-Assessment Scheme formulated by the C.B.R. under section 59 of the Income Tax Ordinance is a special provision of law which overrides general provisions of law contained in Income Tax Ordinance, 1979. By applying the ratio of this judgment to the question of law under our discussion it would mean that para. 8 of Self-Assessment Scheme formulated by C.B.R. vide its Circular No.5 of 1995 for the assessment year 1995-96 being a special provision of law would override section 65 of the Income Tax Ordinance, 1979 which is a general law.
As stated earlier, para. 8 has dispensed with the condition laid down by section 65 regarding existence of assessment order under section 59 before an action under this section is taken in a case involving definite j information of concealment. Therefore, in the instant case, by virtue of para.8 the I.T.O. was empowered to subject assessee's return to assessment proceedings under section 65 straightaway, without first making assessment on it under section 59(1), for the reason that he had definite information of concealment. So, the action taken by the Income-tax Officer in the case of the assessee under section 65, being legal and justified, is maintained under para. 8 and not under para. 5 of the abovementioned C.B.R. Circular.
8. Now we come to the second issue involved in the case, which relates to addition of Rs.4, 02,20,700 made by the Income-tax Officer under section 13(1)(aa) of the Income Tax Ordinance to the income of the assessee. As already stated above, the assessee filed his return of income for the year 1995-96 under Broad-Based Self-Assessment Scheme disclosing income of Rs.507, 609 form two sources, namely: Income from salary and income from house property. Alongwith the return the assessee filed his wealth statement. However, wealth reconciliation statement was submitted in response to a letter issued by the Income-tax Officer for this purpose on 10-10-1995. The wealth reconciliation statement filed by the assessee disclosed the following position:
| Wealth as on 30-6-1995 | | Rs.60,486,701 |
| Wealth as on 30-6-1994 | | Rs.22,109,141 |
| Increase in wealth | | Rs.38,377,560 |
| Add income: | | |
| Salary and allowances | 426,300 | |
| Rent. | 264,000 | |
| Foreign Remittances | 596,43.810 | Rs.60,334,110 |
| Less expenses | | |
| Wealth Tax | 1,393,009 | |
| Income-tax | 271, 263 | |
| Property Tax - | 1,191 | |
| Professional tax | 100 | |
| House hold expenses | 192,255 | |
| Gifts: | | |
| To wife Hameeda Begum | 500,000 | |
| To daughter Mussarat Khalid | 500,000 | |
| Donations | 18.098.632 | |
| To Allah Rakhi | | Rs.21,956,550 |
| Memorial Trust | | Rs.38,377,560 |
From the above table it is clear that the assessee has claimed benefit of foreign remittances amounting to Rs.5,96,43,810 in reconciling his wealth. The foreign currency was received in U. S. Dollars in the form of T.T.S. which were encashed in rupees. These amounts were not deposited in any foreign currency account. It came to the notice of the Income-tax Officer that foreign currency equivalent to Rs.4,02,20,000 was received on 20-6-1995 from Karachi in assessee's bank account with M/s. Bank AI-Habib Faisalabad. The entire amount was, however, withdrawn and sent to Mr. Muhammad Iqbal of Karachi on the same date i.e. 20-6-1995. In order to verify this transaction, the I.T.O. summoned the Bank Officer and required him to submit necessary documents. The Assessing Officer inferred from these facts that the amount of Rs.4,02,20,700 claimed in the reconciliation statement which was statedly utilized in the investment of shares was not available to the assessee and, therefore, he formed the opinion that there was definite concealment in this case. Thus, he obtained the necessary permission from the Commissioner for the issuance of notice under section 65 and thereafter, the assessment was finalized by bringing to tax this amount of Rs.4,02,20,700 under section 13(1)(aa) of the Income Tax Ordinance. Against this treatment of the Income-tax Officer the assessee filed appeal before the Commissioner of Income-tax Appeals Zone 11, Faisalabad. As stated earlier the learned Commissioner in his impugned appellate order set aside this addition for de novo proceedings with certain directions. The appellate order of the learned C.I.T. setting aside this addition has been challenged before us by both the parties, the assessee as well as the Income- tax Department.
The contention of the Income-tax Department is that the assessee had withdrawn the entire amount of Rs.4,02,20,700 which was deposited on 20-6-1995, on the very same date and the amount was remitted to Mr. Muhammad Iqbal of Karachi, who had initially remitted the foreign currency to the assessee. Thus, according to the department, the assessee was left with no funds to reconcile his wealth. Therefore, amount of Rs.4,02,20,700 which had been utilized to purchase shares, to make gifts, etc. (in other words to reconcile the wealth) remained unexplained and hence liable to be treated as deemed income 'under section 13(1)(aa) of the Income Tax Ordinance.
On the contrary, the contention of the assessee is that the impugned amount of Rs.4,02,20,700 was, no doubt, withdrawn by him from the bank on 20-6-1995 but it was not remitted to Mr. Muhammad Iqbal of Karachi, rather the same was utilized by the assessee himself for the purposes of shares, etc. Out of this sum an amount of Rs 2,49,90,000 was given by the assessee to his son Mr. Muhammad Ehasn and another amount of Rs.1,49,85,000 was given by the assessee to his daughter-in-law Mrs. Adiba Ehsan as advance for purchase of shares from both of them. Mr. Muhammad Ehsan and his wife Mrs. Adiba Ehsan received these amounts on 20-6-1995 and donated the same to Allah Rakhi Memorial Trust Faisalabad, a charitable trust floated by the assessee and his family. Mr. Muhammad Aslam, Secretary of this Trust, then remitted this amount on behalf of the Trust on the same date i.e. on 20-6-1995 to Mr. Muhammad Iqbal of Karachi against purchase of machinery and equipment for the hospital which is being established by the said trust. The following documents in support of this contention have been filed by the assessee:
(i) Receipt of advance payment issued by Mr. Muhammad Ehasn on account of sale of shares.
(ii) Receipt of advance payment issued by Mrs. Adiba Ehsan on account of sale of shares.
(iii) Affidavit of Mrs. Adiba Ehsan regarding receipt of money for sale of shares.
(iv) Affidavit of Mr. Muhammad Ehsan regarding receipt of money for sale of shares.
(v) Affidavit of the assessee Haji Muhammad Yousaf regarding withdrawal of amount of Rs.4,02,20,700 from his account in Bank Al-Habib Faisalabad, payment to Mr. Muhammad Ehsan and Mrs Adiba Ehsan etc.
(vi) Agreements to sell shares executed between the assessee and Mr. Muhammad Ehsan and also between the assessee and Mrs. Adiba Ehsan.
(vii) Minutes of the Board/Meeting of M/s. Ehsan Fabrics on 30-6-1995.
(viii) Submission of Form-A under the Companies Ordinance, 1984 to the office of Registrar of Companies.
It has been further contended by the assessee before us that the learned C. I. T. Appeals was not justified in setting aside the case on the point of foreign remittances, as the foreign remittances were received through banking channel duly supported by Bank certificates which should have been, accepted and no question asked because the same were protected under Economic Reforms Act of 1992. Moreover, according to the assessee, the learned C.I.T. was not justified in completely ignoring the illegal notice issued under section 148, dated 28-10-1995 by the Income-tax Officer who secured a wrong and baseless certificate dated 1-11-1995 from Bank Officer against the express provisions of C.P.C. and Income Tax Ordinance.
We have considered the contentions of both the parties and have heard the arguments of their learned Representatives. We are of the considered opinion that the learned C. I. T. has already taken a judicious view of the matter under consideration. In his impugned appellate order, he has not only set aside the case on the issue of addition of Rs.4,02,20,700 under section 13(1)(aa) for further probe but has also raised pertinent questions and issued useful guidelines for conducting the required investigations. We, therefore, decline to interfere in the order of the Commissioner on this issue which is, thus, maintained and appeals filed by both the parties on this issue are dismissed.
9. Needless to say that the legality of action under section 65 in the present case depends on the definite information of concealment or furnishing of inaccurate particulars of income which, iii turn, is related to amount of Rs.4,02,20,700. If an independent, impartial, fair and just probe conducted regarding this amount, as directed by the C.I.T. and approved by us, reveals that assessee's point of view is correct, then action under section 65 would also become illegal and void.
C.M.A./29/(Trib.)Appeals dismissed