I.T.A. NO.1979/KB OF 1997-98, DECIDED ON 13TH MARCH, 1999. Versus I.T.A. NO.1979/KB OF 1997-98, DECIDED ON 13TH MARCH, 1999.

ORDER

SHAHID JAMAL (ACCOUNTANT MEMBER). ---This appeal is directed against the order under section 66-A of I.A.C. Income-tax, Sukkur Range, Sukkur.

2. Mr. Abdul Tahir Ansari, Authorised Representative for the appellant, pressing the grounds of appeal submitted that original assessment in this case was finalized under section 59(1) of the Income Tax Ordinance and assessee's return income of Rs.53,500 was accepted. He invited our attention to the said assessment order submitted that the facts regarding purchase of Al-Imran Hotel and another Hotel in Ranipur and the source thereof was fully discussed and accepted in the said order. Similarly, assessee's gross wealth of Rs.13,57,104 liabilities of Rs.11,01,823 to different banks and the net wealth declared at Rs.2,55,280, duly reconciled were accepted by the Assessing Officer. After acceptance of the same, show -cause notice issued by I.A.C. on the same issues and subsequent cancellation and reassessment were not in accordance with law. We have referred to the said show-cause notice dated 26-5-1998 wherein the I.A.C. required the assessee to submit to him, following documents and explain the source of investment:

(1) Ownership/title of immovable properties worth more than 12 lacs:

(2) Liabilities declared at 11 lacs but converted in the name of Mr. Manzoor Hussain brother-in-law:

(3) The source of investment made in the purchase of above properties and running capital of the business:

(4) You have claimed at Column No.13 of wealth statement under the head " Assets, if any transferred to any persons .

1/2 of Cafe Sajjad gifted to Minor sons Q total cost of Hotel shown above.

You are required to explain the source of investment in the Hotel Cafe Sajjad declared at R.6 lacs and also furnished gift deed in support of your claim.

You are further required to explain the collateral offered to Bank for grant of loans. It is evident from the record that loan was sanctioned to Mr. Manzoor Hussain but utilized by you. Please explain under what circumstances you took over the business from your brother- in-law Mr. Manzoor Hussain. Please file the latest position of liquidation of liabilities alongwith details/documents."

3. On the basis of above I.A.C. upheld the order to the erroneous and prejudicial to the interest of revenue considering the assessee's reply dated 2-6-1998 which he did not find satisfactory, he cancelled the order and added the following amounts in originally assessed income.

(1) on account of cost of construction of Cafe Sajjad and Al-Imran at Rs.6,00,000; (2) on account of furniture, fitting, decorations including air-conditioners at Rs.3,00,000; (3) on account of capital in business at Rs.2,00,000. The above amounts were not added under any specific section but were merely treated as, income and thus the learned I.A.C. finalised the assessment at Rs.8,33,500 and charged tax of Rs.2,68,098.

4. Mr. Imtiaz Ahmed, Barakzai, learned D.R. for the respondent tried to defend the order of I. A. C. but on being questioned as to what prejudice or error in the assessment order was shown by the I.A.C. in the show-cause notice he could not offer any satisfactory reply.

5. It is well-settled principle that section 66-A can be invoked only when an order passed by the D.C. I. T. is found erroneous and prejudicial to the interest of revenue. The error and the prejudice should be manifest in the show cause notice and not subsequently by a fishing enquiry. In this case the letter issued by the I.A.C. was more of an enquiry than a finding 'and, therefore, the notice was ab initio illegal. By this notice the I.A.C. had not considered the order to be erroneous and prejudicial to the interest of revenue but was proposing to gather material as to investigate and come to the conclusion of prejudice to revenue after the said enquiry. We have, therefore, no hesitation in holding that the action taken by the I.A.C. is not sustainable in law. We are further guided by decision, of the Tribunal, on similar facts and circumstances of the case, reported as 1999 PTD (Trib.) 700. In the reported judgment I.A.C. has initiated proceeding under section 66-A with a view of investigate the source of capital which was not probed by the Assessing Officer at the time of original assessment which was held to be illegal, whereas in this case the investigation was accepted in the order and thereafter the I.A.C. tried to unsettle the finding given by the I.T.O. without any material evidence. As such we hold the order, to be clearly illegal and the same is cancelled.

C.M.A./61/Tax-K/(Trib.) Order set aside.