NATIONAL BEVERAGES (PVT.) LTD. VS FEDERATION OF PAKISTAN
2001 P T D 633
[Karachi High Court]
Before Saiyed Saeed Ashhad and Abdul Ghani Shaikh, JJ
Messrs NATIONAL BEVERAGES (PVT.) LTD.
versus
FEDERATION OF PAKISTAN and others
Constitutional Petition No. D‑1813 of 1998, decided on 31/12/1999.
(a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.65‑‑‑Definite information‑‑‑Re‑opening of assessment‑‑‑Scope‑‑‑Change of opinion of Income Tax Officer‑‑‑Where assessee had disclosed all the material facts without concealment and the assessment had been consciously completed by the Income Tax Officer, in absence of discovery of any new fact, which could be treated as "definite information", there could not be any scope for re‑opening of the assessment under S.65 of the Income tax Ordinance, 1979, on the grounds referred to in S.65(1)(a)(b) of the Ordinance‑‑‑Neither any change of opinion on the basis of same material by Income Tax Officer would warrant pressing into service the provisions of S.65(1) of Income Tax Ordinance, 1979, nor circular from Board of Revenue would authorise the Income Tax Officer to reopen the assessment.
Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad PLD 1990 SCMR 1232 rel.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.65‑‑‑Expression "definite information"‑‑‑Connotation‑‑‑Scope‑‑‑Every information cannot be treated as basis for re‑opening of the assessment but the information should be of the nature which should qualify as "definite information"‑‑‑As such the expression cannot be given a universal meaning but the same has to be construed in given facts of each case.
Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others PLD 1997 SC 700 rel.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.65‑‑‑Re‑opening of assessment‑‑‑Scope‑‑‑Re‑opening of assessment when not permissible‑‑‑Requirement of law is that Income Tax Authorities should apply their mind consciously to the facts of the case as appearing on record‑‑‑Once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and assessment has been consciously completed and no new fact has been discovered there can be no scope for interference with such concluded transactions under S.65 of Income Tax Ordinance, 1979 on the ground that the income chargeable to tax has escaped assessment or has been under assessed within the meaning of S.65(1)(a)(b) of Income Tax Ordinance, 1979.
Messrs Pakistan. Tobacco Co. Ltd. v. Government of Pakistan through Secretary, Ministry of Finance and 3 others 1993 SCMR 493 rel.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 65‑‑‑Constitution of Pakistan (.1973), Art. 199‑‑‑Constitutional petition‑‑‑Income‑tax assessment, reopening of ‑‑‑Scope‑‑‑Prerequisites‑‑Production of all documents before Income Tax Authorities‑‑Discovery of new facts by Income Tax Authorities‑‑‑Petitioners failed to produce any evidence to prove the alleged huge expenditure in making additions in the plant and acquiring new assets‑‑‑Income Tax Authorities, received complaint against the petitioners to the effect that the declared purchase of new assets/additions to the assets was bogus with the motive to reduce taxable gains‑‑‑On the basis of such complaint assessment was reopened‑‑‑Contention raised by the petitioners was that all the relevant documents were produced before the Income Tax Authorities and the assessment was made after considering those documents‑‑‑Validity‑‑‑Production of all necessary evidence and documents to prove the alleged expenditure, would not be a ground which would bar action under S. 65 of Income Tax Ordinance, 1979‑‑‑Where the Assessing Officer had adverted to the issue and had given a finding thereon without referring to the evidence and documents produced by the petitioners, the action under S.65 of Income Tax Ordinance, 1979, would be barred‑‑‑In the present case there was allegation of mala fides and the matter had to be inquired into and investigated thoroughly and the same could be undertaken by Assessing Officer only after reopening of assessment finalized earlier‑‑‑Earlier assessment had not been completed consciously and definite information regarding income chargeable to tax had escaped assessment, therefore, issuance of notice under S.65 of Income Tax Ordinance, 1979, for reopening of the assessment finalized earlier were neither without authority or jurisdiction nor 'the result of illegal exercise of jurisdiction of power by Income Tax Authorities‑‑‑High Court refused to take any exception to the issuance of the notice under S.65 of Income Tax Ordinance, 1979‑‑‑Petition was dismissed in circumstances.
Messrs Central Insurance Co and others v. The Central Board of Revenue, Islamabad and others 1993 SCMR 1232 distinguished.
Edulji Dinshaw Limited v. Income Tax Officer PLD 1990 SC 399; Arafat Woollen Mills Ltd. v. The Income Tax Officer and others 1990 PTD 338; Saghir Hussain Naqvi v. Province of Sindh 1996 SCMR 1165; Ch. Muhammad Ismail v. Fazal Zada, Civil Judge, Lahore and 20 others PLD 1996 SC 246; Mian Ejaz Shafi v. Syed Ali Ashraf Shah and 12 others PLD 1994 SC 867; Muhammad Iftikhar Mohmand v. Javed Muhammad and 3 others 1990 SCMR 328; Fateh Ali v. Province of Balochistan through Secretary, Health and others 1997 SCMR 1687; Collector of Customs, Lahore and others v. S.M. Ahmed & Co. (Pvt.) Limited 1999 SCMR 469; Messrs Airport Support Services v. The Import. Manager, Quaid‑e‑Azam International Airport, Karachi arid others 1998 SCMR 2268; Messrs H.M. Abdullah v. The Income Tax Officer, Circle V, Karachi and 2 others 1993 SCMR 1195 and Inspecting Assistant Commissioner and another v. Pakistan Herald Limited 1997 PTD 1485 ref.
(e) Income Tax Ordinance (XXXI of 1979)‑‑
‑‑‑‑S.65‑‑‑Reopening of income tax assessment‑‑‑Such reopening on the direction of officer other than Inspecting Assistant Commissioner of Income Tax‑‑‑Validity‑‑‑Directions for the reopening of assessment can be issued by any other officer but it is the question of application of mind and satisfaction of Income Tax Officer himself regarding the presence of "definite information" and reasons to believe that the income has escaped assessment, which is required in law.
Sirajul Haq Memon for Petitioner.
Muhammad Farid for Respondent.
Date of hearing: 24th November, 1999
ORDER
SAIYED SAEED ASHHAD, J.‑‑‑This Constitutional Petition has been filed by the petitioners, which is a private limited company having its registered office at the address given in the title of the petition. The petitioners were engaged in the business of bottling Fanta, Sprite and Coca Cola in its factory after getting required permission and licence from the Central Excise Department and other Government agencies. On account of change in the global policy for investment, M/s. Coca Cola Export Corporation of USA desired to take bottling units of its products all over the world either directly or through its associate companies, as a result of which the petitioners entered into an agreement of sale with M/s. Coca Cola Corporation for sale of the entire factory, including land, building, plant and machineries, to an assignee subsidiary company namely, M/s. Coca Cola Beverages Pakistan (Pvt.) Ltd. A precondition to the sale/transfer of the unit/factory was that the petitioners would carry out repairs and renovation in the building, plant and machineries by updating the entire manufacturing complex and adding. machineries and plant where-ever required and in pursuance thereof, the petitioners made necessary repairs and renovations of the building and also made additions in the plant, machineries and other equipment at a heavy cost, where after M/s Iqbal Nanji and Company, assessors, surveyors and valuation consultants, were appointed to fix the value of the assets for determining the sale consideration. Return of income for the assessment year 1996‑97 was filed by the petitioners declaring total income of Rs.30,285,656. In the said return of income, the petitioners duly declared the gain of sale of assets to M/s. Coca Cola Beverages (Pvt.) Ltd., including gain of the new additions in building, plant, machineries and equipment. Respondent No.4 issued a notice under section 62 of the Income Tax Ordinance, 1979, dated 19‑1‑1997, calling upon the petitioners to submit various details and information including the details and documents in respect of all the assets and the additions made in the plant and the petitioners vide its letter, dated 26‑1‑1997 through its Chartered Accountant M/s. Yousaf Adil Saleem & Company submitted the details of the documentary evidence in support of the queries made by respondent No.4, who by his fresh notice under section 62 of the Income Tax Ordinance, 1979, dated 28‑1‑1997 called upon the petitioners to submit further details and documentary evidence regarding the sale of the assets and the gain thereon.' All the information and details asked for were submitted by the petitioners vide their letters, dated 16‑2‑1997 and 8‑3‑1997 including the details in respect of additions in assets. The case of the petitioners was finally heard by respondent No.4 on 8‑3‑1997 with the Inspecting Additional Commissioner of Income‑tax, Range‑02, Companies‑II, Karachi (respondent No.3) was also present and entire information, evidence and documents were scrutinized and cross‑checked from the financial accounts including the Cash Book, Ledger, Production Register and other record produced by the petitioners before respondent No.4, resulting in framing of assessment on 16‑3‑1997 with the approval of the afore‑stated Inspecting Additional Commissioner of Income‑tax, respondent No.3. The petitioners further submitted that after a lapse of more than one year, respondent No.2 vide his letter, dated 25‑8‑1998, called for information under section 144 of the Income Tax Ordinance, 1979 in respect of the additions made in the fixed assets alongwith documentary evidence such as Invoices. Bills of Entry etc. to substantiate the additions, for which the petitioners requested for time through their Tax Consultants though the said letter was absolutely without jurisdiction. Respondent No.2 was told by letter, dated 16‑9‑1998 that all the requisite information was supplied to respondent No.4 and he was requested to obtain the same from him, which was replied to by respondent No.2 vide his letter, dated 7‑10‑1998 stating that the documentary evidence had neither been requisitioned by the Assessing Officer nor they were filed during the assessment proceedings reiterating the requirement for furnishing evidence on or before 12‑10‑1998. The petitioners by their letter, dated 12‑10‑1998 pointed out that the petitioners had duly submitted the information vide their letters, dated 16‑2‑1997 and 8‑3‑1997 and further that these notices were duly incorporated in the assessment year and on such letters being written; the petitioners presumed that the explanation would be accepted and the matter would be closed, but the petitioners received a notice under section 65 of the Income Tax Ordinance, 1979 reopening the assessment for the year 1996‑97, which was finalized vide order, dated 16‑3‑1997 on the ground that income had assessment. The petitioners submitted that as assessment was made under section 62 of the Income Ordinance, 1979 after detailed scrutiny, consciously and deliberately by respondent No.4 after taking into consideration all the material and documents produced by the petitioners, respondent No.4 had no authority to reopen the case under section 65 of the Income Tax Ordinance, 1979 without specifying any reason thereof. The petitioners asked respondent No.4 to let them know the reasons for issuance of notice under section 65 of the Income Tax Ordinance, 1979 but respondent No.4 instead of giving the reasons, stated that reasons for opening the assessment were not legally required to be conveyed but informed the Tax Consultant of the petitioners that the action had been taken on the directions of respondent No.2. The petitioners submitted that the action of respondent No.4 reopening the assessment was absolutely arbitrary, illegal and without jurisdiction inasmuch as assessment had been framed deliberately, consciously and after taking into consideration all the relevant material information and documents submitted by the petitioners and further that the same was set aside solely with a view to make an arbitrary assessment raising a heavy demand of tax. The petitioners further submitted that since the action of respondent No.4 was illegal, without jurisdiction and void ab initio, therefore; they were not required to avail all the remedies available to them under the Income Tax Ordinance and approached this Court in the exercise of its Constitutional jurisdiction.
Respondents Nos.3 and 4 filed their parawise comments wherein they stated that assessment for the year 1996‑97 was finalized under section 62 of the Income Tax Ordinance, 1979 at Rs.31,034,090 against declared income of Rs.30,285.656, but assessment was reopened under section 65 of the Income Tax Ordinance, 1979 on the basis of definite information that the purchase price of new assets/additions shown at Rs.130,259,813 was bogus with a view to reduce taxable gain. It was further submitted that from perusal of the record, it transpired that while finalizing the assessment, respondent No.4 did not inquire into the additions/purchase of assets during the year as no documentary evidence of purchase of assets was produced though examination of the record and the facts clearly indicated that bogus purchases were introduced by the assessee to reduce its taxable gain on the sale of assets, which resulted in income escaping assessment. On receipt of such information, permission was sought from respondent No.3 to proceed under section 65 of the Income Tax Ordinance, 1979 which was accorded. The respondents in their comments vehemently denied the supply of documents by the petitioners in support of purchase of assets, invoices, insurance receipts and delivery challan relating to the additions made to the extent of Rs.130,259,813 either at the time of submission of return or in pursuance of notices issued under section 62 of the Income Tax Ordinance, 1979. They also denied that the petitioners had submitted the documentary evidence of the additions in assets. It. was further submitted that the assessment's record was examined by respondent No. 2 but no documentary evidence regarding purchase of assets was found by him and respondent No.2 further observed that the specific documentary evidence had neither been requisitioned by the Assessing Officer nor was it filed by the petitioners during the assessment proceedings. They further submitted that for proceedings under section 65 of the Income Tax Ordinance, 1979, the Assessing Officer was not bound to give any reason for reopening the assessment finalized earlier though he was bound to confront the assessee with the information on the basis of which notice under section 65 of the Income Tax Ordinance, 1979 was issued before proceeding to finalize the assessment. It was denied that the action of respondent No.4 in issuing the notice under section 65 of the Income Tax Ordinance, 1979 reopening the assessment of the petitioners finalized on 16‑3‑1997 was illegal, without jurisdiction and arbitrary and submitted that the same was proper, valid and in exercise of the powers vesting in him and prayed that this Constitutional Petition be dismissed as it was filed solely with a view to delay and protract the finalization of the assessment proceedings against the petitioners.
The comments filed on behalf of respondents Nos.3 and 4 were attacked by the petitioners by way of affidavit‑in‑rejoinder filed by G.M. Farooq, Secretary of the petitioners company, wherein it was emphatically denied that the respondents obtained any definite information for reopening the assessment under section 65 of the Income Tax Ordinance, 1979 and reiterated that the respondents admitted that the action was taken on a mere complaint without verifying from the record of the case and the assessment order was passed by the. Assessing Officer. It was further stated that from perusal of the assessment order, it could be established beyond any doubt that the evidence was produced and taken on record which fact would also be confirmed by the order sheet, dated 8‑3‑1998. It was further submitted that in the letter, dated 8‑3‑1997, complete detail and explanation regarding the sale of assets and the gain on such sale was furnished. In the affidavit‑in -rejoinder, if was asserted that assessment on 16‑3‑1998 was framed after scrutiny of Books of Accounts under section 62 of the Income Tax Ordinance, 1979, which presupposes the scrutiny of evidence furnished. Notice under section 144 of the Income Tax Ordinance. 1979 was termed to be wholly without jurisdiction as respondent No.2 did not figure anywhere under section 144 of the Income Tax Ordinance, 1979 to exercise the powers under that section to call for any information. It was further submitted that as notice under section 144 of the Income Tax Ordinance, 1979 was without jurisdiction all actions, including issuance of notice under section 65 of the Income Tax Ordinance, 1979, on the basis of such notice were also illegal, without jurisdiction and all super structure built thereon was also illegal and without jurisdiction.
The petition was fixed on 24‑11‑1999 for Katcha Peshi when by consent of the learned counsel for the parties, it was agreed that the petition would be heard and disposed of finally on consideration of the merits on the petition, if need be after admitting it to regular hearing. Consequently, we heard M/s Sirajul Haque Memon and Muhammad Faird, the learned counsel for the petitioners and the respondents respectively.
Mr. Sirajtil Haque Memon vehemently attacked the order/notice of respondent No.4, dated 27‑10‑1998 reopening the assessment for the assessment year 1996‑97 finalized on 16‑3‑1997 on the following grounds:
(1) That the impugned' notice was issued on the direction of respondent No.2, who had assumed jurisdiction not vested in him to call for any information under section 144 of the Income Tax Ordinance, 1979 and as such notice under section 65 of the Income Tax Ordinance, 1979 was without jurisdiction and illegal;
(2) That no reason was assigned in the impugned notice for reopening of the assessment under section 65 of the Income Tax Ordinance, 1979 and the same was contrary to the provisions of section 24‑A of the General Clauses Act, 1897 and the law laid down by the Supreme Court in the case of the Messrs Airport Support Services v. The Airport Manager, Quaid‑e‑Azam International Airport, Karachi and others (1990 SCMR 2268);
(3) That subsection (1) of section 65 of the Income Tax Ordinance, 1979 authorizes an Income Tax Ordinance to reopen the assessment only if any income chargeable to tax has escaped assessment or if the total income of the assessee has been under assessed or assessed at too low a rate or has been subject to excessive relief of refund or if the total income has been assessed under section 59(1) or section 59‑A but respondent No.4 failed to establish the existence of any one of the aforesaid necessary and mandatory requirements to warrant reopening of the assessment;
(4) That the assessment had been reopened under clause (a) of section 65(1) of the Income Tax Ordinance, 1979 which cannot find support and, is rather contrary to the facts of the case inasmuch as income had been duly assessed under section 62 of the Income Tax Ordinance, 1979 and consequently the very basis that the income had escaped assessment would be non‑existing;
(5) That according to the requirement of subsection (2) of section 65 of the Income Tax Ordinance, 1979, no proceedings under subsection (1) of section 65 of the Income Tax Ordinance, 1979, could be initiated unless definite information had come in possession of the Income Tax Officer and he had obtained previous approval of the Inspecting Additional Commissioner of Income Tax in writing, however, respondent No.4 in the impugned notice, dated 27‑10‑1998 neither stated regarding coming into possession of any definite information nor mentioned the definite information ‑on the basis of which he proposed to reopen‑ the case;
(6) That making of an assessment order under section 62 read with section 61 of the Income Tax Ordinance, 1979 implies that the Assessing Officers had thoroughly examined and scrutinized all the Books of Accounts, Statement of Accounts, documents, record and evidence submitted by an assessee alongwith or in support of his return of income under section 61 as well as all necessary evidence subsequently called for under section 62 of the Income Tax Ordinance, 1979 and in finalizing the assessment had given due consideration to all the material, evidence and record and finalized the assessment knowingly and consciously and such assessment order could not be reopened on the ground that income had escaped assessment; and
(7) That the notice issued under section 65 of the Income Tax Ordinance, 1979 for reopening of the assessment was simply on the basis of a change of opinion and that a notice issued on the basis of a change of opinion was illegal."
Mr. Sirajul Haque Memon in support of his grounds of attack referred us to following cases:‑‑‑
(1) Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232);
(2) Edulji Dinshaw Limited v. Income Tax Officer (PLD 1990 SC 399); .
(3) Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan through Secretary Ministry of Finance and 3 others (1993 SCMR 493);
(4) Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others (nine other appeals) (PLD 1997 SC 700); and
Arafat Woolen Mills Ltd The Income Tax Officer and others (1990 PTD 338).
Mr. Muhammad Farid, the learned counsel .for the respondent, challenged the maintainability of this Constitutional petition on the ground that the same was premature and not liable to be considered. He contended that the Constitutional petition has been filed against the order/notice, dated 27‑10‑1998 ordering reopening of the assessment of the petitioners finalized earlier on the ground that income had escaped assessment. According to him, the proper course for the petitioners was to participate in the reassessment proceedings and to satisfy the Assessing Officer with regard to the correctness and credibility of the expenditure made on the purchase of assets for improving the plant, factory and machineries, which according to him was the main grievance of the department inasmuch as the Assessing Officer in finalizing the assessment did not take into consideration the aforesaid fact/issue and completely ignored the huge expenditure which was incurred by the petitioners in making improvements and additions to the plant, factory and machineries and which was not accounted for by the petitioners. According to Mr. Muhammad Farid, the petitioners would be at liberty to produce evidence/material to furnish correct, reliable and credible evidence to establish the expenditure incurred by it on the improvement of the plant and also to establish that the huge amount so incurred had been accounted for and was included in the declared income. He further submitted that if the order in re‑assessment proceedings was not favourable to the petitioners, they would have ample opportunity to challenge the same by way of First Appeal before the Commissioner of Income‑tax (Appeals) and even again by way of Second Appeal before the Income‑tax Appellate Tribunal in case favourable decision could not be obtained from the Commissioner of Income‑tax (Appeals). He placed reliance on the cases of; (i) Saghir Hussain Naqvi v. Province of Sindh (1996 SCMR 1165); (ii) Ch. Muhammad Ismail v. Fazal Zada, Civil Judge, Lahore and 20 others (PLD 1996 SC 246); (iii) Mian Ejaz Shafi v. Syed Ali Ashraf Shah and 12 others (PLD 1994 SC 867); and (iv) Muhammad Iftikhar Mohmand v. Javed Muhammad and 3 others (1998 SCMR 328). He further submitted that the fact/issue which needs to be resolved would require recording of evidence as it would not be possible to decide the same on the basis of the material/evidence on record and in a case requiring factual enquiry and recording of evidence, a Constitutional petition would not be maintainable placing reliance on the case of Fateh Ali v. Province of Balochistan through Secretary, Health and others (1997 SCMR 1687).
The arguments raised by Mr. Muhammad Farid with regard to the maintainability of this Constitutional petition were vehemently controverted by Mr Sirajul Haque Memon, who submitted that now it is an established principle that an order without jurisdiction, without lawful authority or illegal could be challenged by way of a Constitutional petition and the aggrieved party was not required to take recourse to the various proceedings made available before different forums provided by certain statute. In support of his above contention, he placed reliance on the following cases:‑‑‑
(1) Edulji Dinshaw Limited v. Income Tax Officer (PLD 1990 Supreme Court 399);
(2) Collector of Customs, Lahore and others v. S.M. Ahmed &. Co. (Pvt.,) Limited (1999 SCMR 469); and
(3) Messrs Airport Support Services v. The Import Manager, Quaid‑e -Azam International Airport, Karachi and others (1998 SCMR 2268).
The issue of maintainability, of this Constitutional petition shall be considered by us alongwith the question of reopening of the case under section 65 of the Ordinance and the meaning of the words or expression definite information and assessments have been consciously completed.
Mr. Muhammad Farid, learned counsel for the respondents, on the merits of the case, vehemently controverted the arguments of Mr. Sirajul Haque Memon and submitted that from examination of the material and the record, it was established that new facts had come to the knowledge of respondent No.4, which were not taken into consideration by the original Assessing Officer and on account of ignorance of such facts, income of the petitioners had escaped assessment. In this connection, he drew our attention to the contents of the comments and submitted that it has been specifically stated therein that the original Assessing Officer in finalizing the assessment did not make reference to any documents worth mentioning and further that no documents were taken on record of the case, which clearly negate the contention of the petitioners that assessment was finalized consciously, deliberately and with application of mind. He further submitted that the assessment framed was made in a mechanical and routine manner without making reference to the material, documents and evidence, which could be relied upon to support the said assessment and further that it was also in complete disregard and ignorance of material facts and circumstances. One such material fact, according to his, was the purchase of new assets and additions to the existing assets by the petitioners at a cost of Rs.130,259,813 during the assessment year in question and the respondents obtained depreciation allowance in accordance with the provisions of the IIIrd Schedule to the Income Tax Ordinance but subsequently an information was received by the Department that the declared purchases of new assets were bogus and was done with ulterior motive of reducing the taxable gain and to obtain illegally depreciation allowances. It was further submitted by him that the petitioners did not produce any evidence, either oral or documentary to prove the purchase of the assets but the Assessing Officer without any proof and evidence, accepted the version of the petitioners and allowed them benefit, which they were not legally entitled to claim. He further submitted that in the circumstances reopening of the assessment by respondent No.4 in consultation with respondent No.3 was in accordance with the provisions of section 65 of the Income Tax Ordinance, 1979 and no exception could be taken to the issuance of notice under section 65 of the Income Tax Ordinance, 1979, dated 27‑10‑1998. In support of his above contention, he placed reliance on the case of:‑‑
(1) E.F.U. General Insurance Co. Ltd. v. Federation of Pakistan (PLD 1997 SC 700);
(2) Messrs H.M. Abdullah v. The Income Tax Officer Circle V Karachi and 2 others (1993 SCMR 1195);
(3) Inspecting Assistant Commissioner and Another v. Pakistan Herald Limited (1997 PTD 1485); and
(4) Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan and others (1993 SCMR 493).
Mr. Muhammad Farid further submitted that in the present case, the proper course for the petitioners was to participate in the reassessment proceedings, where after they would have ample authority to challenge the assessment order if it was not to their satisfaction, before the Commissioner of Income‑tax (Appeal) and even if the order in the First Appeal was not to the satisfaction of the petitioners, the same could have been further assailed by way of a Second Appeal before the Income Tax Appellate Tribunal, where after the petitioners could have approached this Court under section 136 of the Income Tax Ordinance, 1979 by way of an appeal. He further submitted that in view of the above observations made by the Hon'ble Supreme Court in the case of Messrs H.M. Abdullah v. The Income‑tax Officer Circle V Karachi and 2 others (1993 SCMR 1195), this Constitutional petition was incompetent requiring out rightly dismissal.
We have given our due consideration to the arguments advanced by the learned counsel for the parties and have gone through the material on record as well as the case law relied upon by the learned counsel for the parties in support of their respective arguments. From the case law relied upon by the learned counsel, it stands established beyond any doubt that in ordering reopening of the assessment under section 65 of the Income Tax Ordinance, 1979 on the ground that income had escaped assessment, the Department has got to establish that it had come into possession of definite information which was not available or concealed by the assessee during the original assessment proceedings. It also to be established that the assessment was finalized deliberately, consciously and by application of mind after taking into consideration all the requisite evidence and material available. In order to resolve the controversy in dispute, it would be necessary to have a clear understanding and meaning of the terms/expressions definite information and assessment had been consciously completed as then only it would be possible to conclude whether the assessment in present case was finalized deliberately and consciously and whether the information on the basis of which the impugned notice under section 65 of the Ordinance was issued was based on a "definite information" or merely on a change of opinion. Accordingly, we will now proceed to examine the meaning of the aforesaid two expressions as per pronouncements made by the Hon'ble Supreme Court in the cases which have been relied upon by the learned counsel for the parties in support of their respective arguments.
In the case of Messrs Central Insurance Co. and others .v. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232), it has been specifically laid down by the Supreme Court that once an assessee disclosed all the material facts without concealment and the assessment had been consciously completed by the Income‑tax Officer, in such a case in the absence of discovery of any new fact, which can be treated as "definite information", there could not be any scope for reopening of the assessment under section 65 on the grounds referred to in section 65(1)(a)(b) of the Income Tax Ordinance, 1979. It was further observed that any change of opinion on the basis of the same material by the Income‑tax Officer would not warrant pressing into service section 65(1) and further that the circular from Board of Revenue would also not authorize an Income‑tax Officer to reopen the assessment. The Hon'ble Supreme Court proceeded to define the expression "definite information" as under:‑‑‑
"The expression 'definite information' will include factual information as well as information about the existence of a binding judgment of a competent Court of law/forum for the purposes of section 65 of the Ordinance, but any interpretation of a provision of law by a functionary which has not been entrusted with the functions to interpret such provision judicially, cannot be treated as 'definite information'. "
In the case of Edulji Dinshaw Limited v. Income‑tax Officer (PLD 1990 SC 399), the Hon'ble Supreme Court was pleased to hold as under:‑‑‑
"Once all the facts have been fully disclosed by the assessee and considered by the Income‑tax Authorities and the assessments have been consciously completed, and no new fact having been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under‑assessed etc. in the meaning of clause (a) or (b) of subsection (1) of section 65 of the Ordinance was not attracted at all so as to call for the issuance of the notices against the company, not to speak of passing the assessment orders."
Similar observations were made by the Hon'ble Supreme Court in the case of Messrs Pakistan Tobacco Co. Ltd. v. Government of Pakistan through Secretary Ministry of Finance and 3 others (1993 SCMR 493).
The scope of powers of the Income‑tax Officer to reopen the assessment under section 65, after it had been finalized earlier, and the meaning of the words "definite information" were also consi4ered by the Hon'ble Supreme Court in the case of Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others (nine other appeals) (PLD 1997 SC 700). Relating to the powers of the Income‑tax Officer for reopening the assessment the Hon'ble Supreme Court observed as under:‑‑
"Section 65(1) gives powers to the Income‑tax Officer to reopen assessments in cases of under assessment or escaped assessment etc., but subsection (2) of the section places an embargo upon the Income‑tax Officer by providing that no proceedings for reopening the assessment shall be initiated unless 'definite information, has come into the possession of the Income‑tax Officer."
As to the meaning of expression of the words "definite information", the Hon'ble Supreme Court made the following observations:‑‑
"The words 'definite information' are the key words for the purposes of justifying action under subsection (1) and, as the said words have not been defined in the Ordinance, they will carry their literary meanings. Every information cannot be treated the basis for reopening of the assessment but the, information should be of the nature which should qualify as 'definite information' had that the expression 'definite information' could not be given a universal meaning but it will have to be construed in each case, Where an assessee discloses all material facts without any concealment and the assessment had been consciously completed by the Income‑tax Officer, in such a case, in the absence of the discovery‑ pf any new facts which can be treated as 'definite information', there cannot be any scope for reopening of the assessment under section 65. Any change of opinion on the basis of the same material by the Income Tax Officer will not warrant pressing into service the saidprovision."
The expression "assessment consciously completed" has been elaborately explained by the Supreme Court in the cast of M/s Pakistan Tobacco Co. Ltd. v. Government of Pakistan and 3 others (1993 SCMR 493) as under:‑‑
"6. The question as to when reopening of the case under section 65 of Income Tax Ordinance, 1979 is allowed and justified in spite of the fact that all material facts were already on the record when previous finding was given, came up for detailed examination before this Court in the case of Edulji Dinshaw Limited (supra) in which nearly the whole case‑law on the subject has been noticed. It is held in the reported judgment of that case once all the facts have been fully disclosed by the assessee and considered by the Income‑tax Authorities and assessments have 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 to has been under‑assessed in the meaning of section 65(1)(a)(b) of the Ordinance. Maximum emphasis in this ruling is on use of words to the effect 'assessments have been unconsciously completed'. Requirement spot‑lighted is that I.T.O. has applied his mind consciously to the facts of the case and perusal of the record. If there is conscious application of mind, then rule laid down in this case will apply with full force. If there is no conscious application of mind by I.T.O., then rule laid down in this case will not be attracted."
The case of the respondents as advanced by Mr. Muhammad Farid is that the petitioners had disclosed purchase of new assets/additions to plant, machinery, building and equipment amount to Rs.13,259,813 but no material or evidence was produced by them to establish the purchase of new assets or additions to the assets and further that it was a bogus declaration made with ulterior motive and mala fide intention to reduce the taxable income by claiming the aforesaid amount as expenses as well as claiming depreciation allowance in accordance with the IIIrd Schedule to the Income Tax Ordinance but the same escaped the attention of the Assessing Officer as from a bare perusal of the assessment order it clearly established that he did not advert to the issue/dispute in question and did not decide the same. From a perusal of the assessment order the submission made by Mr. Muhammad Farid requires consideration as we find that the Assessing Officer who had finalized the assessment did not take into consideration the alleged material on record for giving a finding whether the petitioners had actually made additions in the plant and machinery and acquired new assets to the tune of Rs.13,02,59,813 during the relevant assessment year or that the aforesaid amount was claimed as expenditure wrongly and falsely without the same having been spent in making additions and improvements in the plant, building and machinery. In the circumstances, the petitioners had been able to claim the aforesaid huge amount as an expenditure and illegally and frivolously avoided the same from being charged to tax when the same was liable to be taxed as the petitioners had allegedly not produced any evidence to prove the alleged huge expenditure in making additions in the plant and acquiring new assets. In the circumstances, even if it be presumed that the petitioners had produced all the necessary evidence and documents to prove the alleged expenditure, the same would not be a ground which would bar an action under section 65 of the Ordinance. Such an action would have been barred if the Assessing Officer had adverted to the issue and had given a finding thereon without referring to the evidence and documents allegedly produced by the petitioners. With regard to the production of the evidence/documents, it is to be observed that the petitioners claimed to have produced the entire evidence in support of all the issues required to be considered by the Assessing Officer who was previously conducting the assessment proceedings. Subsequently, the assessment proceedings were held by respondent No.4 but the material/evidence produced before the earlier Assessing Officer was not produced before respondent No.4 as is evident from the various letters addressed by respondent No.4 to the petitioners for production of the evidence and other material. Mr. Sirajul Haque Memon submitted that respondent No.4 should have summoned the evidence and all other material from the previous Assessing Officer. However, production of entire evidence before respondent No.4 was the duty of petitioners and they should have ensured that all the evidence and the material produced by them before the earlier Assessing Officer was brought and made available to respondent No.4. The petitioners are not doing so and asking respondent No.4 to summon the evidence and the material himself failed to discharge their obligation in producing the evidence and the material before respondent No.4. Thus, apart from the failure of respondent No.4 to advert to the issue of expenditure claimed to have been incurred in making additions to the plant, machinery, building and equipment, there was also no evidence and material to establish the expenditure of the amount of Rs.13,02;59,813. Mr. Sirajul Haque Memon relying on the pronouncement made in the case of Edulji Dinshaw Ltd. v. The I.T:O. (PLD 1990 SC 399), submitted that if the Assessing Officer in finalizing the assessment overlooked or ignored or did not investigate any particular fact or aspect of the case even then the assessment would be considered to have been completed consciously and could not be reopened on the ground that income had escaped assessment. He further submitted that failure to investigate and examine any issue or get disclosed in the accounts/return submitted by the petitioners would not amount to 'definite information so as to warrant reopening of the assessment finalized. It was further contended by Mr. Sirajul Haque Memon that the failure of respondent No.4 to advert to the issue relative to the expenditure incurred on additions of the assets would not lead to a presumption that he ignored or did not investigate and examine the same but that he accepted the version of the petitioners as correct thereby confirming the same and it could not be made the basis for a reopening the assessment as it would be deemed to have been completed consciously and reopening thereof would be on account of change of opinion which is not permitted. The contentions raised by Mr. Sirajul Haque Memon do not carry weight and are not acceptable. The facts and circumstances of this case are somewhat different from the facts of the case of Edulji Dinshaw Ltd. v. The I.T.O. (PLD 1990 SC 399) as in the present case the petitioners had not produced any documents in support of additions to the assets as stated by respondents Nos.3 and 4 in the comments filed by them and also categorically stated therein that a complaint was received to the effect that the declared purchase of new assets/additions to the assets was bogus with the motive .to reduce taxable gain. The facts were controverted by the petitioners in the affidavit‑in‑rejoinder but such question could not be decided in the basis of affidavits, counter‑affidavits and rejoinder affidavit and would require a thorough investigation and scrutiny as whenever there is an allegation of mala fides, the matter has to be enquired into and investigated thoroughly, which could be undertaken by the Assessing Officer only after reopening of the assessment finalized earlier. In view of the above circumstances and facts, the observation of the Supreme Court relied upon by Mr. Sirajul Haque Mr. Sirajul Haque Memon would have no application to this case and would not act as deterrent in reopening of the assessment completed earlier.
From the aforegoing discussions and consideration of the meaning or definition assigned by the Supreme Court in the various pronouncements reproduced hereinabove relative to terms/expressions 'definite information' and "assessment having been consciously completed", we are of the view that neither it can be held that the assessment finalized by respondent No.4 on 16‑3‑1997 was completed consciously by him by applying his mind consciously to the facts of the case, perusal of the record and on consideration of the facts disclosed by the petitioners in their return/accounts nor that the respondent did not come into possession of new fact or discovered new information which could said to be "definite information" as envisaged by section 65 of the Ordinance that income chargeable to tax had escaped assessment or had been under assessed within the meaning of section 65(1)(a)(b) of the Ordinance. As the assessment had not been completed consciously and definite information regarding income chargeable to tax had escaped assessment, issuance of notice under section 65 of the Ordinance for reopening of the assessment finalized earlier cannot be said to be without authority or jurisdiction or in illegal exercise of jurisdiction of power by respondent No.4 and no exception can be taken to the same.
Another ground on which the legality and correctness of the notice under section 65 of the Ordinance reopening of the assessment finalized was challenged was that the same was done on the directions of respondent No.2, who according to Mr. Sirajul Haque Memon had no authority to give such directions as he did not figure amongst the authorities empowered under section 144 of the Ordinance to either call for any information from, an assessee or to direct reopening of the assessment finalized. The question as to whether reopening of the assessment by the Assessing Officer on the directions or in consultation with the Inspecting Assistant Commissioner of Income‑tax or somebody would be valid and proper was discussed by the Hon'ble Supreme Court in the case of Al Ahram Builders (Pvt.) Ltd. versus Income‑tax Appellate Tribunal (1993 SCMR 29) and it was observed as under:‑‑‑
"8. However, we may observe that simpliciter the factum that the I.T.O. has invoked section 65 of the Ordinance at the behest of the I.A.C for somebody else would not render the notice invalid or infirm if he has applied his mind to the facts of the case before him independently and has formed his independent view. But if the I.T.O. has merely carried out the order of his superior and has acted mechanically in issuing of a notice under section 65, such a notice will be invalid. There is nothing on record to indicate that in the case in hand the I.T.O. has not applied his mind to the case or had a contrary view to that of the I.A.C."
From the above observations, it is to be held that an officer other than Inspecting Assistant Commissioner can issue directions for reopening of the assessment. It is absolutely clear that it is a question of application of mind and satisfaction of the Income‑tax Officer regarding the presence of "definite information" and reasons to believe that income had escaped assessment. In the case in hand a definite information was received that the amount claimed as expenditure in acquiring assets and making additions to the existing assets was bogus and mala fide and had resulted income escaping assessment. Thus, respondent No.4 had not merely carried out the direction of respondents Nos.2 and 3 but had applied his mind independently regarding the facts that the assessment was not completed consciously and "definite information" existed warranting reopening of the assessment.
Upon the consideration of the above facts and circumstances, we are of the view that the notice, dated 27‑10‑1998 reopening the assessment framed earlier under section 65 of the Income Tax Ordinance, 1979 on the ground that income had escaped assessment was legal and valid as the concerned respondents had come in possession of "definite information" which was received by the Department negating the purchase of new assets and additions to the existing assets by the petitioners to the extent of Rs.13,02,59,813 which amount was with ulterior motive and mala fide intention disclosed in the return merely for the purpose of reducing the taxable income.
This Constitutional petition is neither maintainable as the notice issued under section 65 of the Ordinance did not suffer from illegality or lack of jurisdiction nor on merits it requires consideration being without any force. Accordingly, it stands dismissed in limine. Interim order staying the operation of the impugned notice is withdrawn/recalled.
Q.M.H.‑N‑37/KPetition dismissed.