I.T.A. NO.3617/LB OF 1984-85, DECIDED ON 3RD NOVEMBER 1985. Versus I.T.A. NO.3617/LB OF 1984-85, DECIDED ON 3RD NOVEMBER 1985.

ORDER

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ZAFAR HUSSAIN (MEMBER) .‑‑This appeal has been filed by the assessee in respect of the assessment year 1982‑83 calling in question the order dated 27‑1‑1985 under section 66‑‑A of the learned I. A. C. of Income‑tax in respect of a number of issues. The learned counsel for the assessee and the have been heard and the appeal is decided as under: ????? ???????????

2. The facts briefly stated ere that the assessee, an individual, derives income from salary as Director of Messrs Mills Limited. He furnished a return for the assessment year 1982‑83 in the status of a resident declaring a loss of Rs.964 which was arrived at as under:

Salary from company,

Rs.24,000

Wealth Tax paid

Rs.24,964

Balance loss

Rs.964

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3. The I. ‑T.O. after making certain inquiries accepted the declared loss of Rs.964 and framed the assessment accordingly. In the assessment order the I.‑T,O. stated that the wealth statement, expenditure statement and details regarding the source of acquisition of shares of the company was discussed and examined. The relevant extract from his order is reproduced as under.

"As per wealth statement the total wealth declared by the assessee comes to Rs.20,51,588. This relates to investment made in the purchase of shares of the company in the shape of machinery imported from abroad. It was stated that the assessee is working in Saudi Arabia and was permitted by the Government to import machinery from semi‑ worsted spinning under non‑repatriable foreign investment from Saudi Arabia. The entire investments in machinery have been made by the assessee out of his earning abroad. Necessary documents in support of his contention were filed and examined. In view of the above facts the declared loss of Rs.964 is accepted."

4. Later, on examination of the assessment records of the assessee, the Inspecting Assistant Commissioner of Income‑tax found that certain facts which were noticed by the I.T.O. during the course of proceedings before him had not been probed into their logical conclusion and that the I.‑T.O. had finalised the assessment which was patently erroneous as it was prejudicial to the interest of the revenue. He accordingly issued a show‑cause notice in exercise of the powers conferred on him under section 66‑A of the Income‑tax Ordinance, 1979 on 30‑11‑1983. In the show‑cause notice he stated with reference to the investment made in the purchase of shares of Messrs Limited, that the order for the assessment year 1982‑83 was erroneous in so far as it was prejudicial in the interest of the revenue. He also indicated that the assessee had shown his status in the return as that of "Resident" but the information available on income‑tax record indicated that he was residing in Saudi Arabia and that the status was that of non‑resident. He afforded him an opportunity of being heard and called upon him to produce the documentary evidence such as passport etc. in support of his contention.

5. In reply to this show‑cause notice the assessee took the plea that so Oar as status was concerned it had wrongly beer, mentioned anal may be rectified under section 156. As regards the other points he stated that the assessments have been made under detailed ‑scrutiny with the guidance and approval of the Inspecting Assistant Commissioner of Income‑tax concerned. The provisions of section 66‑A had not applied to 'he facts of this case. The I. A. C. who was taking action under section 66‑A then made certain inquiries from the Manager Habib Bank Limited Chowk Shah Alam Market Lahore through a notice dated 15‑11‑1983 which was got issued under the signature of the I.‑T.O. who held jurisdiction over the case. Earlier at the time of the assessment the assessee had taken the plea before the I.‑T.O. that out of the total investment of RS.20,50,000 In the shares of Messrs H.W.M.L., Rs.14,70,462 represented the cost of the machinery brought by him and that the remaining amount of Rs.5,88,120 was claimed to have been arranged out of savings from foreign, remittances sent to his mother. This totals to Rs.20,58,520 and the difference of Rs.8 582 represented the loan advanced to the company. The I.‑T.O. had vide his Letter No.902 dated 29‑3‑1983 called upon the assessee to furnish the bank statement of his mother if she maintains any bank account. In his subsequent letter to the assessee dated 4‑4‑1983 he brought all these facts into the notice which he issued to the assessee under section 62 of the Income‑tax Ordinance. In this notice the I.‑T.O. pointed out, inter alia, that no evidence has been furnished in support of his contention that the sum of Rs.5,88,120 was available with his mother since no proof has been given in regard to the remittances which he may have made to his mother. He further stated in the notice that the investment of Rs.5,88,120 having not been explained he mould explain why this amount should not be treated as unexplained investment under section 13 of the Income‑tax Ordinance and added to income.

6. In reply to the notice of the I.‑T.O. the assessee stated the Income had been earned by him out side Pakistan which he sent to his mother Mst. M F in Pakistan and that she was not maintaining any bank account. As the money was received through non‑banking channels no bank account was maintained. In the meantime a certificate from the Habib Batik Limited bearing No. ARK/786, dated 2‑4‑1983 received by the I.‑T.O on 9‑4‑1983 was placed on record certifying that Mst. M s' wife of Mr. S H had deposited F.D.D. in her Account no.CD‑2232 issued by Messrs Company Saudia Arabia. The total of these deposits aggregated Rs.65,000 within the period from 15‑7‑1978 to 22‑12‑1980. The purpose it appears was to give an impression that the amount of Rs.5,88,120 was out of this amount. However, on the official inquiries made by the I.T.O. from the Habib Bank Limited a reply was sent under their No. SMT/786/248, dated 15‑5‑1983 that as already explained by the Bank vide their Letter No. SMT/786/242, dated 10‑5‑1983 the Account No. CD‑2.232 does not pertain to Mst. M F. The Bank accordingly required correct particulars for necessating action. Later, on further query by the I.T.O the bank informed vide their Letter No. SMT/786/ 255, dated 23‑5‑1983 that the Account No. CD‑2232 was not being maintained with the bank and that no certificate was issued by the bank under No. ARK/786, dated the 2nd April, 1983 which was referred to above.

7 On the basis of this reply the I.‑T.O. again issued a notice to the assessee under section 62 of the Income‑tax Ordinance vide his letter, dated 25th May, 1983 intimating that inquiries made by him show that Account No. CD‑2232 showing deposits of Rs.6,55.000 in respect of which a certificate was submitted by the assessee in support of his investment made in the purchase of shares of the company Messrs Hussain Woollen Mills Limited, Lahore was not issued by the bank. This indicates that the certificate submitted by the assessee was forged one and that the purchase of the shares of the company to the extent of Rs.5,88,120 stands unexplained. The assessee was called upon under this notice to explain why the amount should not be treated as income from unexplained source. Replying to the show‑cause notice the assessee stated in his reply, dated 31‑5‑1983 that the sum of Rs.5,88,120 was handed over to the company by his mother and that the entire amount including Rs.44,70,462 was encashed and sent out of Pakistan. The I.T.O. then passed the assessment order, dated 16‑6‑1983 in which he accepted the loss of Rs.964 as stated above. The assessment order only mentions the fact of the investment of Rs.20,58,582 in the purchase of shares of the company Messrs Hussain Woollen Mills Limited, Lahore without referring or discussing anything with regard to the sum of Rs.5,88,120 allegedly paid by his mother, or the fact of a fraudulent certificate filed by the assessee.

8. It was in these circumstances that the learned I. A. C. of Income‑tax issued a show‑cause notice under section 66‑A vide his letter, dated 30‑11‑1983 referred to above earlier in the order to the assessee on the examination of the assessment record. The learned I. A. C. of Income‑tax also got inquiries made vide letter, dated 15‑12‑1983 addressed to the Manager, Habib Bank Limited issued under the signature of the I.‑T.O., referred to in the order earlier, in regard to the alleged amount of Rs.6,55,000 in respect of which the assessee had furnished a wrong certificate saying that the amount was received by the assessee's mother in the Account No. CD‑2232. The Manager Habib Bank informed the department vide their Letter No. SMT/786/629, dated 20‑12‑1983 that the Account No. CD‑2322 actually pertains to Mr. H.M. Muhammad Iqbal. Lahore and that it does not pertain to Mst. Maryam Fatima. The reply further confirmed that the account once allotted can be changed and that they have not found a single F.D. D. as shown in the I.T.O's. letter, dated 15‑12‑1983 referred to above. On the basis of these circumstances the I.A.C. passed an order under section 66‑A bringing to charge, the amount of Rs.5,88 120 as unexplained Investment under section 13 (1) (as) of the Income‑tax Ordinance and after accounting for a declared loss of Rs.964 framed the assessment accordingly.

9. The grounds taken in the memo of appeal by the assessee against the order of I. A. C. may now be taken up:‑

(1) ??????? The first plea is that the order passed by the I.A.C. does no attract the provisions of section 66‑A and the order is therefore, illegal. The section 66‑A of the Income‑tax Ordinance empower an I.A.C. to revise the I.T.O's. order if he considers, (i) that the order passed by him is erroneous in so far as it is prejudicial to the interest of the revenue after giving an opportunity end (ii) after making an inquiry as he deems necessary. The circumstances of the case narrated above show that the order passed by the I.‑T.O. was erroneous. It was erroneous in so far as it was clearly prejudicial to the interest of the revenue. The I.T.O. had accepted the plea of the assessee of the entire amount of Rs.20,58,582 having been sent from abroad without any evidence or any basis or by conniving at the fraudulent certificate of the Habib Bank showing a sum of Rs.d,55,000 standing in the name of his mother, which amount the had alleged to have sent to his mother and out of which the amount saved was invested to the extent of Rs.5,88,120 which he had invested in the purchase of shares alongwith the cost of the machinery at Rs.14 70,462. The amount of Rs.5,88,120 had remained unexplained and in‑spite, of this fact the I.‑T.O. had accepted the assessee's plea. He did not mention this amount in the assessment order nor did he deal with the issue. The learned I. A. C's. show‑cause notice dated 30‑11‑1980 provided an opportunity to the assessee to explain his case and he had also got inquiries made vide his letter dated 15‑12‑1983 issued to the Habib Bank under the signature of the I.‑T.O. who held the jurisdiction over the case. In this connection our attention was drawn to the case reported as (1969)‑20‑Tax‑51‑(Trib) where it has been held by the Tribunal that the order which is intended to be revised by the I.A.C. should not only be erroneous but also prejudicial to the interest of the revenue. The I.A.C. in the present case found that the order was erroneous as unexplained amount was left uncharged though it was clearly liable to tax under section 13 (1) (as) of the Income‑tax Ordinance E and for that matter it was prejudicial to the interest of the revenue also. We are of the view that the provisions of section 66‑A of the Income‑tax Ordinance were squarely attracted in this case and the notice had rightly been issued by the learned I.A.C.

(2) ??????? The second plea is that the assessee was a non‑resident and the addition of Rs.5,88,120 is not covered under section 13, the source of income being outside the country. It has to be borne in mind that the first Return of income indicated the status of resident which was later revised as 'non‑resident' in the revised return, The ground that the entire source had originated outside of the country falls to the ground after the fraudulent plea was discovered that the amount did not represent the remittances were made by the assessee to his mother. If the amount of Rs.5,88,120. No such remittances were made and the amount represented earnings in the country. If it had been remitted from abroad the assessee could have been able to prove the same. The source of Rs.5,88,120 did not originate outside the country.

(3) ??????? The next plea taken by the appellant is that the order framed by I.‑T.O. under section 62 of the Income‑tax Ordinance had been duly approved by the I. A. C. and the mere change of opinion on the same facts taking the plea of the order being prejudicial to the interest of the revenue was illegal and uncalled for. The fact of the matter is that the original order was not passed with the approval of the I. A. C. and all that may have been is that it may have been passed in consultation with the I.A.C. (incidentally that I.A.C. is different from the I.A.C. who issued notice under section 66‑A of the Income‑tax Ordinance). The learned D. R. has even controverted the assertion that the assessment order was passed in consultation with the I. A. C. No specific evidence has been produced before us that it was passed even in consultation with the I.A.C.

Even if it is presumed that the order was passed in consultation with the I. A. C., it would be desirable to refer to the relevant instructions issued for the disposal of cases under detailed scrutiny for return filed for 1982‑83 vide Circular No.10 of 1982 dated 2‑8‑1982, the instruction in para 8 of the said circular are to the following effect.

"The cases may be examined and assessments made by the assessing officer holding jurisdiction over such cases in consultation with the I.A.C/C.I.‑T."

We are told that these cases were decided by the I. T .O. in consultation with the I.A.C. Although the specific fact of the consultation has not been brought to our rot ice by the appellant, yet presuming ii as a fact, it does sot debar the I.A.C. to take action under section 66‑‑A of the Income‑tax Ordinance. The consultation is not the same thing as approval, which was alleged by the appellant in the first instance. As to what the consultation means the learned counsel for the assessee referred us to the law Lexicon, which defines the word consult as follows.

"The word 'consult' implies a conference of two or more persons or an impact of two or more minds in respect of a topic in order to enable them to evolve a correct, or at least, a satisfactory solution. Such a consultation may take place at a conference table or through correspondence. The form is not material but the substance is important. It is necessary that the consultation shall be directed to the essential points and to the core of the subject or involved in the discussion. The consultation must enable the consultor to consider the pros and cons of the question before coming to a decision. A person consults another to be elucidated on the subject‑matter of the consultation. A consultation may be between an uniformed person and an expert or between a doctor a client consults his lawyer; two lawyers or two doctors may hold consultations between themselves. In either case the final decision is with the consultor but he will not generally ignore the advice except for good reasons. So too in the case of a public authority. Many instances may be found in statutes when an authority entrusted with a duty is directed to perform the same in consultation with another authority which is qualified to give advice in respect of that duty."

The definition clearly shows that consultation does not involve the process of approval. The plea that the I.A.C. had earlier approved the assessment is not correct and that even if the assessment passed in consultation with I.A.C. it does not stand in the way of revising the order of the I.‑T.O. for which powers has been conferred on the I.A.C. under section 66‑A . We would go as far as that even if the 'order had been got approved from the I.A.C. by the I.‑T.O. without disclosing full facts to him, even in these circumstances the I.A.C. have the power to revise his order if on examination of assessment record and after making an inquiry, he finds that the order was erroneous in so far as it was prejudicial to the interest of the revenue. The learned D.R. has pointed out that the return filed by the assessee did not qualify under the self‑assessment scheme nor was the case finalised under the detailed scrutiny, which was disposed of under the normal law under section 62 of the Income‑tax Ordinance. The approval of the I.A.C. or consultation with him was not required.

The I.‑T.O. after making inquiries in regard to the investment in the shares of Messrs Mills, L. passed a dishonest order in so far as he deliberately ignored the position with regard to Rs.5.88,120 in respect of which the assessee had made a fraudulent attempt to explain it with reference to a bogus account in the Habib Bank. Therefore, a notice under section 66‑A was necessary and not under section 65 as contended by the learned counsel for the assessee. It is not a matter of the change of opinion but the action was taken by the I.A.C. in the face of probably wrong order which was prejudicial the interest of` the revenue as he had deliberately kept back facts from the assessment order.

(4) ??????? Still another plea taken in the memo of appeal is that the I.T.O's. order has shown as erroneous and prejudicial to the interest of the revenue and that the I.A.C. has not provided an opportunity to the assessee of being heard. It is further contended that he did not make any inquiry in this regard. This ground is against the factual position as not only had the I.A.C. given a show‑cause notice vide No. J‑78/427, dated 30‑11‑1983 to the assessee referred to earlier in this order in which he had pointed out that the order passed by the I.T.O. was erroneous in so far as it was prejudicial to the interest of the revenue. The assessee obviously was called upon to explain the matter relating to the investment in the shares of the company as and the fraudulent certificate produced by him had left the sum of Rs.5,88,120 unexplained. Not only that he got a letter written to the Manager Habib Bank Limited. Chowk Shah Alam Market, Lahore vide his Letter No. 226/CC‑VI, dated 15‑12‑1983 referred to earlier in the assessment order but it was sent to the Manager under the signature of the I.T.O. who held the jurisdiction over the case and who could call upon the Bank Manager to furnish the information relating to the CD account No. 2232 and the alleged amount of Rs.6,55,000 standing in that account. We have at some length discussed this matter in the order. It is, therefore clear that an opportunity was provided to the assessee and further inquiries were also made to know ‑the precise portion about the fraudulent bank certificate in se) far as Habib Bank had earlier reported vide its Letter No. S.M.T./786/255, dated 23‑5‑1983 referred to earlier that the bank was neither maintaining Account No. CD‑2232 in respect of Mst. Maryam Fatima nor had they issued any certificate under their No. ARK/786, dated 2nd April, 1983. Requirement of law, to our mind, was duly fulfilled in this regard. The question of the order being erroneous and prejudicial has also been dealt with in the first ground of appeal above

(5) ??????? The fifth ground of appeal is to the effect that the alleged certificate mentioned in the order was not , produced by the assessee and, therefore no reliance can be placed on the same. The bogus certificate is available on the record and whoever placed the same is immaterial in so far as the I.T.O. apparently relied on that to treat the amount of Rs.5,88,120 as having been explained. Even this certificate is taken out of the record the fact remains that the I A. C. once again conducted independent inquiry and obtained a reply from the bank which is to the effect that they were not maintaining any account with No. CD‑2232 in the name of Mst. Maryam Fatima. This independent inquiry so far as the A.A.C s. order is concerned was considered sufficient by the I.A.C. and we have no reason to differ with that view.

(6) Another plea taken is that the addition of Rs.5 88,120 under section 13 (1) (aa) of the Ordinance is illegal as no prior approval has been obtained as required under the law. While passing an order under section 66‑A of the Income‑tax Ordinance the learned I.A.C. added the sums of Rs.5,88,120 to income saying that the "investment in the purchase of shares of the company treated as unexplained money under section 13 (1) (as)'. Obviously the I. A. C. was passing an order under section 66‑A of the Income‑tax Ordinance which empower him to 'pass such order thereon as the circumstances of the case justified, including an order enhancing or modifying the assessment, or cancelling the assessment, and directing a fresh assessment to be made". He did not need to invoke the provisions of section 13 (1) (as) and for that matter the question of the approval of the I. A. C. as required under subsection (2) of section 13 of the Ordinance was not necessary. The reference to section 13 (1) (as) of the Ordinance was redundant and would not vitiate his order. What the I.A.C. means perhaps was that the unexplained sum of Rs.5,88,120 is to be treated as unexplained money in the same manner as the sum which an I.‑T.O. would treat under section 13 (1) (as). Obviously there is no such requirement under section 66‑A and the question of obtaining the approval of the I.A.C. under section ‑13 (2) of the Ordinance would not be necessary as he has all the powers under section 66‑A to pass such order which the circumstances of, the case justify.

(7) ??????? The last plea of the appellant is that the notice under section 119 of the Ordinance by the I.‑T.O. is illegal and uncalled for. This section refers to the prosecution for concealment of income and the decision on the same is not before us. The learned counsel for the assessee also did not offer any comments on this issue. In any case the ground is immature in so far as the proceedings under section 119 have only been commenced not finalised. The issue does not call for any adjudication by the Tribunal at this stage either. We may refer to the appellant's plea that the status of the assessee being non‑resident the amount was not taxable. We, however, agree with the DR who has taken the plea that the non‑resident was liable to tax under) section 11 (1) (b) under which non‑resident is liable to tax on all income which accrues or arises to him in Pakistan during such year and the amount if unexplained was taxable

10. In the result the appeal is disallowed and the I.A.C's. decision to add Rs.5,88,120 to income of the assessee for the assessment year 1982‑83 is confirmed.

M.Y.H. ??????????????????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.