COMMISSIONER OF INCOME TAX VS AHMAD YAR KHAN MENHAIS, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 1651 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss.62, 65 & 59(1)---Additional assessment---Returns filed under Self-Assessment Scheme for the years 1997 to 2002---Assessing Officer had failed to observe legal formalities while making additional assessments in as much as he issued combined notice for the multiple assessment years; he ticked more than one clauses of the notice; notice itself was not served upon the assessee and Assessing Officer proceeded to frame assessment for the years 2000-2001 and 2001-2002 under Ss.62 & 65, Income Tax Ordinance, 1979 despite the fact that returns for the said years were filed under S.59(1) of the Ordinance and there was no finding to the effect that the said returns did not qualify for Self Assessment Scheme---Validity--Assessments suffered from incurable legal defects and Appellate Tribunal was justified to annul the assessments for all the years.

2005 PTD 234; 2004 PTD 1391 and 1997 PTD 47 ref.

Ch. Saghir Ahmad, Standing Counsel for Petitioner.

Ch. Muhammad Rafique and Muhammad Asghar Bhutta for Respondents.

Date of hearing: 11th April, 2007.

JUDGMENT

IQBAL HAMEED-UR-REHMAN, J.---We intend to decide six references (TRs. Nos. 17, 18, 19, 20, 21 and 22 of 2006) by means of this single judgment as common questions of law and facts are involved in all the said six references having arisen out of the consolidated order and are between the same parties.

2. The brief facts giving rise to the present references are that the assessee being an individual derives income from letting shops/property situated at Tibba Sultanpur Tehsil Mailsi District Vehari. Original assessments for the assessment years 1996-97 to 1999-2000 were filed under Self-Assessment Scheme and the same were accepted under section 59(1) of the repealed Income Tax Ordinance, 1979. While assessment returns with regard to assessment years 2000-2001 and 2001-2002 were tiled under the Self-Assessment Scheme but were pending finalization assessment. Later on, the Department came to know that the assessee was receiving rent from Habib Bank Ltd., Tibba Sultanpur and the said income from the property was never declared. After obtaining the copies of the Lease Agreement and seeking requisite approval of the Additional Commissioner of Income-tax Range Khanewal, on the basis of the above mentioned element of concealment, the case was reopened under sections 62, 65 of the repealed Income-tax Ordinance, 1979 and additional assessment for the assessment years 1996-97 to 1999-2000 at a net income of Rs.8,05,674 (Annex-A), through same consolidated order of assessment relating to 1996-97 to 1999-2000 and 2000-2001 to 2001-2002, were framed under section 62 of the repealed Ordinance. Feeling aggrieved with the said order dated 26-6-2003 passed by the Assessing Officer, the assessee/respondent approached the first Appellate Authority, learned Commissioner Income-tax (Appeals) II, Faisalabad, who vide the appellate order Nos.115 to 120 dated 26-10-2004 confirmed the reopening of the assessment under section 65 of the repealed Income Tax Ordinance, 1979 for the assessment year 1997-98. However, the relief was allowed to reduce the estimation of rate for each shop to Rs.600 per month, for the assessment years 1996-97 to 1998-99 and Rs.750 per month for the assessment years 1999-2000 to 2001-2002 with the findings that the assessment for the year 1997-98 was lawfully reopened.

3. The assessee as well as the Department filed second appeal before the Income Tax Appellate Tribunal, Lahore. The said Tribunal vide its order dated 16-6-2005 passed in I.T.As. Nos.144 to 149 and 562 to 567/LB/2005 tilled as, "Commissioner Income Tax, Sahiwal Zone, Sahiwal v. Ahmad Yar Khan Menhais, Mailsi Tibba Sultanpur" annulled the order dated 26-10-2004 passed by the first appellate authority/learned Commissioner Income-tax (Appeals) II Faisalabad. The annulment was made by the 2nd Appellate Tribunal on the observation reproduced hereunder:--

"the assessing officer failed to observe legal formalities while making additional assessments in terms of the fact that:--

(1)He issued combined notice for the multiple assessment years.

(2)He ticked more than one clauses of the notice.

(3)The notice itself was not served upon the assessee.

(4)As regards assessment years 2000-2001 and 2001-2002 the assessing officer proceeded to frame assessments under sections 62, 65 despite the fact that returns were filed under section 59(1) of the repealed Ordinance and there was no finding to the effect that the returns did not qualify for SAS.

10.In this view of the fact, we vacate the impugned order passed by the learned CIT (A) and annul the assessments for all, the years under appeal. The assessing officer is directed to accept the declared version of the assessee for all the years under consideration".

The annulment was made keeping in view the judgments of the Tribunal cited as 2005 PTD 234 and 2004 PTD 1391 in which it has been categorically observed that combined notice in multiple assessment years cannot be issued since each year might involve different issues in the respective assessment years, the relevant paras of the same reads as under:--

2005 PTD (Trib.) 234

"In our considered judgment, the Tribunal while ordering annulment of assessments proceedings for 1990-91 to 1997-98 in this case has taken cognizance of multiple defects including defect of a grave nature and the annulment is thus the cumulative result of all these defects. Thus, the Tribunal has held that (a) Notices under sections 56 and 61 have not been served on the assessee at all nor these notices have been served on someone who has appeared before the Assessing Officer at any stage or on someone who has filed any document at any stage, (b) the single notice under section 56 issued for multiple years, bear evidence of tampering insofar as assessment year "1996-97" has been altered per force to assessment year "1997-98", and (c) a single notice under section 56 has been issued for eight years. As held on page 4 of Tribunal's order after taking cognizance of "all pertinent aspects", the Tribunal has come to the conclusion that the assessments framed under section 63 for 1990-91 to 1997-98 are incurably defective and hence liable to be annulled".

2004 PTD 1391

"Service of notice on servant of an assessee could not be regarded as a proper or valid service because other than service by post the service could be made firstly on the assessee in person or upon his agent empowered/authorized to accept service and in their absence then upon an adult male member of the family of the assessee--Service/employee of a person could not be taken to be an authorized person or empowered person to accept service on behalf of his master except when he had been specifically empowered or authorized to accept the service---proceedings carried out in consequence of service of notice on employee of assessee by presuming the service to have been effected upon the assessee, would stand vitiated because mandatory requirement of law for a proper and valid service of notice to be made upon the assessee, had not been complied with by the department---Case was in fact a case of annulment/ cancellation of assessment rather than setting aside the assessment---Order of setting aside the assessment by the First Appellate Authority was modified with that of the cancellation of assessment by the appellate Tribunal and consequently declared version was accepted".

4. Being aggrieved of the said impugned order dated 16-6-2005 of the 2nd Appellate Tribunal the Tax References have been filed by the department with following questions of law, as under:--

"(1)Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to annul the assessments by holding that the Taxation Officer had issued combined notice for the multiple assessment years whereas section 126(2) provides that mistakes of forms, not affecting the substance, cannot vitiate the assessment?

(2)Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to annul the assessments by holding that the Taxation Officer had issued combined notice for the multiple assessment years whereas all the assessment proceedings were attended by the assessee till finalization of assessments in question'?

(3)Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to annul the assessment by holding that the Taxation Officer had ticked more than one clause of the notice. Whereas section 126(2) provides that mistakes of forms not affecting the substance, cannot vitiate the assessment."

5.The learned counsel for the petitioner urged,

that the Assessing Officer was right to reopen and finalize the

assessment under section 65 of the Ordinance which is strictly in accordance with the law;

that order passed by the learned Income Tax Appellate Tribunal while vacating the order passed by the Commissioner of Income Tax (Appeals) and annulled the assessment completed by the Assessing Officer, is against the facts and law and is illegal and;

that the order passed by the learned Income Tax Appellate Tribunal while not accepting/restoring the assessment order is erroneous and based on surmises.

Further the learned counsel while placing on file photocopies of notice under section 65 dated 18-7-2001 issued for .the assessment year 1996-97; notice dated 12-7-2001 issued for the assessment year 1997-98; notice dated 18-7-2001 issued for assessment year 1998-99; notice dated 18-7-2001 issued for assessment year 1999-2000; combined notice dated 20-6-2003; notice under section 61 dated 7-9-2001; notice under section 13(1)(aa) dated 7-9-2001 and; notice under sections 62/13(1)(aa) dated 7-9-2001 contends that separate notices had been issued. Furthermore, it is contended that the Assessing Authority had separately made assessments years-wise in its consolidated order dated 26-6-2003.

6. On the other hand, learned counsel for the respondent fully supports the impugned order of the Tribunal on the ground that the same had been passed keeping in view the declared and settled law and needs no interference.

7. We have heard the arguments of the parties and perused the impugned order as well as other orders and notices placed on record.

8. The additional assessments for the years 1996-97 to 1999-00 as well as the assessments framed for the assessment years 2000-01 and 2001-02 suffer from incurable legal defects. The returns were filed under section 59(1) of the repealed Ordinance for the assessment year 1996-97 which were deemed to be completed on 30-6-1998 as such under section 65, the same could only be invoked within a period of five years from the end of the assessment year in which the total income year was first assessable and subsection (4) of section 65 could only be invoked before 30-6-2002, therefore, the additional assessment to the extent of assessment year 1996-97 was time-barred. Secondly the requisite statutory notices under section 65 were not properly served; the same had been served on one Muhammad Naeem who was not authorized to receive the notice for the reason that he neither was authorized representative to receive the notice nor related in any manner to the assessee.

9. Further notice for assessment year 1996-97 to 1999-00 are not sustainable in light of the judgment of this Court reported as 1997 PTD, 47. The Assessing Officer ticked clauses 1(b) and 1(a) which showed that the Assessing Officer was not sure that this is a case of under assessment or escaped assessment. With regard to assessment years 2000-01 and 2001-02 for which returns were filed under section 59(1) of the repealed Ordinance and Self-Assessment Scheme, the Assessing Officer proceeded to frame assessment for these two years under sections 62/65 of the repealed Ordinance without mentioning how the returns of the assessee for these two years did not fall within the purview pf section 59(c), as such, excluded from the purview of Self-Assessment Scheme. Further, the issuance of combined notice for the assessment years 1996-97 to 2001-02 could not have been issued by the Assessing Officer. It is settled principle that combined notice in multiple assessment years cannot be issued since each year might involve different issues in respect of the assessment years.

10. Keeping in view the above perspective, the learned 2nd Appellate Tribunal had rightly taken into consideration the legal lacunas elaborated above before passing the impugned order dated 16-6-2005. In the circumstances, we are not inclined to interfere with the impugned order passed by the 2nd Appellate Tribunal which is upheld as no illegality or irregularity has been committed which needs to be rectified/cured by this Court. Consequently all the tax references stand dismissed with no order as to costs.

M.B.A./C-11/LReferences dismissed.