I.T.As. Nos. 1248/LB to 1252/LB and 1311 to 1315 of 2004, decided on 18th July, 2006. VS I.T.As. Nos. 1248/LB to 1252/LB and 1311 to 1315 of 2004, decided on 18th July, 2006.
2007 P T D (Trib.) 954
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and Masood Ali Jamshed, Accountant Member
I.T.As. Nos. 1248/LB to 1252/LB and 1311 to 1315 of 2004, decided on 18/07/2006.
(a) Income-tax---
----Assessment setting aside of---When all the material facts were available before the First Appellate Authority to decide the issue on merits, the assessment should not have been set aside.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.56 & 62---Notice for furnishing return of total income---No notice under S.56 of the Income Tax Ordinance, 1979 could be issued after the expiration of five years from the end of the assessment year for which the return of income was due, as contemplated in the erstwhile provision of the section---When period of five years was reckoned from the end of the assessment year for which the return of income had to be filed, the assessment made under S.62 of the Income Tax Ordinance, 1979 for the assessment year 1993-94 was hit by limitation.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.56, proviso---Notice for furnishing return of total income---Proviso to S.56 of the Income Tax Ordinance, 1979 was directory in nature and was applicable retrospectively and was applicable to all pending proceedings at any stage including the appeal proceedings.
2002 PTD (Trib.) 2609 and 2004 PTD (Trib.) 708 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.56 & 62---Notice for furnishing return of total income---Initiation of proceedings without lawful jurisdiction---Effect---Proceedings under S.56 of the Income Tax Ordinance, 1979 initiated without lawful jurisdiction would result into cancellation of the assessment made under S.62 of the Income Tax Ordinance, 1979.
(e) Income-tax---
----Evidence---Substantial material had to be unearthed by the Revenue to justify its action by adducing concrete material evidence.
(f) Income-tax---
----Complaint---Placing implicit reliance on bogus, complaint by the department was highly objectionable and uncalled for.
(g) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Part I, Cl. (1)-Constitution of Pakistan (1973), Fourth Sched. Part I, item 47---S.R.O. 766(I)/88, dated 7-9-1988---Exemption---Agricultural income---Assessing Officer was not vested with the powers under the Income Tax Ordinance, 1979 to cut down the agricultural income declared by the assessee provided it was established that agricultural income was being earned by him.
(h) Income-tax---
----Agricultural income---Declared agricultural income by the assessee in no way could be alleviated---Assessing Officer was directed by the Tribunal to accept the declared agricultural income as per revised income tax return being curtailed in absence of any lawful authority.
Azhar Ehsan Sheikh for Appellant (in I.T.As. Nos. 1248/LB to 1252/LB of 2004).
Sheraz Mirza, D.R. for Respondent (in I.T.As. Nos. 1248/LB to 1252/LB of 2004).
Sheraz Mirza, D.R. for Appellant (in I.T.As. Nos.1311/LB to 1315/LB of 2004).
Azhar Ehsan Sheikh for Respondent (in I.T.As. Nos.1311 /LB to 1315/LB of 2004).
ORDER
This order is intended to dispose of above titled ten cross-appeals, five each filed by the assessee and the Department which are directed against the consolidated order passed by C.I.T.(A) Zone V, Lahore dated 19-11-2003 in respect of assessment years 1993-94, 1995-96, 1996-97, 1997-98 and 1998-99.
2. Both the learned representatives appearing at the bar have been heard at a great length.
3. Common grievance of the parties in appeal pertains to setting aside the impugned assessment order by the First Appellate Authority to be not warranted on the facts and in the circumstances of the case. In addition to, it was the assessee's contention that initiation of proceedings on the strength of anonymous complaint, wherein certain baseless allegations were levelled, was not legally tenable in law. Further contended that issuance of notice under section 56 for the preceding assessment years was not sustainable in the eye of law because notices under this section can be issued only for the current assessment year while for the assessment years preceding the current assessment year, the notices under section 65 should have been issued. Further contended that the proceedings initiated in pursuance to notice issued under section 56 of the repealed Ordinance are hit by limitation. Also contended that in absence of any evidence brought on record to support the allegations levelled in the anonymous complaint, there was no justification to carry on the proceedings which should have been dropped. It was also added that all the relevant documents were made available to hold that no income from taxable source is earned by the appellant, thus the assessment made under section 62 of the Ordinance should have been declared to be illegal. This was also the contention that not an iota of evidence whatsoever has been adduced by the Assessing Officer to establish that the assessee is selling milk in the city, thus, estimation of sales was not at all warranted.
4. There is a lot of strength in the learned counsel's contention that this is not the case where the assessment should have been set aside particularly when all the material facts were available before the First Appellate Authority to decide the issue on merits. In this view of the matter we vacate the Appeal Commissioner's order consequent upon which the learned representatives appearing at the bar were ordered to argue the ease on merits.
5. Facts in brief leading for disposal of the issues in hand are that the proceedings in the present case have been initiated on receipt of a complaint wherein it was alleged that the assessee-appellant is selling milk to various dairy farms and the business is spread over at Okara and Lahore. Also alleged that a House being No.87-F Model Town, Lahore was purchased for Rs.75,00,000 besides a bungalow was constructed at Okara for Rs.60,00,000. Moreover four vehicles, three motorcycles, and mobiles phones are maintained and no tax is being contributed to the chequer by the appellant. Accordingly notice under section 56 were issued for all the years under consideration and in response thereto income-tax returns were submitted declaring agricultural income only which was at Rs.15,00,000 each for the assessment years 1993-94, 1995-96 and 1998-99 while for the intervening two assessment years 1996-97 and 1997-98, income from this sources was declared at Rs.14,50,000 in each year. This income was bifurcated into two heads i.e. agricultural income and income from sale of milk; which was subsequently revised as under:---
| | 1993-94 | 1995-96 | 1996-97 | 1997-98 | 1998-99 |
| Agricultural income | Rs. 960,000 | 950,000 | 900,000 | 700,000 | 500,000 |
| Milk income | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 |
In response to statutory notices issued under section 61, it was contended that the assessee-respondent owns 8 square of land and various documents were also furnished to explain the sources of investment. It was explained that the income derived from milk is a part of agricultural income and as such exempt from levy of income. However, the Assessing Officer after making a lengthy discussion in the assessment order disbelieved the assessee's contention as well as the documents. Accordingly income from sale of milk was computed, by estimating sales at Rs.10,00,000, Rs.15,00,000, Rs.16,00,000, Rs.18,00,000 and 20,00,000 and applying a gross profit rate of 15% thereon and after allowing 1/3 expenses therefrom on estimate basis. In this manner net income from this source was worked out at Rs.100,000, Rs.150,000, Rs.160,000, Rs.180,000 and Rs.200,000 for the assessment year 1993-94 and 1995-96 through 1998-99 respectively. However, income from agriculture was slashed down to Rs.6,00,000, Rs.6,25,000 and Rs.6,50,000 respectively for the assessment years 1993-94, 1995-96 and 1996-97. Anyhow, the income declared for the subsequent two assessment years under appeal declared at Rs.7,00,000 and Rs.5,00,000 was accepted by the Assessing Officer. Apart from this, in the assessment year 199394, a sum of Rs.400,000 was also added under section 13(1)(aa) on account of unexplained investment made for purchase of House No.87-F Model Town, Lahore. Resultantly, total net income, inclusive of agricultural income, was computed at Rs.11,00,000, Rs.775,000, Rs.810,000, Rs.880,000 and Rs.700,000 respectively.
6. At the First Appellate Authority, the Appeal Commissioner, upon having considered the facts of the case and the case law referred to before him, deemed it appropriate to remand the case to the Assessing Officer with the direction to finalize the assessment after fulfilling proper legal and procedural requirements. This dispensation has compelled the rival parties to come up in appeal before the Tribunal.
7. We have given anxious thought to the divergent views expressed by the parties in appeal, perused the impugned orders as well as the documents and the case-law furnished before us: However, at the first place, we are dilating upon legal objection raised in respect of assessment year 1993-94 only. It was the contention of the learned counsel for the assessee that the proceedings under section 56 of the repealed Income Tax Ordinance, 1979, for this assessment year, have been initiated without any lawful authority. It was explained that the notice under section 56 of the Repealed Income Tax Ordinance has been issued beyond the period specified in proviso to this section. At the very outset we are in agreement with the learned counsel for the assessee that no notice under section 56 of the repealed Ordinance could be issued after the expiration of five years from the end of the assessment year for which the return of income was due, as contemplated in the erstwhile provision of this section. When the period of five years is reckoned from the end of the assessment year for which the return of income had to be filed, we have come to an inescapable conclusion that the assessment made under section 62 for the assessment year 1993-94 was hit by limitation.
8. Facts are that proceedings under section 56 of the repealed Ordinance were initiated but date of issuance of the said notices was not mentioned in the assessment order. Thereafter notice under section 61 was issued which is dated 15-12-1999 whereby date of hearing was fixed for 24 12-1999. Photocopy of the said notice has been placed on file. It is inferred therefrom that proceedings under section 56 of the Ordinance had been initiated somewhere prior to this date. This view is strengthened from page 1 of the consolidated assessment order passed under section 62 that the Income Tax Returns for all the assessment years under appeal were filed in compliance to a notice issued under section 56 and notice under section 61 of the repealed Ordinance was issued subsequently. Resultantly, the assessment order was finalized on 29-6-2002 after having given cognizance to all the facts available on record. Coming to the due date for filing the return of income for assessment year 1993-94, this fell on 30th September, 1993 meaning thereby the return was filed in the period relevant to assessment year 1994-95. Five years if reckoned after assessment year 1994-95 that cause to be made the assessment year 1999-2000. When viewed in this perspective the notice under section 56 could be issued, calling for return of income till 20th June, 1999. Whereas the facts recorded in the assessment order lead to prove that the same has been issued in between the date starting from 1-7-1999 to 15-12-1999. This view is supported from copy of the complaint on which noting has been made by the Regional Commissioner of Income Tax. It is evident therefrom that complaint was received by the RCIT on 8-9-1999 and was got registered in the office of the RCIT on the very same date vide Diary No.2758. Admittedly the proceedings in this case were initiated after receipt of the complaint (i.e. 8-9-1999) wherein certain allegations were levelled.
9. Before parting with this issue we would like to dilate upon the proviso added to section 56 of the Income Tax Ordinance, 1979, whereby no notice under this section shall be issued after the expiration of five years from the end of the assessment year for which the return of total income was due, is retrospective in its character or not. This proviso was inserted by Finance Act, 2001. Prior to this an explanation was added to section 56 of the Income Tax Ordinance, 1979. In that explanation it was declared that a notice in this section may be issued in respect of any assessment year including the current assessment year and any preceding assessment year. This explanation was inserted through the Finance Act, 2000 meaning thereby this explanation remained in operation only for a year thereafter that was omitted. There is no cavil to this proposition that proviso to section 56 is directly in its nature and is applicable retrospectively. Without any shadow of doubt this proviso is applicable on all pending proceedings at any stage including the appeal proceedings. It is imperative to state here that this Tribunal, after making a detailed discussion on this issue and also after acquiring support from the case law of the apex and the High Courts as well as those of the Tribunal, has held so in a case cited as 2002 PTD (Trib.) 2609 in the following words:---
10. A reading of section 56 of the Ordinance before insertion of Explanation and proviso showed that there had been a controversy as to the powers of the Assessing Officer to issue notice calling upon the assessee to file return and it apparently was resolved by the Explanation through Finance Ordinance, 2000. Through this explanation unlimited powers in point of time were given to the Assessing Officer to issue notices to any assessee, who was required to file return but had not done the same, for any period preceding the date of the issuance of the notice. The result emanating from this very Explanation seems to be initiating action and opening of a larger number of cases which had the effect of subjecting many a persons to file return whose cases might understandably be pending at different stages. This mischief was taken into cognizance by the Legislature and in order to suppress that mischief and provide cure and remedy, the aforesaid proviso was inserted through Finance Ordinance, 2001 which has curtained the powers of the Assessing Officers to issue notice beyond a period of five years. The intention of the Legislature thus appears to be not to widen the mischief net and to reduce the agony which had already been let loose by the Explanation. This being the intention, the role of the proviso is understandable, which has to be invoked for the pending cases as well. Further, amendments providing remedies and cures shall have to be retrospectively interpreted. In view of this matter the instant case shall be governed by the proviso which in its import has retrospective operation. Thus the action of the Assessing Officer by issuing a notice under section 56 of the Ordinance on 12-2-1994 calling upon the assessee for filing of return for assessment year 1986-87 is not warranted for the said notice is beyond the period of five years. The assessment order which has resultantly been framed is not sustainable in law and merits to be annulled. The learned C.I.T.(A) although annulled the assessment order yet the grounds mentioned by him are not correct. Now while upholding the decision of the learned C.I.T.(A) in respect of annulment of the assessment order relating to assessment year 1986-87 the reasons given in the impugned order are set aside. As a sequal to this annulment of the assessment order, the penalty proceedings could not be initiated which are cancelled. The learned C.I.T.(A) also found the same but on different reasons. Again the order of the learned C.I.T.(A) in this respect is upheld after setting aside the reasons thereof. There is no force in these appeals which merit rejection and are thus rejected.
Later on, this judgment was followed in another case reported as 2004 PTD (Trib.) 708. Thus, in the given circumstances the explanation added to section 56 through the Finance Ordinance, 2000 will not be applicable to the facts of the present case. Rather the proviso added through the Finance Ordinance, 2001 is attracted with full force.
10. All these facts lead to the conclusion that notice under section 56 of the repealed Income Tax Ordinance for the assessment year 1993-94 has been issued beyond the period of five years from the end of the assessment year for which the return of income was due as the notice under section 56 could be issued till 30th June, 1999. We are, therefore, convinced to hold that the proceedings under section 56 for the assessment year 1993-94 have been initiated without lawful jurisdiction. This would result into cancellation of the assessment made by the Assessing Officer under section 62 in respect of assessment year 1993-94 only. However proceedings under section 56 of the repealed Ordinance, 1979 for the subsequent assessment year under appeal have been initiated lawfully being not hit by latches.
11. Now, we are disposing of the appeals for the assessment years 1994-95 through 1998-99 on merits. On going through the facts recorded supra, we are convinced that the combined assessment in the present case has been made on far fetched and imaginary facts either alleged in the complaint or brought on record by the Department. There is no denying the fact that the proceedings are initiated on the basis of a anonymous complaint. Photocopy of the complaint placed before us clearly depicts that neither complete address of the complainant is available nor his National Identity Card or date of complaint has been mentioned therein. What has been described at the end of the complaint is "Muhammad Aslam Ravi Road, Lahore". How come the Department can trace the complainant from this address to verify the antecedents recorded in the complaint or to cross-examine the complainant by the assessee. Even otherwise none of the allegations levelled in the complaint could either be proved or established by the department. It is interesting to note that the assessee has by himself declared all the movable or the immovable assets in the wealth statement such as property located at Lahore and Okara, agricultural land, agricultural equipments livestock and Toyata car. Maintaining of four vehicles, three motor-cycles and mobile phones were also alleged but non of the allegations could be proved by the Revenue. As regards selling of milk, the income from this source has duly been declared by the assessee during the course of finalization of assessment proceedings.
12. We are also of the considered view that/nothing substantial could be unearthed by the Revenue to justify its action by adducing concrete material evidence. The observation of the Assessing Officer regarding purchase of milk from various parties and from different areas; such as Pakpattan Depalpur and Kasur, is totally baseless being not supportive of any material evidence. Neither in the inquiry report nor in the assessment order a single party, from whom allegedly milk was purchased, or the area could be identified. Besides contradiction is also appearing in the facts recorded in the assessment order. For example on the one hand the Assessing Officer in last para. at page 2 of the assessment order has observed that the assessee is engaged in the business of selling milk and has gained goodwill in the locality of Model Town, Lahore. While au contraire, in para.2 and page 3 of the said order it has been stated that the assessee is selling milk at his own "Arhat" located at Thokhar Niaz Baig, Lahore. All this goes to prove that the whole story narrated in the complaint was concocted and fabricated one having no relevancy whatsoever with actual state of affairs of the assessee's case. We are, therefore, persuaded to incline with the learned counsel that the complaint was bogus and as such placing implicit reliance thereon by the Department was highly objectionable and uncalled for.
13. Coming to curtainment in declared agricultural income, it is imperative to state here that the Assessing Officer is not vested with the powers under the Income Tax Ordinance, 1979 to cut down the agricultural income declared by the assessee provided it is established that agricultural income is being earned by him. Actually item 47 of Part-I of the 4th Schedule to the Constitution of Islamic Republic of Pakistan, 1973 preclude Federal Legislature from levying tax on agricultural income .Even clause (1) of Part-I of the 2nd Schedule to the repealed Income Tax Ordinance, 1979 also exempts agricultural income subject to its inclusion in income for tax rates purposes only and that too in the case of individual having income from business or profession and directors of companies. To include agricultural income in total income, two provisos were added to clause (1) of Part-I of the 2nd Schedule to the Income Tax Ordinance, First proviso was added through the Finance Ordinance, 1988 and second by, virtue of Notification No.S.R.O. 766(1)/88, dated September 7, 1988 that is why neither any methodology nor any rationale whatsoever has been provided within the four corners of the statute book (Income Tax Ordinance, 1979) for the purposes of computing income from agricultural sources and charge of tax thereon. Referring to the facts of the present case, the Assessing Officer has in unequivocal words admitted that the assessee is enjoying agricultural income from 8 square of land (200 acres) situated in District Lahore, Pakpattan and Kasur. In the given scenario the declared agricultural income by the assessee in no way could be alleviated. Accordingly the Assessing Officer is directed to accept the declared agricultural income as per the revised income tax return filed for the assessment years 1993-94, 1995-96 and 1996-97, being curtailed in absence of any lawful authority.
14. Next points pertains to estimation of sales of milk. It was alleged in the complaint and also after getting conducted the enquiry that the assessee is engaged in selling milk at his arhat located at Thokhar Niaz Baig and for this purpose milk is purchased from various parties falling in area of Pakpattan, Depalpur and Kasur and income from this source has not been declared by the assessee. Having taken regard to the fact that the assessee is maintaining his own courtyard wherein 35 to 40 buffaloes/cows are kept, the length of standing and the goodwill enjoyed in this line of business, sales of milk for the assessment year 1995-96 through 1998-99 were estimated by the Assessing Officer at Rs.15,00,000, Rs.16,00,000, Rs.18,00,000 and Rs.20,00,000 respectively. From the facts embolded in the assessment order, it is evident that the Assessing Officer has miserably failed to establish as to whether the assessee-appellant is operating a dairy farm or not?. Even not an iota of evidence whatsoever has been brought on record to conclude that milk is being purchased from other cities of Punjab none of the party or the shopkeepers have been named to whom the milk was sold. Above all, in order to verify supply of milk to dairy farms, notices under section 144(c) of the repealed Ordinance were issued and in response thereto it was affirmed by them that no milk was supplied by Mr. Akbar Ali Gujar. Actually onus to prove the said facts/allegations was squarely on the Assessing Officer's shoulder to fasten blame at the assessee's door. Since this was the Assessing Officer's duty which he could not discharged. On the other hand it was categorically stated by the assessee that milk is sold in respect of his own buffaloes and their cost was duly declared not only in the wealth statement but also in the wealth tax returns which was at Rs.10,00,000. Thus, sale of milk, if any, was on account of the assessee's own buffaloes and cows. Evidently, sale of milk has been estimated on the whimsical inference drawn from foregoing facts, therefore, this is a case of one bald estimate against another. Anyhow, considering the facts of the case in its entirety sales of milk for the assessment years 1995-96, 1996-97, 1997-98 and 1998-99 are fastened at Rs.700,000, Rs.800,000, Rs.900,000 and Rs.10,00,000 respectively. Net income shall, accordingly, be computed after applying gross profit rate of 15% and also after deducting 1/3rd expenses worked out on the gross profit so arrived at.
15. In the result assessee's appeal for the assessment year 1993-94 succeeds on legal plain while the residual appeals are disposed of in the manner and to the extent indicated supra. However, those of the department fail and are dismissed being benefit of any means.
C.M.A./5/Tax(Trib.)Order accordingly.