VS, 2011 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 218 (2005)

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

----Ss.63, 56 & 61---Best judgment assessment---Framing of 'ex parte assessment without issuance of notice under S.61 of the Income Tax Ordinance, 1979---Validity---Ex parte assessment could only be made if, there was default of a notice issued under S.56 or S.61 of the Income Tax Ordinance, 1979 and could not be made until the said notice had been issued to the assessee---Issuance of notice under S.61 of the Income Tax Ordinance, 1979 before framing of assessment under S.62 or 63 of the Income Tax Ordinance, 1979 was an essential requirement without issuance of which the assessment framed was not maintainable in law---Assessment framed without complying with the mandatory provisions of sections of law which was necessary to be followed would be rendered illegal and liable to be annulled---Assessment framed without issuance of a notice under S.61 of the Income Tax Ordinance, 1979 was also rendered illegal for the reason that the provisions even if being procedural were of substantive in nature because penal action was provided in the Income Tax Ordinance, 1979 for its non-compliance-In addition to framing of an ex parte assessment a person was also liable for imposition of penalty under S.110 of the Income Tax Ordinance, 1979 as well as prosecution under S.117 of the Income Tax Ordinance, 1979 in case of default of a notice issued under S.61 of Income Tax Ordinance, 1979---Assessment framed without issuance of notice to assessee required under the provision of S.61 of the Income Tax Ordinance, 1979 being mandatory in nature was not maintainable in law and was annulled by the Appellate Tribunal as neither any proof of notice issued under S.61 of the Income Tax Ordinance, 1979 was available nor any such notice appeared to have been issued as per record available with the Department.

2000 PTD 2872; 1960 PTD 727 and 1987 PTD (Trib.) 335 rel.

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

----Ss.63, 135 & 61---Best judgment assessment---Gain on sale of property and agricultural land---Addition of said gain with service of notice under S.61 of the Income Tax Ordinance, 1979---Validity---No evidence was available on record with regard to issuance of notice under S. 61 as well as the carrying-out proceedings under Ss.135/63 of the Income Tax Ordinance, 1979---Assessment order passed under Ss.63/135 of the Income Tax Ordinance, 1979 was not maintainable in law and was annulled by the Appellate Tribunal---Sole evidence-provided by the Department in proof of carrying out of assessment proceedings under S.135 was a copy of notice under S.62 of the Income Tax Ordinance, 1979 available on assessment record the service of which upon the assessee was also not established---Dispatch register and DCR of the Circle were not produced by the Department despite specific directions and opportunities provided for by Tribunal---All such facts created doubt about the carrying out of proceedings and framing of reassessment under S.135 of the Income Tax Ordinance, 1979---Benefit of doubt went in favour of the assessee---Assessment was also not maintainable on the point of limitation---Order of First Appellate Authority was modified and it was held by the Tribunal that the assessment framed under Ss. 63/135 of the Income Tax Ordinance, 1979 in respect of the issues raised through present appeal was not maintainable in law and was annulled with direction that while computing income of the assessee gain on sale of property and agricultural land should not be added to the income of the assessee.

2000 PTD 2872; 1960 PTD 727 and (1960) 2 Tax (III-474) = 1960 PTD 727 rel.

Muhammad Aslam Anwar for Appellant.

Muhammad Ali Shah, D.R. for Respondent.

ORDER

The instant appeal pertaining to assessment year 1995-96, at the behest of the assessee-appellant, an individual, is directed against the order dated 11-6-2004 of CIT(A), Zone-I, Islamabad.

2. Mr. Muhammad Aslam Anwar, Advocate the learned AR appeared on behalf of the assessee-appellant and Mr. Muhammad Ali Shah, the learned DR appeared on behalf of the revenue.

3. Original assessment for the assessment year 1995-96 as framed at total income of Rs.6,49,66,013 under section 63 of the Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance) in the following manner:

The assessment framed through the above-mentioned ex parte order was challenged by the assessee by filing appeal before the first appellate authority. The A.A.C. allowed certain relief to the assessee against which the department preferred an appeal before the ITAT. The ITAT vide its order dated 4-4-2002 in I.T.A. No.286/IB/98-99 confirmed' the estimation of sales and the amount of addition fixed under the head salary by the A.A.C. The order of the A.A.C. on the issue of 'gain on sale of property' was however vacated and the assessment on this issue was set aside by the ITAT The order of the A.A.C. to set aside the assessment on the issue of property income' was however confirmed by the ITAT The reassessment had been finalized under sections 63/135 of the Repealed. Ordinance at total net income of Rs.6,26,09,001 in the following manner:

The ex parte assessment framed under section 63 of the Repealed Ordinance was once again challenged by the assessee through the appeal filed before the first appellate authority. It was the contention of the assessee before the first appellate authority that no notice under section 61 of the Repealed Ordinance was received by the assessee. It was also contended by the assessee that appellant was out of country during the period when assessment proceedings were carried out. It was stated by him that he came back to Pakistan on 17-8-2003 as such the proceedings carried out as well as assessment finalized on 30-6-2003 when he was out of the country were unjustified. It was also contended before the first appellate authority that the gain from sale of property was not taxable being capital gain. According to the assessee the similar gain on sale of property for the assessment year 1989-90 and 1990-91 was deleted by the ITAT vide consolidated order dated 20-6-1996 by holding that such gain was not taxable being capital gain. The examination of the assessment record reveals that the assessment order as available on record was different from that of the assessment order, copy of which was filed by the assessee with the appeal. It will be relevant to refer to the observations of CIT(A) as per impugned order which are reproduced as hereunder:--

"The examination of assessment record reveals that the assessment order available on record is different than the assessment order copy of which was filed with the appeal. The assessment order attached with appeal memo reads as "Notice under section 61 was issued and served upon. In compliance thereto ---attended the office and he was asked to file certain documents and the case was adjourned to---On due date no body attended the office---" whereas in the order available on the record it is mentioned that "Notice under section 61 was issued and served upon. In compliance thereto S. Sajjad Hussain, Accountant attended the office. He was asked to provide certain documents and the case was adjourned to 22-5-2003. On due date no body attended the office nor any application for adjournment was received. Again a notice under sections 62/61 was issued and served upon for 30-5-2003. But remained uncomplied with." On this the appellant's council was confronted who reiterated that the order attached with the appeal was one which was served along with demand notice and to support an affidavit from the appellant Mr. Khurshid Ahmed Khan dated 31-5-2004 was filed stating therein that the assessment order attached with the appeal memo is the same which was received along with demand notice and appellant was out of country from 1998 and returned on 17-8-2003 and the statutory notices mentioned in the order were not received by him, that regarding other submissions the council reiterated the same as made during earlier hearing."

The CIT(A) remanded back the case to the Assessing Officer with the directions, to provide opportunity of being heard to the assessee to explain his position and produce evidence in support thereof and to pass fresh order in the light of the I.T.A.T directions in accordance with facts and on merits under the law.

4. The above findings of the CIT(A) are contested by the assessee -appellant through the instant appeal on the following grounds:

(i)That the order of the learned Taxation Officer was unlawful, without jurisdiction, and was null and void and the learned CIT(A) was unjustified in setting aside the same for the third time instead of annulling it.

(ii)That the truth is that on receipt of appellant's intimation of filing of the appeal before CIT(A), the Taxation Officer has amended the assessment order in his record whereas the order received with demand notice is the one which is filed with the appeal memo.

(iii)That without prejudice to the above 'grounds the order under section 63 is not best judgment as required under the law and material/facts available on record including orders of higher appellate forums.

(iv)That in view of (3) above the assessment of gain on sale of property in 33 Buland Markaz, and Agricultural land at Mangwal is unlawful as the same is accretion on Capital and not an adventure in the nature of Trade as both the properties were sold under compelling circumstances to pay-off ready income tax, wealth tax, and bank loan under coercive measures.

5. The main and foremost contention of the learned AR of the assessee was that the order passed by the Assessing Officer was unlawful and without jurisdiction. According to learned AR of the assessee the CIT(A) should have annulled the assessment instead of setting aside the same for the third time. Learned AR of the assessee contended that the assessment order passed under sections 63/135 of the Repealed Ordinance was time barred. Learned AR stated that the Tribunal's order in I.T.A. No. 286/113/98-99 pertaining to assessment year 1995-96 was passed on 4-4-2002 and the time limitation provided under section 66(1)(c) for reassessment under section 135 expired on 30-6-2003. According to learned AR no proceedings under section 135 are initiated till 30-6-2003 and stated that this contention was proved from the assessment record and also supported from the copy of assessment order provided to assessee. Learned AR submitted that mandatory notice under section 61 required for initiating assessment proceedings, was not issued or served upon the assessee-appellant. Learned AR contended that the date of issue or service of statutory notices .were not mentioned and space was left blank in the copy of the assessment order issued to the assessee. Learned AR of the assessee alleged that the order available on assessment record was changed with the present order subsequently, by mentioning such dates therein.

According to learned AR no statutory notices were issued nor any reassessment proceedings under section 135 were conducted by the Assessing Officer. Learned AR contended that this 'contention was proved from the assessment record where no copy, of notice issued under section 61 was available nor issuance of any such notice or its service upon the assessee was proved therefrom. According to learned AR of the assessee the non-issuance of any statutory notice was a default fatal for the assessment. Learned AR contended that in the case where consequences of failure of compliance were provided, the notices were substantive in nature. Learned AR further contended that in case of non-compliance of mandatory provisions of law the assessment was rendered illegal and liable to be annulled and not to be set aside. In this context a judgment of AJK Supreme Court reported as 2000 PTD 2872 was also cited by the learned AR of the assessee. In the quoted case the issue before the AJK- Supreme Court was that whether the appeal filed by the assessee before the Tribunal by not paying the appeal fee required under section 134(5) of the Repealed Ordinance was liable to be dismissed or not. The AJK Supreme Court in this context, while discussing that whether the provision were directory or mandatory in nature, .explained the principle that where the consequence of failure to comply with the provisions were not stated the provision was directory in nature and where consequences were specifically mentioned the provisions was mandatory. Another case relied upon by the learned AR of the assessee in this context was the judgment reported as 1960 PTD 727 Dhaka wherein it was held by the Dhaka High Court that an ex parte order passed under section 23(4) for default under section 22(4) without issuing notice under section 23(2) of the Repealed Income Tax Act, 1922 was illegal. According to the learned AR of the assessee the provision of sections 23(4), 22(4) and 23(2) of Repealed Act of 1922 corresponds to sections 63, 56 and 61 respectively of the Repealed Ordinance of 1979. The issue regarding validity of assessment framed without issuance of notices under section 22(2), 34, 22(4A), 22(4) or 23(2) of the Repealed Act, 1922 had also been dealt with and decided by the Full Bench of the Tribunal in the case, reported 1987 PTD (Trib.) 335. It was held by the Tribunal through the said judgment that non-service of notices under section 22(2) or 34 of the Repealed Act of 1922 would render the assessment liable to annulment or quashment of proceedings. However, default of non-issuance of notices under section 22(4) or 23(2) of the Repealed Act of 1922 was held to be merely of a procedural character which would not render the entire superstructure as ab initio illegal. The perusal of the said judgment of the Tribunal reveals that the above mentioned judgment of Dhaka High Court reported as 1960 PTD 727 had not been discussed or considered therein.

6. Learned DR, in his arguments, defended the impugned orders with the submission that no grievance was caused to the assessee by the setting aside of assessment on the issues under' appeal. According to learned DR section 61 being a procedural one, the assessment in case of its default could be set aside and was not to be annulled.

7. Before proceedings further it will be relevant to go through the provisions of sections 61 and 62(1) of the Repealed Ordinance of 1979 which for the sake of convenience are reproduced hereunder:--

"61. Notice for production of books of account, etc.---The Deputy Commissioner may serve upon any person who has furnished a return of total income for any income year or upon whom a notice has been served to furnish such return, a notice requiring him on a date specified therein, to attend at the Deputy Commissioner's office or to produce, or cause to be produced, any evidence on which such person may rely in support of the return, if furnished and such accounts documents or evidence (including accounts or documents) relating to any period prior or subsequent to the said income year) as the Deputy Commissioner may require:

Provided that the Deputy Commissioner shall not require the production of any accounts relating to a period more than three years prior to the income year.

(62) Assessment on production of accounts, evidence, etc.----(1) The Deputy Commissioner, after considering the evidence on record (including evidence, if any, produced under section 61) and such other evidence as the Deputy Commissioner may require on specific points shall, by an order in writing, assess the total income of the assessee and determine the tax payable by him on the basis of such assessment.

[Provided that where the assessee produces books of account as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defects and record such explanation and the basis of computation of total income of the assessee in the assessment order.'"

According to above quoted provisions it was mandatory upon the Assessing Officer to issue a notice under section 61 of the Repealed Ordinance before framing of an assessment so that the assessee must be provided with the opportunity to produce any evidence on which he may rely in support of the return. On the other hand, the provision of section 62 empowered the Deputy Commissioner to assess the total income of the assessee after considering the evidence on record including evidence, if any, produced under section 61. As is obvious the framing of assessment was dependent upon the pre-condition of a notice under section 61 which was necessary to be issued and served upon the assessee, which no assessment under section 62 could be made by the Assessing Officer. Similar was the case when assessment was to be framed under section 63 of the Repealed Ordinance. The pre-condition laid down in section 63 for framing of ex parte assessments are reproduced as hereunder:--

"63. Best judgment assessment.---Where any person-

(a)fails to furnish a return of total income required to be furnished by him under section 56, subsection (3) of section 72 or subsection (3) of section 81; or

(b)fails to comply with any of the terms of a notice issued under section 58 or 61,

the Deputy Commissioner may, by an order in writing, assess the total income of the assessee to the best of his judgment and determine the amount of tax payable by him"

According to subsection (2) of section 63 an ex parte assessment could only be made if there was default of a notice issued under section 56 or 61 of the Repealed Ordinance of 1979 which obviously could not be made until the said- notice had been issued to the assessee. Thus issuance of notice under section 61 before framing of assessment under section 62 or 63 is an essential requirement without issuance of which the assessment framed is not maintainable in law. Under the circumstances in our considered opinion an assessment framed without complying with the mandatory provisions of section of law which is necessary to be followed would be rendered illegal and liable to be annulled. The assessment framed without issuance of a notice under section 61 is rendered illegal also for the reason that the provision even if being of a procedural are of a substantive in nature. Our this view point is also supported by the judgment of AJK Supreme Court reported as 2000 PTD 2872. In the light of principle laid down by the Supreme Court of AJK the provisions of section 61 of the Repealed Ordinance, 1979 are substantive in nature because the penal action is provided in the Repealed Ordinance of 1979 for its non-compliance. In addition to framing of an ex parte assessment a person was also liable for imposition of penalty under section 110 as well as prosecution under section 117 of the Repealed Ordinance in case of default of a notice issued under section 61 of the Repealed Ordinance. The nutshell of the above discussion is that the assessment framed without issuance to assessee of a notice required under the provision of section 61 of the Repealed Ordinance being a provision mandatory and substantive in nature is not maintainable in law, therefore, liable to be annulled. In the instant case neither any proof of service of a notice issued under section 61 of the Repealed Ordinance is available nor any such notice appears to have been issued as per assessment record available with learned DR. As per copy of provided by the learned DR the following entries, which are not relevant to the year under consideration are appearing on the one and half page order sheet:--

(Sd.) T.O.

As is obvious from the above quoted entries these are in respect of assessment years 1998-99 to 2000-2001 and do not reflect the proceedings carried out under section 135 of the Repealed Ordinance for the assessment year 1995-96 nor the notice under section 61 stated to be issued for 13-5-2003 for the assessment year 1995-96 is established therefrom. Learned DR who was present along with the assessment record was unable to controvert the contention of learned AR regarding non-issuance of any notice under section 61 for the assessment year under consideration. Learned DR also failed to produce 'any other order sheet containing such entries relating to the year under consideration or any other kind of evidence in this regard except the copy of a notice dated 13-5-2003 issued under section 62 of the Repealed Ordinance. The service of this notice was denied by the AR of assessee contending that no notice could be served upon the assessee because he was out of the country during the period when the assessment proceedings were being conducted. Learned DR who was present along with the assessment record also failed to establish that the said notice under section 62 was served upon the assessee. However as discussed above the service upon the assessee of the mandatory notice issued under section 61 of the Repealed Ordinance for the year, under consideration has not been established. A copy of notice dated 5-5-2003 issued under section 61 for 13-5-2003 available on assessment record was also produced before the Bench which had been found to be issued for the assessment years 2000-2001 and 2001-2002 and was not for the year under consideration i.e. assessment year 1995-96. Learned DR failed to establish by producing any kind of evidence or material despite sufficient opportunities having been provided by the Bench that assessment proceedings under section 135 were carried out for the year under consideration or any notice under section 61 mandatory for framing, of assessment under section 63 of the Repealed Ordinance was issued and served upon the assessee. The statement of learned DR that the notice appears to have been removed from the assessment record by the assessee with the connivance of the official of the department is merely an allegation without any substance. Learned DR stated that no enquiry had been conducted for ascertaining the fact and fixation of responsibility nor any criminal proceedings were initiated or any disciplinary action taken in this behalf against the person or persons responsible for the removal of official document by the department being the custodian of record; In any case this allegation which could not have any bearing on the instant appeal, rather goes to support the contention of assessee that no evidence is available on record with regard to issuance of notice under section 61 as well as the carrying out proceedings under sections 135/63 of the Repealed Ordinance of 1979. Under the circumstances the assessment order passed under sections 63/135 of the Repealed Ordinance for the year under consideration is hereby held to be not maintainable in law hence annulled. The sole evidence provided by the learned DR in proof' of carrying out of assessment proceedings under section 135 for the assessment year 1995-96 was a copy of notice under section 62 dated 5-5-2003 available on assessment record the service of which upon the assessee is also not established. Even the despatch register and DCR of the circle were not produced by the learned DR despite specific directions and opportunities provided for the same by the Bench, who expressed his inability to produce the same. All these facts create doubt about the carrying out of proceedings and framing of reassessment under section 135 before 30-6-2003. The benefit of doubt to go in favour of the assessee, the assessment for the year under consideration is also not maintainable on the point of limitation of time. Under the circumstances considering the facts of the case as mentioned above as well as provisions of law and the case law as discussed above the impugned order of CIT(A) is modified and it is held that the assessment framed under sections 63/135 of the Repealed Ordinance, 1979 in respect of the issues raised through instant appeal is not maintainable in law and is hereby annulled.

8. We do not feel any need to decide the issues on merits raised through grounds Nos.(iii) and (iv) regarding taxability of gain on sale of property, since the appeal of the assessee already stands accepted on legal grounds.

9. As a result of the above decision, while computing the income of the assessee for the year under consideration the gain on sale of property in respect of 33-Buland Markaz, Blue Area, Islamabad and agricultural land at Mangwal shall not be added to the income of the assessee.

10. Consequently, the appeal of the assessee succeeds.

C.M.A./185/Tax (Trib.)Appeal accepted.