I.T.As. Nos. 697/LB to 700/LB, 1591/LB and 1592/LB of 2001, decided on 24th February, 2005. VS I.T.As. Nos. 697/LB to 700/LB, 1591/LB and 1592/LB of 2001, decided on 24th February, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2012 (2005)

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

----Ss.65(3A) & 62---Additional assessment---Limitation---Notice under S.62 of the Income Tax Ordinance, 1979 dated 23-6-2000 was issued which consisted of nine pages---Reply of said notice was delivered at 12-10 p.m. on 30th June, 2000 which was the last date of completion of additional assessments---On July 1st, 2000, a request was made by the assessee for delivery of copy of assessment order personally---On 3rd July, 2000 besides requesting inspection of file, copy of the order sheet was requisitioned which was refused---Assessee contended that it was positive to apprehend and believe that no order was passed within the limit of time specified in S.65(3A) of the Income Tax Ordinance, 1979; that vested right had been accrued in respect of assessment which was made after expiry of period of limitation and that order passed after refusal to supply copy of such assessment order as on 9-7-2000 was mala fide and was designed to pass antedated to show the same to have authored on 30-6-2000 by Assessing Officer---Validity---Under Civil Procedure Code, 1908 short order was to be announced, the day, the proceedings of a case were concluded---While in fiscal statutes the legislature in its wisdom had not adopted such practice; it was so because fiscal statutes generally create liability on a citizen for which a serious deliberation was required---Had the Assessing Officer passed the order under S.65 of the Income Tax Ordinance, 1979 after the cut date, then it would have been very comfortable for the appellate Court to declare such order to have-been passed without lawful jurisdiction---Such was not the case of assessee---Assessee tried by enumerating series of events to contend that assessment order had been passed beyond the cut date---Record did not support the assessee's contention---Appellate Tribunal held that assessment order had been passed within the limit of time specified under the law and objection of assessee was overruled.

(b) Income-tax---

---Limitation---If on the date of hearing of the case factum of concluding proceedings had been recorded in the order sheet, the Assessing Officer could proceed to dictate the order subsequently but of course, within a reasonable period of time.

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

---S.65---Additional assessment---Assessment on the basis of projected figures submitted to Bank for obtaining loan---Validity---Appellate Tribunal had recognized the customary practice of projected figures for obtaining loans and had held unequivocally that such projected figures were not good ground for frustrating the assessment.

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

---S. 65---Additional assessment---"Definite information"---Statement filed with bank merely for purposes of obtaining financial assistance-Once admitted that the statements filed with the bank were merely for the purposes of obtaining financial assistance, those could not assume the character of "definite information" for the purposes of invoking the provisions of S.65 of the Income Tax Ordinance, 1979.

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

----S.65----Additional assessment---"Definite information"---Variance in figures recorded in the books of accounts and those appearing in the accounts filed with the Bank---Assessment---Validity---No doubt that the assessee had given inflated figures in the statements filed with the bank, but fact remained that the figures appearing in the statements of accounts filed with the Tax Department did match with the figures recorded in the books of accounts maintained by the assessee---Such was not the case of department that the figures recorded in the books of accounts and those appearing in the account statements filed with the Department were at variance---Department had not objected to such factum that purpose of showing inflated figures in the statement which were filed with the Bank was other than obtaining financial assistance/loan---Statements filed with the Bank could not be read in isolation---In no way the statements filed with the Bank constituted "definite information" which could compel initiation of proceedings under S.65 of the Income Tax Ordinance, 1979.

1992 PTD 739; 1990 PTD (Trib.) 106 and 1993 SCMR 1108 = 1993 PTD 1108 rel.

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

----S. 65---Additional assessment---"Definite information"---Projected figures submitted to Bank for obtaining financial assistance---Filing of projected figures for obtaining loan may be a piece of information, the truth of which had yet to be established---Such information could not be held to be "definite" in its character.

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

----S.65---Additional assessment---Inquiry---Assessment on the basis of inquiry conducted after issuance of notice under S.65 of the Income Tax Ordinance, 1979---Validity---Inquiry was made by Assessing Officer subsequent to issuance of notice under S.65 of the Income Tax Ordinance, 1979---Such practice had always been deprecated by higher appellate forums---Record had established that mandatory jurisdictional requirement to be in possession of the "definite information" regarding concealment or escapement of income prior to initiation of proceedings under S.65 of the Income Tax Ordinance, 1979 was not fulfilled---No sanctity could be attached to such information in order to invoke the provisions of S.65 of the Income Tax Ordinance, 1979.

(h) Words and phrases---

----"Cancel" and "Annual"---Distinction---When the word "cancel" is used, it generally means interruption of continuance, cessation or termination and does not mean putting an end to something which but for the action in question would have gone on---Word "annul" means to deprive a judicial proceeding of its operation, either retrospectively or only as to future transactions---"Annulment" means to nullify, to set at naught, to make void, to reduce to nothingness.

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

----Ss.65 & 129---Additional assessment---Number of legal infirmities---Cancellation of assessment but not annulment---First Appellate Authority, after giving serious deliberations on legal as well as factual aspects of the case, found the assessment made under Ss.62/65 of the Income Tax Ordinance, 1979 to be not sustainable in law and cancellation thereof was made---Validity---Assessment made under Ss.62/65 of the Income Tax Ordinance, 1979 merited annulment and not the cancellation because where there exists number of legal infirmities in the proceedings initiated for completion of additional assessments, which were not curable, those proceedings should be set at naught rather giving leverage to re-start---First Appellate Authority after thorough appraisal and appreciation of law and facts came to the conclusion that the assessment made under Ss.62/65 of the Income Tax Ordinance, 1979 was not sustainable in law, that certainly merited annulment---Reasonings and findings recorded by the First Appellate Authority to arrive at the decision was endorsed by the Appellate Tribunal but conclusion arrived at was modified to the extent that the assessment being not maintainable, both on legal as well as factual planes, stands annulled.

(j) Income-tax---

----Cash transactions---Cash transactions inter parties could not be doubted unless proved otherwise.

(k) Income-tax---

----Nature of business---Determination of---Commission income by selling the products of manufacturers of sweetmeat or business of manufacturing of sweetmeat---Assessing Officer had built up his opinion on extraneous consideration attributing business of manufacturing of sweetmeat to the assessee---No direct evidence was in possession of the Department to disbelieve the assessee's arrangement of earning commission income by selling the products of manufacturers of sweetmeat---In absence of pointing out definite material, full support was lent to the conclusion that the assessee was not the manufacturer of sweetmeat.

1991 PTD 488 rel.

(l) Income-tax---

----Contracts---When two parties contract to do something by a mutual valid contract or intend doing so, then the third party, like_ the Income Tax Department or for that matter the Court had no power to modify either the contract or what they have intended to do with it.

Dr. Ilyas Zafar and Hafiz Muhammad Ishaq, I.T.P. for Appellant (in I.T.As. Nos.697/LB to 700/LB of 2001).

Dr. Shahid Siddique Bhatti, D.R. for, Respondent (in I.T.As. Nos.697/LB to 700/LB of 2001)..

Dr. Shahid Siddique Bhatti, D.R. for Appellant (in I.T.A. 1591/LB and 1592/LB of 2001).

Dr. Ilyas Zafar and Hafiz Muhammad Ishaq, I.T.P. for Respondent (in I.T.A. 1591/LB and 1592/LB of 2001).

ORDER

Out of these six appeals; four are cross appeals which pertain to assessment year 1993-94 and 1994-95. The residual two appeals, relating to assessment year 1995-96 and 1996-97, are also directed at the instance of the assessee-appellant. These appeals are instituted against the consolidated order passed by C.I.T.(A) Zone-I, Lahore dated 24-1-2001. All the issues involved in these appeals are adjudged hereunder:---

ASSESSMENT YEARS 1993-94 AND 1994-95 (CROSS-APPEALS)

2. Not only the assessee-appellant but the department has also attacked the impugned appellate order on legal as well as on factual grounds at a great length. Mainly, the stress was relating to reopening of the already completed assessments under section 65 of the Ordinance and nature of the assessee's business. However issue relating to reopening of assessment is being taken up at the first place.

3. Facts which emerged for disposal of the appeals in respect of assessment years 1993-94 and 1994-95 are that the assessment originally framed under section 62 were reopened by the assessing officer not only on account of alleged concealment but also owing to furnishing inaccurate particulars of income. The evidence on the basis of which the assessments were reopened was the final account submitted to Union Bank Limited, Lahore for the purposes of obtaining loan. Those accounts statements were audited and signed by Messrs Ahmed Musheer & Co., Chartered Accountants, and Messrs Munir Hussain & Co. Public Accountants wherein the figures declared were drastically different from those declared in the final account filed with the Income Tax Department.

4. Those account statements were simply signed by Zafar & Associates Public Accountants. It is also imperative to state here that the assessee's nature of business throughout its inception remained in dispute. This dispute was also present in these two assessment years. For the assessment year 1993-94, the appellant had declared retail sales of sweetmeat purchased from other manufacturers. However the assessing officer held the appellant to be the manufacturers of sweets. On first appeal, the assessee's point of view was accepted by the first appellate authority following history of the case. When that order was challenged in appeal by the department, the Income Tax Appellate Tribunal vide its order dated 27-2-1995 concurred with the findings recorded by the first appellate authority. However for the assessment year 1994-95, there was no dispute with regard to nature of assessee's business as the assessing officer had himself treated the assessee to be the seller of sweetmeats purchased from other manufacturers.

5. At the first appellate stage, the Appeal Commissioner declared reopening of assessment under section 65 of the Income Tax Ordinance in respect of assessment years 1993-94 and 1994-95 to be not maintainable in law and the order passed under sections 62/65 of the Ordinance was ultimately declared to be "cancelled". However the issue relating to nature of business was set aside for de novo proceedings to be made after affording the appellant a proper opportunity for representing the case. This has compelled the two parties to impugn this order in appeal before the Tribunal.

6. First contention of the learned counsel for the assessee is that the assessments framed on 30-6-2000 were hit by limitation. In this regard, it was alleged that no order whatsoever was formulated by the assessing officer on 30th June, 2000. According to him the last notice issued under section 62 was dated 23-6-2000 which was consisted of nine pages. - Reply of the said notice, containing twenty five pages, was delivered in the office of Deputy Director at 12-10 p.m. on 30th June, 2000 which was the last date of completion of additional assessments. The reason advanced for furnishing reply on 30th June, 2000 was due to requirement of prolix contemplation and deliberations on the contents of the notice. On the next date i.e., on July 1st, 2000, a request was made by the assessee for delivery of copy of the assessment order personally. While on 3rd July 2000, besides requesting inspection of file, copy of the order sheet was also requisitioned which was refused. A similar request was also made to the RCIT but no direction whatsoever was given by him to the assessing officer to satisfy the appellant in this regard. All these events prompted to state that it was positive to apprehend and believe that no order whatsoever was passed within the limit of time specified in subsection (3A) of Section 65 of the Income Tax Ordinance, 1979. Thus, a vested right has been accrued in respect of the assessment which was made after expiry of period of limitation. Also added that the order if any, passed after refusal to supply copy thereof on 9-7-2000 is mala fide and is designed to pass antedated to show the same to have authored on 30-6-2000 by the assessing officer.

7. We do not subscribe to this point of view of the learned counsel for the assessee reason being proceedings to make additional assessments were concluded by the assessing officer on 30th June 2000 for orders. This is settled law that if on the date of hearing of the case factum of concluding proceedings has been recorded in the order sheet, the assessing officer can proceed to dictate the order subsequently but of course within a reasonable period of time. Under the Civil Procedure Code, short order is announced, the day, the proceedings of a case are concluded. But in fiscal Statutes the legislature in its wisdom has not adopted such practice. It is so because Fiscal Statutes generally create liability on a citizen for which a serious deliberation is required. Had the assessing officer passed the order under section 65 after the cut date, then it would have very comfortable for the appellate court to declare such order to have passed without lawful jurisdiction. But this is not the case of the assessee. Rather the assessee has tried by enumerating series of events to contend that the impugned assessment order has been passed beyond the cut date. However, the record does not support the assessee's contention. We, therefore, hold that the impugned assessment order has been passed within the limit of time specified under the law. Hence this objection is over-ruled.

8. Next contention of the learned counsel for the assessee is that once the learned Appeal Commissioner has come to the conclusion that reopening of already completed assessment was not sustainable both on legal as well as factual grounds, he should have "annulled" the assessment instead of "cancelling" the same. The learned counsel tries to draw distinction between the word "annulment and cancellation". As per ordinary meaning of the dictionary, the word "cancel" means rescind or make marks on something or declare invalid etc. while "annul" means abolish, abrogate, do away with law or agreement, make illegal or render null and void etc. To support the contention to "annul" the assessments, it was the learned counsel's contention, that since, the assessing officer was not in possession of definite information prior to issuance of notice under section 65 on 21-6-1999, therefore, reopening of already completed assessment was not lawfully made. Rather fishing inquiries have been made by way of obtaining information from the bank, vide letter dated 21-10-1999 in terms of sections' 144/148 of the Income Tax Ordinance, subsequent to reopening of the assessment which was ultimately made the basis for framing additional assessment. It was thus stated that acquiring information subsequent to reopening of assessment on the basis of which additional assessment has been made is not tenable in law. Also added that the accounts statement obtained from the bank was not a piece of definite information on the basis of which the provisions of section 65 could be invited. It was further added that acceptance of part of the Bank statement whereby nature of business was shown to be purchase & sale of sweetmeat and disbelieved the other part of the statement is against the principle of approbation and reprobation (to blow hot and cold, a person is not allowed to take a benefit under instrument and disclaim the liabilities imposed by the same instrument).

It was also mentioned that since the accounts statement filed with the bank were not based on books of accounts maintained by the assessee company, which were also impounded by the assessing officer, thus, making of additional assessment under section 65 on the basis of figures which were prepared for obtaining loan cannot be held to have been lawfully made. It is, therefore, prayed that in the given circumstances, the assessment made under sections 62/65 merited annulment and not cancellation thereof. On the other hand the departmental grouse for these two assessment years was that the learned Appeal Commissioner has fallen in grave error in cancelling the already completed assessment particularly when definite information in the form of bank statement was in possession of the department. Also pleaded that since there was a drastic variation in the sales declared with the bank and those with the department, therefore, the assessing officer was fully justified in invoking the provisions of section 65 of the Income Tax Ordinance, 1979 in such circumstances.

9. After having heard the divergent views expressed by the rival parties in appeal and also on going through the case law as well as the documents furnished before us by the learned counsel for the assessee, we find that the assessment originally framed under section 62, for the assessment years 1993-94 and 1994-95, are reopened on the sole ground that the accounts submitted before the revenue authority were at variance with the accounts submitted with the Union Bank Limited, Lahore. The question which came up for our consideration is whether the figure shown in the statements fled with the bank for obtaining loan viz., the tax Department, which were statedly drastically at variance, constitute definite information on the basis of which proceedings under section 65 can be initiated or not?

10. This factum cannot be ignored that this is customary in our society that the figures recorded in the books of accounts are generally inflated for the purposes of obtaining financial assistance from the banks or from other financial institutions. This practice acquires support from the dictum laid down by the appellate courts in quite a number of cases. Reference in this behalf may be made to a reported decision of the Tribunal bearing citation 1992 PTD 739. The Tribunal while dealing with the inflated and projected figures in the account statements submitted with the bank for obtaining loan/financial assistance yet no adverse inference could be drawn. While doing so it was observed as under:

It has been held in many cases by the Tribunal that even if a discrepancy between the hypothecated stocks with bank and those shown by the assessee in his books, yet no adverse inference can be drawn because usually people give higher hypothecated figures for stocks to enjoy a higher loan facility. Here, in this case projected figures for IDBP had been relied upon for estimating sales which are more hypothecated than even the hypothecation figures given to a bank for the stocks pledged because in the later case a definite . base i.e: stock available with the assessee is there, whereas in a feasibility report even such a base is not there and all figures are just projected figures. Everyone knows very well that when preparing feasibility report for obtaining loan for setting up a new industry from a financial institution suitable figures are adopted so that granting of loan is facilitated. It will be fantastic to say that production is going to confirm the projected figures in the feasibility report without asking into account the facts of the case during the year under consideration".

11. Another case is also being cited in re: 1990 PTD (Trib.) 106 which applies oh all four to the fact of the case in hands: In that case the' assessee declared purchases of cotton at 6877588 K.Gs in the statement filed along with the return. The assessing officer obtained the pledged statement from the concerned bank and found that the assessee had declared 7012700 K.Gs of cotton to the bank to obtain credit finance limit Rs. 6 million from Muslim Commercial Bank Ltd. The assessing officer was of the view that the appellant had suppressed stock of 1351112 K.Gs valuing Rs.6,87,610. The assessee's contention was that the discrepancy had arisen due to improper accounting and was not factual. The assessing officer did not agree and treated the said amount of Rs.6,87,610 as appellant's deemed income under section (13)(I)(c). At the first appellate stage, it was held that the declaration of excessive stocks to the bank, not supported by any evidence, was not sufficient by itself to justify rejection of books of accounts. It was also held that mere declaration of stock to bank did not prove physical existence of such stock and also that on such basis addition could not be made to the trading results unless there was a definite evidence to support the suppression of stock. In a nutshell it was held that figures of stocks inflated to avail higher ampunts of advances cannot be made a basis for rejection of appellant's accounts.

12. When this appellate order was assailed in appeal by the 'department before the Tribunal, the dictum laid down by majority was:---

"The conclusion arrived at by the learned Commissioner of income-tax and maintained by the accountant member, Sh. Inam Ellahi, that mere discrepancy between the stocks shown in the books of accounts and the stocks shown to the Bank is not sufficient to make an addition unless there is some independent evidence or material which could prove suppression of purchases on the part of the assessee. Supposing a boaster writes to a friend that he owned certain properties which in fact he does not and supposing this information comes into the possession of the assessing officer, can such an addition be made merely on the admission of the assessee? If an assessing officer makes such an addition, no Court of law would maintain such an addition as it is not necessary that the admission made by the assessee was in fact true. In such an instance the assessee cannot be punished for his immoral conduct of telling a lie. In order to make any addition on fiction of law as under section 13(1)(c), it has to be independently proved that the assessee had purchased certain items which had not been shown in the books of accounts. A declaration or an admission before a third party can at best be considered as an information on the basis of which the I.T.O. is empowered to start investigation and to find out as to whether that information is correct or not. The learned Accountant Member, Sh. Inam Ellahi is absolutely correct in saying that the assessing officer has failed in his duty to make any investigation. He confined himself to the information received from the Bank and ignored the explanation of the assessee altogether and made the addition solely relying on the observations made in coimbators case. He did not even bother to verify the plea taken by the assessee."

Accordingly the findings and conclusion of the Appeal Commissioner were endorsed by holding the action of assessing officer to be not justified.

13. Perusal of the above would reveal that the learned Tribunal has recognized the customary practice of projected figures for obtaining loans and has held unequivocally that such projected figures are not good ground for frustrating the assessment. Now, if the above principle is applied to the very basis of reopening of the present assessments, it can safely be inferred that once admitted that the statements filed with the bank were merely for the purposes of obtaining financial assistance, those cannot assume the character of definite information for the purposes of invoking the provisions of section 65 of the Ordinance.

14. Reverting to the facts of the case no doubt that the assessee has given inflated figures in the statements filed with the bank. But the fact remains that the figures appearing in the statements of accounts filed with the Tax Department do match with the figures recorded in the books of accounts maintained by the assessee. This is not the case of the department that the figures recorded in the books of accounts and those appearing in the account statements filed with the department are at variance. The department has not objected to this factum that purpose of showing inflated figures in the statement which were filed with the Bank was other than obtaining financial assistance/loan. We are convinced that F in such circumstances the statements filed with the Bank cannot be read in isolation. Thus, in no way the statements filed with the bank in the present case constitute definite information which could compel initiation of proceedings under section 65 of the Ordinance.

15. What constitutes "definite information" the apex Court of Pakistan has interpreted this term in a case reported as 1993 SCMR 1108 = 1993 PTD 1108 in the following words:

"The expression definite information, and similar expression used in the above noticed provision or other related provisions certainly meant much more than mere material so as to cause a reasonable belief of even such evidence which might had to a definite .belief. Unless there is direct information and there is no further need to put the said definite information to trial by putting in further supporting material the process of self assessment could not be reopened."

16. The unfolded facts further depict that the competent authority had granted statutory permission for reopening of the two assessments under section 65 on 10-6-1999. While the Deputy Director, Directorate of Intelligence and Investigation, Lahore vide his letter dated 21-10-1999 requisitioned certain informations from 'Union Bank Ltd. subsequently. The two dates mentioned in that letter are very conspicuous. First date was 19-10-1999 whereby certain information was originally requisitioned and the second one is 21-10-1999 when the assessing officer visited the bank personally and obtained certain information. As is evident from that letter that the Chief Manager, Union Bank Ltd. was directed to appear in person with all record pertaining to the said account including the statements, the loan documents and the correspondence with the customer. But those documents could not come into the possession of the assessing officer till 20-10-1999. Meaning thereby that no information whatsoever in the form of definiteness was in possession of the department prior to invocation of section 65 of the Ordinance. From all this, we would readily agree with the learned counsel that at the time of initiation of impugned proceedings, the assessing officer was not in possession of definite information or concealment of income which could be clothed with legality. Filing of projected figures for obtaining loan may be a piece of information, the truth of which had yet to be established. Thus, such information cannot be held to be definite in its character. Moreover till 21-10-1999, the assessing officer was in search of material which could be used against the" appellant. This inquiry was made by the assessing officer subsequent to issuance of notice under section 65 of the Ordinance. Such practice has always been deprecated by the higher appellate forums. It is, thus, established from the record that the mandatory jurisdictional requirement to be in possession of definite information regarding concealment or escapement of income prior to initiation of proceedings under section 65 was not fulfilled.

Hence, no sanctity can be attached to such information in order to invoked the provisions of section 65 of the Ordinance.

17. Now, coming to the plea as to whether the assessment for the assessment years 1993-94 and 1994-95 should be "annulled" and not to be "cancelled" as has been done by the first appellate authority. Although the two words "cancellation and annulment" are interchange-able to each other but each one of them conveys different meanings. It all depends in the context in which it has been used. Anyhow, there is a fine distinction in between them. When the word "cancel" is used, it generally means interruption of continuance, cessation or termination. It does not mean putting an end to something which but for the action in question would have gone on. While the word "annul" means to deprive a judicial proceeding of its operation, either retrospectively or only as to future transactions. So, "annulment" means to nullify, to set at naught, to make void, to reduce to nothing etc.

18. Admittedly, the Appeal Commissioner after giving. serious deliberations on legal as well as factual aspect of the case, held the assessment made under sections 62/65 of the Ordinance to be not sustainable in law and cancellation thereof was made. But when we viewed the facts of the case in the perspective discussed supra, we have come to an inescapable conclusion that the assessments made under sections 62/65 of the Ordinance merited annulment and not the cancellation thereof. Reason being where there exists number of legal infirmities in the proceedings initiated for completion of additional assessments, which are not curable, those proceedings should be set at naught rather giving leverage to re-start. As is evident from the impugned order, the Appeal Commissioner after thorough appraisal and appreciation of law and facts came to the conclusion that the assessment made under sections 62/65 was not sustainable in law, that certainly merited annulment. We therefore, endorse the reasoning and the findings recorded by the first appellate authority to arrive at this decision. Nevertheless, the conclusion arrived at is modified to the extent that the impugned assessment so for as it pertains to assessment years 1993-94 and 1994-95, being not maintainable both on legal as well as factual planes, shall stand annulled.

NATURE OF BUSINESS (ASSESSMENT YEARS 1995-96 & 1996-97)

19. Coming to the issue of determination of nature of business, the assessee is claiming almost from the very inception of incorporation of its business to be trading in sweetmeat but conversely the department is treating to be the manufacturer of sweetmeat. If history is to be traced we find that from assessment year 1984-85 onward the assessee's nature of business remained contentious. Nevertheless the assessee's contention of trading is sweetmeat had all along been honoured by the Tribunal till assessment year 1993-94 by rendering judgments on different dates. As regards assessment year 1994-95, the department has itself treated the assessee to be the retail seller of sweetmeat.

20. Salient feature for assessment years 1995-96 and 1996-97 is that the assessee-appellant switched over its business from trading in sweetmeat to that of sale of sweetmeat on commission basis. Three suppliers were engaged to supply sweetmeat to the assessee-appellant. This arrangement was originally accepted by the department while formulating the assessment. However commission receipts were estimated by the assessing officer which were subjected to a rate of commission at 10%. On the point of estimation of commission receipts, the order was challenged in appeal and ultimately the Tribunal remanded the case for re-examination of claim of commission arrangement. On reassessment, the assessing officer, for the reasons embodied in the assessment order, disbelieved the arrangement of earning commission and accordingly treated the assessee to be the manufacturer of sweetmeat. Resultantly, the sales were estimated at Rs.5,25,00,000 and Rs.5,80,00,000 respectively to which a gross profit rate of 30% was applied. At the first appellate stage, the Appeal Commissioner set aside the issue of determination of nature of assessee's business for de novo consideration.

21. Now, before us main thrust of the learned counsel(s) for the assessee is that the learned Appeal commissioner has acted in flagrant violation of law in setting aside the issue of determination of the assessee's nature of business particularly when all the material facts were available before him to decide the same on merits. It was also added that this is none of the business of the assessing officer to intervene in the mutual contract on which the two contracting parties, have agreed to do business. It was explained that if, the assessee had contracted with the suppliers of sweetmeat to sell their products on a fixed rate of commission, the department cannot change nature of the contract. Strength in this regard was sought from a judgment rendered by the apex court of Pakistan reported as 1991 PTD 488' wherein it was held that income tax authorities cannot change nature of the contract intended by. the parties thereto, under the pretext that the rule of interpretation of fiscal law in this behalf, is different. Relevant paras of this judgment is being reproduced for the purposes of ready reference:---

"The most important and relevant injunctions of the Qur'an are contained amongst others in Chapter Maida Verse (1) and Chapter Alisra'a Verse (34)--- to the effect that the contracting parties are bound to fulfil their contracts. And that they would remaif-liable for any contraventions---obviously both here and hereafter. There are very strong Commands and have been enforced in various legal fields. Recently a major contravention regarding the law of pre-emption was resolved by the Supreme Court and this principle was also applied---See the case of Said Kamal Shah PLD 1986 Supreme Court 360 at 381 and 418 et seq. What was emphasized regarding prohibition against third party intervention in mutual contracts in the well-established Sunnah Injunction is that: People be left alone in their mutually agreed transactions; "so that they be blessed by Allah through free circulation of (wealth) amongst themselves"----(Bokhari: Kitabul-Baua No.3709; Abu Daud: Kitabul-Ajara No.3442). When parties by mutual free consent enter into a valid contract, then the third parties have no right to intervene either to frustrate the contract or to change its nature----(Government of N.-W.B.P. V. Said Kamal Shah 360 at 442). The question relating to exceptions had been dealt with separately on the basis of Islamic principles of Zaroorat, Zarar, public interest as such, Sate policy, State necessity etc. in the case of Land Reforms Qazilbash Waqf v. Chief Land Commissioner PLD 1990 SC 99.

As a necessary conclusion drawn from the foregoing, it can be safely held in this case also that on the touchstone of Islamic Rules of Interpretation, which unless excluded otherwise, under the present constitutional set-up the Courts are bound to apply in preference to the contrary so-called accepted rules of inter?pretation under the other jurisprudential concepts (and the fiscal laws are no exception in this behalf), the income-tax authorities cannot change the nature of the contract intended by the parties thereto, under the pretext that the rule of interpretation of a fiscal law in this behalf, is different."

Also contended that the impugned assessment order is based on mala fide and dishonest assumption and the appellant has been penalized for the lapses on the part of the assessing officer. Thus that order cannot be held to be the judicious order which merits annulment thereof.

22. Upon having given anxious thought to the foregoing averments and on going through the facts available on record as well as the case law relied upon, it is noted that the entire superstructure of reassessment, in order to disbelieve the commission arrangements and to hold to be the manufacturer of sweetmeat, is wholly based on the observation of the Tribunal's order dated 13-2-1999 passed in the first round of the litigation. We have gone through that order of the Tribunal as well and find that it was ruled upon on the issue which was neither in dispute nor was subject matter of appeal before it. At the first place we have noted that the issue of determination of assessee's nature of business has been set aside by the Tribunal owing to mis-conception of fact that the assessee was previously manufacturing sweetmeat and arrangement of converting the business on commission basis appears to be dubious which need further probe. This observation is evident from para 5 of the Tribunal order dated 13-2-1999 passed in the first round which reads as under:---

"We have considered the contentions of both the parties and have gone through the relevant documents and facts. During the years 1995-96 & 1996-97 the assessee company changed its nature of business and switched over the sale of sweets on commission basis from its traditional business as manufacturer of sweets. This arrangement has been blindly accepted by the ITC without any objection, without any investigation and without any reliable documentary evidence. Even no contract deed has been produced regarding the terms and contract deed has been produced regarding the terms and conditions settled between the principals and the commission agent. The assessee is a well known party in the business of sweets which started as a small manufacturer of sweets but attained a leading position in this business during last few years. Even at present the assessee company is selling sweets under its own brand name and not under the name of its principals, a practice which is contrary to the practice generally prevalent in the market. Commission agents sell products of their principals under the brand name provided by the principals and not under their own name. The example of Messrs Bata Pakistan Limited given by the learned AR is not applicable as Messrs Bata Pakistan Limited does not sell the shoes etc. made by the ordinary shoe manufacturers on commission basis. It purchases , shoes etc. from these manufacturers and sells them under its own brand name on its own account and not as commission agent. What has prompted our appellant to close down its own business of manufacturing of sweets which was not only flourishing but had also earned good name and status for him in the trace of sweets and change over to commission? Has he really switched over this business or has the device been adopted merely on paper just to avoid the tax'? These are the questions which agitate every thinking mind. This change of business to commission has of course enabled the assessee to declare loss of Rs.401,822 in the assessment year 1995-96 and loss of Rs.883,947 in the assessment year 1996-97 whereas in the preceding years income was being declared and tax was being paid. In view of these facts and circumstances arrangement of converting the business from manufacturing to commission basis appears to be dubious which needs further probe."

In fact, the assessee right from assessment year 1984-85 to 1993-94 was held to be the seller of sweetmeat on retail basis by the Tribunal viz. treated by the department to the manufacturer of sweet. This fact can vividly be proved from page 2 of the assessment order wherein a complete history chart has been produced wherefrom it can safely be concluded that the assessee was retail seller of sweetmeat and not the manufacturer thereof as was observed by the Tribunal. It seems that this factum has escaped consideration by the Tribunal while rendering judgment in the first round of litigation.

23. Anyhow, it has been noted that the assessee's arrangement of earning commission on sale of sweetmeat has been disbelieved by raising the following reasons:--

I. The Company is famous as a leading manufacturer of sweets. This common knowledge/general belief is based on nothing else but truth.

II. The three so called manufactures/supplier/principals are not genuine business concern. They have filed their income tax return for those assessment years only in which they have made so-called supplies to the company. They neither filed the return for earlier years nor for the subsequent years. This fact clearly proves that the returned version for the said assessment years were not filed by them but by the company to substantiate its returned version.

III. That the three so-called manufacturers/suppliers/principals do not have the financial capacity to run such a huge business. None of them is a wealth tax assessee. It is unbelievable that they could manufacture sweetmeat, worth million of rupees without sufficient funds at their disposal.

IV. All transactions between the company and the manufacturers/ suppliers/principals are cash. Not a single transaction is supported by independent documentation of a third party such as a bank that the documents furnished by the three suppliers such as income tax returns cash memos are patently bogus, hence absolutely unreliable.

V. The ulterior motive of evading proper incidence of taxation is patently behind this arrangement. If by spending such a few thousands rupees for preparation of documents and payment of tax in the name of others million of rupees in tax can be saved. It is and extremely cheap bargain.

VI. That the directors of the company have made a huge investment in the business.

24. The assessing officer has also enumerated other reasons for holding the assessee to be the manufacturer of sweetmeat which besides irrelevant, have no direct bearing for the purposes of adjudicating the issue in hand on this point.

25. We are afraid that considering the reasons recorded supra the assessee can be held to be the manufacturer of sweetmeat. These reasons are not only general in their character but are also fanciful to discard the commission arrangement made in between the parties. Actually no substantial material whatsoever has been adduced to treat the assessee to be the manufacturer of sweetmeat, Conversely the assessee has discharged his onus by submitting documentary evidence such as copies of income tax returns filed' by the three suppliers, cash memos issued by them, assessment orders of the three suppliers whereby those were treated as suppliers, evidence of tax liability created on them under section 80C of the Income Tax Ordinance, 1979 and copies of agreements executed in between them to contend that arrangement of earning commission income is genuine. All these evidences could not be negated or dislodged with any cogent material evidence.

26. It is also admitted fact that cash transactions are not prohibited by law. If the suppliers have made supply of sweetmeat ,on cash transactions no violation of law has been committed by the assessee appellant. It is settled principle as well that cash transactions inter se the parties cannot be doubted unless proved otherwise. Moreover, the department cannot thrust liability of the act or omission or commission of the manufacturers/suppliers/principals on the assessee's shoulders. In fact the assessing officer should have put more endeavour to substantiate his point of view. We therefore cannot appreciate disregarding the assessee's claim on general considerations.

27. Since, all the material facts were available on record, therefore, it is deemed appropriate to decide this issue at this stage. Reasoning being no useful purpose would be achieved by remanding the same because the issue involved relates to remote assessment years as back for a decade (ten years) and thereafter, much water has flown under the bridge. We therefore, vacate the finding of the Appeal Commissioner whereby he had set aside this issue for re-determination. Sending the matter, if any, back to the assessing officer generally amounts to adding and multiplying miseries of the tax payer. But his all depends on the facts prevalent in each case. Usually the higher appellate courts also do not look upon favourably the practice of remanding the case to the assessing officer where in a case the issue(s) can be adjudicated at the appellate stage.

28. Viewing overall facts of the case. We find that the assessee's denial of manufacturing of sweetmeat has been appreciated right from assessment years 1983-84 to 1993-94 by the Tribunal after making a good deal of discussion. For the assessment year 1987-88 and 1988-89, reference was also filed by the department on the point of determination of nature of business which was turned down by the honourable Lahore High Court Lahore vide its order dated 8-3-2000. While for the assessment year 1994-95 the assessee was suo motu held to be trading in sweetmeat by the department. What has been discussed supra, it can safely be, concluded that the assessee was never manufacturer of sweetmeat in the past. Actually the Tribunal had misread the facts while adjudicating appeal for the assessment years 1995-96 & 1996-97 in the first round.

29. To our considered opinion the assessing officer has built up his opinion on extraneous consideration attributing business of manufactur?ing of sweetmeat to the assessee. There was no direct evidence in possession of the department to disbelieve the assessee's arrangement of earning commission income by selling the products of manufacturers of sweetmeat. In absence of pointing out definite material, full support is lent to the conclusion that the assessee was not the manufacturer of sweetmeat. It is also a fundamental principle that when two contracting parties to do something by a mutual valid contract or intend doing so, and the third party, like the Income Tax Department or for that matter the court has no power to modify either the contract or what they have intended to do with it. In the given scenario we are persuaded to declare that the assessee for the two assessment years 1995-96 and 1996-97 has acted to be the commission agent by selling the product of other manufacturer of sweetmeat. There is also no denying the fact that this arrangement had the blessings of the department in the past as back for 1983-84 as is evident from the history chart available in the paper book which has also been reproduced in the assessment order. Resultantly, the Appeal Commissioner's order as well as the assessment order stand vacated. The assessing officer is accordingly directed to proceed in the light of our findings. If on examination of available record the assessing officer arrives at the conclusion that the declared commission receipts are open to verification, he should not feel hesitant in accepting those results. Otherwise the assessing officer is vested with the powers to estimate commission receipts on the basis of facts brought on record. The assessee is also at liberty to adduce any documentary evidence to substantiate the declared commission receipts submitted before us.

30. No other grounds of appeal have been pressed by the learned counsel for the assessee.

31. In the result, the assessee as well as the departmental appeals are disposed off in the manner indicated above.

C.M.A./525/Tax(Trib.)???????????????????????????????????????????????????????????? Order accordingly.