MACPAC FILMS LTD. VS FEDERATION OF PAKISTAN
2001 P T D 1574
[Karachi High Court]
Before S. Ahmed Sarwana and Muhammad Mujeebullah Siddiqui, JJ
Messrs MACPAC FILMS LTD.
versus
THE FEDERATION OF PAKISTAN and others
Constitutional Petition No.D‑1214 of 2000. decided on 19/01/2001.
(a) Income‑tax Act (XI of 1922)‑‑‑
‑‑‑‑S.34 [Income Tax Ordinance (XXXI of 1979), S.6517‑‑Escapement of assessment‑‑‑Notice under S.34, Income‑tax Act, 1922‑‑‑Expression "reason to believe" in S.34 of‑the Act‑‑‑Connotation‑‑‑Belief must be based upon reasonable grounds and not on mere suspicion, gossip and rumour‑‑ Principles enumerated.
Following are the principles of law concerning issuance of notice under section 34, Income‑tax Act, 1922 [section 65, Income Tax Ordinance, 1979] :‑‑‑
(i) That by the use of the words "reason to believe" in section 34(1‑A) of the Act, ‑ the Legislature intended that the belief must be based upon reasonable grounds and not on mere suspicion, gossip and rumour.
(ii) That the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income‑tax Officer but the reason must be held in good faith and should not be a mere pretence.
(iii) That it is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose.
(iv) That before an Income‑tax Officer issues a statutory notice under section 34(1‑A) of the Income‑tax Act; 1922 he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income‑tax have escaped assessment during those years
(v) That the notice of the Income‑tax Officer under section 34(1‑A) would be without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief required by the section.
(vi) That before issuing a notice under section 34 it is not necessary to hold a quasi judicial enquiry but there should be material before the Income tax Officer on the basis of which an honest and reasonable officer can form the opinion that there has been escapement of assessment.
(vii) That once it is shown to the Court that there exists reasonable ground for the Income‑tax Officer to form the belief that there has been escapement of the income from the levy of tax, that would be sufficient to clothe him with jurisdiction to issue notice and the Court would not go into the question whether the grounds are sufficient or not nor it would go into the question of sufficiency of the reasons for the belief.
(viii) That a notice under section 34 of the Act need not contain the reasons or the Material on the basis of which the Income‑tax Officer formed the opinion that there is .a reason to believe that the income, profits or gains chargeable to income have escaped assessment during the relevant years.
(ix) That an assessee against whom a notice under section 34 of the Act is issued is of entitled in law at the stage of investigation to see the material on the basis of which the notice was issued or belief was formed but once the Income‑tax Officer decides to act upon certain material for re‑opening the assessment, the assessee is entitled to be confronted with the material to be used against him and is also entitled to an opportunity to explain and to place material in rebuttal to the above material to be used against him by the Income‑tax Officer.
(x) That in a case falling within the ambit of the second part of the proviso to subsection (1) of section 34 of the Act, the Income‑tax Officer cannot initiate proceedings under the above subsection capriciously and without any reason as the proviso is itself sub‑ordinate to that above main subsection. .
(xi) That since section 34 is not the charging section but deals merely with the machinery of assessment, that construction should be preferred which makes the machinery workable (ut res valeat potius quam pereat).
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.65 & Second Sched., Part I, cl. (118‑C)‑‑‑Constitution of Pakistan (1973), Art.199‑‑‑Constitutional petition‑‑‑Maintainability Escapement of assessment‑‑‑Notice to the assessee (petitioner) under S.65, Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Tax holiday ‑‑‑Exemption‑‑‑Entitlement‑‑ Assessing Officer accepted the plea of assessee at the time of original assessment that the industrial undertaking was set up and was ready for commercial production on the basis of certificate issued by Assistant Collector of Customs which was to the effect that the plant and machinery had been installed‑‑‑Information was, however, received subsequently from the Assistant Director, Directorate of Inspection and Internal Audit Customs Central Excise and Sales Tax Regional Office that the unit was not complete or capable of producing anything on the cut off date‑‑‑Information forming basis for issuance of notice under S.65, Income Tax Ordinance, 1979 thus, was not available at the time of original assessment and in reply to the show cause under S.65 of the Ordinance, the assessee could not furnish any material/evidence to establish that information .received was incorrect and that the industrial undertaking, was set up‑‑‑Assessing Officer, in circumstances, had reason to believe that the exemption was wrongly allowed resulting in the escapement of assessment‑‑‑Pleas raised by the assessee in support of the contention that initiation of proceedings under S.65, Income Tax Ordinance, 1979 were mala fide or industrial undertaking was actually set up being pure questions of fact, could not be resolved in a Constitutional petition‑‑‑Constitutional petition, in circumstances, was not maintainable‑‑ Notwithstanding the dismissal of the Constitutional petition and observations made by the High Court, High Court ordered that the assessee shall be entitled to raise all the questions of fact and law before Assessing Officer and the Assessing Officer was directed to consider the objections raised by the assessee including the question pertaining to the exercise of jurisdiction under section 65 of the Income Tax Ordinance, 1979‑‑‑High Court further directed that observations in the order of the High Court shall have no bearing on the proceedings before the Assessing Officer who was directed to exercise independent jurisdiction and apply his mind to all the issues of facts and law raised by the assessee before him without being influenced with any of the observations made in the order of the High Court.
In the present case Assessing Officer had accepted the plea of assessee at the time of original assessment that the industrial undertaking was set up and was ready for commercial production on the basis of certificate issued by Assistant Collector of Customs, which was to the effect that the plant and machinery had been installed. Subsequently the information was received from the Assistant Director, Directorate of Inspection and Internal Audit Customs, Central Excise and Sales Tax Regional Office, that the unit was not complete or capable of producing anything on the cut off date. Thus, the information forming basis for issuance of Notice under section 65 of the Income Tax Ordinance, 1979 was not available at the time of original assessment and in reply to the show‑cause notice the assessee could not furnish any material/evidence to establish that the information received was incorrect and that the industrial undertaking was set up. No evidence was produced that electric connection was available to the industrial undertaking from which it could be inferred that the industrial undertaking was ready for going into the commercial production. In these circumstances, the Assessing Officer had information on the basis of which he had reason to believe that the exemption was wrongly allowed resulting in the escapement of assessment. The pleas raised by the assessee in support of the contention that the initiation of proceedings under section 65 were mala fide or industrial undertaking was actually set up, were the pure questions of fact which could not be resolved in a writ petition.
Assessee had failed to show that the notice under section 65 was without jurisdiction. Assessee, therefore, could not be allowed to bypass the normal remedies available to him under the Income Tax Ordinance, 1979. As other remedies were available to the assessee under the Income Tax Ordinance and. the issues raised were questions of fact which required probe at the original stage therefore, writ petition was not maintainable. 'However, notwithstanding, the dismissal of petition and observations made in the order, the assessee was entitled to raise all the questions of fact and law before Assessing Officer and the Assessing Officer was directed to consider all the objections raised by the assessee including‑ the question pertaining to the exercise of jurisdiction under section 65 of the Income Tax Ordinance. The observations made in the order would have no bearing on the proceedings before the Assessing Officer and the Assessing Officer was directed to exercise independent jurisdiction and apply his mind to all the issues of facts and law raised by the assessee before him without being influenced with any of the observations made in the order.
Messrs Burhan Engineering Co. Ltd. v. The Income‑tax Officer, Companies, Circle 11, Karachi 1985 PTD 465; Shagufta Begum v. The Income‑tax Officer, Circle‑XI, Zone‑B, Lahore PLD 1989 SC 360; Benedict F.D. Souza v. Karachi Building Control Authority 1989.SCMR 918; Messrs Pak‑Arab Fertilizers (Pvt.) Ltd. v. Deputy Commissioner, Income‑tax 2000 PTD 263; Data Distribution Services v. Deputy Commissioner of Income‑tax and another 2000 PTD 2427; Messrs Wali Traders v. Income‑tax Officer, Circle XVIII 1988 PTD 206; Messrs Shadman International (Pvt.) Ltd. v. Income‑tax Officer 1991 PTD 387; Edulji Dinshaw Limited v. Income‑tax Officer PLD 1990 SC.399; Arafat Woollen Mills Ltd. v. Income-tax Officer 1990 SCMR 697; Jeson International (Pvt.) Ltd. v. Income‑tax Officer 1989 PTD 1141; Republic Motors Ltd. v. Income‑tax Officer 1990 PTD 889; Car Tunes v. Income‑tax Officer PLD 1989 Kar. 337 1989 PTD 478; Income‑tax Officer v. Panama (Private) Ltd. (1974) 97 ITR 210; Wali Traders v. Income‑tax Officer 1988 PTD 206; Zafar Usman v. Income‑tax Officer 1989 PTD 547; Hafiz Muhammad Arif Dar v. Income‑tax Officer PLD 1989 SC 109 1989 PTD 485 and Income‑tax Officer v. Purushottam Das Bangur 1997 PT6 1969 ref.
Muhammad Ather Saeed for Petitioner.
Aqeel Ahmed Abbasi for Respondents Nos.2 to 5.
Date of hearing: 19th January, 2001.
JUDGMENT
MUHAMMAD MUJIBULLAH SIDDIQUI, J.‑‑‑The petitioner has assailed the notice under section 65 of the Income Tax Ordinance, 1979 issued by respondent No.4; dated 22‑7‑2000 contending that the impugned notice is without proper jurisdiction and authority. The petitioner has prayed cancellation of said notice and has further sought declaration that it is entitled to tax holiday under clause (118‑C) of Part I of Second Schedule of the Income Tax Ordinance, 1979.
2. The relevant facts forming basis for the issuance of impugned notice are contained in the show‑cause notice, dated 15‑7‑2000, by the respondent No.4 which reads as follows:
15‑7‑2000
To
The Principal Officer,
M/s. MACPAC FILMS LIMITED,
KARACHI.
Sub: SHOW‑CAUSE NOTICE UNDER SECTION 65 OF THE INCOME TAX ORDINANCE 1979‑‑ASSESSMENT YEAR 1995‑96.
Kindly refer to above.
Assessment in your case for the assessment year 1995‑96 was finalised on 21‑3‑1996 allowing exemption. Under Clause (118‑C) of the 2nd Schedule to the Income Tax Ordinance, 1979. However, examination of record reveals that the Assessing Officer did not apply her mind to the details available at the time of assessment before allowing the said exemption. Moreover, information received subsequently also shows that the Company was not entitled for the exemption available for the following reasons:‑‑
"(1) One of the basic requirements for qualifying for exemption under the said clause is that the undertaking is set up, by 30‑6‑1995. As per assessment order, Installation Certificates issued by the A.C. Sales Tax, Hub on 11‑6‑1995 have been taken as basis for fulfilling the said requirement. However, subsequent information received from Directorate of Inspection and Audit, Customs Karachi, vide letter, dated 8‑3‑2000 it has been confirmed that the said certificates, issued under the purview of S.R.O. 484(1)/92, dated 11‑8‑1992, were for the sole purpose of releasing of the Indemnity Bonds, already submitted with the Custom Authorities and was not meant to produce before Income Tax Authorities for any tax proceedings.
This letter further confirms that at the time of visit of the Factory by the A.C. Sales Tax, Hub, for verification of installation, the factory was not in operation, and the Unit was neither complete nor capable of producing anything.
(2) There is nothing on record to prove that up till 30‑6‑1995 there was any kind of power connection even for installation of such a huge undertaking. Moreover, no expenses for Electric or fuel consumption have been claimed for the period under consideration.
(3) Details filed for Assessment year 1996‑97 reveal that a substantial part of machinery was imported during the period relevant to Assessment year 1996‑97. These facts show that up to 30‑6‑1995 set up of the undertaking was not complete and the job went on much beyond the cut off date. This point fords further support from the fact that the machinery imported through two L.Cs. before 30‑6‑1995 are not certified by any competent/expert authority to be a complete plant capable or producing the desired product.
(4) Information subsequently received through statement of accounts for assessment year 1996‑97, shows that hotel bills for Foreign technicians, who were supposed to supervise the Installation of the Plant, are mainly for their stay from August, 1995 to March, 1996, a fact which implies that installation work was incomplete on 30‑6‑1995.
(5) A substantial part of the machinery is imported in the name of one Mr. Aftabuddin Shaikh, who, as per record is neither a Director nor a share‑holder in the Company. Moreover, there is nothing on record in the form of Sale‑purchase agreement, loan, gift etc. to show that the machinery Imported by Aftabuddin Shaikh was purchased by the Company before its so‑called installation on the Company's land.
The above facts show that the Company does not qualify for exemption under clause (118‑C) as the Set‑up was not complete on 30‑6‑1995 and the Factory was not ready to go into production on this date. I, therefore, intend to re‑open the assessment for the year 1995‑96 under‑ section 65 of the Income Tax Ordinance, 1979. Your explanation should reach the undersigned by 22‑7‑2000.
(Sd.)
(Asim Ahmed),
Commissioner of Income‑tax Circle XI Companies‑II‑Karachi
3. Heard Mr. Muhammad. Ather Saeed, learned counsel for the petitioner and Mr: Aqeel Ahmed Abbasi, learned counsel for the respondents Nos.2 to 5, who is present on‑Pre‑admission Notice.
4. Mr. Muhammad Ather Saeed, learned counsel for the petitioner has contended that the impugned notice under section 65 is without jurisdiction for the following reasons:
(1) The impugned notice has been issued by the respondent No.4 on re appraisal of the same facts which were available on record and were examined by the Assessing Officer at the time of making the original assessment order and thus, it is a case of change of opinion.
(2) The impugned notice has been issued without definite information coming into the possession of respondent No.4, subsequent to the assessment order.
(3) The alleged piece of information relied on by the respondent No.4 is the changed statement of Assistant Collector of Sales Tax, which has been changed under bureaucratic pressure and threat arid cannot be relied upon.
(4) The impugned notice is a link in the process of witch‑hunt, initiated against the petitioner by the respondent No. 5 and that the information has been collected as a result of fishing and roving inquiry by the respondent Nos.4 and 5 which is not permissible in law.
(5) Original assessment order was received by the I.A.C., of Income Tax Range‑III Companies‑II, Karachi, under section 66‑A, for the reason that the petitioner had not started production before 30th of June, 1995 and a revision petition was filed before the respondent No.3, who accepted the petition, cancelled the order of I.A.C., restored the original assessment order made by the predecessor of respondent No.4 holding that the order allowing exemption was neither erroneous, nor prejudicial to the interest of the revenue. The Inspecting' Additional Commissioner had not asserted in. the proceedings under section 66‑A that the Industrial undertaking of the petitioner company was not set up by cut off date i.e. 30th June, 1995. The assessment order of the predecessor of the respondent No.4 stood merged with the order of respondent No.4 and had lost its identity and had become the order of the Commissioner of Income‑tax in accordance with the merger theory.
5. Mr. Ather Saeed was required to substantiate his first contention that the information forming basis for the issuance of impugned notice was already available with the Assessing Officer when the original assessment order was made. Mr. Ather Saeed, stated that the details of information allegedly received subsequently have not been' supplied to the petitioner for the reason that it is confidential in nature, and therefore, the record may be called for to ascertain the fact. The learned counsel for the respondents Nos.2 to 5, was therefore, asked to produce the record, containing the relevant information. The record has been produced for our perusal. We have found that‑ in the letter, dated 8th of March, 2000, addressed by the Assistant Director, Directorate of Inspection, Internal Audit Customs, Central Excise and Sales Tax, Regional Office, Karachi, addressed to respondent No.5, it is stated that at the time of his visit for the verification of installation, the factory was not in operation and no production was undergoing. The unit was not complete or capable of producing anything. Mr.‑ Ather Saeed was disclosed the information forming basis for initiation of 'reopening of the assessment and he submitted that the information was not correct. He was asked to show evidence to the effect that ‑on the cut off date the Industrial undertaking was set up, meaning thereby that it was ready for production. He was further asked to show that electric connection was available before cut off date, and the material in this behalf was produced before Assessing Officer at the time of original assessment. Mr. Ather Saeed stated that at the time of original assessment installation Certificate issued by Assistant Collector of Customs Gaddani to the effect that .the plant and machinery has been installed was produced, which fact is stated in the assessment order. He has further submitted that the assessment order show that other documentary evidence regarding the establishment and set up of the industrial undertaking was also produced and placed on record, on perusal whereof, the Assessing Officer had held that the evidence produced before him conclusively proves that the assessee has set‑up the industrial undertaking before June 30, 1995. However, he was not able to show as to what other documents were produced before Assessing Officer to establish the setting up of the industrial undertaking. He has submitted that the petitioner can produce evidence to show that power connection was available and that the industrial undertaking was capable of commencing the production. However, he is not able to show that any material/evidence in this behalf was available with the Assessing Officer at the time of original assessment.
6. So far the second contention that no definite information has been received after completion of assessment, Mr. Ather " is not able to show at this stage that the information received from the Assistant Director, Directorate of Inspection and Internal Audit Customs, Central Excise and Sales Tax Regional Office, Karachi, is not definite or that it was already available at the time of original assessment. Assistant Director has specifically stated in the letter, dated 8th of March, 2000 that "the unit was not complete or capable of producing anything at the time of his visit for the verification of installation and the Certificate of installation was issued for the purpose of releasing of Indemnity Bond and for no other purpose".
7. The next contention that the information given by the Assistant Director Customs, Central Excise and Sales Tax is a result of bureaucratic pressure is a matter of evidence and we would not like to make any observation in this regard at this stage, because it may prejudice the case of any party in the proceedings already pending with respondent No.4. As regards the contention that information has been gathered as a result of witch hunting and fishing and roving inquiry, no material has been placed before us in support of the contention.
8. The contention that the original assessment order has merged in the order of I.A.C., with the passage of order under section 66‑A and ultimately in the order of the Commissioner Income‑tax, the respondent No.3 by virtue of order under section 138 is not tenable on the face of it. The petitioner has himself stated in the Memo. of Petition that the I.A.C. who made order under section 66‑A, nowhere asserted that the Industrial undertaking of the petitioner company was not Set up and his contention was that since commercial production was not started before 30th of June, 1995, the undertaking would not be deemed to be Set up. In revision petition under section 138 of the Income Tax Ordinance, the Commissioner (Respondent No.3) confined his consideration to the said point only and he had no occasion to consider whether the Industrial undertaking was actually set‑up or not. A perusal of the order under section 66‑A by the I.A.C., dated February 8, 1999 and the order by the Commissioner Income‑tax (Revision) Companies Zone‑II, Karachi under section 138(I) of the Income Tax Ordinance, Annexure "I" with the Memo of Petition shows, that the sole point for consideration by the two officers was whether it was a requirement of clause. (118‑C) of Part‑I of Schedule II, to the Income Tax Ordinance, 1979 that an Industrial undertaking should actually start production activities before the cut off date. The I.A.C was of the view that it was the requirement of law, while the learned CIT was of the opinion that the actual production was not necessary for availing exemption and the only requirement was that the undertaking is ready to go into production. Both the officers had no 0occasion to make any inquiry if the industrial undertaking was actually set up or not. Thus, the contention of Mr. Ather Saeed that the assessment order on the point of setting up of industrial undertaking stood merged with the order of Commissioner Income Tax under section 138 has no substance.
9. On the other hand Mr. Aqeel Ahmed Abbasi, learned counsel for the respondents Nos.2 to 5 has submitted that the notices under section 65 have been issued on the basis of information which was not available with the Assessing Officer at the time of original assessment order, and therefore, the principle of the change of opinion is not attracted. He has further contended that the information received by the departmental officer from Assistant Director Customs Central Excise and Sales Tax is. a definite information because it is a result of personal visit of the said officer and all the contentions raised by the petitioner require factual probe and inquiry which cannot be undertaken in summary proceedings in a writ jurisdiction under Article 199 of the Constitution of the Islamic Republic of Pakistan. In support of his contention that the petition is not maintainable and that issuance of notice under section 65 of the Income Tax Ordinance, is within the jurisdiction and competence of the respondent No.4, he ‑has placed reliance on the following judgments:
(1) M/s. Burhan Engineering Co. Ltd. v. The Income Tax Officer, Companies‑Circle II, Karachi 1985 PTD 465 (Karachi).
(2) Shagufta Begum v. The Income Tax Officer, Circle XI, Zone "B, Lahore PLD 1989 SC 360.
(3) Benedict F.D Souza v. Karachi Building Control Authority 1939 SCMR 918.
(4) Messrs Pak Arab Fertilizers (Pvt.) Ltd. v. Deputy Commissioner Income Tax 2000 PTD 263 (Lahore).
(5) Data Distribution Services v. Deputy Commissioner of Income Tax and another 2000 PTO 2427.
10. In the case of Burhan Engineering (supra) it was contended before a Division Bench of this Court that the revenue had no material on the basis of which they could have reason to believe that the petitioner had for any year concealed the particulars of his income or deliberately furnished inaccurate particulars thereof or omitted or failed to disclose all material facts necessary for the assessment, for such year, and therefore, the impugned notices under section 34 of the Income‑tax Act, 1922 and the proceedings commenced in pursuance thereof were without jurisdiction. Section 34 of the repealed Income‑tax Act, 1922 was equivalent to section 65 of the Income Tax Ordinance, 1979.
On behalf of the revenue it was submitted that by virtue of section 125 of the Evidence Act, the revenue was not obliged to convey the information to the petitioner as to the material on the basis of which the notice under section 34 of the repealed Act was issued, at the stage of issuance of notice and that there was sufficient material before the revenue to justify to have reason to believe that certain income has escaped assessment.
A large number of judgments from Pakistan and Indian jurisdiction were cited at the bar and after a resume of the cited judgments the following principles of law were deduced:
(i) That by the use of the words "reason to believe" in section 34(1‑A) of the Act, the Legislature intended that the belief must be based upon reasonable grounds and not on mere suspicion, gossip and rumour.
(ii) That the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income‑tax Officer but the reason must be held in good faith and cannot be a mere pretence.
(iii) That it is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose.
(iv) That before an Income‑tax Officer issues a statutory notice under section 34(1‑A) he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income‑tax have
escaped assessment during those years.
(v) That the notice of the Income‑tax Officer under section 34(1‑A) would be without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief required by the section.
(vi) That before issuing a notice under section 34 it is not necessary to hold a quasi‑judicial enquiry but there should be material before the Income‑tax Officer on the basis of which an honest and reasonable officer can form the opinion that there has been escapement of assessment.
(vii) That once it is shown to the Court that there exists reasonable ground for the income‑tax Officer to form the belief that there has been escapement of the income from the levy of tax, that would be sufficient to clothe him with jurisdiction to issue notice and the Court would not go into the question whether the grounds are sufficient or not nor it would go into the question of sufficiency of the reasons for the belief.
(viii) That a notice under section 34 of the Act need not contain the reasons or the material on the basis of which the Income‑tax Officer formed the opinion that there is ~a reason to believe that the income, profits or gains chargeable to income have escaped assessment during the relevant years.
(ix) That an assessee against whom a notice under section 34 of the Act is issued is not entitled in law at the stage of investigation to see the material on the basis of which the notice was issued or belief was formed but once the Income‑tax Officer decides to act upon certain material for re‑opening the assessment, the assessee is entitled to be confronted with the material to be used against him and is also A entitled to an opportunity to explain and to place material in rebuttal to the above material to be used against him by the Income‑tax Officer.
(x) That in a. case falling within the ambit of the second part of the proviso to subsection (1) of section 34 of the Act, the Income‑tax Officer cannot initiate proceedings under the above subsection capriciously and without any reason as the proviso is itself sub ordinate to that above main subsection.
(xi) That since section 34 is not the charging section but deals merely with the machinery of assessment, that construction should be preferred which makes the machinery workable (ut res valeat potius quam pereat).
The learned Division Bench .of this Court had directed the revenue to produce the material on the basis of which the impugned notice was issued. The material was placed before the Court and after perusal thereof it was observed that "this revenue had received information that there has been escapement of assessment on account of non‑disclosure on the part of petitioner of certain incomes particularly in respect of the transactions referred to in the document containing the information." Ultimately it was held that the petition had no merit and the same was dismissed.
12. In Shagufta Begum's case (ibid) Leave to Appeal was refused by the Hon'ble Supreme Court against the dismissal of Writ Petition by the Lahore High Court. In the Writ Petition before the Lahore High Court a notice issued by the Income Tax Officer under section 65 was assailed. The Hon'ble Supreme Court held that "although a person can come directly to the High Court in a case where a Tribunal lacks jurisdiction which .is discoverable on the face of record but it was in the interest of litigants themselves to avail the remedy with the departmental authorities." It was observed as follows:
"Accordingly we consider that it is a fit case in which the petitioner would be well‑advised if he raises the Pleas sought to be advanced before this Court; in are forum in the first instance and also to pursue the normal channels of appeal/revision/reference to the higher departmental forums."
13. In the case of Benedict F.D. Souza (supra) the Hon'ble Supreme Court held that "where factual controversies sere involved in case, Constitutional petition in High Court was not proper remedy. Such controversies could not be solved without full‑fledged trial and the High Court approach in its discretionary writ jurisdiction to decline relief to petitioner, was unexceptionable".
14. In the last two cases the Lahore High Court dismissed Writ Petitions for the reason that factual controversies were involved which could not be decided in a Constitutional petition.
15. In addition to the judgments cited above there are large number of cases in which the question of maintainability of Writ Petition under Article 199 of the Constitution came for consideration with particular reference to the issuance of notice under section 65 of the Income Tax Ordinance. In the case of M/s. Wali Traders v. Income‑tax Officer, Circle XVIII, (1988 PTD 206). It has been held as follows:
"It is a well‑settled principle of law that the High Court will not lightly deprive the hierarchy of Tribunals, their jurisdiction, under the relevant special Statute, unless it is shown that the impugned action is patently without jurisdiction or is coram non judice or mala fide and that it will be a futile exercise if the case is allowed to be proceeded with before the Tribunal concerned and will expose a party to unnecessary harassment‑‑‑‑‑. We are inclined to hold that it is not a case in which the. impugned notice is patently without jurisdiction nor it is a case of coram non judice or mala fide warranting the attraction of the Constitutional jurisdiction. The petitioner may contest the notice before the Income‑tax Officer, then before the Appellate Assistant Commissioner in case the Income‑tax Officer decides against him and then before the Income‑tax Appellate Tribunal and thereafter, in an Income‑tax Reference, before the High Court. The petitioner has the above remedies available under the law which cannot be allowed to be by passed at this stage."
A similar question came for consideration before another Division Bench of this Court, in the case of M/s. Shadman International (Pvt.) Ltd. v. Income tax Officer 1991 PTD 387. The relevant facts were that in the first instance assessment was finalised under the Self‑Assessment Scheme under section 59 of the Income Tax Ordinance, 1979 but the same was re‑opened under section 65. Assessee furnished all details and explanations and after examination of the case the matter was compromised and an agreement was reached in pursuance whereof agreed assessment was made. Subsequently the Assessee/Petitioner was served with a show‑cause notice stating that information was received from the office of Inspecting Assistant Commissioner of Income‑tax (Survey and Collation) which revealed that the total income was under assessed. The petitioner was informed that Plot No.158/S Block 2 P.E.C.H.S., Karachi admeasuring 1000 Sq.yds. purchased by the petitioner on 5‑12‑1984 for a reported value of Rs.8,35,000 was a gross understatement. The market value of the plot, at the relevant time was much higher. It was further informed that according to the information available the Plot No.158/R Block 2, P.E.C.H.S., Karachi, admeasuring 1000 Sq. yards. adjacent to the plot of the petitioner was purchased by N.D.F.C. on 3‑l I‑1983 for Rs.59,00,000. Both the plots were situated on Main Tariq Road and were exactly comparable. Show‑cause notice was followed by notice under section 65 of the Income Tax Ordinance and thereafter a notice under section 61 of the Income Tax Ordinance was issued.
The petitioner being aggrieved with .the issuance of notice under section 65 filed, Constitution petition in this Court. It was contended on behalf of petitioner that a notice under section 65 could be issued on the availability of definite information with Income Tax Officer after the passing of first order. It was pleaded that no fresh information was brought to the notice of Income Tax Officer and the. fact mentioned in the show‑cause notice, was only an opinion of Survey and Collation being of the Income Tax Department and even if it was information, it related to the sale price of another property and therefore, the notice under section 65 was without jurisdiction. Reliance was placed on the following reported judgments:
(i) Edulji Dinshaw Limited v. Income-tax Officer PLD 1990 SC 399,
(ii) Arafat Woollen Mills Ld. v. Income‑tax Officer 1990 SCMR 697,
(iii) Jeson International (Pvt.) Ltd. v. Income‑tax Officer 1989 PTD 1141,
(iv) Republic Motors Ltd. v. Income‑tax Officer (1990) PTD 889,
(v) Car Tunes v. Income‑tax Officer PLD 1989 Kar. 337 = 1989 PTD 474 and
(vi) Income‑tax Officer v. Panama Private Ltd. (1974) 97 ITR 210.
On behalf of Revenue it was submitted that it was not a case of lack of jurisdiction, and therefore, no case was made out for interference under the Constitutional jurisdiction. The Revenue relied upon the following cases:
(a) Wali Traders v. Income‑tax Officer, 1988 PTD 206,
(b) Zafar Usman v. Income‑tax Officer, 1989 PTD 547, and
(c) Hafiz Muhammad Arif Dar v. Income‑tax Officer, PLD 1989 SC 109 = 1989 PTD 485.
16. The Division Bench of this Court referred to the ratio laid down by the Hon'ble Supreme Court, in the case of Edulji Dinshaw Limited PLD 1990 SC 399, wherein it has been held that, "once all the facts have been fully disclosed by the assessee and considered by the Income‑tax Authorities and the assessment has been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under assessed." However, after examination of the relevant facts it was held as follows:
"The plots are adjacent to each other and face Tariq Road Karachi. Suffice to observe that the aforesaid report, dated 29‑4‑1987 gives fresh/new/factual information and on the basis of this information collected/received after the previous assessment, the Income‑tax Officer was entitled to issue another show‑cause notice under section 65 of the Ordinance. It is not a case where the Income‑tax Officer lacked jurisdiction to issue a notice under section 65."
Reliance was placed on the earlier judgment of this Court in the case of Wali Traders v. Income Tax Officer 1988 PTD 206 and the Constitution petition was dismissed. .
17. In a recent case the Supreme Court of India has also considered the issue of the re‑opening of assessment (Income Tax Officer v. Purushottam Das Bangur) 1997 PTD 1969. The relevant facts were that the re opening of assessment was assailed by assessee before the Rajasthan High Court and the petition was allowed. The notice issued under 147(b) of the Indian Income Tax Act, 1961 (corresponding to section 65 of the Pakistan Income Tax Ordinance, 1979) was quashed. The appeal was preferred before the Supreme Court of India by the Revenue. The relevant facts were that during the 'accounting year relevant to the assessment year under consideration, the assessee claimed that he had suffered long term capital loss on sale of shares of Maharaja Shree Umaid Mills Ltd. The price quoted in the official report and quotation of the Calcutta Stock Exchange Association were produced. The claim of the loss allegedly incurred by the assessee was accepted by the Income‑tax Officer, Jodhpur, and the same was affirmed in appeal by the Appellate Assistant Commissioner. Subsequently Income‑tax Officer received a letter from Deputy Director, Directorate of Inspection (Investigation), Special Cell, New Delhi, wherein it was stated that information obtained from the Bombay Stock Exchange Directory, the book value per equity share of Maharaja Shree Umaid Mills Ltd. rose from Rs.318.55 for the year ending December 31, 1965, to Rs.401 for the year ending December 31, 1970, and the earning per share rose from Rs.8.37 per share to Rs.44 per share during the abovementioned period arid that the dividend percentage alsorose from 2 per cent to 10 per cent for the same period, but the quotations of the shares on, the Calcutta Stock Exchange fell from Rs.168 to Rs.85 per share during this period. It was stated in the letter that it was clear from these facts that the quotations appearing are as a result of certain manipulated transactions between the group and it cannot be said to reflect the fair market value of the company. Alongwith the said letter the information which was gathered by Deputy Director, Directorate of Inspection was annexed, which was based on the Bombay Stock Exchange Directory and other information. On the basis of said letter the notice under section 147(b) of the Indian Income Tax Act, 1961 was issued and the assessee was informed that the Income‑tax Officer had reason to believe that the assessee's income chargeable to tax for the assessment year 1969‑70 had escaped assessment. The Rajasthan High Court held that in the facts and circumstances of the case; it could not be said that the Income‑tax Officer had, in his possession, information in consequence of which he could have reason to believe that income chargeable, to tax had escaped assessment for the relevant assessment years.
The Supreme Court of India observed, that the requirement for taking action under section 147(b) was that; (i) the Income‑tax Officer has received information, and (ii) in consequence of such information he has reason to believe that income chargeable to tax has escaped assessment for any assessment year. The Supreme Court of India further observed that the question was whether in the said case after the completion of original assessment, the Income‑tax Officer had received information on the basis of which he could have reason to believe that the income chargeable to tax had escaped assessment. It was stated by assessing authority who issued notice, in his counter‑affidavit, in reply to the Writ Petition, that during the assessment proceedings it was represented to him on behalf of the assessee that the shares of Maharaja Shree Umaid Mills Ltd. were regularly quoted on the Stock Exchange and that the sale was effected by the assessee at the prevalent market rate. A share quotation list was also shown to him and, in these circumstances, he accepted the version given by the assessee without making any further inquiry regarding the market rates of the shares, as, at that time, there was no material before him to suspect that the fair market value of the shares was higher than the sale price given out, by the assessee. He further stated , that subsequently he received a letter from Deputy Director, Directorate of Inspection (Investigation), Special Cell, New Delhi, alongwith some Annexures and also a telegram from Calcutta giving certain information regarding the shares of Maharaja Shree Umaid Mills Ltd., which had been collected by the said Director. The Assessing Officer stated that in consequence of the aforesaid information he formed the reasonable belief that the fair market value of the shares was far more than the sale price and the so‑called market quotations shown by the assessee at the time of the original assessment were manipulated ones, as a result ‑ of which the income chargeable to tax had escaped assessment.
The Supreme Court of India observed that the High Court has proceeded on the basis that the letter of Deputy Director did not contain any information and that there was neither evidence of manipulation nor evidence of collusive transactions. referred to in the letter and that no inquiries were made by the Income‑tax Officer after the receipt of the letter so as to constitute information. It was held by the learned Judges of the Supreme Court of India that they were unable to agree with the said view of the High Court. It was further held, that the letter contained statement about financial information in respect of Maharaja Shree Umaid Mills Ltd., which was derived from the Bombay Stock Exchange .Directory indicating that during this period the company has prospered. It was opined by the Supreme Court of India that on .the basis of information contained in the letter of Deputy Director and the documents annexed to it, the Income‑tax Officer could have had reason to believe that the fair market value of the shares was far more than the sale price and the market quotations from the Calcutta Stock Association shown by the assessee at the time of original assessment were manipulated ones and as a result income chargeable to tax had escaped assessment. It was further held that it could not be said that the information that was contained in the letter of Deputy Director was not definite information and it could not be acted upon by the Income‑tax Officer for taking action under section 147(b) of the Act. It was also held that on the basis of the facts contained in the .letter and the information contained therein the Income‑tax Officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. Appeal was allowed, and the impugned judgment of the High Court was set aside and the writ petition was dismissed.
18. Now coming to the facts of the present case we find that the Assessing Officer, predecessor of the respondent No.4, accepted the plea of petitioner at the time of original assessment that the Industrial undertaking E was set up and was ready for commercial production on the basis of Certificate issued by Assistant Collector of Customs, Gaddani which was to the effect that the plant and machinery have been installed. Subsequently the information was received from the Assistant Director, Directorate .of Inspection, Internal Audit Customs, Central Excise and Sales Tax Regional Office, Karachi, that the unit was not complete' or capable of producing anything on the cut off date. Thus, the information forming basis for issuance of notice under section 65 was not available at the time of original assessment and in reply to the show‑cause notice issued by the respondent. No.4, the petitioner could not furnish any material/evidence to establish that the information received was incorrect and that the Industrial undertaking was setup. No evidence was produced that electric connection was available to the Industrial undertaking from which it, could be inferred that the Industrial undertaking was ready for going into the‑commercial production. In these circumstances the respondent No.4 had information on the basis of which he had reason to believe that the exemption was wrongly allowed resulting in the escapement of assessment. The pleas raised by the petitioner in support of the contention that the initiation of proceedings under section 65 were mala fide or Industrial undertaking was actually Set up, are the pure questions of fact which cannot be resolved in a Writ Petition.
19. For the foregoing reasons, it is held that the petitioner has failed to show that the respondent issued, notice under section 65 without jurisdiction. We therefore cannot allow the petitioner to bypass the normal remedies available to him under the Income Tax Ordinance. ‑As other remedies are available to the petitioner under the Income Tax Ordinance and the issues raised are questions of fact which require probe at the original stage therefore, it is held that the writ petition is not maintainable. However, before parting with this order we would like to observe that notwithstanding the dismissal of petition and observations made in this order, the petitioners shall be entitled to raise all the questions of fact and law before Assessing Officer and the Assessing Officer is directed to consider all the objections raised by the petitioners including the question pertaining to the exercise of jurisdiction under section 65 of the Income Tax Ordinance. The observations made in this order shall have no bearing on the proceedings before the respondent No.4 and the respondent No.4 is directed to exercise independent jurisdiction and apply his mind to all the issues of facts and law raised by the petitioner before him without being influenced with any of the observations made in this order.
20. The petition stands dismissed in limine with no order as to costs.
M.B‑A.IM‑132/KPetition dismissed