SERVICES INDUSTRIES LIMITED VS COMMISSIONER OF INCOME TAX, ZONE-III, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 1617 (2005)

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

----S.136(1)---Order of Appellate Tribunal and Revising Authority remanding matter for fresh probe after setting aside assessment---Validity---No question would arise out of such order as consideration of facts of the case and a ruling thereupon by High Court would be out of place.

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

----Ss.12(18) & 66-A---Increase in Company Directors' loan---Assessing Officer accepted such increase without requiring assessee-company to produce relevant evidence---Revisional Authority set aside assessment and remanded matter for fresh probe---Validity---Assessee had submitted only loan accounts of Directors reflecting accumulated figures of debit and credit---Such consolidated figures would not spell out either mode of payment or account on which payments had been made by Directors and credited to their accounts in the books of company---Amount credited in Directors' account in respect of sale of property, thus, needed to be examined as before Assessing Officer only copy of agreement to sell was submitted---Failure of Assessing Officer to require and examine documents in support of claimed increase in directors' loan was erroneous as well as prejudicial to the interest of Revenue---Such failure was sufficient for Revising Authority to invoke provisions of S.66-A of Income Tax Ordinance, 1979.

Commissioner of Income Tax v. Kanda Rice Mills (1989) 178 ITR 446 and Commissioner of Income Tax, Faisalabad v. Mst. Ghulam Fatima Gojra 1993 PTD 1104 distinguished.

(c) Words and phrases---

----"Change of opinion" and "difference of opinion"---Distinction stated.

The phrases of "change of opinion" and "difference of opinion" are two different things. A change of opinion pre-supposes the making of an order by the same person' or at best by the authority. On the other hand, a difference of opinion pre-supposes holding of two different opinions by different persons.

A change of opinion on the part of an officer or authority may be objectionable, but the difference of opinion between the two officers or authorities even of equal status cannot be objected to.

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

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order on principle of "change of opinion" or "difference of opinion"---Scope stated.

The phrases of "change of opinion" and "difference of opinion" are two different things. A change of opinion pre-supposes the making of an order by the same person or at best by the authority. On the other hand, a difference of opinion pre-supposes holding of two different opinions by different persons.

If the principle of change of opinion is applied to the assessments framed by an Assessing Authority by whatever nomenclature called, then provisions of section 66-A of Income Tax Ordinance, 1979 providing for revision of such orders and proceedings by a higher authority, would be rendered redundant.

A change of opinion on the part of an officer or authority may be objectionable, but the difference of opinion between the two - officers or authorities even of equal status cannot be objected to.

It is the privilege of a Revising Authority to exercise the power wherever an order recorded by a subordinate authority calls for an interference on the grounds available in the law. It is rather the very basis of exercise of revisional jurisdiction. The power to revise an assessment order on the motion of the authority is factually the most significant part of the machinery provisions. The occasion to exercise this power will obviously arise only after the Revising Authority comes to a different conclusion or reaches a different opinion as against the one reached by the lower forum. It is the difference of opinion, which provides blood and soul to the revisional jurisdiction provided in the law. To hold an opinion different from the one earlier held by the lower forum is the' privilege of the higher forum, which if denied would render all provisions regarding revisions or appeals as redundant and nugatory.

The Scheme of section 66-A of Income Tax Ordinance, 1979 provided for exercise of revisional jurisdiction in different manners. On having called for an examining the record of any proceedings, the I.A.C. considering it to be erroneous in so far as these are prejudicial to the interest of the Revenue is empowered to make an inquiry by himself or direct it to be made by another person. On such inquiry either made by himself or caused to be made, he is competent to "pass such orders thereon as the circumstances of the case justify including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made.

Syed Abrar Hussain Naqvi for Appellant.

Shahid Jamil Khan for Respondent.

Date of hearing: 27th September, 2005.

JUDGMENT

NASIM SIKANDAR, J.---At the instance of an assessee of the Income Tax Department a Division Bench of the Income Tax Appellate Tribunal, Lahore has made a reference under section 136(1) of the late Income Tax Ordinance, 1979. Following three questions have arisen out of the order of the Tribunal earlier recorded on the appeal of the assessee on 30-11-2000:---

"(a) Whether in the facts and circumstances of the case there has been any cash transaction between the Directors anti the Company, attracting the provisions of section 12(18) of the Income Tax Ordinance, 1979.

(b) Whether in the facts and circumstances of the case, the respondent could assume the jurisdiction under section 66-A of the Ordinance, particularly when he. could not give a clear cut finding that the order of the Assessing Officer was in fact erroneous and prejudicial to the interest of the Revenue?

(e) Whether in the facts and circumstances of the case, insurance agency commission due to the Directors and adjusted against insurance company's credit balance in the assessee company's account with corresponding credit to the directors' account could be treated as loan within the meaning of section 12(18) of the Ordinance?"

The other two questions, which were declined to be referred are given below for facility of reference:---

"(c) Whether in the facts and circumstances of the case, any amount credited in the books of accounts of the assessee on account of supply of cotton and adjusted through the sale of immovable property belong into the Directors, could attract the provision of section 12(18) of the Ordinance?

(d) Whether in the facts and circumstances of the case, an amount credited on account of supply of cotton and adjusted through the payment made by' the Director to the creditors by account payee demand draft, could be treated as loan received otherwise than by Cross Cheque attracting section 12(18) of the Ordinance?"

2. According to the statement of the case the petitioner assessee is a public limited company and derived income from a Spinning Mills. For the assessment year 1997-98. while framing assessment under section 62 (Assessment on production of accounts, evidence, etc.) of the late Income Tax Ordinance, the Assessing Officer on 8-5-1998 required explanation of the assessee regarding increase in the Director's loan by Rs.2,49,60,278 in the perspective of the provisions of subsection (18) of section 12 (Income deemed to accrue or arise in Pakistan) of the late Ordinance: One receipt of the explanation the matter was dropped with are stated to the following observations made as foot note of the assessment dated 30-5-1998:--

"As per balance sheet for the period ending on 30-9-1996, the director's loan has registered increase as under:---

Director's loans opening balance?????????? Rs.80,00,000

Addition during the year??????????? Rs.2,49,60,278

Balance as on 30-9-1996???????? Rs.3,29,60,278

The assessee vide notice under section 62 dated 8-5-1998 was required to explain the addition with reference to section 12(18) of the Income Tax Ordinance, 1979??????

Perusal of the details furnished reveals that an amount of Rs.3,700,000 has been received through cross cheques, whereas, the balance amount is on account of transfer of price of director's personal Property No.54-B-III, Gulberg-III, Lahore, adjusted against cotton supply dues of the company payable to various cotton parties.

Documentary evidence in the shape of agreement between the creditors, agreement to sell the property has been provided which is placed on record."

3. The Revising Authority, Inspecting Additional Commissioner, Companies Zone-III, Lahore on 30-6-1999 found the explanation made in reply to the notice under section 12(18) of the late Ordinance to be unsatisfactory and set aside the same to make a further probe in the case keeping in view the said provisions of section 12(18) of the late Ordinance. The operative part of the order of the Revising Authority reads as under:---

"The assessee company was required to furnish documentary evidence in support of his contention along with bank. statements---as dates of receipts of amounts from directors were required to be verified for verification of consequent payment to the creditors of the company. The assessee company was therefore, required to produce cash book and ledger for the relevant year for examination.

In response to above query copies of loan accounts of the directors were only produced reflecting accumulated figure of debit and credits. The case needs further examination and scrutiny in the light of books of accounts to verify the payments received whether by cheque or cash and its consequent payment to the creditors from bank statements etc. The amount credited in the directors account in respect of sale/transfer of property holding title of the same also need scrutiny/examination to bifurcate their respective, share as well as mode of its transfer as being attracted under the provisions of section 12(18) of the Income Tax Ordinance.

In view of the above facts the assessment for the year under consideration being erroneous in so far as it is prejudicial to the interest of Revenue is hereby cancelled under section 66A of the Income Tax Ordinance, 1979 with the directions the Assessing Officer to re-examine the above facts and to make fresh assessment keeping with view the applicability of section 12(18) upon the above transactions accordingly."

4. Heard the learned counsel for the parties. Learned counsel for the petitioner has attempted to argue the matter on the facts of the case while addressing arguments on questions (a) & (e) as referred to us. However, at the outset we will observe that the two questions did not arise out of the impugned order of the Tribunal inasmuch as the Revising Authority after setting aside of the assessment remanded the matter for a fresh probe. Therefore, the consideration of facts of the case and a ruling their upon will be out of place.

5. In our view, only the first part of question No.(b) as reproduced above is relevant in the case in hand. It only pertains to the issue as to assumption and exercise of jurisdiction under section 66-A (Power of Inspecting (Additional Commissioner) to revise (Deputy Commissioner's) order) of the late Ordinance which needs to be considered and ruled upon. As the relevant portion of the assessment order as reproduced above reveals, the Assessing Officer accepted the aforesaid increase in Directors' lean as against the opening balance of Rs.80,00,000 without even requiring the relevant evidence to be produced. The Revising Authority, on the other hand, observed that in the proceedings before it the assessee submitted only loan accounts of the Directors reflecting accumulated figures of debit and credit. Obviously these consolidated figures did not spell out either the mode of payment or the account on which the payments were made by the Directors and credited to their accounts in the books of the company. The IAC was also correct in observing that the amount credited in Directors' account in respect of sale/transfer of property also needed to be examined inasmuch as before the Assessing Officer only a copy of an agreement to sell the property was submitted. Learned counsel for the petitioner contends that the Revising Authority having failed to' record a definite conclusion as to error in the assessment order and the prejudice caused to the Revenue, the setting aside of the assessment and exercise of jurisdiction under section 66-A was manifestly unjust. In support of the submission he relies upon a judgment of the Punjab and Haryana High Court in re: Commissioner of Income Tax v. Kanda Rice Mills (1989) 178 ITR 446 and a judgment of this Court cited as re: Commissioner of Income Tax, Faisalabad v. Mst. Ghulam Fatima, Gojra 1993 PTD 1104. Both judgments, however, are clearly distinguishable.

6. The principle of `change of opinion', it goes without saying, is not attracted in a case like the one before us. The phrases `change of opinion' and `difference of opinion' are two different things. A change of opinion presupposes the making of an order by the same person or at best by the same authority. On the other hand, a difference of opinion presupposes holding of two different opinions by different persons. If the principle of change of opinion as envisaged at the bar is applied to the assessments framed by an Assessing Authority by whatever nomenclature called, said provisions of section 66-A providing revision such orders and proceedings by a higher authority, would be rendered redundant. While a change of opinion on the part of an officer or an authority may be objectionable, but the difference of opinion between the two officers or authorities even of equal status cannot be objected to. Much less to say of the privilege of a Revising Authority to exercise the power wherever an order recorded by a subordinate authority calls for an interference on 'the grounds available in the law. It is rather the very basis of exercise of revisional jurisdiction. The power to revise an assessment order on the motion of the authority is factually the most significant part of the machinery provisions. The occasion to exercise this power will obviously arise only after the Revising Authority comes to a different conclusion or reaches a different opinion as against the one reached by the lower forum. It is the difference of opinion, which provides blood and soul to the revisional jurisdiction provided in the law. To hold an opinion different from the one earlier held by the lower forum is the privilege of the higher forum, which if denied Would render all provisions regarding revisions or appeals as redundant and nugatory.

7. The two cases relied upon by the learned counsel for the petitioner are clearly distinguishable. Learned counsel for the Revenue is correct in pointing out that the scheme of section 66-A of the late Income Tax Ordinance provided for the exercise of revisional jurisdiction in different manners. On having called for and examining the record of any proceedings, the I.A.C. considering them to be erroneous in so far as these are prejudicial to the interest of the Revenue was empowered to make an inquiry by himself or to direct it to be made by another person. On such inquiry either made by himself or caused to be made, he was competent to `pass such orders thereon as the circumstances of the case justify including. an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made.'

8. In the case in hand the Revising Authority concluded that failure on the part of the Assessing Officer to have insisted upon production of record to justify increase in Directors' loan in the particular year was erroneous as well as prejudicial to the interest of the Revenue. The conclusion finds support from the assessment order itself, a part whereof has already been reproduced above. At the relevant time it needs to be noted, the provisions of section 12(18) of the late Ordinance provided that where any sum claimed or shown to have been received as a loan or advance or a gift by an assessee otherwise than by a crossed cheque drawn on a bank or through banking channel was to be deemed to be the income of the assessee for that income year. The failure on the part of the Assessing Officer to require and examine the documents in support of the claimed increase in the Directors' loan was erroneous as well as prejudicial to the interest of the Revenue and therefore was sufficient to invoke the provisions of section 66-A of the late Ordinance by the Revising Authority.

9. Our answer to first part of question (b) is accordingly in the affirmative whereas the remaining part of this question is mere an argument. The other two questions referred by the Tribunal do not arise out of its order.

10. Reference answered as above.

S.A.K./S-67/L???????????????????????????????????????????????????????????????????????????????????? Order accordingly.