I.T.A. No.3773/LB of 1999, decided on 15th November, 2001. VS I.T.A. No.3773/LB of 1999, decided on 15th November, 2001.
2002 P T D (Trib.) 912
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and
Javed Tahir Butt, Accountant Member
I.T.A. No.3773/LB of 1999, decided on 15/11/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.59(4)---Self-assessment=--Assessment after lapse of limitation-- Validity---Corollary of non-passing the order in terms of S.59(4) of the Income Tax Ordinance, 1979 would be that no order could be made subsequent to the said period of limitation which would result into acquiring a vested right of escaping assessment which cannot be taken away---If any order is passed subsequent to the lapse of period of limitation that would be a void order and as such would be non-existent in the eye of law and any building erected on such order must crumble down.
PLD 1963 SC;, 322; 1993 PTD 332 and 1993 PTD (Trib.) 1421 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.59(4) & 59A---Self-Assessment Scheme---Assessment under S.59A of the Income Tax Ordinance, 1979 after expiry of time limit provided under S.59(4) of the Income Tax Ordinance, 1979---Validity---No justification existed for the Assessing Officer to have passed order under S.59A of the Income Tax. Ordinance, 1979 when time limit provided under S.59(4) of the Income Tax Ordinance, 1979 for acceptance of return under Self-Assessment Scheme had lapsed.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.59A & 59(4)---Assessment on the basis of return---Self- assessment---To pass an, order under S.59A of the Income Tax Ordinance, 1979 by Assessing Officer after the expiry of period of limitation prescribed for completion of assessment under the Self Assessment Scheme in terms of S. 59(4) of the Income Tax Ordinance, 1979 was a fraud upon the statute and such acts were always deprecated which amounted to putting premium to Assessing Officer to camouflage his neglect to the prejudice of the assessee.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.59A & 59(4)---Assessment on the basis of return ---Self- assessment---Assessment year 1993-94---Assessment in excess- of jurisdiction---Effect---Order under S.59A of the Income Tax Ordinance, 1979 having been passed by the Assessing Officer in excess of jurisdiction or without jurisdiction, was void and void order had always been treated as nullity in law---No finality could be attached to such order which was passed by an authority in excess of its jurisdiction or suffered from want of jurisdiction and should be ignored for all practical purposes and any edifice constructed on the basis of void order should crumble down---Order. under S.59A of the Income Tax Ordinance, 1979 having been made on 20-6-1996 and not on 30-6-1994 in accordance with S.59(4) of the Income Tax Ordinance, 1979 was clearly time-barred and the assessee had acquired vested right of escaping assessment.
(e) Income Tax Ordinance (XXXI of 1979)--
----Ss.65(2), 62 & 59A---Additional assessment---Definite information-- Assessment order made under Ss.62/65 of the Income Tax Ordinance, 1979 merited cancellation on the ground that information relied upon by the Assessing Officer for invocation of S.65 of the Income Tax Ordinance, 1979 irrespective of its character was already in possession of the Department at the time of completion of assessment under S.59A of the Income Tax Ordinance, 1979.
1990 PTD 155; NTR 1993 SC 1 and 1994 PTD (Trib.) 1063 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----S.65---Additional assessment---Notice issued-was withdrawn---Fresh notice on . the same set of - facts---Assessment---Validity---Assessing Officer was debarred to issue a fresh notice under S.65 of the Income Tax Ordinance. 1979 for reopening the assessment on the same set of facts---Such act of the Assessing Officer amounted to change of opinion and as such the order passed under Ss.62/65 of the Income Tax Ordinance, 1979 was not sustainable in law.
(g) Income tax
----"Business capital"---"Net assets"---Two different connotations-- Phrases "business capital" and the "net assets" have altogether different connotations and by no stretch of imagination can come at par with each
(h) Income Tax Ordinance (XXXI of 1979)---
----Ss.62, 65, 59 & 59A---C.B.R. Circular No.9 of 1993, dated 1-7 1993---Additional assessment---Self-Assessment Scheme---Assessment was re-opened on the ground that "net assets" of assessee were in excess of ratio prescribed in para. 7 of Circular No.9 which prescribed that in case of a new taxpayer it shall be presumed that his "business capital" at the end of the year shall be taken as three times of the business income declared by the assessee---Validity---If the Assessing Officer was of the opinion that capital "employed in business" was more than the required ratio, the Assessing Officer should have called for explanation of the assessee regarding excess capital---If the explanation filed was found to be unsatisfactory, the return could have been excluded out of the purview of the Self-Assessment Scheme---Such an exercise having not been done by the Assessing. Officer despite the fact that prior to finalization of assessment under S.59A of the Income Tax Ordinance, 1979, a notice was issued to him calling for explanation for declaring net assets and no adverse inference was drawn in this regard---Blame thus could not be fastened at the assessee's door that the "business capital" of the assessee was in excess of the prescribed ratio of I to 3 between income declared and the capital as on the prescribed date i.e. 30-6-1993---Re-assessment order made under Ss.62/65 of the Income Tax Ordinance, 1979 was cancelled by the Tribunal and return under Self Assessment Scheme was accepted.
(1963) 7 Tax 42 (SC Pak.); 1993 PTD 332; 199,3 PTD (Trib.) 1421 and 1993 PTD 322 rel.
M. S. Babar and M.M. Akram for Appellant.
Javed-ur-Rehman, D.R. for Respondent.
Date of hearing- 10th October, 2001.
ORDER
RASHEED AHMED SHEIKH (JUDICIAL - MEMBER).-- appeal at the behest of the assessee-appellant is directed against the order rendered by CIT(A) Zone V, Lahore, dated 30-5-1994 whereby he has set aside the assessment for de novo consideration.
2. The learned A.R. (s) strongly objected to the impugned order, on legal as well as factual grounds. First grouse of the assessee-appellant is that the order made under sections 62/65 is not sustainable in law as there was no order in the field which could be reopened for the reasons that the original order for the year under appeal was made beyond the limitation period prescribed for completion of assessment in section 59(4) of the Income Tax Ordinance, 1979. Second is. that the original order made under section 59A, dated 20-6-1996 was ab initio void illegal for want of jurisdiction. Third plea relates to reopening of the assessment under section 65 of the Income Tax Ordinance, 1979 to be made on the basis of change of opinion. Fourthly, that issuance of notice under section 65 in twice on the same set of circumstances was not at all warranted by law. Fifthly, it has been contended that on the facts and in the circumstances of the case, the Appeal Commissioner should have annulled the assessment order instead of setting aside the same for fresh adjudication. Sixthly that without prejudice to above, the additions made under section 13(1)(aa) as well as 13(1)(d) have also been contested to be not legally made.
3. Facts leading for disposal of the present appeal are that the income for the year under appeal was returned by the assessee at Rs.34,000 under the Self-Assessment Scheme. This was the assessee's first income tax return which had been filed as a new tax-payer. According to the learned counsels for the assessee the said return had to be accepted under section 59(1) till, 30th of June, 1994. 'Anyhow no assessment was made by the Assessing Officer till such period of time but was completed on 20-6-1996 under section 59(A) of the Income Tax Ordinance, 1979. Thus this rendered the assessment to be barred by limitation in terms of section 59(4) of the Income Tax Ordinance, 1979 and as such was nullity in law. Subsequently notice under section 65, dated 25-1-1997 was issued but was withdrawn by the Assessing Officer vide his letter, dated 15-2-1997. On the said date another notice under section 65 was issued by the Assessing Officer which as per the learned A.R(s) was issued on the similar circumstances. Perusal of .the assessment order reveals that the case was reopened on the ground that the return of income of the assessee did not qualify to be accepted under the SAS primarily for the reason that the capital of the assessee was in excess of ratio prescribed in paragraph 7 of Circular No.9 of 1993 under the head "Miscellaneous". In this paragraph it has been laid down that in case of a new tax-payer, it shall be presumed that his business capital at the end of the income year shall be taken as three times of the "business income" declared by the assessee and no investigation of capital to that extent shall be made. But since the assessee has declared net assets at Rs.933,000 as on 30-6-1993, therefore, the income declared is ridiculously low in view of the ratio of income declared viz. the business capital as is laid down in the said paragraph of the Self- Assessment Scheme. After completing other formalities, net income was determined by the Assessing Officer under sections 62/65 of the Income Tax Ordinance at Rs.13,07,333 inclusive of two additions made under sections 13(1)(aa) and 13(1)_ (d) of the Income .Tax Ordinance, 1979 amounting to Rs.540,000 and Rs.733,333 respectively. Felt aggrieved with this treatment the assessee filed appeal before the Appeal Commissioner who by virtue of his order, dated supra, set aside the assessment to be made afresh. This has grieved the assessee-appellant to come up in appeal before us.
4. It has strenuously been contended by the learned A.R.(s) that since the return of income was filed under the SAS, therefore, the order originally made on 20-6-1996 was clearly barred by limitation in accordance with the time period stipulated in section 59(4) of the Income Tax Ordinance, 1979. According to them original assessment order should have been made under section 59(1) instead of under section 59A and that too till 30th of June of the financial year next following the income year in respect of which return of total income has been furnished under section 55 of the Income Tax Ordinance, 1979. As the order made under section 59A is nullity in law, the super structure build thereon under sections 62/65 of the Income Tax Ordinance,. 1979, should automatically fall down for want of jurisdiction. Strength in this regard was acquired from reported decision of the higher appellate forums including the Income Tax Appellate Tribunal, such as PLD 1963 (SC) 322, 1993 PTD 332 and 1993 PTD (Trib.) 1421. This contention of the learned counsels for the assessee is well-merited. Section 59 of Income Tax Ordinance, 1979, deals 'with the returns of income which are furnished under the Self-Assessment Scheme (SAS). Subsection (1) of this section envisages that where a return of total income for any income year is furnished by the assessee under section 55 of the Income Tax Ordinance,' 1979 and qualifies for acceptance. in accordance with the provisions of a Scheme of Self-Assessment made by the C.B.R. for that year or under any instructions or order passed there under, the Deputy Commissioner of Income Tax shall assess, by an order in writing the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment. The legislature has also but fetters on the jurisdiction of the Assessing Officer to complete the assessment within the specified limit of time, as is laid down in subsection (4) of section 59 of the Income Tax Ordinance, 1979, where the return of income qualifies to be accepted under the SAS. This subsectioli in unequivocal language has told over that no order under subsection (1 f shall be made in any case after the 30th of June of the financial year next following the income year in respect of which return of total income has been furnished under section 55 of the Income Tax Ordinance. A proviso to subsection (4) of section 59 of the Income Tax Ordinance, 1979, has also been added which mentions that in case no order is passed by such date it shall be treated that the order under subsection (4) of section 59 of the-Income Tax Ordinance is couched in negative language nevertheless it is well-accepted principle' of interpretation that it is mandatory on the part of the authority to-pass order such limit of time. Corollary of non-passing the order in terms of section 59(4) would be that no order could be made subsequently to the said period of limitation. This would result into acquiring a vested right of escaping assessment which cannot be taken away. So, if any order is passed subsequently to lapse of period of limitation that would be a void order and as such would be non-existent in the eye of law and any building is erected on such order that must crumble -down.
5. But in the present case admittedly order under section 59A has been made on 20-6-1996. There appears to be hardly any justification for the Assessing Officer. to have passed order under section 59A particularly when time limit provided under section 59(4) for acceptance of return under SAS has been lapsed. Actually this section caters altogether different eventuality. It provides that out of the return .not qualifying for SAS, filed under section 55 of the Income Tax Ordinance, those can also be accepted under this section even without requiring presence of the assessee or production of any evidence in this regard provides those are correct and complete in all respect. Reverting to the facts of the case there was nothing on record wherefrom it could be deduced as to why the assessee's return of income was not processed under the SAS by 30th June, 1994. As per the record only a letter, dated 10-12-1995 was issued by the DCIT which required the assessee to explain sources of investment make for the purchase of shares in the two shops declared in the wealth statement and that was responded by the assessee. This letter too was addressed to the assessee after lapse of time limit prescribed for framing assessment under section. 59(4) of the income Tax Ordinance, 1979. It is pertinent to mention that the expressly accepting the assessee's, return of income, though under section 59A, clearly depicts that his return of income was qualified for accepting under the Self-Assessment Scheme and was never set apart out of the purview of SAS till 30th of June, 1994. This shows that the assessee has been deprived of the benefits conferred upon him by law of being assessed under the SAS. All the discussions made above lead to the conclusion that the Assessing Officer was aware of the facts that limit of time specified under section 59(4) for accepting the return of income under the SAS had been expired since long when he opted to frame the order under section 59A on 20-6-1996. In fact the Assessing Officer had no choice with him to come out of the mischief of section 59(4) except to pass the order under section 59A so that he enlarge in period of limitation prescribed for completion of assessment under the SAS in terms of section 59(4) of the Income Tax Ordinance, 1979. This certainly a fraud upon the statute and the higher Appellate Courts have always deprecated such acts. It is so because such acts amount to allowing premium to the Assessing Officer to camouflage his neglects in action to the prejudice of the assessee.
6. Since the order under section 59A of the Income Tax Ordinance was passed by the Assessing Officer in excess of jurisdiction or without jurisdiction, such order was void and impact of void order has always been held to be nullity in law. So, no finality can be attached to such order which was passed by an authority in excess of its jurisdiction or suffered from want of jurisdiction and should be ignored for all practical purposes and any edifice construed on the basis of order should crumble down. Since the order under section 59A has been made on 20-6-1996 and not on 30-6-1994 in accordance with section 59(4) of the Income Tax Ordinance, 1979, being clearly time-barred, the assessee has acquires vested right of escaping assessment.
7. Looking the case from another angle it is worth-mentioning that according to section 65(2) of the Income Tax Ordinance, 1979, the condition precedent for reopening of already completed assessment is that the Assessing Officer must have come into possession of a definite information of concealment based on material evidence which otherwise was not available at the time of completing the original assessment. While in the present case the information relied upon by the ALIT for invocation of section 65 of the Income Tax Ordinance, 1979, irrespective of its character was already in possession of the department at the time of completion of assessment under section 59A of the Income Tax Ordinance,- 1979. Thus the order made under sections 62/65 of the Income Tax Ordinance, 1979, also merited cancellation thereof and support in this regard has been drawn from the case-law cited as 1990 PTD 155 (SC) NTR 1993 (SC) 1 and 1994 PTD (Trib.) 1063.
8. Even otherwise the information on the basis whereof the ITO had issued a notice under section 65, dated 25-1-1997 was duly confronted to the assessee vide his letter, dated 10-12-1995 prior to finalization of assessment under section 59(A) and ultimately that notice was withdrawn by the Assessing Officer. Now on the same set of facts, the Assessing Officer is debarred to issue a fresh notice under section 65 for reopening of the already completed on 15-2-1997. This act of ~`ie Assessing Officer amounts to change of opinion and as such the order passed under sections 62/65 of the Income Tax Ordinance, 1979, i,. not l sustainable in law as well.
9. There is another angle to look into this case. To our mind this case has been reopened on the wrong premises. The only reason advanced by the Assessing Officer to do so was that "net assets" of the assessee was in excess of ratio prescribed in para.7 of Circular No.9 which prescribes that in case of a new tax-payer it should be presumed that his business capital at the end of the year shall be taken as three times of the business income declared by the assessee. Perusal of the facts reveals that the Assessing Officer has initiated reassessment proceedings by virtue of comparing "net assets" declared by the assessee at Rs.9,33,000 to that of income declared by the assessee. This is in contravention to the phrase used as "business capital" in the said Circular of C.B.R. The phrase "business capital" and the "net assets" have altogether different connotation and by no stretch of imagination come at par to each other. So, the contention of the department for reopening of the case is misplaced as well as misconceived having no locus standi in the eye of law.
10. We are also of the considered view that if the Assessing Officer was of the opinion that capital "employed in business" was more than the required ratio, the Assessing Officer should have called for explanation of the assessee regarding excess capital. If the explanation filed was found to be unsatisfactory, the return could have been excluded out of the purview of the Self-Assessment Scheme. Since this exercise has not been done by the Assessing Officer despite the fact that prior to finalization of assessment under section 59A a notice, dated 10-12-1995 was issued calling for explanation for declaring net income assets at Rs. 9,33,000 and no adverse inference was drawn in this regard, not the blame cannot be fastened at the assessee's door that the "business capital" of the assessee was in excess of the prescribed ratio of 1 to 3 between income declared and the capital as on 30-6-1993.
11. In view of foregoing scenario we hold that since the order under section 59A was passed in flagrant violation of law, therefore, that cannot be taken into account for reopening of the present case. Consequently the re-assessment order made under sections. 62/65 of the Income Tax Ordinance, 1979 stands annulled/cancelled as edifice of such order has been constructed on the basis of a void order and strength in this regard has been drawn from the case-law cited as (1963) 7 Tax 42 (SC Pak.); 1993 PTD 332; 1993 PTD (Trib.) 1421 and 1993 PTD 322. We further held that the return for the year under appeal is hereby accepted under the SAS and the order under section 59(1) has deemed to have been made on 30-6-1996.
12. Since we have disposed off the assessee's appeal on legal plane, therefore, we decline to dilate upon the other issues relating to the additions made under sections 13(1)(aa) and 13(1)(d) of the Ordinance, 1979, at this stage. Resultantly, the assessee's appeal succeeds.
C.M.A./213/Tax (Trib.) Appeal accepted