Messrs SUPER ELECTRONICES VS REGIONAL COMMISSIONER OF I/T & W/T and others
2004 P T D 1719
[Lahore High Court]
Before Nasim Sikandar, J
Messrs SUPER ELECTRONICES
Versus
REGIONAL COMMISSIONER OF I/T & W/T and others
Writ Petition No. 7746 of 2002, decided on /01/.
st
October, 2002. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 55, 59 (1‑A) & 62‑‑‑Self‑Assessment Scheme‑‑‑Object and scope‑‑‑Detailed scrutiny, selection of cases‑‑‑Jurisdiction of Income Tax Authorities‑‑‑Self‑Assessment Scheme is in a nature of a promise held out by Revenue to an assessee to accept a declared version if certain conditions are met‑‑‑Revenue, at the same time has been given a privilege to take certain kinds of returns fir assessment under normal law‑‑‑Method for such selection is left open and uncertain so that an assessee could be discouraged from making wrong declarations or taking chance‑‑‑Scheme of self assessment reposes confidence in assessee and equally binds the Revenue to accept his return where the conditions prescribed are fully answered‑‑‑Revenue cannot be allowed to turn :round to deny the concession in a light vein in one guise or the other‑‑‑ Selection for total audit on the recommendations of Income Tax Authorities can be done only where there is evidence, information or reasons to believe that‑true particulars of income have been suppressed.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.55, 59 (1‑A) & 62‑‑‑Circular No.4 of 2001, para.9‑A(ii)‑‑‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition‑‑‑Self Assessment Scheme‑‑‑Jurisdiction of Regional Commissioner Income Tax‑‑‑Judicious exercise of discretion, principle of ‑‑‑Applicability‑‑ Assessee filed its return under Self Assessment Scheme showing increase in sales by 32%, profit by 20% and tax actually paid by 22% compared with the immediate preceding year to fulfil the eligibility criteria‑‑Income Tax Authorities selected the case of assessee for detailed scrutiny on the ground that factual position regarding magnitude of business of the assessee, quantum of turn over and profits were required to be ascertained‑‑‑Validity‑‑‑Mere opinion of a Revenue Authority regarding such factual position was not a good reason to deny the assessee a concession promised to it on fulfillment of the conditions of the scheme‑‑‑Opinion of the Authorities which was not supported by tangible evidence or an information ex facie acceptable and useable in a case, would be against the policy guidelines provided by Central Board of Revenue for selection of cases out of the scheme on the recommendations of Regional Commissioner Income Tax‑‑‑Same held true with regard to the material which could form basis for a reason to believe that income in a particular case tad been suppressed‑‑‑Discretion vested in the Regional Commissioner Income Tax, like any other discretion vesting in an authority needed to be exercised judiciously‑‑‑Judicious exercise of discretion meant a balanced approach towards a declared version keeping in view the obligation of an assessee to make a faithful declaration as well as the duty of Revenue to come up to its promise of acceptance of declared version which was not dishonest on the face of it‑‑‑Reasons with which the assessee was confronted were so general in nature that the same could be confronted to any other assessee who had shown the stipulated increase when compared with the previous year‑‑‑Regional Commissioner Income Tax was required to proceed under Para.9‑A(ii) of Circular No. 4 of 2001, only when the guidelines mentioned therein were satisfied‑‑‑Income Tax Authorities while proceeding to take the case of the assessee out of the scheme had not kept in sight the policy directions‑‑‑View of Regional Commissioner Income Tax that the assessee had suppressed his income could not be accepted on its face value since policy directions had been disregarded and there was no evidence or even information in that regard‑‑‑Plucking of the case of the assessee out of scheme was not within the parameters contemplated by Central Board of Revenue through its policy directions‑‑‑Order of the Regional Commissioner Income Tax was illegal and void‑‑‑Petition was allowed accordingly.
(c) Penal Code (XLV of 1860)‑‑‑
‑‑‑‑S.26‑‑‑Term, `reasons to believe'‑‑‑Connotation‑‑‑Person is said to have `reasons to believe' a thing if such person has sufficient cause to believe a thing but not otherwise.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.55, 59 (1‑A) & 62‑‑‑Self Assessment Scheme year, 2001‑2002, Policy Directions dated 17.7.2001, Para.2‑‑‑Expression `reasons to believe' as appearing in Self Assessment Scheme year, 2001‑2002, Policy Directions dated 17.7.2001, Para. 2‑‑‑Applicability‑‑‑Assessee filed its return under Self Assessment Scheme showing increase in sales by 32 %, profit by 20 % and the tax actually paid by 22 % compared with the immediate preceding year to fulfil the eligibility criteria‑‑‑Income Tax Authorities selected the case of assessee for detailed scrutiny on the ground that factual position regarding magnitude of business of the assessee, quantum of turn over and profits were required to be ascertained‑‑‑Cause that led the Regional Commissioner Income Tax to believe in the instant case, as confronted to the assessee, was increase in sales while decrease in income when compared with the previous year and secondly increase in administration, selling and distribution expenses‑‑‑Validity‑‑‑Such was not sufficient cause to lead to the belief of the Regional Commissioner Income Tax‑‑‑1n the first place the figures confronted to the assessee were misleading and in the second, decrease in business income and increase in miscellaneous income as well as administration expense by itself was nova sufficient which could lead to a , `reason to believe' that the assessee had suppressed its income‑‑‑If the Regional Commissioner Income Tax had sufficient cause to believe, then he would not have sought `ascertaining factual position regarding magnitude of the business of the assessee, quantum of turnover and profits‑-‑Expression `reason to believe' was not applicable in circumstances.
Waqar Azeem for Petitioner.
Muhammad Ilyas Khan for Respondent.
ORDER
Section 59(1) of the Income Tax Ordinance, 1979 provides for acceptance of a return filed under section 55 if it qualifies to be accepted in accordance with the provisions of a scheme of self assessment to be made by the Central Board of Revenue for that year. Subsection (1A) of section 59 further provides that Central Board of Revenue or any authority under the Board if so authorized may select out of returns referred to in subsection (1) any cases or classes of cases or persons or classes of persons for normal assessment under section 62.
2. The Central Board of Revenue issued Self‑Assessment Scheme for the year 2001‑2002 in the form of Circular No.4 of 2001. The ` Scheme envisaged acceptance of all returns filed by tax payers other than those which were ineligible under para. 7 of the Circular to qualify for the scheme. However, according to the Circular, the assessees were required to fulfil certain conditions in order to avail the concession of self‑assessment.
3. Para. 9 of the Circular further envisaged selection of 20% returns for audit in the following manner:‑‑
(i)Through computer ballot which may be random or parametric as deemed fit by the C.B.R.
(ii)By Regional Commissioner of Income Tax on the recom mendation of the Commissioners concerned in the light of guidelines issued by the Central Board of Revenue in this behalf.
4.On July 17, 2001 C.B.R. issued policy directions with regard to selection of cases for total audit by the Regional Commissioners. Para. 2 of these directions reads as under:‑
"The Board has given the matter an anxious consideration. It has been decided that lists of all cases selected for total audit under para. 6(b) of Board's Circular No.21 of 2000, shall be withdrawn. Further, in order to ensure a fair and. just treatment to all assessees, it has been decided that the RCs shall select cases for total audit only where there is evidence, information or reason to believe that true particulars of income have been suppressed. Such selection may be based upon factors including an evident decline to income, gross profit and net profit rates and any additions to the assets of an assessee. Further, RCIT may also confront the assessees and provide them due opportunity of being heard before final selection."
5. The petitioner is a company limited by shares. For the assessment year 2001‑2002 while filing a return under self‑assessment scheme it showed increase in sales by 32% profit by 20% and the tax actually paid by 22% when compared with the immediate preceding year to fulfil the eligibility criterion. However, respondent No. 1 RCIT Gujranwala through his letter, dated 10‑4‑2002 informed the company of his intention to select its case for total audit on the following two grounds:‑‑
(a)That sales increased by Rs.87,78,566 compared to last year but income from business has declined from Rs.8,87,962 to Rs.1,63,461.
(b)Administrative and selling and distribution expenses have increased respectively by 77% and 48% compared to previous year.
6. The petitioner represented and replied that the figures given in his letter forming reasons for selection of case were factually incorrect. The "reason to believe" having been based on inaccurate figures, it was claimed to be non‑existent. The respondent‑RCIT was informed that the company had declared income in the current year at Rs.10,78,948 as against confronted figure of Rs.1,63,461. Also that in the previous year the company had disclosed an income of Rs.899552 which was wrongly mentioned in the show‑cause notice as Rs.88,796. However, the respondent RCIT was not impressed. Through his letter, dated 25‑4‑2002 he proceeded to inform the petitioner that his case had been selected with reference to the aforesaid para. 9(A)(ii) of the said scheme as in his view "due scrutiny is needed to ascertain factual position regarding magnitude of your business, quantum of turnover and profits". Through this Constitutional petition the selection of case out of scheme has been challenged.
7. The respondent‑Revenue in his reply has primarily raised only one objection. It is that the assessee/petitioner company had shown less income from business at Rs.163461 while income from other sources (miscellaneous) had been shown at Rs.915,487 only in order to avail the benefit of self‑assessment scheme.
8. Having heard the learned counsel for the parties, I am of the view that the said reasons assigned for plucking of the case out of the' scheme cannot be sustained keeping in view the over all Self‑Assessment Scheme as also the disqualifications given in the scheme itself. It needs to be pointed out that self‑assessment scheme is in a nature of a promise held out by the Revenue to an assessee to accept a declared version if certain conditions are met. At the same time the Revenue has been given a privilege to take certain kinds of returns for assessment under normal law. The method for such declaration is left open and uncertain so that an assessee could be discouraged from making wrong declarations or taking a chance. The scheme reposes a confidence in the assessee and equally binds the Revenue to accept the return where the conditions prescribed are fully answered. The Revenue cannot be allowed to turn around to deny the concession in a light vein in one guise or the other.
9. In the scheme enforced for the assessment year under review, the returns filed on fulfillment of requirements could be denied the concession and selection for total audit only in case of the aforesaid two situations. The second option available to the Revenue under clause 9‑A(ii) is not un‑controlled. The aforesaid policy lines clearly show that selection for total audit on the recommendations of an RCIT can be done only "where there is evidence, information or reason to believe that true particulars of income have been suppressed". In the case in hand it is not the case of the Revenue, that the assessee/petitioner had not fulfilled any of the conditions laid down for availing the concession of self‑assessment scheme. The two grounds confronted to the assessee, as noted earlier, could not amount or be taken as reason to believe that true particulars of income had been suppressed. Mere opinion of a .Revenue authority, in this case RCIT, as conveyed to the assessee through letter., dated 25‑4‑2002 that scrutiny was needed to ascertain factual position regarding magnitude of business of the. assessee, the quantum of its turnover and profits was certainly not a good reason to deny the assessee a concession promised to it on fulfillment of the conditions. An opinion which is not supported by tangible evidence or an information ex‑facie acceptable and useable in a case would be against the policy guidelines provided by the Central Board of Revenue for selection of cases out of the scheme on the recommendations of RCIT. Same holds true with regard to the material which could form basis for a reason to believe that income in a particular case had been suppressed. The discretion vested in the RCIT, like any other discretion vesting in an authority needs to be exercised judiciously. A judicious exercise of discretion in cases like the one in hand means a balanced approach towards a declared version keeping in view the obligation of an assessee to make a faithful declaration as well as the duty of the Revenue to come up to its promise of acceptance of declared version which is not dishonest on the face if it.
10. After an assessee has completed all the conditions laid down for a scheme. a kind of fishing inquiry intended to be made in this case does not appear to be the intention of the scheme nor it satisfies the corresponding obligation on the part of the Revenue not to go for total audit where tax had been paid at a certain enhanced rate when compared with the immediate preceding year. The two reasons confronted to the assessee are so general in nature that these could be confronted to any other assessee who had shown .the stipulated increase when compared with the previous year. The respondent/RCIT was required to proceed under para. 9‑A(ii) of the scheme only when the aforesaid guidelines were satisfied.. In the facts in hand none of the policy directions appear; to have been kept in sight while proceeding to take the case of the assessee out of the scheme. The view of the RCIT that the assessee had suppressed income could not be accepted on its face value since policy directions had been disregarded. Admittedly there was no evidence or even information that the income had been suppressed. The only element therefore; remains the "reasons to believe" that correct particular of income had not been stated. According to section 26 of the Pakistan Penal Code a person is said to have "reasons to believe" a thing if he had sufficient cause to believe that thing but not otherwise. The cause that led RCIT to believe in this case, as confronted to the assessee, was increase in sales while decrease in income when compared with the previous year and secondly increase in administration, selling and distribution expense. It was not a sufficient cause to lead to that belief. In the first place the figures confronted to the assessee were misleading and in the second', decrease in business income and increase in miscellaneous income as well as administration expense by itself is not a sufficient cause which can lead to a "reason to believe" that the assessee had suppressed its income. If the RCIT had sufficient cause to believe, then he would riot have sought "ascertaining factual position regarding magnitude of your business, quantum of turnover and profits."
11. That being so I am in agreement with the submissions made at the bar for the petitioner that plucking of the case of the assessee out of scheme was not within the parameters contemplated by the Central Board of Revenue through its Policy Directions, dated July 17, 2001. It shall accordingly be declared to be illegal and void.
M.H./S‑41/LPetition allowed