I.T.A. NOS.309 TO 313 (IB) AND 347 TO 351 (IB) OF 1986-87, DECIDED ON 14TH SEPTEMBER, 1987. Versus I.T.A. NOS.309 TO 313 (IB) AND 347 TO 351 (IB) OF 1986-87, DECIDED ON 14TH SEPTEMBER, 1987.
ORDER
1. These ten cross-appeals on behalf of the assessee and the department are directed against the impugned order of learned AAC in consequence of which he modified assessments relating to the charge years 1980-81, 1981-82, 1982-83, 1983-84 and 1984-85.
2. Brief facts giving rise to these cross-appeals are that the assessee who is an individual, derives income from the purchase and sale of hardware in Committee Bazar, Mandi Bahauddin, District Gujrat. In this case, disclosed income for the charge years 1980-81, 1981-82, 1982-83, 1983-84 and 1984-85, was earlier accepted under section 59(1) of the Income-Tax Ordinance, 1979 (hereinafter called the Ordinance). In this connection, details of assessed income are given below: -
2. 1980-81
3. The assessee disclosed a turnover of Rs.1,20,000 with a gross profit rate of 15%. In this manner, gross income was shown at Rs.18,000 which after adjusting P & L expenses to the extent of Rs.4,400 resulted in net income of Rs.13,600, 1981-82.
4. Gross income as per Rs.17,200 computation chart.
5. `
6. Rs.1,200
(ii) Electricity
7. Rs. 360
(iii) Entertainment
8. Rs. 190
(iv) Travelling expenses.
9. Rs. 240
(v) Miscellaneous
10. Rs. 210 expenses
11. Rs.2,200.
12. Income charged to tax.Rs.15,000
13. 1982-83
14. Gross as per Rs.17,500 computation chart.
(i) Rent
15. Rs.1,200
(ii) Electricity.
16. Rs. 390
(iii) Entertainment.
17. Rs. 205
(iv) Misc. expenses.
18. Rs. 215
(v) Travelling expenses
19. Rs. 390 Rs.2,400
20. Income charged to tax.Rs.15,000
21. 1983-84
22. The assessee disclosed a turnover of Rs.1,20,000 with a gross profit rate of 15% so as to disclose gross income of Rs.18,000. It was adjusted against the following P & L expenses:-
(i) Rent
23. Rs. 1,200
(ii) Electricity
24. Rs. 435
(iii) Entertainment.
25. Rs. 245
(iv) Travelling.
26. Rs. 405
(v) Misc. expenses
27. Rs. 220
28. Rs. 2,505
29. Net income as per computation chart. Rs.15,495.
30. With the object of taking benefit of' Self Assessments Scheme, suo motu addition of Rs.3,005 was offered for the purpose of making assessment for the charge year 1983-84. In this manner, net income of Rs.18,500 was offered for assessment for the charge year 1983-84.
31. 1984-85
32. The assessee disclosed a turnover of Rs.1,40,000 with a gross profit rate of 15% so as to disclose gross income Rs.21,000. It was adjusted against the following P & L expenses:-
(i) Rent
33. Rs.1,200
(ii) Electricity
34. Rs. 615
(iii) Entertainment
35. Rs. 320
(iv) Misc. expenses
36. Rs. 365
(v) Travelling expenses.
37. Rs. 2,990
38. Income as per computation chart Rs.19,010.
39. With the object of taking benefit of the Self-.Assessment Scheme, a sum of Rs.990 was offered suo motu for inclusion in the income as per computation chart. In this manner, a sum of Rs.19,000 was offered for the purpose of assessment for the charge year 1984-85.
3. Subsequently, assessments for the charge years 1980-81 to 1984-85 were opened under section 65 of the Ordinance on the ground that whereas the assessee had claimed a sum of Rs.50 p.m. for the charge year 1980-81 and Rs.100 p.m. in respect of the charge years 1981-82 to 1984-85, he had actually paid rent at the rate of Rs.400 p.m. according to survey extract No.96957, dated 14-8-1981. Based on this information primarily, assessments for the charge years 1980-81 to 1984-85 were re-opened and in this connection, additional reliance was also placed on assessee's statement dated 2-12-1985 and survey report of Income-Tax Inspector dated 14-9-1981. In consequence thereof, income of the assessee was determined as under:-
40. Assessment year
41. Estimate of sales
42. Applied GP rate
43. Allowance of P&L expenses
44. Net Income
45. 1980-81
46. Rs.2,50,000
47. Rs.37,500
48. Rs. 5,500
49. Rs.32,000
50. 1981-82
51. Rs.2,75,000
52. Rs.41,250
53. Rs. 6,500
54. Rs.34,750
55. 1982-83
56. Rs.3,00,000
57. Rs.45,000
58. Rs. 8,000
59. Rs.37,000
60. 1983-84
61. Rs.3,25,000
62. Rs.48,750
63. Rs. 9,500
64. Rs.39,250
65. 1984-85
66. Rs.3,50,000
67. Rs.52,500
68. Rs.10,500
69. Rs.42,000
4. Incomes as assessed above, were contested in appeal before learned A . A . C. who by virtue of Appeals Nos.730 to 734, dated 15-7-1986, reduced the estimate of turnover as under:-
70. Assessment year
71. 1980-81
72. Rs.2,00,000
73. 1981-82
74. Rs.2,25,000
75. 1982-83
76. Rs. 2, 50, 000
77. 1983-84
78. Rs.2,75,000
79. 1984-85
80. Rs.3,00,000
5. However, gross profit rate of 15% in respect of hardware stores was upheld. Similarly, no further relief was allowed to the assessee in the matter of estimate of admissible expenditure for the charge years 1980-81 to 1984-85. The assessee having taken exception to re-opening of assessments under section 65 of the Ordinance aid inadequacy of relief, for the charge years 1980-81 to 1984-85, filed second appeals before the Tribunal. Similarly, the department having objected to reduction allowed by learned AAC in the matter of estimate of turnover for the charge years 1980-81 to 1984-85, also filed second appeals with the request that estimate of turnover, as adopted by the Income-tax Officer may be restored. 'Having heard both the parties at some length, my decision on the counter-claim of the parties follows in the paragraphs hereafter.
6. To begin with, learned counsel of the assessee has assailed confirmation of re-assessments under section 65 of the Ordinance. He has stated that as definite information with regard to under assessment of income was not in the possession of the Income-tax Officer, learned AAC committed an error in confirming re-opening of assessments under section 65 of the Ordinance. This has been contested by learned DR on behalf of the department who has stated that the assessee by not declaring accurate particulars of his income had exposed himself to re-assessment proceedings in accordance with the provisions of section 65 of the Ordinance. To set the controversy at rest, relevant part of the said section is set out below:-
81. "Section 65
82. If in any year, for any reason:-
(a) any income chargeable to tax under this Ordinance has escaped assessments; or
(b) the total income of an assessee has been under assessed, or assessed at too low a rate, or has been subject of excessive relief or refund under this Ordinance; or
(c) 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 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,:-
7. On a plain reading of the above section, I have reached the conclusion that the Income-Tax Officer can re-open as assessment if "for any reason any income chargeable to tax under the Ordinance has escaped assessment; or the total income of an assessee has been underassessed, or assessed at too low rate, or has been the subject of excessive relief or refund under this Ordinance; or 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 to the assessee containing all or any of the requirements) of a notice under section 56 and may proceed to assessee or determine by an order in writing the total income of the assessee or the taxi payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly".
8. On a careful perusal of assessment under section 65 of the Ordinance, I find that assessments were not re-opened on the basis of one of the reasons mentioned in para 6. Therefore, assessments so made appear to be of no legal consequence in the eyes of law. This point will become clear in the discussion that follows hereafter.
9. In the present case, no information was available with the. Income-Tax Officer that turnover of the assessee had by any chance been underassessed at the time of making assessments under section 59(1) of the Ordinance for the charge years 1980-81 to 1984-85. In arriving at this conclusion, I have sought support from the fact that at the time of making assessments under the Self-Assessment Scheme. Inspector's report dated 14-9-1981, was already before the Income-Tax Officer for the charge years 1981-82 to 1984-85. Therefore, with regard to estimate of turnover, no fresh material was available with the Income-Tax Officer so as to justify re-opening of assessments for the charge years 1981-82 to 1984-85. In so far as assessment year 1980-81 is concerned, re-opening of assessment on the basis of Inspector's report dated 14-9-1981, had merely amounted to an action based on change of opinion with regard to estimate of turnover which is not permissible in the eyes of law. Similarly, assessee's statement before the Income Tax Inspector, dated 2-12-1985, admitting daily sales between Rs. 700 and Rs. 800 was relevant only for the charge year 1986-87 and not for the charge years 1980-81 to 1984-85. Therefore, by process of elimination, only one reason with regard to actual payment of rent remains for examination with the object of coming to a conclusion whether or not, on this basis, assessments could be reopened under section 65 of the Ordinance. From the observation of the Income Tax Officer as recorded on page 2' of assessment order for the charge years 1980-81 to 1984-85, it is evident that assessments were reopened on the only ground that actually the assessee had paid rent at Rs. 400 p.m., whereas he had claimed it at the rate of Rs. 50 p.m. in respect of the charge year 1980-81 and Rs.100 p.m. for the charge years 1981-82 to 1984-85. This information however, did not empower the Income Tax Officer to have reopened assessments for the charge years 1980-81 to 1984-85, as payment of rent at the rate of Rs. 400 p.m. amounts to reduction of assessed income by a sum of Rs. 4,200 for the charge year 1980-81 and Rs. 3,600 in respect of the charge years 1981-82 to 1984-85. Surely, al piece of information, which results in decreasing income by a certain amount is not the kind of information which gives justification for the reopening of assessments. This is precisely the case before me. Here, actual payment of rent at the rate of Rs. 400 p.m. would result in decreasing the quantum of assessed incomes for the charge years 1980-81 to 1984-85, and therefore, this information should note have been the basis for re-assessment proceedings.
10. On a legal premise also, assessments for the charge years 1980-81 to 1984-85, are of no legal consequence in the eyes of law.
83. In this connection, I have with advantage relied on the notices issue under section 65 of the Ordinance for the charge years 1980-81 1984-85. In these notices, all columns serialized from b to D were scored and not the relevant column on the basis of which assessment; were reopened. As has been stated above, assessments were reopened on the ground that the assessee had paid rent at Rs. 50 p.m. for the charge year 1980-81 and Rs.100 in respect of the charge years 1J'81-82 to 1984-85, whereas he had actually paid rent at Rs. 900 p.m. vide survey extract No. 96957 dated 14-9-1981. Based on this information, it was concluded by the Income Tax Officer that the assessee had filed inaccurate particulars of his income for the charge years 1980-81 to 1984-85. However, furnishing of inaccurate particulars is not one of the reasons on the basis of which assessments could be reopened unless relevant clause or its equivalent was ticked off on the notices issued under section 65 of the Ordinance. Since the relevant column was not scored on the notices issued under section 65 of the Ordinance for the charge years 1980-81 to 1984-85,i subsequent proceedings in consequence of the said notices have rendered them of no legal value in the eyes of law. In arriving at this conclusion, I have with advantage relied on a Full Bench decision of the Tribunal reported as 1987 P T D (Trib.) 335_ Its relevant part is set out below for facility of reference:-
84. "Where notices under section 22(2) or section 34 were correctly served on the assessee, relationship of assessee and the assessor was established in consequence thereof. Service of such notices had to be strictly in accordance with law as the entire superstructure of assessment was built on them. Any shortcoming in service in respect of such notices could render the assessment liable to annulment or quashment of proceedings. On the other hand, notices requiring the assessee to produce books of accounts or render information on specific points, if not served in accordance with law, will not render the entire superstructure of the assessment liable to be annulled or to be quashed. In such cases assessments could only be set aside. In respect of the case before us, notices under sections 22(4-A), 22(4) and 23(2) were merely of procedural character, and therefore, their defective service has- not rendered the entire superstructure of assessment as ab initio illegal."
11. In respect of the case before me, re-assessment proceedings were initiated on the basis of section 65 of the Ordinance, which equates with section 34 of the repealed Income Tax Act, 1922 (hereinafter called the Act). Therefore, notices issued in pursuance of section 65 of the Ordinance being of a substantive character had to be served on the assessee strictly in accordance with the letter and spirit of law. In the present case, notices under section 65 of the Ordinance having not been served strictly in accordance with law, have held to be of no legal consequence. In this view of the matter, re-assessments based on such notices are equally ab initio illegal. This is in spite of the fact that proceedings under section 65 of the Ordinance were initiated in accordance with law with the prior approval of Inspecting Assistant Commissioner, Range-I1 Gujranwala, conveyed to the Income Tax Officer vide Letter No. J.16/24-M.B.I Din 85-86 (170), dated 6-2-1986. In arriving at this conclusion, 11 have sought support from the cases reported as P L D 1980 Lah. 449 (H.C. Lahore), P L D 1975 (H.C. Lahore) 443 and 1984 P T D 171 (H.C. Lahore). At this stage, it is necessary to refer to the distinction between the initiation of proceedings in accordance with law and their completion based on law. While in this case, assessment proceedings were rightly initiated in accordance with law and,, therefore, could not be challenged, still the Income Tax Officer by having not served the notices under section 65 of the Ordinance in accordance with law, had rendered the entire superstructure of re-assessments as ab initio illegal. This view as already has been stated above, finds support from a case cited as 1987 P T D (Trib.) 335. Therefore, in a nutshell, the position is that while reassessments are ab initio illegal on account of invalid service of notices under section 65 of the Ordinance, these are also of no legal effect based on appreciation of facts on record. In this view of the matter, in my considered opinion, reassessments framed by the Income Tax Officer F by virtue of his order dated 4-6-1986, for the charge years 1980-81 to 1984-85 are not maintainable in law and or, facts As a necessary corollary of this conclusion, assessments already framed by the Income Tax Officer by virtue of his orders under section 59 (1) of the Ordinance stand revived. It is ordered accordingly.
85. M.B.A./544/T Order accordingly.