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

----S.62, proviso---Assessment on production of accounts, evidence, etc. ---Procedure---First stage in assessment is to examine the accounts and to give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects while the second occasion is to record in the assessment order such explanation of the assessee (regarding defects in the accounts about which the DCIT gives a notice) and lastly to record in the assessment order the basis of computation of total income of the assessee.

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

----S.62---Assessment on production of accounts, evidence, etc.-- Notice---Opportunity---Purpose of giving mandatory notice referred to in proviso to S.62(1) of the Income Tax Ordinance, 1979 will be served for all legal intents if the defects in accounts and preferably warning of some intended future action were communicated or brought to the knowledge of the assessee in any proper or permissible manner and reasonable opportunity to explain the defects is provided to the assessee---Once this had been done and if the assessee gives an explanation, then after recording the explanation of the assessee in the assessment order, the Assessing Officer could not forthwith estimate income but he was supposed to give the basis of computation of total income in the assessment order---Opportunity was to be given to the assessee to meet with the defects pointed out in the accounts and to explain his point of view regarding these defects---Basis of computation of income was legally to form a part of the assessment order and not that of the notice to the assessee which mandatory was required so as to confront the defects in the accounts.

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

----S.62--Assessment on production of accounts, evidence, etc.-- Confrontation of defects in accounts through order-sheet entry-- Validity---If the defects in accounts were confronted to an assessee or his authorized representative through recordings on the order-sheet, which was obviously a permissible means of communication, this would mean that the Assessing Officers had duly given a notice of the defects to the assessee.

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

----S.62---Assessment on production of accounts, evidence, etc.---Add back out of direct expenses----Confrontation of defects in accounts through order-sheet---First Appellate Authority set aside the assessment with the direction that a notice under S.62 of the Income Tax Ordinance, 1979 be confronted with specific defects in accounts and in absence of same the declared version be accepted ---Assessee contended that by setting aside the assessment, the First Appellate Authority afforded another opportunity to the Assessing Officer for making good the deficiency in assessment---Since notice under S.62 of the Income Tax Ordinance, 1979 was mandatory for rejecting the accounts and this mandatory requirement having not been fulfilled, the First Appellate Authority should have directed Assessing Officer to accept the declared version---Validity ---Order-sheet generally was not a substitute for statutory notice under S.62 of the Income Tax Ordinance, 1979, if it records only the proceedings of the day as against this, entries made in the order-sheet would tantamount to a "notice" and "giving a notice of the defects in the accounts" to assessee---Assessing Officer concluded proceedings without getting a written explanation from the assessee due to the fact that assessee had agreed to making suitable add backs out of direct expenses and Profit and Loss Account and this agreement meant nothing but the explanation on behalf of the assessee as required in the proviso to S.62(1) of the Income Tax Ordinance, 1979---Such explanation had duly been made part of the assessment order by the Assessing Officer---Mandatory requirements of the proviso to S.62(1) of the Income Tax Ordinance, 1.979 were duly met in the circumstances-- First Appellate Authority should have decided the matter at his level instead of setting aside the case---Since setting aside by the First Appellate Authority was in no way prejudicial to the interest of the assessee, Appellate Tribunal did not interfere in the order of the First Appellate Authority.

2001 PTD (Trib.) 2938; Kanga & Palkiwala, 7th Edn., pp.845 - 847 and Black's Law Dictionary ref.

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

----Ss.50(4) & 51---Deduction of tax at source---Certificate of deduction of tax---Explanation---Under S.50(4) of the Income Tax Ordinance, 1979 the sums deducted or collected, or purported to have been deducted or collected under S.50 of the Income Tax Ordinance, 1979 were to be treated as payment of tax on behalf of assessee and under S.51 of the Income Tax Ordinance, 1979 every person deducting or collecting tax under S.50 of the Income Tax Ordinance, 1979 was to issue a certificate at the time of making payment of the sum from which tax had been deducted or collected and therefore, an assessee became entitled to the credit of tax when withholding agent as representative of the Federal Government withheld tax from the payments made to the payee---If the withholding agent did not, comply with the statutory requirements of namely depositing the tax into the Government exchequer, then the Department could proceed against the withholding agent with all consequences as provided under the law.

Ms. Yasmin Ajani, F.C.A. for Appellant.

Ms. Shaista Abbas, D.R. for Respondent.

Date of hearing: 9th September, 2003.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).---The appellant a, private limited company enjoys income from rendering services by arranging Seminars and other Marketing Techniques for launching different products. The Assessing Officer accepted the receipts but computed income after making certain add backs out of direct expenses and administrative expenses. In this way total income was determined at Rs.782,576 against declared income of Rs.128,024. Add backs made by the Assessing Officer under various heads were challenged in appeal before the learned CIT (A) who vide his Order No.210/A-IV dated 31-7-2002 set aside the order in toto and remanded the matter to DCIT with the directions to confront the appellant through notice under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) with specific defects in the absences of which the declared version is to be accepted. The learned CIT(A) did not give any finding on the two grounds pertaining to consequential relief in surcharge and failure of the Assessing Officer in allowing tax credit for an amount of Rs.1,25,000 deducted under sec tion 50(4) of the Ordinance. The appellant has come in appeal before this Tribunal against the treatment meted out to it by the learned CIT(A).

2. It is argued by the learned A.R. that add backs out of expenses had been made by the Assessing Officer without any statutory notice under section 62 confronting the specific defects and therefore, by setting aside the order. The learned CIT (A) has, against the law, afforded another opportunity to the Assessing Officer for making good the deficiency in the assessment. It is further argued that notice under section 62 is mandatory for rejecting the accounts and this mandatory requirement having not been fulfilled, the learned CIT(A) should have directed to accept the declared version.

3. The learned D.R. on her turn, supports the orders of the authorities below specially by saying that the defects had duly been brought to the notice of the learned A.R. as per order-sheet entries and therefore, there was no occasion to say that no notice under section 62 was given. In rejoinder to the arguments of the learned D.R., the learned A.R. states that entries on the order-sheet have been held to be not a substitute for statutory requirement of notice under section 62 in a case reported as 2001, PTD (Trib.) 2938. It is further submitted by the learned A.R. that even if it is presumed, without conceding, that the defects in accounts had been confronted as per order-sheet entries; still there is nothing to deny that reasonable opportunity for rebutting the said defects was never provided although this was a requirement of law. In this connection she has referred to extracts appearing. at page 845 and 847 in Commentary by Kanga & Palkiwala 7^th Edition

4. We have considered the arguments made by the two learned representatives and perused the orders of the authorities below. Since the learned D.R. failed to produce departmental records, we have gone through certified copy of the order-sheet of the assessment circle record which has been produced by the learned A.R.

5. Before coming to the facts of this case, we would like to analyze the provisions of law applicable in the instant case viz. section 62(1) of the Income Tax Ordinance:--

62. Assessment on production of accounts, evidence, etc.---(1) The Deputy Commissioner after considering the evidence .on record (including evidence, if any, produced under section 61) and such other evidence as the Deputy Commissioner may require, on specific points, shall, by an order in writing, assess the total income of the assessee and determine the tax payable by him on the basis of such assessment:

Provided that where the assessee produces books of account as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects and record such explanation and the basis of computation of total income of the assessee' in the assessment order.

6. The main issue for consideration in the present appeal is the proviso quoted supra. It has been made mandatory for the Deputy Commissioner that where an assessee produces books of account as evidence in support of the return, the DCIT shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to explain his point of view about such defects and record such explanation and the basis of computation of total income in the assessment order. A plain reading of the proviso indicates that there are two occasions as have been described in the present proviso and their details is given below:--

First Occasion:

(a)Examine the accounts;

(b)give a notice to the assessee of the-defects in the accounts; and

(c)provide an opportunity to the assessee to explain his point or view about such defects.

Second Occasion:

(a)to record in the assessment order such explanation of the assessee (regarding defects in the accounts about which the DCIT gives a notice); and '

To record in the assessment order-the basis of computation of total income of the assessee.

7. In order to further appreciate the legal requirement of the proviso quoted. supra, we need to understand the meanings of important words "Give a Notice", "Notice" and "Opportunity". Since these legal terms are not defined in the Ordinance, we shall consult Black's Law Dictionary and the Commentary by Kanga & Palkiwala:--

Black's Law Dictionary:

Give notice. --To communicate to another, in any proper or permissible legal manner, information or warning of an existing fact or state of facts or (more usually) of some intended future action; e.g. tenant giving landlord thirty-day notice of termination of tenancy; employee giving employer two weeks notice intention to quit; to give notice of appeal to appellant.

8. The word "Notice" in its turn has been given the following meaning:--

Notice. --Information; the result of observation, whether by the senses or the mind; knowledge of the existence of a fact or 'state of affairs; the means of knowledge: Intelligence by whatever means communicated. Any fact which would put an ordinarily prudent person on inquiry. That which imparts information to one to be notified.

Notice in its legal sense is information concerning a fact, actually communicated to a person by an authorized person or actually derived by him from a proper source, and is regarded in law as "actual" when the person sought to be affected by it knows thereby of the existence of the particular fact in question. It is knowledge of facts which would naturally lead an honest and prudent person to make inquiry, and does not necessarily mean knowledge of all the facts: In another sense, "notice" means information, an advice, or written warning, in more or less formal shape, intended to apprise a person of some proceeding in which his interests are involved, or informing him of some fact which it is his right to know and the duty of the notifying party to communicate..

A person has notice of a fact if he knows the fact, has reason to know it, should know it, or has been given notification of it.

9. In the matter of "opportunity" and "reasonable opportunity" the learned A.R. has drawn our attention to the Commentary of Kanga and Palkiwala supra, relevant portions of which are reproduced as under:--

"Opportunity"

The Assessing Officer exercises quasi judicial functions and should be governed in his procedurally judicial considerations and must conform to the rules of natural justice. This is to say, he must proceed without bias and give sufficient opportunity to the assessee to place his case before the Department; he must conduct himself in accordance with the principles of justice, equity and good conscience. The ITO cannot rely on any evidence or any fact in arriving at his conclusions without first pointing out the same to the assessee and giving him a reasonable opportunity of meeting the case which is ultimately made out in the assessment order. In Dhakeswarl Cotton Mills Ltd. v. CIT where these fundamental principles of justice were violated, the Supreme Court set aside the assessment, (See further post under "Private sources of information", p. 849 and "Comparable cases", P.850) sub-sections (2) and (3) of section 142 now give express statutory recognition to principles which were judicially established under the 1922 Act, viz. that the ITO is entitled to make such inquiry , as he considers necessary and that the assessee should be given an opportunity of being heard in respect of any material proposed to be utilized for the purpose of assessment under this section even in the material be the past assessee of the assessee himself. But in any case the ITO is not to to settle, as it were, the issues between himself and the assessee or in the presence of the assessee to call all the evidence and marshal and exhibit the documents.

"Reasonable opportunity, ----The notice under this subsection must give the assessee art enable opportunity to comply with its requirements; the assessee is entitled to a reasonable opportunity not merely to collect and produce his books but to support or supplement his bongs by any other evidence on which he might rely.

10. It is thus clear from the extensive quotations made above that the purpose of giving mandatory notice referred to in the proviso to section 62(1) will be served for all legal. intents if the defects in accounts and preferably warning of some intended future action are communicated or brought to the knowledge of the assessee in any proper or permissible manner and reasonable opportunity to explain the defects is provided to the assessee. Lance this has been done and if the assessee gives an explanation, then after 'recording the explanation 'of the -assessee in the P assessment order, the DCIT cannot still jump in the dark and estimate income but he is supposed to give the basis of computation of total income in the assessment order. The opportunity to the assessee is to be given to meet with the defects pointed out in the accounts and to explain his point of view regarding these defects. The basis of computation of income is legally to forma part of the assessment order and not that of the notice to the assessee which mandatory is required so as to confront the defects in the accounts.

11. There is no denying the fact that order-sheet generally contains recording of the day to day proceedings. However, this may not always be the position. We feel that if the defects in accounts are confronted to an assessee or his authorized representative through recordings on the order-sheet, which is obviously a permissible mean of communication, C this means that the Assessing Officer has duly given a notice of the defects to the assessee and the first two parts of the proceedings on first occasion referred to in para.5 supra thus stand fulfilled in this way. With this criteria in view let us now examine the order-sheet entries dated 30-5-2002 and 31-5-2002, the relevant portions of which are reproduced below:--

30-5-2002:

"Mr. Javed Alvi, A. R. of theassessee attended

.

.

Stated that direct expenses under the heads repairs and maintenance, printing and stationery, telephone, travelling and conveyance, entertainment, postage and miscellaneous expenses have un-verifiability due to cash payment and internal vouchers only. Requested for adjournment to furnish vouchers of administrative and selling expenses. Adjourned till 31-5-2002."

(Sd.)(Sd.)

DCITA. R.

31-5-2002:--

"Mr. Javed Alvi-, A. R. of theassessee attended , ...............

.

.

Ire is confronted for addition of donation declared being inadmissible, repair and maintenance expenses, printing and stationery, telephone, traveling and conveyance, entertainment and miscellaneous expenses. Definite instances of non verifiability and internal vouchers have been confronted to the A.R. and hence suitable add backs to be made under these heads. Also confronted for vehicles -personal use and depreciation expense disallowance thereon. Case discussed Books of accounts examined and returned back and A.R. agree of add backs out of direct expenses and P&L account.

(Sd.)Signed A.R.

DCIT31-5-2002

Assessed as per I.T. 30. Issued DNNC and a copy of the order to the assessee.

Signed

DCIT

(Underlining is by us)

12. As observed in the foregoing paragraphs the order-sheet generally is not a substitute for statutory notice under section 62, if it records only the proceedings of the day. As against this, here we find that the entries made on the order-sheet on 30-5-2002 and 31-5-2002 quoted supra especially the portions underlined by us are tantamount to a "notice" and "giving a notice of the defects in the accounts" to the assessee. The Assessing Officer, however, concluded the proceedings without getting a written explanation from the assessee due to the fact that the learned A.R. had agreed to making suitable add backs out of direct expenses and P&L account and this agreement meant nothing but the explanation on behalf of the assessee as required in the proviso to section 62(1). This explanation has duly been made part of the assessment order by the DCIT. In our view the mandatory requirements of the said proviso were duly met in the circumstances of this case. Had the Commissioner gone minutely through the records in the way we have done, he would have instead of setting aside the case decided the matter at this level. However, since setting aside by the learned CIT(A) is in no way prejudice to the interest of the appellant, we refrain from interfering in the order of the learned CIT(A).

13. Before parting with the appeal we would like to observe that under section 50(8) of the Ordinance the sums deducted or collected, or purported to have been deducted or collected under section 50 are to be treated as payment of tax on behalf of assessee and under section 51 of the Ordinance every person deducting or collecting tax under section 50 is to issue a certificate at the time of making payment of the sum from which tax has been deducted or collected, and therefore, an assessee becomes entitled to the credit of tax when withholding agent as representative of the Federal Government withholds tax from the payment made to the payee. In case the withholding agent does not comply with the statutory requirements of timely depositing the tax into the Government exchequer, then the department can proceed against the withholding agent with all consequences as provided under the law.

14. Consequently the appeal fails and is dismissed with the observations as made above.

C.M.A./992/Tax(Trib.)Appeal dismissed.