Per Rasheed Ahmad Shaikh, Judicial Member:

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

----Ss. 65 & 59(1)---Additional assessment---Definite information-- Issuance of exemption certificate from payment of Capital Value Tax for purchase of property---assessment under Self-Assessment Scheme-- Reopening of assessment on such information regarding purchase of property---Validity---Department was already in possession of information with regard to purchase of property prior to framing of assessment under S.59(1) of the Income Tax Ordinance, 1979 as well as invocation of provision of S.65 of the Income Tax Ordinance, 1979-- Such factum was evident from the first show-cause notice which clearly spelt out that the information regarding purchase of property was already in possession of the department when the assessee's return of income was subjected to scrutiny for acceptance under the Self Assessment in terms of passing the order under S.59(1) of the Income Tax Ordinance, 1979---No new information had come into possession of the Department to which the provision of S.65 of the Income Tax Ordinance, 1979 could be attracted---Provisions of S.65 of the Income Tax Ordinance, 1979 had been invoked on whimsical inferences, drawn from a set of facts which did not have characteristic of its being definite

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

----S. 65---Additional assessment---" Definite information" ---Purchase of property---Re-opening of assessment requiring assessee to explain source of investment on the ground that income declared/assessed was quite nominal which was not even sufficient to meet day to day expenses-- Validity---Such information, in no way, could be held to be definite in its character because possibility of fluctuation and adjustment therein could not be ruled out---Such information did not acquire the standard. of `definite information" ---Department was merely in possession of an information the truth of which had yet to be established---Department had resorted to fishing enquiry -for reopening of case---Reopening of assessment could not be declared to have been validly made in the circumstances.

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

----S. 65(1)---Additional assessment-- -Classification of subsection (1) of S.65 of the Income Tax Ordinance, 1979---Object---Legislature had purposely categorized three clauses (a), (b) and (c) in subsection (1) of S.65 of the -Income Tax Ordinance, 1979 in order to exercise powers by the Assessing Officer under the said section otherwise only a single sentence could have been taken by the legislature to cover up all the eventualities referred to in the said clauses---Purport and tenor behind classifying such categories was that the Assessing Authority should be mindful and decisive about the case which if was going to reopen as to whether this was a case of under assessed or escaped assessment or assessed at too low a rate or had been the subject of excessive relief or refund or the total income or the tax payable by the assessee had been assessed or determined under S.59(1) or S.59A of the Income Tax Ordinance, 1979 , have deemed to or been so assessed or determined under S. 50(1) or S. 59A of the Income Tax Ordinance, 1979.

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

----S. 65---Additional assessment---Issuance of notice under S.65 of the Income Tax Ordinance, 1979---Non-ticking of relevant clause---Effect-- Non-ticking of relevant clause renders the notice to be nullity in law and superstructure built thereon was apt to fall down.

1997 PTD 47; 1997 PTD (Trib.) 1994 and 2000 PTD (Trib) 2531 rel.

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

----S. 65---Additional assessment---Initiation of proceedings without lawful jurisdiction---Setting aside of assessment by First Appellate Authority---Validity---Proceedings under S.65 of the Income Tax Ordinance, 1979 had been initiated in absence of any lawful jurisdiction on the part of Assessing Officer---First Appellate Authority had erroneously set aside the assessment for de novo consideration-- Appropriate course available with the First Appellate Authority was to strike down the impugned assessment instead of setting aside the same-- Order passed by the First Appellate Authority was vacated and that made under Ss. 62/65 of the Income Tax Ordinance, 1979 was declared to have been illegality passed which was cancelled/annulled by the Appellate Tribunal.

Per Khawaja Farooq Saeed, Judicial Member:

(f) Income-tax-----

----Jurisdiction---Principles---Basic jurisdiction of a Court while deciding an issue is restricted up to the matters decided in the impugned order-- Exception to such rule is that if the issue is a question of law and it goes to the very root of the order, the Courts can and must decide such issue.

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

----S. 65---Additional assessment---Legality of reopening of an assessment under S.65 of the Income Tax Ordinance, 1979 could be challenged at any stage of the proceedings as it relates to the acquiring of jurisdiction.

(h) Income-tax-----

----Legal question---No finding by the First Appellate Authority-- Finding by Appellate Tribunal on such issue---Validity---If there was no finding by First Appellate Authority and the matter related to a legal question specially that of jurisdiction it could be raised and decided by the Courts hearing appeal.

1953 XXIII ITR 15; (1985) 155 ITR 306; (1962) 45 ITR 454 and (1963) 48 ITR 427 ref.

(i) Income-tax-----

----Cancellation or annulment of assessment---Where it was established that requirements of law were not fulfilled the decision always was cancellation or annulment of the assessment.

Miss Uzma Butt for Appellant.

Javed ur Rehman, D.R.O. for Respondent.

Date of hearing: 21st March, 2002.

ORDER

RASHEED AHMAD SHEIKH (JUDICIAL MEMBER).---This appeal at the behest of the assessee-appellant is directed against the order passed by CIT(A) Zone-V, Lahore, dated 27-4-2000 in respect of assessment year 1996-97.

2. In this case reopening of assessment under section 65 of the Income Tax Ordinance, 1979 and the addition made under section 13(1)(aa) had been contested on account of being unwarranted on the facts and in the circumstances of the case: Facts leading for disposal of this very appeal are that the assessment in this case was originally completed under section 59(1) of the Income Tax Ordinance, 1979 at net income of Rs.42,600. Subsequently an information was received by the Tax Department that the assessee had purchased one Kanal Bungalow bearing No.226-Shadman, Lahore from Punjab Seed Corporation Lahore for a consideration of Rs.39,10,000 inclusive of incidental charges. Before drawing any adverse inference, the assessee was confronted through a show-cause notice as to Why its fair market price may not be adopted at Rs.50,00,000 and also to explain sources of investment made for the purchase of the said Bungalow as apparently the income declared/ assessed was quite nominal which was not even sufficient to meet day to day expenses. The reply furnished by the assessee was found un satisfactory. Accordingly the assessment originally made under section 59(1) was reopened by way of issuance of notice under section 65. However, during the course of re-assessment proceedings no adverse inference was drawn with regard to declaration. of understatement of value of the Bungalow being purchased from one of the Departments of the Punjab Government. As regard sources of investment made for the purchase of the Bungalow, it was submitted that a sum of Rs.15,79,420 was paid after encashment of foreign exchange bearer certificate. This part of investment was accepted by the Assessing Officer being properly documented. So far as residual amount of Rs.z3,30,580 was concerned it was explained that this amount was invested after sale proceed of his ancestral property located at Kohat and a certificate to this effect issued by the Political Agent Kohat was also submitted The Assessing Officer refused to accept this part of investment. The reason advanced for not allowing credit of this amount towards the purchase of Bangalow was that the assessee had failed to furnish any documentary evidence as well as details of movable and immovable assets of Rs.30,00,000 as much as those assets were not reflecting in the wealth statement furnished in respect of assessment year 1984-85 and 1994-95. Accordingly total net income was determined by the Assessing Officer at Rs.23,73,180 inclusive of addition made under section 13(1)(aa) and also the income already assessed under section 59(1) of the Ordinance 1979 amounting to Rs.42,600.

3. When this order was assailed before the First Appellate Authority who set aside the case for de novo proceedings with certain directions.

4. Before us the learned counsel for the assessee vehemently objected to reopening of the case on account of being not legally made as definite information was lacking which is pre-condition for invocation of provisions of section 65 of the Income Tax Ordinance, 1979. Thus, the Assessing Officer had fallen in grave error in canceling the already completed assessment for want of definite information. According to the learned counsel the information regarding purchase of Bungalow was already in possession of the Department when an exemption certificate from payment of CVT against this property was obtained from the Assessing Officer on 8-11-1995 while the proceedings under section 65 were initiated on 16-2-1997 by way of issuance of a show-cause notice. Further argued that purchase of property was merely an information with the Department the, truth of which had yet to be established. Thus provisions of section 65 of the Income Tax Ordinance, 1979 are not attracted in such eventuality. It was also pleaded that as relevant clause of section 65 has not been ticked, hence initiation of proceedings by the Assessing Officer under section 65 was not tenable in law even on this score. On merits it was contended that since the Assessing Officer has not given any plausible reasoning in not accepting the certificate issued by the Political Agent Kohat, therefore, the addition made under section 13(1)(aa) was not maintainable in the eye of law.

5. The learned DR on the other hand contended that since the case has been reopened on receipt of an information that the assessee had purchased a property therefore, this was a definite information in order to invoke section 65 of the Ordinance, 1979. Also contended that as the assessee could not explain sources of investment to the tune of Rs.23,30,580. made in the purchase of bungalow, so this part of investment had to be assessed under section 30 as other income of the assessee which had escaped to assess. Thus the Assessing Officer had rightly ticked escaped assessment instead of under assessed in the notice issued under section 65.

6. Anxious thought has been given to the rival argument and have also perused the orders of the two authorities below as well as the documents furnished before us. There is a lot of substance in the contention raised by the learned counsel for the assessee that the Department was already in possession of the information, with regard to purchase of bungalow by the assessee in Shadman Colony, Lahore, prior to framing of assessment under section 59(1) as well as invocation of provisions of section 65 of the Income Tax Ordinance, 1979. This factum is evident from the first show-cause notice issued on 16-2-1997 which clearly spells out that the information regarding purchase of property was already in possession of the Department when the assessee's return of income was subjected to scrutiny for acceptance under the self assessment in terms of passing the order under section 59(1) of the Income Tax Ordinance, 1979. Para 2 of the said notice starts with the sentence "As per information available with this office you purchased Property No. 226 Shadman Lahore". even opening para of the second show-cause notice, dated 30-3-1998 reads as under:--

"The scrutiny of assessment record in your case revealed that you purchased Property No.226 Shadman-I, Lahore measuring one Kanal from Punjab Seed Corporation for a registered value of Rs.34,00,000 for which C.V.T. exemption certificate was obtained by you, dated 8-11-1995. Your assessment record reveals that return for the charge year was filed at nominal income of Rs.42,600. However, net wealth as on 30-6-1994 shows a nominal wealth in your account at Rs.93,000. This history suggests that apparently no sources were available with you and you made the said investment out of undisclosed source"?

7. Even the information used by the Department for invocation of section 65 of the Income Tax Ordinance, 1979 does not fall within the parameter of the term "definite information", used in this section, as has been laid down by higher Appellate Courts of Pakistan in their judicial pronouncements. In those judgments this term has been interpreted that the said information in all probabilities should be correct in all and there should not be likelihood of its being wrong or untrue and there is no necessity to conduct probe to be satisfied about its correctness and there should not be any chance of its being untrue. While only the basis advanced by the Assessing Officer for reopening of the case was that the assessee was required to explain sources of investment made in the purchase of the bungalow as apparently the income declared/assesses was quite nominal which was not even sufficient to meet day to day expenses. How could this piece of information be considered as definite for reopening of the case. In no way such information can be held to be definite in its character because possibility of fluctuation and adjustment therein cannot be ruled out. Thus, such information does not acquire the standard of definite information. In view of inherited controversy existed in such information it can safely be held that the Department was merely in possession of an information the truth of which had yet to be established. In fact the Department had resorted to fishing enquiry for reopening of the case. In this view of the matter reopening of the already completed assessment cannot be declared to have been validily made.

8. Furthermore all these facts lead to the conclusion that no new information came into possession of the Department to which the provisions of section 65 of the Income Tax Ordinance, 1979 could be attracted in this case. Since the Department was in possession of the information regarding purchase of property prior to finalization of assessment under section 59(1) of the Income Tax. Ordinance, 1979. therefore, the return of income of the assessee could have been set apart out of the purview of Self-Assessment Scheme by the Assessing Officer to be assessed under normal law. We are, thus persuaded to hold that the provisions of section 65 of the Income Tax Ordinance, 1979 have been invoked in the present case on whimsical inferences, drawn from a set of facts which does not have characteristic of its being definite.

9. Next limb of the learned A.R.'s contention relates to non-ticking of relevant clause of the notice issued under section 65 of the Income Tax Ordinance, 1979. This contention also carries weight. Actually the legislature has purposely categorized three clauses (a), (b) and (c) in subsection (1) of section 65 of the Income Tax Ordinance, in order to exercise powers by the Assessing Officer under this section. Otherwise only a single sentence could have been taken down by the legislature to cover up all the eventualities referred to in the said clauses. The purport and tenor behind classifying such categories is that the Assessing Authority should be mindful and decisive about the case which he is going to reopen as to whether this is a case of under assessed or escaped Assessment or assessed at too low a rate or has been the subject of excessive relief or refund or the total income or the tax payable by the assessee has, been assessed or determined under subsection (1) of section 59 or section 59A or deemed to have been so assessed or determined under subsection (1) of section 59 or section 59A.

Reference in this regard is made to a few case-law cited as 1997 PTD 47 (H.C. Lhr.), 1997 PTD (Trib.) 1994 and 2000 PTD (Trib.) 2531 whereby the ratio and the principle decidendi is that non-ticking of E relevant clause renders the notice to be nullity in law and superstructure built thereon is obliged to fall down.

10. In view of foregoing discussion we have no hesitation in holding that proceedings under section 65 have been initiated in the absence of any lawful jurisdiction on the part of the Assessing Officer and the Appeal Commissioner had erroneously set aside the assessment for de novo consideration. Appropriate course available with the Appeal Commissioner in such circumstances was to strike down the impugned F assessment instead of setting aside the same. Consequently, the order passed by the Appeal Commissioner is vacated and that made under section 62/65 of the Income Tax Ordinance, 1979, dated 30-11-1998 is declared to have been illegally passed which is hereby cancellated/annulled. Corollary would be restoration of the order passed by the Assessing Officer under section 59(1) of the Income Tax Ordinance, 1979.

11. Since we have adjudged this appeal purely on legal grounds, therefore, we do feel necessity to go into the merits of the case on the point of addition made under section 13(1)(aa) of the Income Tax Ordinance, 1979.

12. The assessee's appeal accordingly succeeds.

As per Muhammad Sharif Chaudhry Accountant Member Contra.---My learned brother Mr. Rasheed Ahmed Sheikh, the Judicial Member, has cancelled/annulled the assessment made by DCIT for the year 1995-96 under section 62/65 of the Income Tax Ordinance, 1979 for the reason that the DCIT had no definite information for reopening the assessment under section 65 and the jurisdiction exercised by him for making the assessment under this section is illegal and unlawful. I do not agree with this decision of my learned brother for the reasons given as under:

2. The question whether DCIT's action under section 65 is justified or not does. not arise from the appellate order of the learned Commissioner, dated 27-4-2000, which has been impugned before us. The main complaint/grievance of the assessee before us as per, ground of Appeal No.2 is that the learned Commissioner hag completely ignored the grounds of appeal raised before him in the memorandum of appeal particularly the grounds Nos.2, 3 and 4 which questioned the validity of show-cause notices and reopening of the assessment under section 65. From the perusal of the impugned appellate order it comes to light that the learned Commissioner has not written even a single word about the issue of jurisdiction of action under section 65. Even the grounds of appeal questioning the validity of show-cause notice under section 65 and reopening of assessment have not been mentioned in the appellate order passed by him. He has merely discussed the sources of investment made by the assessee in the purchase of the property under discussion. In view of the situation it would not be in the interest of justice if we technically knock out the assessment order of the DCIT on legal issue of validity of action under section 65 which has not been even touched upon in the appellate order impugned before us.

3. In view of this situation discussed above, it would be fair and most appropriate if the case is remanded to the Commissioner (Appeals) with the directions that he should call both the patties, examine the assessment record and give his' decision about assessee's grounds of appeal No.2, 3 and 4 which had been duly presented to him in the memorandum of appeal.

Since the difference of opinion has arisen between the learned Members of the Division Bench on the following point, the case should be referred to the honorable Chairman of the ITAT for reference to a third Member who should resolve the difference.

"Whether the learned Judicial Member is justified to annul the assessment order of the DCIT on the issue of non justification of action under section 65 when this issue does not arise from the appellant order of the Commissioner which has been impugned by the assessee before the ITAT"?

(As per Khawaja Farooq Saeed Judicial Member. Concld.) In this case of difference of opinion between two learned members the question proposed for my opinion as third member is as follows:--

"Whether the learned Judicial Member is justified to annul the assessment order of the DCIT on the issue of non-justification of action under section 65 when this issue does not arise from the appellate order of the Commissioner which has been impugned by the assessee before the ITAT"?

The precise proposed question therefore, is that whether an order can be cancelled on the basis of an issue, which does hot emerge out of the order of the CIT(A).

From the above question it is apparent that there is no difference of opinion on the facts of the case and that if the issue would have directly arisen from the order of the CIT(A) the learned A.M. would have no objection upon cancellation of the order. Since opinion of the third Member has been sought on a very restricted point and the third Member cannot go beyond the question proposed I will remain within the issue. Ref. 1953 XXIII ITR 15 and (1985) 156 ITR 306. Even if I extend my jurisdiction beyond this question I do not find any scope of discussion in the manner that honourable Accountant Member has proposed. It is his opinion that the assessee did take up this issue through his grounds but since the CIT has omitted to give a finding on the same the matter should be set aside for his consideration and it should not be decided by the Tribunal.

The perusal of the order of the CIT does confirm this situation, however, the same having merged in the question framed by the two learned Members I cannot go back to its original position.

The issue as to whether a superior authority can give a finding on an issue on which no finding has been given by the subordinate officer is almost settled and parameters which have been fixed by the superior Courts are:--

(1)That the basic jurisdiction of a Court while deciding an issue is restricted up to the matters decided in the impugned order.

(2)Exception of the above rule is that if the issue is a question of law and it goes to the very root of the order the Courts can and intact must decide such issue.

It is correct that in the above case the issue does not arise from the order of the CIT(A), but there is no point in disagreeing with learned AR that the point in issue is question of law. The legality of reopening of an assessment under section 65 can be challenged at all stages of the proceedings as it relates to the acquiring of jurisdiction. Similarly the validity of the order in consequence to a notice also is a question relating to the jurisdiction of the Assessing Officer. In a particular case whether a notice under section 65 has been issued after acquiring proper jurisdiction as prescribed under section 65 and the notice has properly been served upon after satisfaction of the legal requirement cannot by any set of circumstances be ignored being a legal question. In my humble opinion this is a point which could be raised at all stages of the proceedings if one Court or many in the judicial hierarchy omit to give finding on it. Since this is almost a settled issue and there are chain of judgments on it. However, for the one who may desire. I would like to mention here some of them:

(1962) 45 ITR 454. It says as follows:--

After examining the provisions of section 66(1) and (2) and on a review of several authorities the Supreme Court summed up the position regarding the question of law arising out of an order of the Appellate Tribunal and the scope of subsections (1) and (2) of section 66 thus:

"(1)When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2)When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it and is, therefore, one arising out of its order.

(3)When a question is not raised before the Tribunal but the Tribunal deals with it that will also be a question arising out of its order.

(4)When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order."

Similarly in (1963) 48 ITR 427 the Supreme Court of India has held:--

"Where no new facts are required to be investigated it is open to a party to put forward before the High Court on a reference under section 66 of the Indian Income Tax Act, 1922, an additional legal argument in support of a point urged before the Tribunal and considered by it."

The learned AR and DR both have argued the merits of the case. They have also narrated the circumstances if the reopening of the assessment and their objections are on its validity. However, since all these arguments are related to an issue, which has not been set forth in the question proposed before me, I respectfully ignore them. My jurisdiction being only to the extent of the issue. I respectfully hold that even if there is no finding by the CIT(A) and the matter relates to a legal question specially that of jurisdiction it can be raised and decided by the I Courts hearing appeal. The criterion for determination of the issue however, is the same as is determined in 45 ITR 454 mentioned supra.

In such situations where it is established that requirements of law are not fulfilled the decision always is cancellation or annulment.

The result is obvious. I respectfully agree with learned Judicial Member.

C.M.A./950/Tax (Trib.)Appeal succeeded.