VS, 2011 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 187 (2005)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122, 121 & 120---Income Tax Ordinance (XXXI of1979), Ss.59, 59A, 62, 63 & 65---Amendment of assessment---Assessment order treated to be issued under S.120 or issued under S.121 of the Income Tax Ordinance, 2001 or under Ss. 59, 59A, 62, 63 & 65 of the Income Tax Ordinance, 1979 could be amended before the substitution and insertion of subsections (5) and (5A) of S.122 of the 'Income Tax Ordinance, 2001 through Finance Ordinance, 2003.

(b) Income Tax Ordinance (XLIX of 2001)---

----S.122---Amendment of assessment---Definite information---Assessing Officer could amend an order 'under subsection (1) of S.122 of the Income Tax Ordinance, 2001 on the basis of definite information regarding concealment of income.

I.T.A. No.739/IB of 2003 not relevant.

(c) Income Tax Ordinance (XLIX of 2001)---

----S. 122(1)---Amendment of assessment---Definite information--Information of survey team---Information available with the Taxation Officer did not constitute definite information regarding concealment of income sufficient to take action under S.122(1) of the Income Tax Ordinance, 2001---Genuineness of the agreement alleged to have been made by the assessee before the survey team was found to be doubtful and it could not be considered as definite information sufficient to establish the concealment of income.

(d) Income Tax Ordinance (XLIX of 2001)---

----S.122(1)-Amendment of assessment---Definite information---Estimation of sales survey team---Assessing Officer was not justified to consider the estimation of sales by the survey team as definite information of concealment.

(e) Income Tax Ordinance (XLIX of 2001)---

----S.122(1)---Amendment of assessment---Definite information---Assessment order could not be amended under S.122 (1) of the Income Tax Ordinance, 2001 on the basis of information the existence of which had not been undoubtedly established.

(f) Income Tax Ordinance (XLIX of 2001)---

----S.122(1)---Income Tax Ordinance (XXXI of 1979), Ss.65 & 66A---Amendment of assessment---Assessing Officer could not de novo re-assess the total income under S.122 (1) of the Income Tax Ordinance, 2001---Condition laid down in subsections (5) and (5A) for taking action under subsection (1) of S.122 of the Income Tax Ordinance, 2001 were almost the same as required for initiation of the proceedings under Ss.65 and 66A of the Income Tax Ordinance, 1979.

(g) Income Tax Ordinance (XLIX of 2001)---

----S.122(1)---Income Tax Ordinance (XXXI of 1979), Ss.65 & 66A---Amendment of assessment---Framing of fresh assessment by reopening the assessment already framed as was provided under Ss.65 & 66A of the Income Tax Ordinance, 1979 had not been provided under the Income Tax Ordinance, 2001---Under the provision of 5.122 of the Income Tax Ordinance, 2001, the scope of amendment of assessment order already passed had been widened to also include the concealed income which was previously covered under separate provision i.e. Ss.65 and 66-A of the Income Tax Ordinance, 1979.

(h) Income Tax Ordinance (XLIX of 2001)---

----S.122 (1)---Income Tax Ordinance (XXXI of 1979), Ss.65 & 66A--Amendment of assessment---Unlike the provisions of reopening and reassessment provided under Ss.65 & 66A of the Income Tax Ordinance, 1979 the amendment under S.122 of the Income Tax Ordinance, 2001 was restricted to the extent of making the alterations and additions in the existing order-Although the exercise of powers to made alteration and additions rests on the discretion of the Commissioner under the provisions of subsection (I) of S.122 of the Income Tax Ordinance, 2001 but at the same time the exercise of such power was subject to certain conditions as laid down in subsections (5) and (5A) of S.122 of the Income Tax Ordinance, 2001.

(i) Income Tax Ordinance (XLIX of 2001)---

----Ss.209 & 210---Income Tax Ordinance (XXXI of 1979), Ss.65 & 66A-Jurisdiction of the authorities to pass the order under the various provisions of Income Tax Ordinance, 2001 and Income Tax Ordinance, 1979---Distinction---Unlike the Income Tax Ordinance, 1979 under the law of Income Tax Ordinance, 2001 the amendment of any kind in the existing assessment order could be made by the same authority having the power of assessment under the provisions of Income Tax Ordinance, 2001 for the obvious reason of original authority having the power of assessment under the Income Tax Ordinance, 2001 being the senior officer of the rank of Commissioner in the hierarchy of the Income Tax Authorities---Such power of Commissioner could only be exercised by an Officer on behalf of Commissioner specially conferred upon him under the provisions of subsection 2 of S.209 of the Income Tax Ordinance, 2001 or delegated to hint by the Commissioner under S. 210 of the Income Tax Ordinance, 2001---Provisions of S.66A of Income Tax Ordinance, 1979 could be invoked only by an Inspecting Additional Commissioner or by a Commissioner in case the original assessment order was passed by an Inspecting Additional Commissioner---Similarly for invoking the provisions of S.65 of the Income Tax Ordinance, 1979 the approval of Inspecting Additional Commissioner was required, whereas there was no concept of obtaining any approval by an assessing authority from a higher authority for passing an order under the provisions of Income Tax Ordinance, 2001.

(j) Income Tax Ordinance (XLIX of 2001)---

----S.122(1)-Income Tax Ordinance (XXXI of 1979), Ss.19 & 20(1)(a)---Amendment of assessment---Property income---Proration of rental income instead of allowing vacancy allowance---Validity---Assessing Officer instead of allowing vacancy allowance on the basis of grass annual letting value, prorated the income for the period of 70 days by allowing deduction only under Cl.(a) of subsection (1) of S.20 of the Income Tax Ordinance, 1979---Method of calculation adopted by the Assessing Officer was not in accordance with the provisions of Ss.19 & 20 of the Income Tax Ordinance, 1979---Amended order passed under S.122(1) by the Taxation Officer on the basis of non-declaration of property income was also not maintainable---order passed under S.122(1) of the Income Tax Ordinance, 2001 was annulled by the Appellate Tribunal in circumstances.

Yasmeen Sardar for Appellant.

Amjad Khan Khattak, D.R. for Respondent.

ORDER

KHALID WAHEED AHMED (JUDICIAL MEMBER).---The above titled cross appeals pertaining to assessment year 2001-2002 are directed against the order dated 24-6-2004 of CIT(A), Rawalpindi.

2. Mrs. Yasmeen Sardar, Advocate the learned AR appeared on behalf of the assessee-appellant and Mr. Amjad Khan Khattak, the learned DR appeared on behalf of the revenue.

3. The assessee an individual, derives income from running a hardware store at Jinnah Road, Rawalpindi. Original assessment for the assessment year 2001-2002 was finalized at net income of Rs.1,49,534 under section 59A of the Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance). The assessment framed was amended through an order passed on 13-6-2003, under section 122(1) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance). The contents of show-cause notice whereby the assessee was confronted with the definite information on the basis of which the Assessing Officer intended to take action under section 122 of the Ordinance are reproduced as hereunder: --

"In the Survey Form on 24-8-2000 you have declared income from property at Rs.24,000. However, you did not declare rental income in your returns relating to assessment years 2000-2001 and 2001-2002. The assessment for assessment year 2001-2002 stands completed under section 59(A). You have concealed your rental income for both the years. Sales were agreed at Rs.33,00,000 by you with the Survey Team on 19-2-2001 but you declared your sales for assessment year 2001-2002 at Rs.24,22,000 which are on the lower side which needs an action under section 122 of the Income Tax Ordinance, 2001. Your clarification on the above facts should reach the undersigned by 15-3-2003 positively, failing which the action as proposed above will be initiated."

The explanation filed by the assessee was not found satisfactory by the Taxation Officer. In the order passed under section 122(1) of the Ordinance the Assessing Officer made the assessment in the following manner:

Rental income.

The tenant as well as assessee admitted that upper portion of house was on rent till 8-9-2000 @ Rs.2000 p.m. Calculation of property income is as under:

It was the contention of the assessee before the first appellate authority that there was no definite information available with the Assessing Officer regarding concealment of income/sales, therefore, the Taxation Officer was not justified in passing the amended assessment order under section 122 of the Ordinance, which order was pleaded to be illegal by the assessee. Through the alternative pleas the estimate of sales and additions made out of P&L expenses were also contested to be unjustified and excessive before the first appellate authority. The plea of the assessee that he had not agreed to the estimate of sales at Rs.33,00,000 before the survey team because, he was out of country for Haj purposes at the relevant time, was not accepted by the CIT(A) for the reason that the dates 'of departure and arrival were not mentioned on the Haj passport produced by the assessee in support of his contention. However, the estimate of sales were reduced from Rs..33,00,000 to Rs.28,00,000 by the CIT(A). Additions made out of P&L expenses under the head-miscellaneous and entertainment was also restricted to 20% of the claims. The reduction allowed in the estimate of sales by the CIT(A) is contested to be unjustified through the grounds of departmental appeal. On the other hand the order of the first appellate authority is assailed by the assessee on the following grounds:

(i) That the order passed by the learned Taxation Officer of Income Tax, Circle-21 Rawalpindi and learned CIT(A), Rawalpindi are bad in law and on facts.

(ii) That the learned Taxation Officer was not justified in framing the impugned amended order under section 122(1) of the Income Tax Ordinance, 2001 and the learned CIT(A) was not justified in maintaining the order under section 122(1) of the Income Tax Ordinance, 2001.

(iii) That the learned Taxation Officer was not justified in making estimation of sales at Rs.33,00,000 against the declared sales of Rs.24,22,000 and the learned CIT(A) is also not justified in reducing sales at Rs.28,00,000. The sales are still highly excessive unjustified and against the facts of the case.

(iv) That the appellant prays that the assessment under section 122(1) of the Income Tax Ordinance, 2001 may please be amended. And any other reliefs which are beneficial for the appellant may please be granted.

4. Learned DR in his arguments, supported the contention of the revenue as per grounds of appeal. According to learned DR, the CIT(A) was not justified in reducing the estimate of sales adopted by the Assessing Officer on the basis of the sales agreed by the assessee before the survey team. Learned DR further contended that even if it was presumed that the estimation of sales by the survey team was not a definite information the action of the accessing officer in passing the order under section 122(1) of the Ordinance, 2001 was justified for the other reason of the concealment of property income. Learned DR contended that the Assessing Officer was also justified in estimating the sales which passing the amendment order because according to him the Assessing Officer could re-assess the total income once the action was taken under section 122 of the Ordinance, 2001. On the other hand, the main contention of learned AR of the assessee was that the Assessing Officer was not justified in passing the order of amendment under section 122(1) of the Ordinance. Learned AR of the assessee contended that the order of amendment passed on 13-6-2003 under section 122, on the basis of alleged concealment, for the assessment year 2001-2002, was not legally maintainable in view of the then prevailing provisions of subsection (5) and subsection (5A) of section 122 of the Ordinance. It was the contention of learned AR that on the basis of concealment an order of amendment under section 122 of the Ordinance could only be passed after 1st July 2003 after the substitution and insertion of subsections (5) and (5A) respectively in section 122 of the Ordinance through the Finance Ordinance, 2003. On merits it was the contention of learned AR that the proceedings initiated on the basis of sales alleged to have been admitted at Rs.33,00,000 before the survey team on 19-2-2001 as against the sales declared in the income tax return for the assessment year 2001-2002 at Rs.28,00,000 was also not justified on the facts of the case. It was the contention of learned AR that the assessee proceeded for Haj on 9-2-2001 and returned back to Pakistan on 22-3-2001 from Saudi Arabia after performing Haj. Learned AR contended that proof of performing Haj in the form of Haj passport, specifically issued for the purpose of Haj only, was produced before the Assessing Officer. It was the contention of learned AR that if the documents produced/filed by the assessee were doubted 'by the Assessing Officer their verification could have been made by him from the Ministry of Religious Affairs. In affirmation of above contention the learned AR of the assessee filed an affidavit along with copy of Haj passport, bearing Haj visa granted by the Saudi Arabian Embassy in Islamabad. It was the contention of learned AR that since the assessee was not in Pakistan on 19-2-2001 he could not enter into any agreement with the survey team on the said date. Learned AR contended that the information relied upon by the Taxation Officer for taking action under section 122(1) could not be called a definite information. With regard to non declaration of rental income learned AR admitted that no income from property was declared in the original return filed by the assessee. However, it was the contention of learned AR that the provision of subsection (5) or section (5A) were not attracted for this reason. Learned AR contended that the property remained on rent only for the period of 70 days during the year under consideration. Learned AR further contended that the working of property income by the Assessing Officer for the period of 70 days was incorrect. According to learned AR after allowing the deduction under clause (a) and clause (h) of subsection (1) of section 20 of the Repealed Ordinance, no taxable income was worked out under the head property income. It was the contention of learned AR that neither there was any definite information with the Assessing Officer to the fact that any income had escaped or under assessed nor the order was prejudicial to the interest of revenue, therefore, no order of amendment could be passed under subsection (I) of section 172 of the Ordinance.

5. Arguments of learned representatives of both the parties have been heard and the orders of the authorities below as well as relevant provisions of law have also been perused. The contention of learned AR that the provision of subsection (1) of section 122 could not be invoked on the basis of concealment relating to period prior to substitution and insertion of subsections (5) and (5A) of the Ordinance is not tenable. An assessment order treated to be issued under section 120 or issued under section 121 of the Ordinance or under sections 59, 59A, 62, 63 or 65 of the Repealed Ordinance could be amended before the substitution and insertion of subsections '(5) and (5A) of section 122 through Finance Ordinance, 2003. The provisions of subsection (5) before substitution of the same through Finance Ordinance, 2003 were as followings:

(5) An assessment order shall only be amended under subsection (1) and an amended assessment shall only be amended under subsection (4) where the Commissioner-

(a) is of the view that this Ordinance or the repealed Ordinance has been incorrectly applied in making the assessment including the misclassification of an amount under a head of income incorrect payment of tax with the return of income, an incorrect claim for tax relief or rebate, an incorrect claim for exemption of any amount or an incorrect claim for a refund; or

(b) has definite information acquired from an audit or otherwise that the income has been concealed or inaccurate particulars of income have been furnished or the assessment is otherwise incorrect.

The perusal of the above provision reveals that the Assessing Officer could amend an order under subsection (1) of section 122 of the Ordinance, 2001 on the basis of definite information regarding concealment of income. The decision of the ITAT dated 20-1-2004 in I.T.A. No.739/IB/2003 referred by the learned AR of the assessees is not relevant to the facts of the instant case. The issue that sales agreed before the survey team could not be made basis for estimation of sales by the Assessing Officer was neither raised before the ITAT in the referred case nor had been decided in the above mentioned order. However, on merits the case of the assessee is found to be on strong footings. In our considered opinion, in view of the facts of the instant case the information available with the Taxation Officer did not constitute definite information regarding concealment of income sufficient to take action under section 122(1) of the Ordinance, 2001. Considering the facts of the case the genuineness of the agreement alleged to have been made by the assessee before the survey team is found to be doubtful there it could not be considered as a definite information sufficient to establish the concealment of income. Perusal of the assessment order reveals that evidence produced by the assessee in support of his contention that, he was not in Pakistan at the time of making of alleged estimation of sales on agreed basis by the survey team was discarded by the Assessing Officer in a summary manner without proper appreciation and verification of facts. The assessee produced Haj Passport issued to him bearing visa granted by the Embassy of Saudi Arabia in Islamabad, along with the Group number card issued by the Ministry of Religious Affairs bearing Flight number and the date of Flight which was mentioned as 9-2-2001. The perusal of the assessment order reveals that the assessee was not asked to produce any further evidence in this regard. In our opinion, the Assessing Officer was not justified to consider the estimation of sales by the survey team as a definite information of concealment. The only reason given by the Assessing Officer as well as by the CIT(A) for not accepting the contention of the assessee is that the date of departure and arrival are not mentioned on the Haj passport. The plea of the assessee that no such entries are made in the Haj passport specifically issued for the purpose of performing of Haj only could have been verified or any other information relevant in this regard could have been obtained from the Ministry of Religious Affairs. Under the circumstances, it is therefore, held that an assessment order could not be amended under section 122(1) of the Ordinance, 2001 on the basis of an information the existence of which had not been undoubtedly established. Considering the facts of the instant case in our opinion since it had not been proved beyond any doubt that the consent to the sales estimated by the survey team was given by the assessee himself, the Assessing Officer was not justified in treating the same as a definite information of concealment. We also do not subscribe to the viewpoint, expressed by the learned DR that the Assessing Officer could de novo re-assess the total income under section 122(1) of the Ordinances. The condition laid down in subsections (5) and (5A) for taking action under subsection (1) of section 122 of the Ordinance, 2001 are almost the same as required for initiating the proceedings under sections 65 and 66A of the Repealed Ordinance of 1979. However, so far as the scope and extent of action is concerned, there is difference of basic nature in the relevant provisions of the two Ordinances. Before proceedings further for the sake of convenience we will like to reproduce the provisions of subsections (1), (5) and (5A) of section 122 of the Ordinance, 2001 which are as hereunder:-

122. Amendment of assessments-.---(1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121, or issued under sections 59, 59A,62, 63 or 65 of the repealed Ordinance, by making such alterations or additions as the Commissioner considers necessary.

(5) An assessment order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that--

(i) any income chargeable to tax has escaped assessment: or

(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been misclassified;

(5A) Subject to subsection (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.

From the above quoted provisions it is obvious that the framing of fresh assessment by reopening the assessment already framed as was provided under sections 65 and 66A of the Repealed Ordinance has not been provided under the new law. The perusal of the above quoted provisions further reveals that although under the relevant provisions of new law as quoted above the scope of amendment of an assessment order already passed has been widened to also include the concealed income which was previously covered under separate provisions i.e. sections 65 and 66-A of Repealed Ordinance. However, unlike the provisions of reopening and reassessment provided under sections 65 and 66A of the Repealed Ordinance the amendment under section 122 is restricted to the extent of making the, alterations and additions in the existing order. Although the exercise of powers to make alteration and additions rests on the discretion of the Commissioner under the provisions of subsection (1) of section 122 but at the same time the exercise of such power is subject to certain conditions as laid down in subsections (5) and (5A) of section 122 of the Income Tax Ordinance, 2001. Another significant difference relevant in this regard is the jurisdiction of the authorities to pass the order under the various provisions of new and old Income Tax Ordinance. Unlike the Repealed Ordinance under the new law the amendment of any kind existing assessment order can be made by the same authority having the power of assessment under the provisions of Income Tax Ordinance, 2001 perhaps for the obvious reason of original assessing authority having the power of assessment under the Ordinance, 2001 being the senior officer of the rank of Commissioner in the hierarchy of the Income Tax Authorities. Such powers of Commissioner can only be exercised by a Taxation Officer on behalf of Commissioner where specially conferred upon him under the provisions of sub-section (2) of section 209 or delegated to him by the Commissioner under section 210 of the Income Tax Ordinance, 2001. Whereas in case of the Repealed Ordinance provisions of section 66A could be invoked only by an IAC or by a Commissioner in case the original assessment order was passed by an IAC. Similarly for invoking the provisions of section 65 of the Repealed Ordinance the approval of IAC was required, whereas there is no concept of obtaining any approval by an assessing authority from a higher authority for passing an order under the provisions of Ordinance, 2001.

6. So far as the non declaration of property income is concerned, in our opinion, no amendment under subsection (1) of section 122 could be made on the basis of facts of the instant case. We agree with the viewpoint expressed by the assessee that no concealment of income was made because on the basis of rent received for the period of 70 days no income is worked out. The income after deduction of admissible allowances is worked out to loss of Rs.197 arrived at in the following manner:--

The provisions of subsection (1) of section 122 of the Ordinance, 2001 as it stood before the amendment brought therein through Finance Act, 2003 were not attracted considering the facts of the case before us. The property income for the assessment year 2001-2002 was chargeable to tax under the provision of section 19 of the Repealed Ordinance. Section 20 of the Repealed Ordinance provided for allowances and deductions for computing the income chargeable to tax under the head income from house property. An allowance of equal to 1/5th of the annual value in respect of repairs was admissible under clause (a) of subsection (1) of section 20. The assessee was also entitled under clause (b) of subsection (1) of section 20 of the Repealed Ordinance for the vacancy allowance equal to that part of the annual value proportion to the period during which the property as vacant. When all the deductions and allowances to which the assessee was entitled under the relevant provisions of section 20 of the Repealed Ordinance are deducted from the gross annual value no income chargeable to tax is worked out. The fact that the property was on rent for the period of 70 days and remained vacant during the remaining period is not disputed. The Assessing Officer instead of allowing vacancy allowance on the basis of GALV, prorated the income, for the period of 70 days by allowing deduction only under clause (a) of subsection (1) of section 20 of the Repealed Ordinance. This method of calculation adopted by the Assessing Officer was not in accordance with the provisions of sections 19 and 20 of the Repealed Ordinance. Under the circumstances and considering the facts of the case the amended order passed under section 122(1) by the Taxation Officer on the basis of non-declaration of property income is also not maintainable. Consequently, the order passed under section 122(1) of the Ordinance is hereby annulled.

7. As a result, the cross appeal of the assessee succeeds while that of the revenue fails.

C.M.A./186/Tax(Trib.)Assessee's appeal accepted.