VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 237 (2006)

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

----S.63---Best judgment assessment---Principle---Even where no material is produced by the respective parties, still the Assessing Authority has to make best judgment which is interpreted as fair assessment, meaning thereby, that Assessing Officer has no power to make assessment as a penalty or a higher amount than what, in his best judgment, as a fair act it should be.

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

----S.63---Best judgment assessment---Ex parte re-assessment ignoring the evidence presented in the first round of litigation---Validity---As per admission of the department, books of accounts along with all other relevant papers were submitted before the Assessing Officer, his observation while conducting re-assessment proceedings became not only irrelevant but against the facts of the case that no books of accounts had been produced---Since books of accounts were produced in first round of litigation, Assessing Officer was not justified to ignore the evidence available on record while making re-assessment---Mere absence of assessee did not absolve the Assessing Authority from the obligation of resorting to the evidence available with the Assessing Officer or, otherwise, to look into the history of the case or to confront the assessee with parallel cases to evolve reasonable basis---Evidence produced in first round of litigation was though available with the Assessing Officer yet he proceeded to act whimsically---Judgment made by the Assessing Officer under S. 63 of the Income Tax Ordinance, 1979 was not best judgment assessment at all as envisaged under the law.

1985 SCMR 786 and 1987 PTD 638 rel.

2002 82 Tax ?? ref.

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

----Ss.62 & 63---Assessment on production of accounts, evidence etc.---Best judgment assessment---Assessment record showed that notice under S. 62 of the Income Tax Ordinance, 1979 was never issued at any stage---No body could be condemned unheard---Incumbent and mandatory upon the Assessing Officer to evolve some basis and confront assessee with the same to reach at the just conclusion---Assessing Officer having failed to pass "best judgment assessment" Appellate Tribunal vacated the orders passed by the First Appellate Authority and annulled the assessments framed by the Assessing Officer.

2005 PTD 1967 rel.

Muhammad Akram Sh. For Appellant.

Ghazanfar Hussain, D.R. for Respondent.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---Titled appeals relating to the assessment years 1997-98, 1998-99, 1999-2000, 2001-02 and 2002-03 have been directed against the combined impugned order dated 4-4-2005 passed by the learned C.I.T. (A), Faisalabad camp at Sargodha. The common ground which has been pressed by the learned A.R. for all the assessment years is that "the learned C.I.T. (A) erred in law on the point of ex parte assessment under section 63 of the repealed Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance), in spite of the fact that during the arguments recorded and discussed in appellate order." The learned A.R. also filed misc. applications seeking the permission regarding placing of additional grounds which reads as under:--

"(i) That the learned Taxation Officer is not justified to repeat the Original Assessment order neglecting the direction of C.I.T.(A).

(ii) That the Taxation Officer is bound by law to give the best judgment assessment under section 63 of the repealed Income Tax Ordinance, 1979.

(iii) That the notice under section 62 of the Income Tax Ordinance, 1979 was never issued despite that it was admittedly an account case."

2. Since the additional grounds urged by the learned A.R. are legal, the miscellaneous applications are accepted with the direction that additional grounds would be considered as part and parcel of the main appeal.

3. The facts relevant for disposal of the appeal are that the appellant is a private limited company deriving income from leasing of flour mills. Original assessment for the assessment years 1997-98 to 1999-2000 were framed on 30-6-2000 at net income of Rs.95,964 Rs.1,23,580 and Rs.88,042 respectively. The said order was contested before the learned C.I.T.(A) who vide an order dated 21-1-2002 remanded the case for de novo proceedings. Assessments for the assessment years 1988-89 and 2000-01 were completed under sections 63/132 of the repealed Ordinance. Assessments for the assessment years 2001-02 and 2002-03 were made by passing an ex parte order under section 63 of the repealed Ordinance at net income of Rs.1,54,925 and Rs.157,750. For these two assessment years, the assessee approached the learned first appellate authority who confirmed the treatment accorded to the assessee except that for the assessment 2001-02 and 2002-03 where enhancement of lease income was restricted to 25% against the 30% made by the Assessing Officer. Rest of the treatment given by the Assessing Officer was confirmed. The assessee has impugned the findings recorded by the learned First Appellate Authority before the Tribunal.

4. The learned A.R. of the assessee has vehemently argued the case and contended that the assessment orders passed by the Assessing Officer could not be considered best judgment as postulated by section 63 of the repealed Ordinance and interpreted by the Courts. It was contended by the learned A.R. that the assessee is a private limited company maintaining full books of account as prescribed by the law and the same were submitted before the learned Assessing Officer. In this respect he argued that assessment order passed for the assessment years 1997-98 1998-99 and 1999-2000 categorically shows that books of account along with other relevant papers were presented to the Assessing Officer who incorporated this fact right at the inception of the assessment order by saying that:--

"Thereafter the case was taken up for proceedings under normal law. In response to notice under section 61 Mr. Khaliq, I.T.P./A.R. of the assessee attended the office and submitted books of account along with other relevant papers pertaining to the various aspects of the case in view. All these papers were obtained and placed on file."

5. The learned A.R. stated that in the presence of books of account of the assessee, the Assessing' Officer cannot pass an order under section 63 whimsically and capriciously without adverting to the record available with him. The learned A.R. also submitted that it was brought to the notice of the Assessing Officer that the appeal was preferred before the Tribunal which is pending decision so legal propriety demanded that re-assessment should not have been done until and unless an adjudication is made with regard to the appeal filed by the assessee against the order passed by the learned C.I.T. (A). The learned A.R. averred that section 63 does not give a free hand to the Assessing Officer to frame the assessment without any basis. In this regard reference was made to the reported judgments cited as 1985 SCMR 786, 1987 PTD Trib. 638 and (2002) 82 Tax H.C.

6. The learned D.R. opposed the arguments advanced by the learned A.R.

7. Before we proceed further to analyze the arguments advanced by the rival parties, it would be in the fitness of things if we appraise the case law cited at the bar. The first judgment relied upon by the learned A.R. was reported at 1985 SCMR 786 Re: Messrs Pak Company Sargodha v. C.I.T, Rawalpindi Zone wherein in somewhat similar circumstances ex parte proceedings were taken up against the assessee and an order under section 23(4) of the late Income Tax Act, 1922 which is identical to section 63 of the repealed Income Tax Ordinance, 1979, was made. The relevant extract from the supra judgment is reproduced as under:--

"The other question relates to the interpretation of section 23(4) regarding the action to be taken by the Income Tax Officer on such a finding. With respect, we do not agree with the learned Judge of the High Court that all the aspects of the consequential action taken under section 23(4) are to follow as punishment. The assessment by the Income Tax Officer on "best judgment", has in any case to be fair as it should normally be. The selection of the word `judgment' and that too `best' is not without significance. The Income Tax Officer has to make a fair assessment under the said provision, through his "best judgment", simply because the relevant material has not been produced by the assessee. But he has no power to make the assessment as a penalty, at a higher amount than what, in his best judgment, as a fair act it should be. Therefore, this part of his power is an ordinary power of assessment though in a somewhat different context and manner. It is on account of this underlying rationale that the Income Tax Officer has been bound down by the provision itself to make the assessment in accordance with his "best" judgment. He has no discretion in this behalf.

Before passing on to the next question it needs to be clarified that it is not every failure to produce the demanded material that will entail the above consequence. Only wilful failure is meant. For example cases of damage or loss by theft or otherwise as held in the case of Warris Silk Weaving and Knitting Mills would not be covered by this provision.

It also needs to be emphasized that assessment on "best judgment" under this provision was never intended to be a retaliatory, vindictive, capricious or even arbitrary. There is mass of case-law on this point. It will, however, suffice to reproduce here is summing up by V. V. Chitaley in the AIR Manual, 2nd Edition, Vol. VIII Point No.6 (1) under the head `Best judgment' at page 407."

8. Another judgment which was cited by the learned A.R. reported as 1987 PTD 638 was also very much relevant wherein Mr. Farhat Ali Khan, the then Chairman observed:--

"I have heard both the learned counsel and the learned D.R. I think that the submission of Mr. Rehmat Shaikh is well-founded. It is trite law that while the Assessing Officer was rejecting the trading results and estimating the sales he had to evolve the basis for it. Similarly it is also trite law that if the ITO wanted to rely upon any parallel case, he should confront the assessee with it. Unfortunately here both the principles of law stated above have not been complied with. The Assessing Officer estimated the sales at Rs.2,00,000 and applied G.P. rate of 25% without collecting some material to support them. Similarly the appellant relied upon parallel cases and mentioned them in his letter addressed to the ITO. However, the ITO did not confront him with any parallel case sought to be relied upon by him.

It is true that the appellant has not maintained proper books of accounts during the relevant assessment year. However, he has maintained a ledger wherein he has recorded not only his purchases but also his sales. However, in view of the fact that assessment year 1981-82 is the first year of the business of the appellant and in view of the fact that his declared sales of subsequent two years have been accepted wherein he had shown improvement in sales. I think that the declared version of the appellant should be accepted. Since both the officers below have failed to evolve any basis for estimating the sales at Rs.2,00,000 and since the parallel cases relied upon disclosed 20% and 15% G.P. rate, the declared version of the appellant should be accepted. I, therefore, allow this appeal and direct the ITO to accept the trading results of the appellant. The appeal stands disposed of as indicated above."

9. In an other judgment reported as 2005 PTD 1967 it has been held:--

"We, therefore, find force in the arguments as made by the learned counsel for the assessee. The impugned order of the learned C.I.T. (A) is, therefore, vacated and the Taxation Officer is directed to allow the expenses as claimed by the assessee for the reason that the disallowances have been made without issuing notice under section 62 which is the mandatory requirement of law, there is no justification for the disallowances made out of Profit and Loss A/c expenses."

10. When we analyze the arguments addressed by the learned A.R. in the light of case-law cited at the bar, we find ourselves in full agreement with the arguments advanced by the learned A.R. It is very much obvious that even where no material is produced by the respective parties, still the Assessing Authority has to make best judgment which is interpreted as fair assessment, meaning thereby, that Assessing Officer has no power to make assessment as a penalty or a higher amount than what, in his best judgment, as a fair act it should be. Coming to the present case it is on record that when assessment for the assessment years 2001-02 and 2002-03 were being made, the case pertaining to assessment years 1997-98, 1998-99 and 1999-2000 had already been set aside for fresh assessments. It is also pertinent to mention that assessee has placed on file original assessment order passed under section 62 of the repealed Income Tax Ordinance, 1979 in which it has been categorically observed by the Assessing Officer with regard to production of books of accounts, and which is as under:--

"A.R. of the assessee attended this office and submitted books of account along with other relevant papers pertaining to the various aspects of the case in view. All these- papers were obtained and placed on file."

11. We are at loss to understand that as per A.R.'s own admission recorded in the original assessment order regarding the assessment order 1997-98 to 1999-2000, books of account along with all other relevant papers were submitted before the Assessing Officer, his observation while conducting re-assessment proceedings for these three years as well as two succeeding years become not only irrelevant but against the facts of the case that no books of account have been produced. Since books of accounts were produced in the first round of litigation pertaining to the assessment year, 1997-98 to 1999-2000, the Assessing Officer was not justified to ignore the evidence available on record while making re-assessment for these three years. Mere absence of the assessee or his A.R. does not absolve the Assessing Authority from the obligation of resorting to the evidence available with the Assessing Officer or, otherwise to look into the history of the case or confronting the assessee with parallel case to evolve reasonable basis. Undoubtedly, the learned A.R. in spite of the fact that evidence produced in 1st round of litigation was available with the learned A.R. he proceeded to act whimsically.

12. In this, view of the fact we are constrained to observe that judgment made by the Assessing Officer under section 63 of the repealed Income Tax Ordinance, 1979 was not best judgment at all as envisaged under the law as well as interpreted by the superior courts.

13. Perusal of the assessment order for the assessment years 2001-02 and 2002-03 as well as impugned order also shows that notice under section 62 of the repealed Income Tax Ordinance, 1979 was never issued at any stage. It has been time and again held by the Tribunal as well as the higher judicial for a that nobody could be condemned unheard. Even in the light of judgments cited supra, it was incumbent and mandatory upon the Assessing Officer to evolve some basis and confront the same to the assessee to reach at the just conclusion. Since the Assessing Officer failed to pass "best judgment", we have no option but to vacate the impugned Orders passed by the learned First Appellate Authority and annul the assessments framed by the Assessing Officer for the years under appeal.

14. Appeal of the assessee succeed accordingly.

C.M.A./110/Tax(Trib.)Appeals succeeded.