I.T.A. No.576/LB of 2005, decided on 16th December, 2006. VS I.T.A. No.576/LB of 2005, decided on 16th December, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1048 (2006)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 61, 58(1) & 63---C.B.R. Circular No. 7(2)DT-14/94 dated 1-2-1994---Notice for production of books of accounts, etc.---Notice was issued on 21-8-2002 for appearance of assessee on 29-8-2002---No assessment order had been passed on that date but the assessment order had been passed on 31-8-2002 which date was neither fixed for hearing nor any notice regarding hearing of the case was issued on that date---Validity---Order sheet showed that notice had been issued on 21-8-2002 for 29-8-2002 but there was no entry for 29-8-2002 in the order sheet and the assessment had been finalized under S. 63 of the Income Tax Ordinance, 1979 on 31-8-2002 for which date, there was no intimation to the assessee as per the order sheet, even in the assessment order, no explanation in this regard was available which showed that case fixed for 29-8-2002 for hearing was not called on that fixed date, but was decided on a subsequent date on 31-8-2002 which in fact was neither fixed for hearing nor it was even intimated to the assessee---Taxation Officer had not recorded the fact of proceeding ex parte against the assessee in the minutes of the proceedings of the case---Estimation had been made without any basis---Add backs out of Profit & Loss account had been made on the lump sum basis, which could not be approved---No justification was available for setting aside the assessment for de novo consideration---Order of First Appellate Authority was vacated and the assessment framed by the Assessing Officer was cancelled---Declared version was directed to be accepted.

1981 PTD 210 ref.

Aamir Naseer Khan for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---The appellant through this appeal has objected to the impugned order of the learned CIT (A) dated 22-9-2004 for the assessment year 2002-03 on the following grounds:-

1. That the impugned orders passed by the learned Commissioner of Income Tax (Appeals), Additional Appeals Zone, Lahore and the DCIT, Circle-4, Zone-C, Lahore are bad in law and also contrary to the facts and circumstances of the case.

2. That learned CIT(A) was not justified to set aside the assessment with the directions inter alia to conduct inquiries with a view to improve the assessment already framed in an illegal manner. The CIT(A) has thus stepped into the shoes of the Addl. Commissioner,

3. That the assessment order passed by the DCIT suffering from infirmities was liable to cancellation. The CIT(A) has however, not adjudicated the relevant grounds of appeal and has thus given opportunity to the Assessing Officer to pass a "speaking order".

4. That the learned CIT(A) has not taken cognizance of the grounds of appeal regarding service of notices which were actually never served upon the appellant. The appellant has immaculate history of compliance of statutory notices.

5. That no notice under section 62 of the Income Tax Ordinance, 1979 was ever issued or served for compliance on 29-8-2002 as established from the relevant order sheet. Only a reference of such notice has been made in the assessment order without mentioning any date of issuance whatsoever.

6. That the perusal of order sheet reveals that the learned DCIT failed to show her intention for proceedings ex pane on the alleged date of hearing i.e. 29-8-2002. She passed ex parte order on 31-8-2002.

7. That the assessment order is apparently ante-dated one to which the appellant came to know only at the time of recovery proceedings after which the appellant obtained duplicate copy of order for filing of appeal.

Without prejudice to the above

8. That the Assessing Officer was not justified to estimate the receipts at Rs.810,000 without any basis. The estimation of receipts was however, confronted through alleged notice under section 62 at Rs.1.00 (Million) which shows fluctuating state of mind of the Assessing Officer.

9. That the learned DCIT was not justified to make lump sum add backs at Rs.39,187. The CIT(A) in his turn did not give any directions to make headwise additions as required by law. The orders of the Authorities below are not sustainable under the law.

10. That the Appellant craves to submit additional grounds or alter/ amend any ground at the time of hearing by this Hon'ble Court.

PRAYER:

In view of the above it is earnestly prayed that the order passed by the Authorities below may kindly be set at naught/cancelled, alternatively any relief as deemed fit be granted.

2. Mr. Aamir Naseer Khan, Advocate has appeared on behalf of the appellant and has contended that order passed under section 63 of the repealed Income Tax Ordinance, 1979 by Taxation Officer is bad in law and against the facts of the case. He has contended that order is illegal and ab initio void as no notice under section 61 or 51(1) were ever issued as the entries regarding issuance of notice did not bear signatures or initial of the Assessing Officer. He has in this respect placed before me the attested copy of order sheet. Learned Counsel has submitted that as per assessment order, the last notice under section 61 was issued on 21-8-2002 for appearance of assessee on 29-8-2002 but no such notice has ever been received by appellant. According to learned counsel as per assessment order the default if any was committed on 29-8-2002 but no order has been passed on that date as the assessment order has been passed on 31-8-2002 which date was neither fixed for hearing nor any notice regarding hearing of the case was issued on that date.' He has, therefore, contended that assessment order is not a valid order as the appellant was not confronted with any defects in declared version and without finding faults in the declared version, the rejection of accounts is not justified. He has in this respect place reliance on the decision of the Hon'ble High Court reported as 1981 PTD 210 (Lah. H.C). On the facts of the case, learned counsel has contended that as per assessment order itself, the appellant was confronted with gross receipts at Rs.1,000,000 as against declared receipts of Rs.580,000 but while passing the order, the receipts had been estimated at Rs,810,000 without giving any basis by Taxation Officer for deviation from the proposed estimation and no reason for rejecting the declared receipts has been given. He has contended that order passed by Taxation Officer is not a best judgement assessment and it needs annulment but the learned CIT(A) without any justification has set aside the assessment. Learned Counsel has argued that as per C.B.R. Circular No.7(2)DT-14/94 dated 1-2-1994, three opportunities of clear fifteen days should have been afforded to the assessee before making estimation but no such opportunity has been afforded by Taxation Officer. He has submitted that no penal action against the assessee has been taken for default of notices under sections 61 and 58(1) of the repealed Ordinance; 1979 which shows that no such notices have been issued or served and only the Taxation Officer has disposed of the case making estimation on whims and surmises. He has contended that estimation of gross receipts at Rs,810,000 without keeping in view the fact that sales in the case of the assessee has suffered the. consequence of sales tax. Hence, there was no basis for rejecting the declared version. He has contended that lump sum addition of Rs.38,187 has been made out of P&L expenses under the heads conveyance, telephone, entertainment, stationery and electricity/repair which is not legal as this Tribunal as well as Higher Courts have held that lump sum addition in the P&L account cannot be made and disallowances, if required, are to be made after giving reason for disallowance under each of claimed expense. He has contended that learned CIT(A) instead of annulling the illegal assessment has remanded back to the Taxation Officer with specific direction due to which the appellant would have been step to another round of cumbersome proceedings which is always deprecated as it will allow the department to improve his case and fill-in the legal lacunas which should not be approved. Learned counsel has also placed before me the attested copy of the assessment proceeding.

On the other side, learned DR is supporting the impugned orders of the Officers below. She has contended that the learned CIT (A) has already set aside the assessment and the assessee may explain his position before the Taxation Officer.

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT (A), the assessment order, record of the case and the case-law referred by the learned counsel for the assessee.

While perusal of the assessment order, I have found that the Assessing Officer has passed the order under section 63 of the repealed Ordinance, 1979, the contents of which are reproduced hereunder: -

"Return of income has been filed declaring income at Rs.231813. Return was accompanied by computation chart, electricity bills, proof of payment of tax paid. Case qualified for SAS but was later on selected for total audit, to be processed under normal law. Intimation in this regard was issued along with specific notice under section 61 for requisitioning of details. Statutory notices under sections 61 and 58(1) were issued for 18-3-2002 in response to which the AR of the assessess attended the office and requested for adjournment which was granted for 28-3-2002."

The assessee, an individual, derives income from Custom Clearance, 3-Dev Sadnaj Road, Sanat Nagar, Lahore. Another notice under section 61 was issued on 12-4-2002 for compliance on 18-4-2002, In spite of proper service nobody attended the office nor any application for adjournment was received. Another opportunity was provided and final notice under sections 61 and 62 was issued on 21-8-2002 for compliance on 29-8-2002 confronting the assesses estimation of receipts at 10,00,000 against declared receipts at Rs.580,000 along with add backs out of P&L expenses. In spite of proper service of this notice, assessee did not bother to attend the office. Under these circumstances, I am left with no alternative but to finalize the assessment on ex parte basis to the best of my judgment and facts available on record under section 63 of the Income Tax Ordinance, 1979 Assessment is finalized and income is computed as under: -

Add backs out of P&L A/c:

Lump sum addition out of P&L Expenses

under the head (Conveyance, Telephone,

Entertainment, Stationery and

The learned CIT (A) has set aside the assessment for de flow consideration with the observations and direction as under:--

"The grounds of appeal have been considered. From perusal of assessment order/record, it appears that the assessment for the year under appeal has been made in a hasty manner and without ascertaining the true facts of the case. Moreover, the income has been estimated by the Assessing Officer without mentioning any basis in the body of assessment order and without bringing on record any sufficient evidence to justify the estimated income. Therefore keeping in view the facts and circumstances of the case, it would in the interest of justice, if the assessment of the year under appeal is set aside. The case is therefore, remanded back to the Assessing Officer with the directions to make de novo assessment after ascertaining the true facts of the case regarding:

(i) Number of employees employed by the appellant at the material time.

(ii) Standard of living of the assessee and movement of assets and liabilities in his wealth statement.

(iii) No. of cases handled along with nature and quantum of goods cleared in each case supported by the documentary evidence.

(iv) A statement of affairs of the asssessee may also be obtained to ascertain the true extent of business during the material time and other related facts of the case.

(v) He may also conduct any inquiry and obtain any other information which he seems necessary to make reasonable assessment.

Needless to say that the Assessing Officer must provide a reasonable opportunity of being heard to the appellant to explain his case before finalization of assessment and pass a speaking order".

The learned counsel for the appellant has placed before me the attested copy of the order sheet of the assessment proceedings, which is reproduced hereunder:-

On behalf of the appellant, it has been contended that no notice was ever received by the assessee or his representative. The assessee has only received intimation regarding selection of case for Total Audit and in that response, the counsel has appeared, but the later entries of the order sheet according to the learned counsel for the appellant are incorrect. Even otherwise, I have found that as per the order sheet, notice under section 61 has been issued on 21-8-2002 for 29-8-2002, but there is no entry for 29-8-2002 in the order sheet and the assessment has been finalized under section 63 on 31-8-2002 for which date, there is no intimation to the assessee as per the order sheets, even in the assessment order, no explanation in this regard is available. This shows that the case which was fixed for 29-8-2002 for hearing was not called on that appointed date, but was decided on a subsequent date, 31-8-2002 which in fact was neither fixed for hearing nor it was even intimated to the assessee concerned. Generally, in a civil suit when a defendant has been served and if he does not appear, the Court may proceed in his absence but the Court is not directed to make an ex parte order. Of course the fact that it is proceeding 'ex parte' will be recorded in the Minutes of its proceedings but that is merely statement of fact and is not an order in the sense of 'ex parte decree' or other 'ex parte order' and which the Court is authorized to make under law in the instant case the Income Tax Officer concerned did not record the fact of proceeding ex parte against the assessee in the Minutes of the proceedings of the case. Even otherwise, I have found that in this case, the assessing officer has made the estimation without any basis. The add backs out of P&L A/c has been made on the lump sum basis, which have never been approved by this Tribunal as well as by the superior Courts.

Keeping in view the facts and circumstances of the case, I therefore find no justification for setting aside the assessment for de novo consideration. The impugned order of the learned CIT (A) is, therefore, vacated and the assessment framed by the DCIT is cancelled. Declared version is directed to be accepted.

The appeal filed by the assessee is allowed.

C.M.A/234/Tax(Trib)Appeal accepted.