COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI VS AMIN HAJI USMAN, 2006 PTD-KARACHI-HIGH-COURT-SINDH 2227 (2003)

Income Tax Ordinance (XXXI of 1979)---

----S.13 [as stood before its amendment by Finance Act (VII of 1992)]---Addition to declared income of assessee on basis of increase in or re-determination of value of any property or valuable article---Essentials---Two separate and independent prior approvals of Inspecting Assistant Commissioner would be required for making such addition---Provision for obtaining second approval required by S.13(2) of Income Tax Ordinance, 1979 was deleted by Finance Act, 1992.

C.I.T. v. Muhammad Kassim 2000 PTD 280; CIT v. Messrs East Pakistan Chrome Lahore 2001 PTD 2312 and CIT Lahore v. Punjab Cooking Oil Limited 2001 PTD 2161 fol.

Jawaid Farooqui for Applicant.

Aziz A. Shaikh for Respondent.

ORDER

The Income Tax Appellate Tribunal by order, dated 28-1-1990 allowed Respondent's Appeal bearing I.T.A. No. 988/KB of 1987-88 (Assessment year 1986-87) on the ground that two approvals of the Inspecting Assistant Commissioner (IAC) had not been obtained under section 13 of the Income Tax Ordinance, 1979 in respect of additions made by the Assessing Officer. The Commissioner of Income Tax Companies-I filed Reference Application No. 256/KB of 1989-90 under section 136(1) of the Income Tax Ordinance, which was rejected by the Income Tax Appellate Tribunal by order dated 31-10-1990. Being aggrieved by the said order of the Tribunal, the Commissioner has filed this application under section 136(2) of the Income Tax Ordinance proposing the following question of law, which according to him arises out of the order of the learned Tribunal, for our opinion:

"Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in cancelling the additions of Rs.400,000 and Rs.683,500 made under section 13(1)(d) and penalty under section 111 of Income Tax Ordinance, 1979 respectively holding that only one approval under section 13(2) was obtained from I.A.C. whereas the 2nd approval under section 13(1) was also necessary which the I.A.C. while approving the draft assessment order is deemed to have given under Income Tax Ordinance, 1979?"

Mr. Jawaid Farooqui, learned counsel for the Applicant vehemently contended that the entire section 13 of the Income Tax Ordinance must be read and interpreted as a whole and the prior approval of I.A.G. for taking action under section 13(1) having been obtained the second approval under section 13(2) is implied and no further approval is required.

We have considered the arguments advanced by Mr. Farooqui, learned counsel for the Applicant and have also undertaken further research ourselves. We find that a similar question of law involving interpretation of section 4(2D) of the Income Tax Act, 1922 was decided by a Division Bench of this Court, of which one of. us, namely, S. Ahmed Sarwana, J was a member, in the case of C.I.T. v. Muhammad Kassim 2000 PTD 280, wherein the learned Bench held that the Income Tax Officer had not proceeded in accordance with the provisions of section 4(2D) of the repealed Act and the additions made by him to the declared income of the Assessee being illegal and ultra vires was rightly set-aside by the Appellate Tribunal as two prior approvals of IAC had not been obtained. The learned Bench while deciding the issue referred which read as follows:-

"(13). Unexplained investments, etc., deemed to be Income.---(1) Where, in the course of any proceedings under this Ordinance,--

(a) any sum is found to be credited in the books of an assessee maintained for any income year; or

(aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable articles, in any year; or

(b) the assessee is found to have made any investment in any income year which is not recorded in the books of account maintained for that income year or is not shown in the wealth statement furnished under section 58 in respect of that year; or

(c) the assessee is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of account, if any, maintained by him (or is not) shown by him in any wealth statement furnished under section 58 in respect of that year; or

(d) the assessee has made investment in any income year or is found in respect of any such year to be the owner of any valuable article and the Income Tax Officer finds that the amount expanded on making such investment or in acquiring such valuable articles exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement furnished under section 58 in respect of that year; or

(e) an assessee has, during any income year, incurred any expenditure and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of money or valuable article, excess amount or the money from which expenditure was met, as the case may be, or the explanation offered by him is not, in the opinion of the Income Tax Officer, satisfactory, the sum so credited, the value of the investment, the money or the value of article, the excess amount or the amount of the expenditure, as the case may be, shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance:

Provided that, where any act referred to in clauses (a) to (c) is discovered after the assessment of income of the income year to which the said act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in which the said discovery is made:

Provided further that in cases referred to in clauses (aa) to (c) such income shall not be chargeable to tax unless prior approval of the Inspecting Assistant Commissioner has been made.

(2) Where the value any investment or article referred to in clauses (aa), (b), (c), or ((I) or the amount of expenditure referred to in clause (c) of -subsection (1) is, in the opinion of the Income Tax Officer, too low, Income Tax Officer may determine after giving a reasonable opportunity to the assessee of being heard and with the prior approval of the Inspecting Assistant Commissioner, a reasonable value or the amount thereof, as the case may be, and all the provisions of sub-section (1) shall have effect accordingly."

The learned Judges after an elaborate discussion of the law which included a discussion of section 13 of the Income Tax Ordinance observed as follows:--

"It will also not be out of place to refer to section 13 of the , Income Tax Ordinance, 1979, the provisions of which are similar- and analogous to the provisions of section 4(2d) of repealed Act, section 13 of the Ordinance before its amendment by the Finance Act, 1992, provided for two separate and independent approvals of Inspecting Assistant Commissioner in the case where the Income Tax Officer intended to make any addition to the declared income of assessee by way of enhancement or increase in the value of any property. The first pproval was provided by subsection (2) of section 13 and the second approval was provided in by the second proviso to clause (e) of section 13(1) of the Ordinance. The Income-tax Ordinance was promulgated on 1-7-1979 and the aforesaid provision relating to two prior approvals of the Inspecting Assistant Commissioner for making additions on the basis of enhancement/re-determination of the value of any property or valuable article continued to be operative and remain in force till 1992 when by the said Finance Act, 1992, the provision for obtaining the first approval required by subsection (2) of section 13 of the Ordinance was deleted."

The aforesaid judgment was followed by the Lahore High Court in the cases of CIT v. Messrs East Pakistan Chrome Lahore 2001 PTD 2312 and CIT Lahore v. Punjab Cooking Oil Limited 2001 PTD 2161, where the learned Judges agreed that under section 13 of the Income Tax rdinance, 1979 two statutory approvals of IAC are required for making additions to the declared income of the assessee.

As the question of law proposed by the Commissioner of Income Tax already stands decided as referred to above, this Application is accordingly dismissed in limine.

S.A.K./C-16/K??????????????????????????????????????????????????????????????????????? Application dismissed.