1983 PLP (Trib (PTD)

Muhammad Amin for Respondent. Date of hearing : 27th October, 1981. This is a departmental appeal relating to assessment year 1976‑

77. The assessee is an individual deriving income as a partner is a registered firm.

2. The facts of the case are that the original assessment of the assessee was completed on 20-1‑1977 at net income of Rs. 12,169 which was reduced in appeal to Rs. 11,

719. Subsequently it was discovered by the I. T. O. that the assessee had invested an amount of Rs. 23,250 in the purchase of I/4th share of the shop No. 171‑New G. . . . M. . . F. . . . The assessee had also cash in hand at Rs. 5,

000. The investment and the cash in hand were shown by the assessee in his wealth statement. Subsequently, a notice under section 34 was issued to the assessee and after obtaining an explanation of the assessee the I. T. O. made an addition of Rs. 28,250 as the explanation given was considered by him to be unsatisfactory. On appeal, the A. A. C. without going into the merits of the case, deleted this addition on the technical ground that no prior approval of the I. A. C. bad been obtained by the I. T. O. as required by section 4(2‑F), of the repealed Income tax Act.

3. The learned D. R. contended that though the assessing officer has not given any section under which addition had been made, but in his view, the addition was made under section 4(2‑B). But section 4(2‑B) applies in cases where such an investment has not been shown in any statement furnished by the assessee. The assessee has shown his investment as well as cash in band in his statement filed under subsection (4‑A) of section

22. Faced with this situation, the learned D. R. conceded that none of the sub sections 4(2‑A) to 4(2‑F) are applicable in the circumstances of this case. The learned D. R., however, contended that in such a case an addition could be made under section 12 of the repealed Income‑tax Act as income from an undisclosed source. The learned counsel, on the other band, submitted that the addition could only be made under subsections 4(2‑A) to 4(2‑F) and since none of these subsections are applicable in the present case, that addition made by the I. T. O. was illegal. It was further contended by the learned counsel that cash in hand as well as investment made by the assessee was disclosed by him in his wealth statement which was available to the I. T. .O. when the original assessment was made. It was therefore argued, that without bringing from facts on record, the case could not be re‑opened under section

34. As for the second objection of the learned A. R. it is clearly misconceived. Section 34 has given wide powers to the I. T. O. to re‑open any case for reason including the cases in which income bad escaped assessment o bad been under assessed. In the present case there were sufficient reason for the re‑opening of the case as in the original assessment the cash o Rs. 5,000 as well as the investment of Rs. 23,250 shown by the assessee in his wealth statement, were not taken into account. In this case, therefor the income chargeable to income‑tax, escaped assessment or was under assessed. Now coming to the order of the learned A. A. C., it is noted that hi order is clearly based on misconception. Section 4(2‑F), under which the A. A. C. thought the addition had been made, has no application in the facts and circumstances of this case. Section 4(2‑F) applies in a case where the I. T. O. differs with the valuation of the investment shown by the assessee being too low, he wants to make his own valuation. It is also true that none of the subsections 4(2‑A) to 4(2‑F) is applicable in the fact and circumstances of this case inasmuch as the assessee had shown cash a well as the investment in property, in his wealth statement. The plea of the learned A. R. that addition of such income can only be made under the aforesaid subsection is absolutely misleading. Subsections 4(2‑A) and 4(2‑B) were added in the year 1966 and subsections 4(2‑C) to 4(2‑F) were added in the year 1972. It is to be noted that even before these provisions were made in the Law, such additions on account of unexplained income could and were, in fact, made under section 12 of the repealed Income‑tax Act. The view which I am taking is supported by the latest decision of the Supreme Court of Pakistan in the case of S .... S.... A.... K.... v. C. I. T. ((1981) 43 Taxation 18). In that case the plea was taken before the Supreme Court that the liability had been imposed by subsections (2‑A) and (2‑B) of section 4, in the year 1966 and by subsection (2‑D) in the year 1972 which could not apply retrospectively to the income which had arisen before that year. Repelling this contention the Supreme Court observed that there was no question of retrospective application of the aforesaid subsection. It was observed that the learned counsel for the Income‑tax Department was right in contending that the impugned assessments were not based on any retrospective application of these provisions of Law. It was further observed "The liability of the appellant having been determined by the Income. tax Authorities on the basis of the law as it stood before the introduc tion of these provisions, the real question before the Court is whether the amount of cash found in the hands of the appellant has been rightly treated as income assessable to income‑tax." The word `income' has net been defined by the repealed Income‑tax Act, though it does specify in section 2(F.‑C) as to what it includes. Section 3 of the repealed Income‑tax Act provides a charge of income‑tax on the total income of the previous year. Section 4, however, explains as to what is included in the total income, which includes as income, profits and gains from whatever source derived, which are received or deemed to be received in Pakistan or arise or are deemed to accrue or arise to him in Pakistan. It has not been disputed by the assessee that the amount which had been added by the assessing officer was not the income of the assessee. Therefore, if the assessee has not been able to show the source of his income or if any explanation had been given by the assesses to indicate the source of such income and that explanation had been found to be unsatisfactory then it has to be taken as income from an undisclosed source. It may mean the income from an undisclosed part of known activities of the business of the assessee or it may mean a source which is unknown to the assessing officer or in other words it is from a source of profit earning activity which had not been disclosed by the assessee. Therefore, either it is undisclosed profit of known business or it is a profit from business which was not connected with the known business and is unknown and has not been disclosed by the assessee. In the above referred case the Supreme Court quoted with approval the following paragraph from a judgment of the Supreme Court of India ; "Whether a y receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case. Where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash receipts during the accounting year, the Income‑tax Officer is entitled to draw the inference that the receipts are of an assessable nature." After discussing case‑law the Supreme Court, in S . . . . . Sh. . . . . A. . . . . . Kh. . . . .'s case, held as follows "In the last analysis the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its Source are not satisfactorily explained by the assessee, the facts which are generally within his peculiar knowledge, the Income‑tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source." The introduction of subsections (2‑A) to (2‑F) in section 4 of the repealed Income‑tax Act did not have the effect of repealing section 12 even impliedly. The object of addition of these provisions seems to be to facilitate the work of the assessing officer. The Law provided a legal presumption that such money, valuable article or investment, should be deemed to be the income of the assessee. In these circumstances, the learned A. A. C. was not right o in holding that the addition was made under section 4(2‑F) or that prior approval of the I. A. C. was necessary in the facts and circumstances o this case. Since the A. A. C. had deleted the addition on technical ground and without going into the merits of the case, his order is set aside and the case is remitted back to him with the direction that the appeal should be decided on merits.

4. The appeal succeeds to the extent and in the manner indicated above.