I.T.A. No.122/LB of 2005, decided on 20th July, 2006. VS I.T.A. No.122/LB of 2005, decided on 20th July, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2662 (2006)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 111(2) & 122(5)---Unexplained income or assets--:-Addition in the tax year immediately preceding the financial year in which the discovery was made---Assessee contended that show-cause' notice was, dated 16-6-2004, thus the amount was discovered in the year, 2004 and immediately preceding financial year was 2003 so the addition was compulsorily to be made in the year, 2003 and not in the assessment year 1998-99---Validity---Addition was to be made in the immediately preceding year where the amount was discovered for action under S.11 of the Income Tax Ordinance, 2001 in the year, 2004 accordingly the addition was to be made in the immediately preceding financial year i.e. 2003---Order passed under S.111 of the Income Tax Ordinance, 2001 suffered from factual infirmity and incurable legal lacunae---Departmental appeal was rejected by the Appellate Tribunal.

2005 PTD 1316; 2006 PTD 673 and 2006 PTD (Trib.) 1778 ref.

(b) Income Tax---

----Evidence---Discarding the evidence without, taking as whole the pieces of evidence produced was legally not be approved, so such a way of proceeding was 'without any legal sanction behind it.

(c) Income Tax Ordinance (XLIX of 2001)---

----S. 122(5)---Amendment of assessments---Definite information---Proceedings under S.122 of the Income Tax Ordinance, 2001 could not be initiated except on the basis of definite information acquired from an audit or otherwise.

(d) Income Tax Ordinance (XLIX of 2001)---

----S. 111---Income Tax Ordinance (XXXI of 1979), S.13---Unexplained income or assets---Assessing Officer firstly mentioned S.13 of the Income Tax Ordinance, 1979 and thereafter S.11 of the Income Tax Ordinance, 2001 in the show-cause notice, which indicated un -decisiveness/ambiguity in mind for applying the law -Such infirmity was to be interpreted in favour of the assessee because the assessee had the right to know the exact provision of law under which he was required to be proceeded.

(2006) 93 Tax 73 (Trib.) rel.

(e) Income Tax Ordinance (XLIX of 2001)---

----S. 122---Amendment of assessment---Amendments in the applied provisions---Effect---Section 122 of the Income Tax Ordinance, 2001 had been made victim of series of amendments so the action under such provisions of law where the provisions had been made by the law makers in pieces then in this scenario, the action could not be strictly termed as legal and such repeated amendments cause misuse of authority.

S. Ashraf Ahmad Ali, D.R. for Appellant.

Ajmal Khan for Respondent.

ORDER

Through the titled appeal the Revenue assailed the impugned order, dated 11-10-2004 passed by the learned CIT(A) for cancellation of assessment under section 122(5) of the Income Tax Ordinance, 2001.

2. Brief facts of the case are that it was by invoking the provisions of section 122(5) ibid against the order, dated 29-6-2004 under section 62 of the repealed Income Tax Ordinance, 1979, that an addition under section 111(1)(b) of the present Ordinance, 2001, was made at Rs.5,389,500. The Assessing Officer justified this addition by taking that shares were purchased on 7-7-1997 whereas the foreign remittance was received on 23-7-1997, which were the funds utilized the assessee for transactions. In contrast to it, the assessee's contention is that 110 shares amounting to Rs.11,000 were purchased on 7-7-1997 whereas 53884 shares with a value of Rs.5,388,400 were purchased on 24-7-1997. The Assessing Officer drew the conclusion from the Form-'A' (the prescribed form to be submitted before the Securities and Exchange Commission of Pakistan) that the date of purchase of 53895 share is 7-7-1995. This controversy over the date of purchase has arisen as in the column showing the collective strength of the shares held by the assessee only date mentioned is 7-7-1997. Whereas in the same form it is also given that 11 shares were purchased on 7-7-1997 with the detail that 10 shares were from Mr. Khalid Mehmood and one from Mr. Tahir Mehmood. The particulars of persons from whom the shares were acquired on 24-7-1997 is as under:--

The learned CIT(A) by recording the following findings cancelled the order passed under section 122(5) of the Income Tax Ordinance, 2001:--

"Perusal of assessment record reveals that in response to show-cause notice under section 122(5)of the Income Tax Ordinance, 2001, factual position regarding the purchase of shares was duly explained by the AR vide his letter, dated 21-6-2004, copy of Form-A duly attested and issued by the Deputy Registrar of Companies has also been filed in support of the contention which was also submitted at the time of assessment.

From the above synopsis it proves that the assessee made investment out of explained sources and 53895 shares were purchased on the date after the encashment date of foreign remittances. It appears that the Assessing Officer was misconceived by the facts and he was not justified to take action under section 122 of the Income Tax Ordinance, 2001 against the assessee. Therefore, the order passed under section 122 of the Income Tax Ordinance, 2001 is cancelled being void ab initio. "

4. The learned DR has supported the assessment order but has not been able to controvert the facts formed the basis for allowing the relief at the first appeal stage. The learned D.R. has submitted that the date as mentioned as 7-7-1997 in respect of total share holdings of the appellant/assessee is the date on the basis of which the addition was to be made. But the learned D.R. has nothing to express in support of invoking of proceedings under section 122(5) ibid and thereafter the period in which the addition was made. The learned D.R. pleaded for legality of proceeding under section 122(5) of the Income Tax Ordinance, 2001 and also confirmation for addition made under section 111 of the Income Tax Ordinance, 2001.

5. The learned AR has submitted that Assessing Officer without properly going through the contents of the entire Form-A where the dates of transfer/purchase of shares are given and the particulars of the persons who have transferred in favour of the appellant/assessee, secondly by referring to the total number of the shares held by appellant assessee where only date of 11 shares has been mentioned has proceeded under section 122(5) ibid for making the addition under section 111(1)(b) of the present Ordinance. The learned AR in support of his contention that entire shares were not acquired on 7-7-1997 has referred to the registered transfer deeds and shares certificates showing that 110 shares valuing Rs.11,000 were transferred on 7-7-1997 whereas rest of the shares on 24-7-1997. By highlighting such facts the learned AR has contended that the Assessing Officer has not looked into the entire evidence but has taken into consideration only the date mentioned in the Form `A' in respect of total holding of shares transferred to appellant/assessee. The learned AR further elaborated that the Assessing Officer had taken into consideration the entire evidence available on record then proceedings under section 122(5) could not have been initiated and in this regard submitted that it was merely a typographical error in mentioning date as 7-7-1997 instead of other and the subsequent date i.e. 24-7-1997, this way confusion arose which could have been settled by examining firstly, the share certificates based on transfer deed which could have been further reconfirmed from the transferor of shares. On the point of legality of attracting the provisions of 122, the learned AR has contended that the assessments completed prior to 1-7-2003 cannot be subjected to an action under section 122(5) of the present Ordinance. In support of it referred to the judgment of Honourable Karachi High Court with citation as 2005 1316 and read out the concluding parts of it before us. The learned AR has also referred to order of this Tribunal with citation as 2006 PTD 673 and 2006 PTD (Trib.) 1778 with the submission that order under section 122(5) is illegal. The learned AR has challenged the legality of the addition made under section 111 of the Income Tax Ordinance, 2001 with the contention that this argument is without prejudice to the earlier arguments. In this respect it was elaborated by the learned AR that for making addition under section 111 ibid, the provisions of subsection (2) of section 111 ibid were to be followed and the Assessing Officer has made addition in assessment year 1998-99 which is not legally relevant year where the impugned addition could legally be made. The subsection (2) of section 111 ibid by amendment through Finance Act, 2004 has laid down that such mount (for addition) was to be made chargeable to tax in the tax year immediately preceding the financial year in which it was discovered. In this way, the learned AR has contended that the addition if any which was to be made in the immediately preceding financial year i.e. 2003 because it was on 16-6-2004 that amount was discovered for addition by the Assessing Officer. The learned AR for making it clear has explained that show-cause notice is dated 16-6-2004, this way, the amount was A discovered in the year, 2004 and immediately preceding financial year is 2003 so the addition was compulsorily to be made in year, 2003 and not in the impugned assessment year 1998-99.

6. We have heard rival parties and also perused the relevant record available. The case-law as cited before us have also been minutely studied in context to the issue before us. The relevant provisions of law have also been duly taken into consideration. The whole of evidence as were adduced at the assessment stage were to be taken into consideration in entirety and not merely the one entry on the Form `A' where against the total number of shares-holdings the date mentioned was 7-7-1997, thus ignoring the dates mentioned in the earlier portions of this form clearly depicting the two transferred dates. This fact was further corroborated from the dates of transfer given on the share transfer deeds duly signed by the transferor and transferee which duly further authenticated by issuance of share certificates as a result of transfer on two different dates. The Assessing Officer could in order to clear the doubts was required to contact the transferor of shares to verify the contention of the appellant/assessee. This has not been done but quickly the Assessing Officer has jumped to conclusion by disregarding the available evidence which was to be considered together for forming any considered opinion. Such lapses on the part of the Assessing Officer did not remain unnoticed at the level of the first appeal stage, and by properly taking cognizance of it, the learned CIT/WT(A) has cancelled the order under section 122(5) ibid. This way of discarding the evidence without taking as whole the pieces of evidence produced is legally not to be approved, so such a way of proceeding is without any legal sanction behind it. For developing proper/clear comprehension it would be of considerable importance that the subsection (5) of 5.122 ibid shall be reproduced here:

"An assessment order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that --

(i) any income chargeable to tax has escaped assessment; or

(ii) total income has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been misclassified."

As is evident from the language of subsection reproduced supra that proceeding could not be initiated except on the basis of definite c information acquired from an audit or otherwise, whereas the Assessing Officer has not mentioned as to how the definite information has come into his possession even after framing of assessment under section 62 of the repealed Income Tax Ordinance, 1979 on 25-2-1999. In the given circumstances, presumption in this regard is in favour of the appellant/assessee that such information was available on record when proceedings under section 122(5) were initiated. Another infirmity is clearly visible from the closing para of show cause, dated 16-6-2004 issued by the Assessing Officer which is to be reproduced as under:

"You are therefore, confronted vide this notice under section 122(5) of the Income Tax Ordinance, 2001 to explain as to why the amount of Rs.63,46,500 may not be treated as investment from unexplained sources and added in your income under section 13 of the repealed Income Tax Ordinance, 1979 section 111 of the Income Tax Ordinance, 2001 and penalty proceedings as per law for concealment of income may not be initiated against you."

7. Here the Assessing Officer has firstly mentioned the section 13 of the repealed Income Tax Ordinance, 1979 and thereafter section 111 of the present Ordinance, 2001, which is indicating un-decisiveness/ambiguity in mind for applying the law, such infirmity is to be interpreted in favour of the assessee because the assessee has the right to know the exact provisions of law and also the exact enactment of law under which is required to be proceeded. It is also by following our earlier order with citation (2006) 93 Tax 73 (Trib.) we are persuaded in holding the order as ab initio void and illegal which is to be annulled. For this lacuna as we have already held that section 122 has been made victim of series of amendments so the action under such provisions of law where the provision has been made by the law makers in pieces then in this scenario, the impugned action cannot be strictly termed as legal. Such repeated amendments cause misuse of authority which is quite manifest in the instant case before us.

8. As far as the making of addition under section 111 of the Income Tax Ordinance, 2001 is concerned, the learned AR very pertinently pointed out the lacuna which is fatal. For developing a better comprehension again we are to reproduce the relevant provisions of section 111 of the Income Tax Ordinance, 2001.

"111. Unexplained income or assets.---(1) where

(a) any amount is credited in a person's books of account;

(b) a person has made any investment or is the owner of any money or valuable article; or

(c) a person has incurred any expenditure,

and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head "Income from (other sources") to the extent is not adequately explained.

(2) The amount referred to in subsection (1) shall be included in the person's income chargeable to tax in the tax year [immediately preceding the financial year] in which it was discovered by the Commissioner."

9. The impugned issue clearly fall within the ambit of sub-section (2) reproduced ibid. Keeping in view the provision of law as available at the time of making the addition such addition was to be made in the immediately preceding year where the amount was discovered for action section 111 in the year, 2004 accordingly the addition was to be made in the immediately preceding financial year i.e. 2003.

10. So keeping in view, the detail contemplations/discussion supra we are to uphold the impugned order as the order passed under section 111 of the Income Tax Ordinance, 2001 is suffering from factual infirmity and incurable legal lacunae.

11. As a result, the departmental appeal fails.

C.M.A./142/Tax (Trib.)Appeal rejected.