2001 P T D (Trib.) 3810
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and
Mrs. Safia Chaudhry, Accountant Member
I.T.As. Nos.6803/LB, 6804/LB, 6767/LB of 1996, 700/LB, 714/LB and 715/LB of 1.997, decided on 24/08/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Invoking of S.66A, Income Tax Ordinance, 1979 was not only dependent but also revolved around the Inspecting Additional Commissioner and not on the findings or conclusions or observations given by any other Authority.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Initiation of proceedings under S.66A of the Income Tax Ordinance, 1979 based upon report of any other authority negates the whole Scheme of S.66A.
(e) Administration of justice--
---- When a statute confers a certain duty on an officer it is that officer who has to make up his mind and pass the order in accordance with law and exercise his discretion uninfluenced by any opinion of any other authority.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Inspecting Additional Commissioner cancelled the assessment under S.66A of the Income Tax Ordinance, 1979 on the basis of report of Additional Director (Direct Taxes) Inspection and Audit-- Validity---Statute having delegated the authority to the Inspecting Additional Commissioner to call for and examine the record and to form his independent opinion, should not be influenced by any direction or opinion or note received from any quarter---Conclusion drawn from the Audit and Inspection Report was absolutely in excess of the authority conferred on Inspecting Additional Commissioners by the statute who had not applied his own mind to the facts of the case available on record and had acted in violation of S.66A of" the Income Tax -Ordinance, 1979---No valid order, in circumstances, was made by the I.A.C. in the eye of law for it was the product of a biased mind influenced, by the opinion and direction of the Audit and Inspection Report---Order passed under S.66A of the Income Tax Ordinance, 1979 being without lawful jurisdiction was cancelled by the Tribunal in circumstances.
NTR 1991 (Trib.) 21 and 1995 PTD (Trib.) 580 rel.
PLD 1969 Dacca 45.1; 1991 PTD (Trib.) 643; 1995 PTD 268 and 1990 PTD (Trib.) 524 ref.
(e) Income-tax---
----Show-cause notice---To allow only three days' time for furnishing the reply to show-cause notice is highly deplorable conduct.
I.T.As. Nos.4662 and 4663/1,13 of 1991-92 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----Ss-66A & 65----If the Inspecting Additional Commissioner was involved in the case at the assessment stage, he becomes functus officio to invoke S.65 or S-66A of the Income Tax Ordinance, 1979 in that case.
1996 PTD (Trib.) 750 rel.
(g) Income Tax Ordinance (XXXI of 1979)---
----S.66A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Poor quality of assessment order---Effect---Mere poor quality of assessment order would not provide justification to the Inspecting Additional Commissioner for invoking S.66A of the Income Tax Ordinance, 1979.
1997 PTD 902 and 1999 PTD 3229 rel.
(h) Income Tax Ordinance (XXXI of 1979)---
----Ss.52 & 50(4)---Liability of persons failing to deduct or pay tax---Sale on cash payment at the counter---Non-deduction of tax under S.50(4)---Effect-- Assessee was treated as "assessee in default" for non-deduction of tax under S.50(4) of the Income Tax Ordinance, 1979 from payments made on account of purchase of cars---Validity---Cars were purchased on payment of cash at the counter---Nothing on record was available to establish that any order for purchase of the cars was placed before any of the party named in the assessment order---Such transaction would not fall within the ambit of supply and the assessee was- under no obligation to deduct tax under S.50(4) of the Income Tax Ordinance, 1979 at the time of receiving cash payment at the counter.
(i) Income-tax---
---Demand of tax---Demand on the basis of mere calculation in the IT-30 Form was not legal, demand---First Appellate Authority quashed the order on the ground that the demand of tax was not created as a consequence of an order rather made on the basis of mere calculation in the IT-30 Form and as such was not a legal demand and the same was confirmed by the Tribunal.
Farooq Tahir, D.R. for Appellant.
Nisar A. Sheikh for Respondent.
Date of hearing: 2nd August, 2000.
ORDER
RASHEED AHMED SHEIKH (MEMBER JUDICIAL).---Out of these six appeals, three pertain to the assessee while the remaining three are directed by the Department. Out of the assessee's three appeals, two are instituted against the order made under section 66A of the Ordinance in respect of assessment years 1991-92 and 1992-93 and the 3rd relates to the order under section 62 for the assessment year 1993-94. As regard departmental appeals two are directed against the order made under section 52 in respect of assessment years 1991-92 and-1995-96 while the 3rd one pertains to assessment year 1995-96 on account of relief allowed under various heads of the profit and loss expenses account. All these appeals are adjudicated upon by us through this single order.
Order made under section 66A assessment years 1991 92 and 1992-93 Assessee's appeals
2. Facts leading for disposal of these appeals are that on scrutiny of the record it revealed to the I.A.C. that the assessments already made by the Assessing Officer were erroneous insofar as those were prejudicial to the interest of Revenue. For the assessment years 1991-91, he observed that the Assessing Officer had failed to take cognizance of increase in loan besides action to be taken under section 13 of the Income Tax Ordinance, 1979. Accordingly to the I.A.C., loan from Haji Muhammad Ali of Peshawar and Haji Muhammad Ashraf was shown at Rs.50,00,000 and Rs.35,42,000 on 30-6-1990 while on 1-7-1990 that was carried forward at Rs.57,50,000 and Rs.27,62,223 respectively. Further noted that the D'CIT had also issued a show-cause notice, dated 16-7-1992, to the assessee but this aspect was ignored by him at the time of making the assessment. Even no explanation was obtained in this regard. It was thus held that the assessment was erroneously made and was also prejudicial to the interest of revenue:
3. As regard assessment year 1992-93, it was noted by the I.A.C. that there was contradiction in the details furnished by the assessee regarding purchases made from Messrs Muhammad Ali Industries Private Limited. As per the I.A.C. the assessee had shown liability from Messrs Muhammad Ali Industries Private Limited at Rs.63,04,480 and on confrontation it was explained that the said company had sold raw material to the assessee worth Rs.66,04,480. The details indicated that the assessee had made total purchases of Rs.46,66,307 out of which purchases of Rs.21,04,640 pertained to Messrs Muhammad Ali Industries Private Limited and the DCIT had failed to take notice of contradiction in the documents pertaining to the loan and to the purchases accounts. No explanation was obtained regarding the balance amount of Rs.41,59,840. Thus, the assessment framed was not only erroneous but was also prejudicial to the interest of revenue.
4. Before drawing any adverse inference, the assessee was confronted with the above discrepancies. The explanation tendered by the assessee was not found satisfactory by the I.A.C. He, therefore, cancelled the already completed assessments for de novo consideration. This, cancellation order has compelled the assessee to come up in appeal before us.
5. Mr. Nisar A. Sheikh, the learned counsel for the assessee vehemently contended that the I.A.C. has acted in flagrant violation of law by invoking section 66A in the present case. It is so because the proceedings under section 66A are initiated on receipt of inspection/Audit report from the Additional Director Inspection and Audit (Direct Taxes) Gujranwala. According to the learned A.R., the learned I.A.C. has neither called for nor examined the assessment record to arrive at a conclusion that the orders made by the DCIT were erroneous and prejudicial to the interest of revenue: He vociferously stated that section 66A has entrusted the IAC to call for and examine the assessment record and if he comes to the conclusion that the order made by the Assessing Officer is erroneous and prejudicial to the interest of revenue, he shall proceed under section 66A of the Income Tax Ordinance. Also pointed out that the allegations so levelled in the said report were incorporated in the show-cause notice in seriatim. It is thus unequivocally established that the IAC has not applied his mind for '` invocation of section 66A of the Income Tax Ordinance, 1979. Hence, the JAC's findings in holding that the orders made by the Assessing Officer were erroneous insofar as these were prejudicial to the interest of revenue, are not sustainable in law. To support the contention that the provisions of section 66A cannot be invoked on the direction of any other authority, reliance was placed on the case-law reported as NTR 1991 Trib. 21, PLD 1969 Dacca . 451, 1991 PTD (Trib.) 643, 1995 PTD 268 and 1990 PTD 524 (Trib.).
6. Further contended that the present JAC (Mr. Anwar Ahmad) has fallen in grave error in invoking section 66A in the present case for the reason that the same JAC, while exercising the powers as Assessing Officer, had spe6fically confronted the assessee the same points, by issuing a notice under section 62 bearing No.88, dated 18-7-1992 for assessment year 1991-92, which are now reported in the Audit and Inspection Report as well as in the show-cause notice issued under section 66A and the explanation furnished by the assessee at the relevant .time was accepted by the department. Now the same officer (Mr. Anwar Ahmed), while exercising the powers as JAC, cannot cancel the already completed assessment on the same points as those assessments were made after considering the allegations now levelled in the present show-cause notice. Thus this renders the I.A.C.'s order nullity in the eye of law.
7. Also argued that the action of the I.A.C. in invoking section 66A is not tenable in law on the ground that the assessee was required to furnish reply to the show-cause notice on 1~1-7-1996, vide No. 11, dated 8-7-1996, and that was submitted by the assessee on 13-7-1996 while the order under section 66A of the Income Tax Ordinance, 1979 was made by the I.A.C. on 11-7-1996, i.e. two days earlier from receipt of the reply to the show-cause notice. Reference in this regard was made by the learned A.R. to the last para. of page 1 of the I.A.C.'s order which reads as under:
"The assessee was confronted with the above discrepancies vide Show-cause Notice No. 11, dated 8-7-1996. The assessee has furnished written reply dated 13-7-1996."
The above fact clearly indicates that the I.A.C. was predetermined to invoke section 66A in the instant case despite the fact that the proceedings were taken up by him after the date of passing the order under section 66A. Thus, this order of the I.A.C. cannot be said to be legally made on 11-7-1996.
8. On the other hand, the learned D.R. contended that the facts and the circumstances available on record warrant action to be taken under section 66A of the Income Tax Ordinance, 1979. He stated that the assessments already completed clearly spells out that the discrepancies noted by the I.A.C. were not taken into account by the Assessing Officer at the time of finalization of the assessments. Thus this renders the assessments to be erroneously made and were also prejudicial to the interest of revenue and were rightly cancelled by the learned. IAC.
9. We have given anxious thought to the averments advanced by the two learned representatives appearing at the bar, perused the Audit and Inspection report as well as the case-law and the documents furnished before us. We feel convinced that the provisions of section 66A are not invoked by the JAC on his own motion rather-these were initiated on receipt of the audit and inspection report. There is no cavil to the proposition that section 66A is an independent section as is evident from the language of this section. This section starts with the words "the JAC may call for and examine the record of any proceedings under this Ordinance and if he considers". There is hardly any ambiguity to understand intention of the legislation behind this section. Actually the Legislation has given supervisory powers to the I.A.C. to protect revenue of the department. But his powers are qualified with two conditions. Firstly, that the order already made by the DClT should be erroneous and secondly, that should also be prejudicial to the interest of revenue. For this purpose the Legislature has empowered the JAC to examine the record of any proceeding and if he considers that the two conditions, mentioned ante exist in the order made by the DCIT he shall initiate proceedings under this section. So invocation of section 66A is not only dependant but also revolves around the JAC and not on account of the A findings or conclusions or observations given by any other authority.
10. Reverting to the facts of the case, perusal of the documents vividly implies that provisions of section 66A are invoked on initiation of the Additional Director Inspection and Audit's report who has specifically described all the allegations in his report which are now confronted by the JAC in the show-cause notice. Thus, in no way the Audit and Inspection Report can be made basis for cancellation of already completed assessment because the Additional Director (Direct Tax) Inspection and Audit has examined the assessment record and pointed out certain deficiencies in the assessment order and at page nine (9) of his report for the assessment year 1991-92, he inferred as under:
The provisions of section 66A should, therefore, be invoked both in respect of assessment year 1991-92 and also assessment year 1990 91 (if so needed) and the issue of loans claimed be examined after making detailed enquiries. Necessary additions under section 13 should, therefore, be made in case the assessee fails to produce genuineness of loans (shown as advance).
Whist for assessment year 1992-93, it was directed at page 12 of the said report, in the following words;
The assessment order passed by the DCIT is, and prejudicial to the interest of revenue. Provisions of section 66A, should, therefore, be invoked by cancelling the said assessment order.
11. In addition to, the deficiencies pointed out in the audit and inspection report are confronted by the IAC in the show-cause notice in its verbatim. From the foregoing facts it is manifestly clear that the IAC has not examined the assessment record rather followed the directions of another agency while invoking section 66A of the Income Tax Ordinance, 1979. We, therefore, hold that initiation of proceedings under section 66A basing upon report of any other authority negates the whole scheme of this section.
12. It is cardinal principle of interpretation of fiscal statutes that when a statute confers a certain duty on an officer it is that officer who has to make up his mind and pass the order in accordance with law and exercise his discretion uninfluenced by any opinion of any other authority. As the statute has delegated authority to the I.A.C. to call for and examine the record and to form his independent opinion, he should not be influenced by any direction or opinion or note received from any quarter. In this case the IAC has not applied his, mind at all, therefore, the conclusion drawn by the IAC from the Audit and Inspection Report was absolutely in excess of the, authority conferred on him by the statute and has the effect of vitiating the impugned order.
13. To hold so, we are fortified by a decision of the Tribunal reported as NTR 1991 Trib. 21 whereby initiation of proceedings under section 66A of the ordinance on the direction of the learned CIT(A) was declared to be without any lawful authority. While concluding so, it was observed therein as under:
"The other legal aspect of the matter is concerning the extent of powers of the learned I.A.C. for invoking jurisdiction under 'section 66A of the Ordinance. Therein it has been provided that the 1camed IAC may call for and examine the record of any proceeding: under the Ordinance and if an order passed by the ITO is erroneous insofar as it is prejudicial to the interest of revenue he may pass such order as the circumstances of the case justify after issuing notice to the assessee. A bare perusal of the language of the section leaves us in no doubt that powers under section 66A of the Ordinance is independent and suo moto as is apparent from the use of words 'if he considers'. There is no doubt in concluding that consideration is of the learned IAC without any directions and after perusal and examination of record of any proceedings. In PLD 1972 Lah. 316 it was laid down that the officer having power is required to decide himself without any directions. Same view was taken in 1990 PTE) 974. In this view of the matter, issuance of notice and assumption of powers of the learned IAC under section 66A of the Ordinance on the directions of the learned CIT(A) was without any lawful authority."
14. We have also come across a reported judgment of the Tribunal cited as 1995 PTD (Trib.) 580. In this case assessment was reopened by the Assessing Officer in consequence of a report initiated by the Circle Inspector. It was accordingly held therein that reopening of assessment on the basis of audit objection or the Circle Inspector's Report is not sustainable in law. It was observed as under:
"First, it has been decided in a number of cases in Pakistan as well as India that the reassessment proceedings initiated on basis of audit objection was not justified. The reason being that the Audit Department raises objection on appraisal of the same facts, which have been examined by the Assessing Officer. If the proceedings initiated on the basis of audit objection is not sustainable it cannot be conceived that any proceedings initiated on the basis of a subordinate official can have any legal validity. It is admitted position in law that an Assessing Officer is not empowered to review his own order, therefore, the question of giving such authority to a subordinate official does not arise,. Such practice would amount to open the pandora's box and is fraught with such dangerous consequences that it may lead to the destruction of entire system of assessment, if every subordinate official of the Assessing Officer is allowed to scrutinize the record after the completion of assessment in the hope of getting reward or with ulterior motive for causing harassment to the assessee. All the assessees would be at the mercy of all the subordinate officials in the Income Tax Department so long the period of limitation for reopening of assessment does not expire. On one hand, it would open flood gate for corruption and indiscipline in the department and on the other hand it will militate against the principle of finalization of assessment. Thirdly; the satisfaction' of I.T.O. in consequence of information in his possession is a precondition for re-opening of assessment, A direction or satisfaction of Commissioner or I.A.C. cannot be a substitute for the satisfaction of the I.T.O. In the present case we have found that the assessment has been reopened actually at the initiative of Income Tax Inspector in the hope of getting regard and on the direction of I.A.C. and Commissioner who have virtually directed time and again to the Assessing Officer to reopen the assessment and seek their approval in this behalf. Of course, the IAC and Commissioner can assist, guide or instruct the I.T.O. by virtue of provision contained in section 7 of the Income Tax Ordinance, 1979 but it does not mean that they should substitute their directions for the satisfaction of I.T.O. which is a condition precedent for the reopening of assessment."
Though this case encompasses section 65 of the Income Tax Ordinance, 1979 yet the dictum laid down therein is that reopening of already completed assessment on the basis of audit objection or on the initiation of the Commissioner or the I.A,C. is not. sustainable in law.
15. From bare perusal of the audit and inspection report, it is perfectly clear that the IAC has merely acted as a tool of the Additional Director Inspection and Audit (Direct Tax), Gujranwala and did not apply his own mind to the facts of the case available on record. Following the principle laid down in the case-law cited above we hold that the IAC has acted in violation of section 66A of the Income Tax Ordinance, 1979 and on this ground alone it is emphatically declared that the IAC's order, dated 11-7-1996 is not sustainable in law.
16. We have also observed that the IAC has acted in flagrant violation of law while passing the order under section 66A of the Income Tax Ordinance, 1979 on 11-7-1996. Perusal of the impugned order reveals that the assessee was required to submit reply to the show-cause notice, dated 8-11-1996 on 11-7-1996 but that was submitted on 13-7-1996 and this fact is not in dispute. It means that the IAC has not passed the order under section 66A on 11-7-1996. Rather that was passed on any subsequent date. Factum of passing the order by the IAC two days earlier from the date of receipts of the assessee's explanation could not be dislodged by the learned D.R. It seems that the IAC was preconceived to invoke section 66A of the Income Tax Ordinance, 1979 at all cost in the present case. To observe so, further support is gathered from the fact that only three days' time was allowed for furnishing the reply to the show-cause notice. This conduct of the IAC is highly deplorable: In a little different situation this Tribunal in a Judgment, bearing I.T.As. Nos.4662 and 4663/LB of 1991-92 dated 20-5-1996, has cancelled the assessment by observing as under:
"It has once again been challenged before us that the assessment is illegal having been completed a day for which there was no notice. The learned D.R. could not satisfy us as to the legality of the assessment which had been finalized on 25-8-1990 one day before the case was fixed for hearing. The assessment being illegal, should have been cancelled by CIT(A) instead of setting it aside, and, we therefore, cancel the same".
Even in such circumstances it cannot be held that the order under section 66A of the Income Tax Ordinance was legally made on 11-7-1996 in the instant case.
17 We have further observed that the present IAC, who invoked section 66A, was also involved at the time of passing the original assessment order. As per notice issued under section 62, dated 18-7-1992 for assessment year 1991-92, he confronted the assessee as an Inspecting Additional Commissioner (IAC) and not as a Special Officer, inter alia to explain discrepancy appearing in loan account and this point is again taken up by him in the show-cause notice issued under section 66A of the Income Tax Ordinance, 1979. Copy of that notice is part on the record. It is worthwhile to mention that submission of reply to the said notice is admitted by the Department in another notice dated 8-5-1994 and no adverse inference was drawn in this regard while framing the original assessment order for this assessment year. Law is abundantly clear on this point that where the IAC is G involved at the assessment stage, he becomes functus officio to invoke section 55 or 66A of the Income Tax Ordinance, 1979 in that case. Reliance in this regard is placed on the case-law cited 1996 PTD (Trib.) 750 ............Looking the case from another angle, it has been held by the Tribunal in the case-law reported as 1997 PTD 902 and 1999 PTD 3229 that mere poor quality of assessment would not provide justification to the IAC H for invocation of section 66A of the Income Tax Ordinance, 1979. Hence, the IAC's order does not have any legs to stand upon on this score as well.
18. Corollary of the foregoing discussion is that no valid order was made by the IAC in the eye of law for it was the product of a biased mind influenced by the opinion and direction of the audit and inspection report. We are, therefore, persuaded to hold that the IAC's order, dated 11--7-1996 under section 66A of the Income Tax Ordinance, 1979 was made without lawful jurisdiction and is hereby cancelled.
Assessee's appeal assessment year 1993 94
19. The learned A.R., at the very outset, has requested for withdrawal of this appeal. The learned D.R. has no objection in this regard. Accordingly the appeal pertaining to assessment year 1993-94 is dismissed as having been withdrawn.
Departmental appeal against order under section 62 assessment year 1995-96.
20. The only issue in this departmental appeal pertains to the relief allowed by the First Appellate Authority in various heads of .the profit and
loss account, such as travelling and conveyance, vehicle running and maintenance expenses, fax and telex charges, repair and maintenance, miscellaneous expenses, entertainment expenses, staff welfare and publicity. This action, according to the revenue, is said to be without any justification and the add backs have been made on account of unverifiable expenses. The A.R. supported the impugned order.
21. We have gone through the order of the authorities below. Element of unverifiability of expenses is not denied but the treatment, according to the A.R. is as per the case history. The relief,-we find, is at best a question of one estimate against the other where we feel no need to interfere or intervene. The action of the Appeal. Commissioner is hereby confirmed and the departmental appeal is dismissed.
Order under section 52 assessment year 1991-92 and 1995-96 (Departmental Appeals)
22. In these appeals, common objection of the Revenue relates to quashment of the order made under section 52. Facts in brief are that the assessee purchased three motor vehicles in the assessment year 1991-92 while two were bought in the assessment year 1995-96. According to the Assessing Officer the assessee was obliged to deduct tax under section 50(4) of the Income Tax Ordinance, 1979 at the time of making payments to the suppliers. He therefore, directed the assessee to produce copies of challans regarding deduction of tax on these transactions. In the absence of any reply received in this regard, the company was deemed to be assessee-in-default under section 52 of the Ordinance. : accordingly tax demand of Rs.45,538 and Rs.42,627 inclusive of additional tax levied under section 86 at Rs.15,413 and Rs.6,510 respectively was charged in the IT-3C Form instead of the order made under section 52 of the Income Tax Ordinance, 1979. At the first appellate stage, the Appeal Commissioner quashed the orders for both the years under appeals being those were not sustainable in the eye of j law by holding that the demand of tax was not created as a consequence of an order rather made on the basis of mere calculation in the IT-30 Form and as such was not a legal demand.
23. Upon having perused the Assessing Officer's order we find that the cars were purchased by the assessee-company on payment of cash at the counter. There is nothing on record wherefrom it could be established that any order for purchase of the cars was placed before any of the party named in the assessment order. Thus, such transaction does not fall within the ambit of supply and the assessee was under no obligation to deduct tax under section 50(4) of the Income Tax Ordinance, 1979 at the time of making cash payment at the counter. Even otherwise the Appeal Commissioner's action in annulling the orders made under section 52 of the Income Tax Ordinance, 1979 is well based as he after appraisal of the facts of the case did so. His order is accordingly maintained.
24. In the result all the appeals filed by the assessee and the department are disposed of in the manner indicated above.
C.M.A./M.A.K./125/Tax(Trib.)Appeals disposed of.