I.T.A. No. 66/LB of 2004; decided on 16th December, 2006. VS I.T.A. No. 66/LB of 2004; decided on 16th December, 2006.
2007 P T D (Trib.) 1585
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Istataat Ali, Accountant Member
I.T.A. No. 66/LB of 2004; decided on 16/12/2006.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.65---Additional assessment---Issuance of show-cause notice---Approval of Inspecting Additional Commissioner for issuance of a show-cause notice was not required---Inspecting Additional Commissioner's approval was required for issuance of a statutory notice under S.65 of the Income Tax Ordinance, 1979---Since Assessing Officer had duly obtained approval from Inspecting Additional Commissioner before issuance of statutory notice under S.65 of the Income Tax Ordinance, 1979 for reopening of assessment, the objection of assessee for not obtaining approval for issuance of show-cause notice was not found as tenable.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.65---Additional assessment---Non-striking out the remaining clauses of notice---Effect---If the Assessing Officer had ticked specific clause of prescribed form of notice under S.65 of the Income Tax Ordinance, 1979, it meant that remaining clauses of the said notice were not applicable and it was not necessary that the same should also be struck out.
(c) Income Tax Ordinance (XXXI of 1979)---
---Ss.65, 66A & 12(18)---Additional assessment---While proceedings initiated in the shape of show-cause notice conveying intention for reopening of assessment were still in hand with the Assessing Officer, the .Inspecting Additional Commissioner took-over the control of proceedings by way of issuing notice under S.66A of the Income Tax Ordinance, 1979 and action under S.66A of the Income Tax Ordinance, 1979 was still pending with the Inspecting Additional Commissioner of Income Tax while proceedings under S.65 of the Income Tax Ordinance, 1979 were again started at the level of Assessing Officer---Concurrent continuation of proceedings under Ss.65 and 66A of the Income Tax Ordinance, 1979 was legally not correct---Department had correctly started proceedings under S.65 of the Income Tax Ordinance, 1979 but when these proceedings were still underway at the level of Assessing Officer, the Inspecting Additional Commissioner started action under S.66A of the Income Tax Ordinance, 1979 which meant that proceedings under S.65 of the Income Tax Ordinance, 1979 at the level of assessment year had been closed---Inspecting Additional Commissioner admittedly himself dropped the proceedings under S.66A of the Income Tax Ordinance, 1979---After the closure of proceedings under S.66A of the Income Tax Ordinance, 1979 proceedings under S.65 of the Income Tax Ordinance, 1979 could not be re-started---Restarting of proceedings under S.65 of the Income Tax Ordinance, 1979 was totally illegal---Action under S.65 of the Income Tax Ordinance, 1979 at the level of Assessing Officer and under S.66A of the Income Tax Ordinance, 1979 at the level of Inspecting Additional Commissioner could not be concurrently continued---Department had to choose in a clear way between two options available under Ss.65 and 66A of the Income Tax Ordinance, 1979 and could not blow hot and cold in the same breath--.-Serious irregularity was committed because during pendency of proceedings under S.65 of the Income Tax Ordinance, 1979 at the level of Assessing Officer, the Inspecting Additional Commissioner started action under S.66A of the Income Tax Ordinance, 1.979---Once notice under S.66A of the Income Tax Ordinance, 1979 was issued it clearly meant that action under S.65 of the Income Tax Ordinance, 1979 already initiated by the Assessing Officer had been closed---Proceedings under S.66A of the Income Tax Ordinance, 1979 started by the Inspecting Additional Commissioner were dropped by himself---All the options available with the department were fully and finally closed---Issue had a touch of finality about it and fate of the case was completely sealed---After dropping proceedings under S.66A of the Income Tax Ordinance, 1979, the department could not re-start proceedings under S.65 of the Income Tax Ordinance, 1979 on the same points which were considered by the Inspecting Additional Commissioner for initiation of action under S.66A of the Income Tax Ordinance, 1979---Department was legally not correct to re-start these proceedings under S.65 of the Income Tax Ordinance, 1979 when fate of the case had already been sealed by the Inspecting Additional Commissioner who dropped proceedings under S.66A of the Income Tax Ordinance, 1979 at his level---All the proceedings conducted by the Assessing Officer based upon notice under S.65 of the Income Tax Ordinance, 1979 were absolutely illegal having no warrant of law---Assessment was annulled on such legal plane by the Appellate Tribunal---Since assessment had been annulled on legal points, the issue as to whether action under S.12(18) the Income Tax Ordinance, 1979 was or was not warranted was not dilated upon because the same had lost its significance---Orders of both the authorities below were vacated and assessment was annulled by the Appellate Tribunal.
2000 PTD 3788 ref.
Syed Abid Raza Kazmi for Appellant.
Saadat Farooq Ahmad, C.I.T. Companies Zone, Islamabad/ Special D.R. for Respondent.
ORDER
This appeal has been filed against order dated 30-10-1999 passed by learned C.I.T.(A), Sialkot contesting legality of reopening of assessment and validity of addition under section 12(18).
2. As per facts the appellant, a director of Messrs Ashraf Industries (Pvt.) Ltd., Sialkot derived salary income. Return of income for assessment year 1992-93 was filed declaring salary income at Rs.1,14,325. Assessment was made under section 62 vide order dated 28-4-1993 at net income of Rs.1,20,325. Subsequently, during the course of assessment proceeding of the company it was found that the assessee had received cash loan of Rs.12,00,000 from company on 3-8-1991 which attracted provisions of section 12(18) in assessee's case. The assessment was therefore reopened under section 65 of the Income Tax Ordinance, 1979 with the prior approval of IAC and consequently while completing re-assessment under sections 62/65 vide order dated 22-6-1999, the amount of Rs.12,00,000 received as loan from the company otherwise than by a crossed cheque was added in total income of the assessee as deemed income under section 12(18) of the Income Tax Ordinance, 1979.
3. The assessee filed appeal before learned C.I.T.(A) contesting that' reopening of assessment under section 65 and addition under section 12(18) of the repealed Income Tax Ordinance, 1979 were illegal and unjustified. Learned C.I.T.(A) vide his impugned order found that while framing assessment in the case of company in which the appellant was a director following foot note in the order for assessment year 1992-93 dated 15-1-1994 was recorded by the then Assessing Officer:---
"List of sundry debtors as on 31-12-1991 being appended with the return of the company reveals that the amount as detailed below is outstanding against the directors:
| (i) Haji Muhammad Ashraf | Rs. 11,23,634 |
| (ii) Mr. Ijaz Akhtar | Rs. 12,36,142 |
| (iii) Mr. Sajjad Akhtar | Rs. 8,88,676 |
Copies of the personal accounts of the aforesaid directors were obtained which revealed that they had obtained loan from the company otherwise than by crossed cheque as follows:---
| Name of the director | Amount | Mode of payment | Dated |
| Haji Muhammad Ashraf | 12,00,000 | Cash | 3-8-91 |
| Mr. Ijaz Akhtar | 15,00,000 | Cash | 3-8-91 |
| Mr. Sajjad Akhtar | 12,00,000 | Cash | 3-8-91 |
The above said loan attracts the provisions of section 12(18), of the Income Tax Ordinance, 1979, in the case of directors. Necessary action shall be taken accordingly in the personal hands of the directors."
4. It was observed by learned C.I.T.(A) that in order to avoid addition under section 12(18) a tampering was managed in the assessment record by the taxpayer because instead of figures mentioned in the aforesaid footnote the outstanding balances were found as under:--
| (a) Haji Muhammad Ashraf | Rs. 23634 |
| (b) Mr. Ijaz Akhtar | Rs.36142 |
| (c) Mr. Sajjad Akhtar | Rs.88676 |
5. Learned C.I.T.(A) also observed that this tampering in the assessment records was detected by the Assessing Officer who did not accept assessee's explanation submitted in response to show-cause notice for reopening of assessment under section 65. During the course of assessment proceedings: the appellant made a representation to the Commissioner of Income Tax and Wealth Tax, Sialkot Zone, Sialkot and contested that his case was wrongly reopened. The appellant could not get any favour and the C.I.T. directed the Assessing Officer to complete the reopened assessment. Assessment under sections 62/65 was accordingly made on 22-6-1999 at total income of Rs.13,20,325 which included addition of Rs.12,00,000 under section 12(18).
6. While rejecting assessee's appeal learned C.I.T.(A) gave findings that contention of assessee that action under section 65 was illegal and no tampering was made was incorrect due to the following reasons:---
"(a) I have examined the assessment record in the case of company. The tampering is so visible and clear that even the original figures of outstanding balance amount due to the directors are still legible. The entry of advance for purchase of house at Rs.31,00,000 has been inserted on the top of the list. This entry has been typed whereas all other entries are carbon print. Distinction of both the prints is clearly visible and evident. From perusal of the-foot note to the assessment order in the cage of company and list of debtors attached with the return, I am convinced that the figures have now been manipulated by tampering to avoid addition under section 12(18).
(b) Action under section 65 on the basis of footnote recorded in the company's case is considered justified as the foot note was recorded by the then DCIT in normal course of the proceedings. As held by the superior Courts, truth is attached to all actions of the government functionaries performed in normal course and routine.
(c) First show-cause notice was issued to the appellant on 18-1-1994 and thereafter two reminders were issued but it took the appellant almost one year and ten months to furnish reply that provisions under section 12(18) did not attract. Such a long delay to furnish reply to show-cause notice leaves no doubt in believing that the tampering and manipulation had been managed in the records during this time."
7. In his impugned order the learned C.I.T.(A) held that observation and finding of the Assessing Officer who completed assessment of the company and recorded footnote to the assessment order, with regard to addition under section 12(18) in the assessee's case was correct. He found that it was much after recording of the footnote and issuance of show-cause notice to the assessee when tampering in the list of debtors was made and an entry regarding advance for purchase of house at Rs.31,00,000 was inserted and debit balances in the director's cases were brought down to the figure of less than Rs.1,00,000 to avoid addition under section 12(18). Learned C.I.T.(A) observed that initially the learned counsel contended that there was no tampering or manipulation in the record but subsequently he argued that if at all there was any tampering or manipulation, the assessee could not be burdened for the same and responsibility squarely laid on shoulders of departmental functionaries. Assessee's appeal was finally rejected by learned C.I.T. (A).
8. Assessee filed second appeal contesting legality of proceedings under section 65 and validity of addition under section 12(18) on the following grounds:--
(i) That the order of the DCIT as well as of learned C.I.T.(A) is bad in law and contrary to the facts of the. case.
(ii) That the reopening of the case under section 65 of the Income Tax Ordinance, 1979 is illegal and unjustified.
(iii) That the addition made under section 12(18) of the. Income Tax Ordinance, 1979 at Rs.12,00,000 is illegal and unjustified.
(iv) That the allegation of the DCIT regarding tampering of the record is without any basis, and the confirmation by C.I.T.(A) is also illegal and unjustified.
(v) That all the observations on the basis of which the order under section 65 has been passed are incorrect and untrue.
9. At the time of hearing it was stated by learned A.R. that a show-cause notice was issued by the Assessing Officer on 18-1-1994 conveying his intention of reopening the assessment on the basis of so-called definite information relating to loans allegedly received by the director from the company. He stated that the Assessing Officer did not obtain any approval from IAC for issuing of show-cause notice. He stated that issuance of show cause without approval of IAC was illegal. This legal objection of learned A.R. was examined in. the light of relevant provisions of section 65 and it was found that approval of IAC for issuance of a show-cause notice is not required. IAC's approval is required for issuing a statutory notice under section 65. Since Assessing Officer had duly obtained approval from IAC before issuance of statutory notice under section 65 for reopening of assessment, the objection of learned A.R. for not obtaining approval for issuance of show-cause notice is not found as tenable.
10. Learned A.R. raised another objection that in the prescribed form of statutory notice under section 65 the inapplicable portions were not struck out by the Assessing Officer whereas he was required to do so 'as a legal requirement. Learned D.R., however, stated that the relevant applicable clause of the said notice was ticked by the Assessing Officer, therefore, it meant that other clauses of the said notice were not applicable. We agree with the explanation tendered by learned D.R. and hold that if the Assessing Officer had ticked specific clause of prescribed form of notice under section 65, it means that remaining clauses of said notice were not applicable and it is not necessary that the same should also be struck out. Objection of learned A.R. on this point is, therefore, not tenable.
11. It was contended by learned A.R. that the IAC had not given any "approval" for reopening of assessment. Rather he gave permission for reopening the assessment which could not be treated as "approval" in the light of case reported as 2000 PTD 3788. Learned D.R., however, stated that facts involved in the case cited by the learned A.R. are totally different and also stated that full bench of the Tribunal has settled this controversy by way of giving ruling that "permission" is as good as "approval" in the eye of law. He also stated that irrespective of this controversy, it is established on record that the IAC had given specific "approval" and the issue of "permission" is not involved in this case. In the light of submissions of learned D.R. we hold that objection of learned A.R. on this point is not sustainable being devoid of any merit.
12. It was stated by learned A.R. that first show-cause notice under section 65 was issued on 18-1-1994 conveying intention for reopening of assessment under section 65. The Assessing Officer requested the IAC on 9-5-1994 for approval to reopen the assessment under section 65. The IAC vide his letter dated 19-5-1994 refused to give approval to the Assessing Officer. At this point the learned D.R. interrupted and stated that approval was not granted at this stage by the IAC because assessee did not file any reply to the show-cause notice and IAC was of the opinion that assessee should be given another opportunity for filing of reply. Learned A.R. stated that another show-cause notice was issued on 2-11-1994, again conveying intention for reopening the assessment and asking the assessee to put forth his explanation. This notice was not responded. Another show-cause notice for reopening the assessment was issued on 20-11-1995 in response to which the assessee replied that the appellant had withdrawn Rs.12,00,000 on 3-8-1991 from his own personal account maintained with the company. It was stated that the assessee entered into an agreement with company for sale of his house for a sum of Rs.31,00,000. This house was required by the company for business purposes. It was further stated that sale price of the house was not received in cash and appellant's account was credited by the company with an amount of Rs.31,00,000 on 17-7-1991 being sale consideration of appellant's house. The appellant gifted Rs.12,00,000 and Rs.8,00,000 respectively to Mr. Ijaz Akhtar and Mr. Sajjad Akhtar his real sons by way of book entry and had withdrawn Rs.12,00,000 from his personal account with the company for his own use. As such provisions of section 12(18) were not applicable in his case. This reply of the assessee was not considered satisfactory at any stage of proceedings at the level of the Assessing Officer or C.I.T.(A).
13. It was stated by learned A.R. that in the meantime when action under section 65 was still pending with the Assessing Officer, the learned IAC issued a notice under section 66A on 26-1-1995 and assessee submitted reply to this notice on 4-2-1995. It was stated that during the pendency of proceedings under section 66A at the level of IAC, the Assessing Officer had again sent a letter on 15-11-1995 to IAC seeking his approval for reopening of assessment under section 65. The IAC vide his letter dated 20-2-1998 gave approval for reopening of assessment and statutory notice under section 65, was eventually issued on 24-2-1998. It was stated by learned A.R. that the department had frequently been changing its stance. Initially the department intended to reopen the assessment under section 65 and while proceedings initiated in the shape of show-cause notice conveying intention for reopening of assessment were still in hand with the Assessing Officer, the IAC took over the control of proceedings by way of issuing notice under section 66A and action under section 66A was still pending with the IAC while proceedings under section 65 were again started at the level of Assessing Officer. It was stated that concurrent continuation of proceedings under sections 65 and 66A is legally not correct. At this point the learned D.R. (who was then the concerned IAC and appeared as a special D.R. to represent this case) stated that he issued a notice under section 66A but after examining assessee's reply he dropped the said proceedings and allowed the Assessing Officer to restart the proceedings under section 65. On a question from the bench learned D.R. stated that he did not pass a formal order under section 66A and "filed" the proceedings initiated for action under section 66A in the order-sheet of relevant records of his office. He, however, was not able to produce the relevant records for our examination. In response the learned A.R. stated that when the department had itself "filed" proceedings under section 66A, then there was no valid ground available with them to restart proceedings under section 65. He contended that when the IAC issued a notice under section 66A it meant that proceedings under section 65 already initiated by the Assessing Officer had been dropped. Although no formal communication was received by the assessee about dropping of proceedings under section 65 but the assessee inferred that since a notice under section 66A had already been issued, it meant that proceedings under section 65 had been dropped and substituted by proceedings under section 66A. It was also contended that since proceedings under section 66A had also been dropped, as admitted by learned D.R. fresh initiation of action under section 65 was absolutely illegal.
14. It was stated by learned D.R. that after initial examination of assessment record he was of the opinion that this was a case for reopening under section 66A at IAC level and not a case of reopening under section 65 at the level of Assessing Officer. He, therefore, started the proceedings under section 66A but after examining assessee's reply he concluded that it was a case fit for action under section 65 at the level of Assessing Officer because fresh evidence had been brought on record on the basis of which action could/should have been taken under section 65 at the level of Assessing Officer. He, therefore, dropped proceedings under section 66A and gave approval for reopening of assessment under section 65.
15. It was stated by learned A.R. that in addition to legal objections, on the point of reopening of assessment under section 65, action of the department for making addition under section 12(18) is also illegal because the assessee had withdrawn his credit balance from the accounts of the company where following entries were available:---
| (i) Previous credit balance as on 18-7-1991 | Rs. 89,747.08 |
| (ii) Addition on account of sale/purchase of property on 31-7-1991 | Rs. 31,00,000.00 |
| (ii) Salary | Rs. 12,000.00 |
| Total | Rs. 32,01,747.08 |
| Less given to Mr. Ijaz (son) on 31-7-91 | Rs. 12,00,000.00 |
| Balance | Rs. 20,01,747.08 |
| Less given to Mr. Sajjad (son) on 3-8-91 | Rs. 8,00,000.00 |
| Balance | Rs. 12,01,747.08 |
| Less personal withdrawal | Rs. 12,00,000.00 |
| Balance | Rs. 1,747.08 |
16. It was stated that in fact the assessee entered into an agreement to sell his house to the company in which he was director for a consideration of Rs.31,00,000 which was credited into his account by the company in its own account as per aforesaid details and he gifted the aforesaid amounts to his two sons and withdrew a sum of Rs.12,00,000 for his personal use. He stated that no loan was obtained from the company which could be treated as deemed income in terms of section 12(18) of the Income Tax Ordinance, 1979. Learned D.R., however, stated that in fact Mr. Muhammad Ashraf in his wealth statement as on 30-6-1992 did not show a liability of Rs.31,00,000 in favour of the company. He contended that tampering in records had already been made as detailed in the assessment as well as appellate order and factually the assessee had obtained a loan of Rs.12,00,000 from the company which was liable for addition as deemed income under section 12(18). The learned A.R. in his rejoinder stated that about allegation of tampering a formal inquiry was conducted by the department against responsible officials but the allegation could not be proved. He stated that no F.I.R. was lodged by the department against assessee or anybody else on the allegation of tampering. He stated that in fact allegation of tampering is totally baseless and withdrawal of amount from personal accounts of the director could not be treated as deemed income under section 12(18) but the department had twisted and fabricated the facts in such a manner that a very embarrassing situation arose against the assessee.
17. It was vehemently contended by learned A.R. that order of the Assessing Officer was illegal on legal plane because parallel proceedings under sections 65 and 66A could not be continued and after dropping proceedings under section 66A, action could not be started or re-started under section 65. He also stated that no loan was obtained by the assessee from the company and he had withdrawn a sum of Rs.12,00,000 from accounts of the company where it was appearing as credit balance. He stated that since his own money was withdrawn from the company, hence proceedings under section 12(18) were absolutely unwarranted and illegal.
18. We have given due consideration to submissions of both the parties and we are of the opinion that the department had duly and correctly started proceedings under section 65 but when these proceedings were still underway at the level of Assessing Officer, the IAC started action under section 66A which meant that proceedings under section 65 at the level of Assessing Officer had been closed. The learned IAC himself dropped the proceedings under section 66A as admitted at bar. After the closure of proceedings under section 66A proceedings under section 65 could not be re-started. We, therefore, hold that re-starting of proceedings under section 65 was totally illegal. We also hold that action under section 65 at the level of Assessing Officer and under section 66A at the level of IAC cannot be concurrently continued. It is for the department to make a clear choice as to whether it wants to take action under section 65 or under section 66A. The department has to choose in a clear way between two options available under sections 65 and 66A. It cannot blow hot and cold in the same breath. In this case a serious irregularity was committed because during pendency of proceedings under section 65 at the level of Assessing Officer, the learned IAC started action under section 66A and also issued a specific notice to the assessee in this regard. Once this notice under section 66A was issued by the IAC, it clearly meant that action under section 65 already initiated by the Assessing Officer had been closed. Proceedings under section 66A started by the IAC were dropped by himself and he also admitted this fact at bar. In this manner all the options available with the department were fully and finally closed. In these circumstances the issue had a ring of finality about it and fate of this case was completely sealed. After dropping proceedings under section 66A the department could not re-start proceedings under section 05 on the same points which were considered by the IAC for initiation of action under section 66A. The department was legally not correct to re-start these proceedings under section 65 when fate of the case had already been sealed by the IAC who dropped proceedings under section 66A at his level. All the proceedings conducted by the Assessing Officer based upon notice under section 65 were, therefore, absolutely illegal having no warrant of law. We conclude that action of the department under section 65 was absolutely illegal, hence the assessment in question is annulled on this legal plane.
19. Since we have annulled the assessment in question on legal points, the issue as to whether action under section 12(18) was or was not warranted is not being dilated upon because the same has lost its significance.
20. As a result orders of both the authorities below are vacated and the assessment in question is annulled and assessee's appeal is accepted.
C.M.A./29/Tax(Trib.)Appeal accepted.