1986 PTD 776

INCOME-TAX APPEALS NOS. 2661-L.B., 2662-L.B., 2663-L.B., 2664-L.B AND 2665 L. B. OF 1984-85 Versus INCOME-TAX APPEALS NOS. 2661-L.B., 2662-L.B., 2663-L.B., 2664-L.B AND 2665 L. B. OF 1984-85

Citation1986 PTD 776

CourtIncome Tax Appellate Tribunal

ORDER

In view of identical objections I am deciding these five further appeals by this combined order. The appeals relating to assessment years 1977‑78, 1978‑79, 1979‑80, 1980‑81 and 1981‑82 are directed against a consolidated order passed by the learned C.I.T.(A) Zone‑2, Lahore, dated 19‑1‑1985

2. The facts of the case are that the appellant, as individual derived income as a contractor. Nature of contracts was of labour supply with Messrs B. F. L., subletting of Messrs M. B. L., and undertaking of own construction of A. S. C. A complaint was received against the appellant on 22‑2‑1982 alleging that despite earning taxable income he was not paying any income‑tax. The Income‑tax Officer on 28‑2‑1982 issue to notice under section 56 of the Income‑tax Ordinance, 1979 (hereinafter called the Ordinance) directing the appellant to file returns for all the years under review within seven days. This notice was served on the appellant on the same date. Before the appellant could make compliance of notice under section 56 of the Ordinance, the Income‑tax Officer realized the legal lacuna that she was not competent to direct the assessee to file returns for any year prior to assessment year 1979‑80, merely by issuance of a notice under section 56 of the Ordinance. Without passing any order regarding his earlier directions of issuance of notice under section 56, the Income‑tax Officer on 4‑3‑1982 issued notice under section 65 of the ordinance for all the years. In compliance thereto the appellant filed returns declaring income at Rs.8,500, Rs.8,500, Rs.10,000, Rs.10,000 and Rs. 11,000 for the respective years under review. To ascertain the extent of the appellant's business, the Income‑tax Officer made inquiries It transpired that the appellant was paying rent at Rs.1,700 per month of the house wherein he was residing. In addition to that the appellant was found to be paying Rs.350 per month as school fee of his child. Finding the appellant's expenditure incurred on living to be substantial, the Income‑tax Officer confronted the appellant who in turn pleaded that he was being supported by his mother‑in‑law namely Mst. Mahmooda Begum. The Income‑tax Officer recorded statement of Mst. Mahmooda Begum who stated that she was deriving agricultural income. In the absence of any documentary evidence the Income‑tax Officer did not accept the appellant's plea of maintenance out of aid given by his mother‑in‑law. The appellant's net income was estimated at Rs.40,000, Rs.45,000, Rs.50,000 and Rs.55,000 for the first four years under consideration. For the charge year 1981‑82 the Income‑tax Officer estimated the appellant's receipts at Rs.3,25,000 against roughly, computed receipts at Rs. 2, 24, 694 G. P. rate of 15% was applied against 14% shown by the appellant. After allowing expenses on estimate at Rs.10, 000, the appellant's income for that year was determined at Rs.38,750. All these assessments were confirmed in appeal.

3. The first submission of the appellant's A.R. was that the Departmental Officer erred in processing and maintaining assessments for the year under review on the basis of a notice issued under section 65 of the Ordinance which notice was urged to be ab initio void and illegal. This argument of the appellant's A.R. was elaborated by stating that notice issued under section 56 of the Ordinance on 28‑2‑1982 stood impliedly withdrawn by the Income‑tax Officer when she issued notice under section 65 of the Ordinance on 4‑3‑1982. Reliance in this behalf was placed by the appellant's. A.R. on delicate distinction of an "assessee" and a "person" as given in the Ordinance. I find the grievance of the appellant's A.R. to be ill founded. Under sub‑clause (6) of section 2(1) of the Ordinance "assessee" has been defined to be a person by whom any tax or any other sum of money is payable under the Ordinance. The definition includes every person in respect of whom any proceedings have been taken under the Ordinance for assessment of his income. Under section 65 of the Ordinance the Income‑tax Officer was fully empowered to issue a notice to the appellant containing all or any of the requirements of a notice under section 56 of the Ordinance subject to the provisions of subsections (2), (3) and (4) of section 65 of the Ordinance. The appellant's case was fully covered by provisions of section 65 of the Ordinance as income in his case had totally "escaped assessment". In view of definition of the word "assessee" as given in the Ordinance, notice under section 65 was rightly issued to the appellant and I maintain the Income‑tax Officer's action while relying on the case of Nazir Ahmad v. King‑Emperor reported as AIR 1936 PC 253 wherein it was laid down that where law requires a certain thing to be done in a particular way, it should be done in that manner and not otherwise. Taking into consideration the facts and circumstances of the case I hold that the law empowered the Income‑tax Officer to initiate proceedings against the assessee for "escaped assessment" under section 65 of the Ordinance. The fact that prior to that the Income‑tax Officer had directed issuance of notice under section 56 of the Ordinance and the same was issued is totally immaterial as provisions of section 65 of the Ordinance is fully applicable and the Income‑tax Officer was empowered therein to issue notice to the appellant for the escaped assessment. The appellant's own conduct of filing returns in response to notice under section 65 also negates the arguments advanced at this stage. In this view of the matter I repel the legal objection of the appellant's authorised representative and maintained the Income‑tax Officer's action of issuance of notice under section 65 of the Ordinance along with processing of the assessments.

The next objection of the appellant's A.R. 'was that income for the first four years under review has been estimated on the basis of incurred expenditure wherein prior approval of the Inspecting Assistant Commissioner was required. This argument is devoid of any merits. The appellant's expenditure was taken as one of the considerations to judge the extent of his business and income. No addition under any sub‑clause of section 13 of the Ordinance was at all made. There was no occasion for seeking prior approval of the Inspecting Assistant Commissioner. In any case on 13‑6‑1983 the Income‑tax Officer had sought approval of the Inspecting Assistant Commissioner for the impugned assessments.

The last grievance of the appellant's A.R. was regarding excessiveness of the assessed income. It was stated that from the assessment years 1977‑78 to 1980‑81 the appellant having only one child even on the basis of expenses incurred for maintenance of a family of three members, the income assessed by the Income‑tax Officer was on the high side. Taking into consideration the fact that the Income‑tax Officer had examined the appellant's mother‑in‑law who admitted that she was deriving agricultural income. I feel that the estimates of income assessed for the first four years under consideration are slightly excessive. There does not exist any material on record to judge the extent of the appellant's business in these years. For the charge year 1981‑82 the Income‑tax Officer himself determined the appellant's income at Rs.38,750. Due to non‑availability of any details of contracts undertaken by the appellant I reduce the estimates of his income to Rs.35,000, Rs.40,000, Rs.45,000 and Rs.50,000 for the first four years under review. Income determined for the charge year 1981‑82 being reasonable is maintained.

4. As a result of the above discussion, appeals filed at the instance of the assessee for the charge years 1977‑78 to 1980‑81 succeed to the extent indicated above. Appeal relating to assessment year 1981‑82 being devoid of any merits is dismissed.

M. Y. H. Appeals partly accepted.