I.T.A. NO.4538/LB OF 1999 VS I.T.A. NO.4538/LB OF 1999, 2000 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3732 (2000)

(a) Income Tax Ordinance (XXXI of 1979)---

---Ss. 156, 59(4), 61, 62 & 13(1)(c), (d)---C.B.R. Circular No.4 of 1996, dated 1-7-1996, para-(h)---Rectification of mistake---Self assessment-- Assessment year 1996-97---Return was filed under Broad Based Self Assessment Scheme---Assessment was finalized under S.62, Income Tax Ordinance, 1979 after 30-6-1997 on account of concealment of property and suppression of commission receipts---Addition was made under Ss.13(1)(c) & 13(1)(d) of the Ordinance---First Appellate Authority (predecessor) found that Return filed under Broad Based Self-Assessment Scheme stood disqualified for concealment of property and suppression of commission receipts and there could be no question of acceptance of return under the Scheme under S.59(I) of the Ordinance or finalization of assessment under deeming provision of S.59(4) on 30-6-1997---Addition made was set aside for de novo consideration ---Assessee filed application for rectification of mistake on 14-4-1999 before (successor) First Appellate Authority on the ground that predecessor Appellate Authority allegedly failed to adjudicate the ground pertaining to automatic finalization of assessment under deeming provisions of S.59(4) on 30-6-1997 for the reason that neither formal order of assessment had been passed by that date nor the return filed had been found ineligible under Broad Based Self-Assessment Scheme---Rectification was made accordingly by the (successor) First Appellate Authority and return filed under BBSAS was accepted---Department contended that (successor) First Appellate Authority had no authority under the law to resort to such rectification when the predecessor-in-office had recorded firm findings on all pertinent issues and when the assessee had failed to file formal appall before the: Tribunal against the order of his predecessor-in-office ---Validity-- Application filed under S.156 of the Income Tax Ordinance, 1979 was in the nature of an application for review of -the order---Review made by successor-in-office was beyond the scope of S.156 and scoop of S.156 of the Income Tax Ordinance, 1979 could not be enlarged perforce to permit wholesale review of predecessor's order---Action of successor-in-office to rectify the order of predecessor-in-office was found to be illegal and without jurisdiction for the reason that the predecessor-in-office had recorded firm findings after discussing exhaustively all pertinent aspects and these `findings were not open to review by successor-in-office --- Assessee was required to file formal appeal rather than to move a rectification application- Order of (successor) First Appellate Authority was annulled and of (predecessor) First Appellate Authority's was restored by the Appellate Tribunal. [pp. 3740, 3741] A & D

1996 PTD (Trib.) 1117 and AIR 1987 SC 1160 ref.

(b) Income Tax Ordinance (XXXI of 1979)----

----Ss.59(4), 62, 13(1)(d), (c)---C.B.R. Circular No. 4 of 1996, dated 1-7-1996, para. 2(h)---Self-assessment---Assessment year 1996-97---Return was filed under Broad Based Self-Assessment Scheme---Assessment was finalized under. S.62 of the Income Tax Ordinance, 1979 after 30-6-1997 on account of concealment of property and under statement of commission receipts ---Assessee contended that assessment was automatically finalized under deeming provision of S.59(4) of the Income Tax Ordinance, 1979 and no formal order of assessment had been passed by 30-6-1997 nor return filed had been found ineligible under Broad Based Self-Assessment Scheme-- Validity---Assessee was guilty of concealment as envisaged under the Income Tax Ordinance, 1979 having a patent evidence of concealment of property. and under statement of investment made therein---Return filed did not qualify under Broad Based Self-Assessment ab initio i.e. from the very date of its filing before the Assessing Officer in-view of the patent concealment of acquisition of immovable property and investment made therein and the misstatement on account of commission earned--Defects were present in the return from the day the return was filed which could not lie accepted under Broad Based Self-Assessment Scheme ---Departmental appeal was accepted in circumstances.

Shahid Zaheer, D.R. for Appellant.

Talat Javed, F.C.A. for Respondent.

Date of hearing: 3rd June, 2000.

ORDER

M. MUNIR QURESHI (ACCOUNTANT MEMBER).---This is an appeal by Revenue directed again order of CIT(A), Multan, dated 14-4-1999 in which the first appellate authority has "rectified" under section 156 of the Ordinance, the adjudication made by his predecessor-in office vide order, dated 12-11-1998.

2. The departmental contention is that the (successor) CIT(A), Multan had no jurisdiction in law to rectify order passed by his predecessor-in- office. Furthermore, it is also the departmental case that the (successor) CIT(A) had no justification in law to hold that no formal order of assessment having been passed till 30-6-1997, Return filed for assessment year 1996-97 under BBSAS was deemed to have been finalized under section 59 (4) on that date.

3. Briefly stated, the facts in the case are that the appellant an AOP deriving income as dealer of Honda Atlat Cars Pakistan Limited (HACPL) filed Return for 1996-97 under BBSAS declaring total income at Rs.460,495 comprising gross commission receipts from HACPL amounting to Rs.81, 57,170 against which expenses had been charged aggregating Rs.76,96,675. The Return filed was. accompanied by trading, profit and loss account, computation chart and personal accounts of members of AOP. The Return so filed was not accepted by the Assessing Officer under BBSAS on account of, (a) concealment property purchased by AOP vide No.63-Abdali Road, Multan comprising commercial immovable property (land) measuring 5 Kanals at 63-Abdali Road, Multan having a registered value of Rs.25,00,000 and (b) Suppression of commission receipts from HACPL. The said property has not been cited either in the statement of affairs of AOP or in the individual Wealth Tax Return of any of the Members of AOP. Such concealment was found to automatically oust the appellant's claim for assessment under BBSAS in view of the provisions of Self Assessment Scheme announced for 1996-97 (para. 2 (h) of Circular No.4 of 1996, dated 1-7-1996).

4. Besides, the concealment of property purchased by AOP, discussed above, the appellant also stiltedly suppressed commission receipts amounting to Rs.67,05,114 (The actual commission receipts by appellant-AOP from HACPL aggregates Rs.148,62,284). The information regarding commission receipts was formally requisitioned from HACP and duly submitted to the Assessing Officer and a finding of suppression of commission receipts has been recorded by the Assessing Officer after examining the details furnished by HACPL regarding commission disbursed to the appellant.

5. The factum of concealment detected in appellant's case was duly confronted to appellant through statutory notices issued under sections 61 and 62. of the Ordinance. Detailed discussions were made with the appellant's AR.'s M/s. M.A. Hadi, FCA and Mr. Talat Javed, FCA.

6. When formally confronted on the matter, the appellant had' no plausible explanation to offer regarding non-disclosure of commercial property purchased by the appellant/AOP at Abdali Road, Multan and, the under statement of gross commission receipts. The appellant sought extension in time for filing of reply in the matter pertaining to disclosure of land purchased by the appellant bearing No.63, Abdali Road, Multan. The Assessing Officer interpreted this "as delaying tactics" deliberately adopted in the face of irrefutable evidence to the effect that the appellant/AOP had in fact purchased valuable property at 63-Abdali Road, Multan, the market value of which property was much higher than that disclosed in the registered deed executed on 9-10-1995 for Rs.25,00,000. Local enquiries were got conducted by Assessing Officer and these confirmed that the bona fide market value of the cited property ranged between Rs.22,00,000 to Rs.25,00,000 per Kanal. The Assessing Officer also found that the appellant had made payment through 2 cheques bearing Nos. 25.7202 and 257203 both dated 9-10-1995, amounting to Rs.86,00,000 and Rs.25,00,060 respectively drawn on Platinum Commercial Bank Limited, Holiday Inn Branch, Multan The Assessing Officer further found that the face of the two cheques bears the following remarks:--

"for purchase of land at 63-Abdah Road, Multan. "

7. As stated above, the appellant AOP has neither cited this land at 63-Abdali Road, in the statement of affairs of AOP annexed with the Return of income filed nor in the individual wealth tax Returns of any of the. Members of the AOP. In the balance-sheet of AOP as on 30-6-1996 also, there is no mention of the land in question.

8. In view of the definite, unequivocal and irrefutable evidence regarding purchase of 5 Kanal commercial land at 63-Abdali Road, Multan by the appellant/AOP, the Assessing Officer recorded a firm finding to the effect that (a) the appellant AOP had concealed purchase-of cited land and (b) under-stated bona fide market value of the said land. The market value of cited land has been appraised at Rs.1,11,00,000 and it has been established, as discussed above, that the appellant/AOP had made payment in that amount also. Consequently, the difference between declared value of Rs.25,00,000 and market value of Rs.1,11,00,000 amounting to Rs.86,00,000 has been brought to tax under section 13 (1)(d) while the admitted purchase price as per registered deed amounting to Rs.25,00,000 has been brought to tax under section 13 (1)(c).

9. In the matter of suppression of commission income when formally confronted on the matter, the appellant avoided making a direct response and instead submitted various explanations. Basically, the appellant argued that the apparent discrepancy in commission receipts as disclosed by the assessee and as intimated by HACPL, was due to the fact that accounts were drawn up and maintained in a different manner by the two parties involved. The appellant undertook to reconcile the discrepancy and file a reconciled statement before the Assessing Officer. However, that was not done. On the other hand the Assessing Officer found that the appellant's account maintained in the HACPL ledger shows that HACPL had credited appellant's account on a month-wise basis from July, 1995 to June, 1996 so that the total credits as on 30-6-1996 aggregated Rs 31,84;80,600. The scrutiny, of appellant's ledger, account as maintained by HACPL indicated that the appellant, besides earning commission income from HACPL, had also purchased and sold Honda Atlas Cars on own account': When confronted on the matter, the appellant explained that it was Honda- Atlas policy that its dealers purchase Honda cars on own account as well as for 'display purpose' in the show room. However; the appellant's explanation was not found plausible by the Assessing Officer as the appellant was found to have purchased 426 cars during the year and the Assessing Officer concluded that such a large number of cars could not have been purchased merely for display purposes.

10. The Assessing Officer found that the appellant/AOP is not declaring any income from purchase and sale of motor vehicles on own account and only disclosing commission income earned from HACPL, on supplies if vehicles booked by customers, consequently, the Assessing Officer when evaluating the appellant's claim on account, of financial charges during the year aggregating Rs.37, 89,906 on account of running finance facility with Platinum Commercial Bank Ltd. (40 Million) decided to curtail admissibility of cited financial charges by 50% as the loan facility from bank was .not being utilized fully for transacting the admitted business of the AOP, Rather part of the loan facility was being diverted towards purchase of motor vehicles on account against which no income has been disclosed by the appellant in return filed.

11. Other items of expenditure have also been looked . into - by the Assessing Officer and add-backs made against telephone, donation, car repairs; medical aid, carriage, salary, entertainment, vehicle running charity, sales and Marketing -and gifts commission paid to other parties claimed at Rs.8,86,000 had been disallowed in its entirety as this was' found to be totally unverifiable. The appellant then filed appeal before. CIT(A) who adjudicated the appeal filed for 1996-97 vide order, dated 12-11-1998.

12. Before the CIT(A), Multan, the appellant submitted, as per grounds of appeal filed, that the assessment as made under section 62 vide order, dated 4-6-1998 was of no consequence as the appellant cases was deemed to have been finalized under section 59(4) .under BBSAS on 30-6-1997, no order having been passed by that date and appellant's return not ha- '-g been found ineligible for processing under BBSAS. The appellant further contended that additions made under section 13 had been made behind the back of the appellant/AOP and notices issued under section 13(2) were allegedly never brought to the notice of any of the Members of the AOP. The appellant denied concealment of 5 Kanals land at 63-Abdali Road, and submitted that the payment for cited land had been made through, AOP's bank account which was poof that there had been no concealment. The appellant also submitted that acquisition of cited land had not been made declared formally in the statement annexed with the Return filed for 1996-97, as there was statedly no such requirement under BBSAS for 1996-97. Similarly, with regard to alleged suppression of commission income, the appellant contended that there had been no suppression and the apparent discrepancy Was the result of different accounting methods of HACPL and appellant/AOP. The appellant contested the Assessing Officer finding to the effect that the appellant had purchased and sold Honda Altas cars on own account besides commission income earned on supplies of such vehicles by HACPL. Add-backs against P & L expenses claimed were also contested including curtailment of financial charges by 50%.

13. The first appellate authority (predecessor) after making appraisal of AOP's affairs, recorded a firm finding to the effect that the appellant/AOP having -concealed purchase of property No.63-Abdali Road, Multan and having suppressed commission income earned amounting to Rs.6705114 from HACPL in the period relevant to assessment year 1996-97, the Return filed under BBSAS stood disqualified and in the presence of the disqualifications arising from concealment of cited land and suppression of commission receipts, there could be no question .of acceptance of Return under BBSAS/59 (1) finalization of assessment or under deeming provisions of section 59(4) on 30-6-1996. Such finding has been recorded by the CIT(A) (predecessor) on page 8 of his order, dated 12-11-1998 as under:---

"Para. 2, Clause (h) of Circular No.4 of 1996, dated 1-7-1996 lays down that only such returns shall qualify for acceptance under self assessment scheme in cash there is no concealment of income."

14. After recording finding, as above, the CIT(A) (predecessor) discussed the investment towards acquisition of property No.63-Abdali Road, Multan, for amount of Rs.1,11,00,000 and additions made under sections 13(1)(c) and 13(1)(d). The CIT(A) found that there appeared to be some doubt with regard to proper service of show-cause notices under section 13 especially as the appellant was found to have engaged two separate counsel M/s. M.A. Hadi and Talat Javed. It was the contention of latter counsel, Mr. Talat Javed that the predecessor counsel had not apprised him fully with the correct factual position obtaining when he had been engaged to represent the appellant. The CIT(A) also noted that extension in time requested for had not been allowed' and finally noted that source of investment 'had not been, specifically commented upon by the Assessing Officer. Accordingly, the CIT(A) (predecessor) set aside the addition aggregating Rs:1,11,00,000 under sections 13 (1) (d) and 13(1)(c) for de novo consideration.

15. With regard to question of suppression of commission receipts, the Assessing Officers finding on the matter that income earned by appellant has not been correctly declared by him in respect of vehicles booked by various customers and supplied to them during the year through appellant stand confirmed by the CIT(A) (predecessor), the CIT(A) (predecessor) has noted that as regards vehicles purchased on own account, the position obtaining was not clear and needed to be further investigated. The CIT (A) (predecessor) accordingly directed that this aspect of the matter be reappraised.

16. With regard to claim of financial charges amounting to Rs.3789906, the CIT(A) (predecessor) found that curtailment claimed by 50% did notappear proper and directed that the matter be looked into afresh and claim allowed in full" in case it is found that interest expenses are in respect of loan utilized for business purposes".

17. In the matter of add-backs made under various Heads the CIT (A) (predecessor) confirmed add-backs made in all Heads except repairs in which Head, the entire claim of Rs.109,322 had been disallowed and directed that add-back be restricted to 1/3rd of the claim.

18 As regards depreciation allowance the CIT (A) (predecessor) directed that relevant details be obtained and matter decided in accordance with law.

19. Finally, the CIT (A) (predecessor) confirmed validity of the notice issued under section 116 as the action as found is consistent with facts on record.

20. On 14-4-1999, the (successor) CIT(A). Multan heard rectification application filed by the appellant/AOP before him against order of his (predecessor) CIT (A), dated 12-11-1998 in which it was contended that the predecessor CIT (A) had allegedly failed to adjudicate ground pertaining to automatic finalization of assessment under deeming provisions of 59(4)/BBSAS on 30-6-1997 for the reason that no formal order of assessment has been passed by that date and neither the Return filed had been found ineligible under BBSAS. The successor CIT (A) found that his.-predecessor CIT(A) had wrongly held that the Return filed under BBSAS for 1996-97 could not be deemed to have been finalized under section 59(4) in view of the alleged concealment of 5 Kanals land by the AOP at 63-Abdali Road and suppression of commission receipts from HACPL. The successor CIT (A) then re-capitulated the acquisition of Property No-63, Abdali Road, Multan by the AOP and the commission earned by the appellant from HACPL and after lengthy discussion came to the conclusion that payment for acquisition of cited land having been made through AOP's bank account. there could be no question of any concealment here. Similarly in the matter of alleged suppression of commission income, the successor CIT (A) came to the conclusion that the Assessing Officer had misconceived the factual position in this regard. Finally, the successor CIT (A) held that his predecessor-in -office had failed to make proper adjudication regarding automatic finalization of assessment under section 59 (4) on 30-6-1997 and concluded that as the alleged 'mistake' in this regard was patent from the record as no order had been passed by his predecessor-in-office by 30-6-1997 was required to be rectified under section 156 and Return for 1996-97 filed under BBSAS, accepted.

21. The DR contested the rectification made and assailed the same as illegal as the successor CIT (A) had statedly no authority under tote law to resort to such rectification when the predecessor-in-office had recorded firm findings on all pertinent issues and when the appellant had failed to file formal appeal before the Tribunal against the order of his predecessor-in- office.

22. We have examined the record and heard the appellant and the DR. After due consideration of the mattes, we find that the successor CIT (A) has in fact comprehensively "reviewed" the order of his predecessor-in-office and has made fresh appraisal on all pertinent issues involved having a bearing on the assessment of appellant's total income for 1996-97. We find that such wholesale "review" of an appellate order as made by the successor CIT (A) is beyond the scope of the provisions of section 156 of the Ordinance, 1979.

23. No doubt section 156 of the Ordinance has wide scope and even overlooking a mandatory provision of law can be rectified (1996 PTD (Trib.) 1117). However, we are of the opinion that in the case presently before us, the successor CIT (A) has sought not merely to rectify a bona fide mistake in the order of his predecessor-in-office but rather the successor CIT(A) has, with express deliberation, proceeded to make wholesale review of the appellate order passed by his predecessor-in-office. This is established beyond any doubt by the fact that successor CIT (A) has not simply taken cognizance of the "major defect" that he had detected in the order passed by his predecessor-in-office viz. that the Return of income filed for 1996-97 not having been found ineligible under BBSAS by 30-6-1997 was deemed to have been assessed under section 59 (4) but rather, the successor CIT (A) has proceeded to examine, for a second time, each and every aspect-having a bearing on the assessment of the assessee's total income such as -acquisition of land by the AOP and consequential additions under sections 13(l)(d) and 13(1)(c), commission income earned from. HACPL and income attributable to purchase and sale of Honda motor vehicles on "own account" etc. There is no doubt in our mind that the law relating to rectification does not permit of such wholesale review of - an appellate order by a successor appellate authority sitting in judgment over decision of his predecessor-in-office. In AIR 1987 SC 1160 this preposition has been upheld with strong comment against review. In the cited case, a judgment pertaining to a certain document made by Single Judge of the High Court (Madras) sitting in second appeal was reviewed by another Judge. It was held that such review was not maintainable in law and the appropriate remedy was to file appeal against that judgment. A remedy by way of an application for review was held to be entirely misconceived and it was further held that if a Single Judge entertains the application for review then he totally exceeds his jurisdiction in allowing the review and upsetting the judgment of the predecessor Single Judge merely because he took a different view of a construction of the document (AIR 1972 Mad. 309).

24. In the case presently before us, it is all too evident that the application filed under section 156 before the successor CIT (A) is actually in the nature of an application for review of the order passed by his predecessor CIT (A). Had this not been so then the successor CIT(A) could have simply ordered that assessee's Return for 1996-97 be deemed to have been accepted/assessed under section 59(4) on 30-6-1997 for the reason that it has not been found ineligible under BBSAS by that date. There was absolutely no cause for the CIT(A) to have made an extremely detailed analysis of the findings recorded by his predecessor-in-office on all pertinent aspects having a bearing on assessment of assessee's total income and upsetting these findings in each case. Such extensive review made by successor CIT(A) is undoubtedly beyond the scope of section 156. While it. is arguable that under section 156 it might have been possible for the successor CIT(A) to find that assessee's Return for 1996-97 stood accepted/assessed under section 59 (4) on 30-6-1997. However, the scope of section 156 cannot be enlarged perforce to permit wholesale review of predecessor CIT (A) order. Thus, by making such wholesale review of his predecessor. CIT (A) order, the successor CIT (A) undoubtedly exceeded his jurisdiction.

25. As for automatic eligibility of Return filed under BBSAS under section 59(4) on 30-6-1997, we find that in view of the patent concealment of land purchased by the AOP at 63-Abdali Road, Multan and the patent under statement of investment made therein as is evident from the fact that actual payment of.Rs.1,11,00,000 has been made through 2 cheques drawn on Platinum Commercial Bank Limited, on each of which it is clearly cited that payment was for acquisition of cited land, when in the registered deed investment of Rs.25,00,000 only is admitted, there cannot be any doubt whatsoever that appellant is guilty of concealment as envisaged under the Ordinance, the AOP having failed to disclose cited land . in any of the statements filed by appellant including Balance-Sheet and Wealth Tax Returns filed by members of the AOP.

26. As regards alleged suppression of commission income, here too, the predecessor CIT(A) has recorded a firm finding and admitted in principle that at least the commission income on direct booking made did not appear to have been correctly cited. Prima facie, the discrepancy in the commission income as declared by appellant in the statements furnished with Return for 1996-97 and the amount credited to its account in HACPL ledger is too significant to be ignored.

27. Looking to the totality of the situation obtaining, we find that the Return as filed for 1996-97 did not qualify under BBSAS, ab initio, i.e. from the, very date of its tiling, before the ITO in view of the patent concealment of acquisition of immovable property and investment made therein and the mis statement on account of commission earned from HACPL on direct bookings of cars. The record shows that these defects are present in the Return for 1996-97 from the day that the Return was filed by the assessee..

28. The action of the successor CIT(A) in invoking the provisions of section 156 to rectify the order ,of his predecessor-in-office is found to be I illegal for the ,reason that the predecessor-in-office has recorded firm findings after discussing exhaustively all pertinent aspects and these findings are not, open to Review by successor CIT(A). That being so, the appellant was required to file formal appeal against the appellate order of (predecessor CIT (A) rather than move a rectification application before successor CIT (A). As successor CIT (A) had no jurisdiction in law to take action under section 156 in the manner done by him in the present case, we, therefore, annul the order of successor CIT(A) and restore the order of predecessor CIT(A).

19. Resultantly, the departmental appeal succeeds.

C.M.A./M.A.K./41/-Tax (Trib.)Appeal accepted.