(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Jurisdiction‑‑‑Condition for invoking S.66‑A of the Income Tax Ordinance, 1979‑‑‑Inspecting Additional Commissioner had to establish that the assessment order framed by the Assessing Officer was erroneous as well as prejudicial to the interest of revenue and thereafter he could invoke S.66‑A of the Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Audit objection‑‑‑Invoking of provision of S.66‑A of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Inspecting Additional Commissioner did not apply his mind while exercising his revisional jurisdiction‑‑‑Inspecting Additional Commissioner relied upon the objection raised by the Audit Department and the same was incorporated in his show‑cause notice but at one stage he defended his Assessing Officer when he was confronted with the audit objections by the Audit and Inspection Department‑‑‑Inspecting Additional Commissioner invoking S.66‑A of the Income Tax Ordinance, 1979 on the basis and recommendation of the Audit Department would suffice warranting interference of the Appellate Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 66‑A, 62, 50(4), 50(5), 80‑C, 143‑B & Second Sched., Part IV, Cl. 9, Para. 4‑‑‑C.B.R. Circular No. 12 of 1991, dated 30‑6‑1991‑‑ Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ‑‑‑Assessee was a manufacturer‑‑‑Import of material for self‑consumption‑‑‑Statement under S.143‑B of the Income Tax Ordinance, 1979 was filed under mistaken notion of law that the same was to be filed by all importers/suppliers along-with other statements required to be filed‑‑‑Assessment was finalized under S.62 of the Income Tax Ordinance, 1979‑‑‑Inspecting Additional Commissioner cancelled the assessment on the ground that allowance of credit of deductions under Ss.50(4) & 50(5) of the Income Tax Ordinance, 1979 was illegal because these deductions constituted full and final discharge of tax liability as declared and admitted in the statement under S.143‑B of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Provisions of law were to be interpreted in substance and not in form‑‑‑Income was not chargeable under S.80‑C of the Income Tax Ordinance, 1979‑‑‑Filing of statement under S.143‑B of the Income Tax Ordinance, 1979 could not be considered that assessee had opted for presumptive tax regime in respect of supplies which was a requirement' under Cl. (9) of para. 4 of the Second Schedule of the Income Tax Ordinance, 1979 because unless the assessee opts for presumptive tax regime specifically by mentioning that fact in the return, mere filing of statement under S.143‑B of the Income Tax Ordinance, 1979 would be of no importance and it could not be considered to be erroneous‑Order passed, by the Inspecting Additional Commissioner was cancelled and assessment order of the Assessing Officer was .restored by the Appellate tribunal.

1998 PTD (Trib.) 3699; 2001 PTD (Trib.) 2902; 2001 PTD (Trib.) 3810; 2002 PTD (Trib.) 228 and 2002 PTD (Trib.) 532 ref.

Zafar Dar for Appellant.

Mehboob Alam, D.R. for Respondent

Date of hearing: 15th August, 2002.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER). ‑‑‑Titled appeals for the assessment years 1996‑97 and 1997‑98 have been filed at the instance of, the assessee/appellant challenging the impugned orders, dated 29‑1‑2001 passed by the learned IAC. Following grievances have been agitated through the grounds of appeal for both the years appended with the appeal papers:‑‑

"(i) That the learned Inspecting Additional Commissioner of Income Tax/Wealth Tax is not justified in holding that the order passed by Assessing Officer is erroneous in law and prejudicial to the interest of revenue;

(ii) that proceedings under section 66‑A initiated on the instance of the Audit Departments without application of avoid to the fact and evidence produced by the learned Inspecting Additional Commissioner is not sustainable in law;

(iii) that the learned Inspecting Additional Commissioner is not justified in holding that the filing of statement under section 143‑B tantamount to option for the presumptive tax

(iv) that the appellant is admittedly a manufacturer and since provisions of section 80‑C do not apply in respect of raw material imported for self‑consumption the statement under section 143‑B was rightly ignored by the Assessing Officer;

(v) that the appellant has not filed an option under clause 9 of Part IV of the 2nd Schedule opting for the presumptive tax regime therefore, the statement under section 143‑B was rightly ignored by the Assessing Officer in respect of supplies;

(vi) that the learned Inspecting Additional Commissioner of Income Tax/Wealth Tax is not justified in cancelling the assessment under section 66‑A on the basis of presumption, ignoring the established history of the case."

2. The assessee in the instant case is a Private Limited Company riving income from manufacture and sale of electric capacitors, power factors etc. Assessment for the assessment year 1996‑97 was completed under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) to assess income at Rs.36,64,458 Similarly, for the assessment year 1997‑98, the assessment was completed under section 62 of the Ordinance to assess the loss at (Rs.20,96,377). Assessment record was requisitioned by the learned IAC who after examining the same, was of the view that the assessments framed by the Assessing Officer were erroneous insofar as prejudicial to the interest of revenue and thereafter, while exercising his revisional jurisdiction, proceeded to invoke section 66‑A of the Ordinance and issued show‑cause notice which is being reproduced for the sake of convenience:

(1) You filed statement under section 143‑B of the Income Tax Ordinance, 1979 for 1996‑97 on 28‑9‑1996 to declare the following results:‑‑‑

2. Subsequently you filed return of income for 1996‑97 on 30‑12‑1996 to declared total income of Rs.16,46,868.

3. That DCIT Circle‑07 by ignoring your first declaration i.e. statement under section 143‑B of the Income Tax Ordinance, 1979 took up return of finance filed on 30‑12‑1996 and made normal law assessment to assessee total income at Rs.36,64,456. This way tax demand including WWF was created at Rs.17,25,225 (Rs.16,51,937. I. T. + Rs. 73,289 WWF).

4. While preparing IT‑30 effect/credit of tax deducted under sections 50(4) and 50(5) was given to create refund of. Rs.38,31,218. The allowance of credit of deductions under sections 50(4) and 50(5) was illegal because these deductions constituted full and final discharge of liability as declared and admitted in the statement under section 143‑B filed by you on 28‑9‑1996.

5. While framing assessment under section 62 of the Income Tax Ordinance, 1979 the Assessing Officer did not observe the requirement, of C.B.R.'s Circular No. 12 of 1991, dated 30‑6‑1991 which requires prorating of expenses in cases in which income is attributable to sales covered under section 80‑C as well as income assessable under sections 62/63 of the Income Tax Ordinance, 1979.

6. There is difference of Rs.3,15,72,755 in the figure of import purchase shown in 143‑B statement and the import purchases shown in statement of accounts attached with the return. The Assessing Officer passed order under section 62 of the Income Tax Ordinance, 1979 by ignoring this discrepancy.

3. In response to the above show‑cause notice the assessee submitted a detailed reply on 29‑1‑2001. The relevant paras. of the reply are also reproduced as under:‑‑‑

"You have been pleased to issue the above referred notice vide your memo. No.IAC‑II/66‑A/589 dated 23‑1‑2001 requiring the assessee to show cause as to why the assessment finalized for the assessment year 1996‑97 may not be subjected to the provisions of section 66‑A for reasons mentioned therein.

It is submitted that a detailed reply to your earlier show‑cause notice, dated 24‑8‑2000 on the same issue has already been filed vide our letter, dated 29‑8‑2000 thereafter books of accounts were produced in your office for examination and in support the contention raised in the reply. However, since the same objection have once again being raised in the fresh show‑cause notice assessee's contention is submitted as under:‑‑

It is an established principle of law that an order to attract at the provision of section 66‑A must be erroneous in law and prejudicial to the interest of revenue. In the instant case order passed by the Assessing Officer by ignoring the statement filed under section 143‑B and finalizing the assessment on the basis of return filed cannot be said to be erroneous in law.

It is an established fact that assessee is a manufacturer of Capacitor's, power factors, panels etc. And is being assessed as such from the date of incorporation of the company all the imports made by the assessee are of raw material for self- consumption. This fact has been established from the record produced in your office. The tax deduction challan on the basis of which refund has been created when tallied with the bill of entries of imports clearly shows that the item imported in, raw material for use in the manufacturing of capacitors. Section 80‑C (2)(ii) specifically excludes goods imported by an industrial undertaking as raw material for its own consumption from the purview of section 80‑C.

As regards supplies made by the assessee it is submitted that in accordance with the provision of clause (9) of Part IV of the 2nd Schedule manufacturer, suppliers have to specifically opt for the presumptive tax regime by filing an irrecoverable option to the effect. No such opinion have been filed by the assessee and therefore, the provision of section 80‑C were not applicable to the assessee's case in respect of supplies made.

As already explained in our earlier reply that statement under section 43‑B was filed under a mistaken notion of law. Assessee's account staff was under the impression that statement under section 143‑B is to be filed by all importers/suppliers alongwith other statements required to be filed. It has been held by the learned ITAT in a case reported as 1998 PTD (Trib.) 3699 that:

`The provision of law has to be interpreted and applied in substance and not in forms merely because the assessee has filed a regular return and not statement under section 143‑B of the Ordinance would not mean that it has opted out of the presumptive tax regime.

Applying the ratio of the above judgment to the assessee's case merely because the assessee had under a mistaken notion of law filed a statement under section 143‑B, it is to be assumed that assessee had opted for the presumptive tax regime especially when the provisions of section 80‑C are squarely not applicable to the assessee's case..

Assessing Officer after considering all the above narrated facts ignored the statement filed under section 143‑B and proceeded to finalize the assessment on the basis of return of income under normal law. Action of the Assessing Officer cannot be said to be erroneous in law to attract the provision of section 66‑A.

As regards the difference in the amount of purchase shown in the purchase accounts and the figure of statement under section 143‑B it is submitted that the two figures cannot possibly tally. Statement under section 143‑B is required to show the landed cost of goods, whereas before debiting any amount to the purchase account a log of entries have been made such as the sales tax and income‑tax included in the landed cost are to be deducted and debited to their respective heads of account. Similarly freight, octroi, clearing charges etc. are credited to the purchase account. The purchase account of the assessee was duly examined at, the time of assessment and accepted.

In the light of the above and the reply filed vide our letter, dated 28-8‑2000 since the order passed by the DCIT are neither erroneous in law nor prejudicial to the interest of revenue, it is requested that proceedings initiated by issuance of show‑cause notice may kindly be filed and oblige."

4. Both the parties have been heard and relevant orders perused. The learned A.R. has vehemently argued the case and contended that orders of the IAC are not sustainable in the eye of law for the reason that the learned IAC has nowhere in his orders for both the years held the assessment orders to be erroneous insofar as prejudicial to the interest of revenue. He submitted that the learned IAC enumerated the facts of the case and proceeded to cancel the assessments framed by the Assessing Officer without considering the assessment orders to be erroneous and prejudicial to the interest of revenue. It was contended by the learned A.R. that even in the second show‑cause notice issued under section 66‑A of the Ordinance, the word used that the order of the Assessing Officer appears to be erroneous and prejudicial, to the interest of revenue. Whereas the requirement of law is that he should after careful examination consider the order to be erroneous insofar as it is prejudicial to the interest of revenue. He emphasised that the word "considered" has got different connotation from the word "appears" since the word "consider" implies that the concerned official has to apply his mind and then come to the conclusion that the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of revenue on the parameter laid down under the law. While on the contrary, mere appearance of the order being erroneous and prejudicial does not justify action under section 66A of the Ordinance. He contended that assumption of jurisdiction under section 66A without considering the order to be erroneous as well as prejudicial is not justified. He elaborated that section 66‑A of the Ordinance could not be invoked merely on the presumptions and conjectures. In this regard he relied upon the judgment of the Tribunal reported as 2001 PTD (Trib.) 2902 wherein contention of the learned D.R. that normal assessment would result in a higher income being assessed was rejected by the Tribunal observing that this is mere presumption which could not be allowed to empower the learned IAC to interfere under section 66‑A of the Ordinance. It was further held that "The prejudice has to be clearly spelt out as normal assessment does not automatically mean higher assessment".

5. The second argument addressed by the learned A.R. was that in the instant case the jurisdiction of the case was assumed by the learned IAC on the report of the Audit Department, this fact also goes a long way to prove the assessee's contention that the learned IAC in the present case did not apply his own mind which is a prerequisite, under the law. He' stated that assessment record in the assessee's case was inspected by the Audit Department in August, 1999 and the same objection which was made basis by the learned IAC in his show‑cause notice was raised by the Audit Officer. He further stated that it is also interesting that audit objection was replied to by the DCIT vide letter, dated 15‑12‑1999 whereby he rejected the audit objections in toto and defended his order. Subsequently, the learned IAC wrote a letter to the Deputy Director Audit in which he fully supported the reply of the DCIT on the audit objection and yet he proceeded to issue show‑cause notice under section 66‑A while incorporating the same audit objection which shows that he invoked section 66‑A of the Ordinance under pressure from the Audit Department and did not exercise his revisional jurisdiction on his own free will, hence it could not be said that the learned IAC applied section 66‑A of the Ordinance in its true legal perspective and in a bona fide manner. To substantiate his contention, the learned A.R. relied upon a judgment of the Tribunal reported as 2001 PTD (Trib.) 3810. It would not be out of place to reproduce the relevant paragraph of the supra judgment cited before us which is as under:

"From a bare perusal of the audit and inspection report it is perfectly Clear that the IAC has merely acted as a tool of the Additional Director, Inspection anti Audit (Direct Taxes), Gujranwala and did not apply his own mind to the fact of the case available on record. Following the principle laid down in the case‑law cited above we hold that the IAC has acted in violation of section 66‑A of the Income Tax Ordinance, 1979 and this ground alone it is emphatically declared that the IAC's order, dated 11‑7‑1996 is not sustainable in law."

6. Arguing the case on factual plane, the learned A.R. submitted that the assessments framed by the Assessing Officer could not be declared erroneous as well as prejudicial to the interest of revenue merely on the basis that filing of statement under section 143‑B of the Ordinance tantamount to exercising of option for presumptive tax regime. He argued that provisions of section 80‑C of the Ordinance are not applicable to the assessee's case because, it being an industrial undertaking imported raw material for self‑consumption arid not for the sale. Secondly, the learned A.R. submitted that the appellant has not filed an‑option opting for the Presumptive Tax Regime in respect of supplies which are required to be, filed under clause 9 of Part IV of the 2nd Schedule. In support of his contention, on the issue, he sought strength from a number of reported judgments. In this regard he cited judgments reported of the Tribunal. The relevant paragraphs of the reported judgments are as under,:‑‑‑

1998 PTD (Trib.) 3699:

"That the provision of law has to be interpreted and applied in substance and not informed merely because the assessee has filed regular return from and not statement under section 143‑B of the Ordinance would mean that it had opted out of the presumptive tax regime. Since the option has been exercised by the assessee he has to be taxed under section 80‑C of the Ordinance."

2002 PTD (Trib.) 228:

"Even if the assessee had filed statement under section 143‑B of the Ordinance and the income is not properly chargeable under section 80‑C of the Ordinance, a proper course for the Assessing officer was to summon the return under section 56 of the Ordinance and then to make the assessment under the normal law."

2002 PTD (Trib.) 532:

"It is clear that the assessee wanted to opt out of the tax regime while mentioning the same on the return but cannot be allowed to do so, being importer of goods sold:"

7. The learned D.R. has opposed the arguments advanced by thee learned A.R. at the bar.

8. We have heard the learned counsel for both the parties and have given our anxious consideration to the arguments addressed by the respective/counsel appearing on behalf of both the parties. We have no hesitation in observing that the arguments advanced by the learned A.R. carry weight. Perusal of the impugned order shows that the learned IAC mention in the order passed by him that the same were‑ erroneous as well as prejudicial to the interest of revenue. If one goes through the ingredients of section 66‑A of the Ordinance, undoubtedly one comes to the conclusion that the learned IAC has to establish that the assessment order framed by the Assessing Officer is erroneous as well as prejudicial to the interest of revenue and thereafter he is supposed to invoke section 66‑A of the Ordinance. It is interesting to note that there 'is no such finding given by the learned IAC in the impugned order passed by him. Similarly, the contentions raised by the learned A.R. that the learned IAC did not apply‑ his mind while exercising his revisional jurisdiction under section 66‑A of the Ordinance, the Department has not been able to repel the assertion made by the learned A.R. that in the present case .the learned IAC not only relied upon the objections raised by the Audit Department and the same was incorporated in his show‑cause notice issued under section 66‑A of the Ordinance but at one stage he defended his Assessing Officer when he was confronted with the audit objections by the Audit and Inspection Department. At this juncture we are constrained to observe that leaving aside all the other arguments, the sole contention raised by the learned A.R. that the learned IAC invoked section 66‑A of the Ordinance on the basis and recommendation of the Audit Department would suffice warranting our interference in the present case. On the issue of filing of statement under section 143‑B, assessee's stance also stands supported by the judgment relied upon by the learned A.R. It has been held time and again that provisions of law are to be interpreted in substance and not in form, the fact that the assessee filed statement under section 143‑B of the Ordinance and income is not chargeable under section 80‑C of the Ordinance, it cannot be considered that' the assessee has opted for presumptive tax regime in respect of supplies which is a requirement under Clause 9 of para. 4 of the Second Schedule of the Ordinance because, it is an established proposition that unless the assessee opts for presumptive tax regime specifically by mentioning this fact in the return, mere filing of statement under section 143‑B Would be of no importance, hence it could not be considered to be erroneous.

9. In the light of above discussion as well as the case‑law cited at the bar we cancel the impugned order passed by the learned IAC and restore the assessment order.

C.M.A./633/Tax(Trib.) Appeal accepted.