1989 PLP (Trib (PTD)

M. MUJEEBULLAH SIDDIQUI (JUDICIAL MEMBER).--The above appeals are directed against the order of learned C.I.T. (A) Zone-2, Karachi, dated 2-2-1988 in Income-Tax Appeal Nos. C.I.T./Z-2/700, 701, 702 and 703/1987.

2. Briefly stated the relevant facts are that the assessee (hereinafter referred as the respondent) is an individual doing business of textile and export of grey cloth in the name and style of M/s. Alim International. The original assessments of the respondent for the four years under appeal were finalised under section 59 (1) of the Income-Tax Ordinance, 1979 as cases immune from detailed scrutiny. Subsequently information was received by the Income Tax Officer from the Director of Vigilance wing that their inquiries in the case revealed that the respondent was carrying on business in the names of large number of persons. On the basis of this information the case of the respondent as well as 92 other parties alleged to be benami of respondent were transferred from East Zone, Karachi to the jurisdiction of the Income-Tax Officer, Companies Circle B-5 under section 5 (b) of the Income-Tax Ordinance. The Vigilance Wing had raided the business premises of the respondent during the course of inquiry and had seized the books of accounts, documents and vouchers etc. On the basis of information from the Directorate of Vigilance, the cases were re-opened under section 65 with the prior approval of the Inspecting Assistant Commissioner Range II, Central Zone `B' Karachi. The respondent filed the returns under protest and resisted the inquiries on the ground that since his case was immune from detailed scrutiny, it could not be re-opened under section

65. The Income Tax Officer, however, proceeded with the re-assessments. He recorded statements of majority of 92 persons. Out of these persons Income Tax Officer held that 61 parties did not know anything about the business carried out in their names, 15 persons admitted that they were the owners of the business standing in their names while 9 persons did not turn up for statement under section 148 or for cross-examination. From these statements the Income Tax Officer reached the conclusion that the income of the 61 persons who had denied carrying on business was the income of the respondent. He further concluded that the 15 persons who supported the respondent were not dependable as they were related to him. As regards the 9 parties who did not comply with the notice under section 148, their income was also included in the hands of the assessee for want of verification. After holding that the income of 92 persons was the income of the respondent because he had managed, controlled and financed the export business of these parties the Income-Tax Officer clubbed the export business of all the parties m the hands of the respondent. The Income-Tax Office, applied section 12 (7) on the loans advanced by these parties and taxed the deemed income. Besides he made addition from profit and loss account for want of proper verification. Being aggrieved with the above treatment the respondent preferred first appeal before the learned Commissioner of Income-Tax (A) assailing the assessment proceeding on the grounds that firstly the notice under section 65 is illegal because the cases having been finalised under Self Assessment Scheme could not be re-opened under section 65 without the prior approval/specification from the Central Board of Revenues in view of provision of 65 (4). Secondly it was urged that when the notice under section 65 was issued the income of Benamis sought to be assessed in the hands of assessee had not escaped assessment because their assessment stood completed and they were cancelled by the Commissioner of Income Tax, Zone-B, Karachi on 29-2-1987 which is also the date of re-assessment made by the Income Tax Officer. The validity of notice under section 65 was challenged for the reason that on the date of issuance of notice the income of benamis stood assessed which assessments were cancelled after the issuance of notice under section

65. Reliance was placed on the judgment of Honourable Supreme Court of Pakistan reported as 23-Tax

233. Thirdly it was submitted that the action under section 65 was not based on tangible material but was based on mere suspicion. Fourthly, the re-assessment was assailed on the ground of lack of opportunity as the books of accounts remained in the custody of Income Tax Officer and that in the case of some benamis no opportunity of cross-examination was given. The estimated sales, gross profit applied and the addition made were also objected to on merits.

3. The learned C.I.T. (A) heard arguments on all the grounds agitated before her, but allowed the appeals mainly on the legal objections. The learned C.I.T. (A) gave the following findings in arriving at the conclusion that the re-assessment proceedings were invalid: "After scrutiny and considering all aspects of the case and keeping in view the judgments relied upon by both the parties, I think that the notice under section 65 issued ire -this case was not valid in view of the provisions of section 65 (4), 1n this provision it is specifically mentioned that in the case of assessments made under Self-Assessment Scheme, instead of the conditions of definite information and prior approval of the Inspecting Assistant Commissioner, the Board will specify the cases for reopening. In the present case no approval of the Board seems to have been obtained. Further I am also of the view that at the time of issue of Notice under section 65, the income which has subsequently been clubbed in the hands of the assessee had not escaped assessment because the assessments of the Benamis were cancelled by the Commissioner of Income-tax only on the day on which the-assessments under appeal were made. While there. is no material before the Income Tax Officer for taking action under section 65, I find that his objection to the validity of notice under section 65 on the ground of provisions of section 65 (4) and the assessments of the Benamis having been cancelled after the issue of notice under section 65 are well founded and fully supported by the judgment of the Hon'ble Supreme Court of Pakistan reported as 23-Tax

223. Since the notice under section 65 is held by me to be invalid the assessments cannot be sustained and are hereby cancelled. Since the assessments are being cancelled on the basis of invalidity of the notices the merits of the cases need not be dealt with in detail. However, I find that the Income-Tax Officer was not justified in clubing the income, of even those parties who had made statement in favour of the assessee. Secondly, it is also apparent hat all the Benamis accepted that they were the owners proprietors of the business. In such a case the Income Tax Officer should have brought further material to hold that this was not a case of diversion of income" but merely an application of income by the assessee. Since this has also not been done the assessments could not have been confirmed. No finding is being given on the estimates of sales and gross profit in view of the difference m figures. Similarly no finding is being given on the additions from the Profit & Loss Account in view of the cancellation of the assessment on the legal grounds."

4. The department felt dissatisfied with the cancellation of re-assessment and preferred this second appeal before us assailing the impugned order contending that the learned C.I.T. (A) erred in holding that this assessment made under Self-Assessment Scheme could not be re-opened without approval/specification of CBR. It is further agitated that the learned C.I.T. (A) misdirected in holding that the assessments of benamis should have been cancelled before the issuance of notice under section 65, failing which the notice under section 65 was illegal. The appelant has further objected to the comments of learned C.I.T. (A) on other issues after holding that the other issues were not being decided on merits.

5. We have heard Mr. Shahid Jamal, learned D.R. and Mr. Sirajul Haque Memon, learned counsel for the respondents. The learned D.R. has vehemently argued that the learned C.I.T. (A) has misconstrued the provision of section 65 (4) and has fallen in error by observing that it is provided in section 65 (4) that in the case of assessment made under Self-Assessment Scheme, instead of the condition of definite information and prior approval of the Inspecting Assistant Commissioner, the Board will specify the cases for re opening. The learned C.I.T. (A) has further misdirected herself, in coming to the conclusion that the notice under section 65 was invalid for want f approval of the CBR as there is no provision under section 65 or any other section of the Income Tax Ordinance for seeking any, prior approval of the CBR for - re-opening of assessment. Mr. Shahid Jamal has submitted that in the first time it was provided in the Self-Assessment Scheme in.1985-86 that the cases where return is accepted under immunity provision they will be re-opened with the prior approval of the CBR. The cases under consideration pertain to the assessment years 1980-81, 1981-82, 1982-83 and 1983-84 in which years there was no such provision in the Self-Assessment Scheme announced by the CBR; Mr. Shahid Jamal has contended that the provision of subsection (4) of section 65 has merely dispensed with, the application of provision of subsection (2) to any such case or class of cases to which clause (c) of subsection (1) applies as may he specified by the CBR. According to learned D.R. the provision of subsection (4) of section 65 is not in .the nature of rider clause or in super session of the provision contained in subsection (2) of section

65. It is in addition and not in super session of subsection (2) of section 65 and it does not curtail the authority vested in the Income Tax Officer and the Inspecting Assistant Commissioner. On the other hand it has empowered the CBR to specify the cases to which clause (c) of subsection (2) of section 65 applies for re-opening of the cases and in such eventuality the conditions specified in subsection (2) would be deemed to be dispensed with. Mr. Shahid Jamal has maintained that the respondent has taken the plea that his original assessments were accepted under section 59 (1) under the immunity provision and immunity once granted cannot be taken back. There can be no cavil to this proposition but under the Self-Assessment Scheme the immunity has been granted from detailed scrutiny only. The immunity from, detailed scrunity is not a licence for tax evasion and no statute can give permission for tax evasion. Mr. Shahid Jamal further submitted that there was definite information with the Income Tax Officer supplied by the Director, Vigilance Wing to the effect that the respondent concealed his income by doing busiest in the names of Benamiis and thereby committed the tax evasion by getting his income assessed in the names of benamis. In the face of this definite-information the, income-Tax Officer was perfectly justified in having re-course to the provision of subsection (2) of section

65. The Income-Tax Officer was not required to seek any prior approval from the CBR as there was no provision in the Income-Tax Ordinance or, the self-assessment scheme prepared by the CBR for the relevant assessment years. Mr. Shahid Jamal has next contended that the learned C.I.T. (A) has wrongly held that the assessment of 92 benamis ought to have been cancelled before issuance of notice to the respondent under section 65 of the Income-Tax Ordinance. Mr. Shahid Jamal has submitted that such action would have been prejudicial to the interest of revenue as the information received by the Income Tax Officer was to be converted into evidence after proper inquiry and before satisfying himself that the concealed income is liable to be added to the income of the respondent, the assessments finalised in the names of benamis could not be cancelled for the reason that in the case of conclusion that the alleged benamis were doing business on their own' accord and were not benamis for the respondent, the department would have found itself in a quandary. The only requirement of law is that the same income cannot be taxed m the hands of two persons and the same income cannot be taxed twice in the hands of same persons. Keeping this principle. in view the assessments finalised in the names of benamis were cancelled by the Commissioner of Income-Tax under section 138 before completion of re-.assessment 'proceedings and the assessment of concealed income in the hands of respondent. Mr. Shahid Jamal has argued that the reliance placed on the ruling of Hon'ble Supreme Court reported as 23-Tax-23 is improper as the facts of the cited ruling ate distinguishable. Mr. Shahid Jamal has lastly contended that the comments made by learned C.I.T. (A) on other issues in cursory manner are un-called for. He has submitted that the, findings of learned C.I.T. (A) are not sustainable in law. They may be vacated and the case may be remanded to the learned Commissioner of Income-Tax (A) with the direction to decide the same on merits.

6. On the other hand Mr. Sirajul Haque Memon, learned counsel for the respondent has fully supported the impugned order of learned C.I.T. (A) and .has contended that the notice under section 65 was ab initio void and there was no information with the Income-Tax Officer that any income has escaped assessment or has been under assessed or assessed at too low a rate or has been subject of excessive relief of refund under the Ordinance, because income sought to lie taxed was already assessed in the names of so-called benamis. Mr. Siralul Haq has urged that no notice under section 65. for re-assessment could be issued for assessment of income which already stood assessed without cancelling the assessment in the name of so-called benamis. In support of his contention Mr. Sirajul Haque has placed reliance on the ruling of Hon'ble Supreme Court reported as 23-Tax-23. Mr. Sirajul Haque has reiterated the plea that in addition to the fact that there was no escapement of assessment at the time of issuance of notice and the re-assessment of the income already assessed was unwarranted, prior approval of CBR was required for re-opening the assessment finalised under section 59 (1) by virtue of the provision contained in subsection (4) of section 65.

7. We have carefully considered the contentions raised by the learned representatives of the parties at the Bar. The learned C.I.T. (A) allowed the appeals mainly on two grounds, first that the notice under section 65 was not valid for want of approval from the CBR and secondly the notice was not sustainable seeking assessment of income in the hands of the respondent before cancellation of the assessments in the hands of the benamis. Subsection (4) of section 65 reads as under:- "(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."

8. A bare perusal of the above provision shows that it does not speak of any approval by the Central Board of Revenue. It only states that the provision B contained m subsection (2) shall not apply to any such case or class of cases specified by the Central Board of Revenue to which clause (c) of subsection (1) applies. Clause (c) of subsection (1) of section 65 reads as under:- "S.

65. Additional Assessment. (1) If; in any year, for any reason, (a) xxxxxxxxxxxxx (b) xxxxxxxxxxxxx . (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.."

9. Clause (c) above relates to the re-opening of assessment finalised under f section 59 (1) and in which no order of assessment has subsequently been made 'l under section 65 or any other provision of the Ordinance. If the provision of subsection (4) of section 65 is read with the provision contained in clause (c) of subsection (1). of section 65 it means that for the purposes of re-opening of the cases finalised under section 59 (1) the provision of subsection (2) shall not apply in case or class of cases as may be specified by the Central Board of Revenue. The provision of subsection (4) is, therefore, in the nature of proviso to subsection (1) of section 65, In the ordinary course a notice under section 65(1) is to be issued subject to the provision of subsection (2) according to which the Income-Tax Officer can exercise authority if he is in possession of definite information or has obtained prior approval of Inspecting Assistant Commissioner I in writing to do so. However, the effect of subsection (4) of section 65 as, substituted by the Finance Ordinance, 1980, is that conditions of definite information and or approval of Inspecting Assistant Commissioner shall be dispensed with in cases or class of cases specified by the CBR originally finalised under section 59 (1). The original subsection (4) of section 65 before its substitution by Finance Ordinance, 1980 read as under:- "(4) Nothing contained in subsection (3) shall apply to any case to which clauses (c) of subsection (1) applies." .

10. Under the original subsection (4) no time limit was prescribed for re -opening of assessment made under Self-Assessment Scheme. The effect of the amendment was that subsection (3) of section 65 was made applicable to the re opening of cases falling under the purview of Self-Assessment scheme as well. However in the same amendment, the Central Board of Revenue was empowered to specify any case or class of cases finalised under section 59 (1) for reopening the same and the CBR being at the apex of administrative hierarchy the conditions of definite information in possession of Income-Tax Officer and approval of Inspecting Assistant Commissioner were dispensed with. Subsection (4) of section 65 and subsection (1) of section 59 were substituted simultaneously by the Finance Ordinance, 1980. The effect of substitution of subsection (1) of section 59 was that subject to the rules, orders and instructions of the CBR, a return qualifying to be processed under Self-Assessment Scheme was to -be accepted as matter of right. The legislature, therefore, in its wisdom struck a balance in the interest of revenue by empowering CBR. for specifying cases or class of cases which could be re-opened without satisfying the conditions of definite information and approval of Inspecting Assistant Commissioner b) excluding the application of the provision of subsection (2) of section 65 to such cases. However this authority conferred on the Central Board of Revenue was not in derogation or substitution of the authority vested in Inspecting Assistant Commissioner under subsection (2) of section 65, but it was in addition to the provision of subsection (2) of section

65. Meaning thereby that if an assessment is finalised under section 59 (1) it can he re-opened by Income Tax Officer order subsection (1) of section 65 either under the conditions specified in subsection 2 of section 65 i.e, after possessing definite information and till or approval of Inspecting Assistant Commissioner or an the specification of. CBR under subsection (4) bf section 65- and in such situation the condition specified in subsection (2) of section 65 shall be dispensed with: In the present case the income Tax Officer has exercised his powers under subsection (1) of section 65 after satisfying the conditions specified in subsection (2) of section 65 in the ordinary course. The learned Commissioner of Income Tax (A) has held that the notice issued by the Income Tax Officer is not valid in law in view of the provision of section 65 (4) as according to her this provision specifically mentioned that in the case of assessment made under Self-Assessment Scheme, instead of the conditions of definite information and prior approval of Inspecting Assistant Commissioner, the Board will specify the cases for re-opening. She further concluded that the notice is bad for want of approval of Central Board of Revenue. We are of the opinion that while interpreting subsection '65 (4) the learned C.I.T. (A) has ignored the trite principle of the Interpretation of Statute that while interpreting any statutory provision the Courts are not supposed to import any word. in the statute as the Courts are not supposed to infer omission on the part of legislature and are not entitled to insert anything in the statute. The finding of the learned C.I.T (A) that in the case of assessments made under Self Assessment Scheme instead of the conditions of definite information or prior approval of the Inspecting Assistant Commissioner, the Board will specify the cases for re-opening: the word `instead' has been imported which does not appear in the statute. This insertion of word 'instead' by the learned C.I.T. (A) had led her to incorrect interpretation of the subsection (4) of the section

65. If this word `instead' is taken out the plain meaning conveyed from the above provision is that if a case or class of cases are specified by the Central Board of Revenue, the provision of subsection (2) shall not apply. It means that if the case or class of cases are not specified by the Central Board of Revenue and the proceedings is initiated by the income Tax Officer the provision of subsection (2) of section 65 shall apply. The learned C.I.T. (A) has further fallen in error in holding that approval of the CBR is required to be obtained under subsection (4) of section 65 and it appears that she has taken `approval' as synonymous with `specifying' of the case by the CBR. The words `approve' and `specify' are defined in .Black's Law l Dictionary, Fifth Edition, as under- "Approve. To be satisfied with; to confirm, ratify, sanction, or consent to some act, or thing done by another. To sanction officially; to ratify; to confirm; to pronounce good; think or judge well of; admit the proprietary or excellence of; be pleased with. Distinguishable from "authorise," meaning to permit a thing to be done in future. To take to one's property and separate use. To improve; to enhance the value or profits of anything. To enclose and cultivate common or waste land:' "Specify. To mention specifically; to state in full and explicit terms; to point out; to tell or state precisely or in detail; to particularise, or to distinguish by words, one thing from another." , The definition's of the two terms above show that the `approval' connotes initiating of proceedings by inferior authority and confirmation or ratification, sanction or consent thereof by superior authority. While `specifying' connotes to pointing out or particularising one thing from the other in one's own discretion or authority. It means that in the case of 'approval' the proceeding is initiated by the subordinate authority and is culminated by sanction of superior authority, while in the case of specifying of cases a discretion is exercised by a, particular authority without any initiation from any subordinate functionary. Moreover the approval envisages confirmation of an act proposed to' be done while specifying denotes particularising or distinguishing particular thing or case from the other things or cases. Thus the approval and specifying of cases cannot be held as synonymous to each other.

11. For the foregoing reasons we are of the opinion that the; learned C.I.T. (A) has not interpreted the provision of subsection (4) of section 65 correctly and has not concluded the true import of this provision. We are of the considered opinion that notwithstanding the provision contained in subsection (4) of section 65 the Income-Tax Officer is empowered to re-open a case finalised under section 59 (1) if the conditions specified in subsections (1) and (2) of section 65 are satisfied. The provisions of subsection (4) are confined to the case or class of cases specified by the Central Board of Revenue only and are not attracted to re opening of the cases by the Income Tax Officer, on his own initiative.

12. Coming to the finding that the notice under section 65 was invalid for the reason that assessments in the name of the benamis were not cancelled before the issuance. of such notice, we are of the opinion that the learned C.I.T. (A) has misdirected in placing reliance on the ruling of Hon'ble Supreme Court reported as 23-Tax-223. A perusal of the cited rulings shows that the income derived from the joint venture by the three associates was charged to tax in their hands and no steps were taken for annulment of their assessments and the same income was sought to be taxed again in their hands as income of separate entity. It was held by the Hon'ble Supreme Court that the income, once taxed in the hands of the some persons in the status of individuals cannot be taxed again in the hands of the same persons in the status of an AOP without taking any steps for annulment of their assessments. Thus in the cited case the first assessments were made in the hands of the same persons in respect of the same income to whom second notice was issued in the changed status of A O P. It was a clear case of double taxation' of the same income in the hands of the same persons in the two different capacities. In the cited case no fresh assessment could be made without annulment of the previous assessment and the Honourable Supreme Court while holding the notice under section 34 as invalid propounded the principle- as under:- "A proper test would be that in the case of second notice under section 34 the previous assessment stands and does not require annulment or modification."

13. Since the assessees could not be assessed in the status of A O P before annulment of their previous assessments in the status of individual, therefore, applying the above test the notice was held to be without lawful authority. Applying the same principle -in the facts of the. present case we find that the previous assessments of respondent shall stand and does not require annulment. After issuance of notice under section 65 and the assessment which, require annulment were in the names of benamis to whom no notice under section 34 was ever issued. Moreover the second point of distinction is that in the cited case the same income was being sought to be taxed in the hands of the same persons, while in the present case originally the income was got assessed in the names, of benamis and subsequently the said income has been assessed in the hands of the respondent. Thus the ratio of rulings of Honourable Supreme Court reported as 23-Tax-223 is not attracted to the facts of the present case,

14. As a result of our discussion we are of the opinion that the, order of the learned C.I.T. (A) holding the notice under section 65 to be invalid is not sustainable in law. We are-further inclined to agree with the contention of learned D.R. that after holding that the findings on merits are not required the learned C.I.T. (A) was not justified in making casual remarks on merits of the case.

15. For the foregoing reasons the impugned order of learned C.I.T. (A) is set aside and the case is remanded back to C.I.T. (A) for deciding all the grounds agitated in the first appeal on merits.

16. All the appeals are allowed in the above terms. M.B.A.//563/ Appeals allowed.