2001 P T D (Trib.) 2902
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and
Javed Masood Tahir Bhatti, Judicial Member
I. T. A. No. 1788/KB of 1999-2000, decided on 07/05/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.59(1) & 66-A---Self-assessment---Error---Wrong acceptance of a return under Self-Assessment Scheme would constitute an error.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.59(1) & 66-A---Self-assessment---Universal Self-Assessment Scheme for the year 1999-2000, para. 13---New assessee---Firm---Partners existing assessee---Application of S.64-A of the Income Tax Ordinance, 1979 on the point of capital employed---Contention that all the partners were existing assessees and firm was not a new assessee for the purpose of para. 13 of the Universal Self-Assessment Scheme and for the purpose of comparison of declared income with the capital employed---Validity---Plea with regard to non-existence of a new assessee could not be accepted at the appeal stage before the Tribunal as it was not taken before the Inspecting Additional Commissioner---Even otherwise such a plea that registered firm was a separate entity from its partners could not be accepted because there were curtain provisions in the law, which bind the partners of a firm to meet the liability of a firm or other partners---Income of the firm, especially the registered firm, was to be made whereafter the income-tax was to be allocated to the partners individually to the extent to their shares as such it was not the case of continuation of old arrangement.
(c) Income Talc Ordinance (XXXI of 1979)---
----Ss.66-A & 59(1)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Self-assessment---Written order-- Assessee pleaded that S.66-A of the Income Tax Ordinance, 1979 could not be invoked as there was no order in writing passed by the Assessing Officer---Validity---Under the provisions of S.66-A of the Income Tax Ordinance, 1979, the Inspecting Additional Commissioner, was empowered to pass an order if he considered that any order passed in any proceedings by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of revenue---Law did not specifically refer to a wrong written order---Copy of return specifically says that the return was deemed to be an order of assessment under S.59(1) of the Income Tax Ordinance, 1979-- Order would include a deemed order unless the law specifically excluded the same.
I.T.A. No. 1041/KB of 1996-97 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A & 59(1)---Expression "caused prejudice to the Revenue"--- Connotation---Mere presumption that normal assessment would result in a higher income being assessed could not be allowed 4o empower the Inspecting Additional Commissioner to interfere under S.66-A of the Income Tax Ordinance, 1979---Prejudice to Revenue has to be clearly spelt out as a normal assessment did not automatically mean a higher assessment---Order was cancelled by the Tribunal.
I. T. A. No. 1041/KB of 1996-97 ref.
Muhammad Aqeel for Appellant.
Qamaruddin, D.R. for Respondent.
Date of hearing: 28th April, 2001.
ORDER
1. This appeal to an unregistered firm is filed against an order, dated 11-3-2000 recorded by the learned IAC of Income-tax, Range-II, Zone-C, Karachi whereby an assessment deemed to have been made under section 59(1) of the Income-tax Ordinance, 1979 (hereinafter called the Ordinance) was cancelled under section 66-A of the Ordinance with .the direction to make fresh assessment under normal law.
2. The relevant facts in brief are that the assessee had filed a return for the first time declaring income at Rs.60,000. The assessee was engaged in the business of construction of flats etc., for sale. Books of account are said to have been maintained. It was also submitted that a copy of the return was duly stamped by the revenue and returned to the assessee as an evidence of completion of assessment under Universal Self-Assessment Scheme (USAS). The learned IAC however, found that the return did not qualify for acceptance under USAS as the investment in the capital employed was Rs.3,991,452 including an initial payment of Rs.5,00,000 in respect of purchase of plot. According to the impugned order, the declared capital was much higher as compared to the capital of Rs.2,00,000 on the basis of which the declared income could have been accepted under USAS. The assessee was duly confronted on this issue. The assessee took the plea that there was no order in writing by the assessing officer and thus there was no application of section 66-A of the Ordinance by which an order could be cancelled or modified. Such explanation was not accepted and the order deemed to have been made under section 59(1) of the Ordinance was cancelled with the above direction.
3. The first and foremost argument of the learned A.R. of the assessee is that this assessee is not a new assessee for the purpose of para. 13 of the USAS and for the purpose of comparison of declared income with the capital employed. It was elaborated by the learned A.R. of the assessee that all the partners of the URF. the assessee/appellant are existing assessees. According to the learned A.R. a firm is not a legal and distinct entity from its partners. It was further elaborated by the learned A.R. that the partners of the firm were being assessed individually and they have merely formulated a firm, which does not mean a new entity has come into existence. Another argument of the learned A.R. of the assessee is that the firm as defined. by the Partnership Act is not a separate entity. The learned A.R. has also submitted that the Tribunal has already decided in favour of another assessee under similar circumstances where no assessment order in writing under section 59(I) of the Ordinance had been passed. A reference has been made to the order of the Tribunal, dated 23-9-1998 recorded in IT.A. No. 1041/KB of 1996-97. Another plea of the learned A. R. of the assessee is that the department had not established any prejudice caused to the revenue by acceptance of such return under USAS. The learned D.R. on the other hand supported the order of the learned IAC and argued that the acceptance of a return under USAS, when it was not qualified to be so accepted, rendered the assessment order erroneous in so far as prejudicial to the interest of revenue. The learned D.R. was invited to point out the prejudice caused to the revenue if the same was recorded in the impugned order or otherwise. However, the learned D.R. was unable to point out any specific prejudice except for the submission that under the normal law income would be assessed at much higher amount as compared to the assessmentmade under USAS.
4. The arguments have been considered. We have also perused the case law relied on by the learned A.R, of the assessee. It will be useful to reproduced para. 7 of such order of the Tribunal, dated 23-9-1997 (supra), which reads as follows:
"It is evident from the impugned order that the assessment was finalized under section 59(1) under Scheme of Self-Assessment and the matter in dispute did not come under the purview of section 66-A. As .the IAC can invoke his jurisdiction under section 66-A only if he considers that any order passed by the Deputy Commissioner is erroneous. However, in the present case the Deputy Commissioner has passed no order and the acknowledgement issued under section 66-A in respect of return of total income is deemed to be the assessment order under section 59(4). Thus commission of any error prejudicial to the interest of revenue cannot be imposed to the learned DCIT. Even the impugned order does not indicate any such objection."
5. The main difference between these two cases is the assessment year. The appeal decided by the Tribunal vide order, dated 23-9-1998 pertains to assessment year 1995-96 whereas the matter before us now is the assessment year 1999-2000. Another fine distinction is the format of deemed acceptance of the return which is not really significant. The learned Members of the Tribunal in the aforementioned case have held that the commission of any error prejudicial to the interest of revenue could not be imputed to the Assessing Officer as no order in writing has been passed. We respectfully beg to disagree with such observation to the extent of error only. We feel that the wrong acceptance of a return under SAS would constitute an error.' There is no dispute over the fact that the assessee has shown capital of at least Rs.5,00,000 in respect of the payment towards land whereas the income of Rs.60,000 could have been accepted under USAS against a declared capital of Rs.2,00,000 only. The plea of the assessee with regard to the non- existence of a new assessee cannot be accepted at this stage. This plea was not taken before the learned IAC. Even otherwise we are not inclined to accept such plea as under the Income-tax Law a registered firm is a separate entity from its partners although there are certain provisions in the law, which bind the partners of a firm to meet the liability of a firm or other partners. Under the income tax law firstly, the income of the firm, specially the registered firm, is to be made whereafter the income of tax is to be allocated to the partners individually to the extent to their shares. Thus in our view this is not the case of continuation of the old arrangement. Another argument of the learned A.R. of the assessee is that there was no order in writing passed by the Assessing Officer. Again we are not convinced by this argument under the provisions of section 66-A of the Ordinance, the learned IAC is empowered to pass an order if he considers that any order passed in any proceedings by the Deputy Commissioner is erroneous in so far as it is prejudicial to the interest of revenue. The law does not specifically-refer to a -wrong written order. In any case the learned IAC has reproduced the copy of the return and the relevant part thereof which specifically says that the return is deemed to be an order of assessment under section 59(1) of the Ordinance.In our considered view 'order' would include a deemed order unless the law specifically excluded the same.
6. However, on the other aspect of the case with regard to the establishment of the prejudice caused to the revenue, we are inclined to agree with finding of the learned Bench as already mentioned above. The learned D.R. has taken a plea that normal assessment would result in a higher income being assessed. This is a mere presumption, which cannot be allowed to empower the learned IAC to interfere under section 66-A of the Ordinance. The prejudice to be clearly spelt out as a normal assessment does not automatically mean a higher assessment. Hence on this issue we are inclined to accept the appeal of the assessee and we cancel the order, dated 11-3-2000 recorded by the learned IAC, Range-II, Zone-C, Karachi in the case of present appellant. The appeal succeeds accordingly.
C.M.A./M.A.K./100/Tax(Trib.) Appeal accepted.