I.T.As. Nos. 4425/LB to 4428/LB of 2005, decided on 7th February, 2007. VS I.T.As. Nos. 4425/LB to 4428/LB of 2005, decided on 7th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1763 (2007)

(a) Income Tax Ordinance (XLIX of 200l)---

----S. 114(4)-Income Tax Ordinance (XXXI of 1979), S.13(1)(aa)---Finance Act (II of 2004), Preamble---Return of Income---Assessment year 2002-2003---Notice under S.114(4) of the Income Tax Ordinance, 2001 was sent as on 7-1-2004 and assessment order was passed on 31-3-2004---Assessee contended that in subsection (4) of S.114 of the Income Tax Ordinance, 2001, the words "or assessment year" were inserted on 1st July, 2003 and in subsection (5), same words i.e. "or assessment year" were inserted through Finance Act, 2004 from 1st July, 2004, subsection (4) was subject to subsection (5) of S.115 of the Income Tax Ordinance, 2001, therefore, prior to insertion of these words, notices issued were void, ab initio, illegal and without any jurisdiction thus notice in this regard could only be issued on or after 1-7-2004---Validity---Words "assessment years" being not available in the statute on the date when the notices were issued by the Taxation Officer on 7-1-2004, therefore, subsequent proceedings were nullity in the eyes of law.

2000 MLD 357 rel.

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

----Ss.13(1)(aa) & 63---Addition---Approval by Additional Commis sioner---Assessee contended that approval for the addition had been sought and allowed by the Additional Commissioner, while as provided in S.13(1)(aa) of the Income Tax Ordinance, 1979, approval for the addition should be given by the Inspecting Additional Commissioner, which was against the mandatory provisions of law, therefore, order passed without approval from competent authority was nullity in the eyes of law---Validity---Taxation Officer passed order under S.63 of the Income Tax Ordinance, 1979 making addition under S.13(1)(aa) of the said Ordinance mentioning in the assessment order "In order to meet the legal requirements, approval was sought from the Additional Commissioner of Income Tax"---Approval for making addition had admittedly been accorded by the Additional Commissioner, which according to mandatory requirement of S.13 of the Income Tax Ordinance, 1979 should have been from Inspecting Additional Commissioner---Order passed by Taxation Officer being without compliance of mandatory ' requirement of law was ab initio void.

2006 PTD (Trib.) 1778 and 2005 PTD (Trib.) 720 rel.

Naeem Munawar for Appellants.

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

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).-'Through the above titled four appeals, four separate impugned orders of the learned CIT(A),. dated 19-4-2005 for the assessment year 2002-2003 have been objected by the above titled assessees on the following common grounds:--

(1) That the orders of both the authorities below are bad in law and contrary to the facts of the case.

(2) That the initiation of proceedings and assumption of jurisdiction through notice under section 114(4) of the Income Tax Ordinance, 2001 is unlawful.

(3) That notwithstanding the ground No.2, the learned Assessing Officer was not justified in issuing the notices under section 61 of the repealed Income Tax Ordinance, 1979 when return of income was called for through issuance of notice under section 114(4) of the Income Tax Ordinance, 2001.

(4) That the learned Assessing Officer draws his powers from two different legislations, which is not curable in the eyes of law.

(5) That the learned Additional Commissioner, Sialkot Range, Sialkot was not competent to grant approval to the Assessing Officer for addition in terms of section 13(1)(aa) of the repealed Income Tax Ordinance, 1979.

(6) That the worthy' Commissioner of Income Tax (Appeals) was not justified in remanding the case back to the Assessing Officer.

(7) That the addition made under section 13(1)(aa) of the repealed Income Tax Ordinance, 1979 at Rs.9,13,860 is highly excessive, arbitrary, unjustified and against the law.

(8) That while making addition under section 13(1)(aa), the share of each purchase has not been properly determined.

As all the above four appeals are on the common grounds and are on the similar issues and regarding the additions in respect of same property in all the four cases, therefore, are decided through this consolidated order.

Mr. Naeem Munawar, Advocate has appeared on behalf of all the four appellants and has contended that the appellants in this case are the real brothers and have purchased some property. The Taxation Officer, on receipt of information from Sub-Registrar, Narowal that all the four brothers have purchased 216-kanals and 10-marlas agricultural laud with the consideration of Rs.33,23,125 on 7-3-2002, issued letter on 1-1-2003 asking to explain the sources of investment made on purchase of agricultural land. The Taxation Officer including the charges for execution of purchase deed at Rs.3,32,313 taking total amount of Rs.36,55,438, has adopted 1/4th share of each assessee at Rs.9,13,860 and has made the additions under section 13(1)(aa) of the repealed Ordinance, 1979 on that figure in each of the above said case. The Taxation Officer as mentioned in the assessment order has sent notice under section 114(4) of the Income Tax Ordinance, 2001 on 7-1-2004 and has passed assessment order on 31-3-2004. The learned counsel for the appellants has contended that in subsection (4) of section 114 of the Income Tax Ordinance, 2001, the words "or assessment year" were inserted on 1st July, 2003 and in subsection (5), same words i.e. "or assessment year" were inserted through Finance Act, 2004 from 1st July, A 2004. He has contended that as subsection (4) is subject to subsection (5) of section 114, therefore, prior to insertion of these words, notices issued in this regard are void, ab initio, illegal and without any jurisdiction. He has contended that notice in this regard can only be issued on or after 1-7-2004. He was, therefore, of the view that as the notice in this case has been issued on 7-1-2004, therefore, subsequent proceeding is nullity in the eye of law, as notices have been sent without jurisdiction. The learned counsel has raised another legal objection that approval for the addition in this case has been sought and allowed by the Additional Commissioner on 31-4-2004, while as provided in section 13(1)(aa), approval for the addition should be given by the Inspecting Additional Commissioner, which is against the mandatory provisions of law, therefore, order passed without approval from the competent authority is the nullity in the eyes of law. He has in this respect placed reliance on the decision of this, Tribunal reported as 2006 PTD (Trib.) 1778 and 2005 PTD (Trib.) 720.

On the other hand, learned DR is supporting the orders of the Officers below. She has contended that the learned CIT(A) has rightly remanded back the matter and the appellants may explain all this legal position before the Taxation Officer.

I have heard the learned representatives from both the sides and have also perused the impugned orders of the learned CIT(A) and the assessment orders.

While perusal of, the impugned order of the learned CIT(A), I have found that he has remanded the assessment with the following observations:--

"The appellant's A.R. stressed on the point that appellant was not in the country while notices for assessment were issued and assessment completed on improper service of notices under sections 56 and 61. In this regard he has produced a case wherein it has been held that "There is no concept of making "some efforts" to serve notice. Proper service of notices is sine qua non.

Notices are of paramount importance and these initiate action to create tax liability "2004 PTD (Trib.) 106" is relevant. In view of the above contention and after examination of the assessment record it is revealed that service of notices is improper. Further the assessment creating a heavy amount of tax liability should not be one sided. In this background and as the appellant is in Saudi Arabia and investment made is out of foreign remittances, the action of the Assessing Officer is arbitrary hence it is decided in the interest of justice and fair-play to remand the case back to be re-appraised in accordance with provisions of law and providing sufficient opportunity of being heard to the appellant/ AR to present his story, and to properly apportion and assess the share in this joint property".

On the other hand, the learned counsel for the appellants has raised legal issues as discussed in the above said paras. The Taxation Officer in this case has passed order under section 63 of the repealed Ordinance, 1979 on 31-3-2003 making addition under section 13(1)(aa) of the repealed c Ordinance, 1979 mentioning in the assessment order that "In order to meet the legal requirements, approval was sought from the worthy Additional Commissioner of Income Tax, Sialkot Range, who vide his letter No.941, dated 31-3-2004 accorded approval for making an addition of Rs.9,13,860...". The learned counsel in this case has also placed before me the letter in this regard showing the approval accorded by the Additional Commissioner.

While perusal of section 13 of the repealed Ordinance, 1979, I have found that in the said proviso, it has been mentioned as under:

"Provided further that in cases referred to in clauses (aa) to (e), such income shall not be chargeable to tax, unless approval of the Inspecting Additional Commissioner has been obtained".

I am of the view that as the approval from Inspecting Additional Commissioner has been made mandatory with the word "shall", therefore, approval in the present case is not in accordance with the law. In this regard, I acquire strength from the decision of this Tribunal reported as 2006 PTD (Trib.) 1778 wherein, it has been held that "No such authority was available in the Income Tax Ordinance, 2001 which had been designated as Inspecting Additional Commissioner---Assumption of jurisdiction by any authority designated as Inspecting Additional Commissioner was ab initio void and of no legal consequence". In this regard, another decision of this Tribunal is also referred by the learned counsel for the assessee which is reported as 2005 PTD (Trib.) 720 wherein, this issue has been discussed in the following manner:--

"The learned A.R. of the assessee further submitted that the alleged fair market value of the shares has been determined with the approval of the Additional Commissioner, Range-II, Companies Zone-II, Lahore, who was not competent to grant this approval. The actual authority who had the jurisdiction to grant this approval was the Commissioner of Income Tax, Companies Zone-II, Lahore, therefore, the determination of the fair market value has been done without the mandatory statutory approval of the concerned authority and as such the same is illegal and that since the valuation has been made without the statutory approval of the concerned authority no addition could be made under section 12(2) of the Ordinance. Elaborating this issue further the learned counsel for the appellant/assessee further submitted that under the repealed Ordinance the power of assessment and approval for various additions was statutory vested in designated Income Tax Authorities. For example the power of assessment was vested in the Deputy Commissioner of Income Tax, the power of cancellation for amendment of assessment and approval for various additions was statutory vested in designated Income Tax Authorities. For example the power of assessment was vested in the Deputy Commissioner of Income Tax; the power of cancellation or amendment of assessment under section 66A was vested in the Inspecting Additional Commissioner (IAC); and the power of approval of estimation of income and determination of fair market value etc. for the purposes of sections 13 and 29 (to give a few examples) was also vested in the IAC. However, with the promulgation of the Income Tax Ordinance, 2001 w.e.f. 1-7-2002 all the powers of assessment of income as well as various statutory approvals have been vested in the Zonal Commissioner of Income Tax who may now either himself exercise the power to delegate the same to any of his subordinate authority under section 210 of the new Ordinance. Thereafter, the learned counsel for the assessee referred to subsections (1) and (2) of section 239 of the new Ordinance. Subsection (1) says that subject to subsection (2) the assessment in respect of any income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance would apply so far as computation of total income and tax payable thereon is concerned as if the new Ordinance had not come into force; whereas the subsection (2) says that the assessment referred to in subsection (1) shall be made by an income tax authority which is competent under the new Ordinance to make an assessment in respect of a tax year ending on any date after the 30th day of June, 2002. Thus a cumulative reading of the two subsections makes it crystal clear that assessments in respect of assessment years ending on any date on or before 30th June, 2002 shall be made by an income tax authority which is competent to make assessment in respect of a tax payer ending on any date after the 30th of June, 2002 but in accordance with the law applicable to the assessment years ending on any date on or before the 30th of June, 2002.

The concerned assessment year in the case of the appellant is the assessment year 1999-2000 i.e. it is an assessment year ending before the 30th day of June, 2002; and the assessment has been made after the 30th of June, 2002 i.e. the assessment was to be made by an income tax authority which was competent to make assessment with respect to a tax year ending after the 30th day of June, 2002; thus in this case both the subsections (1) and (2) of section 239 are applicable. Thus insofar as the provisions of assessment are concerned the same have been rightly applied in terms of subsection (1); however, the provision of subsection (2) has not been followed in so far as the approval for estimation of fair market value in terms of section 29 which was a part of the process of assessment has not been given by the competent authority which was the Commissioner of Income Tax. In support of this contention, the learned counsel has relied heavily on the judgment of the Hon'ble Karachi High Court in the case of Allied Motors Ltd. v. Commissioner of Income Tax reported as 2004 PTD 1173 wherein after exhaustively referring to discussing. clauses (13) and (65) of section 2, section 210 and subsections (1) and (2) of section 239 of the new Ordinance the Hon'ble Court has categorically held that under the new dispensation the power of IAC in terms of the repealed Ordinance lies with the Commissioner of Income Tax who may specifically delegate this power to the Additional Commissioner under section 210 or exercise the same himself.

It is an admitted position in this case that the approval in terms of section 29 of the repealed Ordinance was given -by the Additional Commissioner of Income Tax, Range-II, Companies Zone-II, Lahore without any delegation of this specific power under section 210.

In view of the above discussion and argument put forth by the learned counsel and case laws cited supra, we have no hesitation in holding that the fair market value of the shares has been determined without the mandatory approval by the Inspecting Additional Commissioner, which renders the estimation without jurisdiction and unlawful. Accordingly, the addition under section 12(12) made by the Assessing Officer is hereby deleted".

In the present case admittedly, the approval for making the addition has been accorded by the Additional Commissioner, which according to the mandatory requirement of section 13 should have been from Inspecting Additional Commissioner. Therefore, the order passed by the Taxation Officer being without mandatory requirement of law is ab initio void, and not in accordance with law. Even-otherwise, on the second legal objection against the assessment order, the contentions raised by the learned counsel have enough force.

While perusal of subsections (4) and (5) of section 114 of the Income Tax Ordinance, 2001, I have found that the words "or assessment year" have been inserted through Finance Act, 2003 and in subsection (5) through Finance Act, 2004. Both these subsections for the facilitation of the decision are reproduced hereunder:--

"Section 14"

(4) 'Subject to subjection (5), the Commissioner may, by notice in writing, require any person who, in the Commissioner's opinion, is required to file a return of income under this section for a tax year or assessment year but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as the Commissioner may allow.

(5) A notice under subsection (4) may be issued in respect of one or more of the last five completed tax years or assessment years.

I am, therefore, of the view that as the words "assessment year" were not available in the statute on the date when the notice in this regard were issued by the Taxation Officer on 7-1-2004 in all the four titled cases, therefore, subsequent proceedings is nullity in the eyes of law. In this regard, I may also refer the decision of Hon'ble High Court reported as 2000 MLD 357 wherein, it has been held that "where a thing was provided to be done in any manner, it had to be done in that manner and if not so done, the same would not be lawful".

In view of the above discussed legal positions, all the four impugned orders of the learned CIT(A) are vacated and the assessment orders passed by the Taxation Officer under section 63 in each of the above four cases are cancelled.

All the four appeals filed by the assessee mentioned in the titled cases are allowed.

C.M.A./45/Tax (Trib.)Appeals accepted.