2010 PTD 2148
ORDER
KHALID WAHEED AHMED (JUDICIAL MEMBER).--- The above tilted department appeal pertaining to assessment year 1996-97 is directed against the order, dated 31-5-2004 of CIT(A), Sialkot Zone, Sialkot.
2. The assessment in the case of assessee-respondent, an individual, was framed under section 63 of the Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance). The assessee claimed amnesty for Property No.108-B, Gulberg-III, Lahore availing benefit of amnesty Scheme, 1997. However, according to the information available with the assessing officer only the land was covered by the tax paid @ 7.5% and the building constructed thereon was not covered by the amount of Rs.75,000 paid under the Amnesty Scheme. Proceedings were initiated through issuance of notices under sections 56 and 61 of the Repealed Ordinance. A show-cause notice under section 111(1)(b) of the Income Tax Ordinance, 2001 was also issued to the assessee on the following grounds:--
"As per report of Directorate-General of Income Tax Audit, Lahore you had claimed amnesty for Property No.108, B-3 Gulberg-III Lahore availing benefit of Amnesty Scheme 1997. The value of the property was declared at Rs.10,00,000 on 1/4 share according to DC rates of land available @ Rs.50,000 Per marla and tax of Rs.75,000 was deposited @ 7.5%. As per Wealth Tax Assessment order for the assessment year 1998-99 the said property was not an open plot but also a superstructure was constructed thereon measuring total covered area of 21760 sq.ft. The 1/4 share being 5440 sq.ft. As the amnesty for super-structure was not availed therefore, the cost of superstructure remains unexplained."
In his reply, the assessee contended that 1/4 share of the property was purchased for Rs.10,00,000 and he had availed the amnesty for the constructed property. The contention of the assessee was not accepted by the assessing officer who proceeded to finalize the assessment under section 63 at net income of Rs.16,32,000 comprising of the unexplained investment worked out in the following manner:
"CALCULATTON
1/4 share of covered area
5440 x 300 per sq.ft. = Rs.16,32,000"
The ex parte assessment was challenged by the assessee by filing appeal before the First Appellate Authority. It was contended that the notices issued under sections 56, 61 and 111(1)(b) were not properly served upon the assessee. It was the contention of the assessee before the CIT(A) that the Assessing Officer was not justified in making the addition under the provision of section 111(1)(h) of the Ordinance, 2001 It was also contended that the adoption of total covered area at 21760 sq. ft. and 1/4 Share of the assessee worked out therein at 5440 Sq.ft. was totally unjustified and without any basis. Another contention of the assessee before the CIT(A) was that the assessee claimed amnesty by declaring the asset as a property and the Assessing Officer was not justified in treating it in respect of plot only. A copy of PT-1 Form regarding assessment of Excise and Taxation Department made in respect of the construction was also produced in support of this contention. The CIT(A) annulled the assessment with the following observations:
"On the basis of the facts referred to above as well as the copy of the PT-1 Form as provided by the AR, it is evident that the property was not an open plot of land but had one storey building constructed on it. The observation that it was not an open plot of land is not valid. Also that proceedings were initiated under provisions of the repealed Ordinance, 1979 and after the issuing of notices 56, 61 the Assessing Officer not justified in resorting to provisions of the new Ordinance and proceeding to adopt income under section 111(1)(b) and that too without proper service of the notices. The assessment then made under section 63 of the repealed Income Tax Ordinance, 1979 is not tenable and is therefore annulled."
3. Mr. Amjad Khan Khattak, the learned DR appeared on behalf of the revenue and Mr. Ishfaq Ahmed Razi, Advocate the learned AR appeared on behalf of the assessee-respondent.
4. Learned DR, in his arguments, contended that the CIT(A) was not justified to annul the assessment. It was contended by the learned DR that the assessment of income on account of unexplained 'investment was rightly made by the Assessing Officer on the basis of the facts of the case. According to learned DR, on the basis of the amount of tax paid by the assessee, the Assessing Officer rightly treated it as available only in respect of the value of land worked out according to prevailing DC rate under the provision of Amnesty Scheme of 1997. It was also the contention of learned DR that the CIT(A) was not justified to accept the contention of the assessee that the amnesty was claimed in respect of constructed property and not for plot. It was further contended that the CIT(A) accepted the evidence at the appellate stage without any reason which was against the provision of subsection (4) of section-129 of the Repealed Ordinance. Learned DR further submitted that the covered area and the area of the land was taken by the Assessing Officer same as declared and assessed in the wealth tax assessment of the assessee for the assessment year 1998-99.
5. Learned AR of the assessee on the other hand; in his arguments, defended the impugned order. Learned AR contended that a return filed under the Amnesty Scheme, 1997 was immuned from any kind of probe as per para. 9 of C.B.R's Circular No.7 of 1997 dated 21-7-1997. However, learned AR was unable to answer the query raised by the Bench that the qualification for acceptance of the declaration was dependent upon its being in the manner and form prescribed in Part-11A of the Income Tax Rules, 1982 as per para. 4 of the Circular No.7 of 1997. Learned AR of the assessee stated that the property purchased was not an open plot and it was purchased along with the structure built thereon for Rs.10,00,000 learned AR of the assessee further contended that the notices issued by the Assessing Officer were not properly served upon the assessee, therefore, the assessment framed under section 63 was not maintainable. Learned AR of the assessee further contended that the Assessing Officer was not justified in making the addition under section 111(1)(b) of the Ordinance, 2001 when the proceedings were initiated through issuance of notice under section 56 and thus according to him the assessment was finalized by simultaneously resorting to the provision of two different statutes. Learned AR further contended that there was difference of substantive nature in the provisions available in the two statutes i.e. Income Tax Ordinance, 1979 and Income Tax Ordinance, 2001 regarding assessment of unexplained investment, therefore, the error committed by the Assessing Officer was fatal 'to the assessment framed by him. According to learned AR, the provision of section 13(1) of the Repealed Ordinance were different from those of the section 111(1) of the Ordinance, 2001 in the manner that approval of IAC was mandatory for making the addition under the provisions of Ordinance of 1979 which was not provided in the case of the Ordinance, 2001. It was also the contention of learned AR that the covered area adopted by the assessing officer was not correct. Learned AR submitted that as per PT-I Form issued by the Excise and Taxation Department the total covered area of the building constructed on 4 kanals 10 marlas land was 6750 sq.ft. Learned AR of the assessee however admitted that no objection was raised regarding the adoption and assessment of 1/2 share of the assessee in plot of 40 marlas and covered area as 5440 sq.ft in the wealth tax assessment framed for the assessment year, 1998-99.
6. Arguments of learned representatives of both the parties have been heard and the facts of the case as well as relevant provisions of law have also been perused. The contention of learned AR that, no addition could be 'made in respect of investment made in the property declared under the Amnesty Scheme, 1997 under the provision of relevant law is not tenable. In the Amnesty Scheme of 1997 as laid down in para. 5 of Circular No.7 of 1997 dated 21-7-1997 it had been provided that valuation of undisclosed asset shall be made in accordance with the rule contained in the Part-IIA of the Income Tax Rules, 1982. The value of the property under consideration was admittedly not in accordance with the prescribed rates as provided in Part-IIA supra. The contention of learned AR of the assessee that addition under the provision of f section 111(1) of the Ordinance, 2001 could not be made when the assessment proceedings were initiated under the provisions of section 56 and assessment was completed was under section 63 of the Repealed Ordinance however carries force. The fact that the assessment proceedings were initiated under section 56 of the Repealed Ordinance is not controverted by both the parties. The assessment of income pertaining to assessment year 1996-97 i.e. for the period prior to promulgation of the Ordinance, 2001 was finalized through an ex parte order passed under section 63 of the Repealed Ordinance. Under the provisions of subsection (4) of section 239 the assessment in the case where the proceedings under the Repealed Ordinance were pending on the commencement of Ordinance, 2001 are to be continued and completed as if this Ordinance (i.e. Ordinance, 2001) has not come into force. Even otherwise subsection (1) of section 239 of the Ordinance, 2001 provides that in case of assessments in respect of income year ending on or before 30-6-2002 the provisions of Repealed Ordinance insofar as these relates to computation of total income and tax paid thereon should apply as this Ordinance has not come into force. It is considered relevant to reproduce the subsections (1) and (2) of section 239 of the Ordinance, 2001:--
239. Savings
(1) Subject to subsection (2), in making any assessment in respect of any income year ending on or before the 30th day of June, 2002, the provisions of the repealed Ordinance insofar as these relate to computation of total income and tax payable thereon shall apply, as if this Ordinance had not come into force.
(2) The assessment referred to in subsection (1), shall be made by an income tax authority which is competent under this Ordinance to make an assessment in respect of a tax year ending on any date after the 30th day of June, 2002, and in accordance with the procedure specified in sections 59 or 59A or 62 or 63 as the case may be, of the repealed Ordinance.
(3) -------------
From the above provisions it is obvious that the determination of income and tax paid thereon in respect of an income year ending on or before the 30th June, 2002 is to be made under the provisions of Repealed Ordinance. It means that income chargeable to tax in such a case is to be determined under the relevant provisions of Repealed Ordinance and could not be charged to tax under the provisions of Ordinance, 2001. Thus in case of assessment of income in respect of an income year pertaining to period prior to promulgation of Ordinance, 2001 the deemed income could only be charged to tax under the relevant provision i.e. section 13 of the Repealed Ordinance. We are also inclined to accept the contention of learned AR of assessee that difference in the corresponding provision's of the two statutes under consideration i.e. section 13(1) and the section 111(1) of the Ordinance, 2001 is of substantial nature and the error in making the addition under section 111(1) of the Ordinance, 2001 instead of section 13(1) of the Repealed Ordinance being substantive in nature and fatal to the addition made under section 13(1) is not covered under section 155 of the Repealed Ordinance. For the purpose of comparison the relevant parts of both the provisions are reproduced as hereunder:-
Income Tax Ordinance, 2001.
Section 111 Unexplained income or assets.--
(1) Where
(a) any amount is credited in a person's books of account;
(b) a person has made any investment or is the owner of any money or valuable article; or
(c) a person has incurred any expenditure,. and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure as made or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head "Income from other Sources" to the extent it is not adequately explained.
(2) The amount referred to in subsection (1) shall be included in the person's income chargeable to tax in the tax year in which it was discovered by the Commissioner.
Income Tax Ordinance, 1979 (Now Repealed)
Section 13. Un explained investments, etc., deemed to be income ,---(1) Where,
(a) any sum is found to be credited in the books of an assessee maintained for any income year; or
(aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable article, in any year; or
(b) the assessee is found to have made any investment in any income year which is not recorded in the books of account 'maintained for that income year or is not shown in the wealth statement or return of wealth furnished under section 58 in respect of that year; or
(c) the assessee is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of account, if any, maintained by him or is not shown by him in any wealth statement or return of wealth furnished under section 58 in respect of that year; or
(d) the assessee has made investment in any income year or is found in respect of any such year to be the owner of any valuable article and the Deputy Commissioner finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement or return of wealth furnished under section 58 in -respect of that year; or
(e) an assessee has, during any income year, incurred any expenditure, and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of the money or valuable article, excess amount or the money from which the expenditure was met, as the case may be, or the explanation offered by him is not, in the opinion of the Deputy Commissioner, satisfactory, the sum so credited, the value of the investment, the money or the value of the article, the excess amount or the amount of the expenditure, as the case may be, shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance:
Provided that, where any act referred to income clauses (a) to is discovered after the assessment of income of the income year to which the said act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in which the said discovery is made:
Provided further that in cases referred to in clauses (aa) to (e) such income shall not be chargeable to tax unless approval of the Inspecting Additional Commissioner has been obtained.
The perusal of the above provisions of law reveals that the approval of IAC was a mandatory requirement for making any addition under the provisions of section 13(1) of the Repealed Ordinance of 1979. Such addition made without the approval of IAC were held not maintainable at the higher Appellate Forums. On the other hand no such approval is required under the corresponding provision i.e. section 111(1) of the Ordinance, 2001. Rather there is no concept of approval in the scheme of' Ordinance, 2001. Under the provisions of Repealed Ordinance, the powers of assessment were generally assigned to the Deputy Commissioner of Income Tax whereas in new law to Ordinance, 2001 Commissioner is the authority, who is basically vested with such powers. Section 210 of the Ordinance, 2001, empowers the Commissioner to delegate to any Taxation Officer all or any of powers and functions conferred upon or assigned to a Commissioner under the said Ordinance. However, Taxation Officer can also exercise all or any of the powers and functions of Commissioner in respect of any person or persons or classes of persons or areas where such powers are specially conferred upon or assigned to him by the C.B.R. or RCIT under subsection (2) of section 209 of the Ordinance, 2001. The ratio of the decision of honourable Karachi High Court reported as 2004 PTD 1173 is not applicable in the instant case since the facts and the issue involved are distinguishable from the reported case. In the case decided by honourable High Court the issue with regard to exercise of power under section 66-A of the Repealed Ordinance by only one authority i.e. IAC was involved. Exercise of such powers by the Commissioner having jurisdiction of assessment under the Ordinance, 2001 was upheld by the honourable High Court. In the case before us the powers of two different authorities having jurisdiction under the Repealed Ordinance are simultaneously required to be exercised which in our considered opinion could not be done by the same authority appointed under the new law. At the cost of repetition it is again pointed out here that the Commissioner is the assessing authority under the Ordinance, 2001 and such powers delegated to Taxation Officer are exercised by them on his behalf in our considered opinion no addition could be made under the provision of section 111(1) of the Ordinance, 2001 in a case where the assessment proceedings have been initiated and completed under the provisions of Repealed Ordinance of 1979. The order of the CIT(A) to annul the assessment is hereby maintained for the reason as discussed above.
7. As a result, the appeal of the revenue fails.
C.M.A./126/Tax(Trib.) Appeal dismissed.