Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 62 & 156---Powers of Inspecting Additional Commissioner to revise Deputy 'Commissioner's order ---Assessee was an "Association of Persons" which derived income from running a Hospital---Assessment was finalized under S.62, Income Tax Ordinance, 1979 accepting the declared receipts from "Departmental patients" and loss was assessed---Revising Authority cancelled the assessment on the ground that declared receipts were less than the actual receipts from the "Departmental patients" as per certificate submitted by the assessee---Assessee contended that difference in the total amount as per certificates and assessed was a calculation-mistake which was curable under S.156, Income Tax Ordinance, 1979 and in the presence of provisions of rectification, there was no justification to apply the provisions of S.66-A, Income Tax Ordinance, 1979 and further that there was no loss of revenue, if the amount found as "difference" in the total receipts was added to the final figure of loss assessed and, therefore, proceedings under S.66-A, Income Tax Ordinance, 1979 could not be initiated merely on the expectations of loss of revenue--Validity-- Assessment order was cancelled on finding out the discrepancy in the amount declared of account of receipts from various departments and in the total of certificates submitted by the assessee--Receipts from various companies declared by the assessee had been accepted being verifiable---Difference in the total of receipts declared by the assessee and adopted by the Assessing Officer was due to contributory negligence on the part of the Assessing Officer---Total receipts from companies were accepted by the Assessing Officer being verifiable, therefore, the action under S.66-A, Income Tax Ordinance, 1979 on the basis of difference in the total of amounts shown on the certificates did not appear to be justified---Revising Authority should have modified the assessment order instead of cancelling the whole assessment---Order of the. Revisionary Authority was modified by Appellate Tribunal with the direction that the assessment framed by the Assessing Officer be modified to adopt the total receipts as per certificate instead of declared/assessed receipts by the Assessing Officer.

1983 PTD 246 and 1992 SCMR 1898 rel.

Mian Ashiq Hussain, A.R. for Appellant.

Farooq Tahir, D.R. for Respondent.

Date of hearing: 1st May, 1999.

ORDER

KHALID WAHEED AHMED (JUDICIAL MEMBER). ---This appeal pertaining to the assessment year 1997-98 has been preferred at the instance of the appellant to impugn the order dated 23-12-1998 passed under section 66-A of the Income-tax Ordinance, 1979 (hereinafter referred to as "the Ordinance"). '

2. Relevant facts of the case are that the assessee is an AOP which derived income for the year under appeal from running a hospital under the name and style of M/s Rasheed Hospital, Defence, Lahore. Assessment in the instant case was completed under section 62 of the Ordinance for the year under appeal on 30-6-1998 at net loss of Rs.13,11,711 against the declared loss of Rs.14,75,437. While framing the assessment, the Assessing Officer accepted the declared receipts, whereas additions were made under different Heads of P&L account expenses to the tune of Rs.1,63,666. Total receipts were declared as under:

3. According to the I.A.C. actual receipts from the "Department patients" were Rs.69,36,783 as per certificates submitted by .the assessee while the assessee had declared these receipts at As.65,70,852. As such, there was understatement in receipts at ks.3,65,931. Learned I.A.C. had, therefore, served upon the assessee a show-cause notice on 10-12-1998 requiring the assessee to explain as to why assessment already framed for the assessment year 1997-98 may not be cancelled under section 66-A of the Ordinance on the ground that the original assessment has become erroneous and prejudicial to the interest of Revenue. It reply to the said notice, A.R. of the assessee submitted his explanation vide Letter No.1752/1133; dated 18-12-1998 which was not accepted by the learned I.A.C. on the reasons recorded in his order under section 66A of the Ordinance. In this order under section 66A, the I.A.C. held that keeping in view the understatement and concealment of receipts, the correct, income of the assessee can only be determined by making fresh assessment.

4.Being aggrieved with the cancellation of the original assessment for the year under appeal, the assessee has taken the following grounds against 'the order under section 66A of Lie Ordinance:

(i) That the order of the Assessing Officer was not prejudicial to the interest of the Revenue as no tax liability accrued even after a difference of Rs.3,65,931 is included in the receipts.

(ii) That there being no loss' of revenue in the year, under appeal, the original assessment order could not be held prejudicial to the interest of the Revenue.

(iii) That the cancellation of original assessment by the learned Inspecting Additional Commissioner of Income/Wealth Tax, is in excess of lawful jurisdiction vested with him;

(iv) That a mistake/omission being apparent from record should have either been rectified or modified instead of cancellation of whole assessment.

(v) That the quantum of under statement/difference in receipts being available an order of modification would have cured the same.

5. Learned A.R. of the assessee while reiterating the grounds of appeal contended that the cancellation of assessment instead of modification is sheer harassment to the appellant. Learned A.R, has challenged the action of the I.A.C. taker under section 66A of the Income Tax Ordinance, 1979 on the following grounds:

(a) that the difference in the total of payments received from various departments was a calculation mistake which- was curable under section 156 of the Income Tax Ordinance, 1979;

(b) that it was a contributory negligence on the part of the Assessing Officer since all the cards were put before the Assessing Officer at the time of assessment proceedings. The assessee has produced complete certificates of payments received from various departments before the Assessing Officer who has not observe4 the total mistake at the time of framing the original assessment.

(c) that the payment receipts from various departments were accepted as declared being verifiable. In this regard, learned A.R. also referred to the assessment for the year 1996-97 in the case of the assessee wherein the ITAT has directed to accept the declared receipts of the assessee.

(d) that rectification under section 156 can be made when no further inquiry is required. In support of this contention, learned A.R. referred, to a case law reported as 1983 PTD 246. Learned A.R. submitted that the payments from companies having been accepted as verifiable the difference in the total amount declared and assessed by the Assessing Officer was a mistake apparent from record which needed no further inquiry.

(e) Learned A.R. further contended that a mistake may be due to commission of act or its omission. Learned A.R. submitted that when the Assessing Officer has adopted the declares receipts from various companies and has failed to notice the difference in the total amount, he has also committed a mistake which was rectifiable under section 156 of the Income Tax Ordinance, 1979.

(f) Learned A.R.. also contended that in the presence of the specific provisions of rectification, there 'was no justification to apply the provisions of section 66A of the Ordinance and general observations of being erroneous in law and prejudicial to the interest of the Revenue.

(g) Learned A.R.- also challenged the action of IAC taken under section 66A of the: Ordinance on the ground that there was no loss of revenue. According to the learned A.R. proceedings under section 66A cannot be initiated merely on the expectations of loss of the Revenue. Learned A.R. submitted that even if the amount -of Rs.3,65;931 found as difference in the total of receipts is added to the final figure-of loss assessed at Rs.13,11,711 no demand will be created against the assessee.

6. Learned A.R. in addition to the above arguments challenged the validity of the action under section 66A of the Ordinance and has submitted that the action of the IAC to cancel the assessment under section 66A was not justified on the following ground:

(i) that the IAC could have modified the order instead of cancelling the assessment. In this regard, learned A.R. relied on the case law reported as 1992 SCMR 1898 wherein it was observed as follows:

"that discretion is .not desire of the Judge but regulated by law: Discretion comes into play ,to choose one of the two .or more alternatives, all of which are lawful. It is not proper exercise of discretion to refuse relief to a party to which it is entitled under law."

(ii) that there being a totalling mistake, only modification was needed and the circumstances of the case do not require the cancellation of the assessment under section 66A of the Ordinance. According to the A.R., payments from the department receipts having been accepted as being verified, the action of the IAC to cancel the assessment was not a proper exercise of jurisdiction since he has alternate option to modify the order under section 66A of the Ordinance.

7.Learned. D.R., on the other hand, supported the impugned order and contended that the action of the IAC to cancel the assessment under section 66A of the Ordinance was justified. Learned D.R. submitted that when the order of the Assessing Officer does not cover all the aspects of the case the action under section 66A was justified. Learned D.R. submitted that the Assessing Officer has assessed the receipts at Rs.76,49,146 instead of Rs.80,15,077 which resulted in the escapement of income of ks.3,65,931 with regard to the plea of the assessee that since loss was being assessed, the order was not prejudicial to the interest of the Revenue-, learned D.R. contended the same as unfounded. Learned D.R. submitted that the loss was to be carried forward to the next year and, thus, have the effect on the income assessed, of the assessee. Learned D.R. also submitted that since the assessee has declared less receipts than those actually received by him, it was not a mistake warranting rectification under section 156 of the Ordinance. Learned D.R. submitted that since the IAC has found the negligence of the Assessing Officer, the provisions of section 66A have rightly been applied.

8. Arguments of learned representatives of both the parties have been heard and the orders of the two authorities below have been examined as well as the case law referred to by them have also been perused. The perusal of the assessment order reveals that the declared receipts. of the assessee were accepted. In the assessment order., the Assessing Officer has observed that the receipts of the assessee for the year 1996-97 from companies' patients were accepted, whereas those disclosed under the head Private Patients were not accepted.. However, accepting the contention of the assessee,-the receipts declared for the assessment year 1997-98 were accepted and the assessment was framed by making add-backs under different heads of P&L account. From the perusal of the impugned order, it has been observed that I.A.C. cancelled the assessment order on finding out the discrepancy in the amount declared on account of receipts from various departments and in the total of certificates submitted by the assessee. The receipts from various companies declared by the assessee have been accepted being verifiable. Difference in the total of receipts declared by the assessee and also adopted by the Assessing Officer as such is a contributory negligence on the part of the Assessing Officer. Since the total receipts from the companies were accepted as such by the Assessing Officer for the same being verifiable, therefore. In our opinion, the action under section 66A merely on the basis of difference .in the total of amounts shown on the certificates does not appear to be justified. The arguments of the learned A.R. of the assessee that the I.A.C. should have modified the assessment order instead of cancelling the whole assessment carries force. In our considered opinion, since no discrepancy has been pointed out by the LA.C. except difference in the total of verifiable receipts, the impugned order of the I.A.C. to cancel the assessment framed under section 66A of the Ordinance is held as unjustified. Accordingly, the impugned order of the I.A.C. is modified with the direction that the assessment framed by the Assessing Officer be modified to adopt the total receipts at Rs..80,15,077 instead of Rs.76,49,146 taken by the Assessing Officer for the assessment year 1997-98 as per original assessment framed under section 62 of the Ordinance.

9. The appeal of the assessee is disposed of in the manner as indicated above.

C.M.A./M.A.K./19/Tax(Trib.) Order accordingly.