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

‑‑‑‑S. 5‑‑‑Jurisdiction‑‑‑Scope‑‑‑Court or Tribunal is always clothed with certain jurisdiction, which is defined as power of Court to hear and determine a cause to adjudicate or exercise power in relation to it which includes power to hear and determine issues of law and fact in accordance with settled provision of law‑‑‑Once the Court or Tribunal has jurisdiction, it possesses inherent power to decide the question of their own jurisdiction and its adjudication, right or wrong, is binding upon the parties and the remedy against incorrect or wrong decision is provided by way of appeal, revision and review and in case remedies are not exhausted, the order, even if erroneous, will attain finality, and shall be binding upon the parties‑‑‑If the term `jurisdiction' refers to be legal authority to administer justice in accordance with the means provided by law subject to the limitation imposed by law and subject to certain terms, such terms must be complied with in its real spirit while recording order and in case mandatory conditions for the rightful exercise of jurisdiction are not fulfilled, the order would riot be treated as void but voidable and in such circumstances, the proceedings cannot be termed as illegal and without jurisdiction‑‑‑Absence to inherent jurisdiction, is distinct from exercise of jurisdiction ignoring law of procedure, the former would render the judgment a nullity and the latter would be an irregularity and if not objected to in time would be accepted as a legal order.

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

‑‑‑‑S. 5(1)(cc), third proviso & Chaps. IV, VII & IX‑‑‑Income Tax Rules, 19824 Part IIIA, Rr. 35C, 35D, 35E(2) & 35F(1), (2), (3), (4), (5)‑‑‑Jurisdiction of Income‑tax Authorities‑‑‑Existence of jurisdiction‑‑ Exercise of jurisdiction‑‑‑Income Tax Panel‑‑‑Proceedings were carried out by the Assessing Officer in his individual capacity‑‑‑Assessment was finalized by the income‑tax panel‑‑‑First Appellate Authority set aside the assessment order‑‑‑Assessee contended that First Appellate Authority was not justified to set aside the assessment after holding that assessment proceedings and the order subsequently passed had become illegal and void in view of third proviso to S.5(l)(cc) of the Income Tax‑Ordinance, 1979‑‑‑Because of jurisdictional defects, there was no other course except to cancel the assessment order instead of providing opportunity to panel to fill in lacunas and to remove fatal jurisdictional defects‑‑ Validity‑‑‑Jurisdiction was vested with the .panel but panel had improperly exercised its jurisdiction and while making distinction between the existence of jurisdiction and the exercise of jurisdiction in an irregular manner, the laws shall not permit to declare the proceedings to be impugned at the behest of the person who invoked it in an irregular manner‑‑‑Once an authority had jurisdiction, an irregularity in the exercise of it will not vitiate the decision‑‑‑Such was a procedural lacuna which was curable by all means ‑‑‑Assessee's appeal was dismissed with the observation that there was gross negligence on the part of the Chairman and Members of the panel being senior officials of the Income Tax Department, their act required attention of the superiors.

1998 PTD (Trib.) 1878; 2001 PTD (Trib.) 1059; 1990 PTD 62; 1971. SCMR 681; 1990 PTD 889; 1990 PTD 389; 2001 SCMR 838 and 1996 PTD (Trib.) 18 ref.

PLD 1979 SC (AJ&K) 109 rel.

(c) Income‑tax ‑‑‑

‑‑‑‑Setting aside of an order‑‑‑Jurisdiction‑‑‑Principles‑‑‑Term `void' is distinguishable with voidable ‑‑‑Order which is void is nullity i.e. an order made by the Court possessing `no jurisdiction, whereas a voidable order is an order made by an authority which possesses jurisdiction but passed the order in illegal or irregular manner, such order could be set aside on sufficient cause being shown‑‑‑Deviation from the procedure or causing procedural lapse is mere irregularity in exercise of jurisdiction which may be rectified or corrected by affording another opportunity of hearing to the parties.

Messrs Hashwani Hotels Ltd.'s case I.T.A. No.1791/KB of 2001 rel

(d) Income‑tax‑‑‑

‑‑‑‑Proceedings‑‑‑Void ab initio‑‑Effect‑‑‑Limitation‑‑‑Where the proceedings are found to be void ab initio, an Appellate Authority cannot set aside the same for a fresh round if in the meanwhile the prescribed limitation for the action, had expired.

1996 PTD 18 rel.

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

‑‑‑‑S. 5(l)(cc), third proviso‑‑‑Jurisdiction of Income Tax Authorities‑‑ Income Tax Panel‑‑‑Proceedings were carried out by the Assessing Officer in his individual capacity‑‑‑Assessment was finalized by the Income Tax Panel;.‑‑Procedural‑ irregularities‑‑‑Limitation bar‑‑ Validity‑‑‑No limitation bar existed as the order had been finally passed by the panel although notable procedural irregularities had been committed during the proceedings.

(f) Income‑tax‑‑‑

‑‑‑‑Appeal‑‑‑Limitation‑‑‑ Assessment‑‑‑ Reassessment‑‑‑ Principles‑‑ Appeals are continuation of assessment and reassessment, as assessment includes reassessment and additional assessment and if any appeal is preferred from the assessment order, the limitation shall not run against the Department to reassess the matter in follow up of the appellate order‑‑‑De novo fresh assessment would not be barred by law of limitation.

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

‑‑‑‑S. 23‑‑‑Deductions‑‑‑Food and beverage cost‑‑‑Addition in cost of sales was made by reducing the cost of food and beverage to 35% of revenue‑‑‑Setting aside of addition by First Appellate Authority‑‑ Validity‑‑‑First Appellate Authority was‑justified to set aside the issue instead of deleting the addition and cancelling the assessment with direction to ‑re‑assess the' matter keeping in view the history of assessee‑‑‑Setting aside order was confirmed by the First Appellate Authority.

(h) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 24(c) & 50(7B)‑‑‑Deductions not admissible‑‑‑Rent, rates and taxes‑‑‑Claim was disallowed on account of assessee's failure to furnish complete details and evidence of tax deduction under S.50(7B) of the Income Tax Ordinance, 1979‑‑‑Order was set aside by the First Appellate Authority on the ground that order was silent in respect of instances where deduction under S. 50(7B) of the Income Tax Ordinance, 1979 was attracted and was not made, was confirmed by the Appellate Tribunal.

(i) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 24(i)‑‑‑C.B.R. Circular No.16 of 1990, dated 4‑12‑1990‑‑ Deductions not admissible‑‑‑Excess perquisites on account of free meal‑ Deletion of addition on account of free meal by the First Appellate Authority was confirmed by the Appellate Tribunal.

I.T.A. No.89/KB of 2002 rel.

(j) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 24(i)‑‑‑Deductions not admissible‑‑‑Legal and professional charges‑‑‑Opportunity of hearing‑‑‑Issue set aside by the First Appellate Authority on the ground that assessee had not been given opportunity of hearing was confirmed by the Appellate Tribunal.

(k) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 24(i)‑‑‑Deductions not admissible‑‑‑Addition in repairs and maintenance expenses out of capitalized amount‑‑‑Ten per cent. disallowance of on account of unverifiability‑‑‑Validity‑‑‑No case was made out that expenditures were capital in. nature‑‑‑Since 10% disallowance had been made on account of unverifiability, Appellate Tribunal maintained the order of the First Appellate Authority.

I.T.A. No.2294/KB of 1997 rel.

(l) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 24(c) & 50(1)‑‑‑Deductions not admissible‑‑‑Accrued expenses‑‑ Disallowances were made on the ground that expenses were accrued expenses but deduction under S.50(1) of the Income Tax Ordinance, 1979 was not deposited within the income year and secondly these were merely provisions‑‑‑First Appellate Authority maintained the. order in respect of provision for vacation pay and ex gratia provision for the reason that they were merely provision and not actual expenditure within the income year and, shall be allowable in the year of their actual payment‑‑‑Addition in respect of bonus and salary wages was deleted‑‑ 'Such findings were not interfered by the Appellate Tribunal.

(m) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 19‑‑‑Income from house property‑‑‑Shop licence fee‑‑‑Shop licence fee was claimed as business income‑ Department treated the same as income from house property assessable under S.19 of the Income Tax Ordinance, 1979 and liable to deduction under S.20 of the Income Tax Ordinance, 1979 only‑‑‑Such order of Department was upheld by the First Appellate Authority and the same was confirmed by the Appellate Tribunal.

(n) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Third Sched., R.1‑‑‑Depreciation allowance, computation of‑‑‑Hotel building .and furniture‑‑‑Normal, initial and triple shift depreciations were claimed on building and furniture being plant of hotel was disallowed by the Assessing Officer‑‑‑First Appellate Authority found that building had been separately classified as class of assets as per table annexed to R.2 of Third Sched. of the Income Tax Ordinance, 1979 and Assessing Officer had rightly allowed 5% depreciation on building as normal depreciation admissible under R.1 of the Third Sched: of the Income Tax Ordinance, 1979‑‑‑Order of First Appellate Authority was maintained by the Appellate Tribunal.

(1995) 21 ITR 145 ref.

(o) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑S. 23‑‑‑Deductions‑‑‑Exempt income‑‑‑Allocation of expenses by the Department to exempt income from WADPA Bonds, DSCs and foreign exchange administrative and selling and general expenses were deleted by the First Appellate Authority and the same was upheld by the Appellate Tribunal.

1992 PTD (Trib.) 1141 rel.

Shahid Pervaiz Jami for Appellant (in I.T.As. Nos. 1331/KB and 1332/KB of 2002).

Ali Husnain, D. R. for Respondent (in I. T. As. Nos. 1331/KB and 1332/KB of 2002)

Ali Husnain, D.R. for Appellant (in I.T.A. No.1820/KB of 2002).

Shahid Pervaiz Jami for Respondent (in I.T.A. No.1820/KB of

Date of hearing: 7th August; 2003.

ORDER

S. HASAN IMAM (JUDICIAL MEMBER).‑‑‑ By this order, we would like to decide three appeals captioned above. Appeal bearing ITA No. 1331/KB of 2002 pertaining to assessment year 1997‑98, has been preferred by the assessee, being aggrieved and dissatisfied from the impugned order, dated 28‑2‑2002, whereas cross‑appeals bearing I.T.As. Nos. 1332/KB and 1820/KB of 2002 pertaining to assessment year 1998‑99, have been preferred, from a separate order, dated 20‑5‑2002.

ASSESSMENT YEAR 1997‑98 '

2: In the relevant year, the assessee has challenged the order setting aside the rejection of accounts and addition in food and beverage cost.

3. The assessee a public limited company, deriving income from running and maintaining five star hotels in Pakistan, at Karachi, Lahore, Rawalpindi, Peshawar and Bhurban under the name of Pearl Continental Hotels, furnished return of income declaring loss of Rs.248,849,000.

4. Till the assessment year 1996‑97, the assessee was assessed to tax by the DCIT, Circle‑06, Cos. IV, Karachi: As per letter, dated 25‑11‑1999, the ACIT, Circle A‑O1, Cos. III, Karachi, alleged to have informed the assessee in respect of change of jurisdiction and transfer of the case to the Panel ordered by the learned CIT(A), Cos. III, Karachi, invoking section 5(1)(c) of the Income Tax Ordinance, 1979 vide Notification No. Jud‑II/CIT/Cos.III/Jurisdiction/1999‑2000/1294, dated 16‑11‑1999. Even then the entire assessment proceedings were conducted by the ACTT, Circle‑O1 (A‑1), Cos. III, Karachi, in his individual capacity as Assessing Officer, as there is no mention of Income Tax Panel in the diary sheet, nor it appears that notices were issued by the Income Tax Panel after the jurisdiction was transferred. However, the final order was passed under section 62 on 30‑6‑2000 duly signed by three persons as Chairman and Members of the Income Tax Panel and in consequence thereof, the ACIT referred to above, in his individual capacity and not as Member of the Panel issued notice of demand and I. T. 30.

5. The assessee preferred appeal alleging therein that the order passed by the Income Tax Panel for the assessment year 1996‑97 is an illegal order, being ab initio void as such liable to be annulled and quashed due to apparent illegality. It was added that even assessee was not informed by the Chairman of Panel that the jurisdiction has been assigned to the Panel and therefore, all the correspondence and proceedings would be ‑ conducted by the Chairman, Income Tax Panel notices under section 61 and 62 were also not issued by the Income Tax Panel, which is evident from the photostat copies of the order‑sheet entries, diary is silent in respect of mention of hearing conducted by the Income Tax Panel. The learned counsel for the assessee in the circumstances, further stressed that when the Chairman of the Income Tax Panel has neither issued any intimation in respect of transfer of jurisdiction nor has issued any notice under sections 61 and 62 and also not conducted any hearing, therefore, without examining the books ofaccount, bills, vouchers and other evidences, the order passed by the learned IAC as Chairman of Income Tax Panel is an illegal order without jurisdiction and in clear violation to the third proviso to section 5(1)(cc) and rules 35C, 35D, 35E(2) and 35F(1), (3), (4) & (5) of Part‑IIIA of the Income Tax Rules, 1982.

8. The learned CIT(A), however, set aside the entire assessment order with directions that while framing the reassessment proceedings, the Chairman, Income Tax Panel/DCIT is directed to reframe the assessment in accordance with law and rules allowing adequate relief to the assessee keeping in view the accepted past history of the case. The ratio of the order of learned CIT(A) stood as under:‑‑

"I have examined the contentions and objections raised by the learned counsel Mr. Salman Pasha. Advocate, assisted by the Mr. Nadeem Ahmed Dawoodi, on legal and factual issues which have substantial force and is obvious from the copies of order sheet entries provided by the learned A.R. I have also examined the assessment record and the copy of order‑sheet entries provided are the same. Before proceeding further, J have also examined the relevant provisions of clause (CC) of subsection (i) of section 5 of the Income Tax Ordinance, 1979 by virtue of which the learned Commissioner of Income Tax can assign jurisdiction to the Income Tax Panel which was duly assigned, but under the second proviso to clause (cc) of subsection (i) of section 5 any order passed by the Income Tax Panel has to be made by the Inspecting Additional Commissioner of Income Tax as Chairman of Panel.. Similarly under the 3rd proviso to section 5(i)(cc) the Chairman of Panel has to issue the notices and it was incumbent on the Chairman of Panel to be present on every hearing and he alone can sign conduct by the Assistant Commissioner of Income Tax and there is no affiliation of Inspecting Additional Commissioner of Income Tax or the Chairman of Panel.

On further perusal of record it is observed that the notices under sections 61 and 62 were issued by the Assistant Commissioner of Income Tax and not by the Chairman of Panel. There is no evidence to the contrary, whereas, the assessment order has been framed by the Chairman of Panel in clear violation as it was signed by the Inspecting Additional Commissioner of the Income Tax as Chairman and two Deputy Commissioners of Income Tax as the members of Panel. As the basic law has been violated, the illegality cannot be cured for the reason that the order‑sheet entries prove that not a single sitting was conducted by Income Tax Panel, then how the order could be passed by the Income Tax Panel. The entire assessment proceedings and the order subsequently passed have become illegal and void in view of the Third proviso to section 5(i)(cc) of Income Tax Ordinance, 1979.

In view of the above facts, the impugned assessment order cannot be sustained. However, in the interest of justice and fair play, the entire assessment order is set aside for de novo proceedings strictly in accordance to the provisions of law and' Rules and after providing adequate opportunity of being heard to the appellant."

7. Heard the learned representatives of the two parties. The learned counsel for the assessee advanced almost same arguments which he raised before the learned CIT(A), however further stressed that assessee was never informed by the Panel or by the Chairman of Panel that the jurisdiction 'has been assigned to the Panel and further proceedings will be conducted by the Panel, no notices under sections 61 or 62 were ever issued by the Income Tax Panel, entire order‑sheet w.e.f. 31‑10‑1997 to 29‑6‑2000 did‑not show formation of Income Tax Panel or that proceedings were carried out by the single Member of the Panel under specific instructions by the Chairman. On the contrary, the ALIT, Circle A‑1, (01) Cos. III, carried out the proceedings in his individual capacity, whereas presence of the Chairman at least with one Member is the mandatory provision for formation of the Panel to carry out the proceedings. The learned counsel added that the order on record has been passed violating Third Proviso to section 5(1)(cc) as well as the rules 35C, 35D, 35F(2),and 35F(1), (3), (4) and (5) of Part‑IIIA of the Income Tax Rules, 1982 read with Chapters IV, VII and IX of the Income Tax Ordinance, 1979. In this context, the learned counsel relied upon case laws reported as 1998 PTD (Trib.) 1878 and 2001 PTD (Trib.) 1059. The learned counsel in view of above submissions prayed that the order passed is an illegal order, the assessment framed on the basis thereof, is not sustainable in law and is liable to be quashed and annulled, after holding that the assessment proceedings and the orders subsequently passed have become illegal and void in view of Third proviso to section 5(1)(cc), the learned CIT(A) was not justified to merely set aside the assessment and that because of aforesaid jurisdictional defect, there is no other course except to cancel the assessment order instead of providing opportunity to the Panel to fill in lacunas and to remove fatal jurisdictional defects. The learned counsel further relied upon the ratio 'of the judgments reproduced hereunder'‑‑

1990 PTD 62 (H.C.)‑‑Fiscal statutes are to be liberally construed, in favour of assessee but strict interpretation is to be made insofar as technical requirements by Revenue are concerned.

1971 SCMR 681‑‑The principle, so far as this country is concerned, is accordingly well‑settled that where the requirement to be fulfilled to be given by the statute.

1990 PTD 889‑‑Where a notice under section 65 ` was without jurisdiction all subsequent orders passed on the basis of that notice by the same authority or other authorities would be void.

1990 PTD 389‑‑When any action is challenged as without jurisdiction and' if it was so 'declared then all orders and proceedings taken on the basis of such illegal action shall also be vitiated. When the notice itself was illegal and without jurisdiction, the entire superstructure built on such illegal notice could not sustain.

2001 SCMR 838‑‑Demand notices in absence of statutory show cause notices were without, lawful foundation. It is well‑settled proposition of law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all.

1996 PTD (Trib.) 1.8‑‑Where any kind of proceedings, assessment or reassessment, are found to be void ab initio, an Appellate Authority cannot set aside the same for a fresh round if, in the meanwhile, the prescribed limitation for the action has expired‑‑Assessment in such a case, shall be cancelled and‑no direction will be issued which could be taken as an excuse for reassessment proceedings.

8. The learned CIT(A) has specifically accepted each and every defect pointed out by the assessee while writing the impugned order. The Department has not preferred appeal from the order of the learned CIT(A) setting aside the‑assessment order, which means that the findings of, the learned CIT(A) have been accepted by the Department. On the contrary version of the assessee has been proved by documentary evidence and obvious from the order‑sheet entries and copies of notices and. proceedings record, there is no 'evidence to the‑contrary. Facts remained unrebutted that the, assessment order ‑has been framed in clear violation of basic law. In the circumstances supra, the point for discussion before us would be' as to whether it is illegality or an irregularity curable by setting aside‑ the other or it is a fit case to declare the entire proceedings and the assessment order passed illegal, void ab initio sufficient to cancel the proceedings.

9. In the present case jurisdiction and transfer of the case to the Panel is not challenged, therefore, the only question which requires consideration with reference to present, appeal is in regard to the limitations imposed by the law upon the judicial authority/Panel and to see whether the Panel acted outside the limitations imposed by law and carried out the proceedings contrary to directions envisaged through relevant, law and in the circumstances, the act of the Panel can be treated without jurisdiction.

10. The Court or Tribunal is always clothed with certain jurisdiction, which is defined as power of Court to hear and determine a cause to adjudicate or exercise power in relation to it which includes power to hear and determine issues of law and fact in accordance with settled provision .of law. Once the Court or Tribunal has jurisdiction, it possess inherent power to decide the question of their own jurisdiction and its adjudication right of wrong is binding upon the parties and the remedy against incorrect or wrong decision is provided by way or appeal, revision and review and in case remedies are not exhausted, the order, even if erroneous, will attain finality, and shall be binding upon the parties. However, if the term jurisdiction refers to be legal authority to administer justice in accordance with the means provided by law subject to the limitation imposed by law and subject to certain terms, such terms must be complied with in its real, spirit while recording order and in case mandatory conditions for the rightful exercise of jurisdiction are not fulfilled, the order would not be treated as void but voidable and in such circumstances, the proceedings cannot be termed as illegal and without jurisdiction. Absence of inherent jurisdiction, is distinguished front exercise of jurisdiction ignoring law of procedure, the former would render judgment a nullity and the latter would be an irregularity and, if not objected to in time, would be accepted as a legal order. In our opinion, jurisdiction vests with the Panel but Panel has improperly exercised its jurisdiction and while making distinction between the existence of jurisdiction and the exercise of jurisdiction in an irregulars manner, the law shall not permit to declare the proceedings to be impugned at the behest of the person who invoked it in an irregular manner. Reliance is placed on case-law reported as PLD 1979 SC (AJ&K) 109. In the circumstances supra, we find that once an authority has jurisdiction,, an irregularity 'in the exercise of it will not vitiate the decision. Even otherwise it is a procedural lacuna which is curable by all means.

11. The term void is also distinguishable with voidable. An order which is void is nullity i.e.. an order made by the Court possessing no jurisdiction whereas a voidable order is an order made by an authority which possessed jurisdiction but passed the order in illegal or irregular manner, such order may be set aside on sufficient cause being shown. Deviation from the procedure or causing procedural lapse, is mere irregularity in exercise of jurisdiction, hence may be rectified or corrected by affording another opportunity of hearing to the parties. In this context, reliance is also placed on an unreported judgment in case of Messrs Hashwani Hotels Ltd., of this Bench. The relevant ratio of the judgment stood as under:‑‑

"(7) The learned CIT(A) had three options, (i) to annul the proceedings, (ii) to confirm the order, (iii) to set aside the matter for fresh decision by Panel. Since the proceedings were not carried out, by the Panel, there was no reason to confirm the order passed by the Panel. On the other side, when jurisdiction was assigned to the Panel, then the order passed by the learned IAC would be without jurisdiction, there remains no other alternate except to set aside the matter, we, therefore, find reasons in the order of the learned CIT(A) who was pleased to set aside the impugned assessment order as there was no justification to confirm the order or to annul the proceedings. As a result thereof, both the appeals stand dismissed."

12. Before parting with this judgment, we would further like to refer the case‑law reported as 1996 PTD 18 in ITA No.1791/LB of 1988‑89, which provides that where theproceedings are found to be void am initio, an Appellate Authority cannot set aside the same for a fresh round if in the meanwhile the prescribed limitation for the action, has expired. The present citation on the contrary clearly authorizes the Tribunal to set aside the matter if the order is declared void ab initio for want of limitation bar. However, in the present case, there is not limitation bar as the order has been finally passed by the Panel although notable procedural irregularities have been committed during the proceedings. The appeals are continuation of assessment and reassessment as well assessment includes reassessment and additional assessment and if any appeal is preferred from the assessment order, the limitation shall not run against the Department to reassess the matter in follow up of the appellate' order, hence de novo fresh assessment would 'not be barred by law of limitation.

13. Apart from above conclusions, we would like to refer our own order in case of Messrs Hashwani Hotels Ltd. in ITA No.1791/KB of 2001 wherein the Tribunal, in the same circumstances, has maintained the order of the learned CIT(A) was pleased to set aside the impugned assessment order the ratio of the judgment is reproduced hereunder: ‑‑

"(5) The record further reveals that entire proceedings were carried out by the ACIT, Circle A‑01, single handedly and at no stage, the proceedings were presided over and conducted by the Panel, and all the notices including the final notice under section 62 was issued and signed by Mr. Muhammad Saleem, as the ACIT, Circle A‑01. Cos.III, Karachi, in his individual official capacity and, not in the capacity of the Member of the Panel with no reference as regards the constitution of Panel and appointment of its Chairman and Members or the assignment of the jurisdiction of the case of the assessee to the Panel. On the contrary, not a single hearing was conducted by the Panel whereas contrary to this, the order shows that it has been passed by the Chairman and Members of the Panel.

(6) No doubt that under rule 35B of the Income Tax Rules, 1982, the Commissioner has powers to appoint and nominate the Panel and to assign the jurisdiction of any case to the Panel, but the Department has totally failed to make out a case that the assessee was informed about such appointment and assignment of such jurisdiction to the Panel. The Department also could not make out a case that the ACIT, Circle A‑01, Karachi, performed the function as Member of the Panel on the directions of the IAC but surprisingly the assessment order has been signed by the Members of the Panel in violation of the first proviso to section 5(1)(cc). In the circumstances supra and in the light of above facts, we find that Department has committed a gross mistake by treating the assessment proceedings as carried out by the Panel. It seems that since the jurisdiction was transferred to the Panel, the assessment carried out by an individual officer is finally signed by the Chairman and Members of Panel so as to make it an order passed by the Panel: This act of the Department is illegal, hence the assessment order has no legal basis.

(7) The learned CIT(A) had three options, (i) .to annul the proceedings, (ii) to confirm the order, (iii) to set aside the matter for fresh decision by Panel. Since the proceedings were not carried out by the Panel, there was no reason to confirm the order passed by the Panel. On the other side, when jurisdiction was assigned to the Panel, then the order passed by the learned IAC would be without jurisdiction, there remains no other alternate except to set aside the matter, we, therefore, find reasons in the order of the learned CIT(A) who was pleased to set aside the impugned assessment order as there was no justification to confirm the order or annul the proceedings. As a result thereof, both the appeals stand dismissed."

14. As a result thereof, the appeal of the assessee stands dismissed.

15. It is, however, worth‑mentioning that there is gross negligence the part of the Chairman and Members of the Panel being senior officials' of the Income Tax Department, their act above requires attention of the superiors.

CROSS‑APPEALS‑ASSESSMENT YEAR 1998‑99

16. In the assessment year 1998‑99, cross‑appeals have been preferred from the impugned order, dated 25‑5‑2002.

17. The assessee has taken following objections to the order of learned CIT(A):‑‑‑

>That the learned CIT(A) was not justified to set aside the rejection of account, and addition in food and beverage cost.

>That the learned CIT(A) was not justified to set aside the addition under the head rent rate and taxes when be was in a position to decide the issue in favour of the appellant.

>That the learned CIT(A) was not justified to confirm the following P&L additions which warranted deletion:

(a)Addition under section 24(i) of excess perquisites on account of free meal.

(b)Addition under section 24(i) of excess perquisites of General Manager.

(c)Addition under section 24(i) of excess perquisites of other employees

(d)Addition in respect of legal and professional charges.

(e)Addition for provision of doubtful debts.

(f)Addition in respect of communication expenses.

(g)Addition in respect of entertainment expenses.

(h)Addition in maintenance and repair expenses in respect of property income.

(i)Further addition in repair and maintenance expenses.

>That the learned CIT(A) was not justified to give only partial relief in respect of following additions which warranted outright deletion:

(a)Addition in repairs and maintenance expenses of Rs.60,58,550 out of the capitalized amount.

(b)Addition under section 24(c) of accrued expenses of Rs.2,46,48,990.

>That the learned CIT(A) was not justified to hold the shop licence fee as income from house property instead of income from business.

>That the learned CIT(A) was not justified to reject the claim of depreciation on building wherein it was claimed as plant instead of building.

18. The Department has taken following objections to the order of the learned CIT(A):‑‑

>That the learned CIT(A) has erred in setting aside an addition of Rs.58,157,000 holding that no notice under section 62(1) was issued whereas notice under section 62, dated 12‑6‑2001 was issued/served confronting specific defects:

>That the learned CIT(A) 'has erred in deleting the expenses amounting to Rs.2,508,30G allocated to exempt income.

>That the learned CIT(A) has erred in deleting an addition of Rs.1.2,186(M) made under section 24(c) for non‑deduction of tax under section 50(7B) of the Income Tax Ordinance, 1979.

>That the learned CIT(A) has erred in deleting the expenses of Rs.60,585(M) capitalized nut of "Repairs and Maintenance" claimed at Rs.121,171 (M).

>That the learned CIT(A) has erred in reducing addition made under section 24(c) from Rs.29,184,712 to Rs.24,648,990.

>That the learned CIT(A) has erred in deleting disallowance of Rs.59,652,296 out of financial charges.

REJECTION OF ACCOUNT AND ADDITION UNDER THE HEAD FOOD & BEVERAGE COST

19. This is a common objection and subject‑matter of cross‑appeals. Assessee's receipts mainly comprise of food and beverage revenue and room revenue. These receipts have been declared at Rs.144,55,392 (M) whereas addition in cost of sales i.e. Food and Beverage expenses amounting to Rs.58,157,000 has been made by reducing the cost of food and beverage to 35 % of revenue. The learned CIT(A) set aside 'the matter for de novo decision observing that it was mandatory for the Panel to confront the assessee of the specific defects through notice under proviso to section 62(1) of the Income Tax Ordinance, 1979.

20. It is argued that the learned CIT(A) was not justified in setting aside the matter for de novo decision when no specific defects have been pointed out, books of account have been rejected on the basis of general observations, sales have been accepted and no notice provided it proviso to section 62 has been served. The learned D.R. On the other hand rebutted the arguments stressing that notice under section 62(I) containing all the defects forming basis of order was issued and served whereby the assessee was confronted through specific defects.

21. Record reveals that notice under section 61 was duly complied with the books of account initially not produced were produced on 19‑6‑2001 alongwith reply to notice under section 62, as such assessee was confronted and called upon to justify the fall in G. P. rate with facts and figures duly supported by documentary evidence. After perusal of the documents, the Assessing Officer arrived at a conclusion that the assessee failed to substantiate its claim by facts and figures or documentary evidence as comparative cost of various items and selling rates were also not made available. The Assessing Officer after going through the record noted that food and beverage cost has‑ increased by 0.36 % as compared to last year, in the assessment year 1996‑97 cost percentage was 43.17% and. as such cost of food and beverage has increased. Record further reveals that assessee further confronted and asked to state through notice under section 62 that why declared results, may not be rejected and food and beverage cost may not be reduced to 35 % as last year and in view of parallel cases assessed at NTN 28‑6‑0700949. The reply was duly considered before rejection of declared version keeping in view the low G.P. rate declared and unverifiability of purchases. The Assessing Officer in the circumstances further considered food and beverage cost as excessive and over charged whereby curtailed it to 35 % of the revenue on the basis of parallel case.

22. In the circumstances supra, we are of the considered opinion that the notice served does not contain the headline "Notice under proviso to section 62". However, it is not fatal as notices have been served in real spirit of proviso above as ingredients of the notices served reveal that before disagreeing with the accounts, entire defects, were conveyed to the assessee providing an opportunity to explain its viewpoint about all such defects, besides in the year 1996‑97 order setting aside the addition was confirmed by the Tribunal and because of this order present issue, has been set aside in the assessment year 1997‑98, hence in the similar circumstances, it would be justified to confirm the setting aside order passed by the learned CIT(A) on this issue instead of deleting the addition and cancelling the assessment, with directions to reassess the matter keeping in view the history of assessee, explanation duly furnished to support declared version, reply to the notices and further confronting the assessee.

UDNER THE HEADS RENT RATE & TAXES

23. This issue is common. The Department has challenged the deletion of addition whereas the learned CIT(A) has set aside this issue. Expenses have been claimed at Rs.13,000,000 as against Rs.12,657,000 last year. The Assessing Officer disallowed the claim of Rs.12,186(M) under section 24(c) on account of assessee's failure to furnish complete details and evidence of tax deduction under section 50(7B). The assessment order reveals that referring assessment under section 141, the Assessing Officer noted that assessee has deducted paid rent as under;---

24. The learned CIT(A) set aside the issue for the reason that facts have not been appreciated correctly. The order is silent respect of instances where deduction under section 50(7)(b) was attracted and was not made. On the contrary the expenses of Rs. 814,000 are on account of rent on which tax under section 50(7)(b) is alleged to have been deducted whereas remaining, expenses are on account of property taxes. In the circumstances, the learned CIT(A) was justified to set aside the issue with directions to scrutinize the details furnished and then to allow the claim if substantiated after confronting the assessee.

ADDITIONS UNDER SECTION 24(i)

(i) Excess perquisites on account of free meal .

25. The ITAT in ITA No.89/KB of 2002 vide order, dated 25‑10‑2002 was pleased to delete the addition on account of free meal to the employees in case of associated company of the assessee and departmental appeal against the deletion of the addition was rejected observing that in view of Circular No.16 of 1990 of the C.B.R., such statutory obligations should not be treated as excess perquisites, in the circumstances, we see reasons to delete the addition on account of free meal.

(ii) Excess Perquisites of General Manager.

26. It is an admitted fact that in other years, the issue has been set aside in the similar circumstances, we, therefore, find reasons to set aside the issue for decision afresh after going through the evidence and affording an opportunity of bearing to the assessee.

(iii) Excess Perquisites of other employees

27. This issue was not pressed by the learned counsel for the assessee during the course of arguments.

(iv) Addition in respect of legal and professional charges

28. The learned CIT(A) maintained the addition observing that addition is made due to non‑deduction of tax. The assessee has not been given opportunity of hearing on this issue, hence we find reasons to set aside the order for fresh adjudication after affording an opportunity of hearing to the assessee.

(v) Addition for provisioti of doubtful debts

29. Addition for provision of doubtful debts is a mere provision, besides in the assessment year 1997‑98 the assessee had voluntarily offered doubtful debts for tax, hence order confirming the addition is maintained.

(vi) Addition in recent of communication expenses

30. There is history of 10% in case of communication expenses, hence disallowance be maintained at 10% of the claim.

(vii) Addition in respect of entertainment expenses

31. The additions are as per history, hence we find reasons to maintain the same.

(viii)Addition in maintenance & repair expenses in respect of property income and addition in repair & maintenance expenses

32. The learned CIT(A) has maintained the addition considering the history of the assessee, however, record reveals that in the immediate preceding year, the matter was set aside to determine whether it is a property income or not? Hence we find reasons to set aside the issue for fresh adjudication affording an opportunity of hearing to the assessee.

(ix) Addition in repairs & maintenance expenses of Rs.60.585.500 out of the capitalized amount

33. This issue is also common. Record reveals that Panel has made additions for the reasons that expenditure has been incurred to bring into existence new assets and. that expenditure has been incurred to bring an advantage of enduring nature. The learned CIT(A) in line with the history of the assessee made 10% disallowance out of subject expenses of Rs.60,585,500 on account of unverifiability. Two heads appears to have been jointly taken and have been capitalized. The learned CIT(A) disapproved the capitalized amount, observing that the panel has failed to discharge its onus of establishing that expenditure to the extent of Rs.60,585,500 are capital in nature, however, he disallowed 10% on account of unverifiability. Record reveals that in the case of associate company of the assessee being assessed at NTN 12‑1‑0710622 the capitalization of repairs and maintenance expenses was deleted by the ITAT in ITA No.2294/KB vide order, dated 20‑3‑1997. Apart from this no case is made out that expenditure are capital in nature. Since 10% disallowance has been made on account of unverifiability, we find reason to maintain the order in this context.

(x) Addition under section 24(c) of accrued expenses of Rs.24.64‑8,990.

34. This issue is also common. This addition comprised of four heads either if vacation for pay, ex gratia provision, bonus and salary wages. Disallowances have been made observing that these are accrued expenses but deduction under section 50(1) is not deposited within the income year and secondly these are merely provisions The learned CIT(A), however, maintained the order in respect of provisions for vacation pay and ex gratia provision for the reason that they are merely provision and not actual expenditure within the income year and shall be allowable in the year of their actual payment. However, the addition in respect of bonus and salary wages, has been deleted being statutory provision created under section 10(c) of West Pakistan Standing. Order Ordinance for welfare of staff and tax has been deducted while making payment in view of the High Court judgment reported as 1985 PTD 698. We find that sufficient reasons appear in the order of the learned CIT(A), we, therefore, find no reason in the order in this context.

(xi) Shod licence fee

35. The assessee claimed shop licence fee as business income whereas the Panel treated the same as income from house property assessable under section 19 and liable to deduction under section 20 only. The learned counsel for the assessee has not been able to rebut the finding concluded by the learned CIT(A), hence the order does not warrant interference in this context.

(xii) Claim of depreciation on building

36. The assessee claimed depreciation on building as under:‑‑

37. The assessee claimed depreciation contending that the hotel building and furniture is a plant and relied upon a case law cited as (1995) 21 ITR 145. The Assessing Officer disallowed the claim after detailed discussion. However the learned CIT(A) maintained the order observing that depreciation claim on noted building is also found to be slightly rejected as the Third Schedule to the Income Tax Ordinance, 1979 does not envisage the same. It is argued that it is a plant as in this peculiar line of business building and furniture tantamount to plant, hence disallowance of tax depreciation is unjustified. The building has been separately classified as class of assets as per Table annexed to rule 2, hence the Assessing Officer has rightly allowed 5 % depreciation on building as normal depreciation admissible under rule 1 of the Third Schedule. The order of the Assessing Officer in this context is hereby maintained.

(xiii) Expenses amounting to Rs 25 08 306 allocated to exempt income

38. The remaining issue in the departmental appeal relates to' deleting the expenses amounting to Rs.25,08,306 allocated to exempt income Rs.41,13,000 from WAPDA Bonds, DSCs and foreign exchange administrative and selling and general expenses The learned CIT(A) in view of a judgment reported as 66 Tax 1 (Trib.) deleted the allocation. In fact this is a decided issue in favour of the assessee at the level of the Tribunal, hence order deleting the addition does not warrant ` interference.

(xiv) Disallowance of Rs. 59 652 296 out of financial charges

39. The next issue requiring consideration is deleting disallowance of Rs.59,652,296 out of financial charges. Record reveals that financial charges have been set aside by the Tribunal in the previous years, hence sufficient reason appears to set aside the issue with direction to look into the matter afresh and to see whether assessee had put forward different case in changed circumstances, as alleged by the learned counsel for the assessee during the course of arguments.

40. The appeals are disposed to the extent and in the manner indicated above.

C. M. A./1006/Tax (Trib.) Appeals disposed of.