2010 PTD 2391
ORDER
KHALID WAHEED AHMED, JUDICIAL MEMBER .---The above titled appeals, at the behest of the assessee-appellant, pertaining to assessment years 1996-97 to 1998-99 and 2000-2001 are directed against the combined order dated 2-9-2004 of CIT(A), Zone-II, Islamabad.
2. Mr. Mir Ahmed Ali, advocate, the learned AR appeared on behalf of the assessee-appellant and Ch. Nasim Ilyas, the learned DR appeared on behalf of the Revenue.
3. The assessee-appellant, an individual, derives income from running a private school. Original assessments for the assessment years 1996-97 to 1998-99 were completed under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance) which were set aside by the CIT Islamabad Zone, Islamabad on the revision filed by the assessee under section 138 of the Repealed Ordinance. Reassessments were finalized through a combined order passed on 28-6-2002 income from business was repeated as per original order which were assessed at Rs.9,91,322 Rs.11,53,037 and Rs.14,97,734 respectively for the assessment years 1996-97 to 1998-99. However, the addition of Rs.9,63,000 under section 13(1)(aa) as originally made to the income of-assessment-Year 1996-97 was not made by the Assessing Officer while passing the order under sections 62/138 of the Repealed Ordinance. On again being challenged by the assessee before the first appellate authority, the assessments were set by the CIT(A) for de novo decisions to be made after providing the assessee a reasonable opportunity of being heard. The above findings of CIT(A) are assailed by the assessee-appellant on the following common grounds:
(i) That orders of both the officers below are bad in the eyes of law and contrary to the facts of the case.
(ii) That entire reassessment proceedings as well as combined assessment finalized under sections 62/138 vide order dated 28-6-2002 served upon your appellant on 30-5-2003 are ab initio illegal, void without lawful authority and jurisdiction.
(iii) That appointment of special officer under subsection (2) of section 4 by RCIT is illegal and without lawful authority:
(iv) That CIT is not empowered to set aside assessment for de novo consideration under section 138 vide Rev. No. 702(511)J.Br/ 98-99 dated 8-9-1999 heard on 3-9-1999.
(v) That without prejudice to above, the reassessment finalized under sections 62/138 under a combined order dated 28-6-2002 for the assessment years 1996-97 to 1998-99 by Assessing Officer at a flat figure repeating original assessed business income is ab initio illegal, void without lawful authority and jurisdiction.
(vi) That the reversionary order, if construed to be a judicial order, then reassessment uncler sections 62/138 is ab initio illegal, without lawful authority and barred by time as provided under clause (c) of subsection (1) of section 66 of the repealed Ordinance.
The additional grounds were also filed by learned AR of the assessee contesting the estimation of gross receipts/income as well as disallowance of P&L expenses. However, at the time of hearing of appeals, the grounds relating to facts of the case were not pressed by learned AR of the assessee. The appeals of the assessee were contested by the learned AR on the following legal issue only:--
(i) That impugned original assessment finalized under section 62 by the special officer appointed under section 4(2) was ab initio illegal, void, without lawful authority and jurisdiction.
(ii) That said assessment order set aside by CIT under section 138 was also ab initio illegal, void, without lawful authority and not in consonance with statutory provision of the repealed Ordinance.
(iii) That entire combined reassessment proceeding initiated thereafter by issuing statutory notices for assessment years 1996-97 to 1998-99 is of no legal effect and void ab initio.
(iv) That the proceedings initiated under 'direction of Reversionary order passed by the CIT culminated in combined order for the years under consideration also by special officer is ab initio illegal, without lawful authority, jurisdiction and barred by time.
4. The assessment for the assessment year 2000-2001 was finalized under section 62 of the Repealed Ordinance Gross receipts were estimated at Rs.76,00,000 as against declared by the assessee at Rs.74,16,185. Net income for the assessment year 2000-2001 was assessed at Rs.35,56,861 by making disallowances from the expenses claimed under certain heads of P&L account. The CIT(A) set aside the assessment through the combined impugned order dated 2-9-2004 which is assailed by the assessee-appellant through the instant appeal. At the time of hearing of appeal, learned AR of the assessee opted not to press the grounds of appeal relating to the facts of the case and the appeal was contested only on the following legal grounds:
(i) That orders of both the officers below are bad in the eyes of law and contrary to the facts of the case.
(ii) That entire reassessment proceedings as well as combined assessment finalized under section 62 vide order, dated 25-8-2003 is ab initio illegal, void without lawful authority and jurisdiction.
(iii) That special officer presently acting as Taxation Officer delegated some of the powers of Commissioner of Income Tax under section 210 of the Ordinance, 2001 appointed under subsection (2) of section 4 of the repealed Ordinance by RCIT is illegal.
(iv) That assessment finalized by Taxation Officer under section 62of the repealed Ordinance is negation of provision of sub-section (4) of section 239 of the Ordinance, 2001.
(v) That CIT(A) is not justified to set aside assessment under a combined appellate Order No.616 dated 28-8-2004 for assessment years 1997-98 to 2000-2001 for de novo consideration.
I.T.As. Nos.278 to 280/IB of 2005 (Assessment years 1996-97 to 1998-99).
5. Learned AR of the assessee, in his arguments vehemently contended that legally no reassessments could be framed by the Assessing Officer in consequence of the order passed by the Commissioner under section 118 of the Repealed Ordinance. It was the contention of learned AR that the order of reassessment passed under sections 62/138 by the special officer as well as of the CIT under section 138 of the Repealed Ordinance for the assessment years 1996-97 to 1998-99 were not sustainable in law. According to learned AR the Commissioner while exercising the powers under section 138 of the Repealed Ordinance had no jurisdiction to remand back the case to the Assessing Officer for reassessment. Learned AR contended that the revisional powers of Commissioner were not judicial in nature. According to learned AR under the provisions of Repealed Ordinance the Assessing Officer was not entrusted with powers to make the reassessment in consequence of an order passed by the Commissioner under section 138 of the Repealed Ordinance. According to learned AR it was also for this reason that no limitation for reassessment in the case of an order passed under section 138 was provided in law i.e. either in section 64 or 66 of the Repealed Ordinance. It was the viewpoint of learned AR that the order of CIT passed under section 138 was a revisional order and not a judicial order therefore no order subsequent to it could be passed by the DCIT being a junior officer in the hierarchy of the Income tax authorities under the Repealed Ordinance. According to learned AR revisional powers were entrusted to the Commissioner only and thus could not be exercised by any other authority. On his turn, learned DR in his arguments defended the impugned order. According to learned DR, no prejudice was caused to the assessee with the remanding back of the assessment by the CIT(A) by whose order passed under section 138 the assessee was provided with the opportunity of being heard as well as to substantiate his claim. Learned DR contended that it was not correct that the CIT Zone has no jurisdiction to set aside the assessment while passing the order under section 138 of the Repealed Ordinance. According to learned DR the only restriction upon the Commissioner under section 138 was that no order being prejudicial to the assessee could be passed by him. It was the contention of learned DR that the remanding back of the case to the Assessing Officer to provide the assessee with the opportunity of being heard was not an order prejudicial to the assessee. Learned DR further contended that it was not correct that no limitation was provided in the statute for reassessment to be framed in consequence of an order passed under section 138 of the Repealed Ordinance. Learned DR contended that in case of an order passed under section 138 of the Repealed Ordinance limitation for reassessment was provided in clause (b) of subsection (1) of section 66 which was two years from the end of the financial year during which such order was received by the Deputy Commissioner. According to learned DR the cases of reassessment to be made in consequence of order passed under Chapter (VIII) and (XIV) of the Repealed Ordinance were also covered under the said provisions i.e. section 66(1)(b) of the Repealed Ordinance.
6. Arguments of learned representatives of both the parties have been heard and the relevant provisions of law have also been perused. We are unable to subscribe to the viewpoint expressed by learned AR that the Commissioner was not empowered to set aside the assessment while disposing of the revision petition under section 138 of the Repealed Ordinance. Before proceeding further we will like to reproduce the provisions of subsection (1) of section 138 of the Repealed Ordinance which are as hereunder:-
"(138) Revision by Commissioner .---(1) The Commissioner may either of his own motion or on an application made by the assessee for revision, call for the record of any proceedings under this Ordinance in which an order has been passed by any authority subordinate to him and make such inquiry or cause such inquiry to be made and, subject to the provisions of this Ordinance, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit."
From the perusal of above the only restriction upon the Commissioner while passing an order under section 138 is that no order prejudicial to the assessee is to be passed by him. Now the question arises that whether an order of remanding back of the case by the Commissioner under section .138 of the Repealed Ordinance to the Assessing Officer could be an order prejudicial to the assessee. In our opinion, such order could not be called prejudicial to the assessee unless the liability of the assessee is increased because of enhancement made in the income or refund is reduced as a result of such order. In the instant case the original assessment framed for the three years under consideration were set aside with certain directions by the CIT, Islamabad Zone, Islamabad vide order dated 8-9-1999 passed under section 138 of the Repealed Ordinance on revision petition of the assessee. It was directed by the Commissioner vide above order that during de novo proceedings the reassessment should be made purely on merit and after considering the facts of the case. The perusal of the revisional order dated 8-9-1999 reveals that the rejection of declared version and assessment of business income from running the school as well as addition under section 13(1)(aa) were contested mainly on the ground that proper opportunity of being heard was not provided to the assessee which according to him was against the spirit of natural justice. It was also contended through the revision petition that proofs of investment were not completely produced before the Assessing Officer due to lack of time. It is also pointed out here that original assessments for the assessment years 1996-97 to 1998-99 were finalized at total net income of Rs.17,54,322, Rs.11,53,637 and Rs.14,97,734 by adopting the estimate of gross receipts at Rs.28,00,000, Rs.37,00,000 and Rs.52,75,000 respectively. The perusal of the order passed under sections 62/138 reveals that this time no addition was made for the assessment year 1996-97 as against the addition of Rs.7,63,000 made under section 13(1)(aa) in the original order. The business income was adopted at the same figures of Rs.9,51,322 Rs.11,53,037 and Rs.14,97,734 as originally assessed which means that no enhancement has been made in the income assessed as per original order. Under the circumstances, considering the facts of the instant case, the assessment framed under sections 62/138 in accordance with the directions of the Commissioner as per order passed under section 138 could not be considered as an order prejudicial to the assessee. We also find force in the contention of learned DR that for the purpose of an order to be passed in consequence of section 66A the limitation was provided in G section 66 of the Repealed Ordinance. It will be relevant to reproduce the relevant provisions which are as hereunder:--
"66. Limitation for assessment in certain eases .---(1). Notwithstanding anything contained in section 64 and subsection (3) of section 65 where, in consequence of, or to give effect to any finding or direction contained in any order made under this Chapter or Chapter VIII, XIII or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction.-
(a) an assessment is to be made on any firm or a partner of any firm; or
(b) an assessment is to be made on the assessee or any other person; or an assessment has been set aside, in full or in part, by an order under section 132 or section 135 and no appeal is filed under section 134 against such order or no [appeal filed] under section 136 in respect thereof, as the case may be, such assessment may be made at any time within two years in any case to which clause (a) or clause (b) applies, and within one year in any case to which clause (c) applies, from the end of the financial year in which such order is received by the [Deputy Commissioner]."
From the perusal of the above, it is clear that in consequence of or to give effect to any finding or direction contained in any order made under Chapter XIII; the section 138 being included therein, the provisions of clause (b) of subsection (1) of section 66 of the repealed Ordinance are also applicable in such cases. It is pointed out here that if the above view point of learned AR of assessee is accepted then the appeal filed by him before the Commissioner Appeal against the order passed by the Assessing Officer in consequence of the order of Commissioner passed under section 138 of the Repealed Ordinance was also not legally maintainable. However, in view, of the facts of the instant case as well as provisions of law as discussed above, we are not inclined to subscribe to the view point expressed by learned AR. No argument in support of the grounds relating to merits of the case was put forth by learned AR of the assessee, which remained unsubstantiated. Considering the facts of the case the order of the CIT(A), being justified and reasonable is maintained.
7. As a result, the appeals of the assessee for all the three years under consideration fail.
ITA No. 281/IB/2005 (Assessment year 2000-2001)
8. For the assessment year 2000-2001, the legal objection of learned AR of the assessee was that since no notice under section 61 of the Repealed Ordinance could be issued for the said year, the assessment framed by the Taxation Officer on 25-6-2003 was legally not maintainable. According to learned AR, the amendment made through insertion of words "or 61" vide S.R.O. 633(I)/2002 dated 14-9-2002 had been declared illegal by the High Court in its judgment reported as 2005 PTD 1621 (H.C. Lah.) which view point also stands confirmed by the Honourable Supreme Court of Pakistan in the case reported as 2006 SCMR 109. According to learned AR the assessment framed for the assessment year 2000-2001 on the basis of proceedings initiated under section 61 of the repealed Ordinance should have been annulled by the CIT(A) instead of having been set aside. It was the contention of learned AR that the powers conferred upon the Commissioner under the Ordinance, 2001 could only be delegated to the Taxation Officer under the provisions of section 210 of the said Ordinance and no power under the Repealed Ordinance could be delegated by the Commissioner. According to learned AR, the Commissioner not himself having the powers to issue notice under section 61 at the time of framing of assessment could not delegate such powers to the Taxation Officer. It was the contention of learned AR that issuance of notice by the Taxation Officer who was an authority competent to make the assessment in respect of an income year ending on or before 30th June, 2002 under subsection (2) of section 239 of the Ordinance, 2001 was illegal and without jurisdiction. Learned AR also contended that the assessment framed for the assessment year 2000-2001 without issuance of a valid notice under section 61 of the Repealed Ordinance was legally not maintainable. Learned DR on the other hand in his arguments, contended that there was no legal infirmity in the notice issued under section 61 of the Repealed Ordinance by the Taxation Officer. According to learned DR a notice under section 61 could be issued by the Taxation Officer under the provisions of subsection (4) of section 239 of the Ordinance, 2001 as well as the provisions of section 6 of the General Clauses Act. According to learned DR, even otherwise the provisions of section 61 of the Repealed Ordinance were covered with the savings of section 62 or 63 in subsection (2) of the Ordinance, 2001. Learned DR submitted that under the provisions of section 62 the Assessing Officer was required to consider the evidence produced under section 61 and thus the provisions of section 61 being a part of the procedure of assessment were also covered under section 62 of the Repealed Ordinance. Learned DR further concluded that even if it was presumed that the notice under section 61 which was a procedural notice was issued without jurisdiction the assessment framed was not liable to be annulled because no prejudice was caused to the assessee. Learned DR further contended that the assessment was framed by the Taxation Officer who was competent to frame such assessment under the provisions of subsection (2) of section 239 and the notice issued under section 61 was also legal in view of the provisions of subsection (4) of section 239 of the Ordinance, 2001.
9. Arguments of learned representatives of both the parties have been heard facts of the case considered as well as relevant provisions of law have also been perused. We are not inclined to subscribe to the view point expressed by learned AR that the notice issued under section 61 by the Taxation Officer was without jurisdiction. In our opinion, the Taxation Officer was competent to frame the assessment for the year under consideration in the instant case. It will be relevant to reproduce here the then provisions of subsections (1), (2) and (4) of section 239 of the Ordinance, 2001 which are as hereunder:--
"(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.
(4) Any proceeding under the repealed Ordinance pending on the commencement of this Ordinance before any income tax authority, the Appellate Tribunal or any Court by way of appeal, reference, revision or prosecution shall be continued and disposed of as if this Ordinance has not come into force."
It is very much clear from the above provisions that an authority competent to frame the assessment under the Ordinance, 2001 is empowered to make the assessment in respect of any income year ending on or before 30th day of June, 2002. The Taxation Officer who is a competent authority under the Ordinance, 2001, to make the assessment in respect of any tax year is also empowered under the provisions of subsection (2) of section 239 of the Ordinance, 2001, to frame the assessment in respect of any income year ending in or before 30th June, 2002, however, such assessments according to then provisions of law are required to be made in accordance with the procedure laid down in sections 59 or 59A or 62 or 63 of the Repealed Ordinance as the case may be. It will be beneficial to reproduce here relevant part of section 62 of the Repealed Ordinance which is as here under:-
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.
According to the above quoted provisions of section 62(1) of the Repealed Ordinance before passing of an order in writing to assess the total income and to determine the tax payable thereon the Assessing Officer is required to proceed in the following manner:-
(i) To consider the evidence available on record
(ii) to consider the evidence if any produced under section 61
(iii) and to also consider such other evidence as the Deputy Commissioner may require on specific point.
The mandatory provisions of section 61 of the Repealed Ordinance are although procedural but are of substantive nature. No assessment under section 62 or 63 of the Repealed Ordinance could be framed without issuance of a notice under section 61 of the Repealed Ordinance. In all such cases the assessment proceedings are initiated through issuance of notice under section 61 of the Repealed Ordinance. In other words the jurisdiction of the assessment proceedings for making the assessment under section 62 or 63 of the Repealed Ordinance is assumed by the Assessing Officer by issuing a notice under section 61 of the said Ordinance because the Assessing Officer is required to consider the evidence if any is produced under section 61 which could not be produced without issuance of such notice. The provisions of section 61 of the Repealed Ordinance originally were not saved under subsection (2) of section 239 of the Ordinance, 2001 until the amendment to this effect made therein vide Finance Act, 2003 being applicable w.e.f. 1-7-2003. In our opinion no notice under section 61 of the Repealed Ordinance could be issued during the said period i.e. till the insertion of words "or 61" made through the above mentioned amendment in section 239(2) of the Ordinance, 2001 vide Finance Act, 2003. The amendment made by the C.B.R. vide S.R.O. 633(I)/2002 dated 14-9-2002 which was declared to be illegal by the High Court which order has been upheld by the honourable Supreme Court of Pakistan in the case reported as (2006) 93 Tax 197 (S.C. Pak.). Under the circumstances, the assessment framed by the Taxation Officer under section 62 of the Repealed Ordinance on 25-6-2003 for the assessment year 2000-2001 in the absence of a valid notice issued under section 61 of the Repealed Ordinance is legally not maintainable. Consequently, the assessment framed by the Assessing Officer under section 62 of the Repealed Ordinance for the assessment year 2000-2001 as well as the order of the CIT(A) to set aside the same stand vacated.
10. As a result, the appeal of the assessee for the assessment year 2000-2001 succeeds.
C.M.A./127/Tax (Trib.) Order accordingly.