I.T.A. No.1239/KB of 2000-2001, decided on 15th April, 2002. VS I.T.A. No.1239/KB of 2000-2001, decided on 15th April, 2002., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 896 (2002)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 65, 13(1)(aa), 56, 61, 50(5A), 80CC & 143-B---C.B.R. Circular No.6 of 1991, dated 30-6-1991---C.B.R. Circular No.6 of 1994, dated 10-7-1994---Additional assessment---Assessee, an exporter---Tax was withheld at export stage---Statement under 5.143-B of the Income Tax Ordinance, 1979 was filed and tax deducted was considered as full and final discharge of tax liability---Notices under Ss. 56 & 61 of the Income Tax Ordinance, 1979 were issued after getting the information from the wealth tax proceedings of assessee regarding the investment made in purchase of plot, which were replied and explained by the assessee---Assessing Officer leaving undecided the matter initiated under S.56 of the Income Tax Ordinance, 1979, issued the notice under S.65 of the Income Tax Ordinance, 1979 and made the assessment---Validity--Action of Assessing Officer was totally against the spirit of law---During pendency of proceedings initiated under S.56 of the Income Tax Ordinance, 1979, issuance of notice and completion of assessment under S.65 of the Income Tax Ordinance, 1979, especially in the case where previously statement under S.143-B had been filed, was patently illegal ' and invalidated the entire proceeding of the case---Order of vacation of First Appellate Authority was confirmed but with different view from the one adopted by the First Appellate Authority because the view of First Appellate Authority that it was mere change of opinion was not tenable as the income and wealth proceedings were of distinctive nature---Queries made by Assessing Officer and their explanation by assessee and finding by Assessing Officer in either of the two assessment proceeding will not debar the additional assessment in the other set of proceedings--Departmental appeal was dismissed by Appellate Tribunal being devoid of any merit.

Muhammad Ali Judhar , D.R. for Appellant.

Javed Zakaria for Respondent.

Date of hearing: 30th January, 2002.

ORDER

Through this appeal assessee has assailed the order of the learned CIT(A), dated 8-11-2000. Objections raised by the IAC are as under:

That the learned CIT(A) was not justified in holding that no definite information was available. The assessment in this case was rightly re-opened under section 65 of the Income Tax Ordinance, 1979, on failure of the assessee to declare Plot bearing No.89/L, 16th Lane, Phase VII, DHA, Karachi in his wealth statement for the assessment year 1997-98.

That the original assessment in the case of the assessee was finalized under section 80CC hence it was rightly re-opened under section 65 of the Income Tax Ordinance, 1979.

That the learned CIT(A) was not justified in accepting the plea of the assessee that notice under section 65 was not served on the assessee. The service of notice was duly admitted by the learned A.R. of the assessee vide his Letter No. ZIC/WT.S-41/1999-2000/225, dated 30-12-1999.

That the learned CIT(A) was not justified in incorporating the written arguments of the assessee only in the body of the Appellate Order. The worthy CIT(A) has completely ignored the written comments, dated '30-9-2000 requisition by the worthy CIT himself from this office.

The learned CIT(A) was not justified in deleting the addition of Rs.1,460,000 under section 13(1)(aa) without any cogent reasons.

2. Parties made their appearance through their respective representatives and were heard.

3. Brief relevant facts of the case giving rise to this appeal are that assessee being an individual derives income from export of textile goods and leather garments, filed Statements under section 143B of income Tax Ordinance showing the deduction of withholding tax under section 50(5A) of the Income Tax Ordinance and was proceeded as such. Assessee also existed on wealth tax roll in the same circle. Wealth Tax Assessment was framed for the same assessment year by WTO and during the proceedings, it was found that assessee has purchased immovable property in the form of a Plot No.89/L 16th Lane, Phase 7, DHA, Karachi at Rs.14,60,000. On the basis of this information Income Tax proceedings for Assessment year 1997-98 were initiated by learned DCIT. Notice under section 56, dated 4-11-1999 was issued to assessee which was complied with by assessee, written reply by assessee through a letter, dated 12-11-1999 was tendered, which is reproduced as under:

(i) That the assessment of wealth of our above named client for the assessment year 1997-98 has already been finalized under section 16(3) of the Wealth Tax Act, 1963, i.e. after submission of required details/documents and attending the hearing of the case from time to time.

We do not know the reasons for issuance of notice under section 56 of the Income Tax Ordinance, 1979.

There is no doubt that our above named client is a manufacturer and exporter. Whatever is being manufactured is exported in whole. There is no local sales at all or other income from any other source.

We shall be obliged if you would kindly guide us by quoting the relevant section of the Income Tax Ordinance wherein it has been laid down that the exporters whose sales are 100% export and sales proceeds are received through banking channel and withholding tax is deducted at source are mandatory required to file the normal return besides filing of statement under section 143-B of the Income Tax Ordinance, 1979. This would an addition to our knowledge.

There being no other source of income except the export proceeds our above named client is NOT required to file the normal return of income in addition to statement under section 143-B of the Income Tax Ordinance, 1979.

We would like to draw your kind attention to Circular No.6 of 1991, dated 30-6-1991 and Circular No.6 of 1994, dated 10-7-1994 both issued by Central Board of Revenue, Islamabad, which reveal that Exporters are not required to file Return of income as they are governed by presumptive tax regime. The tax deducted at source is deemed to be the final discharged of their tax liability.

(2) That our above named client being exporter received the export proceeds through banking channel as and when discharged by the purchaser. The amount is credited to the bank account thus the balance in the Bank account varies from time to time.

Our above named client has purchased residential plot measuring 500 sq. yards situated at 89/1 16th Lane Phase VII. Defence Housing Authority which falls under Category VII AS PER District Collector Notification No: CIS/BOR/95/302, dated 29-6-1998 which was effective from. 1-7-1996. He paid a purchased price which was much higher than the minimum rate prescribed by the District Collector, Karachi. The value of the plot declared has not at all been understated.

That as per Agreement of sales the total purchasing price amounting to Rs.1,460,000 was paid through pay orders after drawing cash from the Bank Account of Soneri Bank Limited, Main Branch, II Chundrigar Road, Karachi as under:

(i) Through Cheque No. 01633938?????????????????????????????? Rs.700,000

Dated 28-11-1996

(ii) Through Cheque No. 01633953????????????????????????????? Rs.1,200,000

Besides meeting the other routine expenditure related to the business our above named client got two pay orders prepared in favour of seller Mrs. Zarina Mahmood w/o Mr. Sultan Mahmood Rizvi,

The details are as under:--

(i) Pay Order No: 193092 dated from?????????????????????????? Rs.600,000

Soneri Bank Limited, Main

Branch, II Chundrigar Road,

Karachi.

(ii) Pay Order No.040280 dated from?????????????????????????? Rs.860,000

United Bank Ltd:. I.I. Chundrigar

Road, Branch Karachi.

The cash bank balance is being taken by you as of and of the financial year what about the transactions receipts and payments made during whole of the year you have completely ignored the transactions made during the year and credit balance available to our above named client on receipt of Export proceeds from time to time.

(4) That it is not correct that our above named client managed repeat Managed to purchase Foreign Exchange Bearer Certificate on 25-6-1997. The aforesaid FEBC's were purchased by our above named client earlier and were exempted from the declaration till its encashment. The same were encashed from Habib Bank A.G. Zurich, Hirani Centre, II. Chundrigar Road, Karachi on 24-6-1997 and not on 25-6-1997 as mentioned by

You in your aforesaid letter. The withholding tax at 1% totaling to Rs.15,000 was deposited by the aforementioned bank into State Bank of Pakistan, Karachi on 25-6-1997 which facts have been mentioned by them on form `A' under Rule 13 of the Foreign Exchange Bearer Certificate Rules 1985. Annexure `V' bearing No. HBZKENC 8725 and the relevant documents already available in your record.

We do not understand how you have presumed that on encashment of F.E.B.C.'s worth Rs.1,500,000 same amount should have been available with our above named client and it does not require any further information particularly to the source of investment. Actually when the F.E.B.C's were encashed by our above named client he received the money less withholding tax deducted by the bank and thus the money for investment was genuinely available with him. No investment of whatsoever kind was made without having money in his hand.

In the light of above explanation the position must be crystal clear to you and the source of investment does not remain unexplained and our above named client is also not required to file the Normal Return of Income under section 55 of the Income Tax Ordinance, 1979 in addition to the statement under section 143-B of Income Tax Ordinance, 1979 already filed and wealth for the assessment year 1997-98 and assessment orders received accordingly. Please be kind enough to withdraw your notice under section 56 of the Income Tax Ordinance, 1979 and letter enclosed therewith, dated 4-11-1999 and drop further proceedings, if any, under intimation to the undersigned. Any action, if initiated would be unlawful, unjustifiable and contrary to the privileges and benefits allowed by the Governments.

4. Later on notice under section 56 was followed by another notice under section 61, the same was also replied by the assessee in the following manner:--

(1) That your aforementioned notice and letter, dated 15-11-1999 were received by us on 16-11-1999 and was asked to comply with by 20th November, 1999 i.e. only 5 (five) days were at the disposal of our above named client inclusive of the day of receipt of notice and day of compliance. As a matter of fact at least 15 days as allowed by the Central Board of Revenue, Islamabad, should have been allowed particularly when the assessee has already explained each and every thing in detail.

(2) That it is not understood why the explanation offered by us earlier has not satisfied you.

(3) That the source of investment already explained vide our earlier letter, dated 11-11-1999 was through the export proceeds credited directly to the account and encashment of Foreign Exchange Bearer Certificate for smooth running of the business and increase of capital.

(4) That the statement under section 143-B of the Income Tax Ordinance 1979 showing the tax deducted to the tune of Rs.189,861 on export, the only business, amounting to its total proceeds (Export Sales) Rs.37,407,256 and also tax deducted on encashment of F.E.B.C's.

(5) That photostat copies of relevant certificate and F.E.B.C's have already been furnished to you. Photostat copies of Bank statement related the receipt of export proceeds and withdrawal of money for pay orders for purchase of property are hereby furnished to you for your kind perusal, information and record please with the request to please note that investment was fully covered under explained source and does not attract the provision of section 13 of the Income Tax Ordinance, 1979 as allegedly being noticed by your goodself.

(6) That your kind attention is invited to the fact that the assessment of wealth of our above named client for the assessment year 1997-98 has already been finalized under section 16(3) and later on rectified under section 35 of the Wealth Tax Act, 1963.

Please be kind enough to refrain your goodself from any action with regard to Wealth or initiating any action which attracts provision of section 13 of the Income Tax Ordinance, 1979 or furnishing of books of Accounts as the statement under section 143-B of the Income Tax Ordinance, 1979 has been filed and the deduction of Tax and submission of statement along with proof of tax deducted at source is final discharge of tax liability.

5. No order was made on the above mentioned proceedings. Another notice under section 65 of the Ordinance, was issued by the Assessing Officer which was also complied by assessee thereby challenging the validity of the notice, the written reply of assessee is reproduced as below:

(1) That a huge correspondence has already been made on the captioned subject previously and we state that we do not agree with your contention right from the beginning of the correspondence started by you on the captioned subject.

(2) That our above named client has already furnished the required documents such as relevant bank statements, photostat copy of the pay order for the payment made for the seller of the property under reference.

(3) That our above named client is an exporter and the total proceeds are export sales exclusively through banking channels and statement under section 143B of the Income Tax Ordinance, 1979 is being regularly filed in lieu of normal return of Income the deduction of tax at source (sic) final discharge of tax liability of our above named client.

(4) That your finding that the income assessable to the income-tax for the assessment year 1997-98 has been escaped from assessment. We emphasized that the assessment has in no way escaped from assessment.

(5) That your proposal to re-assess the income of our above named client shall be your own decision which is unjustifiable, unfair and a sort of harassment to the assessee who is trying his best to export and earned maximum foreign exchange for Pakistan.

6. The Assessing Officer did not consider the reply of assessee as satisfactory and added the amount of Rs.14,60,000 as deemed income of assessee as invested in the purchase of above mentioned plot. The assessee agitated the same before learned CIT(A) who vacated the order of Assessing Officer and deleted the addition. The learned D.R. objected the order recorded by learned CIT(A), by contending that the finding of the learned CIT(A) is not based on the valid grounds, he further submitted that the order of learned DCIT, is well according to facts and law, he further narrated that the proceeding in the wealth and income tax matter in respect of same assessee are two different sets of proceedings, evidence and information gathered in either set of proceedings can be termed as base of additional assessment in the other set of proceedings. The learned AR supported the impugned order and contended that action of the learned DCIT is against law, he further stated that the investment was fully explained, the assessee has paid the price of plot from business capital and later on through encashment of FEBC the said amount was added to the business capital of assessee.

7. We have considered the arguments of both the parties, perused the relevant record and orders of the lower forum. As assessee is an exporter, tax was withheld under section 50(5A) at the export stage, assessee was required to file the statement under section 143(B) of the Income Tax Ordinance, 1979, which was filed by assessee and was proceeded accordingly, and tax deducted under section 50(5A) was considered as full and final discharge of tax liability. Afterward Assessing Officer getting the information from the wealth tax proceeding of assessee regarding the investment made in the purchase of plot, issued notice under sections 56 and 61 of the Ordinance, which were replied and explained by assessee, the written replies have been reproduced supra. Assessing Officer leaving undecided the matter initiated under section 56 of the Ordinance, issued the notice under section 65 of the Ordinance and made the assessment thereon. This action of Assessing Officer, is totally against the spirit of law, during pendency of proceedings initiated under section 56 of the Ordinance issuance of notice and completion of assessment under section 65 of the Ordinance, A specifically in the case where the previously statement under section 143B have been proceeded is patent illegality, and invalidate the entire proceeding of the case. In these circumstances the order of vacation is confirmed but with the different view as adopted by learned CIT(A). Because the view of learned CIT(A) that it was mere change of opinion is not tenable as the income and wealth proceedings are of distinctive nature. Queries made by Assessing Officer and their explanation by assessee and finding by Assessing Officer in either of the two-assessment proceed-ings will not debar the additional assessment in the other set of proceedings.

8. Resultantly, the departmental appeal stands dismissed being devoid of any merits.

C.M.A./275/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal dismissed.