I.T.As. Nos.1271/KB to 1273/KB of 2005, decided on 17th February, 2007. VS I.T.As. Nos.1271/KB to 1273/KB of 2005, decided on 17th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1428 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss.2(41), 62 & 132---Income Tax Rules, 1982, R.190---Return of total income---Order of Assessing Officer was declared to be illegal, unawarranted and cancelled by the First Appellate Authority on the ground that acceptance of return filed by the Manager and power of attorney seem to be in violation of S.2(41) of the Income Tax Ordinance, 1979 and sub-rules (1) & (2) of R.190 of the Income Tax Rules, 1982---Validity---Was not verified whether the returns before and after the present returns were also filed by the same Manager or any other Manager---First Appellate Authority had also not specified any reason to make basis of its finding that Demand Note was not served or improperly served on the assessee which was necessary for adjudication of issue of limitation, finding on the consequences of not filing of return by the assessee had been ignored and steps to be taken under law, had not been considered---While recording the verdict that no returns had been filed authority was supposed to record its finding on the consequences of not filing of returns by the assessee and other Members of Association of Persons as non-filing of return was more fatal as compared to tax demand resulting in rejection of declared version and making various additions---Apparently assessee and other Members of Association of Persons had not furnished return---Non-filing of return was more serious matter as law provides severe action in this context and no time limit was provided to lodge action to meet such situation---Case was remanded to First Appellate Authority to look into the matter afresh to record finding on issue of time-barred appeal, taking into consideration the date of service of notice, past record of the proceedings and consequences of non-filing of return by the assessee and other Members of Association of Persons.

Ali Akbar Depar, D.R. for Appellant.

Abdul Tahir, I.T.P. for Respondent.

ORDER

S. HASAN IMAM (JUDICIAL MEMBER).---The Department being aggrieved and dissatisfied from the order dated 21-6-2005 passed by the learned CIT(A) for the assessment years 1997-98, 1998-99, 1999-2000 has challenged the order for the following reasons/grounds:--

(1) That in view of the facts and circumstances of the case the learned CIT(A) was not justified to cancel the order passed under section 62.

(2) That the learned CIT(A) was not justified to admit time-barred appeal on the ground that order was not properly served.

(3) That the learned CIT(A) was not justified to hold that order was not properly served.

(4) That the CIT(A) was not justified to hold that accepting return was violation of section 2(41) and sub-rules (1) and (2) when the return was rightly treated as valid.

2. Facts leading to present appeal are that the assessee is an AOP firm engaged in the business of Flour Mills. The Assessing Officer passed order under section 62 of the repealed Ordinance on 15-6-2000 separately. However, the learned CIT(A) accepted the appeal instituted on 1-6-2005 and decided the same through a consolidated order dated 21-6-2005.

3. The assessee being aggrieved from the assessment order preferred an appeal wherein he challenged that (i) the return of total income was not signed and verified by the assessee as prescribed under subsection (41) of section 2 read with sub-rules 1 and 2 of rule 190 of the Income Tax Rules, 1982, (ii) Mr. Muhammad Umer Junejo (Manager) who appears to have furnished the returns was not authorized by the assessee to file the return of total income on behalf of the assessee, (iii) Syed Ali Nawaz Shah, Advocate was not provided Power of Attorney duly signed by the assessee to appear in the present case before the DCIT. The learned CIT(A) allowed all the three appeals for the assessment years 1997-98, 1998-99 and 1999-2000 observing hereunder:--

"The argument advanced by the A.R. of the appellant are considered. From perusal of record it transpires that the return filed for the years under consideration were signed by Mr. Muhammad Umar Junejo, the Manager of the appellant. It is also noted from the record that notices were issued and served to someone not the assessee himself therefore, no compliance was made. The Assessing Officer issued notice under section 61 for compliance by 15-6-2000 and appeared before the Assessing Officer for conducting the 'assessment proceedings without obtaining the authority letter from assessee or any member of firm. The Assessing Officer also failed to ask the legal advisor to produce the authority letter and assessments were finalized on the same date i.e. 15-6-2000. The action of the Assessing Officer to accept the return filed by Manager and power of attorney seems to be violation of section 2(41) and sub-rules (1) A "& (2) of Income Tax Rules, 1982. The A.R. of the appellant relying on reported judgments supra fully applies in the instant case.

Keeping in view of above defects and deficiencies, the assessments finalized by the Assessing Officer are not in accordance with law, declared to be illegal and unwarranted, therefore, cancelled.

4. Heard, the learned representatives of the two parties. The learned .D.R. vehemently argued that the learned CIT(A) was not justified to cancel the order passed under section 62 and admit the time-barred appeals filed after about 5 years of passing of order and that no justification appears to hold that return has been accepted in violation of subsection (41) of section 2 read with sub-rules (1) and (2) of rule 190 of the Income Tax Rules, 1982.

5. The assessee is an U.R.F. engaged in the business of Flour Mills. Return of total income was filed declaring income at Rs.51,000, Rs.131,813 and Rs.194,396. Statutory notices under section 61 of the Income Tax Ordinance, 1979 were issued. In response thereof Mr. Ali Nawaz Shah authorized representative of the assessee attended from time to time and filed statement of accounts comprising trading &, P&L Account and further details. The Assessing Officer compared the results with the previous years results noted that sales, gross profit and gross profit rate has declined, therefore, called upon the assessee to furnish the evidence of payments to (1) EOBI, (2) Sindh Employees Social Security Institution, (3) property tares, (4) electricity bills, (5) telephone bills, (6) purchase certificate issued by the Manager Utility Store, (7) Market Committee, Sukkur, (8) Sindh Small Industries along with Statement of Accounts and purchase certificate issued by the Food Department. The A.R. of the assessee. did not make compliance and further stated that this is no account case accordingly denied maintenance of books of account. The Assessing Officer having no alternate rejected the trading version observing that assessee has failed to file required details essential to ascertain the production results of a Flour Mills and that there is history of rejection of sales. He accordingly estimated the income at Rs.446,055, Rs.417,552 and Rs.440,438 respectively in the assessment years under appeals estimating sales at Rs.372,000, Rs.50,400,000 and Rs.4,30,00,000 respectively on the basis of past history.

6. The assessee had declared G.P. rate of 5.40% and the Assessing Officer applied 5.5% in all the 3 years under appeal keeping in view the results of other Flour Mills situated in the same vicinity. Besides, addition in G.P. and sales he also made additions in profit and loss account expenses and added back in the head office expenses, entertainment expenses, printing and stationery, motor running expenses, telephone, medical aid, commission, advertisement, repair of machinery and loading expenses by restricting 1/3 of the claim in all the above heads.

7. It is apparent that the learned CIT(A) without touching the merits of the case decided the appeal on pure technical grounds that the Manager of the assessee was not authorized to file the return, notices have not been served upon the assessee and in compliance thereof Manager namely Muhammad Umer Junejo on his own accord appointed a legal representative to conduct the case who on his own accord filed the power signed by the Manager without obtaining the authority letter from the assessee or any member of the firm and the assessing officer also failed to direct the legal advisor to produce the authority letter.

8. The learned CIT(A) has also not recorded specific finding on the issue of late filing of appeal, it is not verified whether the returns before and after the present returns were also filed by the same Manager or any other Manager and that Mr. Ali Nawaz Shah, Advocate had appeared in other assessment matters pertaining to immediate preceding years. The learned CIT(A) has also not specified any reason to make basis of his finding that Demand Note was not served or improperly served on the assessee which is almost necessary for adjudication of issue of limitation, finding on the consequences of not filing of return by the assessee have been ignored and steps to be taken under law in this context, have not been considered. The learned CIT(A) while recording his verdict that no returns have been filed was supposed to record his finding on the consequences of not filing of returns by the assessee and other Members of AOP as non-filing of return is more fatal as compared to tax demand resulting in rejection of declared version and making various addition.

9. For the above said reasons, I am of the considered opinion that apparently assessee and other Members of AOP have not furnished returns. It is a case of Flour Mills, therefore, non-filing of the return is more serious matter, as law provides severe action in this context and no time limit is provided to lodge action to meet such situation. I, therefore, find reasons to remand all the cases back to the learned CIT(A) to look into the matter afresh to record finding on issue of time-barred appeal, further taking into consideration the date of service of notice, past record of the proceedings and consequences of non-tiling of return by the assessee and other Members of AOP, keeping in view the discussion made in above paras.

10. Order accordingly.

C.M.A./19/Tax(Trib)??????????????????????????????????????????????????????????????????????????? Order accordingly.