I.T.AS. NOS. 121(PB) TO 126(PB) AND 264(P.B.) TO 269(P.B.) OF 1587-88, DECIDED ON 12TH MAY, 1988. Versus I.T.AS. NOS. 121(PB) TO 126(PB) AND 264(P.B.) TO 269(P.B.) OF 1587-88, DECIDED ON 12TH MAY, 1988.

ORDER

1. MUHAMMAD AZAM KHAN JUDICIAL MEMBER ;-- These are 12 cross-appeals, 6 each by either side, preferred against the order of learned C.I.T. (Appeals), dated 1-8-1987 passed in Appeals Nos. 1816 to 1821, for the charge years 1981-82 to 1986-87, by which he partially modified assessments for the said years.

2. The assessee is an individual deriving income from running of a hotel and sale of Chappli Kabab. On survey basis he was booked and issued notices. In response he submitted returns for the assessment years 1984-85 and 1985-86, declaring nil income for the former and an income of Rs.2,000 for the latter. Subsequently, during the discussion:; it turned out that previously he was running a hotel known as New Gulshan Hotel which he gave up later. It was further discovered that he had purchased built-up property valuing Rs.1,15,000 in the year 1984. Accordingly, he was directed to produce the sale documents which he did: The documents proved payment of a sale consideration amounting to Rs.1,15,000 on two different occasions with the result that he was given notice to explain the source of investment. In reply, vide letter, dated 6-12-1986 he explained that actually the property was purchased for a consideration of Rs.70,000, but to avoid pre-emption of the sale higher amount had been shown as sale price. As to how the amount was procured, it was explained that a sum of Rs.47,000 was got by sale of ornaments and some cattle, and the balance of Rs.25,000 borrowed from friends and relatives. However, no evidence was produced to prove either the sale or the loan and the Assessing Officer added the entire amount of Rs.1,15,000 to income of the assessee as unexplained investment under section 13(1)(aa) with the approval of the I.A.C.

3. As for the years 1981-82 to 1983-84 and 1986-87, the assessee filed no return. Nor did he appear in answer to notice under section 81 to contest the proceedings. Accordingly taking ex parte action, the Assessing Officer computed income for the years 1981-82 to 1986-87 as under:

4. Assessment year 1981-82

5. Income from Kabab Sales estimated only for a period of 6 months from January, 1981 to June, 1981

6. Rs. 30,000

7. G.P. at 30%

8. Rs.9,000

9. Income from (New Gulshan Hotel)

10. Rs. 9,000

11. Total gross income

12. Rs. 18,000

13. Less expenses on estimate

14. Rs. 5,000

15. Balance net income

16. Rs. 13,000

17. Addition for unexplained investment under section 13(1)(aa)

18. Rs.1,15,000

19. Total net income

20. Rs.1,28,000

21. Assessment year 1982-83

22. Sales of Kabab estimated at Rs.70,000 G.P. at 30%

23. Rs. 21,000

24. Income from (New Gulshan Hotel)

25. Rs. 10,000

26. Total gross income

27. Rs. 31,000

28. Less expenses on estimate

29. Rs. 7,000

30. Balance net income

31. Rs. 24,000

32. Assessment year 1983-84

33. Sales of Kabab estimated at Rs.1,00,000 G.P. at 30%

34. Rs. 30,000

35. Less expenses on estimate

36. Rs. 8,000

37. Net income

38. Rs. 22,000

39. Assessment year 1984-85

40. Sales of Kabab estimated at

41. Rs.1,20,000

42. G.P. at 30%

43. Rs. 36,000

44. Less expenses on estimate

45. Rs. 10,000

46. Balance net income

47. Rs. 26,000

48. ???????????????????????

49. Assessment year 1985-86

50. Sales estimated at Rs.1,30,000

51. G. P. at 30%

52. Rs. 39,000

53. Less expenses on estimate

54. Rs. 10,500

55. Net income

56. Rs. 28,500

57. Asses s ment year 1986-87

58. Sales estimated at Rs.1,60,000

59. G.P. at 30%

60. Rs. 48,000

61. Less expenses on estimate

62. Rs. 12,000

63. Net income

64. Rs. 36,000

65. The above estimates were called in question by the assessee before the C.I.T. (Appeals) in appeals, who maintained the addition of unexplained investment as also the G.P. rate, but reduced the estimates otherwise. `Not satisfied, the assessee filed further appeals and so did the department to object to reductions already allowed. These appeals being inter-related are being disposed of together by this order.

66. Multi-pronged attack was made by learned A.R. of the assessee in assailing the impugned order. Firstly, he said, the ex parte action was unjustified, no notice as required having been served on the assessee. He said, the case was fixed for 14-2-1987 when the assessee was not present, having no notice for the date, but no action on that day was taken. Instead ex parte order was passed a week later on 22-2-1987 for which date again the assessee had no notice. Accordingly, he said, on the ratio of (1976), 33 Tax 219 (Lahore High Court) the order was unsustainable.

67. Next he said, the addition on account of unexplained investment was unwarranted and should not have been at all mane. According to him, the sale took place for a consideration of Rs.70,000, but the amount was inflated to ward off suit for pre-emption. In fact, the property was worth no more than the amount stated i.e. Rs.70,000 and the same amount had actually been paid. In any case, it had been duly explained how the amount was acquired. Gold ornaments and cattle were sold which fetched a sum of Rs.47,000. The balance amount was borrowed from friends and relatives. In this way the amount was secured and paid. It stood explained thus how the payment was made and the Assessing Officer did not have any justification to direct addition on account of unexplained investment, which the learned C.I.T. (Appeals) upheld unjustly. Then, continuing he said, the addition required double approval of the I.A.C. which was lacking in the case. In this regard, he referred to a reported case of the Tribunal viz. 1987 P T D (Trib.) 36.

68. Further, he said, notice under section 65 was obligatory to be given in the case, as the proceedings involved some past years and the same not having been given the proceedings lacked validity rendering the entire exercise liable to be set at naught.

69. It was also contended that the estimate of Chappli Kabab receipts was unfairly excessive and so was the rate of G.P. applied at 30% and the expenses allowed were extremely low.

70. On these pleas, it was prayed, that the assessments be directed to be annulled.

71. In reply, the learned D.R. has attempted to show that the addition of section 13(1)(aa) ibid for unexplained investment has been fairly made and so are the assessments which were properly completed. He said, notice under section 56 had been given and that under section 65 was not required. The estimate of Chappli Kabab receipts was quite reasonable and did not in fact require to be reduced in any way. The G.P. rate, he said, was the same as was being applied to other cases in this line of business and was not at all excessive. He prayed that the addition under section 13(1)(aa) be upheld as also the G.P rate and the expenses allowed and the estimate of Chappli Kabab receipts be restored to the level adopted by the Assessing Officer.

72. The main points that were raised here for consideration can be stated briefly as below:-

(i) ???????? If the ex parte action was appropriately taken.

(ii) ??????? If notice under section 65 was required to be given.

(iii) ?????? If the addition under section 13(1)(aa) was justly made.

(iv) ?????? If the estimate of the Assessing Officer was fair regarding the receipts of Chappli ? Kabab alongwith the rate of G.P. applied, and the former did not require to be cut down and that the expenses given were adequate.

73. It can be seen that first notice in the case was issued on 24-9-1986, directed to the assessee as proprietor of New Gulshan Hotel. It was a notice under section 56 which was served on the assessee on 24-9-1986 demanding from him returns for the charge years 1984-85 and 1985-86. The assessee responded to the notice and filed returns as required, though showing nil income for the year 1984-85 and for that of 1985-86 an income of Rs.2,000 only. Next to him was issued notice under section 61, dated 24-9-1986 for 5-10-1986 which too was served on him on 29-9-1986. In reply, he made an application, dated 1-10-1986 stating that he had stopped running the hotel, suffering heavy losses, and had even handed its possession back to its owner, Taza Gul. Accordingly, he prayed that his name be omitted from the tax record. Later a fresh notice under section 56, dated 9-12-1986 was issued, asking for returns of the assessee for the period from 1981-82 to 1986-87. This notice probably was based on report of the Circle Inspector who in the meanwhile, was deputed to hold an enquiry. That notice was followed by notice under section 61, dated 30-12-1986 asking for -the record to be produced in regard to the years 1984-85 and 1585-86 for 4-1-1987. Again a notice under section 61, dated 7-2-1987 to him was issued asking for the record to be produced for the period from 1981-82 to 1985-86 for 14-2-1987. These notices were served on the assessee, except that under S.61, dated 7-2-1987 which though bears his signatures with the date of service as 12-2-1987, but the signatures apparently are not his, being totally different from those of his appearing on other notices. No notice as such under section 65 had ever been issued to the assessee. Such a notice was obligatory, the period involving some of the past years in respect of which commencement of the proceedings could have been made only after issuing notice under section 65. The proceedings as such lacked the legal validity.

74. It is also noticeable that in respect of the year 1986-87 no notice was issued under section 61, calling for the relevant record. For this reason also the order for the year 1986-87 will be liable to be struck down.

75. However, in taking ex parte action the Assessing Officer does not appear to have erred. Though he did not pass the order on the date on which he should have i.e. on 14-2-1987, yet on the order sheet he did indicate his mind in clear words viz. 'No compliance made. Order under section 63 intended'. He passed the order later on 22-2-1987 on which date he also received the approval of the I. A. C.

76. Undoubtedly, fresh notice to the assessee had not been issued for G2-2-lb87, when ex parte order against him was passed. But it appears to us, no such notice at all was necessary to be given to him again. Ex parte action against him could be taken for his absence, as on the previous hearing for which he had notice he had failed to turn up. The decision contained in 1976 P T D 9 (Lahore High Court) does not appear to us to be relevant, because the case therein examined was different in that the date on which ex parte action directed to be taken for failure of the assessee to enter appearance was relatable to the date on which the Assessing officer did not record any note on the order sheet as to absence of the assessee. In fact the order sheet for the relevant date was entirely silent, indicating nothing if the case had been called for hearing and the assessee found absent. Here the Assessing officer did take up the case on 14-2-1987 and clearly indicated on the order sheet his mind to the effect that he would proceed against the assessee ex parte, he having failed to be present. Such a situation was also considered in P L D 1975 Lah. 1317 (Lahore High Court) and it was held that the Assessing Officer would not be bound to issue fresh notice for every subsequent hearing where the assessee after service had failed to put in appearance. The relevant part of the judgment is reproduced below:-1

77. "Section 23(3) correctly lays down that on the day specified in the notice issued under subsection (2), or 'as soon afterwards as may be, the Income-tax Officer after hearing shall finalize the assessment. This clearly postulates the power in the Income-tax Officer to grant adjournments also during the course of the enquiry before him. Indeed at times it may be very necessary for him to allow an adjournment. But that does not mean that the assessee is always entitled to a fresh notice intimating him about the next date fixed in the case. If the assessee does not appear or produce his evidence on the specified date in response to the notices, it is expected of the Income-tax Officer to bring the default on the record. Once that is done he need not proceed to judgment and complete the ex parte assessment forthwith under section 23(4) of the Act. It may not be possible for him to do so and he may in his discretion like to adjourn the case. After the assessee has committed the default and the Income-tax Officer has decided to proceed ex parte against him, he is not, as of right, entitled to further notices of the adjourned hearings."

78. Turning to the question of addition for an explained investment under section 13(1)(aa) we find that the assessee did not provide any satisfactory explanation. He admitted the sale to be for a consideration of Rs.1,15,000 but asserted that the sale price actually f paid was only Rs.70,000. The rest had not been paid. In the documents an inflated sum was shown, further he said, due to fear of a suit for pre-emption. This explanation on the face of it was inadequate. Accordingly, it was ignored and rightly so, because sale consideration could have been accepted as per terms of the sale-deed. Therein as entered the sale amount was Rs.1,15,000. Same had to be accepted, because in the event of pre-emption suit, claim for the same as sale price would have been preferred. Two mutually conflicting positions at the same time the assessee could not be allowed to adopt.

79. However, the amount straight away could not be added to income. After approval of the I.A.C. only it could be added. There can be no dispute in this regard. But whether it would require two approvals or only one. We are of the view that one approval would suffice. But the learned A.R. contends that it would require two approvals and he presses in service a reported case of the Tribunal viz. 1987 P T O (Trib.) 36 laying down that rule. We are afraid that that decision cannot be attracted to this case. Here the situation confronting is different. It is not a case of low statement of the amount of investment. The amount invested is indicated in the sale-deed clearly. It calls for no effort on the part of the Assessing Officer to ascertain the amount. Of course, the assessee's contention is there, but that cannot make the case fall under section 13(2). As already observed, the amount of investment has to be taken in accordance with the terms of the sale-deed, which the assessee does not deny. No effort thus was either undertaken or was necessary to be undertaken to determine the amount of investment, as envisaged by section 13(2) ibid. The decision contained in (1987) 55 Tax 119 (Trib.) as such cannot apply to this case. Only one approval appears to us to be necessary in this case and that had been accorded.

80. The next point, which is last one, brings us to consideration of the estimate proper, i.e. the estimate of sale and expenses and application of U.P. rate. G.P. rate throughout has been applied at 30% and to a business of this nature is applies at that rate. We are, therefore, not inclined to disturb it. So also appear to us the sales to be quite reasonable as reduced in appeals, alongwith the expenses. We maintain the same too.

81. The result is that we accept the appeals of the assessee and annul the assessments. The appeals of the department fail and are dismissed.

82. M.B.A./538/T ????????????????????????????????????????????????????????????????????????????????????? Order accordingly.