I.-T.A. NO. 296(1-B)/1985-86, DECIDED ON 30TH MARCH, 1986. Versus I.-T.A. NO. 296(1-B)/1985-86, DECIDED ON 30TH MARCH, 1986.
ORDER
SIKANDAR HAYAT KHAN (MEMBER).‑‑ This appeal at the instance of the assessee is directed against the impugned order of learned A . A . C . by virtue of which he modified assessment relating to the charge year 1979‑80.
2. Brief facts giving to this appeal are that the assessee, a registered firm, derives income from a brick‑kiln and carrying on business under tire name and style of Messrs Fazal Hussain, Sardar Khan. Initially, income disclosed by the assessee was accepted under subsection (1) of section 59 of the Income‑tax Ordinance, 1979 on 6:10‑1979. Subsequently, this assessment was re‑opened under section 65 (1). (a) where as it should .have been opened under clause (b) of the' said section. The record of this case also reveals that this assessment was finalized under section. 62 read with section 68 whereas the relevant section for making this assessment is 65 of the Ordinance ibid.
3. The I.‑T.O. while making re‑assessment estimated income of the assessee by taking capacity of 4,00,000, bricks per round. At the rate of 4 rounds to a year total production of bricks was calculated at 16,00,000. After allowing 10% on account of wastage production for purposes of sale was put at:14,40,000. This production of bricks was converted into turnover at the rate of 'Rs.310 per thousand of bricks. In this manner turnover of bricks was estimated at Rs.4,46,000 which was subjected to net rate of 33‑1/3% . On this basis net income of the assessee was fixed at Rs.1,48,800. Income so assessed was contested in appeal before the learned A.A.C. who by virtue of Appeal No. 576, dated 21‑12‑1980 confirmed production of bricks are well as turnover. However, net profit rate of 33‑1/3% was converted into gross profit rate of 30% subject to allowance of reasonable P&L expenses. As the assessee‑ did not feel satisfied with the quantum of relief allowed by the learned A. A. C., it filed second appeal before the Tribunal for the redress of its grievances. In this connection objections of the assessee are listed below‑‑
(1) that account version was erroneously and unjustifiable rejected by the I‑.T‑.O‑. and subsequently confirmed by the learned A. A. C.
(2) that confirmation of sale rate and 4 rounds to a year for the production of bricks was excessive and misconceived.
(3) that wastage allowed by the I‑.T.O. and subsequently confirmed by the learned A. A. C. was inadequate.
(4) At the time of hearing learned counsel for the assessee has sought our permission raise on additional ground of appeal. As it relates to a question of law we hereby allow it to be raised as a preliminary objection. This is set out below for facility of reference:‑. "that re‑assessment framed in consequence of notice under section 65 is legally misconceived as approval of the concerned IAC/CIT was not obtained and there is no information on record to proceed with the case of the assessee under section 65(b) of the Ordinance ibid which was subsequently confirmed by the learned A. A. C."
5. After hearing both parties we find that initially in this case assessment was made under section 59 (1) on net income of Rs. 41,515 under the Self‑Assessment Scheme by virtue of I.‑T.O. Circle‑7, Gujrat's order, dated 6‑10‑1979. The said section is reproduced below for facility of reference:‑
"Where the return of total income, for any income year furnished by the assessee under section 5 qualifies for acceptance in accordance with the provisions of a scheme of self‑assessment made by the Central Board of Revenue for the year or under any instructions or orders issued thereunder, the Income‑tax Officer shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment."
6. Section 59(1) as reproduced above stipulates that where the assessee makes a return under section 55 and it qualifies for acceptance in accordance with the provisions of a. scheme of self‑assessment made by the Central Board of Revenue for that year or under any instructions or orders issued thereunder, the Income‑tax Officer shall assess, by an order in writing, the total income of the assessee on the basis of such assessed income. Thus section 59(1) only refers to the making of an assessment under the self‑assessment. scheme in accordance with the provisions of such scheme made by the Central Board of Revenue for that year. By this section the Central Board of Revenue has not been empowered to issue any instructions or orders for re‑opening of an assessment under section 65 of the Ordinance ibid. On‑ account of this legal position assessment could not be re‑opened under para. 6 of Circular No.3 of 1979, dated 13‑8‑1979 but it could be re‑opened subject to the provisions of section 65 of the Ordinance ibid.
7. It was stated at the Bar, by Mr. Javed A. Qureshi learned counsel of the assessee that the Income‑tax Officer before opening assessment did‑ not obtain prior approval of the concerned I.A.C. of Income‑tax, in writing. Apart from this illegality, he has further pointed out that even re‑assessment was not made as stated earlier under, section 65 read with section 68 of the Ordinance ibid. Therefore, according to him assessment made by the Income‑tax Officer, Circle‑1, Gujrat., by virtue of order, dated 30‑10‑1980 is void of ab initio.
8. We have already given a finding above that this assessment could not be re‑‑opened under para. 6 of Circular No.3 of 1979, dated 13‑8‑1979 read with section 59(1) of the Ordinance ibid. We also Hold re-assessment to be illegal on additional ground which is discussed
9. As stated above, the Income‑tax Officer could have re‑opened this assessment under section 65 with the prior approval in writing of the concerned IAC. This approval was not obtained. Learned D.R. who was present on behalf of the department has conceded this fact. Apart from this illegality assessment was not finalized under section 65. Instead it was finalized under section 62 of the Ordinance ibid and is thus tainted with an illegality.
10. Even the notice issued under section 65 is not valid. We say so as the Income‑tax Officer while issuing this notice scored clause (a) of subsection (1) of section 65 instead of clause (b). This finding is based on the fact that initial assessment having been made under section 59(1), clause (a) of subsection (1) of section 65 could only be invoked if a source of income not already assessed was to be charged to tax. As this fact does not emerge from assessment, dated 30‑10‑1980 finalized under section 62 of source erroneously), the Income‑tax Officer was not required to invoke clause (b) for the purpose of charging to tax income which had been under assessed. As clause (b) of subsection (1) of section 65 of the Ordinance (ibid) which should have been invoked afraid was so invoked, makes notice, dated 29‑3‑1980 invalid in the eyes of law. On account of these reasons assessment made by the income‑tax Officer by virtue of order, dated 30‑10‑1980, is held t0 be illegal and is accordingly annulled on a preliminary objection.
11. As relief has been allowed to the assessee on a preliminary objection it is not necessary for us at this stage to deliver a verdict with regard to the other grounds of appeal agitated by learned counsel of the assessee.
M. Y. H. Appeal accepted.