VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 81 (2008)

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

----Ss. 62 & 61---Assessment on production of accounts, evidence etc.---Issuance of notice under S.62 of the Income Tax Ordinance, 1979 requiring the assessee to provide books of account---Validity---Notice under S.62 of the Income Tax Ordinance, 1979 was issued by the department requiring the assessee to provide books of account while under section 62 the Assessing Officer could only proceed after examination of books of account in order to point out defects, if any---Under S.61 the Assessing Officer could require an assessee to produce books of account was and not under S.62 of the Income Tax Ordinance, 1979---Notice under S.62 of the Income Tax Ordinance, 1979 though was issued but since it did not fulfil the requirement as envisaged under the law, the same would be presumed that it was not issued---Proceedings initiated were held to be null and void in circumstances---Order was vacated by the Appellate Tribunal who cancelled the assessments and directed to accept the declared results.

I.T.A. No. 366 of 2000; 2006 PTD 2654; 2006 PTD 2706; 2007 PTD 1016; 2007 PTD 345 and PLD 2001 Quetta 20 rel.

(b) Income-tax---

"--Gross profit rate---Since First Appellate Authority confirmed the Gross Profit rate of 11% in view of the history of the case as well as fixed by the Appellate Tribunal in the previous years no interference was called for by the Appellate Tribunal.

Siraj ud Din Khalid for Appellant (in I.T.As. Nos. 2232/LB, 2233/LB, 2234/LB of 2004 and 4817/LB of 2002).

Rai Talat Maqbool, D.R. for Respondent (in I.T.As. Nos.2232/LB, 2233/LB, 2234/LB of 2004 and 4817/LB of 2002).

Rai Talat Maqbool, D.R. for Appellant (in I.T.A. No. 2222/LB, 2223/LB of 2004 and 5257/LB of 2002).

Siraj ud Din, Khalid for Respondents (in I.T.A. No. 2222/LB, 2223/LB of 2004 and 5257/LB of 2002).

ORDER

The assessee as well as the Revenue are in cross appeals for the assessment years 1996-97 to 1998-99 while the assessee is also in appeal for the assessment year 1999-2000. Since the issues involved are somewhat different in these appeals, the same are being disposed of in the following manner:--

Assessment Years 1996-97 and 1997-98

Cross Appeals

2. Titled appeals pertaining to the assessment years 1996-97 and 1997-98 have been directedagainst the combined impugned order,dated 23-2-2004, passed by the learned CIT(A), Zone-II, Lahore. The assessee has challenged the impugned assessment by contending that the learned first appellate authority was not justified in confirming the assessment framed by the Assessing Officer whereby the declared version of the assessee was rejected. In the alternative estimation of sales as well as application of G.P. rate @ 11% has also been objected to. The department is also in appeal for the assessment years 1996-97 and 1997-98, challenging the deletion of additional tax by the learned first appellate authority.

3. Right at the outset, the learned A.R. assailed the impugned assessments with the submission that notice under section 62 of the repealed Income Tax Ordinance, 1979 as per requirement of law was not issued. It was submitted by the learned A.R. that a notice requiring the assessee to produce books of accounts is a notice which could be termed as a notice under section 61 of the repealed Ordinance. Further elaborated that notice under section 62 could only be issued after examining the books of account as well as pointing out all defects in those books. The learned A.R. further argued that since mandatory statutory law was not complied with, all the subsequent proceedings conducted by the assessee were coram non judice. In support of his contention the learned A.R. relied upon a number of judgments of the Lahore High Court as well as Tribunal. The learned D.R. on the other hand opposed the arguments advance by the learned A.R.

4. We have heard the learned counsel for both the parties and have perused the relevant orders. After hearing the contentions of the respective parties, we are of the view that arguments tendered by the learned A.R. carry weight. Admittedly, the notice which was issued by the department was stated to be issued under section 62 of the repealed Ordinance but did not fulfil the requirement as envisaged under the law. In the present case notice under section 62 was issued by the department requiring the assessee to provide books of account while under this section the Assessing Officer could only proceed after examination of books of account in order to point out defects, if any. The section under which the Assessing Officer could require an assessee to produce books of account is section 61 of the repealed Ordinance and not section 62 of the repealed Ordinance. Though notice under section 62 was issued but it since did not fulfil the requirement as envisaged under the law, the same would be presumed that it was not issued. It would not be out of place to reproduce the extracts from the certain reported judgments cited as under:--

(i) I.T.A. No. 366 of 2000 (Sindh High Court Karachi)

"We are of the view that the procedure adopted by the Income Tax Officer is not the procedure provided by the proviso to section 62 and since the Assessing Officer has failed to follow the mandatory procedure provided, the Tribunal has rightly deleted the additions made by the Income Tax Officer in the trading account and out of the profit and loss account. This Court in an unreported judgment, dated 12-8-2005 in I.T.A. No.493 to I.T.A. No. 500 of 1979 in the case of Newsline Publication (Pvt.) Ltd. v. D.C.I.T. has held that the additions made in the trading account and out of the profit and loss account without following the procedure prescribed under the proviso to section 62 cannot be sustained and have to be deleted. The order of the Tribunal is therefore, unexceptionable and no interference is called for by this Court. Since the above issue has already been settled by this Court, therefore, we need not answer the proposed questions."

(ii) 2006 PTD 2654

"After fully examining books account the Assessing Officer cannot make add-backs out of profit and loss account expenses without confronting the assessee and a notice under section 62 is mandatory for confronting the assessee."

(iii) 2006 PTD 2706

"It was obligatory for the Assessing Officer to issue notice under section 62 by pointing out specific defects and to obtain the explanation for proper consideration, which was not done in the present case. Held - As the requirements of section 62 have not been fulfilled it was directed to accept the declared trading results."

(iv) 2007 PTD 1016

"Notice under section 62 based on general observation could not be equated with the notice to be issued confronting the assessee with the defects noted in the books of accounts.

Mere mentioning notice under section 62 on the face of the notice without adhering to the condition to confront the assessee with the defects in the account is illegal."

(v) 2007 PTD 345

"If a notice is titled notice under section 62 it does not mean that the statutory requirement of notice under section 62 have been fulfilled. The department has to pinpoint the specific defects noted in the accounts and the specific instance of unverifiable nature."

(vi) PLD 2001 Quetta 20.

"When law provides procedure for doing a thing in a particular manner then it must be done in the manner and not otherwise or it should be not done at all."

5. Keeping in view of the facts of the case and the reported judgments, cited supra, we are of the considered view that though in the present case notice under section 62 was issued but the procedure as envisaged under the law was not fulfilled. In this view of the matter all the proceedings initiated are held to be null and void, therefore, we vacate the impugned order and cancel the assessments for the assessment years 1996-97 and 1997-98 and direct to accept the declared results.

6. Since we have cancelled the assessments framed for the assessment years 1996-97 and 1997-98, the appeals filed by the Revenue having become infructuous, are consequently, dismissed.

Assessment year 1998-99

Cross appeal

7. As far as estimation of sales by the learned CIT(A) is concerned, the learned A.R. at the very outset submitted that he did not want to press this issue. Even otherwise sales fixed by the learned CIT(A) at Rs.1,75,00,000 against the declared at Rs.1,49,56,564 is more than justified, hence no interference is required on behalf of the department on the issue of sales. With regard to P&L add backs, it is observed that this issue has not been pressed by the learned A.R. of the assessee at the first appellate level, hence we refrain to interfere on this issue also.

8. As result of above discussion cross appeals for the assessment year 1998-99 are rejected.

Assessment year 1999-2000

Assessee's appeal

9. The learned A.R. did not press the issue of sales. The P&L add backs were also not pressed before the learned first appellate authority, hence no interference is required. The only objection raised for the year under consideration is with regard to application of G.P. rate. It was submitted that the learned CIT(A) was not justified to confirm the application of G.P. rate at 11% as applied by the Assessing Officer, against the declared rate of 8.37%. The contention of the learned A.R. is not sustainable since the learned first appellate authority confirmed the G.P. rate of 11% in view of the history of the case. The Division Bench of the Tribunal while deciding the appeals of the instant assessee, for the assessment years 1989-90 and 1990-91, fixed the G.P. rate at 11% against the applied at 12.5%. The G.P. rate applied being in accordance with the history of the case calls for no indulgence. Appeal of the assessee for this year also merits rejection.

10. It is ordered accordingly.

C.M.A./98/Tax(Trib.)Order accordingly.