1990 PLP (Trib (PTD)

ABDUL KHALIQ (JUDICIAL MEMBER).‑‑‑In this further appeal relating to assessment year 1984‑85 the assessee, an individual, derived income from wholesale cloth business. Initially on 27‑11‑1984 the assessee's returned income of Rs. 23,700 was accepted under self‑assessment scheme. Till the date, of processing of assessment under self‑assessment scheme as per entries of the ITO's order sheet neither any wealth statement was called for nor furnished by the assessee. It seems that after completion of assessment the assessee got placed on record wealth statement ending on 30‑6‑1984 wherein sum of 30,000 (Rs. 5,61,300) was shown as a liability payable to Mr. Muhammad Shafi and Mr. Muhammad Javaid residents of U.K. The ITO got information that the assessee had received remittances from abroad worth Rs. 1,50,000 through United Bank Ltd. Kohinoor Nagar, Faisalabad but this bank account was not disclosed in the wealth statement the ITO scrutinized the assessment record and noticed that value of the market declared by the assessee at Rs. 1,20,000 was only of old dilapidated building and no cost of new construction was declared. On this basis the ITO requested the learned IAC to grant permission for reopening of the assessment by issuance of notice under section 65 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance). Approval was granted by the learned IAC on 29‑4‑1987 and on 2‑5‑1987 the ITO issued notice under section 65 of the Ordinance and the same was served on the assessee on 5‑5‑1987. In response thereto the assessee did not file any return. Two notices under section 61 of the Ordinance were issued and served on the assessee who in turn sought adjournments from the ITO. On 11‑5‑88 the ITO sought the assessee's explanation regarding the liabilities shown in the wealth statement, non disclosure of foreign remittances of Rs. 1,50,000 through United Bank Ltd. and non‑declaration of any investment on construction of the market. In reply the assessee filed revised wealth statement as on 30‑6‑1984 alongwith sale‑deeds of some of the shops of the market. An affidavit was also furnished deposing receipt of loan 1.30,000 from abroad. Alongwith reply the assessee did not file any return, in response to the notice issued under section 65 of the Ordinance. Thereafter the ITO again issued notice under section 62 of the Ordinance asking the assessee to furnish documentary evidence about receipt of loan, in case the loan was received through banking channels, the copies of the bank statement, the evidence in the form of bank statement of the creditors to establish the advancing of loan by them alongwith their financial position. The ITO also asked the assessee to furnish documentary evidence regarding receipt of loan as well as the fact that whether the creditors were tax payer in England. In response to that notice the assessee on 26‑6‑1988 filed a vague reply stating that the creditors being residents of England may be summoned under section 148 of the Ordinance. Alongwith the reply the assessee annexed statement of one of the alleged creditors namely Mr. Muhammad Javid stating that he had advanced 15,000 to the assessee during his visit to England. Despite service of notices under sections 65 and 61 of the Ordinance, the assessee having not furnished any return, the ITO opted to proceed under section 63 of the Ordinance. In reassessment made on 30‑6‑1988 a sum of Rs. 5,61,300 was added under section 13(1)(aa) of the Ordinance with the prior approval of the learned IAC. That approval was obtained on 29‑6‑1988. Thereto an addition of Rs. 800 was made as one half share of the assessee from rental income from letting out the market to State Life Insurance Corporation of Pakistan. The assessee's business income was worked out at Rs. 50,000 by applying G.P. rate of 6.6% to sales estimated at Rs. 10,00,000 with expenses allowed on estimate at Rs, 16,

000. As a result the assessee's total income was determined at Rs. 6,12,

100. The reassessment successfully stood the test of appeal before the learned CIT (A), Faisalabad.

2. The assessee's AR. inter alia, contended that issuance of notice under section 65 of the Ordinance was illegal and without jurisdiction on following grounds:‑‑ (i) Firstly because of non‑issuance of show‑cause notice prior to assuming jurisdiction under section 65 of the Ordinance and secondly the notice having been issued on the basis of information in the form of wealth statement as already existing on the assessment record at the time of acceptance of returned income on 27‑I1‑1984. (ii) Issuance of notice under section 65 of the Ordinance merely on the basis of approval of the learned IAC dated 29‑4‑1987 was illegal as per amendment made on 1‑7‑87 the word 2r used in subsection (2) of Section 65 was substituted by the word and. This plea was elaborated by the assessee' AR by contending that amendment made on 1‑7‑1987 being procedural in nature was applicable to the pending proceedings of reopening of assessments. (iii) Wealth statement as on 30‑6‑1984 having already been filed before processing of assessment on 27‑11‑1984, the material in the form of existence of credits of 30,000 was available with the ITO. Assumption of jurisdiction on that basis was just a change of opinion which did not empower the ITO for reopening of the assessment. (iv) Ex parte assessment made by the ITO under section 63 of the Ordinance was illegal as the assessee had been attending the office and had filed reply to the letter dated 11‑5‑1988 as well as subsequent notice issued under section 62 of the Ordinance. (v) Addition made under section 13(1)(aa) at Rs. 5,61,300 is illegal because the procedure of approval of additions as laid down in subsection (1) and subsection (2) of Section 13 of the Ordinance was not complied with. The D.R. in his turn contended that notice issued under section 65 of the Ordinance was in accordance with law as till 30‑6‑1987 requirement was possession of definite information by the ITO or obtaining of previous approval of the learned IAC in writing. The D.R. on perusal of record further stated that filing of wealth statement by the assessee till the date of completion of assessment under self‑assessment scheme on 27‑11‑1984 was not borne out by the record as the order sheet does not bear any entry regarding calling of the wealth statement by the ITO or submission of the same by the assessee. About the ex‑parte assessment processed by the ITO, the D.R.'s reply was that default of non‑filing of return despite service of notice under section 65 of the Ordinance and non compliance of notice under section 61 of the Ordinance entitled the ITO to determine the assessee's income to the best of his judgment under section 63 of the Ordinance. On the objection of the assessee's AR regarding non‑obtaining of approval of the amount to be added under section 3(1)(aa) of the Ordinance the D.R. replied by stating that the same was required only in case of difference in the declared amount and the amount to be adopted by the ITO. In the assessee's case the ITO having adopted the declared amount of existence of credits at Rs. 5,61,300 there was no occasion for second approval of the learned IAC.

3. We have given our anxious consideration to the submissions of the representatives of the parties. We feel no hesitation in holding that notice issued by the ITO under section 65 of the Ordinance did not suffer from any legal ailment. The plea of the assessee's AR regarding issuance of a show‑cause notice prior to assumption of jurisdiction under section 65 of the Ordinance is baseless as no such requirement is provided in law. Till 1‑7‑1987 the legal provision for issuance of notice under section 65 of the Ordinance was existence of definite information with the ITO or prior approval of the learned IAC in writing. The amendment made in subsection (2) of section 65 of the Ordinance by substitution of the word "or" with "and" being not procedural was not applicable retrospectively to the proceedings already initiated. The result is that on 2‑5‑1987 notice issued by the ITO under section 65 of the Ordinance being without prior approval of the learned IAC dated 29‑4‑1987 did not suffer from any legal infirmity. The plea of the assessee's AR regarding existence of wealth statement showing credit of 30,000 is not of much avail because notice under section 65 of the Ordinance was not issued only on the basis of availability of material rather the other requirement of obtaining of prior approval of the learned IAC stood duly complied with. Another aspect of the matter is that the assessee's declared income being at Rs. 23,700 filing of wealth statement was not obligatory under provisions of the self‑assessment scheme. The entries of the order sheet do not establish that either the ITO had called for the wealth statement or the assessee had filed the same. The obvious conclusion is that the wealth statement was placed on record after processing of assessment under self‑assessment scheme. Leaving apart the, discrepancy of filing of wealth statement prior or subsequent to making of assessment under self‑assessment scheme, the established fact is that the assessee had not revealed receipt of foreign remittances at Rs. 1,50,000 through United Bank Ltd. on 26‑6‑1983. On this basis the assessee's plea of change of opinion by the one ITO over that of the other stands belied. The assessee's objection regarding non‑obtaining of double approval by the learned IAC does not hold the field as that is required in the case of difference in the declared amount and the proposed amount. In this case we are fortified by majority decision of Full Bench reported as 1989 P T D (Trib.)150 and 1988 P T D (Trib.)

800. The ITO having obtained prior approval of the learned IAC for making addition of Rs. 5,61,300 under section 13(1)(aa) of the Ordinance, no illegality or irregularity was committed. The last grievance of the assessee's AR was that the quantum of addition made under section 13(i)(aa) of the Ordinance at Rs. 5,61,300 has been erroneously adopted whereas subsequent to the notice issued under section 65 of the Ordinance, the ITO vide his letter dated 11‑5‑1987 had proposed addition of Rs. 4,26,160 as unexplained ownership of money. This grievance of the assessee's AR is devoid of any merits. In the letter dated 11‑5‑1987 the ITO had stated that total assessed income of the assessee from the charge year 1979‑80 through 1984 85 being at Rs. 1,13,840 the unexplained ownership of money works out to Rs. 4,26,160 after excluding the net wealth shown at Rs. 5,40,000 in the wealth statement including the liability of 30,

000. The assessee's AR omitted the contents of paragraph 2 of the aforesaid letter of the ITO wherein receipt of Rs. 1,50,000 from Kuwait through United Bank Ltd. Faisalabad was also stated to have been concealed by the assessee. By adding that amount to the unexplained difference of Rs. 4,26,160, the total addition works out to Rs. 5,76,

160. On the other hand the ITO has felt contented in making addition of Rs. 5,61,

300. In these circumstances the assessee's grievance regarding addition of Rs. 5,61,300 under section 13(1)(aa) of the Ordinance is devoid of any merits.

5. Taking up the assessee's objection to the business income as determined at Rs. 50,000 in reassessment made by the ITO, we find some merit therein. In the reassessment the ITO did not bring any material on record for adopting estimate of sales at Rs. 10,00,000 against shown by the assessee on estimate at Rs. 7,05,

200. Similarly no case could be made out for raising declared G.P. rate of 5% to 6.6%. The assessee's business income re-determined at Rs. 50,000 against originally assessed at Rs. 23,700 was just a change of opinion without any basis and material. We modify the impugned order restoring the assessee's business income as originally accepted at Rs. 23,

700. The assessee gets relief of Rs. 26,300.

6. As a result of the above discussion, the impugned orders are modified to the extent of reduction of the assessee's business income to Rs. 23,700 as against assessed at Rs. 50,

000. The assessee's appeal succeeds to that extent. M.B.A./879/T Order accordingly.