VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 89 (2008)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 66A & 59(1)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Cancellation of assessment finalized under Self-Assessment Scheme being "erroneous" insofar as same was "prejudicial" to the interest of revenue on the ground that assessee had not furnished wealth statement with the return which was obligatory under the law---Subsequently, through a corrigendum assessee was confronted with the objection that he had not furnished a wealth tax return along with the return of income---Validity---Inspecting Additional Commissioner had failed to establish the "nexus" between filing of wealth tax return and the subsequent Income Tax proceedings undertaken and describing them as "erroneous" and "prejudicial" to the interest of revenue under S.66A of the Income Tax Ordinance, 1979---Inspecting Additional Commissioner had also failed to "substantiate" as to what constituted the erroneous and prejudicial aspects of the assessees' case to justify recourse to S.66A of the Income Tax Ordinance, 1979---Order passed by the Inspecting Additional Commissioner under S.66A of the Income Tax Ordinance, 1979 was vacated by the Appellate Tribunal restoring the one passed under S.59(1) of the Income Tax Ordinance, 1979.

Afzal Ahmad Ch., ITP for Appellant.

Ahmad Shuja Khan, D.R. for Respondent.

ORDER

The titled appeal pertaining to assessment year 1999-2000, has been filed at the instance of assessee, arises out of order passed by the IAC, invoking the provisions of section 66A of the Income Tax Ordinance, 1979 (since repealed).

2. As per Revised Grounds of appeal ' filed through titled Miscellaneous Application, the appellant contested the order of the IAC, on the following grounds:--

(1) That the learned IAC, has failed to established that the original assessment order was erroneous so far as prejudicial to the interest of revenue.

(2) That the learned authority has wrongly held that wealth tax return was not filed along with income tax return.

(3) That the learned authority has failed to comprehend the nature of receipts of the assessee.

3. Briefly stated, the relevant facts are that the original assessment in the case was finalized under section 59(1) of the repealed Ordinance, 1979. Assessment record in the case was requisitioned by the IAC, and on scrutiny of the same, it was transpired that the assessment completed for the year 1999-2000, was "erroneous" insofar as "prejudicial" to the interest of revenue on the ground that the assessee had declared income at Rs.300,000, it was therefore obligatory under the law to furnish wealth statement along with return of income as the income of the assessee exceeds Rs.200,000 and further that the assessee declared the nature of business as "consultancy" whereas on perusal of deduction challans, it revealed that the receipts of the assessee falls under section 80-C, as final discharge of tax liability.

4. The assessee was confronted by the IAC, on the above queries and a show-cause notice under section 66A, dated 31-1-2002, was issued. In reply, the assessee submitted before the IAC that the order sought to be amended is neither "erroneous" nor "pre-judical" to the interests of revenue. It was contended by the assessee that filing of wealth statement under section 58, was not prescribed in the USAS for the year, and if the statement was not filed it cannot be made basis for disqualification from the Scheme. It was further contended by the assessee before the IAC, that there was no dispute or ambiguity with regard to nature of assessee's business. Assessee is providing services to its principals in the field of procurement of manpower and deduction under section 50(4) is rightly and correctly been made. It was added by the assessee that return filed under USAS, cannot be made subject to any kind of audit, as provided in C.B.R.'s Circular No.18, para. 11.

5. After considering the reply of the assessee, a corrigendum was issued by the IAC, dated 7-3-2002, and the assessee was confronted that he had not furnished a wealth tax return along with the return of income. In response to the corrigendum, it was submitted by the assessee that in the corrigendum, the IAC, had changed his opinion to proceed under section 66A, which is not appreciable under the law. However, it was submitted by the assessee that the wealth tax return for the assessment year 1999-2000, was duly filed and that is why the return of income was accepted under USAS.

6. The learned IAC, had considered both the explanations of the assessee and rejected the same being not tenable in the eyes of law maintained his queries raised in the show-cause notice issued. Accordingly, the learned IAC, cancelled the assessment framed at net income of Rs.300,000 under section 59(1), for the assessment year 1999-2000, under section 66A of the repealed Ordinance, being erroneous and prejudicial to the interest of the revenue.

7. We have heard both sides and have perused the orders passed by the authorities below and also gone through the case-law and documents furnished by the AR of the assessee during the course of appeal proceedings.

8. The learned AR vehemently argued before us that the action under section 66A of the repealed Ordinance, as initiated by the learned IAC in respect of assessment year 1999-2000, was illegal and unjustified in the ambient circumstances of the case. The AR drew our attention to the fact that in the first show-cause notice issued on 31-1-2002, the learned IAC had requisitioned the wealth statement from the assessee, which according to him was not available on the assessment record of the case. Later on the AR asserted that the IAC, issued a "corrigendum" notice on 7-3-2002, in which he stated that due to a typographical error the wealth tax return for assessment year 1999-2000, should have been filed by the assessee which was not done and the return was "invalid" to have been processed under the Self-Assessment Scheme for the year 1999-2000.

9. In this context, the AR contended that the IAC, was not clear in his mind as to whether the wealth statement was required or the wealth tax return and it was a case of "change" of "opinion" on his part which has been disapproved by the superior appellate forums. Moreover, the AR stated that the wealth tax return for the assessment year, 1999-2000, had been filed along with the return of income for assessment year 1999-2000, otherwise, the assessment could not have been framed under section 59(1) of the Ordinance. The AR also submitted an affidavit of the assessee who has deposed that the Income Tax return under section 55 was filed for the assessment year 1999-2000, voluntarily within the stipulated date and as per requirement of section 55 of the Ordinance. He had also enclosed his return of wealth tax with the Income Tax return for the period. In this context, the learned AR drew our attention to the fact that the assessment record in the case inspite of number of opportunities given by the Bench was not produced by the D.R., and probably the Wealth tax return had been misplaced by the Department. The learned A.R. also cited a case decided as 1990 PTD (Trib.) 524 in which the honourable ITAT, has held that when a document is filed with the Department, then it is in the custody of the Department and any interpolation, tampering or misplaced/lost etc. cannot be laid at the door of the assessee for obvious reasons. At this stage, the D.R. was unable to rebut the above contention of the assessee's A.R.

10. It was further argued by the AR that there are two conditions essential for invoking section 66A, and these should "co-exit" before action can be held as lawful i.e. the assessment order passed should be both "erroneous" and "prejudicial" to the interest of revenue. The AR argued that it was not clear as to how if the wealth tax return had not been filed by the assessee which is a different tax legislation, the income tax proceedings could be held as "erroneous" and "prejudicial" to the interest of revenue. In other words, there was no justification for invoking section 66A which is purely an Income Tax proceedings for non-filing of wealth tax return for the year, in fact there was no substantive "nexus" between the two positions.

11. It was further added by the A.R., that the assessment order passed for 1999-2000 was not "prejudicial" to the interest of revenue as substantial amount of tax Rs.3,66,714 had been deducted under section 50 subsection (4) for the services rendered by the assessee to its principal i.e. Citi Bank, in the country. To support his contention, the A.R. submitted that the stance of the IAC that the case fell under the ambit of section 80C was not correct as held by the Honourable ITAT that services rendered in compliance to a contract arrived at by two parties does not fall within the purview of section 80C.

12. In this context, the learned AR relied on a case reported as 2004 PTD (Trib.) 1029 in which the Honourable ITAT, in a detailed order has held that whereby services rendered by those other than Doctors, Lawyers, Accountants, Auditors, Architects, Surveyors, Engineers, Advisors, and. Consultants were excluded from the purview of the presumptive tax regime. The AR further stated that in view of the circumstances as explained above, it was illegal on the part of the IAC to have invoked action under section 66A based on mere "presumptions" and "conjectures" which have made his action not tenable in the eyes of law.

12-A. The D.R. supported the orders passed by the authorities below and reiterated the arguments of the IAC in, this regard.

13. We have considered the arguments and in our view we are in agreement with the thrust of the arguments of the AR that the IAC has failed to establish the "nexus" between filing of wealth tax return and the subsequent Income Tax proceedings undertaken and describing them as "erroneous" and "prejudicial" to the interest of revenue under section 66A. The IAC has failed to "substantiate" as to what constitutes the erroneous and prejudicial aspects of the assessee's case to justify recourse to section 66A.

14. In view of the above, we are constrained to vacate the orders passed under section 66A and restore the order passed under section 59(1) in the case.

C. M.A./94/Tax(Trib.)Appeal accepted.