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

----Ss.156(4) & 62---Rectification of mistake --- Limitation --- Assessment rectified after the expiry of four years from the date of passing order under S.62 of the Income Tax Ordinance, 1979 was annulled by the Appellate Tribunal.  

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

----Ss. 156(2) & 62---C.B.R. Circular No.7 of 1992, dated 18-3-1999, para. 5---Rectification of mistake---Indenting Commission-Trading business---Separable expenses---History---Assessment made under S.62 of the Income Tax Ordinance, 1979 was rectified on the ground that expenses were not allowed on pro rata basis ---Validity---Assessee had history of separable expenses---Since Department had been assessing the expenses on import and indenting Department on actual basis separately since 1992-93, therefore, proration of the same was clear deviation from history of the case established from record---Rectification order passed under S.156(2) of the Income Tax Ordinance, 1979 being erroneous in the light of history as well as law was vacated and that of original assessment order passed under S.62 bf the Income Tax Ordinance, 1979 was restored by the Appellate Tribunal.  

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

----S.156---Rectification of mistake---Change of opinion,--Debatable issues-- Rectification could not be made on mere change of opinion or debatable issues---Rectification could only be initiated where the mistakes were so clear and floating on the surface of order---Earlier opinion could not be changed with the later opinion by exercising powers conferred under S.156 of the Income Tax Ordinance, 1979---No decision could be revised on' mere change of opinion by the successor.

1992 PTD 570 rel.

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

----Ss.156(2) & 62---C.B.R. Circular No.7 of 1992, dated 18-3-1999, para. 5---Rectification of, mistake---Indenting Commission---Trading business---Separable expenses---Loss of revenue---Rectification of assessment passed under S.62 of the Income Tax Ordinance, 1979 with the observation that "expenses claimed under the various heads of profit loss accounts pertaining to indenting commission and business should have been c6nsidered on proportionate basis but the same had not been done ---In order to retrieve the loss of revenue show-cause notice under S.156(2) of the Income Tax Ordinance,, 1979 was issued"---Validity---By passing sentence "Assessing Officer should have considered on proportionate basis but the same has not been done" the Assessing Officer had considered the original assessment passed under S.62 of the Income Tax Ordinance; 1979 to be erroneous, similarly by passing sentence "in order to retrieve the loss of revenue" the Assessing Officer had considered the original assessment order to be prejudicial to the interest of Revenue---Assuming that situation was the same as had been shown by the Assessing Officer then too it was not the case of rectification under S.156(2) of the Income Tax Ordinance, 1979 but the same fell within the ambit of S.66-A of the Income Tax Ordinance, 1979---Assessing Officer by passing the order under S.156(2) of the Income Tax Ordinance, 1979 had tried to exercise the powers of Inspecting Additional Commissioner conferred under S.66-A of the Income Tax Ordinance, 1979---If an assessment involving financial matter could be revised by invoking provisions of S.156 of the Income Tax Ordinance, 1979 by the Assessing Officer then what would be the role of Inspecting Additional Commissioner in such-like matters-- Rectification could be made in such order where the mistake was so clear and obvious only by perusal of order and record---Action of Assessing Officer was declared illegal by the Appellate Tribunal.

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

----S.156---Rectification of mistake---Controversy investigation-- Reassessment of evidence---Additional evidence---Interpretation of provision of law---Where Assessing Officer rectifying the original assessment enters into controversy investigates into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to "rectification" of the order.  

Muhammad Iqbal Hashmi and Yousaf Ali Ch., I.T.P. for Appellant.

Ahmad Kamal, D.R. for Respondent.

Date of hearing: 25th April, 2003.

ORDER

These further appeals pertaining to assessment years 1996-97 to 1999-2000 have been preferred at the instance of the assessee against the consolidated impugned order dated 21-11-2002 recorded by the CIT (Appeals). The representatives on behalf of rival parties are present and have been heard. Therefore, the instant appeals are being disposed off in the following manner:---

Assessment year 1996-97

2. For the year under consideration, at the very outset .the learned A.R. has firstly stressed upon ground No.6 which is reproduced as under:--- -

"That order under section 156 of the Income Tax Ordinance, 1979 for the assessment year 1996-97 was time-barred. This additional ground was taken by the appellant which was not discussed by the learned CIT (Appeals)."

3. On this issue the learned A.R. contends that the additional ground was taken on the point of limitation before the First Appellate Authority by contending that the impugned rectification order dated 5-6-2002 passed by the Assessing Authority was time-barred hence he had no lawful authority to adjudicate upon the matter which was barred by time. He has elaborated that original assessment order under section 62 of the Income Tax Ordinance, 1979 was passed by the Assessing` Officer on 7-1-1998 and afterwards rectification order was passed on 5-6-2002 after four years of limitation provided under the law. He has forcefully asserted that for the charge year 1996-97 the impugned rectification order may be declared null and void as the stipulation of law is clear on this issue contained in section 156(4) which is reproduced as under:---

"156(4) No order under subsection (1) shall be made after the expiration of four years from the date of the order sought to be amended. "

4. On the contrary, the learned D.R. was not in a position to displace the valid legal objection raised by the A.R. supported by documentary evidence.

5. We have given due consideration to the arguments and relevant record. The contention of the A.R. carries legal force and is clearly supported by law and documentary evidence. Therefore, in the interest of justice and fairplay we annul the both impugned orders passed by authorities below for the assessment year 1996-97. Resultantly, original assessment order dated 7-1-1998 passed under section 62 of the Income Tax Ordinance, 1979 is restored.

Assessment years 1997-98 to 1999-2000

For the charge years the following common issue has been raised as per memo. of appeal for adjudication:---

"That the learned CIT (Appeals) has wrongly held that Assessing Officer was justified in initiating the proceedings under section 156. "

6. Brief facts of the case are that the original assessments in case of assessee deriving income from commercial imports and indenting commission were finalized in the following manner:--

7. Subsequently the Assessing Officer came to know that as per original assessment expenses charged against indenting commission had not been prorated against the receipts declared and accepted under section 80-C. The Assessing Officer issued notice under section 156(2) of the Income Tax Ordinance, 1979 on 28-5-2002 which remained un-complied with. He therefore, proceeded to initiate ex parte proceedings and passed rectification order under section 156(2) of the Income Tax Ordinance, 1979 by determining indenting income at Rs.4,100,000, Rs.35,42C, Rs.9,000,000, Rs.9,039,166 and Rs.5,208,967 for the assessment years 19'97-98 to 1999-2000, respectively. The said treatment meted out to the assessee was challenged in appeal before the CIT (Appeals), Lahore who also observed that since in the original assessment order passed under section 62 the expenses were not allowed on prorata basis, therefore, the mistake existed on the face of record which was liable to be rectified. But at the same time he finding the service of notice issued under section 156(2) of the Income Tax Ordinance, 1979 to be improper and finalization of assessment on a single default when the assessee had to suffer heavy tax demand in consequence of ex parte order remanded the matter to the Assessing Officer for de novo proceedings.

8. The learned A.R. has vehemently argued that for the charge years the action under section 156(2) by the Assessing Officer is illegal and unjustified. He contends that while taking such action he has deviated from established history of the case pertaining to assessment years 1992-93 to 1995-96 whereby the expenses of income covered under section 80-C and indenting commission were allowed separately and not on prorata basis. In order to lend credence to his contention he has submitted before us copies of assessment orders pertaining to assessment years 1992-93 to 1995-96 which have been perused by us. He has further elaborated that according to para. 5 of Circular No.7 of 1992 where expenses are separable the Assessing Officer has to assess the income after examination of accounts. He contends that for the years under appeal audited accounts were filed alongwith the return, which were scrutinized by the predecessor of Assessing Officer, who finding the expenses on indenting commission and trading business to 'be separable finalized assessment under section 62 of the Income Tax Ordinance, 1979 and allowed the same separately in import department and indenting department. The order passed by the Assessing Officer under section 156(2) is clear cut violation of Circular issued by C.B.R.

Furthermore, while passing order under section 156(2) the Assessing Officer has not given any finding of fact to the effect that the expenses on income covered under section 80-C and indenting commission are not separable. He submits that the First Appellate Authority while dealing with the matter has been also not appreciated the facts of the case and an arbitrary order endorsing the action taken under-section 156(2) by the Assessing Officer, has been passed, which does not meet the requirements of justice: He emphasized that since issuance of notice under section 156(2) was found improper and there was not Mentioning of explicit conclusion about the expenses claimed by the assessee, whether the same were separable or inseparable therefore, the order passed under section 156(2) merited' cancellation which has not been done by the First Appellate Authority. The learned A.R. has argued that the action of both authorities' below is against instructions contained in Circular No.7 of 1992, dated 18-3-1992. He therefore, prays for vacation of the orders passed by both the authorities below, and restoration of original order passed under section 62 of the Income Tax Ordinance, 1979.

9. On the contrary, the learned D.R. supports the order passed by the authorities below and contends that the action under section 156(2) initiated by the Assessing Officer was quite justified. He further elaborates that when an assessee enjoys income covered under section 80C and income from indenting commission not covered by this section, the expenses being inseparable are liable to be allocated on prorata basis. He maintains that since the predecessor Assessing Officer, while passing original assessment order under section 62 had failed to discharge his legal obligation, therefore; mistake floating on the surface of it was liable to be rectified. He therefore, prays for confirmation of impugned order.

10. We have given conscious consideration to the arguments put forth by; the representatives on behalf of rival parties and also carefully gone through both impugned orders alongwith history of the case pertaining to assessment years 1992-93 to 1995-96 as well as provisions of section 156(2) of the Income Tax Ordinance, 1979. The perusal of impugned order reveals that after dealing with the matter in detail the learned CIT (Appeals) has come to the following conclusion:---

"In this case the appellant enjoyed receipts from imports/supplies as well as commission, but the Assessing Officer in the original order did not allocate expenses on pro rata basis: Since the Assessing Officer failed to discharge his legal obligation, therefore, mistake of law existed on the face of the record, which was liable to be rectified. Ground of appeal that there was no mistake apparent from record which could be rectified is without merit hence rejected. The Assessing. Officer was justified in initiating the proceedings under section 156. "

The bare reading of the above mentioned finding reflects that although the case has been remitted to the Assessing Officer for de novo proceedings but the learned CIT (Appeals) by rejecting the appeal preferred by the assessee has fully endorsed the action of the Assessing Authority. The' learned A.R. alleges the action of authorities below to be contrary to instructions contained in Circular No.7 of 1992 dated 18-3-1995 whereas the learned D.R. fully supports the action of authorities below before giving our own finding on the issue under consideration, we deem it proper to reproduce the relevant para. 5 of the said circular which reads as under:---

"(5) Income from Indenting Commission and Brokerage. ---Where income from imports/supplies is inseparable from indenting commission or brokerage receipts and the assessee cannot prove the extent of overhead expenses relating to the said receipts, allocation of expenses may be made on a pro rata basis in the same ratio as the commission receipts not covered by section 80-C bear to the; gross profit on sales and supplies. In other cases, the assessee may be required to produce books of accounts and supporting evidence to claim actual expenses attributable to income from indenting commission or brokerage."

By perusal of the above mentioned instructions contained in Circular No.7 of 1992, this aspect stands established that where expenses for indenting commission and trading business are inseparable the same may be allowed on pro rata basis. Now question arises that whether in case of the assessee expenses were separable or inseparable in order to answer the question, we have thoroughly gone through the history of the case pertaining to assessment years 1992-93 to 1995-96 and it has been observed as under:--

(a) It has been found by us by perusal of copies of assessment orders produced by the assessee that assessments pertaining to assessment years 1992-93 to 1994-95 have been finalized under section 62 of the Income Tax Ordinance, 1979 and the expenses claimed against indenting commission had not been prorated. The assessee claimed expenses on import department and indenting department on actual basis separately which were allowed.

(b) For the assessment year 1995-96 original assessment was finalized under section 62 of the income Tax Ordinance, 1979 it total income from indenting commission at Rs.959,774, by clubbing the total expenses claimed against income from trading and indenting. Against the treatment of the Assessing Authority appeal was preferred before the CIT (Appeals), Faisalabad who vide order dated 204-1997 set aside the order passed under section 62 in toto for finalization of assessment in the light of history. While giving appeal effect to the appellate order the Revenue passed order under sections 62/132 on 7-1-998 and allowed expenses separated in import department and indenting department considering the same to be separable.

11. From the history of the case pertaining to assessment years 1992-93 to 1995-96 an inference can easily be drawn that the assessee has a history of separable expenses. Since the department has been assessing the expenses on import and indenting department on actual basis separately since 1992-93, therefore, proration of the same for the years under appeal is clear deviation from history of the case established from record. Such like illegal action on behalf of the department cannot be endorsed by us.

12. Secondly, We think that the issue under consideration is the result of change of opinion, The predecessor Assessing Officer who had passed original assessment order under section 62 was of the view that the expenses claimed by" the assessee were separable and therefore allowed' expenses separately in import department and indenting department. Whereas the successor Assessing Officer, who passed rectification order under section 156(2) was of the view that the expenses claimed by the assessee are inseparable and he allowed expenses on pro rata basis, which is against the history of the case established from record. There is a change of opinion between the predecessor and successor about expenses claimed by the assessee. According to the reported judgment of Supreme Court of Pakistan cited as 1992 PTD 570 on mere chance of opinion rectification cannot be made. The relevant portion of the said judgment is reproduced as under:---

"Reference to these cases clearly indicates that the order subsequently passed by the I.T.O. and upheld by the learned Commissioner of Income-tax and then by the learned Income-tax Appellate Tribunal could not validly be passed as rebate had been clearly granted by the I.T.O. who originally dealt with the case on the ground that processing of spices fell within the purview of the said provision introduced in the Finance Act, 1974, allowing 10% rebate on income derived from processing of spices was held to be the same as processing of food or vegetables etc. This interpretation was not accepted by the successor of the I.T.O. who was clearly of the view that spices could not be bracketed with `Food' or `Vegetable'. This in our opinion, amounted to clear revision of the earlier order because the I.T.O who subsequently dealt with the case arrived at his conclusion by a different interpretation by application of the process of reasoning and argument. The original order passed, by the I.T.O. cannot be the result of an apparent mistake but the same was based on the opinion of the said I.T.O. who found that spices were the same as `Food' or `Vegetable'. Consequently, we are, unable to hold that the I.T.O. who later dealt with the case could invoke the provisions of section 35 of the Repealed Act and recall the order earlier passed by his predecessor. We are, consequently, of the view that the learned Appellate Tribunal was not justified in upholding the order of the Income- tax Officer passed under section 23(3)/35 of the repealed Income-tax Act and, therefore, the first question referred to by the learned Tribunal is answered in the negative and in favour of the applicant. "

13. From above finding given by the apex Court of Pakistan it can easily be gathered that rectification cannot be made on men change of opinion or debatable issues. Rectification action can only be initiated where the mistakes are so clear and floating on the surface of impugned order. Earlier opinion cannot be changed with the later opinion by exercising powers conferred under section 156. In other words no decision can be revised -on mere change of opinion by the successor.

14. Thirdly, the Assessing Officer without giving proper finding on the expenses claimed by the assessee against indenting income, where the same were separable or inseparable observed as follows:---

"Subsequently, perusal of assessment record reveals that the assessee company has 'been charged huge expenses to indenting commission whereas nominal expenses have been charged to trading business for the assessment years 1996-97 to 1999-2000. While finalizing assessments for the years under consideration the expenses claimed under the various heads of profit & loss accounts pertaining to indenting commission & trading business should have been considered on proportionate basis but the same has not been done. In order to retrieve the loss of revenue, show-cause notice under section 156(2) was issued vide No.1700383/C-16 dated 28-5-2002 for compliance by 5-6-2002.

The perusal of above mentioned observation reveals that by passing the sentence "Assessing Officer should have considered on proportionate basis but the same has not been done", the Assessing Officer has considered the original assessment passed under section 62 of the Income Tax Ordinance, 1979 to be erroneous. Similarly by passing the sentence "in order to retrieve the loss of revenue" the Assessing Officer has considered the original assessment, order to be prejudicial to the interest of Revenue. Suppose for a moment that situation was the same as has been assumed by the Assessing Officer then too it was not the case of rectification under section 156(2) but the same fell within the ambit of section 66A which reads as under:---

"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 pre judicial to the interests of Revenue he may, after giving the assessee an opportunity, of being heard and after making or causing to be made such enquiry as he deems necessary pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the, assessment and directing a fresh assessment to be made".

15. By perusal of provisions contained in section 66A it becomes crystal clear that the Assessing Officer by passing the order under section 156(2) has tried to exercise the powers of I.A.C. conferred under section 66-A. If an assessment involving financial matter can be revised by invoking provisions under section 156 by the Assessing Officer then what would be role of I.A.C. in such like matters. In our considered view rectification .can be made in such orders where the mistake is so clear and obvious only by perusal of order and record. Therefore, on this point too the action of Assessing Officer is illegal.

16. The upshot of the above discussion is that where an officer while rectifying the original assessment enters into controversy, investigates into the matter, reassesses .the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to "rectification" of the order. Consequently, the rectification order passed under section 156(2) in the instant case being erroneous in the light of history as well as law is vacated and that of the original assessment order passed under section 62 of the Income Tax Ordinance, 1979 is restored for all the years under appeal.

C.M.A./935/Tax(Trib.)Application accepted.