I. T. A. No. 1578/KB of 1999-2000, decided on 20th August, 2002. VS I. T. A. No. 1578/KB of 1999-2000, decided on 20th August, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 116 (2002)

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

‑‑‑‑S.65‑‑‑Additional assessment‑-‑Transfer of jurisdiction from Assessing Officer of Tando Adam to Assessing Officer, Latifabad‑‑ Proceedings initiated under S.65 of the Income Tax Ordinance, 1979 by the Assessing Officer of Tando Adam were again initiated by the Assessing Officer of Latifabad‑‑‑Validity‑‑‑Original proceedings were dropped in pursuance of the Assessing Officer, Tando Adam vide order sheet entry dated 17‑6‑1994 at Tando Adam and the earlier First Appellate Authority, Hyderabad had annulled the order and thus reopening of case under S.65 of the Income. Tax Ordinance, 1979 was justified in the sense that the income for the year under appeal from the business of the assessee was not assessed to tax either in Tando Adam or at Latifabad Circle, Hyderabad.

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

‑‑‑‑S.65‑‑‑Additional Assessment‑‑‑Notice‑‑‑Non‑ticking of relevant clause‑‑‑Validity ‑‑Contention of the assessee was to the effect that non -ticking of relevant clause in the notice under S.65 of the Income Tax Ordinance, 1979 due to the reasons that earlier assessment was completed also by Assessing Officer of same circle under S.63 of the Income Tax Ordinance, 1979 and was also motivated by Departments efforts to assess the income of assessee from his business and it was annulled also by the then First Appellate Authority for want of notice under S.65 of the Income Tax Ordinance, 1979 was repelled‑ ‑‑Assessee was in complete knowledge of basis/reason of action under S.65 of the Income Tax Ordinance, 1979 before the formal issuance of notice under S.65 of the Income Tax Ordinance, 1979.

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

‑‑‑‑S. 65‑‑‑Additional assessment ‑‑‑Notice‑‑‑Assessment‑‑‑Non‑mention ing of figure of total income in the assessment order‑‑‑Validity Assessing Officer had confronted the figure of total income and he had also issued IT‑30 and notice which was part and parcel of the assessment order‑‑‑Proceeding taken in pursuance of S.65 were not thwarted by suet small technical lapses.

1979 PTD 47; 2001 PTD 1633; 1998 PTD (Trib.) 973 and 2000 PTD (Trib.) 2531 distinguished.

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

‑‑‑‑Ss.13(1)(d) & 65‑‑‑Addition‑‑‑Inappropriate addition have to be deleted‑‑‑Where the addition under S.13(1)(d) of the Income Tax Ordinance, 1979 was found to be not sustainable in law, the same should have been deleted instead of setting aside the same.

1993 PTD (Trib.) 1172 and 1988 PTD (Trib.) 992 rel.

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

‑‑‑‑S.13(1)(d)‑‑‑Addition‑‑‑Non/vague approval of‑‑‑Validity‑‑‑Record showed that no approval letter was sent to the Inspecting Additional Commissioner and according to him the reply about approval letter of the Inspecting Additional Commissioner was also vague and did not throw any light on the nature and details of the addition‑‑‑Addition under S.13(1)(d) of the Income Tax Ordinance, 1979 was illegal, ultra vires and not sustainable in law‑‑‑No double approval was obtained by the Assessing Officer as even the assessment order of the Assessing Officer also did not claim and mention that any double approval for this addition under S.13 of the Income Tax Ordinance, 1979 was ever obtained by Assessing Officer from the Inspecting Additional Commissioner‑‑‑Addition should not have been remanded back but was to be deleted.

1990 PTD, 889; 1988 PTD 1014; 1962 PTD 235; I.T.A. No.383/KB of 1997‑98; 1999 PTD 3637 and 1993 PTD (Trib.) 1093 ref.

1993 PTD (Trib.) 1172 and 1988 PTD (Trib.) 992 rel.

A. S. Jafri for Appellant.

Amjad Malik, D.R. for Respondent.

Date of hearing: 20th July, 2002.

ORDER

ABDUL GHAFOOR JUNEJO (ACCOUNTANT MEMBER).‑‑ This appeal filed at the instance of the assessee is directed against the impugned order of the learned CIT(A) Hyderabad, dated 15‑1‑2000.

2. We have heard the learned representatives of the two parties and also perused the orders of learned CIT(A) as well as the Assessing Officer. . .

3. As per grounds of appeals, the assessee has mainly contested reopening of assessment under section 65 alleging it to be illegal. Besides, setting aside of main issue regarding addition under section 13(I)(d) and confirmation of trading account addition have also been challenged on account of being allegedly not warranted on the facts and law of the case.

4. We have heard the averments advanced by the learned A.R. of the assessee on legal as well as factual grounds. Facts leading for disposal of this case are that the appellant is an individual and existing assessee and had been assessed since long in Tando Adam. During the year under appeal, the proceedings had been filed for assessment year 1993‑94 as per order sheet, dated 7‑6‑1994 by the A.C.I. T., Tando Adam, 'where the appellant was originally assessed due to non‑filing of return of income for his year and later on his case papers were transferred. to office of the A.C.I.T., Circle Latifabad where the appellant had meanwhile started his business of ice factory under the name of and style of Messrs Insaf Ice Factory at Unit No. 10, Latifabad, Hyderabad.

The appellant has filed returns of income and statement of account for assessment years 1992‑93 and 1993‑94 in Latifabad Circle, Hyderabad, for his abovementioned Insaf Ice Factory business, previously for assessment years 1992‑93 and 1993‑94, the A.C.I.T. Tando Adam had dropped the proceedings on order sheet dated 7‑6‑1994. Then on reaching of the file to A.C.I.T. Latifabad Circle, he did not touch assessment year 1992‑93, but started the assessment proceedings for assessment year 1993‑94 by issuing notice under section 61 and finalized the assessment order under section 63 on 30‑6‑1996. This order of A.C.I.T. was annulled by the then C.I.T.(A), Hyderabad vide his order, dated 18‑12‑1996 on the ground that the action had been taken without a notice under section 65. Therefore, a fresh notice under section 65 was issued by the learned A.C.I.T. Latifabad Circle dated 6‑2‑1998 and the reassessment was completed in the course of time under section 65. The reason of earlier assessment under section 63 for assessment year 1993‑94 by the A. C. I. T. as well as of the subsequent assessment under section 65 was the same i.e. taxing the income from Insaf Ice Factory and investment therein.

5. So, after the learned C.I.T.(A)'s order dated 18‑12‑1996, the A.C.I.T., Latifabad had issued notice under section 65 dated 6‑2‑1998 for reopening tire proceedings‑dropped case for the year under Appeal. After certain correspondence, the assessment was finalized again on the, same income of Rs.12,10,000 with the same trading account addition and one same addition under section 13(1)(d) of the Ordinance regarding the investment in Insaf Ice Factory.

The appellant has challenged this impugned order before the learned C.I.T.(A), Hyderabad on various grounds. The learned CIT(A), Hyderabad has confirmed the reopening of the case under section 65, as well as trading account addition of Rs.201,000 but he has set aside the impugned addition under section 13(1)(d) of Rs.892,000.

6. The learned counsel for the appellant has raised before us a number of legal as well as factual objections in the case. He contends that the re‑opening of the case was absolutely improper as the Assessing Officer had to file the appeal before the Tribunal on the first CIT(A)'s order dated 18‑12‑1996 and instead of filing appeal, the A.C.I.T. has issued notice under section 65 on 6‑2‑1998, after lapse of more than one year to only defeat the justice. He further contends that the concept of finality of the proceeding is a dominant policy of law as found by the superior Courts in cases reported as 1990 PTD 889 and 1988 PTD 1014.

7. He further vehemently challenged the vires of notice under section 65 of the Income Tax Ordinance, 1979 which had postulated certain situations. He argued that the notice served in the present case was on printed form and it had not been made clear as to under which clause of section 65(1), the Assessing Officer was acting. The powers being statutory in nature had to be exercised by the concerned functionaries after due application of mind which should manifest itself from the notice for reassessment issued under section 65 of the Ordinance. He further contends that the Assessing Officer is required to apply his mind cautiously and indicate to the assessee under section 65(1) as to on what grounds assessment was sought to be re‑opened, for re opening of a case to some extent was a penal action and assessee had to be prepared to meet the consequences of re‑opening of assessment and where the notice did not indicate the reasons to reassess the income of the assessee, it was defective and the error was not curable. A.R. argues that the notice under section 65 of the Income Tax Ordinance, 1979 was issued on 6‑2‑1998 which was not properly ticked by the Assessing Officer which is very important as the Hon'ble Lahore High Court has seriously taken the cognizance of this lapse. According to him, non‑ticking of the relevant clause in notice issued under section 65(1) of the Income Tax Ordinance, 1979 leads to the conclusion that the Assessing Officer was not definite in his mind as to which one clause of the notice was attracted to the facts of the case. Such vires was challenged by the assessee in the High Court, of Lahore and the decision as reported 1979 PTD 47 and the 2001 PTD 1633 and this Tribunal's judgments as reported in 1998 PTD 973 (Trib.) and also 2000 PTD (Trib.) 2531 are binding judgments.

8. The next series of the arguments, of the learned A. R. are briefly as under:

(i) That the Original order passed by the CIT(A) on 18‑12‑1996 is merged with the original order which holds the field. Indeed it is well‑recognized general principle that on appeal the original order ceases to exist and merges itself in appellate order. Thus the order passed by the A.C.I.T. after CIT(A) of order on 18‑12‑1996 had no legal premises and it would be washed away and obliterated.

(ii) That the learned A.C.I.T. has failed to mention figure of the total income of Rs.12,10,000 in the end of his assessment order and the Assessing Officer has thus grossly mistaken in the impugned order though the total income was computed in the I.T. 30 and on that basis demand notice was issued. (The learned A.R. has also produced the certified office copy of the assessment order which did not indicate the total income in the last line where the Assessing Officer should have shown the assessed income). Mr. A.S. Jafri has vehemently disputed such alleged deficiency and he has specifically referred an unreported decision of this Tribunal in I.T.A. No.383/KB of 1997‑98 dated 9‑2‑1998. In the aforesaid decision the I.A.C. has passed the order under section 66‑A, of the Income Tax Ordinance, 1979 by cancelling the original order under sections 62/65 on 30‑11‑1997 which was Sunday and the Honourable Chairman held it as unsustainable in law and quashed the order under section 66‑A. The crux of the dispute in the cited case is reproduced hereunder:‑‑‑

"Mr. Rehan Hassan Naqvi has submitted that the order under section 66‑A, is riot sustainable in law. He has further submitted that the order has been passed on 30‑11‑1997, which was Sunday and as such he shows that the learned I.A.C. was bent upon causing harassment to the assessee. He has submitted that the learned. I.A.C. issued show‑cause notice which was duly replied. The learned I.A.C. thereafter issued another notice on 25‑11‑1997,whichwas served on 26‑11‑1997, and compliance was required on 29‑11‑1997. The order was made on 30‑11‑1997, which was Sunday. Mr. Naqvi has submitted that, all this undue haste shows that the intention of the learned I.A.C. was not bona fide."

The concluding para. of this order is as under:‑‑‑

"We have carefully considered the contention raised before us and have gone through the impugned order. We find that the order under section 66‑A is so preposterous that is should not detain us even for a moment in holding that the order is result of sheer misuse and can be termed as the absolute abuse of the discretion vested under section 66‑A. The order under section 66‑A is not sustainable in law and stands quashed accordingly."

Mr. A.S. Jafri, heavily relied on this case‑law and agitated that the same sheer misuse of power has followed by the learned A.C.I.T. and he h4s also passed the order undue haste which shows that the intention of learned A.C.I.T. was not bona fide and thus the learned A.C.I.T. has miserably failed to do his job properly and judiciously, therefore, the impugned order should be quashed in line with the case in hand.

(iii) That once the learned CIT(A) has annulled the order, the learned Assessing Officer is totally debarred to issue notice under section‑65 of the Income Tax Ordinance, 1979. Case relied is the reported decision of the Income‑tax Appellate Tribunal as 1962 PTD 235 in which the interpretation of cancel and annul was discussed. As per citation, the word 'cancel', is synonymous with the word `set aside' and does not mean `annul'. It is only when an order is annulled that it is reduced to nothing and no further proceedings can be taken in the matter. The reliance is placed on the reported judgment of the Bombay High Court India as 1999 PTD 3637 in which also the limitation and extension of limitation was discussed and a difference between setting aside of assessment and annulment of assessment was exhaustively discussed.

(iv) That the CIT(A) has set aside the addition of Rs.892,000 under section 13(I)(d) whereas the CIT(A) should have deleted this impugned addition as the learned CIT(A) has himself admitted in this order that the nature of addition has not been given nor any basis was specified in the impugned order of Assessing Officer. The Letter bearing No.531 dated 8‑5‑1999 through which approval 'of the IAC was sought for making this addition was also not available on record nor does the approval letter of the IAC throws any light on the nature and details of the addition. Thus the addition was not sustainable in law and the learned CIT(A) has remanded this addition back to the A.C.I.T. for re ad-judication. This not legally correct because once the CIT(A) had came to the conclusion that the addition was not sustainable in law and on facts and no proper and mindful approval was taken from the learned I.A.C., such addition is to be struck down instead of setting aside the same with direction for filing of the legal lacunas. The case reported as 1993 PTD (Trib.) 1172 is relied upon in this respect.

(v) That the A.C.I.T. Latifabad, Hyderabad has no jurisdiction for this assessment year which actually rests with A.C.I.T., Tando Adam and no jurisdiction order was in field to process this case by the D.C.I.T., Latifabad Circle instead of the I.T.O., Tando Adam.

(vi) That no double approval was taken by A.C.I.T. Latifabad Circle for his addition under section 13(1)(d) hence it is not legally sustainable. A number of case‑law is available on this situation.

9. The learned D.R. on the other hand supported the orders of the two lower authorities by contending that re‑opening of assessment under section 65 on facts and circumstances of the case was justified. In support of his contention he has cited the reported decision of the I.T.A.T. as 1993 PTD (Trib.) 1093; which is reproduced hereunder for ready reference:

"Practice and procedure‑‑‑

Where an order is set aside or annulled on account of some procedural infirmities committed by the Authority making such an order, the Authority can take up the proceedings afresh unless either the statute debars taking up fresh proceedings or it would, circumstances of the case, be unfair that the second proceedings are undertaken."

The learned D.R. further relied from C.B.R's. Letter C. NO.1(3)DT -14/91, PT. dated May 26, 1991 ;which is as under:‑‑‑

"Barring some cases, annulled assessment can also he taken up if not hit by limitation."

The learned D.R. also contended that the substance of additions made to the business income are concerned are legally warranted and fully justified by the A.C.I.T.

10. We have given our anxious thought to the arguments advanced by the two representatives appearing at the bar and also perused the case- law relied upon the learned A.R. of the assessee and D.R.

11. We have observed that it is not disputed that the original proceedings in this case were dropped in pursuance of the A.C.I.T., Tando Adam order sheet entry dated 17‑6‑1994 at Tando Adam and the earlier C.I.T.(A) Hyderabad had annulled the order and thus re‑opening P of this case under section 65 is also justified in the sense that the income for the year under appeal from the business of the Insaf Ice Factory, Latifabad, Hyderabad was not assessed to tax either in Tando Adam or at Latifabad Circle, Hyderabad.

12. We are, however, not persuaded to agree to the arguments of the A.R. on non‑ticking of relevant clause in the notice under section 65 of the Income Tax Ordinance, 1979, due to the reasons that the earlier assessment in this case in this year completed also by A.C.I.T Latifabad Circle, Hyderabad under section 63 was also motivated by Departments efforts to assess the business income of assessee frown his Insaf Ice Factory and it was annulled also by the then C.I.T.(A) Hyderabad, for want of notice under section 65. So, the appellant was in complete knowledge of basis/reason of action under section, 65 before the formal issuance of notice under section 65.

13. The A.C.I.T. has also discussed theory of merger in the impugned order and the material part is reproduced hereunder:

"Vide office Letter No.485, dated 15‑4‑1999 (placed on record) assessee was informed that the doctrine of merger did not apply in the instant case, as the very order passed under section 63 was struck off, by the appellate order. There being no order, the question of merger did not arise. Appellate order, in fact restored the order, whereby proceedings had been dropped. Now, since the proceeding for the year under consideration were not hit by limitation period, so therefore, re‑assessment proceedings were initiated under section 65. Assessee was required to make requisite compliance of notice under section 65. "

From the above view point of the A.C.I.T. we have duly agreed with the above text and we decline to interfere on the ground raised on this issue.

14. As regards the objection pressed by the learned A.R. Mr. A.S. Jafri, regarding failure of mentioning figure of total income in the end of the impugned order we find that the A.C.I.T. has confronted the figure of Rs.12,10,000 and he has also issued I. T. 30 and demand notice which is the part and parcel of the assessment order. Therefore, we decline to interfere on this issue. The case relied by the learned A.R. is also distinguishable and not relevant with the facts of the present case. The proceeding taken in pursuance of section 65 are not thwarted by these small technical lapses.

15. As regards the, impugned addition under section 13(1)(d) of Rs.892,000 the learned C.I.T.(A) Hyderabad, has .observed in his impugned order as under:‑‑‑

"It would be seen that the Assistant Commissioner of Income‑tax has not specified the nature of addition, nor has given any basis for the impugned addition. The Letter bearing No.531 dated 8‑5‑1999 through which approval of the Inspecting Additional Commissioner was sought for 'making this addition is also not available on record, nor does the approval letter of the Inspecting Additional Commissioner throws any light on the nature and details of the addition. The addition is, therefore, not sustainable in law and the order is, therefore, remanded back to the Assistant Commissioner of Income‑tax for re‑adjudication after giving proper opportunity of being heard to the appellant."

From the above findings of C.I.T.(A) we feel inclined to agree with the submission of learned counsel for the appellant that where the impugned audition of section 13(1)(d) of Rs.892,000 was found to be not sustainable in law by the learned C.I.T.(A) Hyderabad, he should have deleted it instead of setting, aside it. The citation as quoted supra by the A.R. of the appellant as 1903 PTD (Trib.) 1172, which is also pari- materia with the case in hand is as under:‑‑‑

"It is held that once the learned C.I.T.(A) came to the conclusion that the addition was not sustainable in law for want of mandatory prior approval of I.A.C. he ought to have deleted the addition instead of setting aside the same with direction or tiling up the lacunas. It appears that the learned C.I.T.(A) could not distinguish in his duties as a Judicial Officer while acting as the learned C.I.T.(A) from the duties discharged by the C.I.T. Zone and thereby transgressed the limits. The learned C.I.T.(A) was performing the duty of Judicial Officer in the capacity of an Appellate Authority but while giving impugned direction he entered into the realm of administrative/supervisory capacity. The impugned direction of learned CIT(A), is therefore, vacated being improper and unwarranted. The addition stands deleted having been made without jurisdiction.

In another judgment reported as 1988 PTD (Trib.) 992 which also dealt sections 13(1)(a), 13(1)(d), 62 and 65 of the Income Tax Ordinance, 1979, also cited by the A.R. it has been held as under:‑‑‑

"Even on a legal premise, it is not possible for me to sustain the impugned addition to the extent of Rs.65,463 as double approval was not obtained before adding it to the income already assessed as contemplated by section 13(1) and (2) of the Ordinance. In saying so, I have relied on a case reported as 1987 PTD 300 (Tribunal). Therefore, based on facts and law, there was no justification with learned A.A.C. to have confirmed addition to the extent of Rs.65,463, which is hereby deleted. The Income tax Officer is directed to give effect to this order."

From the above it is established that as per the learned C.I.T.(A) no approval letter was available on the record sent to the I.A.C. and moreover according to him the reply of approval letter of the I.A.C. was also vague and does not throw any light on the nature and details of the addition. Thus the impugned addition 13(1)(d) is illegal, ultra vires and not sustainable in law. Further it is also established that no double approval was obtained by the Assessing Officer as even the impugned assessment order of the A.C.I.T. also does not claim and mention that any double approval for this addition under section 13 was ever obtained by A.C.I.T. from the I.A.C. Therefore, it should not have been remanded back and thus in the light of the above discussion we have reached to the conclusion that the addition made under section 13(1)(d) of Rs.892.000 is to be deleted as such.

16. As regards the trading addition of Rs.201,000 on the basis of declared sales of ice of Rs.502,000 the A.R. stressed that the Assessing Officer has miserably failed to consider the revised statement of account which was filed before finalization of the assessment and the Assessing Officer has not considered it while computing the total income and in the impugned order A.C.I.T. has also conceded that revised statement of account was filed but he fails to take into its account while computing the total income. The A.R. further submits that the trading addition is quite harsh as in the subsequent assessment year 1994‑95 the assessment was completed at net income of Rs.100,616 under total audit where two separate trading accounts of ice and flour were filed. The A.R. on this issue argued that this is the first year of the ice factory business of the appellant and being inexperienced the declared net income of Rs.43,000 may be considered reasonable. We, however, finally hold that the net income for the year under appeal is determined at Rs.80,000 from the Insaf Ice Factory business of the appellant.

17. The appeal of the appellant succeeds to the above extent.

C. M. A./524/Tax(Trib.) Appeal accepted.