VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1136 (2009)

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

----Ss. 65, 13(1)(aa) & 59(1)---Additional assessment---Assessment finalized under S.59(1) of the Income Tax Ordinance, 1979 was reopened on an anonymous complaint regarding concealment of actual profit and income---Validity---Under S.13(1)(aa) of the Income Tax Ordinance, 1979, the unexplained investment could be deemed to be income of the assessee if it was found that assessee had made any investment or was found to be owner of any money or valuable articles in any year---Assessing Officer failed to bring on record that assessee was found to have made any investment or was to be found to be the owner of money or valuable articles in any of the years---Assessee specifically explained that being wholesaler, the commission earned by him had been further distributed to the retailers---Burden of proof was on the department to establish that assessee had made any investment or was found to be the owner of any or valuable articles which onus had not been fulfilled by the Assessing Officer---No notice had been served on the assessee---First Appellate Authority had remanded the assessment affording the Assessing Officer to fill in the legal gaps and lacunas which was not justified---Order of the First Appellate Authority was vacated and order passed under Ss.62/65 of the Income Tax Ordinance, 1979 was annulled being without any justification---Assessments completed under S.59(1) of the Income Tax Ordinance, 1979 was restored by the Appellate Tribunal.

2003 PTD (Trib.) 1956; (1982) 45 Tax (sic); 1999 PTD (Trib.) 705 and 1988 PTD (Trib.) 117 rel.

1989 PTD (Trib.) 39 and 1996 PTD (Trib.) 896 ref.

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

---S. 65(2)---Additional assessment---Setting aside of assessment after pointing out discrepancies---Validity---Assessee was granted final adjournment for 25-4-2001 but in the diary sheet there was no entry for the date 25-4-2001 and next entry was 28-4-2001 for which date the 'assessee had no intimation for appearance and order had been passed on 30-4-2001 whereby the case was entered in the demand and collection register which had also not been initialed/signed by the Assessing Officer---After finding such discrepancies, there was no justification for remanding the matter---Condition precedent for reopening of already completed assessment with the Assessing Officer must have come into possession of a `definite information' of a concealment based on material evidence which otherwise was not available at the time of completing the original assessment.

(1982) 45 Tax (sic) rel.

(c) Income-tax---

----Legal plea going to the root of the case, could be allowed even at a belated stage of the proceedings.

1999 PTD 401 and 1976 PTD 56 rel.

Zulifqar Ali Sh., ITP for Applicant.

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

ORDER

Through these three appeals, the appellant has objected to the consolidated impugned orders passed by the learned CIT(A), dated 31-12 2001 for the assessment years 1994-95 to 1996-97 confirming the action of the Taxation Officer invoking provision of section 65 of the repealed Income Tax Ordinance, 1979 and setting aside the consolidated order of the Assessing Officer for de novo consideration for all the three years under review.

2. These appeals were heard by the Division Bench of this Tribunal on 18-5-2005. However, due to the difference of opinion among the members of the Bench, the matter was referred to the third member as a referee to resolve the issue of difference. However, dring the course of hearing before the referee member who is also the Hon'ble Chairperson on behalf of the assessee-appellant an application was moved for permission to allow the additional ground. The Hon'ble Chairperson sent back the matter allowing the application to consider the additional ground by the Division Bench. The Division Bench has re-called the already passed order vide order, dated 22-1-2009 as the legal issue raised by the appellant in the additional ground has not been considered in the previous hearing by this Tribunal. Now all the three appeals are being decided through this consolidated order.

3. The assessee in this case engaged in the sale of paints and is authorized dealer of paint companies like ICI and Buxly Paints. The assessment for all the three years under review were completed under section 59(1). Later on a complaint was lodged with the department with regard to the assessee's act of concealing the actual profit and income earned during the said years. The Assessing Officer accordingly called for information from the concerned paints companies i.e. Buxly Paints and ICI and consequently the addition under section 13(1)(aa) of the repealed Ordinance, 1979 was made for all the three years. The assessee agitated the treatment before the learned CIT(A), who has upheld the action of the Assessing Officer reopening the assessments under section 65 but has set aside the assessment for de novo consideration regarding additions.

4. While perusal of the impugned order, we have found that action for invoking provision of section 65 has been upheld by the learned CIT(A) with the following observations:--

"Assessment record in this case has been examined which shows that the case was reopened on the basis of information received from different companies wherein a difference of commission received and commission shown was found. This discrepancy was confronted and on account of unsatisfactory explanation the assessments were reopened with the prior approval of the IAC. The appellant also filed a representation before the CIT, Zone-A, Lahore, he directed the appellant to join assessment proceedings. It has further been observed from the record that the plea of the appellant regarding passing on a portion of commission received from the principals to the retailers is an afterthought as the appellant has himself claimed certain amounts of commission paid to the customers in the income tax returns for the assessment years which are under appeal. In view of these acts as well as the facts that original assessments were framed under section 59(1) and in such cases the returns are accepted mechanically without scrutiny and without application of mind, the action for invoking the provisions of section 65 is in order and is upheld."

5. While setting aside the addition made under section 13(1)(aa), he has given following reasons:--

"As regard the addition under section 13(1)(aa) are concerned, the record has been examined. It has been observed that the AR during the course of assessment proceedings furnished reply to the Assessing Officer vide his Letter No. FS-01-230, dated 29-3-2001 in which the AR had requested the Assessing Officer that he should verify the facts regarding credit allowed from the principals of the appellant. In this connection the AR also requested the Assessing Officer to obtain ledger accounts of the appellant from principals for all the three years. As per AR of the appellant, this would have given the segregate data of alleged commission paid, credits against sales-returns.

Record further reveals that on the request of the AR only ICI Pakistan Paints Ltd. Lahore was approached in this behalf whereas Messrs Buxly Paints the other principals was not approached by the Department. The record further reveals that a final show-cause notice was issued to the appellant after carrying out of this exercise, bearing No. 437/C-17, dated 17-4-2001 for compliance by 23-4-2001. On 23-4-2001 the AR attended the proceedings and was granted final adjournment for 25-4-2001. The order sheet obtaining on record reveals that there is no entry for the date 25-4-2001. The next entry on the relevant order sheet is, dated 28-4-2001 in which the Assessing Officer has recorded as under:--

'Letter was written to IAC obtain the permission to make addition under section 13(1)(aa)'

This entry has not been initiated by the Assessing Officer. The next entry, dated 30-4-2001 is also not initialed by the Assessing Officer. The third entry, dated 30-4-2001 whereby the case was entered in the Demand and Collection Register at Nos. 1783 to 1785 has also not been initialled by the Assessing Officer.

A perusal of the above would show that the final date of hearing does not find any place in the proceedings that are recorded in the records i.e. order sheet. In view of these facts whether the appellant's AR furnished a reply to the show-cause notice on final date i.e. 25-4-2001 cannot be ascertained. Any way the AR contends that his arguments have not been given due consideration and in this manner the actual facts of the case have not been appreciated in their true perspective. The AR stated that he had addressed all the issues during the course of assessment proceedings.

I have heard the arguments of the AR, and examined the records in the light of the same and, I am of the considered opinion that appellant's point of view on this score has not been framed in undue haste, the same is not sustainable. Hence it is ordered to be set aside. Fresh assessments on this score be framed after considering the contentions of the appellant for which a specific show-cause notice be issued to the appellant.

The plea of the appellant regarding additions out of P&L A/c without confronting the same to the appellant, the contention of the appellant is found in order as the Assessing Officer failed to confront the proposed action before making the addition out of P&L A/c. So I deem it fit to remand back the case on this score for de novo proceedings before the Assessing Officer with the directions that first of all he should confront the proposed action and then make additions if so warranted by law and facts."

6. Mr. Zufliqar Ali Sh. ITP has appeared on behalf of the appellant and has contended that cases of the assessee for three years under review under section 65 have been reopened due to misconception without having considered true facts and circumstances of the case which were duly explained in detail supported with documentary evidence. He has contended that Assessing Officer without any justification has curtailed the expenses claimed under P&L account in an excessive and perverse manner. The Taxation Officer has not confronted the appellant, which was mandatory requirement under the provision of law. According to learned counsel, this Tribunal time and again in many cases has held that additions out of P&L expenses should not be made merely on basis of stock phrases like unverifiable and personal nature. Reliance in this respect is placed on the decision of this Tribunal reported as (1989) PTD (Trib.) 39, (1996) PTD (Trib.) 896. According to learned counsel, the case has been reopened on the basis of complaint but the Assessing Officer has tailed to confront the assessee regarding the complainant nor the complainant had ever been mentioned in the assessment order or the impugned order of the learned CIT(A). He has contended that once the learned CIT(A) has come to conclusion that Assessing Officer has written a letter to the learned IAC obtaining permission to make addition under section 13(1)(aa), there was no justification for upholding the action of the Assessing Officer as the Assessing Officer has not sought an approval which is mandatory requirement as provided under section 13 of the repealed Ordinance, 1979 and according to learned counsel, no approval has been obtained by the Assessing Officer regarding the said addition, therefore, consolidated order of the Assessing Officer under sections 62/65 is liable to be cancelled without any jurisdiction on this ground only. Learned counsel has contended that assessee was issued notice, dated 17-4-2001 for compliance on 23-4-2001, on which date representative of the assessee attended the proceedings and matter was adjourned to 25-4-2001. But Assessing Officer has passed the order on 30-4-2001 which was not the date fixed for hearing. He has submitted that learned CIT(A) in the impugned order after perusal of the record has found that there is no entry for the date 25-4-2001 despite the fact that in the entry, dated 23-4-2001 it has specifically been mentioned that AR of the assessee has attended the proceedings and was granted final adjournment for 25-4-2001. But the Assessing Officer without affording opportunity of being heard to the assessee and without following the procedure under law has passed the order. On this score also the order should have to be vacated and Assessing Officer should not be accorded opportunity to fill the lacunas in the assessment order. Learned counsel in this case has placed reliance on the decision of this Tribunal reported as 2003 PTD (Trib.) 1956 and the decision of the Honourable Lahore High Court reported as (1982) 45 Tax (H.C. Lhr.) (sic). On the facts of the case, learned counsel has contended that case of the assessee has been reopened under section 65 on anonymous complaint which has not been confronted to the assessee and as per that complaint, the appellant has allegedly concealed the actual profit and income earned during the year under review. He has contended that commission earned was declared on the lower side then what was actually earned because the assessee being the wholesaler has to pass on the commission amount to the retailers in the course of business and there was no justification for addition for reopening of the assessment. Learned counsel has submitted that assessee is the wholesale dealer of Buxly Paints and ICI and they have confirmed that there is a hard competition in the market and the wholesaler is left with a margin of hardly 1% to 2% out of the discount he earns from manufacturer/ supplier. It has further been certified by Messrs Buxly Paints that discount/commission received by wholesaler is shared by retailers and consumers thus leaving just a meagre margin of income for the whole saler.

7. Learned DR is supporting the impugner orders of the officers below. He has contended that as the learned CIT(A) has already remanded back the matter to the Assessing Officer, the assessee may explain his position before the Assessing Officer.

8. We have heard the learned representatives of both the sides and have also perused the impugned order of the learned CIT(A).

9. We have found that return filed under self-assessment scheme finalized under section 59(1) has been reopened for the three years under review on an anonymous complaint regarding alleged concealment of actual profit and income. Under section 13(1)(aa), the unexplained investment etc. can be deemed to be income of the assessee it is found that assessee has made any investment or is found to be owner of any money or valuable article in any year. We are of the view that in the present case, the Assessing Officer has failed to bring on record that assessee is found to have made any investment or is to be found to be the owner of many or valuable article in any of the years under review. We have further noted that in response to notice of the Assessing Officer, the assessee has specifically explained that being wholesaler, the commission earned by the assessee has been further distributed to the retailers. We are of the view that in such matters, the burden of proof is on the department to establish that assessee has made any investment or is found to be the owner of any or valuable articles which onus in the present case has not been fulfilled by the Assessing Officer. We have noted that learned CIT(A) after perusal of the record has admitted that assessee was granted final adjournment for 25-4-2001 but in the diary sheet there is no entry for the date 25-4-2001 and next entry is 28-4-2001 for which date the assessee has no intimation for appearance and the consolidated order for all the three years has been passed on 30-4-2001 whereby the case was entered in the demand and collection register which has also not been initiated/signed by the Assessing Officer. We are of the view that after finding these discrepancies, there was no justification for remanding back the matter. According to subsection (2) of section 65 of the repealed Ordinance, 1979, the condition precedent for reopening of already completed assessment with the Assessing Officer must have come into possession of a definite information of concealment based on material evidence which otherwise was not available at the time of completing the original assessment. The Honourable Lahore High Court in a case reported as 1981 PTD 210 has held that but on the date of hearing neither the case was taken up nor any ex parte order was passed. In the absence of any ex parte order on the date of hearing for which notices had been issued, no ex parte assessment could be completed. The Income-tax Officer was not justified under law to complete the assessment on subsequent date for which date no notice had been issued to the appellant's and therefore, the Honourable Lahore High Court in the case has held that Income-tax Officer acted illegally in making ex parte assessment on a date which was not fixed for hearing without furnishing the assessee with requisite notices, and the assessment made by the Assessing Officer has been held to be bad in law. Likewise, this Tribunal in a decision reported as 2003 PTD (Trib.) 1956 has held that the appellate forum is obviously not meant to fill in the legal lacuna which occur in the orders appealed against before that forum but it has to see that as to whether the order has been passed within the given parameters and framework of the law if there appears a glaring non-observance of the prescribed legal formalities by such forum then the appellate forum will have to show restraint in allowing to fill in the legal gaps and lacuna'.

10. The appellant in the additional ground has contended that the orders passed under section 65 of the repealed Ordinance, 1979 by the Assessing Officer are without jurisdiction as the notice under section 65 was never served on the assessee-appellant or his Representative which was essential to link the subsequent proceedings under sections 61, 58 or 62 of the repealed Ordinance, 1979 thus to make the assessment illegal ab initio. This Tribunal vide order, dated 22-1-2009 has already held that the additional ground being legal filed by the assessee can be entertained after the hearing of the appeal even if the matter was not agitated before the first appellate authority under the principle of natural justice as the norms of fair play as the legal ground was filed at the time with by all means the appeals of the assessee were pending before this Tribunal, therefore, the legal ground cannot be avoided by the Tribunal. We further re-iterate that their being plethora of case-law that the additional ground which goes to the root of the case could be raised at any stage of the proceedings and this in case the issue of jurisdiction raised which goes to the root of the case. In this regard the assessee has placed reliance on the decision of the Hon'ble Karachi High Court reported as 1999 PTD 401 (Kar. H.C.) wherein it has been held that the objection of jurisdiction could be raised at any stage of the proceedings. Similarly, another case referred by the learned counsel for the appellant is the decision of the Hon'ble Lahore High Court reported as 1976 PTD 56 (Lhr. H.C.) wherein it has been held that the legal plea going to the root of the case could be allowed even at a belated stage of the proceedings. There are innumerable other precedents on the issue. However, there is hardly any need to further dilate or strengthen this matter. The learned counsel for the appellant has referred the two decisions of this Tribunal reported as 1999 PTD (Trib.) 705 and 1988 PTD (Trib.) 117 wherein in has been held by this Tribunal that for valid proceedings under section 65 of the repealed Ordinance the statutory notice was essentially required to be served on the assessee and non-else. The record before us clearly shows that in the present case there is a deficiency to this extent as the notice has admittedly not been served on the assessee-appellant. In these circumstances, no exception could be taken from ratio of the reported decisions.

11. After considering the above said observations, we are of the view that in the present case, learned CIT(A) has remanded back the assessment affording the Assessing Officer to fill in the legal gaps and lacunas which is not justified. We, therefore, keeping in view the facts and circumstances of the case vacate the consolidated impugned order of the learned CIT(A) for all the three years and consolidated order passed under sections 62/65 for all the three years is annulled being passed by the Assessing Officer without any justification. The assessments for all the three years under review completed under section 59(1) of the repealed Ordinance, 1979 is resorted. All the three appeals filed by the assessee are allowed.

C.M.A./58/Tax (Trib.)Appeals accepted.