Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 66A, 62, 59A, 92, 50(4) & 156‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑--Finalization of assessment after detailed scrutiny and under the direction of Commissioner of Income‑tax‑‑‑Refund‑‑‑Withholding of refund --Cancellation of assessment with the approval of Inspecting Additional; Commissioner under S.156 of 'the Income Tax Ordinance, 1979 rectifying the original order passed under S.59‑A of the Income Tat Ordinance, 1979 giving effect to tax deduction under Ss.50(4) & 50(4A) of the Income Tax Ordinance, 1979 and also treating the tax deducted under S.50(4) of the Income Tax Ordinance, 1979 by the Leasing Company under "Buy & Lease Back Arrangements" as full and find --discharge of tax liability under S.80‑C of the Income Tax Ordinance:, 1979‑‑‑Validity‑‑‑Original assessments were finalized after detailed scrutiny of the facts of the returned income, provisions of relevant Scheme of Self‑Assessment and correspondence between different Assessing Authorities‑‑‑Action in delaying refunds even to the extent of not submitting report and parawise comments as directed by the High Court resulting in withholding of refunds and invoking jurisdiction under S.66‑A of the Income Tax Ordinance, 1979 pointed towards a desperate attempt of fault finding on the part of Revenue‑‑‑Assessing Authorities digressed to the extent that norms of propriety and legality of the action were violated‑‑‑Basis of action under S.50(4) of the Income Tax Ordinance, 1979 pertaining to tax deducted under S.80‑C of the Income Tax Ordinance, 1979 vis‑a‑vis refund as determined by action under S.156 of the Income Tax Ordinance, 1979, discrepancies in purchasing and stocks etc., amounted to an attempt to cure certain deficiencies which occurred during the assessment proceedings‑‑‑Action under S.66A of the Income Tax Ordinance, 1979 amounted to change of opinion‑‑ Refund created on the basis of assessments framed as per law could not be allowed to be attributed inasmuch as that prejudice to revenue had been caused‑‑‑Order passed under S.66A of the Income Tax Ordinance, 1979 was vacated being unlawful and original assessment orders were restored by the Appellate Tribunal.

1999 PTD (Trib.) 14 and 1992 SCC 910 ref.

M. Yousaf, I.T.P. for Appellant.

Anwarul Haq, I.A.C. for Respondent

Date of hearing: 27th April, 2002.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).‑‑‑In the titled case appeals for the assessment years 1995‑96 and 1996‑97 have been filed by the appellant‑assessee on the following common grounds:‑‑

(1) That the order passed under section 66‑A of the Income Tax Ordinance, 1979 by the learned Inspecting Additional Commissioner of Income Tax, is bad in law and on facts.

(2) That the proceedings initiated under section 66‑A of the Income Tax Ordinance, 1979 being ab initio void, the learned IAC has misdirected himself in law by cancelling the order passed by the learned ACIT under consultation and direction of the CIT and the IAC (successor‑in‑office) is debarred to revise the order.

(3) That the learned IAC has erred in law by initiating proceedings under section 66A of the Income Tax Ordinance, 1979 against the order of the ACIT passed under section 59A as the order in question is not erroneous in law so far as it is not prejudicial to the interest of revenue. The action of the IAC is mala fide, illegal and without lawful authority for wrongful gains.

(4) That the learned IAC has no jurisdiction to cancel the order of the ACIT made with the approval of the IAC under section 156 of the Income Tax Ordinance, 1979 rectifying the original order (passed under section 59‑A) giving effect of tax deduction under sections 50(4) and (4A).

(5) That without prejudice to Grounds Nos.1 to 4, the learned IAC has misdirected himself in law by treating the tax deduction under section 50(4) of the Income Tax Ordinance, 1979 at Rs.77,365 by the Leasing Company under "buy and Lease Back Arrangements" as full and final discharge of tax liability under section 80‑C.

(6) That the learned IAC is not justified in law in holding that the appellant has not declared true particulars of "Sales/Purchases/Supplies". The quantum of addition so proposed in sales amounting to Rs.43,90,848 is baseless and not sustainable in laws.

(7) That true particulars of the closing stock were declared and the learned IAC is not justified in marking an addition of Rs.98,44,45 in the declared closing stock without proper evidence and enquiry. The quantum of addition proposed to be made under this head and action under section 13 of the Income Tax Ordinance, 1979 are baseless and without lawful authority, liable to be deleted.

Appeal for the assessment year 1998‑99 has been preferred on the allowing grounds:‑‑‑

(1) That the learned IAC has erred in law by initiating proceedings under section 66‑A of the Income Tax Ordinance, 1979 against the order of the ACIT passed under section 59(1) of the Income- Tax Ordinance, 1979 being an impugned case and the order in question is not erroneous in law so far as it is not prejudicial to the interest of revenue. The action off' the IAC is mala fide, illegal and without lawful authority for wrongful gains.

(2) That the learned IAC has misdirected himself in law by treating the tax deduction on "Buy and Lease Back Arrangements" as full and final discharge of tax liability under section 80‑C being a supply. This Hon'ble Income Tax Appellate Tribunal has already decided that transaction under "Buy and Lease Back Arrangements" through a leasing company is neither sale nor supply and tax deducted on the said transaction does not fall under 80‑C, of the Income Tax Ordinance, 1979. (1999 PTD (Trib.) 14)

2. We have heard Mr. Muhammad Yousuf, ITP, learned authorized representative for the appellant‑assessee and Mr. Anwarul Haq, IAC, learned representative for the department.

3. Facts of the case giving rise to the instant appeals briefly stated are that returns for the impugned year of 1995‑96 was filed by the appellant individual under the BBSAS declaring net income of Rs.17,66,692 alongwith statement of accounts and photocopies of proof of payment sunder sections 50(4), 50(4A), 50(2B) and 50(7E). As is evident from the order under section 50(A), dated 9‑9‑1997, the said return was excluded from the purview of the SAS vide Letter No.315, dated 5‑6‑1996. Appellant Approached Commissioner of Income Tax, Faisalabad for direction to the Assessing Authorities to accept the return under the BBSAS. CIT, after considering a detailed report which has been mentioned on pages 2, 3, 4, 5 and 6 of the Order under section 59(A) directed to accept the return in the following manner:‑‑‑

"I am further directed to say that claim of the assessee for acceptance of his return for the assessment year 1995‑96 under Broad Based Self‑Assessment Scheme of Income Tax for the assessment year 1995‑96 has been examined in the light of Board's Circular No.5 of 1995, dated 11‑7‑1995, Circular No.12 of 1991, dated 30‑6‑1991 and Circular No.7 of 1992, dated 18‑3‑1992 containing clarifications issued by the Board about the queries raised with reference to aforesaid Board. Circular No.12 of 1991, dated 30‑6‑1991 and fund that the return of the assessee for the assessment year 1995‑96 qualified for acceptance under the Broad Based Self‑Assessment Scheme for the assessment year 1995‑96. However, it goes without saying that if any evidence in this case initiating action under section 65 of the Income Tax Ordinance, 1979 comes to the possessions of the department, the same can be taken under normal law."

The Assessing Officer completed the action in the following manner:‑‑‑

'Keeping in view of the above sated facts and directs contained in the learned CIT‑'s office letter, the case of the assessee for the assessment year 1995‑96 is assessed under section 59‑A of the Income Tax Ordinance, 1979."

4. For the assessment year 1996‑97 return was filed declaring; income of Rs.686,651 alongwith copies of trading P&L account, depreciation, chart, details of payment of tax deducted and expenses etc. The return income being less than the last declared/assessed did not qualify for acceptance under BBSAS. Accordingly proceedings under the normal law were initiated by issuing notice under section 61. Details under as many as 22 heads mentioned on page 1 of the order, dated 26‑11‑1997 were statedly produced. After having examined the details, documents and the statement scrutinized i.e. facts of the declared sales, workshop receipts and commission etc. and appellant having been confronting under section 62 and replies made by explaining the position of commission, sales of spares, workshop etc. alongwith add-backs out of a large number of head of accounts income was assessed at Rs.24,99,584. Presumptive tax regime income was also assessed‑ on the basis of deduction under section 50(4) at Rs.41,195 at Rs.238,167 as a separate block of income.

5. For the assessment year 1998‑99 return was accepted under section 59(1). Refund determined for the assessment year 1998‑99 was issued. However, on the basis of assessments refund applications for the years 1995‑96 and 1996‑97 were filed on 28‑6‑1999. Further applications were filed on 17‑7‑1999 and 5‑10‑1999 before IAC as no action had been taken on the application, dated 28‑6‑1999. In the meanwhile in view of the continuing delay in the issuance of refund appellant was constrained to file Writ Petition No. 19567 of 1999. Respondent departmental officers were directed to file parawise comments within a week of order, dated 19‑10‑1999. As observed by the Honourable Lahore High Court respondents failed to file report and parawise comments. Appellant filed yet another CMCC 99 with the prayer that direction be issued to the respondent to comply with earlier direction to file report and parawise comments. Legal Adviser of the department was directed to do the needful as per direction, dated 3‑12‑1999. The learned (sic) however, produced order of the Inspecting Additional Commissioner, dated 7‑12‑1999 whereby assessments on the basis of which refunds were claimed stood cancelled. A further writ petition was filed challenging the action of cancellation of assessment by the IAC being without lawful authority and based on mala fide. The Honourable Lahore High Court after considering the merits of the action under section 66A withholding of refund etc., and was law on the subject arrived at the conclusion that since remedy in law against orders under section 66A was available by filing appeal before Income Tax Appellate Tribunal the petition was not maintainable. Hence these appeals before Income Tax Appellate Tribunal.

6. After having briefly mentioned the background of the assessment and issues, in writ petition and action under section 66A appeals for all the three years are disposed of in the following manner.

7. In nutshell the grievance of the appellant emanates from the facts that their return for the assessment year 1995‑96 was accepted under BBSAS on the basis of detailed report to the Commissioner of Income Tax. Assessment for the impugned year of 1996‑97 was completed under section 62 and that too under the supervision of the IAC. Return for the assessment year 1998‑99 was accepted under section 59(1). The whole matter of investigation commenced with the filing of application for issuance of refunds which too were not processed within reasonable time. As a result delay in issuance was challenged in writ petition. During the pendency of the writ petitions before filing of report and parawise comments in this regard as directed by the Honourable High Court assessments for all the three impugned years were cancelled under section 66A vide order even, dated 7‑12‑1999.

8. The learned AR of the appellant has argued that proceedings initiated under section 66A of the Income Tax Ordinance, 1979 (hereinafter referred to as Ordinance) are ab initio void as order for the assessment year 1995‑96 has been cancelled which was passed under section 59(A) after consultation of the IAC and CIT. Assumption of jurisdiction under section 66A was, therefore, unlawful. Moreover, assessment order in question could not be said to be erroneous without establishing as to what prejudice has been caused to the Revenue. AR has repeatedly emphasized that action of the IAC is mala fide for wrongful gains, therefore, illegal and without lawful authority. Elaborating his point of view learned A.R. has contended that after having passed order under section 156 of the Ordinance in order to rectify the original order with the approval of the IAC in order to give credit of deduction under sections 50(4), 50(4A), how could the same order be declared erroneous except with change of opinion. In support of this contention reliance has been placed on judgment of Supreme Court of Pakistan reported 1992 SCC 910. Learned AR has emphasized that their lordships observed that a mere erroneous assessment order without causing any prejudice to interest of Revenue will not authorize IA.O to exercise powers under section 66A. Without prejudice to the objections raised above the learned AR has staled at Bar that treating‑ tax deduction under section 50(4) on buy and lease back arrangement as final discharge of liability under section 80C is patently illegal and against the spirit of the legal pronouncements. Similarly, objections regarding sale, purchase supplies on quantum are not substantiated. As a result these were hardly any basis for cancelling the assessment framed after having considered the facts in proper detail. Regarding the discrepancies of closing stock etc., the conclusion arrived at by the IAC has been challenged to be arbitrary for addition under section 13 of the Ordinance. The AR has emphasized that jurisdiction under section 66A invoked opt wrong premises is not sustainable in law.

9. The learned DR on his turn has contended that appellant derived income from three sources;

(a) commission;

(b) workshop receipts;

(c) presumptive income on supplies etc.

Before proceedings further the learned DR was specifically called upon to argue as to whether amended proviso I made applicable from assessment year 1998‑99 could be stretched backward for action in case of assessment for the impugned year of 1995‑96 already completed under section 59(A)? The learned DR admitted that obviously amended proviso was not applicable to the assessment year 1995‑96. Admittedly in case of assessment framed under section 59(A) IAC was debarred by the amended proviso 1. Action under section 66A is thus not sustainable in law.

10. As far as assessment year 1996‑97 is concerned the learned DR has argued that purchase of cars were not disclosed as is evident from the certificate issued by Messrs. Toyota Indus Motors. The learned DR was specifically called upon to argue as to how commission for the impugned year of 1996‑97 was accepted through assessment under section 62. It has been stated by the DR that it was accepted with the approval of the IAC on the basis of evidence produced. Regarding discrepancies of closing stock it has argued that in view of the figures as per balance sheet at Rs.1,05,14,195 and otherwise declared at Rs.670,165 and recasting of the account higher gross profit was obviously the result. Similarly, for the assessment year 1996‑97 closing and opening stocks were misstated. Coupled with personal expenditure of Rs.120,000 viz‑a‑viz payment of wealth tax at Rs.455,972 while applicability of Circular No.12 the impugned order was fairly erroneous. The DR has further pointed out that glaring discrepancies in terms of salaries, allowances and expenses make the order erroneous and prejudicial to the interest of Revenue.

11. As far as assessment year 1998‑99 is concerned it has been stated by the learned AR that details of the commission/supplies were included therein.

12. The learned DR on the other hand has controverted the stand of the assessee‑appellant as in view of the lease buy back arrangement in facts and applicable law separate treatment was warranted.

13. The facts of the case and arguments of the parties have been considered. Documents consisting of original orders, decision in writ petition, refund applications filed and related correspondence alongwith orders of withholding refunds have been carefully consulted. According to our observations following facts clearly emerge from the entire proceedings:‑‑‑

(A) Original assessment for all the three years were finalized after detailed scrutiny of the facts of the returned income, provisions of relevant Scheme of Self‑Assessment and correspondence between different assessing authorities.

(B) Subsequent actions in delaying refunds even to the extent of not submitting report and parawise comments ,as directed by the Honourable High Court resulting in withholding of refunds and invoking of jurisdiction under section 66A point towards a desparate attempt of fault finding. In the process assessing authorities digressed to the extent that norms of propriety and legality of the action were violated.

(C) As far as three basis of action under section 50(4) briefly discussed above pertaining to the tax deducted under section 80C viz‑a‑viz refund as determined by action under section 156, discrepancies in purchasing and stocks etc. are concerned it amounts to an attempt to cure certain deficiencies which were omitted during the assessment proceedings particularly in case of assessment for year 1996‑97 framed under section 62. Thus action under section 66A more or less amounts to change of opinion.

(D) Submissions made by the appellant at all levels have not been dislodged inasmuch as to make out a clear case of the assessments being erroneous due to which prejudice to the Revenue would have been caused.

14. In view of our observations we have no hesitation to declare that refunds created on the basis of assessments framed as per law cannot be allowed to be attributed inasmuch as that prejudice to revenue has been caused. We are fortified on this conclusion by the fact that IAC instead of modifying the impugned orders opted to cancel. A careful examination of the original orders proceedings conducted and orders under section, 66A one cannot help in arriving at the conclusion that the impugned order have not been proved to be erroneous insofar as these were prejudicial to the interest of Revenue. As a result of discussion above orders under section 66A for the impugned years of 1996‑97 and 1998‑99 having been found unlawful are ordered to be vacated and original assessment orders restored.

15. Appeals filed by the appellant for the three years are accepted.

C. M.A./591/Tax (Trib.) Appeals accepted.