2003 P T D (Trib.) 1956

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member and Syed Aqeel Zafar ul Hasan, Accountant Member

I.T.As. Nos.432/IB to 434/IB of 2001-2002; decided on 12/04/2003.

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

----S. 129---Appeal to Appellate Additional Commissioner---Legal lacuna---Setting aside of assessment---Annulment---Appellate forum was not meant to fill in the legal lacuna which occur in the orders appealed against before that forum but it had to see as to whether the order had been passed within the given parameters and framework of the law---If there appeared a glaring non-observance of legal formalities by such forum then the appellate forum will have to show restraint in allowing to fill in the legal gaps and lacuna.

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

----Ss. 65, 63 & 59(1)---Additional assessment---Best judgment assessment---Approval of Inspecting Additional Commissioner-- Approval for re-opening of assessment under S.65 of the Income fax Ordinance, 1979 was obtained after the finalization of assessment---First Appellate Authority set aside the assessment for de novo consideration-- Validity ---Action of First Appellate Authority of setting aside the assessment order for de novo consideration amounted to providing a time to Assessing Officer to fill in the legal lacuna to the detriment of the interest of assessee which could not be permitted, same was the case of annulment of assessment and not a case of setting aside the assessment-- Order of the First Appellate Authority was modified by the Appellate Tribunal and the assessment made by the Assessing Officer under S.63 of the Income Tax Ordinance, 1979 was annulled instead, of setting aside.

Syed Hassan Mehdi Rizvi for Appellant.

Abdul Jaleel, D.R. for Respondent.

Date of hearing: 12th April, 2003.

ORDER

The assessee, through these appeals, has assailed a combined order, dated 19-10-2001 (hereinafter referred to as the impugned order) passed by the learned CIT(A), Sialkot for the years under consideration..

2. The assessee has raised the common grounds in the manner as under: --

(i) That the order by the learned CIT(A) "Setting Aside" order of the ITO passed under section 63 is illegal;

(ii) That the learned CIT(A) has declared "That this is the case where Assessing Officer as well as IAC have shown total negligence and ignorance of law and procedure "in his order but did not cancel the, illegal order of ITO;

(iii) That the assessment under section 63 of Income Tax Ordinance, 1979 in the case of assessment already completed under section 59(1) is not legal order;

(iv) That no assessment under section 63 of Income Tax Ordinance, 1979 can be made after expiration of two years from the end of assessment year in which total income was first assessable hence the order, dated 14-6-2001 was time-barred which cannot be "set aside".

(v) That no order was passed by the ITO under section 65 of the Income Tax Ordinance, 1979 hence all the proceedings were illegal and not sustainable in the eye of law this fact was not considered by the learned CIT(A); and

(vi) That the ITO was not in position to start any proceedings under section 65 as material on record has no connection with the assessee so to save his side he has passed order under section 63 which was illegal and this fact was not considered by the learned CIT(A) while setting aside the order.

3. Hence the prayer through these appeals for the vacation of the impugned order and cancellation of that of the Assessing Officer.

4. We have heard the learned representatives of the parties and have gone through the orders of the forums below.

5. Briefly the relevant facts as arise from a combined assessment order of the years under consideration are that the assessee being an individual deriving income from a Flour Mill declared net income at (i) Rs.50,000 (ii) Rs.81,700 and Rs.90,000, for the years under consideration respectively which was accepted under section 59(1) of the then Income Tax Ordinance, 1979 (hereinafter called the Ordinance). Thereafter, the Assessing Officer issued statutory notices under section 58(1) and 61 but that remained without any response and then a notice under section 62 alongwith notice under section 61 was issued through registered post but no one attended on behalf of the assessee. The Assessing Officer gave the figures of declared results as detailed in the assessment order. He observed that an information was called from District Food Controller, Gujrat under section 144 of the Ordinance after the declared income was accepted under section 59(1). The information collected from the District Food Controller Gujrat has been reflected in the assessment order with respect to purchases made by the assessee and the Assessing Officer showed the amounts of concealed purchases by the assessee in the light of said information as detailed in the assessment order. Accordingly, the Assessing Officer on the basis of said information reopened the case under section 65 of the then Ordinance with the approval of the learned IAC vide office letter, dated 28-6-2001. As per assessment order, a notice under section 65 was issued to the assessee through registered letter on 28-6-2001 but no compliance was made and thereafter statutory notices under section 58(1) and 61 were issued but that remained unattended on behalf of the assessee. Accordingly, as per assessment order, the Assessing Officer issued final notice under section 62 alongwith notice under section 61 on 2-6-2001 for compliance by 14-6-2001 as reproduced in the assessment order giving the details of issuance of statutory notices to the assessee. It was also intimated to the assessee in the said notice that the assessee has suppressed the purchases from the District Food Controller office as per details in the assessment order. The Assessing Officer also showed his intention to estimate the sales of the assessee as per figures in the assessment order. The assessment order further revealed that the above notices were sent through registered post on 4-6-2001 but that remained un-complied with. Accordingly, the Assessing Officer rejected the declared version and proceeded to frame the ex-parte assessment while keeping in view the material available on record and as confronted vide notice under section 62. He finalized the assessment by estimating annual sales at (i) Rs.45,000,000 (ii) Rs.90,000,000 and (iii) Rs.42,000,000 and applied gross profit rate at 3% and allowed expenses on estimate basis at (i) Rs.200,000 (ii) Rs.250,000 and (iii) Rs.300,000 and calculated balance net income at (i) Rs.850,000 (ii) Rs.2,450,000 and (iii) Rs.960,000 for the years under consideration respectively and also charged WWF @ 2% on account of assessee being a manufacturer.

6. Feeling aggrieved with the above treatment, the assessee went in appeals before the first appellate forum and the learned Appeal Commissioner vide impugned order set aside the assessment for all the years under consideration for de novo proceedings with the following directions:--

"(i) Issue of limitation under section 64(1) may properly be examined for all the years:--

(ii) The assessee-appellant should be given proper opportunity to explain the discrepancies arising out of information obtained from Food Department; he should be given proper opportunity to advance his point of view and thereafter if warranted proceedings under section 65 may be initiated before completing the assessments. Assessments may thereafter be finalized as per merits of the case."

7. Now the assessee has disputed the said action of both the forums below before us on the grounds enumerated above.

8. The learned AR of the assessee in support of grounds of appeals contended that the assessee was a lessee of Ranjha Flour Mills and declared income of the assessee was accepted under section 59(1) of the then Ordinance and later on statutory notices under section 58(1) and 61 were issued and then a notice under section 62 alongwith notice under section 61 was issued on 2-6-2001 for compliance on 14-6-2001 which was sent to the assessee through registered post on 4-6-2001 as per facts given in the assessment order. He, from the said facts of assessment order as also reproduced above, contended that the date of approval of learned IAC for reopening of the case under section 65 was 28-6-2001 and the notice under section 65 was also sent to the assessee through post on 28-6-2001 and then, as the assessment order revealed the notices under section 58(1) and 61 were issued and then a final notice under section 62 alongwith notice under section 61 was stated to be issued on 2-6-2001 for compliance by 14-6-2001. He then contended that the date of- approval of learned IAC was 28-6-2001 as stated in the assessment order whereas the date of issuance of final notice under section, 62 alongwith notice under section 61 was 2-6-2001 for compliance by 14-6-2001 and the assessment order was, dated 14-6-2001 which was an exparte assessment order under section 63 of the then Ordinance and how could this situation would be reconciled with the assessment order which was passed on 14-6-2001 while the approval of the learned IAC was obtained on 28-6-2001. He further contended that firstly an order was to be passed by the Assessing Officer under section 59(1) for the acceptance of the declared income separately and then proceedings if required were to be initiated under section 65 for reopening of the case and then normal assessment under section 62 or 63 as the case may be, was to be made by another separate order. He then referred at page 3 of the order of the learned Appeal Commissioner where following observations have been made by the learned Appeal Commissioner:--

"Assessment record was requisitioned and perused. The facts mentioned above and assailed by the AR on the issue of initiating regular proceedings in assessment that were finalized under section 59(1) have not been found to be factually sustainable as per record. This is the case where Assessing Officer, as well as the IAC, have shown total negligence and ignorance of law and procedure. The assessment finalized under section 59(1) has legal sanctity behind it which cannot be violated in the manner and style it has been done in this case. The Assessing Officer started normal proceedings under section 61 without first assuming the jurisdiction under section 65. He finalized assessment on 14-6-2001 whereas he obtained permission from the IAC on 28-6-2001 and issued notice under section 65 on the same date. Thus there is glaring demonstration of cart before the horse and the same has further -been compounded by the fact that assessment has been made under section 63 without reference to section 65. No concealment has been referred to in the computation of income determined but notice under section 116(b) has been issued for filing of inaccurate particulars. The assessment suffers from legal infirmities as indicated above and therefore, not sustainable."

The learned AR then contended that the above observations, of the learned Appeal Commissioner clearly depicted the position of the assessment order in question and admittedly the assessment was finalized on 14-6-2001 under section 63 whereas the permission from learned IAC was obtained on 28-6-2001 and notice under section 65 was issued on the same date (28-6-2001). He stated that the learned Appeal Commissioner has observed about the total negligence and ignorance of law and procedure by the Assessing Officer as well as by the learned IAC. He argued that in the presence of above observations of the learned Appeal Commissioner then, there remained no room for setting aside the assessment and the case was a case of annulment/cancellation of assessment made under section 63. In that regard he referred case-laws reported as (i) 2003 PTD (Trib.) 242. (ii) 2002 PTD (Trib.) 272, (iii) 1995 PTD (Trib.) 1100 and (iv) 1979 PTD (Trib.) 19 to support his plea that the setting aside of such-like cases was not proper or justified because any legal lacuna cannot be allowed to be filled up by setting aside the case and the case was of annulment of assessment.

9. We may like to mention here that the learned AR, of the assessee only argued on this, legal issue and he did not argue the remaining grounds of appeals.

10. On the other hand, the learned DR impliedly conceded that there was some infirmity in the impugned order and in the assessment order under section 63 with regard to dates of approval of the learned IAC for reopening of the case under section 65 and date of assessment order under section 63. The learned DR could not rebut the contentions of the learned AR of the assessee through any plausible reasoning to support the orders of the forums below out of which one was ail order under section 63 where the annual sales have been estimated by the Assessing Officer after reopening of the case under section 65 and the other was the order of the learned Appeal Commissioner whereby he has set aside for de novo, proceedings after giving his detailed observations in respect of the assessment order.

11. In the situation as depicted above, we my not take long to dilate upon the issue at length because what has been stated by the learned AR of the assessee in his arguments was in fact reflective and clearly indicative of the assessment order under section 63 as well as from the impugned order of the learned Appeal Commissioner and the dates of approval of learned IAC and the date of assessment order under section 63 were nevertheless speaking the truth that the requirement which was to be done earlier in time under the law of that of seeking approval for the reopening of the case under section 65 was in fact done after the finalization of assessment and that too under section 63 only instead of mentioning the assessment under section 65/63 which was passed prior in time than the date of approval. In the presence of said observations of the learned. Appeal Commissioner as have been reproduced above, we are of the considered opinion that the case was not a case of set aside but was a case of annulment of assessment made under section 63 and the learned Appeal Commissioner instead of setting aside the case should have annulled the assessment order. Such type of orders of the forums below whenever are put to scrutiny before the higher forums in fact reflect carelessness on their part while proceeding with the cases and perhaps they do not remain conscious of the fact that they are presiding the forums where proceedings are of the nature of judicial proceedings being conducted by them where each and every step is required to be taken under the provisions of law systematically as the law so ordains and prescribes. Such action of the forums below will always remain open to criticism from the aspect of efficiency and competency of the Presiding Officers of such forums. Therefore, the appellate forum is obviously not meant to fill in the legal lacuna which occur in the orders appealed against before that forum but it has to see that as .to whether the order has been passed within the given parameters and framework of the law if there appear a glaring non-observance of the prescribed legal formalities by such forum then the appellate forum will have to show restraint in allowing to fill in the legal gaps and lacuna.

12. As a result of above observations, we are of the view that the action of the learned Appeal Commissioner in the case in hand of setting aside the assessment order for de novo consideration amounted to providing a time to the Assessing Officer to fill in the legal lacuna to the determinant of the interest of the assessee which cannot be permitted. It was a case of annulment of the assessment and not a case of setting aside the assessment. Therefore the impugned order of the learned Appeal Commissioner is modified and the assessment as made by the Assessing Officer under section 63 of the Ordinance would stand annulled instead of setting aside.

13. Consequently, the assessee's appeals succeed in the manner as indicated above.

C.M.A./776/Tax (Trib.) Appeal accepted.