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

----Second Sched., Cl. (86)---Exemption---Educational institution---Grant of exemption---Principle---Criteria for granting exemption to the educational institution is that the same must be established solely for the purpose of educational purpose and not for any other purpose-- Predominant object of the educational society has to be looked into before granting exemption---If predominant object is educational and not earning profit then exemption is granted to the educational institutions-- No other condition is provided in Cl. (86) of the Second Schedule of the Income Tax Ordinance, 1979.

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

----S. 23---Second Sched., Cl. (86)---Deductions---Exemption--Educational institution---Grant of exemption---Expenses distributed to staff/teaching staff---Permissibility--- Not only salaries but also petrol, lubricant for vehicles entertainment, repair and maintenance of vehicles can be distributed to the staff and other teaching staff who were engaged in imparting education and were functioning wholly and exclusively for society's work.

I.T.As. Nos. 177 to 184/KB of 1990-91 rel.

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

----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Examination of accounts---Judicious conclusion by the Assessing Officer could not be termed as "erroneous"---Where the Assessing Officer had applied his mind while making the assessment or granting the exemption after examining the accounts and arrived at a judicious conclusion, such a conclusion could not be termed as erroneous because the Assessing Officer had exercised the quasi-judicial powers vested in him.

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

----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Quality of assessment---Mere poor quality of an assessment would not provide justification for invocation of jurisdiction under S.66-A of the Income Tax Ordinance, 1979.

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

----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Condition for assumption of such jurisdiction---Until and unless two conditions namely that the assessment order is erroneous and at the same time prejudicial to the interest of Revenue are not established, the assessment order cannot be cancelled.

(f) Income Tax Ordinance (XXXI of 1979)---

----S. 66-A, 62 & Second Sched., Cl.(86)---Societies Registration Act (XXI of 1860)---C.B.R. Circular No.2 of 1996, dated 18-2-1996-- Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Exemption---Expenses paid in respect of petrol arid lubricants to employees of the Society for Society's work-- Cancellation of assessment on the ground that members of Society had been benefited with the supply of petrol and lubricants at the cost of Society as no vehicle had .been shown in the Depreciation Schedule--. Such expenses were termed in contravention and in violation of Cl.(86) of the Second Schedule of the Income Tax Ordinance, 1979---Validity-- Amount claimed on account of lubricants, petrol, salaries, entertainments, miscellaneous expenses, repair and maintenance, telephone etc. were incurred on the functioning of Society---No concrete evidence had been brought on record that any violation of Cl. (86) of the Income Tax Ordinance, 1979 was committed by the assessee---Assessing Officer passed conscious order under S.62 of the Income Tax Ordinance, 1979 granting exemption after examining audited books of accounts, ledger, cash books and details of various expenses and Inspecting Additional Commissioner had not established that the assessment orders were erroneous as well as prejudicial to the interest of revenue---No deviation from law or mistake of law was committed by the assessee-- Assessment could not be set aside under the garb of S.66-A of Income Tax Ordinance, 1979---Appellate Tribunal vacated the order of Inspecting Additional Commissioner passed under S.66-A of the Income Tax Ordinance, 1979 and restored that of the Assessing Officer.

1997 PTD (Trib.) 902; 1997 PTD (Trib.) 164; (1988) 171 ITR 698; I.T.As. Nos. 702 and 703/KB of 1996-97; I.T.As. Nos.431/KB and 432/KB of 1995/96; 1984 PTD 137; (1979) 118 ITR 447; 1990 PTD (Trib.) 524; 1983 PTD 201; 1991 PTD 321; 1969 PTD 144; (1993) 203 ITR 108; 1987 PTD 567; Black's Law Dictionary, p.486; Gyprus Juris Secundum, Vol. 30-A, p.867; 1999 PTD 1358; PTCL 1996 Statute 1350; Faisal Plaza v. C.B.R. 1995 PTD 850 and 1975 PTD (Trib.) 1 ref.

I.T.As. Nos. 177 to 184/KB of 1990-91; 1994 PTD (Trib.) 1294; 1996 PTD (Trib.) 1069; 1984 PTD 137 and 1999 PTD (Trib.) 3229 rel.

M. Jawed Zakaria for Appellant.

Vishno Raja Qavi, D.R. for Respondent.

Date of hearing: 18th November, 2000.

ORDER

These two appeals for the assessment years 1996-97 and 1997-98 are directed against the order passed under section 66-A by the learned Inspecting\ Assistant Commissioner of Income-tax, whereby he remanded assessments finalized under section 62 of the Income Tax Ordinance, 1979 for both the years under review nearly of the similar orders, which for the facility of decision are reproduced hereunder.

"Order under section 66-A of the Income-tax Ordinance, 1979.

The perusal of record reveals that the member of the Society have been benefited in shape of claiming expenses on petrol, motor repairs etc., whereas no vehicle has been shown in the depreciation schedule. Such benefit of cost of petrol & motor repair and maintenance on behalf of the members of the Society is in contravention and in violation of clause 86 of Second Schedule.

A show-cause notice vide this office Letter No. 332, dated 24-10-1999 was issued to the assessee asking him to explain why action under section 66A, should not be invoked. In response to said notice Messrs Zakaria Lawyer & Co. Advocate vide Letter No.I.T. 51/1998-99, dated 19-11-1998 furnished the reply which has been examined and placed on record.

The A.R. has explained that the expenses claimed in respect of petrol has been paid to the. employees of the Society, but details or evidence of such expenses have not been provided. Similarly the other expenses like conveyance, misc., entertainment; repairs, maintenance, telephone etc. are also pleaded to be entirely for functioning of the Society.

The contention of A.R. has been examined. In the absence of supporting and proper explanation,. element of enjoying indirect benefit cannot be ruled out which violates the spirit and the provision of clause 86 of Second Schedule of the Income Tax Ordinance, 1979.

In view of the above rioted discrepancies, it is observed that the Assessing Officer while finalizing assessment did not apply his mind properly and consciously as such the order passed are both erroneous as well as prejudicial to the interest of revenue, liable for cancellation under section 66A, Assessing Officer is directed to reframe assessment after carefully examining the case and strictly in accordance with law."

2. Succinctly, the facts of the case are that the Appellant-assessee is an Educational Society, registered under the Societies Registration Act of 1860, for the purpose of promoting, developing and organizing education through its branches. The appellant/Society is enjoying exemption under clause 86 of the Second Schedule of the Income Tax Ordinance, 1979. All the preceding assessments as well as subsequent assessment years have been finalized under section 62 of the Income Tax Ordinance, 1979 after reexamining the details and exemption was allowed under clause (86) of the Ordinance. It is only for the assessment years under review i.e. 1996-97 and 1997-98 for which years the learned Inspecting Assistant Commissioner of Income Tax, had invoked the provisions of section 66-A on the grounds that some expenses like petrol lubricant, salaries, conveyance, Misc. entertainment, repair and maintenance; telephone were not susceptible to verification. He has observed that although expenses on account of petrol and motor repair have been charged, yet no depreciation has been claimed in the schedule of the depreciation. Accordingly, the learned Inspecting Assistant Commissioner of Income-ix, for the two assessment years under appeal issued a show-cause notice under section 66-A of the Ordinance, dated 24-10-1998. As both the show-cause notices are couched in identical language for the sake of brevity it will suffice only if the show-cause notice for the assessment year 1996-97 is reproduced for appreciation of facts.

"Sub:--Show-cause notice under section 66-A In the case of Messrs Seven Oaks High School-Assessment Year 1996-97

The perusal of record reveals that the members of the society have been benefited with the supply of Petrol and Lubricants at the cost of society as no vehicle has been shown in the depreciation schedule. Expenditure claimed by the society is as under:

NAMENATURE OFAMOUNT REMARKS

BENEFIT

______________________________________

1. PetrolSupplyRs. 85.038

2. LubricantsSupplyRs. 31.496

Payment of cost of petrol and motor repair and maintenance on behalf of the members of the Society are in contravention and in violation of clause (86) of Second Schedule.

Similarly huge expenses & account of salaries have allowed with out proper verification as the payment were made in cash & no NIC No. or Identity Card were provided. So is the case with other expenses claimed like Conveyance, Miscellaneous, Entertainment, Repair, Maintenance, Telephone etc.

From the above-noted discrepancies it is observed that the Assessing Officer while finalizing assessment did not applied his mind consciously. The order passed are erroneous and prejudicial to the interest of-revenue, liable for action under section 66-A you are therefore, called upon to explain the above-noted. discrepancies within one week of the receipt of this notice or by 20-11-1998."

In response to the above show-cause notice the AR of the appellant informed the learned Inspecting Assistant Commissioner of Income-tax, vide letter, dated 19-11-1998 that the expenses claimed in respect of petrol, amounting to Rs.85,038 and lubricants amounting to Rs.31,496 had been paid to the employees of the Society for Society's Work. It will 'be pertinent to reproduce the reply of the assessee for the assessment year 1996-97.

"Please refer to your letter No. IAC R-III/ZA/98-99/323, dated 24-10-1998 issued to our above named client on the captioned subject.

We, on behalf of and under the instructions of our above named client are pleased to submit as under:

The expenses claimed in respect of petrol amounting to Rs.85,038 and lubricants amounting to Rs.31,496, have been paid to employees of the Society for Society's works.

Further more, on objection on conveyance, Miscellaneous, Entertainment, Repaits, Maintenance. Telephone etc., are also incurred for the purpose of Societies as such these expenses should also be considered as Society's expenses.

Regarding salaries expenses, we have already submitted. List of employees with the copies of their NIC's at the time of assessment which may be submitted again to your kind honour.

In the light of above-explanation please be kind enough to withdraw your show cause letter/notice under section 66-A of the Income Tax Ordinance, 1979 for the assessment year 1996-97 under intimation to the undersigned.

Thanking you for your usual fine-co-operation and assuring our best of our attention at all times."

The Inspecting Assistant Commissioner of Income-tax, however, rejected the reply of the assessee and observed that "in the absence of supporting and proper explanation, element of enjoying indirect benefit cannot be ruled out which violates the spirit and the provision of clause 86 of the Second Schedule of the Income Tax Ordinance, 1979". The learned Inspecting Assistant Commissioner of Income-tax, therefore, held that the order passed by the Deputy Commissioner of income-tax, were both erroneous as well as prejudicial to the interest of revenue as the original orders for both these two years had been finalized by the Assessing Officer without proper application of mind. The learned Inspecting Assistant Commissioner of Income-tax, therefore, cancelled the original order under section 66-A and directed the Assessing Officer to reframe the assessment after, carefully examining the case and strictly in accordance with law.

3. Being aggrieved and dissatisfied with the above treatment meted out to the assessee the present two appeals have been filed before this Tribunal. As both the appeals are on the common issues. I propose to dispose the same by this consolidated order.

The following common grounds have been taken by the appellant for both the years under review:---

"(1)That the order of the learned Inspecting Assistant Commissioner of Income Tax. Range-III, Zone I, Karachi passed under section 66-A of the Income Tax Ordinance, 1979 ,is bad in law and on facts and circumstances of the case.

(2)That the validity, the legality, the mode and the method of cancelling the order originally passed after detailed scrutiny under section 62 is objected to.

(3)That the learned Inspecting Assistant Commissioner of-Income Tax, has not properly appreciated the facts of the case and made mountain of a mole hill and allegedly cancelled the order under section 66-A originally passed under section 62 after detailed scrutiny by issuing show-cause notice, dated 24-10-1998......

(4)That in reply to the show-cause notice the AR of the-appellant informed the learned Inspecting Assistant Commissioner of Income-tax, vide letter, dated 19-11-1998 that the expenses claimed in respect of petrol amounting to Rs.85,038 and lubricants amounting to Rs.31,496 have been paid to employees of the Society for Society's work. The expenses under the head conveyance, miscellaneous, entertainment, repair and maintenance, telephone etc., are also incurred for the purpose of Societies. and the expenses are Society's expenses.

(5)That the assessment is finalized by the Assistant Commissioner of Income Tax, Circle A-21. Zone-A, Karachi after detailed scrutiny. All the relevant details/documents as asked for by the learned Assessing Officer were furnished at assessment stage.

(6)That without going through the above factual position, the learned Inspecting Assistant Commissioner of Income-tax cancelled the order which is not called for.

(7)That the order under section 66-A is bad in law and on facts and circumstances of the case. The order under section 66-A is illegal, without any basis and cannot be sustained in the eyes of law. It is, therefore, prayed that the order, passed under section 66-A by the learned Inspecting Assistant Commissioner of Income Tax, be kindly cancelled.

(8)That the appellant craves permission to add/amend/alter the grounds of appeal earlier or at the time of hearing of appeal and prays for appropriate relief under the Ordinance and the Rules."

4. We have heard Mr. M. Jawed Zakaria, Advocate the learned counsel for, the appellant and Mr. Vishno Raja Qavi, the learned representative of the Department.

5. At the very outset the learned counsel Mr. M. Jawed Zakaria, has contended that the learned Inspecting Assistant Commissioner of Income Tax, has seriously erred in cancelling the assessment order passed under section 62 and remanding the case back to the Assessing Officer for fresh assessments by invoking his powers under section 66-A of the Income Tax Ordinance, 1979. He has argued that the learned Inspecting Assistant Commissioner of Income-tax, has cancelled the assessment orders for both the years on the presumption and surmises that some expenses like petrol, lubricants, conveyance, salaries, entertainment were claimed for the benefits of the members of the Society in violation of clause 86 of the 2nd Schedule of the Income Tax Ordinance, 1979. In this regard the learned counsel has invited our attention on page 1 of the assessment order passed under section 62 where it has specifically. been mentioned by the Assessing officer that "in response to statutory notice under section 61 Mr. Zakaria Loya, the AR of the assessee attended the proceedings of the case and submitted the following details and documents.

(1) Balance sheet as at 30-6-1997

(2) Receipts and payments account.

(3) Details or receipts

(4) Details and proof of expenses claimed,

(5) Books of account comprising of:

(a) Cash Book

(b) Ledger

(c) Salary Register

(d) Fee collection register

6. Bank statement.

The learned counsel M. Jawed Zakaria, Advocate then drawn my attention to page 2 of the assessment order passed under section 62 wherein it has been specifically mentioned by the Assessing Officer that "the details and bills/vouchers of the expenses claimed in the statement of accounts have been submitted and returned after examination. The submitted details were thoroughly examined with respect to the books of accounts. The expenses have been properly documented and shown in the books of accounts. Therefore, the expenses being properly declared have been accepted." He has, therefore, contended that the Assessing Officer has himself admitted the fact that each and every expenses had been properly documented and shown in the books of account which were duly produced before the Assessing Officer, hence, the expenses being properly declared have been accepted by the Assessing Officer.

The learned representative of the appellant has contended that both the orders passed under section 66A of the Ordinance by .the learned I.A.C are bad in law, as the validity and legality, the mode and the method of canceling the orders originally passed by the Assessing Officer after detailed scrutiny under section 62 of the Ordinance are not justified. According to him, the learned IAC has not properly appreciated the facts of the case and made mountain of a mole hill. According to him, in the show-cause notice issued under section 66A of the Ordinance, the learned IAC has noticed that on the perusal of the record, it revealed that the members of the appellant-Society have been benefited with the supply of petrol and lubricants at the cost of society but as no vehicle has been shown in the depreciation schedule the payments of costs of petrol, motor repairs, and maintenance on behalf of the members of the society are in-contravention and in violation of clause (86) of Second Schedule. According to learned A.R. it has been further observed by the learned IAC that similar huge expenses on account of salaries have been allowed but the Assessing Officer without proper verification and as per impugned order, same is the case with other expenses claimed like conveyance, miscellaneous entertainment, repairs, maintenance, telephone etc. It has been further noticed by the learned IAC that while finalizing assessment the Assessing Officer did not apply his mind consciously and the order passed by the Assessing Officer is, therefore, erroneous and prejudicial to the interest of revenue. According to the learned counsel, the appellant explained the learned IAC in reply to the show cause that the expenses claimed in respect of petrol and lubricants have been paid to. employees of the Society for Society's work and the expense under the heads conveyance, misc., entertainment, repairs, maintenance, telephone etc., are also incurred for the purpose of Society and all these expenses are Society expenses. According to him, it was further explained that the assessment was finalized by the Assessing Officer after detailed scrutiny for both the years under review and all the relevant detailed/documents as asked for by the Assessing .Officer were furnished at assessment stage but the learned IAC without considering the explanation filed on behalf of the assessee has cancelled both the assessment orders for the assessment years 1996-97 and 1997-98 and has directed to reframe the assessment after carefully examining the case and strictly in accordance with law. Mr. Jawaid Zakaria has contended that the assessee's school is run by Society, which is a Registered Society under the Society Registration Act and the members of the Managing Committee are not paid any salary but the salary is paid only to employees of the Society. According to him, the Society is solely run for educational purposes, non-commercial and non-political basis, and the membership .of the Society is open for the general public also as per by laws of the Society. Learned counsel has contended that the learned IAC has cancelled the assessment orders due to mere poor quality of an assessment, which is only a disagreement between the officers and the learned IAC has issued notice without any material on record to consider the assessment as erroneous and prejudicial to the interest of revenue. According to him, neither before issuance of notice under section 66A, the learned IAC had any material on record to consider that the assessments are erroneous and prejudicial to the interest of revenue nor after issuance of notice, the learned IAC could find any material on record to form such opinion. According to him. the Superior Courts has not approved such a type of behaviour by the learned IAC as a supervisory officer invoking without any justification his authority under section 66A of the Ordinance. According to him, the superior Courts has held in many cases that if an assessment is not found upto mark in quality by an IAC it is not sufficient ground for invoking section 66A. For the reason that the condition precedent is to arrive at an objective conclusion to the effect that the assessment order is erroneous and at the same time prejudicial to the interest of revenue. According to the learned A.R. until and unless these two conditions are satisfied mere poor quality of an assessment could riot provide justification for invoking jurisdiction under section 66A. Learned counsel has further argued that under section 66A of the Ordinance IAC has no authority to substitute his own discretion and his own way of appreciating the facts for accruing preconceived desired results. He is in support of his arguments placed reliance on the decision of this Tribunal reported as 1997 PTD (Trib.) 902 and 1997 PTD (Trib.) 164.

The learned counsel submitted that section 66-A of Income Tax Ordinance, 1979 is equivalent to section 263 of the Indian Income Tax Act, 1961 where similar powers have been vested to the Commissioner to revise an order of the Assessing Officer. The learned counsel has cited a case of Indian Jurisdiction reported as [(1988) 171 ITR 698] wherein the Allahabad High Court had rejected the Reference Application filed by the department and maintained the order of the Tribunal on the ground that the Income Tax Officer has fully examined the books of accounts and discussed the case with the representative of the assessee. It will be pertinent to reproduce an extract from the said order of the Allahabad High Court.

"The Tribunal observed that the assessee had filed the trading and profit and loss account, balance sheet and copies of the accounts of the beneficiaries before the Income-tax Officer. Having so observed, the Tribunal found that there was little reason to doubt the contention of the assessee that the books of account had been produced before the Income-tax Officer. Toe finding that the books of account had been produced before the Income-tax Officer and that he passed the orders after having, seen them is a finding of fact and no question of law arises therefrom.

In his order, the Income-tax Officer had clearly stated that he had discussed the case with the representative of the assessee and it was only after the discussion that the Income-tax Officer held that the assessee was a private specific trust and the income thereof was exempt in the hands of the trust but that it was assessable in the hands of the beneficiaries. Having considered all these facts, the Tribunal observed in paragraph 4: "The reasons given by the Commissioner of Income-tax for coming to the conclusion that the assessments had been made in a hurried way without any checking or scrutiny are superficial."

The Hon'ble High Court of Allahabad after discussing above facts has held that the above findings of the Tribunal is not -without material and hence, no question of law arises" and rejected the Reference Application filed by the Department against the order of the Tribunal. Keeping the same yardstick in view it has been pleaded by the learned counsel that in the present case the Assessing Officer had considered all the facts and examined the books of accounts and has granted the exemption to the assessee which cannot be termed as erroneous as decided in the ratio of the judgment cited supra.

Further, it was contended by the learned counsel that no defects/objections were found by the Assessing Officer in the assessment orders as the exemption had been granted after examining each and every detail. According to the learned counsel in the subsequent and preceding assessments also such expenses had been claimed and accepted by the department after threshing out all the details. The learned Inspecting Assistant Commissioner of Income-tax, only-for these two years initiated the proceedings under section 66-A after having been disagreed with the Assessing Officer and on flimsy and hypothetical grounds under the garb of section 66-A and proceedings were initiated by the learned Inspecting Assistant Commissioner of Income-tax, to fulfil the quota allocated to IACs for setting apart the normal assessments passed under section 62 which is tantamount to just harass the assessee. It has been further argued by the learned counsel that the method of accounting regularly employed by the assessee for these two years is the same as in the preceding as well as in the succeeding assessments, therefore, there is no justification for initiating the proceedings under section 66-A and for the reasons as stated .above there was no violation of clause 86 of the 2nd Schedule to the Income Tax Ordinance, 1979. , In this connection the learned counsel has placed reliance on a un reported judgment of this Tribunal bearing- ITA No.702 and 703/KB of 1996-97, dated 7-8-1999 wherein under the identical circumstances the learned JAC revised the case under section 66-A and this Tribunal held the order under section 66-A to be without jurisdiction.

Mr. M. Jawed Zakaria, in this respect has also referred the decision of this Tribunal, dated 27-10-1999 in I.T.A. Nos.431 and 432/KB/1995-96.

As regards assertion of the learned Inspecting Assistant Commissioner of Income-tax, in his show-cause notice that salaries expenses had been allowed by the Assessing Officer without proper verification, the learned counsel again invited our attention towards page 2 of the Assessing Officer's order passed under section 62 wherein the Assessing Officer has categorically mentioned that "the complete details pertaining to the salaries disbursed to the teaching and non-teaching staff during the year under consideration have been submitted. "The learned counsel, therefore, argued that the entire amount-of salaries being verifiable was accepted by the Assessing Officer and the amount was allowed after applying conscious mind. The learned counsel further argued that clause (86) of the 2nd Schedule of the Income Tax Ordinance, 1979 does not prelude any assessee to claim salaries even for the promoters of the Education Society. In this regard he has cited an unreported order of the Tribunal bearing I.T.A. No. 177 to 184/KB of 1990-91, dated 26-9-1994. Wherein this Tribunal while agreeing with the contention of the counsel observed that "no profit motive can be attributed to a reasonable remuneration claimed by any of the promoters of institutions for rendering any academic or administrative services to the institution". The learned counsel therefore, submitted that it is immaterial whether education institution claiming exemption under clause 86 pays salaries/ remuneration or not? According to him what is important is the satisfaction of the Assessing Officer that the educational institution is established solely for educational purposes and there is no profit motive of the Members of the Society running the institution.

The learned counsel regarding the assertion of the learned Inspecting Assistant Commissioner of Income-tax, that members of the Society had been benefited by way of claiming- expenses of petrol and lubricant expenses for both the years whereas, according to him, no motor vehicle has been shown in the depreciation schedule, was based on incorrect presumption, surmises and conjectures. The learned counsel, emphatically contended that- it is not necessary to claim, petrol and lubricant expenses against a motor vehicle owned by the Society, it may be claimed against a hired vehicle or such expenses may be claimed against reimbursement to the employees on account of vehicles owned by them which are used by the Society for its own work and law does not restrict an assessee to claim such expense and there is also no restriction in clause 86 of the 2nd schedule to the Income Tax Ordinance, 1979 to claim such amount which had been spent on Society's work. The only condition according to him provided under clause (86) of the 2nd schedule is that university or educational institutions should be established for education purpose and not for the purpose of profit. The learned counsel further argued that if income is exempt from tax then there will be no effect if expenses claimed are excessive as whatever income arrived at after deducting expenses the ultimate result would be that income is exempt. Learned counsel has submitted that the prime consideration for granting exemption is that the institution is run by the Society wholly for the purpose of educational purposes and not for profit. According to learned counsel the learned Inspecting Assistant Commissioner of Income Tax, has not disputed the fact that the school is not running for educational purposes but otherwise running for profit motive. He has therefore, contended that the initiation of proceedings under section 66-A were not warranted by law.

Mr. M. Jawed Zakaria, has further argued that the Assessing Officer had granted exemption after thoroughly examining the bills and vouchers ,and books of accounts and had passed conscious order after giving deliberate consideration to the facts of the case. The learned Inspecting Assistant Commissioner of Income-tax, according to the learned counsel, has merely disagreed with the learned Assessing Officer on the basis of mere disagreement with the Assessing Officer and the learned Inspecting Assistant Commissioner of Income-tax, cannot press into service the provisions of section 66-A of the Income Tax Ordinance, 1979. He` has in this regard cited a case-law reported as 1997 PTD (Trib.).902. The following observations of the Hon'ble Tribunal are relevant to the case of the appellant:

(a)"The Azad J & K High Court in the judgment reported as (1984 PTD 137) has made a distinction in the jurisdiction between an ITO and IAC as a supervisory officer. We are in respectfully agreement with the observation of Azad J & K High Court that mere disagreement between officers on result of assessment could not be genuine reason to resort to the provisions contained in section 66-A of the Income Tax Ordinance, 1979 which contains similar provision as in section 34A of the (Repealed) Income-tax Act, 1922.

(b)"It is further held that if an assessment order is not found up-to mark and in quality by an IAC it .is not sufficient ground for invoking section 66-A as a condition precedent is to arrive at an objective conclusion to the effect that the assessment order is erroneous and at the same time prejudicial to the interests of revenue. Until and unless these two conditions are satisfied, mere poor quality of an assessment would not provide justification for invocation of jurisdiction under section 66-A.

(c)"Under section 66-A of the Income Tax Ordinance, 1979 an IAC has not authority to substitute his own discretion and his own way of appreciating the facts for arriving at preconceived desired result.

(d)"Consequent to our finding that there was no material on record with the learned IAC for holding that the assessment, order was erroneous and prejudicial to the interest of revenue it is held that the order under section 66-A is to sustainable in law and is hereby vacated."

[Emphasis in the shape of underlining in the above quotes are mine]

It has been submitted by the learned counsel that section 66-A does not confer any power to the Inspecting .Additional Commissioner to indulge in deep inquiry since the power conferred on an IAC is in the nature of a supervisory power. In this regard he has cited a case-law reported as 1984 PTD 137 wherein it has been observed that: .

"It was noticed that Inspecting Assistant Commissioner felt advised to discard the assessment order of Income-tax Officer, as in his estimation. Income-tax Officer accepted low income of the assessee and allowed concession on various items. It is well accepted that provisions of section 34A were not available on the ground mere disagreement in assessment. Such powers can be invoked only when an order of Income-tax Officer is found deviating from law. Thus only, that Inspecting Assistant Commissioner was not in agreement with the result of assessment made by the Income-tax Officer, was not a genuine reason for resort to section 34A. The other aspect of the case is that power conferred on Inspecting Assistant Commissioner under section 34 is just in the nature of supervisory power. In exercise of supervisory authority. Inspecting Assistant Commissioner was not expected to indulge in deep inquiry by assuming the role of ITA. The distinction between their positions was obvious." [emphasis is on section 34A referred to above corresponds to section 66-A of the Ordinance and the emphasis in the shape of underlining in the above are mine].

The learned counsel analyzing the provision of section 66-A has contended that the learned Inspecting Assistant Commissioner of Income-tax, has not fulfilled the requirements of law as, envisaged in section 66-A. The section 66-A can only be pressed into service if all the requirements/basic ingredients of law are met. For the sake of facility the said section is reproduced hereunder:---

"66-A. Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order.

(1)The Inspecting Additional Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Deputy Commissioner is .erroneous insofar, as it is prejudicial to the interest of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment to be made.

(1A)The provisions of subsection (1) shall, in like manner, apply,--

(a)where an appeal has been filed under sections 129, 134 and 137, or an appeal has been filed under section 136, against an order passed by the Deputy Commissioner; and

(b)where an appeal referred to in clause (a) has been decided, in respect of any point or issue which was not the subject-matter of such appeal.

(2)No order under subsection (1) shall be made after the expiry of four years from the date of the order sought to be revised.

[Explanation.---For the purpose of this section, an order prejudicial to the interests of revenue shall, include an order passed without lawful jurisdiction.]"

The learned counsel has submitted that from plain reading of the above, section it is manifestly clear that following conditions ought to be fulfilled before invoking provisions of section 66-A.

(a)The learned Inspecting Assistant Commissioner of Income-tax, may call .for and examine the records of the proceedings; and

(b)If the IAC considers that the order passed by the Assessing Officer must be erroneous and prejudicial to the interest of . revenue simultaneously.

(c)The learned Inspecting Assistant Commissioner of Income-tax, must provide the assessee an opportunity of being heard.

(d)The. learned Inspecting Assistant Commissioner of Income-tax, must make or cause to be made such inquiry which he deems fit.

Mr. M. Jawed Zakaria, while interpreting the above conditions argued that the learned Inspecting Assistant Commissioner of Income-tax, is legally bound before invoking of section 66-A to examine the records of the case of the proceedings and not other subsequent details information, evidence or judgment which were not the part of record of the impugned assessment proceedings. According to him if the learned Inspecting Assistant Commissioner of Income-tax, relies upon some other material other than proceedings of the case, the provisions of section 66-A would not be applicable. The learned counsel in this regard relied upon a case law reported as (1979) 118 ITR 447 wherein.. it has been held that "expression "record of any proceedings" mean that record which was made available before the Assessing. Officer CIT fell in error in relying upon material which was not available before the Assessing officer." The learned counsel further relied on a case-law reported as 1990 PTD (Trib.) 524 wherein it has been held that issuance of notice under section 66-A without examining the records vitiates the action as a whole.

Regarding second precedent condition for invoking provision of section 66-A it was submitted by the learned counsel that both the conditions i.e. "erroneous" and "prejudicial to the interest of revenue" should simultaneously co-exist. It was contended by the learned counsel that the revision under section 66-A is in the nature of supervisory jurisdiction and can be exercised only if the circumstances must exist to enable the learned Inspecting Assistant Commissioner. of Income-tax, to exercise the powers under this section viz. (i) the order should be erroneous (ii) by virtue of order being erroneous prejudicial must have been caused to the 'department. It was further contended that an order cannot be

termed as erroneous unless it is not in accordance with law. If an order passed by the Assessing Officer is mere erroneous without causing prejudice to the interest of revenue it will not authorize Inspecting Assistant Commissioner of Income-tax (IAC) to exercise his powers under section 66-A of the Ordinance.

The learned counsel further submitted that there has to be material on record to justify that the assessment made is erroneous and which is prejudicial to the interests of revenue. He has in this respect a reported decision 1983 PTD 201, wherein it has been held that:---

"The learned judges (of the High Court) did not at all consider whether there were materials to justify the application of section 34A of the Ordinance. They failed to notice that power under section 34A can be exercised only when it is found that assessment was erroneous and prejudicial to the interests of revenue. There must be some material before the joint Commissioner for finding that the order of the Income Tax Officer was erroneous and prejudicial to the interests of revenue and mere observation to that effect is not sufficient to assume jurisdiction."

In contending so he also relied on the following case-laws of our country as well as Indian origin.

(i)1991 PTD 321; (ii) 1969 PTD 144; (iii) (1993) 203 ITR 108 and (iv) 1987 PTD 567.

The learned counsel vociferously argued that in the instant case, the order passed by the learned Assessing Officer is neither erroneous nor prejudicial to the interest of revenue. The learned counsel has also invited our attention towards dictionary meaning of expression "erroneous" and "prejudicial" to the interest of revenue used in. section 66-A in the Income Tax Ordinance, 1979 as nowhere in the said Ordinance the meaning of the expressions "erroneous" and "prejudicial" has been defined. Firstly the learned counsel relied on the Black's Law Dictionary page 486 wherein the words "erroneous" means involving error, deviating from the law. The learned counsel then invited my attention towards Grypus Juris Scandum (Vol 30-A page 867) wherein the expression has been defined as under:---

"Erroneously"-Deviating from the law, irregular, the term is never used by Courts or law writers as designating corrupt of ev.il act. It has been held synonymous with "false" used in the sense not involving evil intent and has been compared with, distinguished from "false" used in the sense involving evil intent illegal irregular and void erroneous assessment as occurring when assessors. have powers to act but err in the exercises of the power as distinguished from an illegal assessment that is one made in the absence of power."

It was, therefore, vehemently contended by the learned counsel that from the above definitions it is crystal clear that an order sought to be revised must suffer from mistake of law or fact and if it deviates from laws. It was further argued by the learned counsel that the impugned order of the learned Inspecting Assistant Commissioner of Income-tax, had failed to bring any instance which could prove that what kind of mistake of law or fact has been committed by the Assessing Officer while passing the: order under section 62. The learned Inspecting Assistant Commissioner of Income-tax, has only passed his order on the surmises and conjectures and order passed under section 62 granting exemption to the assessee has been set aside by the learned Inspecting Assistant Commissioner of Income-tax, on some guess work which is against the spirit of law as enunciated by the superior Court some of them discussed supra.

Regarding third condition for invoking the provisions of section 66-A which lays down that an opportunity of being heard be provided before initiation of proceedings under section 66-A. The learned counsel submitted that it is a universally established principle of law that "no one shall be condemned unheard." In this connection the learned counsel relied upon a case-law reported-as 1999 PTD 1358 wherein it has been held that:---

"Audi Alteram Partem i.e. no one shall be condemned unheard is a universally established principle of law. This rule is applicable to both judicial proceedings (1994) SCMR 232)...the law requires that no order affecting rights of a personal shall be passed without providing him an opportunity of being heard. The words `heard' according to the Chambers Dictionary (1994 Edition) means to perceive by the ear to have or exercise the sense of hearing, to listen or be spoken of. The past participle `heard' means `power or act of perceiving sound' an opportunity to be heard. Judicial investigation and a listening .to evidence and arguments."

The learned counsel, submitted that appellant was not provided an opportunity of being heard as stipulated above and proceedings initiated under section 66-A by the learned Inspecting Assistant Commissioner of Income-tax was .without following the above principle of law is nullity in the eyes of law and in violation of natural justice.

Regarding fourth condition it was contended by the learned counsel that `the learned Inspecting Assistant Commissioner of Income-tax, was legally. bound to conduct an inquiry and confront the assessee with the result of enquiry report. The learned counsel contended that neither any inquiry was conducted nor the appellant was confronted with the result of inquiry report as required by law. In this, regard he placed reliance on the case-law cited as NTR 1990 Trib 240 wherein at page 248 it was observed by the learned Tribunal as under:---

"And after getting the explanation he may make or cause to be made any inquiry which he deems necessary in order to meet the fourth ingredient. It is needless to say that if he makes such all inquiry he must confront the assessee with it also before putting any reliance on it".

The learned counsel submitted that upshot of the above discussion is that before- invoking provisions of Section 66-A all the four precedent conditions should be followed by the learned Inspecting Assistant Commissioner of Income-tax, and in the absence of any condition the whole proceeding would be void and corum non judice.

6. On the other hand Mr. Vishno Raja Qavi, the learned DR has supported the order of the learned Inspecting Assistant Commissioner of Income-tax and has placed reliance on C.B.R. Circular No.2 of 1996, dated 18-2-1996. He has submitted that the C.B.R. circular has given the guidelines and has provided yardstick to decide the issue pertaining to an extension of exemption under clause (86) of the 2nd Schedule to the Income-tax Ordinance, 1979. For the sake of facility the said circular is reproduced as under:---

"Subject Income of Educational Institutions---Exemption under clause (86) of Second Schedule Income Tax Ordinance, 1979.

Clause (86) of Part I of the Second Schedule to Income Tax Ordinance, 1979 reads as under:---

Income of Universities and Educational Institutions:---

Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit.

(2)It has been observed that at times claims of exemption under this clause are rejected on irrelevant grounds e.g., the objections that heavy tuition fees are charged or that salaries paid to staff are excessive. Such a treatment completely ignores the fact that the expenses claimed are vouched and verifiable, that the staff and the institution are two distinct, separate and independent legal entities and that the conditions laid down for an institution to qualify for exemption in the Clause are totally different.

(3)The real test to be applied in such cases is to see that the institution has been established solely for educational purposes and not for purposes of profit. In order to ascertain that, it has to be seen that the profits or surplus of the educational institution is not diverted to the personal benefit of the proprietor, sponsor, partner or the directors of the educational institutions. Some of the points to see in this respect are the following:---

(a)No dividend or profit, by whatever name called; is paid to the investors or the sponsors or any other person having direct or indirect interest or control in the educational institution.

(b)No extraordinary pay, salary or remuneration, by whatever name called, is allowed to any employee or any person, related two those sponsoring or managing the institution or having any interest in the management.

(c)No benefit, whether convertible in cash or otherwise, is provided to any person having a direct or indirect interest in the educational institution.

(d)The profits/surpluses of the educational institution are not invested in the stocks of companies owned or controlled by the management of the institution.

(4)It is clarified that while applying the above instructions, facts of individual cases should be examined on year to year basis and findings given accordingly. However, past history should always he kept in view if an institution shows profit for the year under review because declaration of profits for one year. does not necessarily mean that it is run. for purpose of profit.

(5)Where the sole object of an institution is educational, and the surplus is used for educational purposes only, no profit motive comes in by the mete presence of the surplus as no prudent institution can work without having some idle funds at its disposal for unforeseen contingencies.

(6)The cases of educational institutions claiming .exemption under clause (86) may, therefore, be finalized in the light of guidelines given in this circular."

The learned DR has contended that guidelines provided in the above circular are very reasonable and, therefore, the facts in each case are to be examined on year to year basis. It is not necessary that if exemption has been refused in one year it should be refused in all the subsequent years to come and like wise it is not necessary that if exemption is allowed one year or more years it should be automatically allowed in all the subsequent year. He has maintained that since it is basically a question of fact, therefore, it has to be considered on year to year basis. Learned DR has further submitted that learned IAC on perusal of the record found that the members of the Society were benefited in shape of claiming expenses on petrol, motor repairs etc., whereas no vehicle has been shown in the depreciation schedule: He, therefore, observing that such. benefit of costs of petrol and motor repair and maintenance on behalf of the members of the Society are in contravention and in violation of clause 86 of Second Schedule and therefore, after issuing show-cause notice to the assessee has cancelled 'the assessment orders directing the Assessing Officer to reframe the assessment after carefully examining the, case and strictly in accordance with law. According to the learned D.R. the appellant has full opportunity to explain his position before the Assessing Officer, as the learned IAC has only set aside the assessment for de novo consideration:

The learned counsel for the appellant Mr. M. Jawed Zakaria, while rebutting the contentions of the learned DR, firstly contended that the aforementioned circular was available much before the finalization of assessment under section 62 as it was published in various journal including PTCL 1996 Statute 1350 and this circular would be in the knowledge of the learned Assessing Officer. Secondly it was contended that the said circular is contradictory one. The learned counsel submitted that in para 2 of the said circular it has been laid down by the C.B.R. that the exemption cannot be rejected on irrelevant grounds of heavy fees are charged or that salaries paid to staff are excessive and if such expenses are vouched and verifiable tile condition laid down for exemption are fulfilled. Therefore, this part of the circular is also beneficial to the assessee. The learned counsel submitted that in para 3 of the said circular it has been laid down that real test for granting the exemption in such cases is to see whether, institution is run solely for educational purposes and not for profit motives. The learned counsel pointed out that from the very inception the school is run for educational purposes, as this fact has also not been disputed by the IAC. The learned counsel further pointed out that the Assessing Officer has not granted exemption blindly but he has granted exemption on year to year basis after thrashing out each and every details and scrutiny of adjusted, closed and audited books of account. The history of the case also supports the view point of the assessee and the assessee had been granted exemption in the preceding as well as in the succeeding year, which is also as per clause 4 of the said circular.

The learned counsel without prejudice to the above further submitted:

(a)That the said circular is patently and completely irrelevant as it cannot supersede provisions of Income Tax Ordinance, 1979. No power is vested with Central Board of. Revenue to overrule the Ordinance, provisions or Constitution of Pakistan. Clause 86 of Second Schedule of the Income Tax Ordinance, 1979 cannot be made dead by said circular. The unique, exceptional strong concept legislated by the C.B.R. through impugned circular but C.B.R. was not competent to legislate any provision through circular legislated by Parliament.

(b)The Circular No.2 of 1996 is ab-initio illegal and invalid as the C.B.R. cannot modify the basic concept of any provision of the Income Tax Ordinance, 1979 as has been done through the said circular.

(c)This may kindly be noted that such type of circulars NARROWISM of C.B.R. litigation oriented administration of tax department create hatred for Revenue.

(d)The para 3 of the impugned circular of C.B.R. has changed the whole law of clause 86 read with section 14 of the Income Tax Ordinance, 1979. There is no inherent legal power to withstand the said circular. Litigation (Appeal) is not the answer to the ills of bad law. The circular 2 of 1996 is contradictory to the Income Tax Ordinance, 1979 and the narrow thinking of C.B.R. It must be scrapped at once by the Hon'ble Appellate Authority the black market in Tax Department and corruption originates from such circulars. Appellate Authority must stop this practice and abolish this circular No.2 of 1996.

(e)The Circular 2 of 1996 is barbaric and unethical and it does override and against the provisions of Income Tax Ordinance, 1979.

(f)The Circular 2 of 1996 is prejudicial to the assessee and not validly made.

(g)That it is respectfully submitting that C.B.R. while issuing such type of circular should see the provisions of law, scheme and intention of Legislature with a sense of objectivity and not with an assumption and prejudice and should not always translate as these are bound to be unreasonable and against the taxpayers interest. If the law has given a concession to enable taxpayers to claim "Full Exemption" in regard to his Income irrespective of qualification of quantum of income and the said full exemption is also subject to condition and if assessee do fulfil all conditions laid down in the specific clause then C.B.R. cannot restrict the quantum of income for exemption through circular whereas the assessee furnished adjusted closed and audited books of accounts where regularly maintained and properly audited by a firm of Chartered Accountant.

(h)The contrary view canvassed by the 'Circular No.2 of 1996 is patently untenable and legally unsustainable. In this regard the learned counsel has placed reliance on number of case-laws.

(i)It was further argued that the C.B.R. circular mentioned supra has to be followed in case it is beneficial to the assessee but in case it is not so, then it cannot be followed. In other words if a C.B.R. circular is remedial and beneficial to the interest of appellant/assessee it should be followed. The C.B.R. circular mentions supra is neither beneficial nor remedial the reliance by the learned DR on the said Circular is misplaced and unjustified.

(j)The learned counsel also drawn out attention towards another case-law reported as (FAISAL PLAZA v. C.B.R. 1995 PTD 850) wherein it has been observed that where concession had been granted to taxpayer by circular in question, in case of doubt in its interpretation, benefit must go to taxpayer and not to the State.

(k)The learned counsel further submits that the provision of Income Tax Ordinance. 1979 enjoying upon Assessing Officer employed in the execution of Income. Tax Ordinance, 1979 to abide by orders and instructions issued by C.B.R. in excess of the authority or contrary to the legal provisions is not binding on the Assessing Officer. Reliance in this respect has placed on the decision reported as 1975 PTD (Trib.) 1.

8. I have given, my careful consideration to the facts of the case as well submissions made from both the, sides. Firstly, for better perception of the case I have to recourse to the provisions of clause (86) of the 2nd Schedule to the Income Tax. Ordinance, 1979 which reads as under:---

(86)any income of any University or other educational, institutions established solely for educational purposes and not for the purpose of profit."

From perusal of the above clause it is un ambiguously clear that the only criteria for granting exemption to the educational institution is that it must be established solely for the purpose of educational purpose and not for any other purposes. The predominant object of the Educational Society has to be looked into before granting exemption. If the predominant object is for educational purpose and not for earning profit then exemption is granted to the educational institutions. There is no other condition in the clause (86) except that object of the Society running the school or educational institution. From perusal of the records presented before this Bench it is unequivocally clear that the school is run by the Society solely for the purpose of educational purposes.

Admittedly this fact has also not been disputed by the learned Inspecting Assistant Commissioner of Income-tax: The educational institution under reference is purely functioning on a non-profit basis as the entire amount of income, the excess of the receipts over the expenses has been capitalized and distributed to the teaching staff as well as non teaching and industrial employees. Whatever/amount claimed on account of lubricant, petrol, salaries, entertainment, Misc. Expenses, repair and Maintenance telephone etc. were incurred on the functioning of the Society. No concrete evidence has been brought on record by the learned Inspecting Assistant Commissioner of Income-tax that any violation of clause (86) was committed by the appellant. As such, contention of the B learned Inspecting Assistant Commissioner of Income-tax is hereby repelled for the simple reason that after examining audited books of accounts, ledger, cash books and details of various expenses and after examining each and every details the learned Assessing Officer has passed the conscious order under section 62 granting exemption to the appellant.

The prime consideration is that the Society is run solely for the purpose of education only and if it is substantiated that school is run on no profit basis then on proceedings can be initiated under the garb of section 66-A. In this regard would like to cite a case-law reported as 1994 PTD 1294 (Trib ) wherein the learned Tribunal held as under:---

"This fact is not deemed that the assessee is running these schools on no profit and no loss basis. Nothing on record has been brought in by the Assessing Officer to prove that any surplus arising out of running of schools has been distributed amongst the trustees or have been misused by the management. Therefore, in the absence of any evidence contrary, the trust would not loose the benefit of exemption under clause (86) available to it."

In the assessment years under consideration the learned Inspecting Assistant Commissioner of Income-tax has not disputed that .the school is not run on no profit and no loss basis, therefore, the assessee is entitled to enjoy this benefit.

In another case of School decided through ITA No.177 to 184/KB of 1990-91, dated 26-9-1994, the learned Tribunal held under the identical circumstances that "no profit motive can be attributed to a reasonable remuneration claimed by any of the promoters of institution for rendering any academic or administrative services to the institution." Following ratio of this decision/not only salaries but also petrol, lubricant, entertainment, repair and maintenance can be distributed to the staff and other teaching staff who were engaged in imparting education and were functioning wholly and exclusively for Society's work. Regarding invoking of provision of section 66-A by the learned Inspecting Assistant Commissioner of Income-tax I would like to observe that powers under section 66-A can be exercised by the learned Inspecting Assistant Commissioner of Income-tax after calling for and examining of the record of assessment proceedings and if IAC considers that order passed in said proceeding by the Deputy Commissioner of Income-tax is erroneous insofar as it is prejudicial to the interest of revenue. The learned inspecting Assistant Commissioner of Income-tax may make such finding as he deems necessary and can invoke jurisdiction if there is some material before him to find out that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue.

In the present case for both the years all the expenses have been examined after conscious application of mind by the Assessing Officer while passing the order under section 62 and there remains no ambiguity warranting any action on the basis of alleged expenses which were otherwise also subjected to audit. This view finds support from the order of the Tribunal reported as 1996 PTD Trib 1069 wherein while agreeing with the learned counsel to the effect that Assessing Officer fully considered the issue, appreciated the relevant facts and thereafter allowed the financial expenses claimed by the Appellate Tribunal held that it is not proper to say that order was erroneous as observed by the learned Inspecting Assistant Commissioner of Income-tax and consequently quashed the order passed under section 66-A.

The learned Inspecting Assistant Commissioner of Income-tax has based his order and has invoked the provisions of section 66-A in the year under review on arbitrary, vague and fanciful assumption, while the jurisdiction under section 66-A can be invoked. on the basis of sound facts leading to inference that assessment made by the Assessing Officer was in any manner erroneous and. prejudicial to the interest of revenue. The learned Inspecting Assistant Commissioner of Income-tax had no material on the record for considering that the assessment order is erroneous and resulted in loss of revenue. The show-cause notice amply prove that the learned Inspecting Assistant Commissioner of Income-tax had no material whatsoever to consider that assessment orders were erroneous arid prejudicial to the interest of revenue as no specific instances has been given by the learned Inspecting Assistant Commissioner of Income-tax and he has incorrectly invoked the provisions of section 66-A without assigning any reason or showing any material as to why he has, considered the assessment orders to be erroneous and prejudicial to the interest of revenue except that he did not agree with the treatment meted out by the Assessing Officer. In the case under appeal the learned Inspecting Assistant Commissioner of Income-tax has merely disagreed with the Assessing Officer. The Azad J & K High Court in the judgment reported as 1984 PTD 137 has observed that "mere disagreement between officers on result of assessment could not be genuine reason to resort to-the provisions contained in section 66-A of the Income Tax Ordinance, 1979 which contain similar provision as in section 34-A of the Income-tax Act, 1922."

Now reverting to the contention of the learned counsel that the learned Inspecting Assistant Commissioner of Income-tax has not given specifically finding as to how the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue, the reliance placed by the learned counsel on the case reported as 1999 PTD (Trib.) 3229 has been considered by me wherein it has been held that learned Inspecting Assistant Commissioner of Income-tax should give instances of findings which are erroneous and prejudicial to the interest of revenue. It was further held by the Tribunal that the findings of the learned Inspecting Assistant Commissioner of Income-tax must be in nature of objective and not subjective and do not base on probabilities and possibilities in other words it should not be based as such which require probe into the matter. It will be pertinent to reproduce an extract from the above mentioned order:-----

"In order to exercise jurisdiction under section 66-A the precondition is that after examination of record if any proceedings or after making or causing to be made such enquiry as deemed necessary the Assessing Officer comes to a definite conclusion based on the material and reasons that the order sought to be revised is erroneous as well as prejudicial to the interest of revenue. Mere possibilities and probabilities of coming to some other conclusions had the desired enquiries being held would not provide sufficient justification for exercise of jurisdiction under section 66-A. The reason being that-the findings required to be given under section 66-A have to be objective in nature and if the findings such as given by the learned ACIT in this case that, had the probe been conducted, the source of investment would have become clear, with regard to application of section 13, or enquiries as intended in the show-cause notice such as, "what were the past activities?." And, "what kind of crop compelled them to buy the items only from one season", are allowed to be raised in the proceedings under section 66-A, it shall become subjective in nature and such proceedings are bound to become wanton in nature which could never be the intention of Legislature while conferring jurisdiction under section 66-A. For the foregoing reasons it is held that the learned ACIT has failed miserably to make out a case for exercise of jurisdiction under section 66-A and, therefore, the impugned order under section 66-A is hereby cancelled. The assessment order stands restored."

Now reverting to the question whether the learned Inspecting Assistant Commissioner of Income-tax was justified in holding the order passed by the Assessing Officer to be erroneous and prejudicial to the interest of revenue it is observed by me that where the Assessing Officer has applied his mind while making the assessment or granting the exemption after examining the accounts and arrived at a judicious conclusion and such a conclusion cannot be termed as erroneous because the Assessing Officer has exercises the quasi judicial powers vested on him.

As discussed by me in the preceding paras of this order I have found that the learned IAC has invoked the jurisdiction under section 66-A on the grounds that `some expenses like lubricant, conveyance, Misc., and other expenses were incurred to benefit the Society's members but he has not considered the fact that these are the facts which has already been considered by the Assessing Officer after confronting the assessee and the learned IAC has not established in the impugned orders that the assessment orders are erroneous as well as prejudicial to the interest or revenue. I once again for the reasons mentioned in the foregoing paras held that no deviation from law or mistaken of law was committed by the assessee.

I am therefore, of the considered view that for this fact assessments for the charge years could not be set aside under the garb of section 66-A of the Income Tax Ordinance, 1979. 1 am further fortified in my view from the Hon'ble High Court of Azad J & K in the case reported as 1984 PTD 137 wherein their Lordships have held as under:---

"The powers conferred under section 34-A indicated that such powers were exercisable only on the proof and satisfaction that order of the Income-tax Officer was unlawful, as such erroneous, so as to prejudicial to the interest of revenue. Unless such a condition was fulfilled powers under the section could not be invoked."

9. I find force in the arguments of the learned counsel for the appellant that , mere poor quality of an assessment not provide justification for invocation of jurisdiction under section 66A of the Ordinance. I am further of the view that until and unless the two conditions that the assessment order is erroneous and at the same time prejudicial to the interest of revenue are not established, the assessment, order cannot be cancelled and in the present case, the learned IAC has` made mountain of mole hill and has cancelled the assessment orders which 'were passed. after detailed scrutiny and there was no material on record with the learned IAC for holding that the assessment order for both the assessment years under review were erroneous and. prejudicial to the interest of revenue. I, therefore, vacate both the impugned orders passed by the learned IAC under section .66A being not sustainable under the law and the assessment orders for the assessment years 1996-97 and 1997-98 are hereby restored.

10. Both the appeals are allowed, accordingly.

C.M.A./616/Tax (Trib.)Appeals allowed.