I.T.AS. NOS. 41/KB TO 50/KB OF 1986-87, DECIDED ON 11TH JUNE, 1988. Versus I.T.AS. NOS. 41/KB TO 50/KB OF 1986-87, DECIDED ON 11TH JUNE, 1988.

ORDER

A common point of facts and law is involved in all the above appeals and, therefore, they have been heard together and are disposed of with this single consolidated order.

2. Briefly stated the relevant facts are that both the appellants, Mushtaq Ali and Hyder Ali are being assessed in the status of individuals. They derive share income from a registered firm also namely, Messrs Kobe Towels Enterprises Ltd., Karachi. The assessments for the assessment years 1976-77, 1977-78, 1978-79, 1979-80 and 1980-81 were completed on the basis of income declared by the appellants including the loss/income from shares of Messrs Kobe Towels Enterprises, Karachi subject to rectification on receipt of final assessment order of the firm. Although the assessment of the firm was completed in due course but corresponding rectification was not made in the assessment orders of the appellants till 11-4-1985 when a notice to the appellants was issued under section 65/156 by the I.-T.O. for making additional assessment for the reason that the original assessments were under assessed. The appellants filed the returns in response to the notice without prejudice to their contention that the notice under section 65 was bad in law firstly for the reason that if it was a case of rectification it already became barred by time as rectification under section 156 could be made within four years from the date of the order sought to be amended. The last assessment order under consideration pertaining to the assessment year 1980-81 was completed on 12-11-1980 and as such the rectification could not be made due to efflux of time. Secondly, there was no ease of under-assessment as the entire facts were disclosed and considered and as such the reopening of assessment was not warranted in law. The contentions raised by the appellants were repelled by the I.T.O. by placing reliance on the cases reported in (1973) 28 Tax 1164 and (1980) 42 Tax 171. The I.-T.O., thus, made addition on the basis of assessed share of the appellants from the income of registered firm. The appellants felt aggrieved with the above treatment and preferred first appeals before the learned C.I.T. (Appeals) Zone-VI. Karachi contending that there was no justification for action under section 65 as there was no concealment or omission on the part of appellants who had shown their share income in the returns of income filed, which fact had been noticed by the I.T.O. in the original assessment orders. It was further contended that it was in the knowledge of the department that the appellants were getting share income which fact was duly disclosed in the returns filed and if the department would have been vigilant enough by obtaining the figures of assessed income of the firm from the concerned circle, the total income would have been assessed in the original assessment order. It was further urged that at best it was a matter of rectification, for which action could have been taken under section 156 and not under section 65 of the Ordinance: It was pleaded that the appellants should not be made to suffer for the failure on the part of the department for taking timely action for including assessed share income in the assessment years under consideration. The learned C.I.T. (Appeals) held that it was a case of escapement of income which term includes both non-assessment as well as under-assessment. The learned C.I.T. (Appeals) placed reliance on the rulings reported in the cases of C.I.T. v. Khemchand Hamdas (1938) 6 I T R 414 (PC), (1972) 85 I T R 156 (SC), I.-T.O. v. Drug Transport Co. 1982 P T D 322 (Lahore H.C.), Muhammad Bashir v. I.-T.O., Lahore. The learned C.I.T. (Appeals) observed that it will not be right to interpret the provisions relating to public revenue in a manner that would allow unscrupulous person to easily evade payment of taxes legally due from him. The learned C.I.T. (Appeals) further held that the provisions of sections 65 and 156 are not mutually exclusive and neither of them lays down that if one of them applies, the other shall not apply. The learned C.I.T. (Appeals) placed reliance on the ruling reported in (1974) 96 I T R 73 (SC of India). The action taken under section 65 was, therefore, confirmed. The appellants still felt aggrieved and preferred this second appeal before the Tribunal.

3 The appellants have taken plea in the grounds of appeal that the action of I.T.O. under section 65 is void ab initio as the matter involved was one of rectification covered by section 156 and as such barred by time,

4. I have heard Mr. Ebrahim Dahudwala, learned A.R. for the appellants and Mr. A.G. Channa learned D.R. Mr. Ebrahim Dahudwala contended that the assessments pertaining to the assessment years 1976-77, 1977-78 and 1978-79 were clear cases of rectification by virtue of provisions under section 35(5) of the repealed Income-tax Act, 1922 which reads as under:

"Where in respect of any completed assessment of a partner it a firm it is found on the assessment or re-assessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33-A, section 34-A, section 66 or section 66-A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of subsection (1) shall apply thereto accordingly, the period of four years referred to in that subsection being computed from the date of the final order passed in the case of the firm."

It was pointed out to Mr. Dahudwala that the period of limitation provided in section 35(5) (supra) was four years from the date of the final order passed in the case of the firm. The exact date of the final order passed in the case of the firm is not known. However, on 1-7-1979 when the Income-tax Ordinance, 1979 came into force and Income-tax Act, 1922 was repealed the rectification had not become barred by time and as such no vested right was created in favour of appellants. Section 35(5) of the repealed Act (supra)' was introduced by Finance Act, 1964 with effect from 1st July, 1964 and no such provision was retained in the Income-tax Ordinance, 1979. Since the rectification had not become barred by time at the time of promulgation of the Income-tax Ordinance, 1979 and no vested right was created in favour of the appellants, therefore, the question whether a particular act was a mistake and could be rectified is to be governed with reference to the law in force at the time when the order for rectification is to be made. It is admitted position that after 1-7-1979 the law in force is section 156 of the Income-tax Ordinance, 1979 dealing with the rectification of mistake and, therefore, for exercising power under section 156 a mistake should be such which is a mistake in the light of law in force at the time of making the order. Mr. Ebrahim Dahudwala has frankly conceded that the question of rectification shall be governed under the provisions of Income-tax Ordinance, 1979 and not under the provisions of repealed Act of 1922. Since there is no provision in the Income-tax Ordinance, 1979 analogous to section 35(5) of the repealed Act therefore, the provisions of section 35(5) of the repealed Act shall not be deemed to be applicable to the facts of the present appeals under consideration. Section 156 of the Income-tax Ordinance, 1979 provides for rectification of any mistake apparent from the record. Apparent from the record means a mistake, which is apparent from the record of the assessment of an assessee himself and not from the record of any other assessee. No other material except the record of assessee concerned is to be seen for the purpose of determining whether a mistake apparent from the record is there or not. The provisions of section 156 of the Income-tax Ordinance are in pari materia with the provisions of section 35(1) of the repealed Act and it has been held in the case reported as (1964) 53 I T R 11 that section 35(1) is attracted when there is a mistake apparent from the record of an individual assessment. If that mistake becomes apparent not from the record of the individual assessment, but from the record of the assessment of the firm, which for the purpose of income-tax is another entity, the I.T.O. cannot resort to section 35(1). In the appeals under consideration, a note has been appended that the share income is accepted subject to rectification and in like circumstances it has been held in the case reported as (1962) 46 I T R 609 that, the fact, that a note was added that action under section 35 would be taken after the firm's assessment, could not make a final assessment a provisional one. It was also held that a mistake, which becomes apparent from record of a firm is not a mistake apparent from the record so far as the assessment of the partner is concerned. A similar question has been considered by a Division Bench of this Tribunal in the case reported as (1987) P T D 539 and it has been held that the fact that the assessments were framed subject to rectification is wholly irrelevant The assessments are to be framed either under section 62 or 63 of the Income-tax Ordinance. Thus, it is abundantly clear that merely because assessments were made subject to rectification, would not make them provisional assessment or subject to rectification under section 156 of the income-tax Ordinance, 1979 until and unless a case of rectification is made out within the purview of provisions contained in section 156 itself. As I have already shown that the mistake which becomes apparent from the record of a firm would not be treated to be a mistake apparent from the record so far as the assessment of partner is concerned, therefore, in the given circumstances the question of inclusion of the income on the basis of assessment of the firm would not be deemed to be mistake apparent from record. Thus, the contention that the addition sought to be made comes within the purview of rectification of a mistake apparent from record, which could be made within a period of four years from the date of the order sought to be amended, is not tenable. This brings me to the question whether in such circumstances the reopening of case under section 65 is justified or not. A perusal of the case-law from Pakistan and Indian jurisdiction reveals that there is no consensus of opinion and the views are largely divergent. There is a thin line of demarcations between them enabling and authorising the I.-T.O. for reopening of assessment and making additional assessment and change of opinion. A Division Bench of this Tribunal dealt with this issue in the case reported in (1985) P T D 742 (Trib.) and observed as under:-

"If one I.T.O. arrives at conclusion 'E' after due enquiry on the basis of the facts A, B, C D, made available to him his successor cannot come to conclusion 'F' if the facts A, B, C, O, remain unchanged. If he does so, this would be case of change of opinion and his order would not be upheld. However, if he comes to conclusion 'F' because additional facts 'X' and 'Y' were brought to his notice, on top of facts A, B, C, D, which were made available to his predecessor, he would be justified in issuing notice under section 65. This is the principle of law emerging from the two decisions of the Tribunal (supra) cited by Mr. Pasha and of course, from the judgment of a Division Bench of K--------High Court in Abdullah's case (supra)."

'The principle which is being followed by this Tribunal is that if entire material was placed before the I.T.O. at the time of framing original assessment and the I.-T.O. did not apply his mind for one reason or the other or did not care to charge the proper tax or did not generate the required tax by applying any one of the methods in this discretion, then subsequently he would not be allowed to invoke jurisdiction under section 65 for reopening and re-assessing on the basis of same material. Likewise the successor I.T.O. also would be debarred from invoking the jurisdiction under section 65 on the basis of superior knowledge or better technical knowhow as compared to his predecessor, because such an authority may be exploited as a source of harassment to the assessees and may completely erode the concept of finality of assessment. A balance is to be struck in bringing to charge the escaped assessment or low assessment and the concept of finality of assessment. Thus, the finality of assessment is not to be disturbed on mere change of opinion meaning thereby the re-application of mind to the facts and material already considered once at the time of original assessment. However, if any additional material is available which was either concealed or not placed on record or was not produced or escaped notice of I.T.O. for any reason and thereby the Assessing Officer could not apply his mind to those facts at the time of original assessments resulting in the escapement of assessment or -low assessment the reopening of assessment would be deemed to be justified. The reason being that the finality of assessment shall remain intact as regards the facts and material to which the Assessing Officer has applied his mind once, and only those facts and material including the point of law shall be considered which were not available to the Assessing Officer at the time of original assessment. However, the practice of re-opening the assessment with the reason that at the time of original assessment lesser revenue was generated by applying one method and attempt for generating higher revenue by adopting another method was not approved by a Division Bench of this Tribunal in a recent decision reported as (1987) P T 0 (Trib.) 539 wherein it was held as under:-

"If we accept the contention of Mr. Mohammad Farid, it would, on one hand serve as premium to lazy and indolent officers, and on the other hand would prove to be very lethal weapon of oppression in the hands of smart but unscrupulous officers. In our judgment an Assessing Officer is required by law to frame assessment either under section 62 or 63 as the case may be and if he does so, it would not be in keeping with policy of law to give him power to reopen it under section 65, simply on the ground that he had not applied his mind earlier for one reason or the other. We, therefore, following Laljee Haridass Case (supra) hold that the additional assessments framed subsequently were not legal."

5. Applying the above principles to the facts of the present case we find that at the time of original assessment the share income declared by the appellant was accepted with the note that it was subject to rectification on receipt of final assessment order of the firm. I have already shown that this note is absolutely immaterial because notwithstanding any such note the assessment is to be completed either under section 62 or 63 of the Income-tax Ordinance. In any case the assessment attains finality and if any additional material is received and the I.T.O. is in possession of definite information as envisaged under section 65 of the Income-tax Ordinance leading to the conclusion that the income chargeable to tax has escaped assessment or has been under-assessed or assessed at too low a rate or has been the subject of excessive relief or refund the assessment is to be reopened. No other provision including the power of rectification is available in such circumstances. Now the established principle is that it is incumbent on the assessee to provide the complete details and full particulars of his income and the assessee cannot be allowed to take plea that the Assessing Officer ought to have obtained full particulars and true facts by employing more diligence and efforts on his own part. Reverting to the facts of the present case, we find that the appellants had not supplied the correct share income from the firm for the reason that the assessment of the firm was not completed. It has not been denied by the learned counsel for the appellants that the true income of appellants has escaped assessment. His contention is that it is a case of rectification and in the alternative the reopening of assessment is not justified. I have already shown that it is not a case of rectification and so far the justification for reopening is concerned, it is admitted fact that the true income from share of firm, sought to be taxed was not disclosed at the time of original assessment and as such the question of application of mind to that particular material at the time of original assessment by the Assessing Officer does not arise. The question of change of method is not involved and additional material not available at the time of original assessment prompted the I.-T.O. for reopening the assessment and thus it is not a case of change of opinion. II have been able to lay hand on a case decided by Andra Pradesh High Court, Koppurabari Ventateswarlu v. IInd Additional I.T.O. (1967) P T 0 34 wherein an identical question was examined. In the cited case one of the sources of the assessee's income was his share as partner of registered firm and when he was assessed to income-tax for the assessment year 1951-52 on 22nd January, 1952 his income from that share was provisionally taken at Rs.8,831 with the remarks that, 'action under section 35 will be taken when correct share income is known'. The assessment of the firm was completed on 31st March, 1955 and the assessee's income from his share was nearly as.24,000 the I.T.O. served a notice under section 34(1)(b) of the Indian Income-tax Act directing the assessee to make a fresh return before a specified date. The assessee raised objection which was overruled and he filed petition before the High Court. The learned Judge of the Andra Pradesh High Court held that it was not a case of rectification and that the assessment of the firm furnished the I. T. O. information that a part of the partner's income had escaped assessment; the officer not merely had reason to believe that it was so but had proof positive to that effect. Both the conditions laid down in section 34(1)(b) were satisfied and the provisions could be applied to the case of partner. The action of I.T.O. was upheld and the petition was dismissed. In order to examine if the above finding is applicable to the law for the time being in force in Pakistan it would be proper to compare the Indian law as it stood at the time of judgment (supra) and section 65 of the Income-tax Ordinance, 1979. Section 34(1)(b) of the Indian statute which came for interpretation by Andhra Pradesh High Court read as under:-

"34(1)(b) the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits and gains chargeable to income-tax have escaped assessment for any year .... he may .... at any time within four years of the end of that year, serve on the assessee ... a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 22 and may proceed to assess or reassess such income, profits or gains . . . . ;and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection."

Section 65 of the Income-tax Ordinance, 1979 reads as under:-

"65. Additional assessment .- - (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 a rate, or has been the subject of excessive relief or refund under this Ordinance;

(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 subsections (2), (3) and (4), issue 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.'

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made.

(2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income-tax Officer or he has obtained the previous approval of the Inspecting Assistant Commissioner of Income-tax in writing to do so.

(3) Notice under subsection (1), in respect of any income year, may be issued within ten years from the end of the assessment year in which the total income of the said income year was first assessable------------"

6. A perusal of the above provisions, of Indian and Pakistani statute shows that the two provisions are pari materia with each other and the facts are also identical, therefore, the learned C.I.T. (Appeals) has rightly confirmed the action of I.T.O. in resorting to section 65 and it is not open to any exception. The I.T.O. adopted the right course in view of the ratio laid down by, the Lahore High Court in the case of C.I.T. v. Khurshid Alam Malik (1973) 28 Tax 164, C.I.T. v. Safdar & Co. (1980) 42 Tax 171 and Muhammad Bashir v. I.T.O. 1982 P T D 322. In the case of Muhammad Bashir it has been held as under:-

"It is to be observed that the Ordinance deals with public revenue. It will not be right to interpret its provisions that would allow an unscrupulous person to easily evade payment of taxes legally due from him."

7. For the foregoing reasons I am of the considered opinion that no interference is called for in the impugned order of learned C.I.T. (Appeals), which is hereby confirmed.

8. All the appeals stand dismissed being devoid of any force.

M.B.A./536/T Appeals dismissed.