1993 PLP 96 (SCMR)

AJMAL MIAN, J.‑‑‑This is an appeal with the leave of this Court against the judgment dated 7‑6‑1990 passed by a Division Bench of the High Court of Sindh in Constitution Petition No.1236 of 1987 filed by the respondent against the notice issued by the appellant No.2 under section 65 of the Income Tax Ordinance, 1979, hereinafter referred to as `the Ordinance', and the proceedings initiated pursuant thereof, allowing the same as follows: "For the foregoing reason, the writ petition is to be allowed and it is accordingly allowed with the result that the impugned notice dated 26‑1‑1987 and all subsequent letter dated 15‑6‑1987, summons dated 7‑6‑1987 and notice under section 61 dated 19‑9‑1987 are declared as without lawful authority and of no legal effect and the respondents are restrained from acting on the impugned notices or implementing the same or taking any further action in pursuance thereof themselves or through any agency or in any manner whatsoever. In the circumstances of the case, the parties are directed to bear their own costs.

2. Leave to appeal was granted for the reason that the points involved in the present case were under consideration of this Court in appeals arising out of C.P.L.A. Nos.290‑K and 292‑K both of 1985.

3. The brief facts are that the respondent is an English Medium lower secondary school for boys and girls. It appears that respondent's assessment for the assessment year 1984‑85 was finalised on 15‑12‑1984 under the Self -Assessment Scheme, 1984‑85, hereinafter referred to as `the Scheme'. It also appears that the respondent was served with a show‑cause notice dated 28‑11‑1986 calling upon it to submit explanation to the averments contained in the said show‑cause notice, which was as follows:‑‑ "Under‑assessment of income and discrepancies in assets‑‑explanation regarding show‑cause notice, for re‑opening assessment year 1984‑85."

4. The above show‑cause notice was respondent to by the respondent but it was followed by a notice under section 65 of the Ordinance and then by a notice under section 61 of the Ordinance. Thereupon, the respondent filed the aforesaid Constitution petition, which was resisted by the appellants inasmuch as a counter‑affidavit was filed in which it was averred that the‑impugned notices were issued legally. The learned Judges of the Division Bench, after hearing the parties and after referring to the material placed on record by the parties and the case‑law, concluded as follows: "The principles applicable are sufficiently expounded in the above decisions. For the petitioner, it was contended that there had been a full and true disclosure of all the material facts by the petitioner and that these had been probed into by the officer, as will be seen from Annexure `C' to the petition, which preceded the assessment order dated 15‑12‑1984. The income‑tax officer after satisfying himself about the purchase price of the two plots and the sources of the credits of bank account, finalized the assessments: The officer who issued the notice had not filed any affidavit traversing the allegations of the assessee. The stand of the income‑tax officer was that the assessment was finalized under the Self‑assessment scheme. It has come on record that the petitioner had disclosed all material facts by producing the photostat copies of sale deeds, balance certificate of Habib Bank Limited and the prize winning bonds there was no other obligation on it to instruct the income‑tax officer about the inference to be drawn on these facts. If the income‑tax officer felt any doubt, he could have examined the vendors and satisfied himself. He having not done so, cannot be permitted to reconsider the same on a change of opinion, so to say. In this view of the matter, we hold that the question of under assessment did not arise in the instant case so as to attract the mischief of provisions of section 65 of the Ordinance." Thereupon, in view of the above finding, the above Constitution petition was allowed in the above terms.

5. Against the above judgment, the appellants filed a petition for leave to appeal, which was granted for the aforementioned reason.

6. Mr. Shaikh Haider, learned counsel for the appellants, has candidly submitted that the C.P.L.As. Nos.290‑K and 292‑K of 1985, on the basis of which leave was granted in the present case were factually not relevant for the purpose of the present case as they involved different question of law. However, in support of the above appeal, he has urged that the learned Judges of the Division Bench erred in pressing into service the ground of change of opinion available in case of regular assessment under section 61 of the Ordinance without making distinction that the present case was assessed under the Scheme under section 59 of the Ordinance which does not envisage detailed scrutiny of the accounts, account books and other documents, if the case is qualified under the Scheme. On the other hand, Mr. Rehan Hassan Naqvi, learned Advocate Supreme Court for the respondent, has contended that though the respondent's assessment was made under the Scheme but it was framed after obtaining the relevant information and the documents, and, therefore, principle that mere change of opinion on the part of the assessing authority, does not entitle it to reopen the case under section 65 of the Ordinance, is very much applicable to the present case.

7. Before dealing with the above contentions, it may be pertinent to refer to the relevant paras. of the Scheme. Para 2 thereof contemplated to furnishing of the information and the documents referred to therein alongwith Returns under the Scheme. Para. 4 of the Scheme specified the cases which did not qualify under the Scheme. It may be pertinent to reproduce the above para. which reads as follows: "

4. Cases not qualifying under Self‑Assessment Scheme.‑‑‑The following cases shall not qualify for processing under Self‑Assessment Scheme‑‑ (a) Returns where declared income, before any adjustment for brought forward assessed loss, does not exceed Rs.18,000. (b) Cases selected for detailed scrutiny by the Board as specified in para.5. (c) Cases of new tax‑payers where net assets exceed Rs.100,000 'and the tax‑payer is unable to establish the source of investment. (d) Cases where returns are not filed voluntarily by the duel dates." It may also be observed that para. 5 provided for the selection of cases for detailed scrutiny. It inter alia contemplated that where the requirements of returns, as specified in para. 2, were not fulfilled and the tax‑payer failed to provide such particular/documents within one month of the date of service of a letter from the Income‑tax Officer requisitioning them, he would become liable to detailed scrutiny. It may further be pointed out that para. 6 of the Scheme specified the cases which were not to be selected for detailed scrutiny. However, note No.1, appended‑to the above para. made the above para. 6 subject to para. 9 of the Scheme. It may further to be observed that para. 7 of the Scheme envisaged disposal of the income‑tax returns within minimum possible time after setting apart cases for detailed scrutiny. It provided that the tax‑payer shall not be called to office even where the required documents had not been filed alongwith the returns and in such cases documents would be requisitioned through registered post. It may also be stated that para. 8 of the Scheme provided the method of selecting cases for detailed scrutiny. Para. 9 dealt with the concealment cases and provided as follows:‑‑ "

9. Concealment cases.‑‑‑Notwithstanding contained in the preceding paragraphs the cases where positive evidence of concealment exists or comes into possession of the Department during the pendency of the assessment, such case shall fall outside the purview of Self‑Assessment Scheme as well as from immunity, irrespective of the quantum of income declared."

8. It may be pertinent to observe that the questions, under what circumstances a notice under section 65 of the Ordinance can be issued and, whether such a notice can be impugned through a Constitutional petition have been the subject‑matter of judicial review in a number of cases. It will suffice to refer to two recent judgments of this Court, namely, (i) Arafat Woollen Mills Ltd. v. I.T.O. Circle‑I, Karachi 1990 SCMR 697 and the case of Edulji Dinshaw Limited v. Income Tax Officer reported in 1990 PTD

155. In the above first case, after referring to the case‑law of Pakistani and of foreign jurisdiction, on the question that "mere change of opinion is not a ground for reopening a closed assessment" allowed the appeal of the assessee by holding as follows:‑‑ "For these reasons, the appeal must succeed, the impugned judgment of the High Court dated 16‑1‑1986 is set aside and the Constitution Petition filed by the appellant is allowed with the result that the impugned notice dated 18‑9‑1984 and all subsequent notices dated 20‑1‑1985 and 26‑1‑1985 are declared as without lawful authority and of no legal effect, and the respondent is restrained from acting on the impugned notices or implementing the same or taking any further action in pursuance thereto himself or through any agency or in any manner whatsoever. The appellant shall also be entitled to costs:" Whereas, in the above second case, after reviewing the case‑law of Pakistani and foreign jurisdiction in detail, this Court has held as follows:‑‑ "Once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and the assessments have been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under‑assessed, etc. in the meaning of clauses (a) or (b) of subsection (1) of section 65 of the Ordinance. On the glaring facts and circumstances of this case the mischief of section 65 of the Ordinance was not attracted at all so as to call for the issuance of the impugned notices against the appellant company, not to speak of passing the assessment orders dated 26‑12‑1982 which however have been already declared as nullity in law by the order of this Court, dated 13‑12‑1982 for the reasons stated earlier." In view of the above finding, the appeal was allowed as under: "For the reasons recorded above, this anneal is allowed with the result that the impugned judgment of the high Court dated 19‑12‑1982 is set aside and the Constitution petition filed by the appellant is allowed with the result that the impugned notices under section 65 of the Income Tax Ordinance, 1979 for the Income‑tax assessment years 1971‑72 to 1980‑81 and the assessment orders dated 26‑12‑1982 are declared as illegal and without jurisdiction and the respondent by himself or through any agency is restrained from taking any action of any nature whatsoever against the appellant arising out of or in connection with the aforesaid notices. The appellant shall also be entitled to costs."

9. Referring to the controversy in the present case, it may be observed that the High Court found that the assessment order, though passed under the Scheme, was passed after obtaining all the relevant information and documents in respect of which the assessment was sought to be reopened under section 65 of the Ordinance. However, it was vehemently urged by Mr. Shaikh Haider that the above finding of the High Court is not correct as the assessment order was framed under the scheme without scrutinising/examining the documents. It was further submitted that the respondent had voluntarily submitted its letter dated 12‑12‑1984 to the Income Tax Officer alongwith the documents and that the letter had not taken into consideration the above documents. The above letter is on record at page 36 of the paper‑book which indicates that it was sent by an Advocate on behalf of the respondent in response to the direction of the Income Tax Officer as the following words appear in the letter:‑‑ "The photostat copies of the sale‑deed are enclosed herewith as desired by you." In this regard, it may be pertinent to refer to para. 2 of the memo. of petition and para. 11 of the counter‑affidavit which read as under: "Para.

2. That the assessment for the assessment year 1984‑85 was in the first instance finalised under Self‑Assessment Scheme on 15‑12‑1984 on an income of Rs.85,564 after submitting proof of Prize Bond winnings Wealth Statement and Wealth Reconciliation Statement. The petitioner before passing of the assessment order had also submitted full details of properties purchased. Photo copies of Sale Deeds and also the Balance Certificate of loan of Rs.10,00,000 payable to Habib Bank Limited were filed vide letter dated 12‑12‑1984. The assessment order is filed as Annexure `B' and letter dated 12‑12‑1984 as `C'." Para.

11. As regards para.2 of the petition, it is submitted that the return as submitted did qualify for assessment under the Self -Assessment Scheme hence assessment order was accordingly passed. Rest of the contents are as regards the proof of prize bond winnings, wealth statement, details of properties, photo copy of purchase deed and balance certificate` of loan as stated in this para. being irrelevant for assessment under the Self‑Assessment Scheme denied." A perusal of the above‑quoted paras. shows that according to the respondent, it submitted full details of properties, purchased alongwith photostat copies of sale‑deeds and the balance certificate of loan of Rs.10 lacs. It also enclosed a copy of the above letter dated 12‑12‑1984 which contained necessary information. It may be noticed that the appellants, in their counter -affidavit, did not raise any plea to the effect that the above letter was not asked for or that the same was not received. On the contrary, in the impugned notice under section 65 of the Ordinance issued by the appellant, the respondent's above letter has been specifically referred to and relied upon.

10. Mr. Shaikh Haider has referred to the M/s. Crescent Art Fabrics Ltd. v. The Commissioner of Income‑tax, Central Zone, Circle V, Lahore and 2 others 1988 PTD 857 and the case of H.M. Abdullah v. Income Tax Officer, Circle, V. West Zone, Karachi 1991 PTD 217 in support of his submission that an assessment order made under the scheme pursuant to section 59 of the Ordinance cannot be equated with a regular assessment order made after detailed examination under section 61 of the Ordinance. In the above first. case, Saad Saood Jan, J. (as his Lordship then was) while sitting as a Single Bench at the Lahore High Court, has dilated upon the above contention as follows: "

4. Finally it is contended on behalf of the petitioner that together with the returns it had submitted the details of the construction which it had carried out. The said record was scrutinized by the Income Tax Officer before making assessment order. Thus the subsequent issuance of notice under section 65 of the Income Tax Ordinance could not be regarded but a mere change of opinion by the Income Tax Officer. This contention cannot be ‑accepted for the earlier assessments made by the assessee were made under Self‑Assessment Scheme where the statements made by the assessee are accepted on their face value. In any case the assessment orders do not indicate that the cost of the construction was examined in detail at the time when the assessment orders were made." Whereas, in the above second case a Division Bench of the Sindh High Court (judgment of which was rendered by one of us, Saleem Akhtar, J.) has dealt with the above question as under: "Mr. Muhammad Nasim has referred to 1990 PTD 873 where the assessment was made under the Self‑Assessment Scheme till notice under section 65 was declared to be invalid. In this case although the case was under‑ the Self‑Assessment Scheme, the assessment was made, as is obvious from the observation, after scrutiny of the documents which had been supplied to the Income Tax Officer. Therefore, this case will be distinguishable, as the assessment had been made under Self‑Assessment Scheme after due scrutiny. The learned counsel also referred the judgment in Constitution Petition No.447/88 Bhambore Ceramic Industries v. Income Tax Officer but in this judgment it has been already observed that the assessing officer had framed a conscious assessment after scrutiny of the records, documents and account books. The observation in this judgment will not apply to the facts of the case."

11. There cannot be any controversy that an assessment order framed under the Scheme without asking for further information and documents under the relevant paras. of the Scheme stands on a different footing than an assessment order made after detailed scrutiny and examination of the record under section 61 of the Ordinance, and conscious application of mind to the material facts. The principle of change of opinion cannot be made applicable to the former case as in such a case upon discovery of the factum that the income chargeable to tax under the Ordinance has escaped assessment, on the basis of definite and reliable information,‑ assessment can be reopened by virtue of clause (c) of subsection (1) of section 65 of the Ordinance, but in the latter case, a notice under section 65 of the Ordinance cannot be sustained unless it is shown that the new information or document was not available before the Income Tax Officer when the assessment order was framed and/or the Income Tax Officer failed to apply his mind consciously to the matters in respect of which notice under section 65 of the Ordinance is .issued and/or the assessee was guilty of concealment of material facts or he managed and/or manoeuvred the assessment order with the help and/or connivance of the assessing authority, which fact is apparent from such assessment order.

12. We may further observe that as pointed out hereinabove, that by virtue of note appended to para. 6, and para. 9 of the Scheme, it was open to the Income Tax Officer to have obtained requisite information and documents before framing of an assessment even under the Scheme. In. the present case the Income Tax Officer opted to obtain the information/documents about the purchase of the two plots mentioned in the impugned notice and the source of purchase etc. from the respondent before framing the assessment. In such a situation in our view, the principle that mere change of opinion of the assessing authority will not justify reopening the assessment order under section 65 of the Ordinance, would be very much applicable.

13. We are, therefore, of the view that the High Court has not committed any error of law by allowing respondent's above Constitution Petition as to warrant interference by this Court. We would, therefore, dismiss the above appeal. However, there will be no order as to costs. M.B.A./C‑113/S Appeal dismissed.