I.T.A. No. 4873/LB and M.A. (Add. Ground) No. 691/LB of 2005, decided-on 22nd October, 2005. VS I.T.A. No. 4873/LB and M.A. (Add. Ground) No. 691/LB of 2005, decided-on 22nd October, 2005.
2006 P T D (Trib.) 958
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Raja Sikandar Khan, Accountant Member
I.T.A. No. 4873/LB and M.A. (Add. Ground) No. 691/LB of 2005, decided-on 22nd October, 2005.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 62 & 166(2)(a)---Income Tax Ordinance (XLIX of 2001), S.239(2)(1)----General Clauses Act (X of 1897)---Assessment on production of accounts, evidence etc.---Assessee contended that since provision parallel to S.166(2)(a) of the Income Tax Ordinance, 1979 had not been made in the Income Tax Ordinance, 2001, assessment under S.62 of the Income Tax Ordinance, 1979 could not be made after the enforcement of Income Tax Ordinance, 2001 in spite of subsection (1) and subsection (2) of S. 239 of the Income Tax Ordinance,. 2001---Validity---Subsections (1) & (2) of S.239 of the Income Tax Ordinance, 2001 clearly laid down that if an assessment was to be made in respect of any income year ending on or before 30th day of June, 2002, the provisions of Income Tax Ordinance, 1979 insofar as they related to computation of total income and tax payable thereon, shall apply as if the Income Tax Ordinance, 2001 had not come into force and that such assessment shall be completed in accordance with the procedure specified in Ss.59, 59A, 61, 62 or 63, as the case may be of the Income Tax Ordinance, 1979---Two subsections of S.239 of the Income Tax Ordinance, 2001 clearly saved the provisions of Income Tax Ordinance, 2001 and applicability thereof in respect of an assessee for a tax year ending on or before the 30th day of June, 2002---Since assessment was liable to assessment/computation of his income and tax thereon for the assessment year 2001-2002 for which Income Tax Ordinance, 2001 was not inforce and the Income Tax Ordinance, 1979 applied, the Income Tax Authorities were fully within their jurisdiction to complete assessment under S.62 of the Income Tax Ordinance, 1979 in view of the provisions of subsections (1) & (2) of S.239 of the Income Tax Ordinance, 2001 read with S. 6 of the General Clauses Act, 1897.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 239(1) & (2)---Income Tax Ordinance (XXXI of 1979), 5.166---Contention of assessee that provisions of subsection (1) & (2) of S.239 of the Income Tax Ordinance, 2001 did not clearly save the applicability of the provisions of Income Tax Ordinance, 1979 relating to assessment and computation of tax in respect of an income year ending on or before 30th June, 2002 as was done by subsection (2)(a) of section 166 of the Income Tax Ordinance, 1979, was not tenable.
(c) Income Tax Ordinance (XXXI of 1979)---
--S.62---Survey for Documentation of National Economy Ordinance (XV of 2000), S.3---Assessment of production of accounts, evidence etc.---Estimation of sales---Sales were estimated after enquiry report of the Inspector by rotating stocks at six times---Assessee contended that sales could not be estimated more than the sales determined by the Survey Authorities---Validity---Estimate of sales by the Survey Team was not binding on the Department or the Appellate Authorities provided there was sufficient reason to make departure from such estimate---Appellate Tribunal fixed the estimate of sales for assessment year 1991-1992 at Rs.25,00,000 as it was not believable that sales after ten years for assessment year 2001-2002 were Rs.28,50,000 (as reported to the Survey team) particularly when the assessee had constructed a new show room and factory building---Sufficient reason to make departure from the estimate of sales reported in the Survey therefore existed in the circumstances.
2002 PTD 541 ref.
(d) Survey for Documentation of National Economy Ordinance (XV of 2000)---
----S. 3---Income Tax Ordinance (XXXI of 1979) S.62---Filing of questionnaires---Estimation of sales---Estimate of the Survey Team was not binding upon the Assessing Officer and it was to be accepted only in case it was fair and reasonable.
2002 PTD 541 ref.
(e) Income Tax Ordinance (XXXI of 1979)----
---Ss. 146 & 62---C.B.R. Circular 10 of 1979, dated 1-10-1979---Power to enter and search business premises----Estimate of sales on the basis of inspector's report---Assessee contended that since permission of the Inspecting Additional Commissioner had not been obtained, nor reliance could be placed on Inspectors report which was not based on any documentary evidence---Validity---Since the Inspector made spot enquiries after entering into the business premises of the assessee without prior permission of the Inspecting Additional Commissioner as required under 5.146 of the Income Tax Ordinance, 1979, his report could not be made the basis of assessment---Assessment was set aside and case was remanded to the Assessing Officer with the direction that he shall get proper Inspector's enquiry conducted after obtaining permission of the Inspecting Additional Commissioner---Proper inventory of work in progress, of finished stock and machinery installed shall be made---Newly-constructed area of the "show room and factory building with actual measurements shall be ascertained---Contents of the enquiry report shall be duly confronted to the assessee for his explanation and due opportunity of being heard shall be provided in respect of inquiry report for purposes of assessment.
?
1997 PTD (Trib.) 103 and 2004 PTD 30 rel.
Ajmal Khan and Shahid Umar Khan for Appellants.
Mrs. Sabiha Mujahid, D.R. for Respondent.
Date of hearing: 22nd October, 2005.
ORDER
This is assessee appeal against order of the CIT(A) vide No.14563/30, dated 23-6-2005. on the following grounds of appeal:--
"(1) That the reduction of sales at Rs.1,00,00,000 by the CIT(A) from Rs.1,30,00,000 as against declared sales Rs.17,50,000 are not maintainable in the eye of law as the authorities below did not adhere to the provision of law.
(2) That the estimation of sales and reduction thereon by the learned first appellate authority are not tenable in law as the basis made i.e. ITI report is contradictory to the provision of 146 of the repealed Ordinance, 1979. Further more the Survey Team has estimated the sales at Rs.28,50,000."
Additional ground of appeal has also, been filed which reads as follows:--
"That the orders passed by the Authorities below are null and void as the Taxation Officer was not competent to frame assessment under section 62 of the Income Tax Ordinance, 1979 (The repealed) after the enforcement of Income Tax Ordinance, 2001."
Learned AR and the DR have been heard.
For admission of additional ground of appeal the AR relied on judgment of the honourable Lahore High Court reported as 2002 PTD 541 wherein it was held as follows:--
"Ground which may be taken in appeal---Additional ground---Appellate Tribunal refused to entertain the additional ground for the reason that the issue in respect of such ground had not been raised in the memo. of appeal---Validity---When a lis is pending before a Court or a judicial forum, entertainment of an additional ground should be a rule and not an exception---Unless the purpose for making of additional ground is either to delay the proceedings or to cause embarrassment to the parties or the Presiding Officer an additional ground must not be refused provided, it is made or raised before conclusion of hearing---Fact that a ground of appeal was not taken in the original memo. of appeal would not amount to acceptance of the assessment to that extent---Refusing a ground to challenge the addition betrays an avoidance on the part of the Tribunal to rule upon the issue---Rules of procedure are meant to advance the cause of administration of justice rather than to thwart the same---Technicalities should never undermine the advancement of purpose for which judicial or quasi-judicial forums are established by law---Refusal of audience by Tribunal was an extreme step, it should not normally be resorted to as a matter or course---Appeal shall be deemed to be pending and will be decided on /01/.
The AR submitted that in the additional ground a legal issue has been raised while the hearing of the appeal is still pending and that the additional ground would in no way delay the proceedings or cause embarrassment to the parties. The additional ground being a legal issue is allowed to be taken in view of the judgment of the honourable High Court cited above.
In support of his plea in the additional ground the AR referred to the comparative provisions of section 166 of the Repealed Ordinance, 1979 and section 239 " of the Income Tax Ordinance, 2001. These provisions read as follows:--
| (a) | Where a return of income has been filed before the commence?ment of this Ordinance by any person for any assessment year, pro?ceedings, for the assessment of that person for that year may be taken and continued as if the Ordinance has not come into force; | Missing |
| | (d) In making any assess- (1)? ment for any year ending on or before the thirtieth day of June, 1979 the rovisions of the repealed Act relating to the computation of total income and tax payable shall apply. as if this Ordinance had not come into force;???? | [(1) Subject to subsection (2), in making any assessment in respect of any income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance insofar as these relate to computation of total Income-tax payable thereon shall apply as if this Ordinance had not come into force. |
| | (q) Any appointment or any act of authority or other thing made or done by any authority or person and subsisting or in force at the commencement of this Ordinance which could have been made or done under any sub-stantially corresponding provision of this Ordinance by any authority or person other than the one specified in the repealed Act, or in any manner other than that so specified, shall, continue in force and have effect as if it had been made or done under the corresponding provision of this Ordinance by any authority or person other than the one specified in the repealed Act, or in any manner other than that so specified, shall continue in force and have effect as if it had been made or done under the corresponding pro-vision of this Ordinance by the authority or person or in the manner specified in the corres?ponding pro-vision as if such provision had been in force when it was made or done. | The assessment, referred to in subsection (1), shall be made by an Income Tax Authority which is competent under this Ordinance to make an assessment in respect of a tax year ending on any date after the 30th day of June, 2002, and in accordance, with the procedure specified in section 59 or 59A or 61 or 62 or 63, as the case may be, of the repealed Ordinance. |
Submission of the AR was that since provision parallel to subsection 2(a) of section 166 of the repealed Ordinance has not been made in the new Ordinance of 2001, assessment under section 62 of the Repealed Ordinance cannot be made after the enforcement of the new Ordinance of 2001. He further contended that since provision parallel to the subsection 2(a) of section 166 has not been made in the new Ordinance, 2001 then in spite of the provision of subsection (1) and subsection (2) of section 239 of Ordinance, 2001 no assessment under section 62 of the repealed Ordinance could be made. He also submitted that if two interpretations of a provision of law are equally possible, then the interpretation which is favourable to the citizen should be adopted.
The argument of the AR is not tenable because subsections (1) and (2) of section 239 clearly lay down that if an assessment is to be made in respect of any Income year ending on or before 30th day of June, 2002, the provision of the repealed Ordinance insofar as these relate to computation of total income and tax payable thereon shall apply as if the Ordinance of 2001 has not come into force and that such assessment shall be completed in accordance with the procedure specified in section 59 or 59A or 61 or 62 or 63 as the case may be of the repealed Ordinance. Thus the two subsections of section 239 clearly save the provisions of the Income Tax Ordinance, 1979 (repealed) and applicability thereof in respect of an assessment for a tax year ending on or before the 30th day of June, 2002. Submission of the AR that provisions of subsections (1) and (2) of section 239 of the Income Tax Ordinance 2001 do not clearly save the applicability of the provisions of repealed Income Tax Ordinance, 1979 relating to assessment and computation of tax in respect of an Income year ending on or before 30th June, 2002 as was done by subsection 2(a) of section 166 of Income Tax Ordinance, 1979 is not tenable. Therefore there cannot be any other interpretation of subsections (1) and (2) of section 239 of the Income Tax Ordinance, 2001.
In holding so we are fully supported by the provision of section 6 of the General Clauses Act which reads as follows:
"(6) Effect of repeal.---Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repealed shall not:--
(a) ?????? ???????.
???????????
(b) ?????? ???????.
(c) Affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
(d) After any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
(e) Affect any investigation, legal proceeding or remedy in respect of any such light, privilege, obligation, liability penalty, forfeiture, or punishment as aforesaid;
and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed."
Since the appellant was liable to his assessment/computation of Income and tax thereon for the assessment year, 2001-2002 for which the new Ordinance of 2001 was not inforce (as it came into force on first day of July, 2002) and the repealed Ordinance of 1979 applied, the Income D Tax authorities were fully within their jurisdiction to complete assessment under section 62 of the repealed Ordinance in view of the provisions of subsection (1) and (2) of section 239 of the new Ordinance, 2001 read with section 6 of the General Clauses Act as cited above. The additional ground being without merit is rejected.
Brief facts of the case are that the appellant, an individual derives income from sale of furniture. Return was filed declaring income at Rs.180,000. The appellant constructed new double storey building over an area of 15 Marlas with covered area of 7000 sq. ft. on ground floor, having a show room and office. Factory/workshop is located at Harbanspura Road, Lahore in one Kauai area having two storey building and one basement. Enquiries were conducted in this case and stocks were estimated at Rs.25,00,000. Sales were estimated at Rs.1,50,00,000 by rotating stocks at 6 times. After giving relief for time lag between end of income year and the enquiry report sales were confronted under section E 62 at Rs.1,35,00,000. The appellant replied and contended that sales cannot be estimated more than the sales determined by the survey authorities. In this case, the appellant declared sales at Rs.17,50,000, whereas the Survey Team estimated sales at Rs.28,50,000. The appellant also cited certain case laws, regarding estimation of sales on the basis of survey profile, which were considered by the Assessing Officer before estimation of sales. The contention of the appellant was rejected being no account case and because of unverifiable sales/purchases and Inspector's report. Sales were subsequently estimated at Rs.1,30,00,000 subject to GP @ 25% and income was assessed at Rs.29,92,500.
The CIT(A) upheld the rejection of declared version on the basis of reasons recorded in the assessment order. The CIT(A) also found the Inspector inquiry report reliable because it was quite detailed and provided estimate of stocks and sales as well as the machinery installed in addition to the area and location of the show room and the factory. The appellant contested the total area and covered area mentioned in the Inspector's inquiry report regarding construction of new show room and the factory building. The CIT(A) therefore, inferred that the construction of the new show room and the factory is admitted but only its area reported in the Inspector enquiry report is disputed.
It was further contended that Inspector's report is without legal sanctity as the report has been prepared on assumptions and without making the stock inventory. But the CIT(A) did not accept this plea holding that the estimate of stock does not become unreliable just because it is not being supported by an inventory. On the contrary the estimate of stock including finishing goods, work in progress and raw-material as worked out by the ITI was found to be quite-reliable vis-a-vis the size of show room factory, and machinery installed and location of the business. The CIT(A) also found that the assessee is doing business for the last then years and way back for assessment year 1991-1992, sales of the assessee were confirmed by the ITAT at Rs.25 lacs and that estimation of sales by the Assessing Officer at Rs.1,30,00,000 i.e. over a period of 10 years is equivalent to the growth rate of 18% viz-a-viz the sales confirmed by the ITAT in 1991-92. As regards the submission that estimate of sales as made by the survey team should have been accepted, the CIT(A) found that in the ITAT's decision in I.T.A. No.5106/LB of 2002 quoted by the appellant, sales estimated by the Survey Team were found fair and reasonable and were therefore accepted. The ratio of this decision is clear, that estimate of the Survey Team is not binding upon the Assessing Officer and it is to be accepted only in case it is fair and F reasonable. The CIT(A) was of the view that in the present case the Assessing Officer did not find the Survey Team's estimate to be fair and reasonable and therefore rightly deviated from it.
The learned AR also referred to the provision of section 3 of Ordinance No. XV of 2000. An Ordinance which reads as follows:
"(3) Filing of questionnaires.---(1) For the purpose of carrying out survey under this Ordinance, Survey Teams shall subject to such instructions and directions may be issued by the Central Board of Revenue, use the questionnaires set out in the First Schedule, the Second Schedule and the Third Schedule to this Ordinance and the information collected through these questionnaires shall be deemed to be an information collected for the purpose of assessment and determination of turnover. Value or tax liabilities under the laws administered by the Central Board of Revenue."
This section provides that information collected during survey shall be deemed to be information collected for the purpose of assessment and determination of turnover. This section nowhere provides that the estimate of turnover reported in survey shall be binding on the Income Tax Authorities or the appellate authorities for the purpose of assessment and decision of appeal. Thus the argument of the AR that the estimate of sales reported in survey was binding is not acceptable.
We would agree with the CIT(A) that estimate of sales by the Survey Team is not binding on the department or the appellate authorities provided there is sufficient reason to make departure from such estimate. In the present since the ITAT fixed the estimate of sales for assessment G year 1991-1992 at Rs.25,00,000 it is not believable that sales after ten years for 2001-2002 were Rs.28,50,000 (as reported to the Survey Team) particularly when the assessee had constructed a new show room and factory building. Thus there was sufficient reason to make departure from the estimate of sales reported in the Survey.
As regards Inspector inquiry report the AR vehemently submitted that as per Circular No.10 of 1979 the Income Tax Officer and the Inspector had to obtain prior permission of the Inspecting Additional Commissioner for entering into business premises of the assessee. He also relied on a judgment reported as 1997 PTD (Trib.) 103 ITAT. Since H permission of the Inspecting Additional Commissioner had not been obtained in the present case, the AR submitted that no reliance could be placed on his report which is not based on any documentary evidence. In this regard he relied on a judgment of the High Court reported as 2004 PTD 30 LHC.
Since the Inspector made spot enquiries after entering into the business premises of the assessee without prior permission of the IAC as required under section 146 of the Income Tax Ordinance, his report cannot be made the basis of assessment. The assessment order for the year under appeal is therefore set aside and is remanded to the Assessing Officer. He shall get proper Inspector's enquiry conducted after permission of the IAC as required under Circular No.10 of 1979 in the I context of section 146 of the Income Tax Ordinance. Proper stock inventory of work in progress, of finished stock and machinery installed shall be made. Newly constructed area of show room and factory building with actual measurements shall be ascertained. The contents of the enquiry report shall be duly confronted to the assessee for his explanation. Due opportunity of being heard shall be provided to the assessee in respect of the inquiry report for purposes of assessment. Appeal is disposed off as above.
C.M.A./11/Tax (Trib.)????????????????????????????????????????????????????????????? Order accordingly.