I.T.A. NO.3(IB) OF 1997-98 VS I.T.A. NO.3(IB) OF 1997-98
2001 P T D (Trib.) 1043
[Income-tax Appellate Tribunal Pakistan]
Before Karamat Hussain Niazi, Judicial Member and Mahmood Ahmed Malik, Accountant Member
I.T.A. No. 3(IB) of 1997-98, decided on 18/10/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 59-A(2) & 59(3)---C.B.R. Circular No. 18 of 1980, dated 28th July, 1980----Addition---Powers of Assessing Officer to make addition---Scope-- Assessing Officer was not empowered to make an addition of undisclosed income to the income of the assessee while making the order under S.59-A of the Income Tax Ordinance, 1979, as such an addition was not an "adjustment" allowable under said S.59-A---Principles---Expression "adjustment" ---Connotation.
The provisions of subsection (3) of section 59 read with subsection (2) of section 59A, Income Tax Ordinance, 1979 does not empower the Assessing Officer to make an addition of undisclosed income to the income of the assessee while making the order under section 59A as this addition is not an adjustment allowable under the aforementioned provision of law. In the present case it was found upon an information, by the Assessing Officer that the rent of the self-occupied house equal to the rental ceiling of the assessee was not declared in the return and this amount was added to the total income of the assessee while making the assessment under the provisions of section 59A. Such addition could not be made while determining the total income by an order under section 59A of the Ordinance. If the Assessing Officer was of the opinion that the taxable income has not been declared by the assessee, then the proper course open for the Assessing Officer was to initiate proceedings under the normal law and after confronting the assessee on this issue was justified to make the assessment under section 62 of the Ordinance. The Assessing Officer having not adopted the proper procedure and made the assessment in violation of the express provision of law as contained in section 59A, the addition made was not sustainable.
Adjustment is a word in common use. It is commonly applied to the settlement among various parties of their several shares in respect of claims, liabilities or payments relating to a Central Average Claim. That is not its only application; it is word which is applied to other matters in the same manner in which it is commonly applied in marine insurance. When there are matters which require re-arranging regulating or equalizing so as to restore the true balance, the process of so re-arranging setting right, regulating o: equalizing may be described as 'adjusting'.
"Adjustment" means re-arranging, regulating of equalizing so as u restore the true balance. The Income Tax Officer, therefore, would be within his rights to make necessary adjustment even if the assessee refuses or fails to accord his consent to the proposed add-backs, provided it is reasonable and the assessee had been given an opportunity of offering his explanation and that too through correspondence to the proposed add-backs.
Stroud's Judicial Dictionary, 4th Edn., p.66; 1986 PTD (Trib.) 380 and 1985 PTD (Trib.) 247 ref.
(b) Words and phrases---
----"Adjustment"---Meaning.
1986 PTD (Trib.) 380 and 1985 PTD (Trib.) 247 ref.
Raza Munawar, D.R. for the Department.
Mansoor-ul-Haq, I.T.P. for the Assessee.
Date of hearing: 18th October, 2000.
ORDER
KARAMAT HUSSAIN NIAZI (JUDICIAL MEMBER).---This departmental appeal relates to assessment year 1994-95 and is directed against the order, dated 31-7-1997 recorded by the learned A.A.C. of Income-tax, Islamabad.
2. The relevant facts in brief are that the respondent-assessee, an individual, derives income from salary being the employee of the Agricultural Development Bank of Pakistan, Islamabad. The assessee returned net income of Rs. 195,870 for the assessment year 1994-95. The Assessing Officer found that the respondent-assessee has been receiving rental ceiling in respect of owned and self-occupied house, which income was not declared in the return. He was of opinion that this Income was from property and, thus, taxable under the provisions of section 19 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance). However, without confronting the assessee, this amount was added to the total income of the assessee by invoking the provisions of subsection (3) of section 59 read with section 59A(2) of the Ordinance. The assessment order was passed under section 59A of the Ordinance. In appeal, the addition was held to be illegal, without lawful authority, inter alia, on the ground that under the provision of section 59A the Assessing Officer has no authority to make this addition. The learned A.A.C. directed the Assessing Officer to adopt the net income as declared by the assessee in his return. This has aggrieved the Department. Hence, this anneal
3. Heard Mr. Raza Munawar, the learned D.R. for the Department and Mr. Mansoor-ul-Haq, I.T.P., the learned A.R. of the assessee and perused the relevant orders.
4. The only issue involved in this appeal is whether the Assessing Officer is legally competent to make addition of concealed income as adjustments while making the order under the provisions of section 59A of the Ordinance. Before proceeding further, it is desirable, for the sake of convenience, to reproduce the provision of section 59A which reads as under:--
S. 59A. Assessment on the basis of return.---(1) If the Commissioner is satisfied without requiring the presence of the assessee or the production by him of any evidence that a return furnished under section 55 is correct and complete, he shall, by an order in writing assess the total income of the assessee and determine the tax payable on the basis of such return.
(2) The provisions of subsection (3) of section 59 shall apply to an assessment and determination under this section as they apply to an assessment and determination under that section.
5. As the provisions of subsection (3) of section 59 are made applicable while making the order under section 59A, therefore, this provision is also reproduced as under:--
S.59(3). In assessing the total income and determining the tax payable under subsection (1), the Deputy Commissioner may make such adjustments as may be necessary, including any adjustment under sections 34, 35, 36, 37, 38, 50, 53 or 54, the rules made under section 165, the First Schedule and the Third Schedule.
Thus, it is clear that the Legislature has empowered the Assessing Officer to make such adjustment as may be necessary, apart from adjustment to be made as mentioned in the above provision. The C.B.R. issued Circular 18 of 1980. Its paragraph 7, sub-paragraph (III) provides as under:---
"(III).----When the taxpayer fails to make correct add-backs or legally inadmissible expenses appear in profit and loss account, the Income Tax Officer shall be authorised to make such adjustments while completing assessment under section 59(1) of the Income Tax Ordinance, 1979."
Subsequently, a circular, dated 30-9-1980 was also issued whereby it was provided that the, consent of the assessee should be obtained through correspondence before disallowing any excessive or disproportionate claim of expenses. It is pertinent to give the meaning of the word "adjustment" as used in subsection (3) of section 59 in order to reach the correct conclusion regarding the matter in issue. The Stroud's Judicial Dictionary, 4th Edition at page 66 defines the "adjustment" as under:--
"Adjustment is a word in common use. It is commonly applied to the settlement among various parties of their several shares in respect of claims, liabilities or payments relating to a Central Average Claim. That is not its only application; it is word which is applied to other matters in the same manner in which it is commonly applied in marine insurance. When there are matters which require re-arranging, regulating or equalizing so as to restore the true balance, the process of so re-arranging, setting right, regulating of equalizing may be described as 'adjusting'."
The word 'adjustment' also came under consideration in a case reported as 1986 PTD (Trib.) 380 and 1985 PTD (Trib.) 247. The above-referred definition given in the Stroud's Dictionary was also reproduced in the aforementioned cases. In 1986 PTD (Trib.) 380, it was observed:--
"Thus, 'adjustment' means re-arranging, regulating or equalizing so as to restore the true balance. The Income Tax Officer, therefore, would be within his rights to make necessary adjustment even if the assessee refused or fails to accord his consent to the proposed add-backs, provided it is reasonable and the assessee had been given an opportunity of offering his explanation and that too through correspondence to the proposed add-backs."
In 1985 PTD (Trib.) 247, it was held:---
"For those reasons I am clearly of the view that the Income-tax Officer could not unearth or discover an undisclosed fictional income and add it to the assessee's income under the umbrella of the so-called authority available to him in section 59(3) 'to make such adjustment as may be necessary'."
6. The provision of subsection (3) of section 59 read with sub section (2) of section 59A, does not empower the Assessing Officer to make an addition of undisclosed income to the income of the assessee while making the order under section 59A as this addition is not an adjustment allowable under the aforementioned provision of law. In the present case it was found upon an information, by the learned Assessing Officer that the rent of the self-occupied house equal to the rental ceiling of the assessee was not declared in the return and this amount was added to the total income of the assessee while making the assessment under the provisions of section 59A. As is mentioned hereinabove, such addition could not be made while determining the total income by an order under section 59A of the Ordinance. If the Assessing Officer was of the opinion that the taxable income has not been declared by the assessee, then the proper course opened for the Assessing Officer was to initiate proceedings under the normal law and after confronting the assessee on this issue was justified to make the assessment under section 62 of the Ordinance. The Assessing Officer has not adopted the proper procedure and has made the assessment in violation of the express provision of law as contained in section 59A, therefore, the addition made is not sustainable. The learned A.A.C. has rightly deleted the same. The order of the learned A.A.C. is unexceptionable and is, therefore, maintained.
7. As a result, the departmental appeal, being devoid of any merits is rejected.
M.B.A./49/Tax(Trib.) Appeal dismissed.