VS, 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2346 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 65, 148 & 59(1)---Additional assessment---Re-opening of assessment on the ground that assessee had imported a new material consignment and the assessee was required to explain the source of its investments---Validity---Show-cause notice was evidently investigative in nature and based on no definite information---Assessing Officer undertook investigation to gather evidence under S.148 of the Income Tax Ordinance, 1979 and that too without affording opportunity to cross-examine the witness long after issuing notice under S.65 of the Income Tax Ordinance, 1979---Such course of action was not permissible under the law as the said notice could only be issue after completing the investigation, if such investigation had resulted in definite information in terms of S.65 of the Income Tax Ordinance, 1979, rejection of original documents without verification was not sustainable---Even otherwise, the record which was made basis for. reopening of assessment was available at the time of original assessment and existing record could not be made basis for reopening the case---Assessing Officer reviewed the proceedings of his predecessor and presumed that the figures of the creditors were fictitious which he later on investigated under S.148 of the Income Tax Ordinance, 1979 which was an afterthought---Action of Assessing Officer was not supported by legal provisions---Assessment order was unsustainable which was annulled/cancelled on the point of jurisdiction by the Appellate Tribunal.

Messrs Arfat Woollen Mills Ltd. v. I.T.O. No.1990 SCMR 697; (1976) 34 Tax 31 and 1993 SCMR 1108 = 1993 PTD 1108 rel.

Mian Ashiq Hussain for Appellants (in I.T.A. No. 354/LB of 2002).

Sajjad Ali Jaffri L.A. and Ghazanfer Hussain, D.R. for Respondent (in I.T.A. No. 354/LB of 2002).

Sajjad Ali Jaffri L.A. and Ghazanfer Hussain, D.R. for Appellants (in I.T.A. No. 620/LB of 2002).

Mian Ashiq Hussain for Respondent (in I.T.A. No. 620/LB of 2002).

ORDER

Through these cross-appeals, the taxpayer as well as the Revenue agitated against the impugned order, dated 30-11-2001, passed by the learned Appellate Additional Commissioner of Income Tax, Appeal Range, Lahore. The taxpayer has questioned the assumption of jurisdiction by the Assessing Officer under section 65 of the repealed Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) in reopening the original assessment under section 65 of thereof, remand about the admissibility of credit against the declaration, dated 30-9-2000 for an amount of Rs.20,53,466 under the Tax Amnesty Scheme despite the findings of the learned A.A.C. that the declaration was available on record, confirmation of addition on the allegation of low yield, on account of inflated stock and on account of alleged unverifiability of sales and add-backs, in the P&L account. The Department has agitated against the relief allowed by the first appellate authority while deleting the addition made under section 13(1)(aa) of the repealed Ordinance. The remand regarding the declaration under Tax Amnesty Scheme too has been questioned by the Department.

2. The facts relevant for disposal of present appeals are that the original assessment under section 59(1) was made on 30-4-1999 with the nil demand. A subsequent order, dated 30-6-1999 was passed under section 156 of the repealed Ordinance, giving credit of tax deduction a Rs.2,46,416 as refundable. On 12-4-2000, a show-cause notice was issued by the Assessing Officer, indicating his intention to reopen the case under section 65 of the repealed Ordinance as allegedly the assessee had imported a new material consignment with the cost at Rs.5,277,804 and the assessee was required to explain the source of its investments. Furthermore, it was alleged that land of factory had not been declared in the fixed assets of the AOP. The appellant-responded that the allegations were in the nature of enquiry and not definite information in terms of section 65 which was sine qua non for reopening the case. Besides, it was pointed .out that land of factory building belonged to one of the members of AOP and not to the AOP. The latter allegation was withdrawn by the Assessing Officer. A notice under section 65, dated 25-5-2000, was, however, issued on account of the former allegation. The assessee challenged the notice under section 65 in a Writ Petition No.9630 of 2001, which was disposed of on 12-6-2001 by the Honourable High Court with the observation "that the petitioner may raise all the pleas, factual as well as legal before the Assessing Officer in reply to the notice. The respondent No.1 may provide an opportunity of hearing to the petitioner before reaching the final decision." The taxpayer filed Civil Petition for Leave to Appeal No.2060 of 2001 in the apex Court for quashing the reassessment proceedings. The Honourable Supreme Court of Pakistan decided the case on June 21, 2001 with the direction that "the Income Tax Department. shall dispose of first of all preliminary objections which has been specifically raised by the petitioner in his reply to the show-cause notice and thereafter if the petitioner still feels dissatisfied, he would at liberty to avail the remedy for redressal of his grievance in accordance with law. "

3. The Income Tax Officer passed the impugned order on 12-7-2001 and assessed the total income at Rs.55,78,716. The first appellate authority maintained the reopening of the case accepted the first declaration under Tax Amnesty Scheme deleting the addition of Rs.20,53,466 remanded the case regarding second declaration under the scheme with the remarks that it was available on record, and confirmed the other additions.

4. The learned representative for both the parties have been heard and relevant orders along with record have been perused. The learned A.R. vehemently submitted that assumption of jurisdiction under section 65 of the repealed Ordinance by the Assessing Officer is unlawful hence the impugned assessment is liable to be annulled. Main points urged by the learned A.R. against the reopening of original assessment are as under:--

(i) The show-cause notice itself states that it-was issued as a result of the perusal of the documents enclosed with the return. The notice, was, therefore, without jurisdiction as original assessment could only be- reopened if some definite information in terms of section 65(2) of the repealed Ordinance was available. The Honourable Supreme Court of Pakistan held that re-reading of existing record does not confer jurisdiction to reopen the assessment. Reliance was placed on the following judgments of the Honourable Supreme Court of Pakistan cited as 1990 SCMR 697 in the case of Messrs Arfat Woollen Mills Ltd. v. ITO.

(ii) It was pointed out by the learned A.R. that the issue of import of the consignment with the cost at Rs.5,277,804 in question had specially been confronted to the assessee vide notice, dated 22-2-1999 long before the original assessment under section 59(1) was finalized on 30-4-1999. It was, therefore, a change of opinion which did not justify action under section 65. The original letter, dated 20-2-1999 was produced and it was pointed out that the assessee imported its raw material and sought exemption certificate under section 50(5) of the repealed Ordinance from the Department from time to time. The original letter dated 15-2-1999 by the Commissioner of Income Tax Zone-C, Lahore and the appellant's reply, dated 16-2-1999 in response thereto, providing the details of the consignment was also produced. The connected record of .these proceedings was available in the office of the CIT, IAC and the Assessing Officer. The A. R. further submitted that the Assessing Officer acted illegally in rejecting the letter, dated- 22-2-1999 without verification as required by law. Reliance was placed on the judgment of the Honourable Lahore High Court reported as 1976 34 Tax 31 to support the contention that rejection of original documents without rectification was unlawful. The A.R. pointed out that in the presence of letter, dated 22-2-1999, the reopening of the assessment was wholly without jurisdiction.

(iii) A bare perusal of the allegations in the show-cause notice leads to the conclusion that both the allegations were in the nature of investigation i.e. the assessee was asked to explain the source of investment of the consignment and the omission of the ownership of factory land in balance sheet. The latter allegation was ex facie misconceived as the information was available in the record of the proceedings, hence it was dropped by the Assessing Officer himself. The former allegation, too was in the nature of investigation and the Assessing Officer admittedly issued notices under section 148, dated 23-3-2001 (long after issuing notice under section 65). Such a course of action is not permissible under the law. Reliance was placed on the judgment of the Honourable Supreme Court of Pakistan cited as 1993 SCMR 1108 = 1993 PTD 1108 that if further enquiry was needed to clothe the information with credibility, it would not be definite information in term of section 65 of the repealed Ordinance.

(iv) The learned A.R. pointed referred to various parts of the assessment order to point out that the Assessing Officer was reviewing the inference drawn by his predecessor. For instance reference was made to paragraph such as "From the above paragraph is evident that reportedly my predecessor drew interference on the basis of irrelevant documentary i.e. State of affairs as on 30-6-1996 whereas the present proceedings have been initiated on the basis of irrelevant documents i.e. State of affairs as on 30-6-1998": The learned A.R. pointed out that the Assessing Officer had no lawful authority to review the proceedings undertaken by his predecessor. It was also submitted that maintenance of complete record in the responsibility of the department and assessee could not be penalized for any omission in the record since responsibility of maintaining record was on the officer of the Department.

(v) Regarding merits of the case, it was pointed out that the remanding the case on the issue of second declaration under the Tax Amnesty Scheme was unjustified. The learned first appellate authority gave her findings on the issue as under:-- "Perusal of record shows that this declaration is available and it carries certain receipt numbers i.e. 09/19 and also No. 70. It is accompanied notice of demand pertaining to the Assessment year 1998-99 depicting a refund of Rs.2,46,416. The requisite certificate to be issued by the concerned Assessing Officer is, however, missing in the case of declaration." The learned A.R. submitted that the assessee had done his duty according to law and it was not within his control to make the Assessing Officer issue the certificate. It was further pointed out that the amount, of refund adjusted against this declaration was never refunded to the assessee and the Department is not legally in position to say that it did not accept this declaration without any reasons particularly when refund stood adjusted against it. The addition under section 13(1)(aa) is therefore, unsustainable.

(vi) Regarding the confirmation of addition on account of alleged low yield, inflated closing stock and unverfiability of sales and add backs in the profit and loss accounts it was pointed out that the treatment- is misconceived. For instance if closing stock was inflated, it had resulted in the enhancement of income and no prejudice was caused to Revenue. Even otherwise, without reducing the figure of opening stock of the succeeding year, allegation of inflated closing stock had no bearing on assessment. Similarly, the allegation of low yield coupled with addition for unverifiability of sales would be treated under Dandekar Formula as the purchases were imports and debit side was no objected to by the Assessing Officer. Since the declared G.P. rate too was not questioned, the additions were therefore, unwarranted but erroneous in the eye of law. Besides, there was no definite information for making these additions and add-backs in the profit and loss account.

5. The learned D.R., however, supported the assessment order and agitated against the relief allowed by the first appellate authority.

6. We have considered the rival arguments. The show-cause notice was evidently investigative in nature and based on no definite information. In fact, latter allegation was contradicted by record and it was withdrawn by the Assessing Officer himself. The Assessing Officer undertook investigation to gather evidence under section 148 and that too without affording opportunity to the taxpayer to cross-examine the witness long after issuing notice under section 65. Such a course of action is not permissible under the law as the said notice can only be issued after completing the investigation, if such investigation had resulted in definite information in terms of section 65 of the repealed Ordinance, rejection of original documents without verification is not sustainable. Even otherwise, what record which was made basis for reopening of the assessment was available at the time of original assessment and existing record could not be made basis of reopening of the case. The Assessing Officer reviewed the proceedings of his predecessor and presumed that the figures of the creditors were fictitious which he later on investigated under section 148 which is an after-thought. The action of the Assessing Officer is not supported by legal provisions. The impugned assessment order, therefore, unsustainable.

Resultantly, it stands annulled. The appeal tiled by the Department is dismissed as the assessment order has been cancelled on the point of jurisdiction.

7. The appeal filed by the assessee succeeds accordingly.

C.M.A./110/Tax (Trib.)Order accordingly.