1981 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (PRESIDENT).‑--These are ten appeals‑seven at the instance of assessee and three by the Department, all arising from the combined order of the learned Appellate Assistant Commissioner Range, .................. The assessee's appeals, are for all the charge years i.e. 1970‑71 to 1976‑77 while the Department's appeals relate to the assessment years 1970‑71, 1975‑76 and 1976‑

77. Hence the appeals for 1970‑71, 1975‑76 and 1976‑77 are cross appeals. The relevant year wise facts giving rise to these appeals are these.

2. Originally the assessee filed returns for all the years, showing Nil income which were accepted as such and filed by the Income‑tax Officer. The Income‑tax Officer re‑opened these proceedings by issuing notices under section 34 of the Income‑tax Act, 1922 (hereafter called "The Act") in respect of assessment years 1970‑71 to 1975‑

76. In response to notice under section 34 of the Act, the assessee filed returns showing income as under: 1970‑71 & 1971‑72 Nil 1972‑73 Rs. 5,

110. As salary 1973‑74 Rs.9,280 ‑do- 1974‑75 & 1975‑76 Nil

3. During the assessment proceedings the assessing officer made the assessee to submit statements of assets and liabilities under section 22(4‑A) of the Act, pertaining to the accounting years relevant to each assessment year under appeal. Assessment year 1970‑71: For the charge year 1970‑71, the total wealth was shown at Rs. 1,56,701, which included Prize Bonds of the value of Rs. 1.05,000 allegedly owned by the assessee and his views and cash of Rs. 51,701 (Rs. 15,000 and Rs. 20,000 in the names of wives and Rs. 16,701 in his own name). The Income‑tax Officer, for reasons recorded by him in the consolidated assessment order for 1970‑71 to 1976‑77, held that the assessee had failed to prove the ownership of the prize bonds and he consequently treated the entire sum of Rs. 1,05,000 as income from undisclosed sources. Likewise out of the cash shown at Rs. 51,701, he held only a sum of Rs.3,000 to be verifiable and hence added the balance sum of Rs. 48,701 as income from undisclosed sources. The total income for the charge year 1970‑71 was thus determined at Rs. 1,53,701 as against NIL declared.

5. On appeal, the learned Appellate Assistant Commissioner deleted the addition of Rs. 1,05,000 but upheld the addition of Rs. 4,8701. Assessment year 1971‑72:

6. For this year, the assessee filed return showing `nil' income. In the statement of assets and liabilities filed under section 22(4A) of the Act, the total wealth was shown at Rs. 1,30,

000. The household expenses were declared at Rs. 6,

701. The Income‑tax Officer was of the view that the expenses shown were very low. He therefore, estimated the net income for this year at Rs. 9,

000. On appeal the learned Appellate Assistant Commissioner upheld the assessment, Assessment year 1971‑73:

7. For this year, the income was declared from salary at Rs. 5,

110. In the statement of assets and liabilites the total wealth was shown at Rs. 1,33,

308. The household expenses were shown at Rs. 8,

052. Being of the view that the declared household expenses were valued low, the Income‑tax Officer estimated the income (including salary income) at Rs. 10,

000. The assessee's appeal to the Appellate Assistant Commissioner for this year also failed. Assessment year 1973‑74:

8. The income from salary for this year was shown at Rs. 9,280 in the statement of assets and liabilities under section 22(4‑A) of the Act. The total wealth was shown at Rs. 1,42,

627. The Income‑tax Officer observed that during the relevant previous year the assessee had purchased a Mazda Car‑1000 in the name of his second wife for Rs. 21,

000. Prize Bonds (as assessed in 1970‑71) had been reduced by Rs. 6,000 and the cash had tax Officer, on the basis of the statement of assets and liabilities and by estimating the household expenses at Rs. 10,000, estimated the total income at Rs. 34,329 (including salary income at Rs. 9,280). The learned Appellate Assistant Commissioner, on appeal, upheld the addition of Rs. 9,319 made on account of increase in assets but deleted the addition of Rs. 21,000 for purchase of car, as he held that the car was not purchased during the previous year relevant to the charge year under consideration. Assessment year 1974‑75:

9. The assessee had declared 'nil' income for this year. From the statement of assets and liabilities filed by the assessee, the Income‑tax Officer found that during the relevant previous year; the assessee had purchased a plot of land for Rs. 45,000, two cars for Rs. 79,900 (one Toyota Corolla in his own name for Rs. 38,500 and the other in the name of his wife for Rs. 41,

400. As against the disclosed household expense of Rs. 10,842, (but not duly accounted for), the Income‑tax Officer estimated them at Rs. 15,

000. Out of the total increase in assets of Rs. 1,39,900, the Income- tax Officer was satisfied that the assessee had explained sources to the extent of Rs. 92,

632. He therefore, added the balance sum of Rs. 4.7,268 as income from undisclosed source under section 12 of the Act. The assessee's appeal to the Appellate Assistant Commissioner proved fruitless. Assessment year 1975‑76:

10. Income in this year also was filed at 'nil'. From the statement of assets and liabilities, the Income‑tax Officer noticed that the assessee had constructed a house on the plot of land purchased during the last year and the value of construction was shown at Rs. 90,000 ; the cash had increased by Rs. 49,

865. The assessee had shown household expenses at Rs. 11,442 but these were not reconciled. The Income‑tax Officer estimated the house hold expenses at Rs. 20,000 and thus worked out the total accretion in wvealth during the relevant previous year at Rs: 1,59,

865. The source to the extant of Rs. 12,000 were proved inasmuch as the Prize Bonds were shown at Rs. 20,OOJ as against Rs. 32,

000. The Income‑tax Officer, therefore, treated the balance sum of Rs. 1,47,865 as income from undisclosed source. The assessee carried an appeal before the learned Appellate Assistant Com missioner who, by his impugned order, has reduced the addition to Rs. 42,875 after allowing the reduction of Rs. 1,00,000 being the amount of gifts made to the assessee's wife Mst. Z .by his two brothers named S. M ..A ..and Shaikh S .. Assessment year 1976‑77 :

11. The assessee voluntarily filed a return under section 22(1) of Act, on 24‑9‑1977 declaring an income of Rs. 36,750 from salary for this year. From the scrutiny of the statement of assets and liabilities filed by the assessee, the Income‑tax Officer found that the assessee's wealth had increased by a total sum of Rs. 3,08,

625. The source of Rs. 73,544 was found to be acceptable by the Income‑tax Officer. The total income was thus determined at Rs. 2,35,081 (including disclosed income from salary at Rs. 36,750). On appeal, the learned Appellate Assistant Commissioner, by his impugned order, held that an asset of Rs. 52.500, being value of plot in Islamabad, was inadvertently declared in the assets and liabilities as on 30th June, 1976. He, therefore, reduced the total accretion from Rs. 3,08,625 to 2,56,

125. Moreover, he accepted that the loan of Rs. 50,000 advanced by one Mr. M A ..to the assessee was genuine and consequently he accepted that source of income as well. The assessed total income was thus reduced to Rs. 1,32,581.

12. Being aggrieved by the order of the learned Appellate Assistant Commissioner, the parties have filed these appeals, as stated above.

13. Relying upon a decision of the Appellate Tribunal reported as (1961) 4 Taxation 94, the learned counsel for the appellant assailed the impugned assessments for the charge years 1970‑71 to 1975‑76 on the ground that the notices initiating proceeding under section 34 of the Act were void inasmuch as no previous approval in writing, which is a condition sine qua roan, for vesting jurisdiction in the Income‑tax Officer to initiate such proceedings, was obtained. According to him, the Income‑tax Officer did not have in his possession definite information that the income, profits and gains chargeable to Income‑tax for any of these years had escaped assessment or had been under assessed. He also complained that the assessee was allowed only 10 days tine to comply with the notices issued under section 34 of the Act. These notices, according to him, were issued on 15‑2‑1978 and served upon the assessee on 22‑2‑1978. The counsel, therefore, contended that the notices being void in law, the assessments made on the basis thereof are also void and liable to be annulled. He also drew our attention to the second proviso to section 34 of the Act, which lays down that "unless 3efinite information had come into his possession, the Income‑tax Officer shall not initiate proceedings under this subsection without obtaining prior approval of the Inspecting Assistant Commissioner in writing." 'The learned Departmental Representative raised a preliminary objection attempting to meet this contention by contending that by having filed the return in response to notices under section 34, the assessee was debarred under sub section (3) of section 63 of the Act to call in question the validity of the notices issued under section 34 or the validity of service of any such notice. Alternatively, he pleaded that the Income‑tax Officer had in the instant case definite information in his possession before initiating the proceedings under section 34 in the form of a report from the Martial Law Scrutiny Committee and the statement made by the assessee before the said Committee. These documents, the learned Departmental Representative contended, are available on departmental record and these are sufficient to hold that the Income‑tax Officer had initiated the proceedings under subsection (1) of section 34 on the basis of the aforesaid definite information. He, therefore, contended that the assessment order are valid, proper and legal and the learned Appellate Assistant Commissioner's finding in this behalf does not suffer from any infirmity. 1n reply, the learned counsel for the assessee appellant vehemently urged that without having the definite information in his possession or obtaining the previous approval of the Inspecting Assistant Commissioner in writing, as laid down in the second proviso attached to section 34(1), the Income‑tax Officer could not have assumed the valid and legal jurisdiction to commence proceedings. He vehemently urged that he was challenging the assumption of jurisdiction by the Income‑tax Officer and not the validity of the notices issued under section

34. He also emphasised that the mere presence of the aforesaid two documents in the Department's record was itself not sufficient to hold that these were available to the income‑tax Officer prior to or at the time of initiating the proceedings under section 34 of the Act.

14. Having heard the arguments of the parties' representatives and upon perusal of the relevant provision of law, we are clearly of the view that the contention of the learned counsel for the appellant is well placed. We have looked into the report of the Martial Law Scrutiny Committee as well as the statement made by the assessee before the Committee and we could not find any indication or proof to the effect that these documents were in possession of the Income‑tax Officer before the initiation of the proceedings under section

34. At what point of time these documents came in his possession is a mystery which could not, despite best efforts, resolved even by the learned. Departmental Representative. The Jurisdiction of the Income‑tax Officer to initiate proceedings under subsection (1) of section 34 of the Act, without being in possession of definite information is clearly barred under the said proviso, unless he obtains the previous approval of the Inspecting Assistant Commissioner in writing. It is not the case o they Department that the previous approval of the Inspecting Assistant Commissioner in writing had, in fact, been obtained. The Department's case) is that the Income‑tax Officer had with him, before initiating the proceeding under section 34 "definite information" and hence no previous approval in writing of the Inspecting Assistant Commissioner was called for. It is not at all borne out from the record nor could our attention be drawn to an piece of evidence or material by the learned Departmental Representative on the basis whereof it may be held that the Income‑tax Officer had definite information in his possession before initiating the proceedings in question. Having reached the conclusion that no definite information was in possession of the Income‑tax Officer before initiating the proceedings in question and also having found that no prior approval of the Inspecting Assistant Com missioner was obtained m the instant cases as provided by law, there is no escape from the conclusion that the assessment proceedings for the charges years 1970‑71 to 1975‑76 adopted by the Income‑tax Officer were coram non judice, and consequently all the proceedings culminating in the impugned assessments for these charge years are null and void. These are accordingly annulled.

15. Now we are left with cross appeals pertaining to the charge year 1976‑77, the corresponding accounting period being the financial year 1975‑76, i.e. the year ending 30‑6‑1976. Upon scrutiny of the particulars of assets and liabilities filed for this year, the Income‑tax Officer noted the following accretion in wealth: (1) Value of house at S...Road, has been declared at Rs. 2,00,000 which means that Rs. 65,000 has been spent on this house. 65,000 (2) The assessee has also purchased a plot 107/13 Sector which cost has been declared at Rs. 52,500 which is also added. 52,500 (3) Investment in Nil Certificates. 13,625 (4) In this year the assessee has also purchased a Toyota Corola Mark‑II for Rs. 1,52,500 after the sale of old one Corola which is discussed below, this is added. 1,52,500 (5) Household expenses have been declared at Rs. 15,419 which have not been accounted for as no recon ciliation was filed. So they are estimated at Rs. 25,000. 25,000 Total addition ; 3,08,625 He was satisfied regarding the sources to the extent of Rs. 73,544 and hence assessed the total income at Rs. 2,35,

081. For want of evidence or any satisfactory proof, he disbelieved the assessee's version for having taken loans of Rs. 1,00,000 in two instalments of Rs. 50,000 each, from one Mr. M .and another sum of Rs. 75,000 from his brother‑in‑law. He did not, however, allow separately the benefit in respect of the salary income declared at Rs. 36,

750. When the matter come up in appeal before the learned Appellate Assistant Commissioner, he held that the alleged loans of Rs. 50,000 and Rs. 75,000 were taken in November, 1976 and in July, 1976, respectively, and hence these were not relevant to the year under consideration. He, therefore, declined to give any credit for these two sums. He further held that the value of Plot No. 107/E Sector, Islamabad, at Rs. 52,500 was wrongly included in ‑this year as the two instalments of Its 26,250 each, were paid on 18‑10‑1976 and 27‑12‑1976, that is after the expiry of the relevant accounting year. Moreover, he accepted the source of Rs. 50,000 as a loan from Mr. M ..a partner of Messrs F He thus reduced the amount of accretion of wealth by Rs. 52,500 and accepted an additional source of Rs. 50,000 through a loan transaction. Consequently, the total income for this year, as already stated, as per Order of the Appellate Assistant Commissioner stood reduced to Rs. 1,32,581 only. The learned Appellate Assistant Commissioner also failed to give any relief in respect of the income declared for this year. The Department's appeal therefore, calls in question the reliefs allowed by the, Appellate Assistant Commissioner while the assessee feels aggrieved by the confirmation of the quantum of additions made in regard to the "cars" and "household expenses" the adoption of the cost of Toyota Corola Mark II at Rs. 1,14,000 instead of Rs. 1,52,500 and the inclusion of Rs. 65,500 as income of the appellant invested by Mrs. C ..in the construction of house at Road.

16. The learned counsel for the assessee submitted that besides taxable income from salary of Rs. 36,750, the assessee has received tax‑free allowances of Rs.4,800 and Rs. 14,

268. He further maintained that in support of having obtained a loan of Rs. 75,000, the assessee had filed a certificate of the lender dated 7‑6‑1976 ; but in the affidavit filed by the assessee the date of this loan was inadvertently or through typographical, error shown as "July, 1976". The learned Departmental Representative, on the other hand, contented that the learned Appellate Assistant Commissioner was wrong in accepting the loan of s. 50,

000. In his submission the genuineness of the loan transaction could neither he established before the Martial Law Scrutiny v Committee nor before the assessing officer. He further urged that the learned Appellate Assistant Commissioner was wrong in accepting the additional piece of evidence in the form of affidavit at the appellate stage and placed reliance thereon more particularly in view of the fact that no such evidence was adduced either before the Martial Law Committee or the Assessing Officer. He further emphasised that as per statement of assets and liabilities as on 30th June, 1976, the assessee had the cash and Bank deposits in his name and in the names of his wives at Rs. 83,376, and hence there was obviously no good reason for him to have obtained further loan of Rs. 1,00,

000. He, however, admitted that the date of purchase of plot is 25th November, 1976 and hence he did not press the ground No. 3 of the Department's Memorandum of Appeal.

17. Having heard the arguments of the parties' Representatives and upon perusal of the impugned orders passed by the two officers below, we are of the opinion that proper and full investigation has not been made by either of them in respect of several relevant facts and circumstances of the case. Both the officers have failed to take into consideration the assessee's returned income from salary. There is no discussion in the order of Income‑tax Officer about the assessee's having received certain tax‑free allowances during the relevant previous year. The' learned Appellate Assistant Commissioner has, in our opinion accepted the source of loan to the extent of Rs. 50,000, without proper scrutiny of fact. He, however, does not appear to have fallen into an error in holding that the Islamabad plot of land was not acquired during the relevant previous year. The learned Departmental Representative, as already stated was also unable to controvert this aspect of the case on the basis of documentary evidence available on records. The affidavit of Mr. M. . . A. . . . filed in support of having given a loan of Rs. 75,000 to the assessee in July, 1976 ‑has been accepted to be correct. Here the learned Appellate Assistant Commissioner should have confronted the assessee with the earlier document, viz., the certificate issued by the lender under his signatures on 7‑1‑1976. Considering therefore all these relevant facts and circumstances of this case, we are of opinion that it would be fair and reasonable if the impugned orders pertaining to the charge year 1976‑77 passed by both the officers below are vacated, except to the extent of exclusion of Islamabad plot, and the case is remitted to the Income- tax Officer for de novo assessment in accordance with law and after providing to the assessee a fair and reasonable opportunity of being heard.

18. In the result, all the ten appeals stand disposed of in the manner indicated above. Appeals decided accordingly.