I.T.A. No. 3651/LB of 2003, decided on 14th February, 2007. VS I.T.A. No. 3651/LB of 2003, decided on 14th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1815 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss.59(3), 24(ff), 61, 62, 58(1) & 13---C.B.R. Circular No.7 of 2002 dated 15-6-2002---Self-assessment---Assessment year 2002-2003---Process of case under normal law for the reasons that assessee had claimed payment of rent which was paid in cash and consequently inadmissible through the mischief of S.24(ff) of the Income Tax Ordinance, 1979---Validity---Case was neither selected for audit nor excluded from Self-Assessment Scheme through speaking order as required under para. 8(c) of the relevant Self-Assessment Scheme---Option for Assessing Officer was to assess the same under Self-Assessment Scheme but he definitely had the power to add legally inadmissible add backs through para.9(b)(i) of the Self-Assessment Scheme---Even for making adjustment under S.59(3) of the Income Tax Ordinance, 1979 and adding legally inadmissible claim the proceedings remain that of self-assessment---Show-cause notice should not have been issued under S.62 of the Income Tax Ordinance, 1979 but under the provisions of para.9(b) of Self-Assessment Scheme---Such mistake could be ignored if the same was not supported by notice under S.61 of the Income Tax Ordinance, 1979---Assessing Officer had not only issued notice under S.61 of the Income Tax Ordinance, 1979 but had also issued notice under S.58(1) of the Income Tax Ordinance, 1979 asking for statement of assets and liabilities---Such was beyond the scope and jurisdiction of Assessing Officer for the reason that he was processing the case under Self-Assessment Scheme and not under normal law or total audit---Assessee's return qualified for Self-Assessment Scheme and the Assessing Officer by having mixed proceedings under Ss.61, 62, 58(1) & 59 as well as 59(3) of the Income Tax Ordinance, 1979 had exceeded his jurisdiction---Department's claim that they had proceeded under para.9(b)(ii) of the Self-Assessment. Scheme, 2002 was not tenable as the same in no way, was applicable in such eventualities.

PLD 2005 SC 842 and 1996 (73) Tax 2027 (Trib.) rel.

Muhammad Aslam Bhatti, D.R. for Appellant.

Mian Ashiq Hussain for Respondent.

ORDER

This appeal on behalf of the Department is against the cancellation of the order of the Assessing Officer who has made an assessment under normal law without excluding the case from the purview of Self-Assessment in terms of para.8(c) of the Self-Assessment Scheme 2002-2003 of the Circular No. 7 of 2002 dated 15th June, 2002. It is also worth - mentioning here that the case even otherwise was not selected for total audit. The facts to this extent are not disputed.

The Department however, admitted that the case was neither to be processed under normal law nor under total Audit. Actually, it has been assessed under S.A.S. under sections 59(1)/59(3). The D.R. further added that this was done as per para. 9(b)(ii) of the Self-Assessment Scheme of 2002. Before proceeding further it will be worthwhile to reproduce the relevant provision which is as under:---

"9(b). Returns qualifying for self-assessment shall be expeditiously processed either manually, or through computer, after the selection of cases for total audit. The Assessing Officer shall make necessary adjustments under section 59(3) of the Ordinance, if so required, after giving a notice in writing to the assessee and considering his explanation, if any. These adjustments may include add-backs on account of:

(i) expenses claimed which are legally inadmissible;

(ii) any sum(s) deemed to be income under the Ordinance; and"

Above provisions obviously speak of granting jurisdiction to the Assessing Officer of making legally inadmissible add-back and also to add the sums deemed to be income under the Ordinance. The Department's view appeals to be still a misconception. The para. referred in the grounds as well as argued before us i.e. 9(b)(ii) speaks of addition of the sum(s) deemed to be income under the Ordinance which obviously relates to section 13 of the Ordinance, 1979 (repealed) and such and similar others. The issue in this case in fact is that the assessee had claimed payment of rent to Pakistan Railway which has been considered to be as cash payment and consequently in-admissible through the mischief of section 24(ff). This situation even if considered as exigible in the present case is not covered within the provisions mentioned by learned D.R. from the Self-Assessment Scheme etc.

Before us learned D.R. tried to change his stance again and said that the same is definitely covered within 9(b)(i) to which one could agree had the Assessing Officer adopted proper method. As already mentioned by us in the earlier part of this order the assessee filed return under Self-Assessment Scheme which was not excluded from its purview for the purpose of normal law assessment. It was neither selected for audit nor excluded from the Self-Assessment Scheme through a speaking order as is required under para. 8(c) of the said scheme. The option for the Assessing Officer was to assess the same under Self-Assessment Scheme but he definitely had the power to add legally inadmissible add-backs through para.9(b)(i) in this case. Now what was proper course for him to proceed. He was obviously required to give a show-cause notice to the assessee for fulfilling requirements of the principle of natural justice "no one can be condemned unheard". This was all the more necessary as it has been so provided in the above para.9(b) specifically. The requirement of the said notice also appears to have been fulfilled by virtue of notice under section 62. However, by mentioning section 62 the Assessing Officers appear to have entered into jurisdiction which was not available to him in the present case being a case of Self-Assessment. Needless to mention that even for making adjustment under section 59(3) of the repealed Ordinance, 1979 and adding legally inadmissible claim the proceedings remain that of self-assessment. The show-cause notice should not have been issued under section 62 but under the provisions of section 9(b) of the Self-Assessment Scheme. One could ignore this mistake if the same was not supported by notice under section 61. It is evident from page 2 of the order of the Assessing Officer that he has not only issued notice under section 61 but has also issued notice under section 58(1) asking for statement of assets and liability. This was beyond the scope and jurisdiction of the Assessing Officer for the reason that he was processing the case raider Self-Assessment Scheme and not under normal law or total audit.

The A.R. had also challenged the very issuance of notice and referred PLD 1991 (sic) 968 and have further argued that the lacuna of the jurisdiction cannot be corrected at a subsequent stage. His reliance is on PLD 2005 SC 842.

On factual premises the A.R. claims that the deposit in bank by this assessee is similar to that of the preparation of Demand Draft. He said that owner in this case is Pakistan Railway and it is as per requirements of the said government agency that the rent is deposited in their designated branch in a prescribed manner. This prescribed manner is as good as making of a Demand Draft. He has further argued that in this case the Assessing Officer had only one option. It was a case of self-assessment for which he obviously had power to make certain adjustment and legally inadmissible add backs but he was, not allowed to proceed to assess the case either under normal law or total audit. His reliance is on 1996 (73) Tax 2027 (Trib.). The learned A.R. has not produced us copies of the judgments he has referred. One, therefore, is obviously handicapped in the absence of non-production of the said referred judgments. However, this is not possible for me to agree with him that the language of the law can be ignored while interpreting the provision. In this case section 24(1) was to be invoked which speaks of disallowance of the claim if the same exceeds Rs.5,000 per month and is not paid through cross cheque or Demand Draft. His argument that the payment being on the basis of a formal prescribed proforma can be equated to a Demand Draft needs support and detailed dilation which apparently cannot be done in this case as the other flaws pointed out by the C.I.T.(A) are not curable. The Department in fact should not have filed this second appeal before us and should have continued with the proceedings after accepting the order of the C.I.T.(A) under the other provisions like section 65, section 66A, etc. We have already noted in the earlier part of this order the defects in the proceedings. However, for further dilation we reproduce a para. from the C.I.T.(A) order that speaks as follows:---

"Assessing Officer should have issued a letter for seeking explanation that how the payment has been made and if rent had not paid through cross bank cheque or cross bank draft then the case should have been taken out of the ambit of the S.A.S. for normal law assessment as per provisions of the S.A.S. 2002-2003 for finalizing assessment. The Assessing Officer instead of adopting the legal procedure issued statutory notice under sections 61/62 of the said Ordinance from time and again without taking out the case from the ambit of S.A.S. which is not permissible under the law. The Assessing Officer on his own took out a case out of the ambit of self-assessment which qualified for acceptance under S.A.S. It has either to be selected for total audit through computer ballot or for normal law assessment or to be set apart on account of concealment. The Assessing Officer by probing and Investigating Officer issuing statutory notices under sections 61 and 62 of the said Ordinance acted beyond his jurisdiction. Once clearly been established and in fact assessee having admitted that rent of the premises has been regularly deposited in the bank in the account of Railway Deptt. In the form of cash, the Assessing Officer should have dropped the proceedings initiated under sections 61 and 62 of the said Ordinance and resorted to section 59(3) of the said Ordinance. Here he could than add Rs.876,916 by invoking section 24(fl) of the said Ordinance. He has passed order in continuation of notices under sections 62 and 63 of the said Ordinance. The said action of the Assessing Officer is not tenable in the eyes of law as it was transgressing the limit which have been put on making addition under section 59(3) on account of inadmissible expenses. The Assessing Officer had gone beyond the powers vested in him by issuing statutory notices under sections 61 and 62 of the said Ordinance without taking out the case out of the ambit of S.A.S. Reliance of the Assessing Officer and legal advisor on reported case 1982 PTD 6 (Lahore H.C.) wherein it was observed that technically issuing notices under section 22(4) of the repealed Income Tax Act, 1922 which was subsequently withdrawn and superseded by a valid notice issued, under section 61 of the Income Tax Ordinance, 1979 did not cause prejudice to the assessee. The irregularity in form of notice does not have effect of vitiating impugned assessment proceedings. The said reported case is distinguishable from the fact and legal position of the case under discussion. In the reported case a statutory notice under section 22(4) of the repealed Income Tax Act, 1922 was issued which was subsequently withdrawn and secondly a valid notice under section 61 of the Income Tax Ordinance, 1979 was issued which did not cause any prejudice to the assessee. In the instant case the facts and legal position are quite different as the Assessing Officer has gone beyond his jurisdiction and issued statutory notices under sections 61 and 62 of the said Ordinance in the case which qualified for acceptance under section 59(1) of the said Ordinance and when enquiries and investigation have been completed the said notices were withdrawn and a notice was issued for making addition under section 59(3) of the said Ordinance of an alleged inadmissible expense of rent paid through cash instead of through cross bank cheque or cross bank draft. The Assessing Officer has made a hash of the payment of Rs.876,916 which was admittedly made through case deposited in the Railway Department Account. The addition made under section 59(3) of the said Ordinance is not tenable in the eyes of law which is deleted. The Assessing Officer owes explanation that why statutory notices under sections 61 and 62 were issued without taking out the case out of the S.A.S. and when it was clearly established that payment has been made through cash why it has not been selected for normal law.

The appeal is disposed of in the manner as above."

In fact learned C.I.T.(A) has also discussed the issue in the same prospective in which we have made discussion in the earlier part.

We, therefore, confirm the order of the C.I.T.(A) by holding that the assessee return qualified for S.A.S. and the Assessing Officer by having mix proceedings under sections 61, 62, 58(1) and 59 as well as 59(3) has exceeded his jurisdiction. Moreover, the Department's claim that they have proceeded under section 9(b)(ii) of the Circular No.7 of the Self-Assessment Scheme 2000 is also not tenable as the same in no way is applicable in the above eventualities. Moreover, there were other requirements of section 13 which also have not been completed before, addition.

This obviously means dismissal of this departmental appeal.

C.M.A./57/Tax(Trib.)Appeal dismissed.