2001 P T D (Trib.) 1059
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member and Mahmood Ahmed Malik, Accountant Member
I.T.A. No. 3687/LB of 1999, decided on 31/05/2000.
Income Tax Ordinance (XXXI of 1979)---
----Ss. 13(2), 5(1) & 66-A---Unexplained investment---Newly-acquired assets by assessee---Failure of assessee to file objection when required by the Assessing Officer---Effect---Enhancement of income of assessee by Assessing Officer---Addition---Validity---Income of assessee could not be enhanced in view of addition in trading account---Provisions contained in S.5(1)(c)(cc) of the Income Tax Ordinance, 1979 were applicable only in case of deviation from the normal and general provisions of the Income Tax Ordinance, 1979---Powers of D.C.I.T. and I.A.C.---Scope.
The provision of section 5(1), Income Tax Ordinance, 1979 is very clear and admits of no ambiguity. The powers and jurisdiction of D.C.I.T. and I.A.C. of Income--tax are clearly specified in the various provisions of the Income Tax Ordinance, 1979. The provisions contained in section 5(1)(c) and (cc) are in the nature of special provisions and shall be applicable and operative so long the powers conferred on D.C.I.T. and I.A.C. are exercised by the IAC and CIT respectively. The special provisions contained in clauses (c) and (cc) of subsection (1) section 5 of the Income Tax Ordinance, 1979 are applicable so long there is deviation from the normal and general provisions of law contained in the Income Tax Ordinance, 1979. As soon as the deviation from the normal law comes to end the operation of special law shall be ceased. The reason being that the normal powers and jurisdiction conferred under the law on D.C.I.T. and I.A.C. or Commissioner become inoperative when there is deviation from the general law and the recourse is made to the special law but as soon as, the deviation from the general law ends, provision contained in general law becomes operative with the result that the original powers conferred on the Income-tax Authorities under the Income Tax Ordinance are revised automatically. In the definition of Deputy Commissioner, under clause (17) (a) of section 2 of the Income Tax Ordinance a special officer is also included and if an I.A.C. is appointed as Special Officer to act as Deputy Commissioner he shall obtain statutory approval from the I.A.C. and not from Commissioner.
1998 PTD 2012; 1999 PTD (Trib.) 700; 1998 PTD (Trib.) 2538 and 1998 PTD (Trib.) 1878 ref.
Mian Khalid Pervaiz for Appellant.
Sh: Muhammad Hanif, D.R. for Respondent.
Date of hearing: 9th February, 2000.
ORDER
KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).---This appeal has been filed by the assessee against order under section 66A dated 12-7-1999. The objection of the learned Commissioner was that the Assessing Officer at the time of finalizing the assessment failed to examine the fair market value of the newly-acquired assets. He did obtain the necessary particulars of vehicle purchased as a retail cost of Rs. 13,57,518 but he did not apply his mind at all regarding the reasonability of the declared purchased value with a view to examine the issue in the context of section 13(2) of the Income Tax Ordinance. Further, he says that while finalizing assessment the Assessing Officer did not apply his mind and failed to verify "Other Liabilities" of Rs. 3,601,909 in the balance-sheet. In this regard the learned Commissioner has observed that he failed to obtain necessary particulars and to establish credentials of said creditors. In addition the learned Commissioner also commented upon the declared property income of Rs. 1,60,000 by saying that the Assessing Officer did not verify the actual quantum or correctness which he said because of its location must have fetched more money than the declared one.
All the above observations of learned Commissioner are challenged by the A.R. of the assessee with the arguments that none of the same indicates any error in the order. When pointed out from the order that he has not replied to show cause he said that certain documents were to be inspected and for this purpose request for adjournment was made which was disallowed. Hence the assessee could not file reply of the objections which otherwise are just vague being based upon whims and surmises and with the pre-determined intention of cancellation of the order. He said that the assessee vas not allowed time under the arguments that the case was being time-barred. The very initiation of the proceedings at the fag end he said makes the same doubtful. This alone he says indicates that decision to cancel was taken at a very stage and the reasons for such cancellation does not fulfil the requirement for invoking jurisdiction under section 66-A.
The A.R. of the assessee further challenged the treatment by saying that the proceedings have been initiated against the assessee under Audit observation which amounts to an advice from other than the cancelling authority itself which under law is riot permitted. Jurisdiction under section 66A cannot be invoked on an advice from others as the law requires inspection of the record of the proceedings by the revising authority itself. The observation "had the Assessing Officer probed it would have resulted more revenue" is no reason for entering into the jurisdiction assigned under section 66-A. He produced before us judgment reported as 1998 PTD 2012 = 1999 PTD (Trib.) 700 wherein he said under similar circumstances the learned Tribunal cancelled the order of the I.A.C. The observation of the I.A.C., the learned A.R. repeated are only that if I.T.O. had probed various items he could have generated more revenue and at no stage he categorically says that order is erroneous as well as prejudicial to the interest of revenue.
We have heard assessee as well as D.R. and we have perused the record also. We have no doubt in our mind about the jurisdiction under section 66-A which does not permit initiation of the proceedings against the assessee where the revising authority have the impression that the Assessing Officer has not worked hard or that he had not probed in the matters so as to generate more revenue for the department. The provisions before us applies where the order is erroneous and prejudicial to the interest of revenue, the order in question has been considered as 'erroneous' for such a vague reason that a predetermined mind is apparent. The ITOs cannot be considered as erroneous on the basis of objections, such as "failure to examine the fair market value of only acquired assets", "non-application of mind regarding responsibility of the declared purchases", failure to verify other liabilities and to establish credentials of said creditors", non-verification of actual quantum and correctness of property income". None of the above is covered under the definition of error so as to call them prejudicial to the interest of revenue. The judgments referred by the A.R speaks on the subject in the following manner:---
"The exercise of revisional jurisdiction, at least most part of it was based upon surmises and an opinion that had the Assessing Officer probed the investment it could have resulted in more revenue. The two conditions of erroneousness and prejudice as contemplated under section 66-A did not co-exist either at the time of framing of assessment or when the revisional jurisdiction was initiated. Therefore, the impugned order directing cancellation of the assessment order is set at naught. Resultantly the original assessment order shall continue to hold field".
"It is clear from the above that the meaning of the terms erroneous is not confirmed to error in laws only, but it includes error of fact as well. Nevertheless, in the instant case, the expression erroneous shall have to be examined in conjunction with the expression prejudicial to the interest of revenue, as used in section 66-A of the Ordinance. The section requires the Inspecting Assistant Commissioner to come to the conclusion that the order of the Income-tax Officer was erroneous and prejudicial to the interest of the revenue. It is not sufficient that an order is merely erroneous. It must be erroneous in so far it is prejudicial to the interest of revenue. Thus, it is not sufficient for an order in question to be prejudicial, it must also be erroneous. Thus, there should be a clear finding on the basis of material to support both the conditions. In the present case, order of the Income-tax Officer could be regarded as prejudicial to the interest of revenue but it is definitely not erroneous as it does not involve any error of law or fact. The only fault which the learned Inspecting Assistant Commissioner has found in the assessment is that the Assessing Officer did not apply the gross profit rate as applied in the case of the assessee during the previous year.
It is true that the assessee has the history of application of gross profit rate of 20%. But it may be pointed out although the past history is a relevant factor but it cannot always be taken as a sole criteria for rejection of accounts. It is clear from the impugned order that the learned Inspecting Assistant Commissioner himself admitted that since the average sale rates disclosed compare favourably with those of other such cases no adverse inference was
The assessee case required indulgence of this Court for another reason. The order has been passed by the CIT while the original order has been passed by a Special Officer. The jurisdiction is to be invoked by the I.A.C. and not by a Commissioner. One may refer section 5(1)(c) of the Income Tax Ordinance but the same is not applicable where the I.A.C. has made an assessment as a SOIT and that the language of section 66-A in unequivocal terms gives this power to the I.A.C. The matter has already been decided by a D.B. of the ITAT in the judgment reported as 1998 PTD (Trib.) 1878. The relevant para. wherefrom is as follows:---
"We are of the considered opinion that the provision of law is very clear and admits of no ambiguity. The powers and jurisdiction of DCIT and I.A.C. of Income--tax are clearly specified in the various provisions of the Income Tax Ordinance. The provisions contained in section 5(1)(c) and (cc) are in the nature of special provisions and shall be applicable and operative so long the powers conferred on DCIT and I.A.C. are exercised by the I.A.C. and C.I.T. respectively. The special provisions contained in clauses (e) and, (cc) of subsection (1) section 5 of the Income Tax Ordinance, 1979 are applicable so long there is deviation from the normal and general provisions of law contained in the Income Tax Ordinance, 1979. As soon as the deviation from the normal law comes to end the operation of special law shall be ceased. The reason being that the normal powers and jurisdiction conferred under the law on DCIT and I.A.C. or Commissioner become inoperative when there is deviation from the general law and the recourse is made to the special law but as soon as, the deviation from the general law ends, provision contained in general law becomes operative with the result that the original powers conferred on the Income-tax Authorities under the Income Tax Ordinance are revised automatically, we are fortified in our views from the fact that i-~ the definition of Deputy Commissioner, under clause (17) (a) of section 2 of the Income Tax Ordinance a special officer is also included and if an I.A.C. is appointed as Special Officer to act as Deputy Commissioner he shall obtain statutory approval from the I.A.C. and not from Commissioner. This view has been taken by the department also which is contained in the -letter of Regional Commissioner of Income-tax, Central Region; dated 14-7-1988. "
In view of above clear findings on the subject we consider this order to be illegal and without effect in addition to the factual premises. Further another aspect which has not been appreciated by the learned I.A.C. is that at the time of original assessment the I.T.O. has made addition of Rs. 1,50,60,018 while the figures referred by the I.A.C. for invoking jurisdiction are much too low than said addition. If for any reason the whole of this amount could have been proved to be unexplainable and the deemed provisions of Income Tax in term of section 13 was to be considered as applicable, still the income of the assessee cannot be enhanced in view of the addition in trading account referred by us above in the original order. The order of the revising authority is not maintainable even on this score as no prejudice to the revenue is caused. In this view of the matter, the assessee appeal is allowed and the order of the I.A.C. is set at naught.
M.B.A. /52/Tax (Trib.)???????????????????????????????????????????????????????????? Appeal allowed.