I.T.AS. NOS.2086/KB TO 2088/KB OF 1999-2000 VS I.T.AS. NOS.2086/KB TO 2088/KB OF 1999-2000
2001 P T D (Trib.) 884
[Income-tax Appellate Tribunal Pakistan]
Before Syed Kabirul Hasan, Judicial Member and Muhammad Mahboob Alam,
Accountant Member
I.T.As. Nos.2086/KB to 2088/KB of 1999-2000, decided on 04/12/2000.
(a) Income-tax---
----Best judgment assessment---Concept---Best judgment assessment is that judgment which is according to one's own judgment meaning thereby that there is an element of guesswork but that guesswork should be honest, legally permissible but not arbitrary or capricious---Guess should not be a wild guess but legally explainable as compared to history of the assessee.
(b) Income tax----
----Assessment---Assessment order speaking of penalty---No assessment---If assessment speaks of penalty, then it would not be an assessment at all---Ex parte order or best judgment assessment order should not be a penalty order in its form.
(c) Income Tax Ordinance (XXXI of 1979)--
----Ss.63 & 12(18)---Best judgment assessment---Addition---Assessing Officer made addition under S.12(18) of the Income Tax Ordinance, 1979 while proceeding ex parte under S.63 of the Income Tax Ordinance, 1979-- Assessee contended that assessment framed was not a best judgment assessment as same was arbitrary and capricious and should have been legal and reasonable---Validity---Facts available from assessment orders and the appellate orders made it clear that the Assessing Officer was not in a position to make honest guesswork or there was no nexus between the income determined and the facts available with the Assessing Officer nor the same related to the history of the assessee---Assessment was set aside by the Appellate Tribunal in circumstances with the observation that for non compliance of-any notice issued under the Income Tax Ordinance, 1979, the assessee might be penalized in accordance with law but the assessment should not be a penal assessment.
(1963) 7 Tax 1 (Dacca H.C.) and (1966) 60 ITR 239 (SC) rel.
Rehan Hassan Naqvi for Appellant.
Jawed Iqbal Rana, D.R. for Respondent.
Date of hearing: 25th November, 2000.
ORDER
SYED KABIRUL HASAN (JUDICIAL MEMBER).---In these three appeals, the appellant/assessee has raised many grounds which relate to estimate of sales, application of G.P. rate and certain disallowances out of Profit and Loss Account. In assessment year 1994-95, in addition to common grounds, the appellant has mentioned the ground of addition of Rs.34,09,730 under section 12(18) of the Income Tax Ordinance, 1979 but this ground was not pressed before us. The assessment years involved are 1994-95, 1995-96 and 1996-97.
2. Mr. Rehan Hassan Naqvi, learned counsel for the assessee, has submitted that firstly he is not pressing the ground of addition of Rs.34,09,730 under section 12(18) of the Ordinance, therefore, the same may be dismissed as withdrawn. He has also not wholeheartedly pressed the passing of orders in all the assessment years under section 63 of the Ordinance. However, he has submitted that the assessment framed under section 63 is not a best judgment assessment as it is arbitrary and capricious. In support of this, he has relied on case reported as (1963) 7 Tax 1 (Dacca High Court). According to him, when the Assessing Officer was required to make best judgment assessment under section 63 of the Ordinance and when having failed to do so, either the Honourable Tribunal may grant any reasonable relief to the assessee or set aside these assessments for re assessment as expeditiously as possible.
Mr. Jawed Iqbal Rana, learned D.R., has supported the order of learned C.LT.(A) and has further pointed out that the assessee did not appear after allowing various opportunities to him, therefore, this action of passing orders under section 63 of the Ordinance is justifiable.
3. We have heard both the learned representatives and also perused the orders of learned C.I.T.(A) as well as the Assessing Officer.
4. From the careful scrutiny of assessment order, it appears that the Assessing Officer was justified to make ex parte assessment under section 63 of the Ordinance. On this, there was nothing presented by the learned counsel. However, the contention of learned counsel that the Assessing Officer should have made a best judgment assessment which should have been legal and reasonable, requires consideration.
5. The powers of best judgment assessment as apparent from section 63 are:
"63. Best judgment assessment. ---Where any person--
(a) failes to furnish a return of total income required to be furnished by him under section 56, subsection (3) of section 72 or subsection (3) of section 81; or
(b) fails to comply with any of the terms of a notice issued under section 58 or 61;
the Deputy Commissioner may, by an order in writing, assess the total income of the assessee to the best of his judgment. and determine the amount of tax payable to him".
Section 61 states:
"61. Notice for production of books of account etc---The Deputy Commissioner may serve upon any person who has furnished a return of total income for any income year, or upon whom a notice has been served to furnish such return, a notice requiring him on a date specified therein, to attend at the Deputy Commissioner's Office or to produce, or cause to be produced, any evidence on which such person may rely in support of the return, if furnished and such accounts, documents or evidence (including accounts or documents) relating to any period prior or subsequent to the said income year) as the Deputy Commissioner may require:
Provided that the Deputy Commissioner shall not require the production of any accounts relating to a period more than three years prior to the income years."
6. As we have already held that the Assessing Officer was justified to make assessment under section 63 of the Ordinance, we come to the second most important point that what is a best judgment assessment? In this respect, the case relied on by the Assessing Officer and reported as (1963) 7 Tax 1 (Dacca H.C.) wherein on page 7, it observed:
"In the absence of evidence or in case of rejection of account the Income-tax Officer is to make assessment to the best of his judgment and discretion but that does not mean an arbitrary and capricious judgment based on suspicions, conjectures or surmises or on no evidence at all. There must be some basis for holding that the cash credit amount is on account of the income derived from business unconnected with the business of the assessee, an undisclosed source, to be added to the income estimated by himself, as he could not accept the book account of the assessee. "
On best judgment assessment, another case from Indian jurisdiction and reported as (1966) 60 ITR 239 (SC) elaborates the issue as under:
"The limits of the power are implicit in the expression 'best judgment assessment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a Judge, but on settled and invariable principles of justice. Though there is an element of guess work in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case."
7. From the above, it is clear that the best judgment assessment is that judgment which is according to ones own judgment meaning thereby that there is an element of guess-work but that guess-work should be honest, legally permissible but not arbitrary or capricious. Also the guess should not be a wild guess but legally explainable as compared to history of the assessee.
8. From the facts available from assessment orders and the appellate orders, it is clear that the Assessing Officer was not in a position to make honest guess-work or there was no nexus between the income determined and the facts available with the Assessing Officer and neither it was related to the history of the assessee. We are also mindful of the fact that in case where the assessee is undermining the authority of the Assessing Officer by not complying with his orders, then he should be penalized for his actions. In our opinion, if the assessment speaks of penalty, then it would not be assessment at all. To make it more clear, ex parte order or best judgment assessment order should not be a penalty order in its form. Had the material for making a best judgment assessment order been with the Assessing Officer, then we should have revised the order passed by learned C.I.T.(A) in these assessment years. But there is no material available with the Assessing Officer to come to a best judgment. Under the circumstances, we are left with no alternative but to set aside the order on the issue of estimate of receipts of Daily Mehran and Weekly Statement in all the relevant assessment years and, direct him to pass appropriate orders after affording reasonable opportunity to the assessee. These orders should be passed within six months. We would like to observe that for non-compliance of any notice issued under section 61 of the Ordinance, the assessee may be penalized in accordance- with law but the assessment should not be a penal assessment.
9. These appeals are disposed of as above.
C.M.A./M.A.K./57/Tax(Trib.) Order accordingly.