I.T.A. NO. 7124/LB OF 1986-87, DECIDED ON 30TH OCTOBER, 1987. Versus I.T.A. NO. 7124/LB OF 1986-87, DECIDED ON 30TH OCTOBER, 1987.

ORDER

1. This is an appeal filed by an individual deriving income from repair of jewellery. The assessee is aggrieved against the addition made by the I.T.O. at Rs.1,81,675 under section 13(1)(aa) of the Income‑tax Ordinance, 1979.

2. 2, Brief facts of the case are that the original proceedings of assessment were filed by the I. T .O. on 19‑4‑1984. Subsequently, an information was received that the assessee had purchased ornaments for an amount of Rs.1,81,675 from one Mst. Akhtar Begum on 20‑8‑1981 and while making a statement before the I.T.O. Circle 'N' Zone‑A, Lahore on 3‑5‑1984, he admitted this fact. Consequently, a notice under section 65 of the Income‑tax Ordinance was issued by the I. T.O. on 17‑5‑1984 for 24‑5‑1984. This notice was allegedly served on the assessee on 21‑5‑1984. However, the assessee did not appear on the fixed date. The assessing officer then issued notices under section 58 and under section 61 of the Ordinance on 3‑6‑1984 for 16‑6‑1989, which were statedly served on the assessee on 12‑6‑1984.

3. However, neither on 24‑5‑1984nor on 16‑6‑1984 any order for proceedings ex parte against the assessee was passed. Then again he notices under section 61 of the Income Tax Ordinance were issued in the following dates:

4. On 1‑1‑1985 for 7‑1‑1985

5. On 4‑4‑1985 for 10‑4‑1985

6. On 18‑5‑1985 for 5‑6‑1985

7. On 8‑6‑1985 for 15‑6‑1985

8. On 8‑6‑1985 a notice under section 62 was also issued for 15‑6‑1985 but the assessee did not appear on any of these dates. Finally the assessment order was passed by the I.T.O. probably on 30‑6‑1985 as he I.A.C.'s approval had been given on that date but no date has been given on the assessment order.

3. The first contention of the learned counsel for the assessee was that notice under section 65 had not been served on the assessee and, therefore, all subsequent proceedings taken against the assessee were illegal. It was submitted that issuance of notice under section ii5 was a sine qua non for the application of other provisions of the Ordinance, subsection (1) of section 65 is reproduced below:‑‑

9. (1)" If, in any year, for any reason,‑‑

(a) any income chargeable to tax under this Ordinance has escaped assessment; or

(b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund under this Ordinance; or

(c) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance. the Income‑tax Officer may, at any time; subject to the provisions of subsection (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly."

10. The learned counsel for the assessee contended that notice under section 65 was not served on the assessee and this fact has been admitted by the learned C.I.T. (Appeals) as well. The order of the learned C.I.T. (A) has been perused. While dealing the objection in regard to the service of notice under‑section 65, the learned C.I.T. (A) observed as under:‑‑

11. "It has been contended that notice under section 65 was not served on the assessee on 21‑5‑1984. Signatures on the same are in English but it is not clear by whom the same was received. However, notices issued under sections 58, 61 and 62 were served on the assessee but the assessee did not make compliance with the same. But as the service of notice under section 65 is doubtful the notice under section 61 could not be served unless the return had been furnished or a notice for this purpose had been served on the assessee. However, non‑compliance with notice under section 58 could result in ex parte assessment as the service of notice under section 58 was not conditional on the filing of return or service of notice for filing return".

12. It was contended by the learned counsel for the assessee that the learned C.I.T. (A) had erred in law in holding that for default of notice under section 58 ex parte proceedings could be taken in spite of the fact that notice under section 65 of the Ordinance had not been served on the assessee.

4. The learned D.R. in reply contended that the assessee had been given repeated opportunities but he had been non‑cooperative and, therefore, ex parte proceedings were rightly taken by the assessing officer.

5. We have considered the arguments of the parties. For re‑opening of a case under section 65 it is a condition precedent to issue a notice to the assessee under that section 65 of the Income‑tax Ordinance. The learned C.I.T. (A) had given the finding that notice under section 65 had not been served for 24‑5‑1984. We have also checked the record ourselves and we also found that notice under section 65 does not bear the signature of the assessee and, therefore,' was not served on him. It is also admitted and it has been conceded by the learned D.A. that no fresh notice was issued to the assessee under section 65 of the Income‑tax Ordinance. For the application of the provisions of the Ordinance in a case where it is to be reopened, it is the first condition that notice under section 65 must be served on the assessee as under subsection (1) of section 65 it has been provided that after the issuance of notice under section 65 "all the provisions of this Ordinance shall, so far as may be, apply accordingly". Therefore, unless the notice under section 65 had been served on the assessee no other notice could be issued to the assessee either under section 58 or under sections 61 and 62. The learned C.I.T. (A) has rightly pointed out that notice under section 61 could only be issued when either the assessee had furnished its return of income or upon whom the notice to furnish such return has been served. In the present case neither notice under section 65 for filing the return was served on the assessee nor any return has been filed by him. Therefore, all the notices issued by the assessing officer under section 61 were without jurisdiction and illegal. The learned counsel for the assessee contended that notice issued under section 62 on 8‑6‑1985 for 15‑6‑1985 had no legal value as it was unsigned. We have ourselves checked the record and we found that this contention is correct. The notice issued by the I.T.O. under section 62, which is dated 8‑6‑1985 and bears No. 1158117/1) is unsigned. Though it bears the signature of the assessee in token of service. However, an unsigned notice obviously has no authenticity in the eye of law. In Gooyee v. C.I.T. 1966‑62‑I T R 109 what happened was that an unsigned notice was served on the assessee and in reply to the notice even, the return had been filed. But the Calcutta High Court held that an unsigned notice is invalid and there was no waiver against the assessee because of his filing the return. So far as the notice under section 58 is concerned, on the basis of which the learned C.I.T. (A) has maintained the ex parte assessment, suffice it to say that the other provisions of the Ordinance could not be applicable without first serving notice under section 65 of the Income Tax Ordinance. As stated above, it has been specifically provided in subsection (1) of section 65 that it is only after the issuance of notice under section 65 that all the provisions of the Ordinance would be applicable. Since the service of notice under section 65 is the first step and that notice has not been served on the assessee, no further proceedings could be taken against the assessee. In C.I.T. Lahore v. Abdul Hameed Muhammad Jamil, Lyallpur reported as (1973) 28‑Tax page 73 the Lahore High Court while dealing the ex parte assessment has held the similar view. In that case the following question was referred to the High Court for its opinion:‑‑--

13. "Whether, in the facts and circumstances of the case, when no notice under section 34 of the Act in respect of the charge year 1952‑53 was served on the assessee the assessment made on him under section 23(3), read with section 34, for the charge year 1952‑53 could be validly made on the basis of the assessee's return dated the 7th' July, 1954"?

14. While dealing with this issue at page 76 the Lahore High Court observed as under:‑‑

15. "Notices are always issued for the benefit, of those to whom they are directed. The statute requires that notice shall precede a certain action. The notice becomes a jurisdictional fact and the authority wanting to proceed against such a person has no jurisdiction to do so unless it is proved that the notice which is a precondition had in fact been issued."

6. Another contention of the learned counsel attacking the legality of the ex parte assessment was that assuming, as has been held by the learned C.I.T.(A), that ex parte assessment could be made for non‑compliance of notice under section 58 of the Income‑tax Ordinance, it could only be done on the date for which the assessee defaulted. Notice under section 58 was issued on 3‑6‑1984 for 16‑6‑1984. On that date not only the ex parte proceedings were not taken against the assessee but there is no entry whatsoever in the order sheet on that date. On 3‑6‑1984 the order sheet entry is as follows:‑‑

16. "Issue notices under section 61, 58 for 16‑6‑1984".

17. Then next entry in the order sheet is dated 1‑1‑1985 which is as follows:‑‑

18. "Issue notice under section 61 for 7‑1‑1985".

19. It is therefore obvious that even if the notice under section 58 was validly issued and served on the assessee, it was for 16‑6‑1984 and on that date the assessing officer was competent to proceed ex parte against the assessee. The fact that there is no entry in the order sheet indicates that no proceedings were taken against the assessee. The assessing officer having chosen not to proceed ex parte against assessee, is also evident from the fact that fresh notice was issued on 1‑1‑1985 and in all subsequent proceedings only notices under section 61 were issued. The last notice issued according to the order sheet entry is dated 5‑6‑1985 which is as under:‑‑

20. "None attended. Refix to 15‑6‑1985."

21. And on 15‑6‑1985 the order sheet entry is as under:‑‑

22. "None attended. Draft be submitted to the I.A.C., Range‑I"

23. There is no subsequent entry on the order sheet.

6. From the perusal of these entries it is clear that ex parte proceedings had not been taken against the assessee at any stage, though from the order sheet entry dated 15‑6‑1985 it could be impliedly said that some kind of ex parte order was passed by the assessing officer. However, it may be stated here and it has been found from the Income‑tax record that for 15‑6‑1985 only a notice under section 61 had been issued on 8‑6‑1985. As stated above, notice under section 61 could not be issued to the assessee as he neither filed any return nor any notice was served on him to furnish the return. Therefore, the learned I. T .O. had no authority to issue a notice under section 61 for 15‑6‑1985 for the default of which ex parte order seems to have been passed. As for the default under section 58 it has already been pointed out that it was for 16‑6‑1984 on which date no proceedings were taken by the assessing officer. By this time it is well‑settled that an assessing officer can proceed ex parte on the date for which a notice has been served on the assessee. If he chooses not to proceed ex parte on the fixed date and re‑fixes the case for another date, he cannot subsequently proceed ex parte unless the subsequent notice remains uncomplied with. The latest case is Commissioner of Income‑tax v. Sakhi Contractors & Engineers, Multan reported as 1981 P T D 210. What happened in that case was that notices under section 22(4) and 23(2) of the repealed Income Tax Act were issued to the assessee for 2‑12‑1971 under registered post Which were received back undelivered with the following remarks:‑‑

24. No ex parte proceedings were taken by the assessing officer on 2‑12‑1971 nor the case was taken upon that date. However, the I.T.O. passed an ex parte order on 15‑12‑1971 under section 23(4) of the repealed Income‑tax Act. While dealing with this question the High Court observed as under:‑‑

25. "In the light of this proposition of law in the instant case the assessee had right of audience on the adjourned date, i.e. 15‑12‑1971 but the same was denied to him by the Income‑tax Officer while proceeding under section 23(4) of the Act in an illegal manner:"

26. As stated above in the present case, the conditions required under the law are not satisfied. The Income‑tax Officer has acted illegally in making ex parte assessment on a date, which was not fixed for hearing without furnishing the assessee with requisite notices. We, therefore, are of the view that the ex parte assessment made by him under section 23(4) of the Act on 15‑12‑1971 was bad in law as he could do so on 2‑12‑1971."

27. It is, therefore, evident that default of notice under section 58 was only for 16‑6‑1984 on which date no proceedings were taken and for this default ex parte proceedings could not be taken against the assessee on a subsequent date. It has also been manifested that the notices issued under section 61 were without jurisdiction and against the law. It is also found that notice under section 65 having not been served on the assessee the other provisions of the Income‑tax ordinance had no application And no other notice could be issued under any provision of law and the entire proceedings taken by the assessing officer are void. We, therefore, hold that the addition made by the assessing officer is without jurisdiction and is directed to be deleted.

7. Before parting with the judgment the case may be dealt with on merits as well because as it has been argued by the learned counsel for the assessee. On merits it was contended that the statement of the assessee has been misconstrued. We have seen the statement of the assessee. The relevant portion of it is reproduced below:‑‑

28. This statement of the assessee, the learned counsel for the assessee contended, indicates that the assessee had paid the money to the seller after selling the ornaments to various persons. Therefore, the assessing officer has wrongly concluded and misconstrued his statement that the assessee first purchased the ornaments from his own pocket and then paid up the entire money in one assessee there is no other material on record with the assessing officer on the basis of which the assessee's explanation could be rejected. Again there is force in the contention of the learned counsel for the assessee. The assessing officer as well as CIT(A) have passed their judgments on the statement of the assessee alone without bringing ;any other material on record against him. However, the statement of the assessee itself is not sufficient to hold that the assessee purchased entire ornaments from his own pocket. Unless it could be shown that the assessee had made an investment or was found to be owner of money or valuable article, no addition could be made under section 13(1)(aa) of the Ordinance. From the reading of the statement of the assessee, it could not be said with certainty that the assessee had either made an investment or was found to be the owner of money to the tune of Rs.1,81,675.

8. In these circumstances on legal plane as well as on merits the addition is liable to be deleted and we order accordingly. The appeal is accepted.

29. M.B.A./452/T Appeal accepted.