1989 PLP 1010 (PTD)

QAISER AHMED HAMIDI, J.--1n this petition filed under Article 199 of the Constitution of Islamic Republic of Pakistan; 1973, the petitioner has challenged the validity of the nonce, dated 25-5-1987, issued by Income Tax Officer. Contractor Circle-III, West Zone, Karachi under section 65 of the Income Tax Ordinance, 1979, for additional assessment for the assessment year 1982-83.

2. The petitioner is a firm registered under the Partnership Act, 1932, and is engaged in the business of construction. The petitioner filed its return of income for the assessment year 1982-83. The Income Tax Officer issued statutory notices under section 61 of the Income Tax Ordinance, 1979, from time to time to produce books of accounts and other evidence including documents pertaining to acquisition of plots, receipts and expenses, which were duly complied with. After thorough scrutiny of evidence and documents the Income Tax Officer accepted the cost of acquisition of plots and receipts, but did not accept the gross profit declared in the trading account at 12.3 % on the ground that it was low. He. therefore, emoted the gross profit at 15%. He also made some additions from the profit and loss account and framed the assessment under section 62 of the Income Tax Ordinance, 1979, at a total income of Rs.4,64,464 as against the total income declared by the petition rat R&65,000 vide assessment order dated 31-3 1983.

3. On 25-5-1987, after ore than f years of the assessment order, the respondent No.l issued notice under section 65 of the income Tax Ordinance, 1979, for the assessment year 1982-83, on the ground that he had reason to believe that the said income had escaped assessment. This was followed by a show cause notice dated 15-6-1987, stating therein that the two plots purchased by the petitioner from Muhammad Raft on 28-6-1982, were undervalued and that he (respondent No.1) intended to charge the difference of Rs.28,00,

000. The petitioner has, therefore, challenged this notice on the ground that it was void ab initio, and without jurisdiction.

4. During the pendency of the petition the respondents filed M.A. No. 1101 of 1988, seeking permission to pass assessment order, which would be barred by time on 30-6-1988. This application was allowed by this Court on 13-6-1988, and it was ordered that respondent No.l may finalize the assessment, which shall not be executed for a period of six months from the date of passing the order. Accordingly the respondent No.l has completed the assessment on 29-6-1988. The petitioner has approached this Court with the following prayer;

It is respectfully prayed that this Honble Court may be pleased to: (i) declare that the impugned notice dated 25-5-1987 under section 65 is without jurisdiction, illegal, arbitrary, null and void and without lawful authority; (ii) quash the impugned notice under section 65; (iii) prohibit and restrain the responders in acting on the impugned notice dated 25-5-1987 and consequential notice under section 61 or implementing the same or taking any further action in pursuance thereto themselves or through any agency or in any manner whatsoever; (iii-A) that the assessment order passed' by' respondent No.l is illegal, without jurisdiction and of no legal effect.

5. We have had the benefit of a very careful arguments on both the sides.

6. Section 65 of the Income Tax Ordinance, 1979, where under the impugned notice was issued provides: "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 and he has obtained the previous approval of the Inspecting Assistant Commissioner of I come Tax in writing to do so. Explanation.--As used this subsection, "definite information" includes information in respect of sales and, purchases made by the assessee, of any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any information, asset or valuable article, or any investment made or expenditure incurred by him. (3) Notice under subsection (1), in respect of any income year, may be issued within ten years from the and of the assessment year in which the total income of the said income year was first assessable; Provided that, where the said notice is issued on or after the first day of July, 1987, this subsection shall have effect as if for the words "ten years" the words "five years" were substituted. (3-A) Where a notice under subsection (l) 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."

7. It will be seen that subsection (1) of section 65 empowers an Income Tax Officer to re-open an assessment only in the following exigency:- . (i) If any income chargeable to tax has escaped assessment; or (ii) 1f the total income of an assessee has been under assessed; or (iii) If the total income of an assessee has been assessed at too low a rate; or (iv) If the total income of an assessee has been the subject of excessive relief or refund; or (v) If the total income of an assessee has been assessed under subsection (1) of section-59, and no order of assessment has subsequently been made under section 65 or any other provision of the Income Tax Ordinance, 1979.

8. Mr. I.N. Pasha, learned counsel for the petitioner who has argued this petition with ability has contended that none of the above prerequisite conditions exist in this case to warrant re-opening of the assessment. He has also contended that under subsection (2) of section 65, no proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income Tax Officer and he has obtained the previous approval of the Inspecting Assistant Commissioner of Income Tax in writing to do so. There is, therefore, good deal of force in the contention of Mr. Pasha, learned counsel for the petitioner when he states that the conditions prescribed by subsection (1) should first be satisfied and only then the second stage of definite information and previous approval of the Inspecting Assistant Commissioner would come into play. In short, it is the case of the petitioner that it was simply case of "change of opinion", which do not justify an action under section 65 of the Income Tax Ordinance, 1979.

9. The principle of "change of opinion" is in fact a judicial innovation of the Courts of Indian jurisdiction. In the case of Calcutta Discount Co. Ltd. v. Income Tax Officer, reported in A.I.R. 1961 S.C. 372, the. Supreme Court of India observed that the Income Tax Officer was not entitled to re-open the case merely on the basis of a change of opinion and to allow him to do so would subject the assessee to lengthy proceedings and unnecessary harassment. The cases reported as Gemini Leather Stores v. Income Tax Officer (A.I.R. 1975 S.C. 1268), Parashuram Pottery Works v. Income Tax Officer (A.I.R. 1977 S.C. 429), Income Tax Officer v. Madnani Engineering Works Ltd. (1979, 118 I.T.R. page 1), Commissioner of Income Tax Delhi v. M.K.S. Partab Kumari of Alwar 1982 P T D 59 Dr. H.K. Mahtab v. Income Tax Officer, (1981 P T D 74, Dalal Consultants and Engineers Ltd. v. Miss D.V. Bapat, Income Tax Officer and another 1983 P T D 317 Wyeth (India) Pvt. Ltd. v. N.D. Bhatt, Inspecting Assistant Commissioner of Income Tax and another (1982 Vol. 137 I.T.R. 20), Sham Narain and another v. Income Tax Officer, District VIII, Ward F (1) New Delhi and others (1981 Vol. 31 I.T.R. 105), Jawahirlal Durabuxmal Commissioner of Income Tax U.P. (1982 Vol. 1'37 I.T.R. 54), and Harshavadan Nabgaldas v. Income Tax Officer, Ahmadabad and another (1982 Vol. 137 I.T.R. 147), which have been referred by. the Supreme Court of Pakistan with approval in Civil Appeal No.K-1 of 1983, decided on 16-5-1988, further. support this view.

10. In Parashuram Pottery Works v. Income Tax Officer, reported in A I R 1977 S C 429, referred to above, the notice seeking to re-open the assessment order was quashed by the Supreme Court of India, which held as follows:- "At the same time, it must be borne in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not be reactivated beyond a stage and that lapse of time must induce repose in. and set at rest judicial and quasi-judicial controversies at it must in other spheres of human activity."

11. In some what similar circumstances a Division Bench of this Court examined this point in M/s. Car Tunes v. Income Tax Officer, Circle v. Hyderabad and another, reported in 1989 P T D 478, and observed as follows:- "It is, therefore, quite obvious that on the same material which formed the basis of assessment in favour of petitioner for the disputed assessment year, by the Income-tax Officer, his successor in office proposed to reopen the case taking the view that the valuation accepted by his predecessor was not fair. Similarly, the wealth statements of the three partners of petitioners mentioned in the impugned notice were finalized by the Income tax Officer after taking into consideration the documents submitted before him but his successor was of the view that the documents did not establish fully the source of the wealth. It is, therefore, quite clear that the issuance of notice under section 65 of the Income tax Ordinance was based on a mere change of opinion by the successor Income-tax Officer which could not justify the action in law."

12. Admittedly there is no definite information with respondent No.1 nor there is any material for the satisfaction of the Inspecting Assistant Commissioner for according approval for re-opening the case of petitioner. Subsection (1) of section 65 against starts with the words; "if, in any year for any reason" and the statutory form of notice under section 65 starts with the words," whereas I have reason to believe that", which connote that these words are stronger than the word suspect. Therefore, the expression" reason to believe" does not mean a purely subjective satisfaction on the part of the Income Tax Officer, but the reason must be held in good faith. In this view of the matter, there is no force in the contentions of Mr. Shaikh Haider, learned counsel for respondents when he states that provisions of section 65 of the Income Tax Ordinance, 1979, are aimed to bring to tax the total income of the assesses, which escaped assessment due to negligence of the Officers concerned. The petitioner had disclosed all the relevant material regarding the plots in question and the previous Income Tax Officer had completed the assessment after perusing the relevant material. There was, therefore, no justification to re-open the case merely on suspicion.

13. The filing of this petition at the initial stage of the proceedings against service of notice is also questioned by Mr. Shaikh Haider, learned counsel for the respondents, which according to him tends to create distrust in the statutory tribunals created under the Income Tax Ordinance, 1979. This argument is effectively answered by the Supreme Court of Pakistan in Civil Appeal No. K-1 of 1983, Edulji Dinshaw Ltd. v. The Income Tax Officer, decided on 16-5-1988, wherein it was held that in cases involving fiscal rights a writ petition was, an appropriate remedy. We cannot do better than quoting the relevant observations of their Lordships in extenso: "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 provision 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 clause,(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 orders dated 26-12-1982 which however have been already declared as nullity in law by the order of this Court dated 23-12-1982, for the reasons stated earlier."

14. For the aforesaid reasons, we allow the petition and declare the notice dated 25-5-1987, issued by respondent No.l as without legal authority. As a necessary corollary all subsequent orders based on this notices are also declared as without legal authority. There will, however, be no, order as to costs. M.B.A./M-821/K Petition allowed.