1988 PLP 206 (PTD)

AJMAL MIAN, J.-- The above petition is directed against a notice dated 30-10-1986, hereinafter referred to as the notice, issued by respondent No. 1 under section 65 of the Income Tax Ordinance, 1979, hereinafter referred to as the Ordinance and also against respondent No. 2's letter dated 13-11-1986, declining to interfere with the notice.

2. The brief facts leading to the filing of the above petition are that the petitioner, which is a registered partnership firm, which deals in timber, for the assessment year 1982-83, hereinafter referred to as the assessment year, in its trading account disclosed the purchases amounting to Rs.7,43,785.90 and sales amounting to Rs.7,92,862 thus disclosing a gross profit of Rs.49,076.10. On the basis of the above return the assessment order was passed on 12-9-1982. However, on 4-8-1986 petitioner received a letter from Respondent No. 1 enquiring as to why closing stock for the period ending 31-12-1980 appearing in the trading account and balance sheet of the year 1981-82 did not find mention in the trading account of the year 1982-83. The petitioner in response to the above letter sent a reply dated 6-8-1986 explaining the reason inter alia that the above purchases included the closing stock for the above period ending on 31-12-1981. The above letter was followed by exchange of few more letters culminating in the issuance of the notice. The petitioner then addressed a letter dated 10-11-1986 to Respondent No. 2 inter alia requesting him to stay the proceedings under the notice, which request was declined by Respondent No. 2 by the impugned letter dated 13-11-1986. The petitioner has, therefore, filed the present constitutional petition.

3. In support of the above petition, Mr. Rehanul Hassan Naqvi, learned counsel for the petitioner has urged as follows:-- (i) That the notice is without lawful authority as no new facts are available with Respondent No. 1 as to warrant the attraction of section 65 of the Ordinance. (ii) That even otherwise the Inspecting Assistant Commissioner of Income-tax while granting permission to reopen the cases had not applied his mind to the facts. On the other hand Mr. Waheed Farooqui has submitted as under:-- (i) That Respondent No. 1 had noticed that no trading stock for the assessment year was disclosed in the trading account and, therefore, after making necessary enquiries from the petitioner the impugned notice was issued which is justified if a reference is made to the correspondence exchanged between the petitioner and Respondent No. 1. (ii) That even otherwise only the impugned notice has been issued and in case any adverse order is passed, the Ordinance provides the hierarchy of the Tribunals including the High Court for reference wherein, the petitioner can agitate his grievance but cannot invoke the constitutional jurisdiction as the notice cannot be said to be without jurisdiction.

4. In order to appreciate the respective contentions of the learned counsel for the parties, it may be advantageous to reproduce hereinbelow section 65 of the Ordinance, which reads as follows:-- "

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 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 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: 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. (3-A) Where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served. (4) Nothing contained in subsection (2) shall apply to any such case or class of cases to which clause (c) of subsection (1) applies as may be specified by the Central Board of Revenue. A perusal of the above section 65 indicates that subsection (1) of the above section 65 can be pressed into service if in any year, for any reason, any income chargeable to tax under the Ordinance has escaped assessment, or 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 the 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 but no order of assessment has subsequently been made under the above section or any other provision of the Ordinance. It may also be observed that Income-tax Officer in the above given cases has been authorised subject to the provisions of subsections (2), (3) and (4) to issue a notice to the assessee containing all or any of the requirements of the notice under section 56 and he has been further authorised to 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 in such a case all the provisions of the Ordinance shall, so far as may apply, shall be applicable. It may also be noticed that the proviso to the above subsection (1) of section 65 provides an embargo that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made. It may further be noticed that subsection (2) of section 65 provides two pre-conditions for invoking above subsection (1), namely, (i) that the Income-tax Officer shall not initiate the proceedings under subsection (1) unless definite information has come into his possession or (ii) he has obtained the previous approval of the Inspecting Assistant Commissioner of Income-tax in writing to do so. It may also be pointed out that the above-quoted subsection (3) provides the period within which an assessment can be reopened, whereas subsection (3-A) provides for the period within which a proceeding under subsection (1) of section 65 are to be completed. Whereas under subsection (4) of section 65, the Central Board of Revenue has been empowered to specify any case or class of cases to which clause (e) of subsection (1) applies for exclusion of the application of the above subsection (2) of section 65 of the Ordinance.

5. Mr. Rehanul Hassan Naqvi, learned counsel for the petitioner in furtherance o his above submission has referred to the following cases:-- (i) Sirpur Paper Mills Ltd. v. Income-tax Officer, "A" Ward, Companies Circle Hyderabad and another (1978 Vol. 114 Income-Tax Reports page 404), in which the assessment for the assessment year 1965-66 was completed determining the income of the assessed at Rs.7,95,575 after allowing Rs.20,000 under the head workmen and staff welfare expenses. Later, the Income-tax Officer received information that the said amount was paid to the vice-president of the employees' union for pacifying the workers of the assessee at the instance of the vice-president. On the basis of the above information the Income-tax Officer obtained the permission of the Commissioner of Income-tax for re-opening the assessment which action was impugned in a Constitutional Petition before the Andhra Pradesh High Court. It was held by the High Court that the income-tax department cannot be permitted to re-open the concluded assessment because of the new views they have come to entertain on the facts and if this is permitted, litigation would have no end, except when legal ingenuity is exhausted. It was further held that merely because vouchers were not filed at the time of the assessment and such similar amounts were disallowed in the succeeding assessment years, cannot be a proper ground for reopening the assessment proceedings and that the resort to section 148 by the department is, therefore, without jurisdiction. (ii) Manoo Lal Kedarnath v. Union of India and others (1978 Vol. 114 Income Tax Reports page 884), in the above case the assessee was assessed for the assessment year 1965-66 on March 24, 1970, on an income of Rs.50,990 but later on the Income-tax Officer came to know that the assessee had concealed two amounts, Rs.65,650 and Rs.10,000, which had escaped assessment and after obtaining the assent of the Commissioner, issued a notice of reassessment to the assessee and assessed the assessee on a total income of Rs.6,01,

038. An appeal filed by the assessee was allowed by the Appellate Assistant Commissioner on the ground that the Income-tax Officer had no material at the relevant time to conclude that there was escapement of income for the reason of default on the part of the assessee. Further, appeal filed by the Income-tax department to the Appellate Tribunal was dismissed but while the above appeal was pending the Income-tax Officer issued a second notice under section 147(a) of the Income-tax Act which was impugned before the Allahabad High Court in a Writ Petition, which was allowed by a Division Bench. It was held that the settled rule of law is that a judicial determination, which has become final between the parties is binding provided it was made by an authority having jurisdiction and that since earlier assessment proceedings under section 147(1) were quashed by the competent authorities on the view that the material on the basis of which the Income-tax Officer initiated those proceedings did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure at the time of original assessment and that the same position would still be obtained in respect of the second notice. The petition was allowed. (iii) Gemini Leather Stores v. Income-tax Officer, B-Ward, Agra, and others, 1975 Vol. 100 Income-tax Reports page 1, in which the facts were that in the original proceedings of the assessment the appellant did not disclose certain transactions evidenced by certain drafts but the Income-tax Officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts as the income of the appellant. Subsequently, the Income-tax Officer issued a notice under section 147(a) of the Income-tax Act, 1961, with a view to assess the amounts as the appellant's income from undisclosed sources. Assessee filed a writ petition, which was dismissed on the ground that all the requirements of section 147(a) were complied with by the Income-tax Officer. Upon appeal by the assessee, the Supreme Court allowed the appeal and reversed the decision of the High Court and held that after discovery of the primary facts relating to the transactions evidenced by the drafts it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant which he did not do. It was further held that it was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts and, therefore, recourse could not have been taken to section 147(a) by the Income-tax Officer to remedy the error resulting from his own oversight. (iv) Commissioner of Income-tax v. Vijai Laxmi Sugar Mills Ltd., 1975 Vol. 101 Income-tax Reports page 670, in the above case the assessment under section 23(3) of the Indian Income-tax Act, 1922, for the assessment years 1959-60 and 1960-61 of the liquidator of a company in liquidation, the Income-tax Officer had granted the expenses claimed for salary, postage, travelling, etc. However, a different Income-tax Officer later disallowed the expenses and proceeded under section 147 of the Income-tax Act, 1961. The Allahabad High Court while dealing with the reference under the Income-tax Act held that where no appellate or higher authority had taken the view that such expenses were not admissible, the conclusion reached by the successor officer as a result of fresh application of mind would not amount to information within the meaning of section 147 of the Act of 1961, but was only a change of opinion and. therefore, the reassessment could not be upheld. (v) Commissioner of Income-tax v. U. Lu Nyo A I R 1933 Rang. 350, in which a Division Bench of the Rangoon High Court while dealing with an income-tax reference under the Income-tax Act, 1922 held that an Income-tax Officer was not competent to reopen the assessment of the previous year merely because he disagrees with his predecessor's finding as to the amount of assessable income. (vi) New Victoria Mills Co., Ltd. v. Commissioner of Income-tax, U. P., Lucknow 1953 Vol. 24 Income Tax Reports page 388, in which the facts were that the assessee included in its return a certain sum received by it from a company but the Income-tax Officer excluded the sum from the assessment on the ground that the item had been disallowed as business expenditure in the assessment of the company. The assessee's assessment became final but the company appealed and the Tribunal allowed the sum as business expenditure under section 10(2)(xv). Subsequently, the Income-tax Officer issued a notice under section 34 and revised the assessee's assessment. Upon an appeal before the Income-tax Appellate Tribunal it was held that the sum was allowable expenditure of the company under section 10(2)(xv) which finding was not present before the Income-tax Officer while he made the assessment and, therefore, the above finding was a definite opinion for reopening of the assessment. Upon a reference under section 66(1) of the Income-tax Act, a Division Bench of the Allahabad High Court held by answering the question referred to it in the negative, that the fact that the Appellate Tribunal had held that the sum of Rs.2,06,695 was allowable expenditure of the Kanpur Dyeing and Cloth Printing Co. Ltd. under section 10(2)(xv) of the Income-tax Act could not be said to be a definite information which led to the discovery that the assessee's income had escaped assessment and that the facts were fully known to the Income-tax Officer and if lie had made a mistake at the time of the assessment, there was other methods of correcting that error. On the other hand Mr. Waheed Farooqui has referred to the case of Arafat Woollen Mills Ltd. v. The Income-tax Officer, Companies Circles E-1, Karachi, reported in 1986 P T D 316 (Karachi High Court), in which a Division Bench of this Court while declining a constitutional petition against notice issued under section 65 of the Ordinance, inter alia, held that the escaped income could be defined as evasion, accidental or inadvertant omission and if any of such conditions existed then the same Income-tax Officer or his successor in office could have issued notice under section

65. It was also held that since section 65 of the Ordinance is merely a machinery provision, should not be construed strictly. It was further held that in exercising constitutional jurisdiction the High Court could not sit as a Court of appeal and pronounce upon sufficiency, equality or quantum.

6. It may be observed that barring 3 cases in which constitutional jurisdiction was exercised, all the other cases relied upon by Mr. Rehanul Hassan Naqvi pertain to Income-tax references before the High Court. It is .a well-settled principle of law that the High Court will not lightly deprive the hierarchy of Tribunals, their jurisdiction under the relevant special statute, unless it is shown that the impugned action is patently without jurisdiction or is coram non judice or mal fide and that it will be a futile exercise if the case is allowed to be proceeded with before the Tribunal concerned and will expose a party to unnecessary harassment. In the present case we would not like to express our view on the merits of the case but we may observe that respondent No. 1 in his letter, dated 28-9-1986 addressed to the petitioner (Annexure 'F' to the petition) had attempted to demonstrate that it was not possible that the figure of purchases amounting to Rs.7,43,786 would include the closing stock for the year ending on 31-12-1981 and, therefore, at this stage it cannot be said that the impugned notice had been issued without any basis or foundation. It is true that the trading accounts of the year were before the Income-tax officer when he finalised the assessment order but apparently he did not notice that they did not contain the figure of the closing stock, which was given in the trading accounts of the previous year. It seems to be an accidental omission, which might have resulted into escapement of the assessable income. It is not a case in which the Income-tax Officer had noticed the above fact and dilated upon it and then passed the assessment order or that the above fact was noticed by an appellate forum and dilated upon. If that would have been the case, the petitioner might have a case for invoking constitutional jurisdiction. We are inclined to hold that it is not a case in which the impugned notice is patently without jurisdiction nor it is a case of coram non judice or mala fide warranting the attraction of the constitutional jurisdiction. The petitioner may contest the notice before the Income-tax Officer, then before the Appellate Assistant Commissioner in case the Income-tax Officer decides against him and then before the Income-tax Appellate Tribunal and thereafter, in an Income-tax Reference before the High Court. The petitioner has the above remedies available under the law, which cannot be allowed to be by passed at this stage.

7. Adverting to Mr. Rehan Hassan Naqvi's submission that the Inspecting Assistant Commissioner Income-tax has not applied his mind to the facts of the case while granting permission to reopen the case, it will suffice to observe that there is nothing on record, on the basis of which, it can be inferred that he has not applied his mind.

8. We would, therefore, dismiss the above petition, but there will be no order as to costs. M. B. A./ W-13/ K Petition dismissed.