I.T.As. Nos.5953/LB and 5954/LB of 2002, decided on 29th January, 2005. VS I.T.As. Nos.5953/LB and 5954/LB of 2002, decided on 29th January, 2005.
2006 P T D (Trib.) 429
[Income-tax Appellate Tribunal Pakistan]
Before Ehsan ur Rehman, Judicial Member and Mazhar Farooq Shirazi, Accountant Member
I.T.As. Nos.5953/LB and 5954/LB of 2002, decided on /01/.
th
January, 2005. (a) Words and phrases---
----"Permission" is quite distinct and in no way synonymous to "approval".
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.65 & 13(1)(aa)---Additional assessment-Approval-Permission--Proceedings under S.65 of the Income Tax Ordinance, 1979 as well as additions under S.13(1)(aa) of the Income Tax Ordinance, 1979 were not maintainable as no approval, as mandatory requirement, exists and not seeking of approval and in return not allowing the approval were the major lacunas which were going to the roots of the case.
1993 PTD (Trib.) 1172; 1998 SCMR 2013 (SC Pak); 2003 PTD (Trib.) 1238; 2004 PTD (Trib.) 463 and 2004 PTD (Trib.) 726 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 154 & 65---Service of notice---Non-service of statutory notice---Re-assessment proceedings---Assessee's participation in the re-assessment proceedings could not validate the proceedings suffering due to non-service of statutory notice as service of notice was not made on any member or relative of the members of Association of Persons but had been made on somebody else which the department itself had found as not reliable as at one notice such person was written as son and on the other as employee.
Messrs Idress Barry and Company, Lahore v. CIT Punjab and N.-W.F.P. 1959 SCC 47 and CIT North Zone West Pakistan Lahore v. Messrs Idrees Barry and Company, Lahore 1967 PTD 189 rel.
S.H. Mahmood and Co. v. CIT Karachi PLD 1961 (W.P.) Kar. 23;1988 PTD (Trib.) 973; 2003 PTD (Trib.) 242; 2002 PTD 1209; (2004) PTD (Trib.) 106; 2004 PTD (FTO) 758 and 2004 PTD (Trib.) 1391 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 65---Additional assessment---Non-prescribed format---Issuance of notice under S.65 of the Income Tax Ordinance, 1979 on non-prescribed format---Validity---Assessing Officer was required to issue notice under S.65 of the Income Tax Ordinance, 1979 on the duly prescribed format and issuance on a non-prescribed format was an incurable mistake which had caused illegality and assessment on this score was not maintainable.
Messrs Home Planners v. C.I.T. Companies Zone, Lahore 2001 PTD 1633 rel.
2004 PTD (Trib.) 1784 ref.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss. 13(1)(aa) & 65---Addition---"Approval" and "permission"---Distinction---Addition under S.13(l)(aa) of the Income Tax Ordinance, 1979 was illegal, void ab initio as "permission" had been sought and permission had been granted as against the word "approval"---Assessment order framed under Ss.62/65 of the Income Tax Ordinance, 1979 being illegal was vacated by the Appellate Tribunal.
Syed Mahmood Shah v. CIT and others (2001) 83 Tax 132 (H.C. Lah.) ref.
Sh. Sharif Hussain and Sh. Muhammad Yasin for Appellant.
Sabiha Mujahid, D.R. for Respondent.
Date of hearing: 25th November, 2004.
ORDER
MAZHAR FAROOQ SHIRAZI (ACCOUNTANT MEMBER).---Through the titled appeals the appellant/assessee has called in question the single combined order, dated 14-10-2002 passed by the learned CIT/WT (A), Zone-IV, Lahore by submitting common grounds of appeal in respect of identical issue involved in both the years. Sections referred to in this order are of the repealed Income Tax Ordinance, 1979.
Facts in brief of the case are that appellant/assessee is an authorized distributor of Galaxo Wellcome, Limited and is being assessed to tax in the status of AOP for deriving income from this business. The AOP consists of three members namely Muhammad Shafi, Mohsin Shakeel and Asad Shakeel sharing profit and loss on equal proportion. Name given at S. No.1 is the grandfather and of rest of the two members who are sons of Muhammad Shakeel. Income tax returns for both the years were filed by declaring income at Rs.118,000 and Rs.186,000 respectively for the two years under the relevant Self-Assessment Scheme of each year, with ultimate acceptance under the provisions of section 59(1). On the basis of information received from Galaxo Wellcome (Pakistan) Limited formerly Galaxo Laboratories Pakistan Limited the Assessing Officer found that the payments for the purchases made were exceeding as compared to the available capital of AOP so confronted the peak amount of payments for purchases in both the years requiring an action under section 65. The assessee/appellant has vehemently denied the objections as confronted by the Assessing Officer. The Assessing Officer after seeking "permission" from IAC issued notice under section 65 and ultimately re-assessed the income by making addition under section 13(1)(aa) for the peak amount of payments towards the purchases. For making this addition under section 13(1)(aa) again a "permission" has been sought from the IAC and the IAC in reply has also "granted permission" for making both the impugned additions. The learned first appellate authority set aside both the assessments with the direction to frame afresh assessment after carrying out necessary enquiries and verification. Such findings at the first appeal stage has brought the appellant/assessee in appeal in this Tribunal.
The learned AR at the very outset of his arguments has very strongly pleaded that legal objections may be permitted to raise first. This submission being reasonable was allowed. In this respect the learned AR firstly submitted that Assessing Officer for proceedings under section 65 has asked the IAC that permission may be granted whereas he was to request for approval from the concerned IAC and the IAC should have in reply granted approval or could have refused, as words "permission" and "approval" are not interchangeable and also not synonymous in their meanings. The learned AR has submitted that permission obtained instead of approval could not equate with the approval as used in section 65 and such assessment is ab initio void, illegal and liable to be annulled. The learned AR placed his reliance on the following reported judgments:
(i) 1993 PTD (Trib.) 1172.
(ii) 1998 SCMR 2013 (SC Pak);
(iii) (2003) 87 Tax 3 (Trib.) = 2003 PTD (Trib.) 1238;
(iv) 2004 PTD (Trib.) 463;
(v) 2004 PTD (Trib.) 726.
The learned AR further elaborated this argument by referring to the provisions of section 65 where the words "definite information" and "approval" used are given and these two conditions are to be co-existent for issuing notice under section 65. The learned AR by denying that there was a definite information with the Assessing Officer further submitted that approval has not been obtained which the Assessing Officer was required to do for proceedings under section 65.
The other legal issue which was taken before this Tribunal is in respect of service of notice under section 65 and in this respect the learned AR pointed out that service is neither on any member of AOP nor on any employee. The name of the person on whom the notice has been served is given as Muhammad Aslam which has been described as son and subsequently Muhammad Aslam has been given as an employee on the other notice. By referring to the names of members of AOP the learned AR submitted that notice has not been served as is required and without a proper service of notice the Assessing Officer cannot assume the jurisdiction. In this respect the learned AR further submitted that notice was required to be served as prescribed under section 154 so all the subsequent proceedings on the basis of this notice fall to the grounds because these are legally nullity in the eye of law. The learned AR by referring to the facts of the case has submitted that even the subsequent compliance by participating in the proceedings could not rectify this defect in service vis-a-vis assuming of jurisdiction. The learned AR placed reliance on the following judgments for these arguments:
(i) Messrs Idress Barry and Company, Lahore v. CIT Punjab and N.-W.F.P. (1959 SCC 47)
(ii) S.H. Mahmood and Co. v. CIT Karachi PLD 1961 (W.P.) Kara 23;
(iii) CIT North Zone West Pakistan Lahore v. Messrs Idress Barry and Company, Lahore (1967 PTD 189);
(iv) 1988 PTD (Trib.) 973
(v) 2003 PTD (Trib.) 242
(vi) 2002 PTD 1209
(vii) (2004) PTD (Trib.) 106
(viii) 2004 PTD (FTO) 758
(ix) (2004) 89 Tax 413 (Trib.) = 2004 PTD (Trib.) 1391
The other main legal objection was regarding the improper form of notice issued under section 65 as the notice 'has not been issued on the prescribed form which is marked as IT 191 by the Revenue. The learned AR produced the Photostat copy of the prescribed notice under section 65 for comparison with the notice which has been issued in the instant case before us. In support of his contention that the notice as issued is not the prescribed one, the learned AR referred to a reported judgment of Honourable Lahore High Court in the case of Messrs Home Planners v. CIT Companies Zone, Lahore 2001 PTD 1633 wherein at page 1636 of this judgment the proper form of notice under section 65 has been reproduced, so from the specimens of both the notices under section 65, one prescribed and the other issued by the Assessing Officer in the instant case, the learned AR forcefully pleaded that issuing of a notice not on the prescribed form has rendered the proceedings nullity in the eye of law. In this respect the learned AR also referred to a reported judgment of this Tribunal i.e. 2004 PTD (Trib.) 1784.
The next legal objection was regarding the addition under section 13(1)(aa) which was challenged as illegal as it was on the basis of an amount appearing in the books of the principal company and not from the record of the appellant/assessee which is a no account case, importantly the business relations with the principal company were strained after discontinuing of distribution work and learned AR for this argument placed reliance on a judgment in re: Syed Mahmood Shah v. CIT and others (2001) 83 Tax 132 (H.C. Lahore). The facts as given in the order passed under section 65 i.e. re-assessment proceedings the additions were also contested as the amount which is already credited and added in sales was again straightway added in the income as an addition on account of commission, the incorrect addition under section 13(1)(aa) on account of payment for peak purchases and in assessment year 1998-99 there is incorrect working out of net taxable income and other arithmetical errors. By this the learned AR has also referred that it is a mala fide assessment to harass the taxpayer with such huge amount of assessed income and the payment of tax on such a fabulous income was beyond the capacity of the assessee/appellant. The learned AR has produced before us the Photostat copies of the notices issued under section 65, copies of the correspondence between the Assessing Officer and Inspecting Additional Commissioner highlighting that the permission was sought by the Assessing Officer and the IAC also granted the permission. Number with date and subject of correspondence between the Assessing Officer and the IAC are as under:
Correspondence From Assessing Officer to IAC:
1. No 524/19, dated 14-2-2001
Sub: Permission to re-open the case under section 65 of the Income Tax Ordinance, 1979 in the case of Muhammad Shafi, Iqbal and Company 12-Pipple Vehra Shahalam Lahore. Assessment year 1997-98.
2. No 826/19, dated 24-4-2001
Sub: Permission to re-open the case under section 65 of the Income Tax Ordinance, 1979-Messrs Iqbal and Company, 12- Pipple Vehra, Shahalam Lahore, NT No. 05-19-1182862 Assessment year 1998-99.
3. No. 723/19, dated 29-4-2002
Sub: Permission to make addition under section 13(1)(aa) of the Income Tax Ordinance, 1979 in the case of Messrs Iqbal and Company, 12-Pipple Vehra, Shahalam Lahore, Assessment Years 1997-98 and 1998-99 NT No. 05-19-1182862.
Correspondence from IAC to Assessing Officer:
1. No. 1367/R-II, dated 20-2-2001.
Sub: Permission to re-open the case under section 65 of the Income Tax Ordinance, 1979 in the case of Muhammad Shafi, Iqbal and Company 12-Pipple Vehra, Shahalam Lahore, Assessment year 1997-98 NT No. 05-19-1182862.
2. No. 1918/R-II, dated 15-5-2001.
Sub: Permission to re-open the case under section 65 of the Income Tax Ordinance, 1979-Messrs Iqbal and Company, 12-Pipple Vehra, Shahalam Lahore, NT No. 05-19-1182862 Assessment year 1998-99.
3. No.2219/R-II, dated 14-5-2002
Sub: Permission to make addition under section 13(l)(aa) of the Income Tax Ordinance, 1979 in the case of Messrs Iqbal and Company, 12-Pipple Vehra, Shahlam Lahore. Assessment Year 1997-98.
3. No 2220/R-II, dated 14-5-2002.
Sub. Permission to make addition under section 13(1)(aa) of the Income Tax Ordinance, 1979 in the case of Messrs Iqbal and Company, 12-Pipple Vehra, Shahalam Lahore. Asstt. Year 1998-99.
Such correspondence and the issuance of notice not on the prescribed form and the issue of service of notice was also got verified from the assessment record which was summoned specifically. The Photostat copies as produced by the learned AR were found as exactly the same which are existing in the assessment record.
The learned AR has also produced before us the Photostat copies issued from the principal company Galaxo Wellcome (Pakistan) Limited in support of declared purchases.
The learned DR has submitted that setting aside at the first appellate stage with directions is quite proper and no prejudice has been caused to the appellant/assessee by findings as have been recorded in the impugned order. The learned DR has not referred to any reported judgment to controvert the submissions of the learned AR on the issues of "approval" and "permission", secondly on the service of notice, the service of notice under section 65 on Muhammad Aslam who has been shown as employee on notice for the assessment year 1997-98 and for assessment year 1998-99 Muhammad Aslam has been shown as son with word "Beta". The learned DR regarding improper form of notice has simply supported with the comments that it is quite in order as cause of action under section 65 was duly conveyed. Regarding the issue that notices under section 65 have not been served, the learned DR pleaded that with the participation of the assessee in the proceedings under section 65 this objection disappears.
We have heard the arguments placed at bar and have perused the available record. The assessment record has also been examined in reference to the notice under section 65 proceedings. The case-law cited before us have also been thoroughly gone through by us. It is evident from the section 65 and also from section 13 that the word "approval" has been used vide letter No.524/19, dated 14-2-2001 the Assessing Officer has requested for granting "permission" to reopen the case under section 65 and for assessment year 1998-99 vide letter No.826, dated 24-4-2001 the Assessing Officer has requested for granting "permission" to reopen the case. In reply to both the letters which are appearing at S.Nos.3 and 4 ibid the IAC has granted the "permission". The word "permission" is quite distinct and in no way synonymous to the word "approval". The case-law as cited by the learned AR is on all fours. To draw a clear-cut distinction that permission cannot equate the approval so by respectfully following the earlier judgments on this issue we hold that no approval as mandatory requirement exists, therefore, we are persuaded to agree with the learned AR that not seeking of approval and in return not allowing the approval are the major lacunas which are going to the roots of this case, so on this account the section 65 proceedings as well as additions under section 13(1)(aa) are not maintainable. Secondly the service of notice is firstly not made on any member or relative of the members of AOP but has been made somebody named as Muhammad Aslam which the department itself had made as not reliable as at one notice Muhammad Aslam is written as son C and on the other as employee. Even assessee/appellant's participation in the re-assessment proceedings could not validate the proceedings everlasting adverse due to non-service of statutory notice as given. For holding this we 'ought to respectfully follow the judgments passed by the Honourable Supreme Court of Pakistan in re: Messrs Muhammad Idrees Barry and Company v. CIT Punjab and N.-W.F.P. 1959 SCC 47 and also in re: Messrs CIT North Zone West Pakistan, Lahore v. Muhammad Idris Barry and Company, Lahore 1967 PTD 189. These judgments as constitutionally provided, were followed in subsequent judgments by this Tribunal also. Thirdly, the issuance of notice under section 65 on improper form is also irrelevant which is supported by the judgment passed by the Honourable Lahore High Court in a Writ Petition in re: Messrs Home Planners through Muhammad Azeem Partner v. ACIT Circle 06, Companies Zone-III, Lahore. We hold that Assessing Officer was required to issue notice under section 65 on the duly prescribed format and issuance on a non-prescribed format is also an incurable mistake which has caused illegality and assessment on this score is also not maintainable for both the years. As well as addition under section 13(1)(aa) is also illegal, void ab initio as permission has been sought and permission has been granted as against the word "approval" , the same is deleted. After recording detailed findings on the vital legal issues we do not feel any need of dilating on the rest of the issues E which being the outcome of such illegal act. The combined' assessment order, for the assessment years 1997-98 and 1998-99, framed under sections 62/65 being illegal is hereby vacated. The assessee's appeals for both the years under consideration succeed accordingly.
C.M.A./429/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeals accepted.