I.T.As. Nos. 144/LB to 149/LB, 562/LB to 567/LB of 2005, decided on 16th June, 2005. VS I.T.As. Nos. 144/LB to 149/LB, 562/LB to 567/LB of 2005, decided on 16th June, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 661 (2005)

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

----S.65---Additional assessment---Notice---Combined notice in multiple assessment years could not be issued since each year might involve different issues in the respective assessment years.

2005 PTD (Trib.) 234 rel.

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

----Ss.65, 59(1) & 62---Additional assessment---Pending assessment---Issuance of combined notice---Validity--Assessments for the assessment year 1996-97 to 1999-2000 had been finalized under deeming provision of S.59 (1) of the Income Tax Ordinance, 1979 while the assessments for the assessment years 2000-01 and 2001-02 were still pending finalization before the department---Combined notice could not be issued and combined order under Ss.65 and 62 of the Income Tax Ordinance, 1979 could not be passed because S.65 of the Income Tax Ordinance, 1979 could only be invoked where assessment had already been finalized under S.62 of the Income Tax Ordinance, 19i9 while the assessments for the two years i.e. 2000-01 and 2001-02 were pending finalization.

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

----S.65---Additional assessment---Issuance of notice---Ticking of two different clauses---Effect---Assessing Officer ticked two different clauses which meant that Assessing Officer was not sure whether this was a case of under-assessment or escaped assessment.

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

----S.65---Additional assessment---Failure to observe legal formalities while framing assessment---Validity---Assessing Officer failed to observe legal formalities while making additional assessments inasmuch as he issued combined notice for the multiple assessment year; ticked more than one clauses of the notice; notice itself was served upon the assessee and as regards assessment year 2000-01 and 2001-02 the Assessing Officer proceeded to frame assessment under Ss. 62 and 65 of the Income Tax Ordinance, 1979 despite the fact that returns were filed under S. 59(1) of the Income Tax Ordinance, 1979 and there was no finding to the effect that the returns did not qualify for Self-Assessment Scheme---Order passed by the First Appellate Authority was vacated and assessment were annulled for all the years under appeal by the Appellate Tribunal---Assessing Officer was directed to accept the declared version of the assessee in circumstances.

1997 PTD 47; 2005 PTD (Trib.) 234 and 2004 PTD (Trib.) 1391 rel.

Ch. Afzaal Ahmad for the Assessee.

Abdul Rasheed, D.R. for the Department.

Date of hearing: 16th June, 2005.

JUDGMENT

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---Titled twelve cross-appeals pertaining to the assessment years 1996-97 to 2001-02 have been preferred at the instance of the assessee as well as Revenue calling in question the combined impugned order dated 26-10-2004 passed by the learned C.I.T.(A) Zone-II, Faisalabad. Following grounds were urged at the time of filing of appeal:

(i) That the order passed by the learned C.I.T.(Appeals)-II, Faisalabad under section 132 of the repealed Income Tax Ordinance, 1979 on 26-10-2004 is wrong in facts and bad in law.

(ii) That the relief allowed Rs.200 per shop is inadequate and insufficient. A list of tenants with details was furnished before the learned C.I.T.(Appeals) which has not been kept in view while passing the order.

(iii) That all the shops are not always on rent and the rent per shop is not equal. It varies from shop to shop according to the size and location of the property.

(iv) That the two additional grounds submitted with the permission of the learned Commissioner of Income Tax/W. Tax Appeals-II, Faisalabad have been entirely ignored by the Appellate Authority.

(v) That the appellant craves permission to add, alter or modify any ground of appeal before or at the time of hearing.

(vi) That the rental income may kindly be ordered to be adopted as per facts of the case."

However, at the time of hearing of the main appeals, the assessee sought permission to file further additional grounds which was allowed and the same were placed on file. The additional grounds for the assessment years 1996-97 to 1999-2000 and 2000-01 and 2001-02 are as follows:-

ADDITIONAL GROUNDS

1996-97 to 1999-2000

"(a) That a combined notice under section 65 dated 18-7-2001 issued for assessment years 1996-97 to 1999-00 is incurable defect but the learned C.I.T.(Appeals) has not taken cognizance on this score.

(b) That the appellant was regular existing assessee since 1987 having only source of rental income declared property. There was no aspect of escapement or concealment of income. The said combined notice under section 65 was ticked at clause (a) escaped assessment, which is wrong.

(c) That the service of notice under section 65 dated 18-7-2001 was obtained by the Department on some Mr. M. Naeem who was neither authorized representative nor any responsible adult member of his family residing with him.

(d) That the improper service of statutory notice under section 65 negates the assumption of jurisdiction for additional assessment.

(e) That the impugned rental income allegedly received from Habib Bank Limited, Tibba Sultanpur, is in fact, the income of an AOP, which is a separate entity and the appellant never received his share constituted merely on the basis of inherited distribution of landed property.

(f) It is prayed that the assessment being unlawful may kindly be annulled."

ADDITIONAL GROUNDS

Assessment year 2001-01 and 2001-02

"(1) That the impugned rental income received from Habib Bank Limited, Tibba Sultanpur, is in fact, the income of an AOP, which is a separate entity and the appellant never received his share constituted merely on the basis of inherited property.

(2) That the return of income for the instant year was filed under SAS within stipulated time limit and it apparently qualified for acceptance under SAS. It was neither set apart for normal law assessment neither it was selected for total audit. It is not understandable that how it was taken up for normal law assessment and re-assessment termed under sections 62 and 65 finalized on 26-6-2003 which is patently beyond the limitation provided under the law.

(3) It is prayed that the assessment being unlawful may kindly be annulled."

2. In cross-appeals, filed by the Revenue, the department has objected to the relief allowed to the assessee while reducing the shop rent estimated by the Assessing Officer from Rs.800 to Rs.600 per month. Since all these appeals pertain to the combined assessment order as well as impugned order and also the fact that issues involved in all appeals are common in nature, we intend to dispose of these appeals through this consolidated order.

3. Brief facts giving rise to the present appeals are that the assessee is an individual who derives income from letting shops/property, situated at Tibba Sultanpur. Original assessments for the assessment years 1996-97 to 1999-2000 were filed under SAS and the same were accepted under section 59(1) of the repealed Income Tax Ordinance, 1979 (hereinafter referred to as the repealed Ordinance). With regard to assessment years 2000-01 and 2001-02 returns were filed under SAS but were pending finalization assessment. The department came to know that the assessee was receiving rent from HBL Tibba Sultanpur and the said income from property was never declared. After obtaining the copies of lease agreement and seeking requisite approval of IAC Range Khanewal, the case was reopened and the additional assessments for the assessment years 1996-97 to 1999-2000 were framed under sections 62/65 of the repealed Ordinance. It is also worth noting that through same consolidated order assessments relating to assessment years 2000-01 and 2001-02 were also framed under section 62 of the repealed Ordinance. Feeling aggrieved with the said order dated 26-6-2003 passed by the adjudicating officer, the assessee approached the learned first appellate authority who through its combined order dated 26-10-2004 confirmed the reopening of the assessments for the assessment years 1996-97 to 1999-2000 and also affirmed the treatment to the assessee for the assessment years 2000-01 and 2001-02. However, relief was allowed to the assessee in the estimation of rent received by the assessee. Hence the assessee as well as the Revenue are in further appeals assailing the impugned findings given by the learned C.I.T.(A) Zone-II, Faisalabad.

4. Both the parties have been heard and relevant orders perused. The learned A.R. has vehemently argued the case and contended that the additional assessments as well as assessments framed for the assessment years 2000-01 and 2001-02 are illegal since the same are suffering from incurable legal defects. At the very outset, he pointed out that various lacunae as well as deficiencies are very much conspicuous in the assessment order passed by the Assessing Officer. He pointed out that since the returns were filed under section 59(1) of the repealed Ordinance, the assessment for 1996-97 was deemed to be completed on 30-6-1998. He stated that section 65 could only be invoked within five years from end of the assessment year in which the total income year was first assessable. In his view subsection (4) of section 65 could only be invoked before 30-6-2002 meaning thereby that additional assessment to the extent of assessment year 1996-97 was time barred.

5. His further arguments with regard to all the assessment years were that requisite statutory notices under section 65 were not properly served. In this respect he pointed out that said notice was served upon one Mr. Muhammad Naeem who was in no way authorized to receive the notice for the reason that neither he was authorized representative nor related in any manner to the assessee. Continuing with the arguments, the learned AR's main emphasis was on the fact that combined notice for the assessment years 1996-97 to 1999-2000 was issued which was not sustainable in the eye of law in the light of numerous judgments of the Honourable High Court and the ITAT. The learned A.R. further asserted that alleged notice sent to the assessee was not legal since the Assessing Officer ticked clauses 1(b) and 1(a) which showed that the Assessing Officer was not sure that this is a case of under-assessment or escaped assessment. As regards assessment years 2000-01 and 2001-02, the learned A.R. averred at the bar that returns were filed under section 59(1) of the repealed Ordinance under SAS. He drew attention of the Bench to the fact that the Assessing Officer proceeded to frame assessment for these two years under sections 62 and 65 of the repealed Ordinance without mentioning how the returns of the assessee for these two years did not fall within the purview of section 59(1) and, therefore, the same were to be excluded from the purview of SAS. It was further stated that since no order either under normal law or under deeming provisions of Income Tax Ordinance was passed for these two assessments years, invocation of provisions of section 65 was nullity in the eye of law.

6. Though the learned A.R. assailed the assessment order as well as the impugned order on the legal plane but he also commented upon the impugned findings on the basis of facts of the case. He submitted that he was not a party to the lease agreement whereby the HBL was paying rent. Similarly he stated that he was one of the 11 share-holders who were owner of the rented property/shops in question. In support of this contention he produced a certificate from the Manager of HBL that no rent was paid to the assessee. To substantiate his contentions the learned A.R. placed reliance on judgment of the Honourable High Court reported as 1997 PTD 47, judgment of the Tribunal 2005 PTD (Trib.) 234, 2004 PTD (Trib.) 1391, PTCL 1997 CL 129 and 1995 PTD (Trib.) 1100. The learned DR on the other hand opposed the arguments advanced by the learned A.R. and submitted that assessments for the years under appeal were reopened in view of definite information, hence the Assessing Officer rightly reopened the assessments and due relief has already been allowed by the learned C.I.T.(A), hence no further relief is admissible.

7. Before we proceed further, we would like to comment on the judgments relied upon by the learned A. R. in support of his contentions. The first judgment of Lahore High Court which was produced by the learned A.R. reported as 1997 PTD 47. In the said judgment the requisite conditions for framing additional assessment' under section 65 were enumerated by the Honourable High Court. It was observed that:--

"Provisions of section 65, Income Tax Ordinance, 1979 stipulate three conditions for issuance of notice under section 65 of the Ordinance; firstly the income chargeable to tax has escaped; secondly income has been under assessed; or assessed at too low a rate or has been the subject of excessive relief for a refund and thirdly if assessment is made under section 59(1) and there are reasons to believe that any of the aforementioned defects exist in assessment order."

It was further observed by the Honourable High Court that:--

"The Assessing Officer is required to apply his mind cautiously and indicate to the assessee under section 65(1), as to on what grounds his assessment was sought to be reopened, for reopening of a case to some extent was a penal action and assessee had to be prepared to meet the consequences of reopening of assessment---where the notice did not indicate the reasons to reassess the income of the assessee, it was defective and the error was not curable as it does not indicate the reason to reassess the said income already assessed in the hands of the petitioner."

The second judgment which was relied upon by the learned A.R. is reported as 2005 PTD (Trib.) 234 on the issue that whether a combined notice for more than one assessment year could be issued to the assessee. It was held by the Division Bench of the Tribunal that:--

"In our considered judgment, the Tribunal while ordering annulment of assessment proceedings for 1990-91 to 1997-98 in this case has taken cognizance of multiple defects, including defect of a grave nature and the annulment is thus the cumulative result of all these defects. Thus, the Tribunal has held that (a) Notices under sections 56 and 61 have not been served on the assessee at all nor these notices have been served on someone who has appeared before the Assessing Officer at any stage or on someone who has filed any document at any stage, (b) the single notice under section 56 issued for multiple years, bear evidence of tampering insofar as assessment year, "1996-97" has been altered per force to assessment year, 1997-98" and (c) a single notice under section 56 has been issued for eight years.

As held on Page-4 of Tribunal's order, after taking cognizance of "all pertinent aspects", the Tribunal has come to the conclusion that the assessments framed under section 63 for 1990-91 to 1997-98 are incurably defective and hence liable to be annulled."

8. Next judgment from which the learned A.R. sought strength is 2004 PTD 1391. In the supra judgment the learned Division Bench of the Tribunal while observing the' service of notice on servant of the assessee held it to be improper service as under:--

"Service of notice on servant of an assessee could not be regarded as a proper or valid service because other than service by post the service could be made firstly on the assessee in person or upon his agent empowered/authorized to accept service and in their absence then upon an adult male member of the family of the assessee---Servant/employee of a person could not be taken to be an authorized person or empowered person to accept service on behalf of his master except when he had been specifically empowered or authorized to accept the service---Proceedings carried out in consequence of service of notice on employee of assessee by presuming the service to have been effected upon the assessee, would stand vitiated because mandatory requirement of law for a proper and valid service of notice to be made upon the assessee, had not been complied with by the department---Case was in fact a case of annulment/ cancellation of assessment rather than setting aside the assessment---Order of setting aside the assessment by the first appellate authority was modified with that of the cancellation of assessment by the Appellate Tribunal and consequently declared version was accepted."

9. After hearing the arguments tendered by both the parties at the bar and also going through the relevant orders passed by both the officers below along with the case-law cited at the bar, we are constrained to observe that additional assessments framed by the Assessing Officer as well as confirmation thereof by the learned first appellate authority are not sustainable in the eye of law. In this respect we must observe that combined notice for the assessment years 1996-97 to 1999-2000 could not have been issued by the Assessing Officer. It is pertinent to mention here that this issue also came for adjudication before the Tribunal and the Tribunal through judgment cited as 2005 PTD 234 categorically observed that combined notice in multiple assessment years cannot be issued since each year might involve different issues in the respective assessment years. We must say that ratio laid in the supra referred case is on all fours to the case of the assessee. It is to be noted that assessments had already been finalized under deeming provisions of section 59(1) of the repealed Ordinance for 1996-97 to 1999-2000 while the assessments for the assessment years 2000-01 and 2001-02 were still pending finalization before the department, one cannot comprehend that how a combined notice could be issued and combined order under sections 65 and 62 of the repealed Ordinance could be passed because section 65 could only be invoked where assessment had already been finalized under section 62 while in the present case the assessments for the two years i.e. 2000-01 and 2001-02 were pending finalization. The arguments addressed by the learned A.R. also carry weight on the issues of non-ticking of relevant clauses in the notice and also the proper service of notice by itself. We have seen copy of the notice which clearly shows that the Assessing Officer ticked two different clauses which means that the Assessing Officer was not sure with regard to the fact it was a case of under assessment or escaped assessment. Further perusal of the notice also shows that notice was served upon one Mr. Muhammad Naeem and the department has failed to rebut the learned A.R.'s arguments to show that the person who received the notice was either assessee himself or an authorized person to receive the same. We are constrained to observe that the Assessing Officer failed to observe legal formalities while making additional assessments in terms of the fact that:

(1) He issued combined notice for the multiple assessment years.

(2) He ticked more than one clauses of the notice.

(3) The notice itself was served upon the assessee.

(4) As regards assessment years 2000-01 and 2001-02 the Assessing Officer proceeded to frame assessment under sections 62 and 65 despite the fact that returns were filed under section 59(1) of the repealed Ordinance and there was no finding to the effect that the returns did not qualify for SAS.

10. In this view of the fact we vacate the impugned order passed by the learned CIT(A) and annul the assessments for all the years under appeal. The Assessing Officer is directed to accept the declared version of the assessee for all the years under consideration.

11. Since we have annulled the assessments for all the years, we do not feel necessity to dilate upon the other issues raised by the Revenue through its appeals.

12. As a result of above discussion appeals of the assessee succeed while that of the Revenue stand dismissed.

C.M.A./568/Tax(Trib.)Order accordingly.