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

‑‑‑‑Ss. 156, 65 & Second Sched., Cl. (172)‑‑‑C.B.R. Circular No. 13 of 1985, dated 22‑12‑1985‑‑‑C.B.R. Circular No. 14 of 1985, dated 22‑12‑1985‑‑‑Rectification of mistake ‑‑‑Assessee, instead of filing appeal against the order passed under section 65 of the Income Tax Ordinance, 1979, moved rectification application claiming set off additions made to his income against investment made in SNF Bonds under the whitening Scheme of Central Board, of Revenue‑‑‑rectification application was rejected by the Assessing Officer‑‑‑Representation made to Inspecting Additional Commissioner was also' rejected‑‑‑Appeal against such rejection was filed before First Appellate Authority which .was also rejected‑‑‑Appellate Tribunal remanded the case to First Appellate Authority with certain directions for fresh adjudication after hearing the assessee and Assessing Officer‑‑‑First Appellate Authority directed the Assessing Officer to comply with the judgment of High Court ‑‑‑Validity ‑‑First Appellate Authority had not considered and decided the issues involved in accordance with instructions of Income Tax Appellate Tribunal rather had merely followed the order of the High Court about which the Supreme Court had observed that it should be ignored‑‑‑Order of First Appellate Authority was set aside for de novo action by the Appellate Tribunal‑‑‑Supreme Court having directed that order of the High Court should not be followed and the appeal should be decided on merits, the First Appellate Authority should have decided the issues raised in appeal on merits without being influenced by the order of the High Court‑‑‑First Appellate Authority should summon the record and examine the declaration of SNF Bonds and hear the assessee and the Assessing Officer and consider their view points‑‑‑Claim made by the assessee regarding set off of assessed income against SNF Bonds should not be rejected merely on technical grounds and frivolous objections‑‑‑If the claim was in accordance with Cl. (172) of the Second Schedule of the Income Tax Ordinance, 1979 and C.B.R. Circular Nos. 13 & 14 of 1985, dated 22-12‑1985, then the claim should be allowed fully without any hesitation. \

1989 PTD 544 = PLD 1989 SC 360; 1997 PTD (Trib.) 879; PLD 1995 SC 423; PLD 1978 SC 190; 1993 SCMR 39; 1990 PTD 943; 1996 PTD 273; (2001) SCMR 1001; ITAT 2002 PTD 2629; PLD 1970 SC 93; PLD 1990 SC 1156 = 1990 PTD 768 and PLD 1998 SC 64 ref.

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

‑‑‑‑S.156 & Second Sched., (C1. 172)‑‑‑C.B.R. Circular No. 13 of 1985, dated 22‑12‑1985‑‑‑C.B.R. Circular No. 14 of 1985, dated 22‑12‑1985‑‑ Rectification of mistake‑‑‑Limitation‑‑‑Period prescribed under S.156 of the Income Tax Ordinance, 1979 was not applicable to matter of adjustment/set off of untaxed income against income and assets declared under whitening scheme of the Government of Pakistan introduced in the form of SNF Bonds which were exempt under C1. 172 of the Second Schedule of the Income Tax Ordinance, 1979 and C.B.R. Circular Nos. 13 & 14 of 1985, dated 22‑12‑1985.

Mian Ashiq Hussain for Appellant.

Muhammad Zulfiqar Ali, D.R. and Shahid Jamal Khan, L.A. for Respondent.

Date of hearing: 4th September, 2004.

ORDER

Appeal for the assessment year, 1984‑85 has been filed by an assessee to challenge appellate order, dated 19‑8‑2002 passed by Commissioner Income Tax (Appeal) Zone‑III, Lahore. Following grounds of appeal have been raised:‑‑

(1) The impugned order under section 156 is misconceived.

(2) Without prejudice to the foregoing ground the impugned order,: dated 18‑9‑2002 is beyond scope of rectificatory order under section :156 of :the Income Tax Ordinance, 1979.

(3) The learned Commissioner Income Tai (Appeals) did not apply mind to the appellate order passed by this Hon'ble Tribunal in I.T.A. No. 2227/LB.of 2001 (Assessment year, 1984‑85), dated 7‑8‑2001. Hence the learned CIT(A) failed to dispose of the issues for which the case was remanded by this Hon'ble Tribunal.

(4) The Hon'ble High Court did not vacate the, aforesaid appellate order nor the appellate, order was subject‑matter of the Writ Petition hence the order passed by the Hon'ble Court regarding the administrative instructions of the Regional Commissioner of Income Tax had no bearing on, the remand order passed by this Hon'ble Tribunal, (the same being a judicial order, independent of .the administrative instructions of the RCIT).

(5) The observation of the Hon'ble High Court regarding the merits of the case is to be ignored in view of the Law enunciated by the Supreme Court of Pakistan in the judgments cited as 1989 PTD 544 = PLD 1989 SG 360.

(6) The CIT(A) not being a party in the Writ Petition, was required to pass order under section 132 of the income Tax Ordinance, 1979 in the light of the directions of this Hon'ble Tribunal and the case law mentioned therein.

(7) The order passed by this Hon'ble Tribunal in the appellant's case for assessment year, 1982‑83 in I.T.A. No. 527/LB ‑of 1991‑92 on the same issue is binding on the. Commissioner Income Tax (Appeals) as the said order was neither set aside in Writ Petition nor was subject‑matter of any reference under section 136 .of the Income Tax Ordinance, 1979.

(8) The impugned order passed by the learned CIT(A) is without. jurisdiction.

(9) The orders passed by the lower authorities are unlawful, being contrary to the binding decision of this Hon'ble Tribunal in the appellant's own case for assessment year, 1982‑83‑ on I.T.A. No. 525/LB of 1991‑92 (Assessment year 1982‑83). (Copy attached herewith)

2. Appellant's AR and respondent's DR and Legal Advisor have been heard and available record has been perused.

3. Brief facts of the case are summarized step by step as under: ‑‑

(i) Return for assessment year, 1984‑85 filed on 10‑10‑1984 declaring income at Rs.2,59,739.

(ii) Assessment under section 59A was made on 31‑3‑1986 accepting the declared version.

(iii) Assessment was reopened under section 65 and order under this section was passed on 30‑6‑1986 and the following additions were made to assessee's income:‑‑

Addition on account of suppressedRs. 19,65,000

profits real estate business

Addition on account of businessRs. 2,09,000

income

Addition on account of under

statement of investment in plot

at

.Rs. 1,25,000

Rs. 22,99,000

(iv) The assessee did not file appeal against the order of assessment under section 65. Rather he moved rectification application oil 13‑12‑1987 claiming the set off of the above mentioned additions made to his income against his investment which he had made in SNF Bonds under the Whitening Scheme of the C.B.R.

(v) Assessee's rectification application was rejected by the Assessing Officer on 12‑10‑1989.

(vi) The assessee instead of filing appeal against rejection of rectification application kept on filing representations before the Administrative Authorities who rejected the said representations.

(vii) In response to one representation filed by the assessee vide letter, dated 19‑3‑1996 the IAC vide his letter, dated 30‑3‑1996 communicated that assessee's application has already been rejected by the Assessing Officer and so no relief can be given to him.

(viii)Against the above mentioned letter of the IAC, dated 30‑3‑1996 the assessee filed appeal before the Commissioner Income Tax (Appeals) under section 129 of the repealed Income Tax Ordinance, 1979 under section 129.

(ix) The CIT(A) Zone‑III, Lahore in his appellate order, dated 14‑2‑2001 rejected assessee's appeal on the ground that there was no mistake apparent from record in the assessment order of the ITO and so the assessee should not have applied for rectification to the said Officer. Rather he should have filed appeal against the assessment order of the said Officer.

(x) Against rejection of appeal by the first appellate authority the assessee filed further appeal before the ITAT.. The ITAT in its appellate order, dated 7‑8‑2001 passed in I.T.A. No.2227/LB of 2001 remanded the case to the CIT(A) with certain directions for fresh adjudication after .hearing the assessee and the Assessing Officer.

(xi)Meanwhile the assessee had also adopted Constitutional course of approaching the Honourable Lahore High Court through a Writ Petition No. 16593 of 1996.

(xii) The. High Court for the reasons recorded in para. 3, of its order rejected the claim of the assessee regarding set off except in case of an amount of Rs.1,25,000 which had been added to assessee's income on account of under‑statement of investment in plot at Empress Road; Lahore.

(xiii)The order of the Honourable Lahore High Court was brought to the notice of the learned Commissioner who was dealing with the assessee's appeal as the case had been remanded to him for fresh adjudication by the ITAT as mentioned above. The learned Commissioner decided the case vide his appellate order, dated 18‑9‑2002 and instructed the Assessing Officer to make 'compliance with the instructions contained in the judgment of the Honourable Lahore High Court and set off of the amount of Rs.1,25,000 against assessee's investment in SNF Bonds.

(xiv)The assessee again filed appeal before the ITAT against appellate order of the learned Commissioner, dated 18‑9‑2002.

(xv) Against order of the High Court the assessee had moved the apex Court of the land. The Honourable Supreme Court of Pakistan, issued directions to the ITAT to decide appeal of the assessee pending before it for the assessment year, 1984‑85 without being influenced by the order of the Lahore High Court, dated 23‑1‑2002.

Thus from the above mentioned summary of facts of the case it is now clear that the ITAT is expected to decide assessee's appeal on merits of the case without being influenced from the order of the Lahore High Court. Thus in order to decide the appeal the case has been heard by us from time to time and the Authorized Representatives of both the parties have been given reasonable time to present the view point of their clients in detail.

4. In support of the contentions raised in the grounds of appeal the learned AR of the, assessee has given very detailed and exhaustive arguments at the bar. The sum and substance of his arguments on the merits of the case is as under:‑‑

(i) This Hon'ble Tribunal has already allowed set off of part of the SNF Bonds and set off of the remaining part has to be decided in the light of the decision 'for assessment year 1982‑83, dated 10‑10‑1992. The decision of the equal earlier Bench is binding. Reliance is placed on

(1997) 75 Tax 108 (Trib.)

PLD 1995 SC 423

(ii) Clause 172 allows general amnesty to any income from whatever source derived up to assessment year, 1984‑85 to the extent of Investment made in SNF Bonds. The amount of, investment was Rs.2,25,00,000 and the reassessed income was Rs.23,56,908. Thus it was totally covered under the set off.

(iii) S.R.O. 273/1/86, dated 11th March, ,1986 was absolutely ultra vires. Because such. notification was issued by C.B.R. while under section 12(2) of the Income Tax Ordinance, 1979 only Federal Government could issue such notification.

(iv) Even otherwise, such notification could be effective for the purchase of SNF Bond after 11‑3‑1986 because the notification is not retrospectively applicable. PLD 1978 SC 190.

(v) In any case, the appellant's case is covered even in the declaration of the assets under respective heads.

(a) Understatement of investment in immovable properties Rs.4,00,000. The first head covered the under‑valuation in the immovable property i.e. plot at

at Rs.1,25,000.

(b) Prize Bond and cash Rs.55,45,000. Allocation under the head of Prize Bonds and cash at Rs.55,45,000 safely covered the allegedly escaped income of Rs.23,56,907.

(vi) The objection raised by Revenue that the assets were not shown in the declaration as on 30th June, 1984 is misconceived. The declaration pertained to one day only on 30th June, 1984. The earlier transactions could not be reflected on the date and only resultant profit whatever found available on the date had to be declared. Kind attention of the learned Tribunal is invited to the law that Income Tax is not leviable on assets and it is leviable on the income spent in the acquisition of the assets.

(vii) The appellant's case is fully covered by the decision of Hon'ble Supreme Court cited as 1993 SCMR 39 C.B.R. v. Chand Motors. .

(viii) The reassessment order under section 65‑62 for the year under reference, dated 30‑6‑1986 is even otherwise void and omission to allow set off is, therefore, subject to no limitation:‑‑

(a) The mandatory, approval of C.B.R. was not obtained.

(b) Section 13 was applied to appellant's case as seller of property.

(c) Gain on sale of immovable property is not taxable under Income Tax Law while the additions in the impugned re assessment order include such gain to the 'tune of Rs.19,65,000 out of total additions of Rs. 23,56,907. It‑ is, therefore, in the interest of justice not to maintain the void order directly or indirectly.

In support of the above mentioned' arguments and the contentions, the learned A.R. has relied on Clause (172) of the Second Schedule of the repealed Income Tax ordinance, 1979, Circulars of C.B.R. which laid down and clarified‑the procedure regarding set off of investment is SNF Bonds, appellate' order' of the ITAT in the case of the assessee for the assessment" year, 1982‑83 and some judgments of the High Court such as‑ 1990 PTD 943,' 1996 PTD 273 etc. Some other judgments relied upon by the learned AR have already been quoted in the grounds of appeal and in the arguments mentioned above. After pleading the case in detail from various angles it has been prayed by the learned AR that the impugned order passed by the learned Commissioner Income Tax (Appeals), dated 18‑9‑2002 may be set aside and the learned Commissioner may be directed to decide the issue arising from the order passed by the ITAT in its judgment, dated 7‑8‑2001 on merits.

5. The contentions of the assessee and the arguments of the learned AR mentioned supra have been strongly contested by the learned DR and the learned Legal Advisor who appeared on behalf of the respondent. The learned Representatives of the Revenue have raised the issue of limitation. It has been contended that the appeal filed by the assessee against 4AC's letter, dated 30‑3‑1996 is time‑barred as well as incompetent. Quoting the facts of the case it has been submitted by the learned Legal Advisor that assessment under section. 65 in' the instant case was made on 10‑4‑1986 and the assessee did not avail the remedy of appeal against it and so the assessment order attained finality.. Rectification application filed by the assessee was rejected by the Assessing Officer on 12‑10‑1989‑ and against this action of the Assessing Officer the. assessee did not file any appeal and so the decision of the Assessing Officer on the issue of rectification attained finality. The learned L.A. has further submitted that the appeal filed by the assessee against letter of the IAC, dated 19‑3‑1996 wherein the IAC had rejected assessee's representation against order of the Assessing Officer is incompetent because the IAC had no jurisdiction to rectify the assessment order passed by the Assessing Officer. On the admissibility of the issue of limitation and incompetency of the appeal the learned Legal Advisor has submitted that the issue being a legal one can be raised at anytime before any forum. So far as the claim of the assessee regarding set off of an amount of Rs.23,00,000 approximately which was added to assessee's income in order under section 65 is concerned the learned DR and the learned L.A. have both rejected the claim as irrelevant and contrary to the facts. According to them the amount of Rs.1,25,000 can be set off as the same has been endorsed by the Honourable Lahore High Court in its order, dated 23‑1‑2002. In the opinion of the learned Legal Advisor the scheme of SNF Bonds was meant to allow cover of any income which was not assessed till 1984‑85. Rationally speaking the income has to be identified even in absence of the proviso to Clause 172 of the Second Schedule of the repealed Income Tax. Ordinance, 1979. Otherwise any buyer of SNF Bonds would keep on claiming set off against his unexplained income till the time and to the extent of his investment in the Bonds. The learned Legal Advisor has also contended that the facts of Chand Motor's case which has been relied upon by the learned AR of the assessee are distinguishable from the present case, on the point of incompetent appeal and on account of nature of additions. The learned Legal Advisor relies on a judgment of the Supreme Court of Pakistan reported as (2001) SCMR 1001 and states that the Courts are to administer justice in accordance with the provisions of law. He has also quoted a judgment of the ITAT 2002 PTD 2629 on the issue of assets covered by SNF Bonds.

6. Since the issue of limitation and incompetency of appeal was raised by the. DR and the L.A. for the first time the learned AR of the assessee was given opportunity to express his view on this issue.

According to the learned AR the objection raised by Revenue regarding limitation is misconceived and misplaced. He has given the following arguments in support of his contention:‑‑

(i) Exemption under Clause 172 of Second Schedule was an extraordinary measure and normal provisions of limitation were not applicable to it. The different sections of the Ordinance have to be read as enabling provisions. For instance, set off for a case, ten years prior to 1984‑85 would be time‑barred under normal provisions of the Ordinance. But Clause 172 sanctioned such set off and special procedure for set off has been laid down in Circular. No.13 of 1985, dated 22‑12‑1995 and Income Tax Circular No. 14 of 1985, dated 22‑12‑1985. The appellant fulfilled the requirements of the said Circulars and this Honourable Tribunal considered this matter in the first round of appeal and directed for decision on merits.

(ii) Without prejudice to the foregoing, there is no limitation applicable to an order which is ultra vires of law. The Honourable Supreme Court of Pakistan dilated on the effect of exemption in PLD 1970 Supreme Court 93 and held that effect of exemption was that exempted items fell out of the scope of the statute. The exemption granted by clause 172 of the Second Schedule could not, therefore, be denied on the pretext of procedure. The Honourable Supreme Court held in the case of Noon Sugar Mills v. CIT cited as PLD 1990 SC 1156 = 1990 PTD 768 that liability of tax was created by legislation alone. If Legislature waived that liability through exemption, it cannot be created through procedure of assessment or rectification. The denial of exemption is apparently ultra vires and this Honourable Tribunal was fully justified to entertain appeal in round of appeal.

(iii) The Hon'ble Supreme Court also held that if demand of tax is ultra vires i.e. not within the scope of charging provisions, there is no limitation and the plea of limitation by tax authority was deprecated as violative of principles of morality and justice PLD 1998 SC 64.

7. We have considered the view point of both the parties` and have appreciated the arguments given at the bar by their Authorized Representatives. We have gone through the order of the ITO, impugned appellate order of the CIT, appellate order of the ITAT in first round of appeal, the order of the Honourable High Court in Writ Petition and the order of the Supreme Court of Pakistan in appeal against High Court's order. The contention of the learned DR and the learned L.A. who appeared on behalf of the respondent that the request of the assessee for rectification is time barred is not sustainable for two reasons: Firstly because this objection was never raised by Revenue during the previous rounds of litigation; neither the Assessing Officer raised it in his order, neither this objection was raised before the CIT(A), neither the objection was raised before the ITAT, neither the objection was raised before the High Court nor it was raised before the Supreme Court of Pakistan. Secondly because the period prescribed under section 156 of the Income Tax Ordinance, we are afraid to say, is not applicable to matter of adjustment/set off of untaxed income against income and assets declared under whitening scheme of the Government of Pakistan introduced in the form of SNF Bonds which are exempt under clause (172) of the Second Schedule of the Income Tax Ordinance and Circular Nos.13 and 14 of 1985, dated 22‑12‑1985. Hence the objection of Revenue on the point of limitation is rejected.

The prayer of the learned AR of the assessee made at the end of the grounds of appeal in writing and also made verbally at the end of the arguments given at the bar is justified that the impugned appellate order passed by the learned Commissioner, dated 18‑9‑2002 may be set aside and the learned Commissioner may be directed to decide the issues on merits in accordance with the directions of the ITAT given in its appellate order, dated 7‑8‑2001. From the perusal of the impugned appellate order of the learned Commissioner, dated 18‑9‑2002 it transpires that the learned Commissioner has not considered and decided the issues involved in the case on merits in accordance with instructions of the ITAT given vide its order, dated 7‑8‑2001. Rather he has merely followed the order of the Honourable Lahore High Court, dated 23‑1‑2002 about which the Honourable Supreme Court says that it should be ignored. In view of this situation it would meet the ends of justice if the impugned appellate order of the learned Commissioner is set aside of de novo action. Since the Honourable Supreme Court of Pakistan in its order; dated 31‑3‑2003 has directed that order of the Honourable Lahore High Court should not be followed and the appeal should be decided on merits, the learned Commissioner should decide the issue raised in appeal on merits without being influenced by the order of the Honourable Lahore High Court. He should summon the record of the case and examine the declaration of SNF Bonds filed by the assessee. He should hear the assessee and the Assessing. Officer and considei their view points. The claim made by the assessee regarding se: off of assessed income against SNF Bonds should not be rejected merely on technical grounds and frivolous objections. If the claim is in accordance with Clause 172 of the Second Schedule to the repealed Income-Tax Ordinance, 1979 and Circular Nos. 13 and 14 of 1985, dated 22‑12‑1985, then the claim should be allowed fully without any hesitation.

C.M.A./329/Tax (Trib.) Order accordingly.