1990 PLP (Trib (PTD)

SAYED AMJAD HUSSAIN BOKHARI (JUDICIAL MEMBER).‑ These two appeals, relating to the charge years 1988‑89 and 1989‑90, have been filed by the assessee‑appellant to assail the legality and propriety of the consolidated order, dated 2‑5‑1990, whereby the learned Inspecting Assistant Commissioner of Income Tax, Range‑111, Rawalpindi, in exercise of the revisional powers conferred on him by section fife‑A of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance), cancelled the assessments for both the years made under the Simplified Procedure envisaged by section 59‑B of the Ordinance and directed the Income‑tax Officer to frame de novo assessments under the normal law keeping in view the merits and history of the defunct‑firm M/s. Brothers Corporation, Rawalpindi.

2. The appellant is an individual deriving income from the sale of pipes, pipe‑fittings, cast‑iron goods and sanitary items. The original assessments for 1988‑89 and 1989‑90 were made under section 59‑B of the Ordinance at a net income of Rs.35,300 and Rs.35,500, respectively.

3. On an examination of the assessment record of the registered firm M/s. Brothers Corporation, Jinnah Road, Rawalpindi, the learned I.A.C. noticed that the appellant was a partner in the firm and the business was succeeded by him as an individual in consequence of its dissolution, on 1‑7‑1987, and that in the assessment year 1987‑88, the income of the firm was computed at Rs.1,15,

324. The local inquiries made by the Circle Inspector also revealed that there had been no change in the nature and place of business despite the dissolution of firm. The appellant admitted all these facts in his statement recorded by the Circle Inspector, on 31‑10‑1989. Taking into account all these elements, the learned I.A.C. concluded that the appellant's returns could not have been processed under section 59‑B of the Ordinance, in terms of paragraph 3 of the C.B.R. Circular No. 19 of 1988, dated 5‑10‑1988, and C.B.R. Circular No.11 of 1989, dated 12‑9‑1989, and that both the assessments were erroneous in so far as they were prejudicial to the interests of revenue. The learned I.A.C. confronted the appellant with the whole situation by means of a notice issued under section 66‑A of the Ordinance, on 24‑4‑1990. In response to the notice, the appellant's learned counsel, Raja Manzoor‑ul‑Haq, submitted written arguments before the learned I.A.C. and maintained that his client had not succeeded to the business of the defunct‑firm and that the Circulars referred to above were not relevant on account of being contrary to the basic provisions of Simplified Procedure for assessment.

4. The aforesaid Circular issued by the C.B.R. contained the following provisions regarding the change of status:‑‑ "Change of status: Where a partner or a member takes over the business of an existing firm or A.O.P. it would be a case of succession and the successor shall be taken to be an existing assessee. If the last assessed income of the firm or A.O.P. exceeded Rs.1,00,000 the case of successor shall fall outside the scope of Simplified Procedure. Relying on this provision, and the statement made by the appellant before the Circle Inspector, the learned IA.C. did not accept the contentions of his learned counsel and held that as the appellant had succeeded to the business of the firm and the income of the firm assessed in 1987‑88 was Rs.1,15,324, the returns for 1988‑89 and 1989‑90 fell outside the purview of Simplified Procedure for assessment prescribed under section 59‑B of the Ordinance. On the basis of this finding, he cancelled both the assessments for fresh determination by the I.T.O. thereby giving the appellant a cause of grievance for the present appeal before the Tribunal.

5. Arguments of the appellant's learned counsel, Raja Manzoor‑ul‑Haq, and the learned Departmental Representative, Mr. Feroze‑ud‑Din, have been heard, and the record has also been examined with their assistance.

6. The learned counsel for the appellant has produced copies of the Schemes of Simplied Procedure for 1988‑89 and 1989‑90 notified by the C.B.R., vide Circular No.10 of 1988, dated 22‑8‑1988 and Circular No. 7 of 1989, dated 26‑6‑1989, as also the copies of the Circulars relied on by the learned I.A.C. to hold the appellant as the successor of the erstwhile firm. It is pertinent to mention here that the Circulars quoted by the learned I.A.C. in his impugned order had been issued, on 5‑10‑1988 and 12‑9‑1989, by way of clarification of the Schemes of Simplified Procedure for 1988‑89 and 1989‑

90. In the light of these documents, the appellant's learned counsel has maintained that‑ subsequent clarifications issued by the C.B.R. regarding the change of status were outside the scope of the relevant Schemes of Simplified Procedure for assessment, that the Scheme for 1988‑89 did not contain any provision about change of status and the clarification issued by the C.B.R. in connection therewith was totally uncalled for, the provision in the Scheme for 1989‑90 in respect of change of status appearing as Explanation to the definition of "Existing assessee", contained in paragraph 3 of the Scheme, was not applicable to the appellant and he could not have been taxed in the capacity of successor of the defunct firm because the Explanation did not‑cover the cases involving change in status from a registered firm to an individual and such cases were not treated as existing assessees, that the subsequent clarification even about the Scheme for 1989‑90 was inapt and unwarranted, that the returns for both the assessment years under consideration were correctly processed by the I.T.O. under section 59‑B of the Ordinance and the learned IA.C. has misdirected himself in holding that the returns fell outside the ambit of Simplified Procedure as the appellant had not succeeded to the business of the firm and, even if it be assumed so for the sake of arguments, the change of status was immaterial inasmuch as it could not bring the appellant within the reach of the definition of Existing assessee" figuring in paragraph 3 of the Scheme for 1989‑90 and that the truth of the matter is that, viewed from any angle, the case of the appellant is not hit by the provision about the change of status.

7. Supporting the order of the learned IA.C., the learned DR had contended that the business of the defunct‑firm being run by the appellant at the old premises even now, the assessments made by the I.T.O. were certainly erroneous and prejudicial to the interests of revenue, that the situation stands rectified by the action of the learned I.A.C. under section 66‑A of the Ordinance and that the impugned order is not open to any exception as it safeguards the fiscal interest of the State.

8. After a careful appraisal of the contentions of the learned representatives of the parties and the provisions of the relevant Schemes of Simplified Procedure, we are constrained to hold that there is ample weight and substance in the points made by the appellant's learned counsel. The Scheme for 1988‑89 did not contain any provision about the change of status and paragraph 3 of the Scheme for 1989‑90 did not cover the cases involving change in status from and R.A. to an individual. The clarifications issued subsequently by the C.B.R. were incompatible with both the letter and spirit of the Schemes inasmuch as they introduced an extraneous matter finding no place therein.

9. The facts and circumstances of the case speak for themselves and it goes without saying that the appellant was rightly assessed under section 59‑B of the Ordinance as his case fell within the scope of the Schemes of Simplified Procedure for 1988‑89 and 1989‑

90. The learned IA.C. has, therefore, fallen into a grave error in holding that the appellant's returns for both the charge years under consideration fell outside the purview of the Simplified Procedure for assessment. This finding is not tenable even if the appellant be treated as a successor of the defunct‑firm in the status of an individual because such eventuality does not make him an "Existing assessee". The learned I.A.C. has wrongly exercised jurisdiction under section 66‑A of the Ordinance to cancel the assessments for the charge years in question. His action is not sustainable by any standard.

10. For the foregoing reasons, we vacate the impugned order of the learned I.A.C. and restore the assessments framed by the Income‑tax Officer for 1988‑89 and 1989‑90 under section 59‑B of the Ordinance, on 31‑3‑1989 and 17‑12‑1989, respectively. M.BA./905/T Appeal accepted.