I.T.As. Nos.3014/LB of 2000 and 2456/LB of 2003, decided on 10th March, 2004. VS I.T.As. Nos.3014/LB of 2000 and 2456/LB of 2003, decided on 10th March, 2004.
2004 P T D (Trib.) 2078
[Income‑tax Appellate Tribunal Pakistan]
Before Ehsan‑ur‑Rehman, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member
I.T.As. Nos.3014/LB of 2000 and 2456/LB of 2003, decided on /01/.
th
March, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 65(3A)‑‑Additional assessment‑‑‑Limitation‑‑‑Assessment was annulled being time‑barred under S.65(3A) of the Income Tax Ordinance, 1979 by the First Appellate Authority without excluding period consumed in Constitutional petition before High Court ‑‑‑Validity‑ Period consumed in Constitutional petition, from the date of filing of the same to the disposal by the High Court, was to be excluded while computing limitation under S.65(3A)of the Income Tax Ordinance, 1979‑‑‑Period of limitation. available to Assessing Officer for making assessment under S.65(3A) of the Income Tax Ordinance., ,1979 would work out up to 30‑6‑2000 and assessment made on 28‑6‑19 9 was very much in time‑‑‑Appeal filed by Revenue was accepted and order passed by the First Appellate Authority was vacated by the Appellate Tribunal.
(b) Income Tax Ordinance (XXXI of 1979)‑‑--
‑‑‑‑Ss. 66(1) & 65(3A)‑‑‑Limitation for assessment in certain cases‑‑ Revenue's contention that period of limitation for making the assessment under S.65 of the Income Tax Ordinance, 1979 should be determined under S.66(1) was not found convincing by the Appellate Tribunal‑‑ Since notice under S. 65 (1) of the Income Tax Ordinance, 1979 was issued and served on the assessee, so period of limitation would be governed under S.65 (3A) of the Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 66(1) & 65(3A)‑‑‑Limitation for assessment in certain cases‑‑ Section 66(1) of the Income Tax Ordinance, 1979 supersedes period of limitation in Ss. 64 & 65(3A) of the Income Tax Ordinance, 1979 but it does not supersede the period of limitation prescribed under S.65 (3A) of the Income Tax Ordinance, 1979‑‑‑Section 66(1) of the Income Tax Ordinance, 1979 cannot be applied to the case of the assessee upon whom notice under S.65(1) of the Income Tax Ordinance, 1979 has been served and to whom limitation laid down under S.65(3A) has become applicable.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.111‑‑‑Penalty for concealment of income etc. ‑‑‑Opportunity of being heard‑‑‑Order had been passed ex parte in absence of assessee and assessee's view point had not been heard‑‑‑Validity‑‑‑Assessing Officer should understand that penalty proceedings were independent of assessment proceedings and the same were in the nature of criminal proceedings‑‑‑Penalty order could not be passed without providing reasonable opportunity of hearing to the assessee and without establishing that action of the assessee regarding concealment of income was deliberate‑‑‑Penalty order passed by the Assessing Officer was vacated by the Appellate Tribunal and Assessing Officer was directed to hear the assessee and pass a speaking order.
Muhammad Zulfiquar Ali, D.R. for Appellant.
Miss Ayesha Qazi for Respondent.
Date of hearing: 10th March, 2004.
ORDER
MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER).‑‑‑In the titled case two appeals have been filed by Revenue in the assessment year 1993‑94; one is directed against Commissioner's order, dated 25‑4‑2000 wherein the learned Commissioner has annulled the assessment made by the I.T.O. under sections 62/65, and the other appeal is directed against Commissioner's appellate order, dated 25‑3 2003 wherein penalty levied under section 111 has been cancelled. Both the appeals are taken up and decided by this consolidated order after hearing the Authorized Representatives of both the parties and after considering the relevant facts of the case as under.
Appeal Against Annulment of Assessment
2. It has been contended by Revenue in its grounds of appeal that assessment framed by the DCIT under sections 62/65 has wrongly been annulled by the learned CIT on the basis of limitation period as prescribed under section 65(3A) of the Income Tax Ordinance, 1979. According to Revenue the CIT should have applied the limitation period prescribed under section 66(1) as final decision of the learned High Court was received on 26‑3‑1999 and to give effect to this decision the assessment order passed by the ITO on 28‑6‑1999 was very much within the limitation prescribed under the said section.
3. Brief facts of the case which have given rise to the present appeal filed by Revenue are that the assessee is an unregistered firm which filed its return of income under SAS for the assessment year 1993‑94. The case was, however, selected for total audit and income was assessed under section 62 at Rs.3,26,919 on 22‑6‑1994. Against this assessment appeal was preferred by the assessee before the Commissioner (Appeals) who set aside the assessment order of the DCIT on 31‑3‑1995 and remitted back the case to him for de novo proceedings. During the pendency of the appeal CIT reopened the assessment under section 65. Assessment in agreement with the assessee under sections 62/132/65 was made at total income of Rs. 3,75,000 on 22‑6‑1995. Later on the Assessing Officer suspected concealment of assets and therefore, he reopened the assessment for the second time and issued notice under section 65(1) on 1‑4‑1996 which was served on 3‑4‑1996. The assessee did not comply with the notice and proceeded to file writ petition before the Honourable Lahore High Court. The learned Court passed interim order on 17‑4‑1996 and stayed further proceedings in pursuance of notice under section! 65(1). The learned Court finally disposed of assessee's writ petition vide its order, dated 26‑3‑1999 with following observations:‑‑
The petitioner will be well advised, if the pleas, sought to be advanced in this petition are raised before the departmental forum in the first instance and also to pursue the normal channel of appeal/revision/reference to the higher authorities under the Ordinance. It is a settled rule, that the controversial issue requiring factual inquiries cannot be determined in summary jurisdiction. The petitioner shall, therefore, in the first instance raised objection to the jurisdiction and maintainability of the proceedings or issuance of notice under section 65 of Income Tax Ordinance, before respondent No.2, who will decide the same as a preliminary objection, after opportunity of hearing to the petitioner, in accordance with law and on its own merit. Respondent No.2 who will attend to the objections of the petitioner, on their own merit and shall render a decision which he deems in goods faith to be bona fide and correct. If the petitioner is not satisfied with the decision on the preliminary objections, as to the jurisdiction and maintainability of proceedings under section 65 of the Ordinance, it can challenge the order before the higher forum, in the hierarchy of jurisdiction, under the Ordinance''.
After the receipt of the order of the learned, counsel and after the receipt of the decision of the CIT Zone‑A, Lahore vide his letter, dated 5‑6‑1999 the Assessing Officer started assessment proceedings and completed assessment on 28‑6‑1999 vide his order, dated nil made under sections 62/65 for the assessment year, 1993‑94 i.e. the year under consideration. Against this order of the Assessing Officer the assessee preferred appeal before the Commissioner Income‑tax (Appeals) Zone‑IV, Lahore who in his order, dated 25‑4‑2000 under section 132 of A the Income Tax Ordinance, annulled the assessment on the ground that it was time‑barred under section 65(3A). Now the department is in appeals before us against this action of the learned Commissioner.
4. Elaborating the contentions raised by Revenue in‑the grounds of appeal it has been submitted by the learned DR that the writ petition was filed by the assessee in response to notice issued by DCIT under section 65(1) of the Income Tax Ordinance. No doubt the High Court issued stay to the assessee but the limitation for making assessment would not start from the end of the stay because the ITO had no jurisdiction to proceed until and unless the final decision could be made by the High Court on the issue of maintainability of proceedings under section 65. Final order of the Honourable High Court was made on 26‑3‑1999 and the High Court directed the Commissioner to make decision about preliminary objection of the assessee regarding jurisdiction and maintainability of the proceedings by the DCIT. The Commissioner decided the matter vide his Letter No. 3403/J, dated 5‑3‑1999 and rejected the assessees contention and directed the DCIT to proceed further under section 65. After receipt of this letter the Assessing Officer proceeded to issue notice under section 61 and initiated assessment proceedings which were ultimately completed by him on 28‑6‑1999. In this situation, according to the learned DR, limitation period would start from the date on which the order of the Honourable High Court was received and so the assessment framed by the DICT is within the time prescribed by section 66(1) which is two years from the end of the financial year in which the order of the High Court was received. The learned DR has turned down the view of the learned AR of the assessee and also that of the Commissioner (Appeals) that limitation in the instant case would be decided under section 65(3A).
5. On the contrary the learned AR of the assessee has supported the action of the learned Commissioner. According to the learned AR, section 66(1) is not relevant to the case under consideration because notice was issued under section 65(1) and therefore, limitation prescribed by section 65(3A) would be applicable. In support of this contention the learned AR has argued that section 66(1) supersedes section 64 and 65(3) but it does not supersede section 65(3A). It has been further argued by the learned AR of the assessee that the order issued by the Honourable High Court on 26‑3‑1999 wherein assessee's petition has been dismissed is not an "order" within the meaning of C.P.C.
6. We have gone through the assessment order passed by the DCIT under section 62/65 and appellate order passed by the Commissioner under section 132. We have also considered the view point of both the parties as expressed through their Authorized Representatives. The, contention of Revenue that period of limitation for making the assessment in the instant case should be determined under section 66(1) is not convincing. Since notice under section 65(1) was issued and served on the assessee, so period of limitation would be governed under section 65(3A) of the Income Tax Ordinance, 1979. Section 66(1) reads as under:‑‑
(66)"Limitation for assessment in certain case. ‑‑‑(1) Notwithstanding anything contained to section 64 and subsection (3) of section 65 where in consequence of, or to give effect to, any finding or direction contained in any order made under this Chapter or Chapter VIII or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction,‑‑‑
(a)an assessment is to be made on any firm or a partner of any firm; or
(b)an assessment is to be made on the assessee or any other person: or
(c)an assessment has been set aside, in full or in part , by an order under section 132 or section 135 and no appeal is filed under section 134 against such order or no (appeal filed) under section 136 in respect thereof, as the case may be,
such assessment may be made at any time within two years in any case to which clause (a) or clause (b) applies, and within one year in any case to which clause (c) applies, from the end of the financial year in which such order is received by the (Deputy Commissioner)".
A plain reading of the above mentioned section indicates that where in consequence of, or to give effect to, any finding or direction contained in any order made under this Chapter or Chapter VIII or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction, an assessment is to be made on the assessee or any other person, such assessment may be made at any time within two years from the end of the financial year in which such order is received by the Deputy Commissioner. In the instant case an assessment is to be made on the assessee but it is not in consequence of or to give effect to any finding or direction contained in any order made by an appellate authority or by High Court or by the Supreme Court of Pakistan. No doubt the High Court has passed an order to dispose of the writ petition filed by the assessee on 26‑3‑1999 but this is not the order in consequence of which or to give effect to, the DCIT has been directed to make an assessment. Moreover, and this is very important, section 66(1) as reproduced above supersedes period of limitation in section 64 and subsection (3) of section 65 but it does not supersede the period of limitation prescribed under section 65(3A) of the Income Tax Ordinance. Therefore, section 66(1) cannot be applied to the case of the assessee upon whom notice under section 65(1) has been served and to whom limitation laid down under section 65(3A) has become applicable.
7. Let us now discuss section 65(3A) of the Income Tax Ordinance which reads as under:‑‑
65(3A) "Where a notice under subsection (1) is issued on or after the first day of July, 1982 no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served".
According to the above mentioned subsection (3A) where a notice under section (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served. In the instant case notice under section 65(1) was served on the assessee on 3‑4‑1996. Thus limitation under section 65(3A) for passing the assessment order under section 65(1) would be as 30‑6‑1997. Had there been no writ petition then the DCIT was expected to frame the assessment under section 65 before 30‑6‑1997. Since the assessee opted to file writ petition under Article 199 of the Constitution of the Islamic Republic of Pakistan before the Honourable Lahore High Court instead of submitting to the action of the Assessing Officer, the period of stay granted by the Honourable High Court under Article 199 (4A), High Court can pass interim order and grant stay in the matter of assessment or collection of public revenue for a maximum period of six months. The Honourable Lahore High Court in the instant case passed an interim order on 17‑4‑1996 granting stay to the assessee without mentioning the period of stay. The relevant portion of the order reads as under: "Meanwhile, subject to notice, further proceedings in pursuance of notice under section 65(a) of the Income Tax Ordinance for the assessment year, 1993‑94 are stayed". It has been pointed out by the learned DR, and the learned AR agrees with it, that the Honourable High Court did not prescribe the period of stay neither it passed final order within six months from the end of stay (if it is supposed that the period of stay was six months) as prescribed by Article 199 (4B). In this situation period of stay cannot be presumed a six months rather it would be taken till the disposal of writ. Moreover it is at trite law that when a matter is pending before a higher Court a junior Court cannot take action in that matter. So during the period until the final order of the High Court, dated 26‑3‑1999 the ITO was not supposed to proceed with the assessment under section 65 as his very jurisdiction regarding issuance of notice under section 65(1) and initiation of proceedings under the said section had been challenged.
In view of the discussion made above, it would meet the ends of justice if the period consumed in writ petition, from the date of filing of writ to the disposal of writ by the Honourable Lahore High Court, is excluded while computing limitation under section 65(3A). In this way period of limitation available to the DCIT for making assessment under section 65(3A) work out to 30‑6‑2000. Thus assessment made by him on 28‑6‑1999 is very much in time. Therefore, appeal filed by Revenue is accepted and the impugned appellate order passed by the learned Commissioner is vacated.
8. However, from the perusal of impugned appellate order of the learned Commissioner it transpires that many grounds of appeal were raised before him by the assessee besides the ground of appeal taken on limitation. The learned Commissioner disposed of assessee's appeal only on the ground of limitation and did not touch the other grounds. So he is directed to decide assessee's appeal on merits after hearing the assessee as well as the department on all the grounds of appeal except the ground of limitation and pass a speaking order.
Appeal against penalty under section 111
9. In the grounds of appeal it has been contended by Revenue that CIT was not justified in canceling the penalty under section 11 with the observation that the order under section 62/65 giving rise to concealment of income lost its existence as a consequence of appeal order, dated 25‑4‑2000, therefore, levy of penalty based upon the said order is of no legal validity.
10. We have considered the above mentioned grounds of appeal taken by Revenue in the light of the facts and have heard the Authorized Representatives of both the parties. From the perusal of the impugned penalty order it transpires that the order has been passed ex parte in the absence of the assessee and assessee's view point has not been heard. The Assessing Officer should understand that penalty proceedings are independent of assessment proceedings and the same are in the nature of criminal proceedings. Penalty order cannot be passed without providing reasonable opportunity of hearing to the assessee and without establishing that action of the assessee regarding concealment of income was deliberate. It would, therefore, meet the ends of justice if the penalty order passed by the DCIT is vacated and he is directed to hear the assessee and pass a speaking order.
C.M.A./90/Tax (Trib.)Cases remanded.