2005 PLP (Trio (PTD)

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER)‑‑ Through these four appeals the appellant/assessee has objected the four separate orders of the learned IAC passed on the same date i.e. 31‑5‑2001 under section 66A of the Repealed Income Tax Ordinance, 1979, canceling/modifying the assessment orders passed by the Assessing Officer for the assessment years 1995‑96 to 1998‑

99. As the impugned orders of the learned IAC has been agitated on the common issue on the identical set of facts we are therefore deciding these four appeals for the sake of convenience through this consolidated order.

2. Following grounds of appeal have been framed for the assessment year 1995‑96:‑‑ (1) "That the order of the learned IAC is arbitrary, oppressive, without any justification, against the principle of natural justice and is not based on the proper appreciation of either the facts of the case or of the law on the subject; (2) that the order passed by the learned IAC is purely based on incorrect, inaccurate and invalid observations/assumption and insinuation, hence, the inference drawn, action taken, direction given and order passed and modified under section 66A liable to be vacated; (3) that the validity and legality of operation and action under section 66A of Income Tax Ordinance, 1979 is objected to; (4) that the learned IAC has erred in reopening/revising the case under section 66A when the original order passed and merged with appellate order and rectified assessment order; (5) that the order passed by the Assessing Officer under section 62 is neither erroneous prejudicial to the interest of Revenue and the learned IAC had seriously erred in invoking provision of section 66A of Income Tax Ordinance, 1979; (6) without prejudice to foregoing grounds of appeal, the learned IAC in any case has erred in issuing show‑cause notice and modifying assessment under section 66A whilst assessment under section 62 has been finalized admittedly on submission and examination of various details, documents and books of accounts as required by the Assessing Officer; (7) that the show‑cause notice under section 66A dated 10‑5‑2000 has been issued by the then IAC while the order under section 66A has been framed on 31‑5‑2001 by the successor IAC without issuing any fresh notice whereas he has relied upon some new material and subsequent judgments in his order which was neither disclosed in the said show‑cause notice nor confronted to the appellant; (8) that the learned IAC has taken the action under section 66A merely on the basis of disagreement with the Assessing Officer and section 66A is not available on the ground of mere disagreement with the order of the Assessing Officer; (9) that the learned IAC has travelled beyond his jurisdiction whereas section 66A does not confer any power to an IAC to indulge in deep inquiry since the power conferred on an IAC is in the nature of supervisory; (10) that the learned IAC has passed the order on the basis of Inspection Notice of the Additional Director Inspection without applying his own mind and the entire order was passed under the command and instructions of the Director and not on independent and judicious application of mind by the learned IAC; (11) that the learned IAC has relied on subsequent judgment and ignored the judgment of superior Courts; 11.1 that any subsequent decision after the disposal of case by the Assessing Officer cannot be said to be discovery of error and thus order under section 66A is illegal and un‑lawful; 11.2 expression "record of any proceedings" ‑Connotation‑IAC cannot rely upon material which was not available before the Assessing Officer (DCIT); 11.3 jurisdiction of IAC under section 66A is confined to record as it stood when Assessing Officer (DCIT) passed his order, subsequent inspection report/decision cannot be basis for revision under section 66A; 11.4 that in the facts and circumstances of the case, the learned IAC his misdirected in law in relying on a subsequent judgment. It is submitted that the learned IAC has relied on the judgment of Tribunal which is sub judice/adjudication before the Hon'ble High Court; (12) that the proceedings and powers were thus beyond the provision of section 66A since the learned IAC was to be confined to "record" as existed before the Assessing Officer when the assessment was completed; (13) that the order under section 62 has been passed in consultation/ guidance/supervision/approval of the learned IAC hence, the invocation of section 66A and impugned order under section 66A is illegal, ab initio void; (14) that the successor IAC has passed the impugned order under section 66A on 31‑5‑2001 after laps of one year whereas reply of show‑cause notice was given on 31‑5‑2000 and in intermediary period no fresh show cause notice or other material/judgments on which 'the successor IAC has relied were not confronted to the appellant ,before passing the impugned order:‑‑ Without prejudice to supra. (15) that the learned IAC was not justified in setting off capital loss against operating income and added back a huge amount of Rs.14,68,208 as the same had been allowed by the Assessing Officer after forming an opinion; 15.1 without prejudice to above the learned IAC was wrong in holding that capital loss can only be set off/adjusted against capital gain while the assessee's business is not to earn capital gain, hence, the question of adjustment of same against the capital gain does not arise; 15.2 the learned IAC was further not justified to base the addition of Rs.14,68,208 on an unreported judgment of the Tribunal which was neither confronted to the appellant nor any reference of this was made in the show‑cause notice; (16) that the learned IAC was not justified in disallowing the technical fee paid to its undertaking and added back an amount of Rs.27,28,110 after ignoring the fact that an amount of Rs. 4,67,442 had been deducted under section 50(4) thereon; 16.1 without prejudice to above the learned IAC was wrong in observing while disallowing technical fee paid to its associated undertaking "is a simply business pay back which the assessee himself admitted in his letter, dated 31‑5‑2001 at page 12". The fact is that the appellant has never admitted that it was simply business pay back. This observation of successor IAC is wrong based on misconception. The successor IAC has arrived this conclusion on the basis of incorrect insinuation which has neither been confronted nor it was disclosed in the show‑cause notice; (17) that the learned IAC was not justified in further observing that "the creditors for purchase of shares were trade creditors and could be hit by section 12(18) of the Income Tax Ordinance 1979 and this issue will be dealt under section 65/66A". This observation requires to be rescinded being beyond the scope of section 66A; 17.1 without prejudice to the above, the observation of the learned IAC "may highly be affected the assessee and may cause prejudice to the assessee being not relevant which was otherwise also not a part of show‑cause notice is liable to be expunged from his order; (18) that the learned IAC was grievously erred in giving direction to the Assessing Officer to take action under section 52/86. It is contended that under section 66A the IAC's are supposed to modify/cancel an existed assessment order passed by the DCIT in the assessment proceeding if the same is erroneous and prejudicial to the interest of Revenue. It is admitted fact that no order under section 52/86 is in field and hence, he travelled far beyond his jurisdiction in giving this direction which are liable to be expunged; (19) that learned IAC was further not justified in giving directions to issue notice under section 116; (20) that the appellant further crave permission raise/take/add/alter/ amend the ground/grounds of appeal earlier or at the time of hearing and pray for appropriate relief(s) as may be due under the Law and Rules". For the assessment years, 1996‑97 to 1998‑99 grounds of appeal framed by the appellant are same except the ground Nos. 15, 15.1 and 16, which have been substituted and are similar in nature except the figures and amounts of addition, which are different for all the three years. We, therefore, reproduce hereunder the, remaining grounds with only the figures as provided for the assessment year, 1996‑97: ‑‑ (15) That the learned IAC was not justified in prorating the proportionate expenses between capital gain and business income and added back a substantial amount of Rs.77,81,178; 15.1 the learned IAC was further not justified to base the addition of Rs.77,81,178 on an unreported subsequent judgment of the Tribunal which was neither confronted to the appellant nor any reference of this was made in the show‑cause notice; and (16) that the learned IAC was not justified in disallowing the technical fee paid to its undertaking and added back on amount of Rs. 67,35,725 after ignoring the fact that an amount of Rs.10,89,739 had been deducted under section 50(4) thereon.

3. The facts of the case as discussed by the learned representatives from both the sides are as follows. In this case, the appellant is a private limited company, corporate member of Karachi Stock Exchange, engaged as a brokerage house dealing, in purchase and sale of shares for its international as well as local clients/customers and sometimes where occasion arise for itself. Returns of income were filed for the years 1995‑96 to 1998‑99 alongwith audit accounts, computation of income, computation of tax liabilities and other. documents/statements. The assessment for all the four years were finalized under section

62. The Assessing Officer accepted the declared results with the observations that "examination of assessee's records and verification of details revealed that the system of book keeping is satisfactory and therefore the results as shown by the assessee, accounts are accepted". However disallowances out of profit and loss account expenses were made under some of the heads, which were assailed before the learned CIT(A) and were partially allowed. Against which the appeal was filed before this Tribunal. Subsequently, learned IAC issued show‑cause notices, dated 10th May, 2000 under section 66A for all the years under review on the basis of inspection note and as per direction of Additional Director Inspection. For the assessment year, 1995‑96, the notice issued under section‑66A by the learned IAC was regarding capital loss adjusted against operating revenue which according to him was not admissible as the capital loss is to be adjusted/set off against capital gain only as per provision of section

37. While for the assessment years 1996‑97 to 1998‑99 the notices were regarding common issues of proration of expenses between exempt income and chargeable income to the tune of Rs.77,81,178, Rs.5,15,75,910 and Rs.1,05,86,729 for the three years respectively. For all the years under review the learned IAC through his notices has asked the assessee to explain regarding payments made to Messrs Indosuez W.I. Carr Securities (F. E.) Limited Hong Kong, which were allowed by the Assessing Officer, according to learned IAC, without obtaining explanation, and the tax thereon has not been deducted under the provision of section 50(4) of the Repealed Ordinance, 1979 and therefore, 'the expenditure was not allowable under section 24(c). Learned IAC in the impugned orders has considered the payment made to Messrs Indosuez W.I. Carr Securities (F.E.) Limited Hong Kong not the technical fee/legal charges and professional charges but according to him these were actually the settlement of trading liabilities and cannot be charged to revenue expenses. In response to notices issued by the learned IAC under section 66A the appellant in his replies through Messrs A.F. Ferguson and Company Tax Consultant has objected to the invoking of provision of section 66A.of the Ordinance in legal as well as on factual grounds but the learned IAC for the reasons as mentioned in the impugned orders has not accepted the explanation forwarded by the appellant and has proceeded to modify the assessments for the years under review invoking section 66A of the Repealed Income Tax Ordinance, 1979.

4. Mr. M. Jawed Zakaria, Advocate has appeared on behalf of the appellant and has argued the case at length on facts as well as on law, raising manifold objections. He has at the very outset challenged the legality and validity of the impugned order which according to him are beyond the scope and. jurisdiction under section 66A of the Repealed Income Tax Ordinance 1979. He has contended that the issue of profit and loss expenses being subject matter before the first appellate authority the learned CIT(A) and then adjudicated by this Tribunal the jurisdiction of learned. IAC is precluded from taking any action under section 66A as per principle of "Merger". He has argued that the original assessments framed under the supervision/consultation and guidance of learned IAC in office, the assessments debarred to be revised under section 66A. According to him, the independent mind should be applied by the learned IAC before taking action under section 66A and the action in this respect should not be at the behest of direction of audit party or the higher authorities. He is of the view that the jurisdiction in this case has not been validly exercised and is ab initio void as there is no basis for treating the assessment order to be erroneous insofar as prejudicial to the interest of Revenue. All the issues has been thoroughly considered by the Assessing Officer in accordance with law after conscious application of mind and after calling various details, documents and books of accounts. Therefore, according to him the assessments cannot be subjected to provision/section 66A on the basis of mere disagreement, as the assessments cannot be termed as erroneous under the presumption, surmises and conjectures. He has submitted that the assessments for all the years under review have been passed after detailed scrutiny by following the decisions of the Hon'ble High Courts and Tribunal as such the same cannot be said to be erroneous being prejudicial to the interest of Revenue and learned IAC is debarred from indulgence in such like position as held by the Hon'ble superior Courts. He has contended that learned IAC has failed to establish from the record of the original assessment proceedings that which were the particular expenses and to what extent incurred for capital gain (exempt income) whereas according to him the Assessing Officer has already disallowed non‑related expenses. Likewise, according to him, set off of capital loss against operating income in the assessment year, 1995‑96 was in fact trading loss paid, out of funds/capital of the appellant company being the first year of business. He has submitted that the learned IAC on the same date i.e. 31‑5‑2001 in the impugned order for the assessment year, 1995‑96 is holding that there will be no allocation/proportion of expenses between tenable income and capital gain (loss) but for the assessment years 1996‑97 to 1998‑99, he has the reverse view on the same issue. He has submitted that the learned IAC has ignored the concept of deductions from capital gain under section 27 and 28 of the Repealed Income Tax Ordinance, 1979 and has failed to establish with evidence any nexus of expenditure claimed and allowed under section 23 after detailed scrutiny. He has contended that while computing the income under the head capital gain (i) cost of acquisition of capital assets and (ii) any expenditure incurred wholly and exclusively in connection with transfer of capital assets shall be deducted arid no administrative and other expenses as deductible under section 23 can be prorated to capital gain. According to him, the superior appellate forums have disapproved the formula/method of allocation between exempt income and taxable income as held through judgments. He has submitted that the learned IAC has not considered the clause 116 of the Part‑I of the Second Schedule to the Income Tax Ordinance, 1979. According to him, the learned IAC failed to bring on record that any violation of clause 116 was committed by the appellant. He has submitted that the exempt income under clause 116 is not assessable and therefore, cannot be reduced under the garb of section 66A. He is of the view that once exemption is allowed, the income in this respect cannot be probed under the garb of section 66A. Regarding reliance placed by the learned IAC on the decision reported as 2002 PTD (Trib.) 900, learned counsel for the appellant has contended that this reported judgment was passed subsequent to the assessments made in the years under review on 3‑2‑2001 in I.T.A. No. 2128/LB of 2000 and is not applicable in the present case as the acts of that case are also distinguishable. Otherwise, according to him, the said judgment was passed subsequent of the assessments and the order under section 66A of the Ordinance can be made by the learned IAC on the basis of the "record of the proceedings" which means the record available before the Assessing Officer and not the record subsequently available. He has submitted that the Court should adopt the rule of consistency/uniform treatment and while construction/interpretation which appears to be most suitable in accordance with reasons should be adopted. If there are two constructions/interpretations the Court should not adopt such construction which would lead to an absurdity. He has contended that the fiscal provision of a statute is to be construed liberally in favour of tax payer and in case of any substantial doubt the same is to be resolved in favour of the tax payers. According to learned counsel, the superior Courts have held that the interpretation that had been consistently followed by superior appellate forum or by department and which had become a longstanding practice, had almost acquired force of law and such practice, could not be lightly departed. He is contended that where departmental practice had followed a particular course in implementation of some rules, whether tight or wrong, it would be extremely unfair to make a departure from it after a lapse of many years and thereby disturbing rights that have been settled by a long and consistent course of practice." According to him, disallowances of technical fee out of legal and professional charges is a double jeopardy and double taxation as the learned IAC in the one hand fully disallowed the technical fee and on the other hand has prorated the same expenditure. He has submitted that the reasons given for disallowances in the impugned orders under section 66A were different from reasons given in the show‑cause notice issued by the learned IAC. He has contended that under the Articles 189 and 201 of the Constitution of the Islamic Republic of Pakistan, 1973, it is the duty of the Court/Tribunal to follow the judgments of Higher Courts. He has in this regard referred the advise to Tribunal by the Hon'ble High Court in the case of Nishat Talkies v. CIT reported as 1989 PTD

591. Learned counsel has contended that the issue of expenses was very much before the learned CIT(A) and therefore, falls outside the purview of section 66‑A and the learned IAC was not justified to invoke the section 66‑A. The learned counsel has argued that the assessment under section 62/135 cannot be revised‑under section 66A on the issue which has already been the subject‑matter of appeal before the CIT(A) and the ITAT. He has contended that the stand taken by the learned IAC was absolutely against the law. Reliance in this respect has been placed by the learned counsel on the following case‑laws:‑‑ (i) I.T.As. Nos. 762/IB, 763/IB of 1992‑93, 795/IB to 797/IB of 1994‑95 decided on 15‑1‑1996, 1996 PTD 492; (ii) Glaxo Laboratories Ltd. v. IAC 1992 PTD 566 (SC Pak); (iii) Mrs. Anjuman Shaheen, Film Artist v. IAC 1993 PTD 1113; (iv) 1996 PTD (Trib.) 492; and (v) I.T.A. No. 507/LB to 509/LB and R. As. Nos. 286/LB to 288/LB of 2002, decided on 30‑7‑2002 and 2002 PTD (Trib.) 3039. Regarding his contention that, the independent mind should be applied by the learned IAC before taking action under section 66A and the action in this respect should not be at the behest of direction of audit party or higher appellate authorities, he has referred the case reported as 1996 PTD (Trib.) 750 and 2001 PTD (Trib.) 3810; 2001 PTD (Trib.) 3801 where it was held that an order which has been approved/supervised guided/consulted/involved by an IAC, cannot be revised by successor IAC. He has also referred the decision of this Tribunal, dated 26‑10‑1998 in I.T.A. No. 1913/KB of 1906‑97, I.T.A. No.1507/KB of 1997‑98 wherein this Tribunal has examined the issue of jurisdiction under section 66A in detail. In that case the assessments were approve by the predecessor IAC and this Tribunal found the order passed under section 66A to be invalid and without jurisdiction. According to learned counsel the facts of the case of the appellant are identical to that case as in this case also the predecessor IAC has given the approval to assessment. It was further submitted by the learned counsel that from a bare reading of section 66A it is very clear that limited and restricted powers of modifying or enhancing or revising have been vested on the IAC. The order passed by the learned IAC under section 66A is against .the provision of section 66A because it is very clear from a careful reading of section 66A that the action under section 66A can be initiated by the learned IAC on his own after calling for and examining the records of the case and not on the instruction and directions of any other authority including the inspection and audit department. According to him, it has been held by the Hon'ble Superior Courts that information from audit and inspection cannot be considered for revising under section 66A. In this connection a case law reported as NTR 1991 (Trib.) 21 has been referred: The relevant extract of the said judgment is reproduced as under:‑‑ "The other legal aspect of the matter is concerning the extent of powers of the learned IAC for invoking jurisdiction under section 66‑A of the Ordinance. Therein it has been provided that the learned IAC may call for and examine the record of any proceedings under the Ordinance anal if an order passed by the I.T.O. is erroneous insofar as it is prejudicial to the interest of Revenue he may pass such order as the circumstances of the case justify after issuing notice to the assessee. A bare perusal of the language of the section leaves us in no doubt that power under section 66A of the Ordinance is independent and suo motu as is apparent from the use of words "if he considers". There is no doubt in concluding that consideration is of the learned IAC without any directions and after perusal and examination of record of any proceedings. In PLD 1972 Lah. 316 it was laid down that the officer having power is required to decide himself without any directions. Same view was taken in 1990 PTD

974. In this view of the matter, issuance of notice and assumption of powers of the learned IAC under section 66‑A of the Ordinance on the directions of the learned CIT(A) was without any lawful authority." The learned counsel for the appellant while elaborating the scope and powers of Inspecting Additional Commissioner has argued that in a recent judgment reported as 2002 PTD 2696 this Tribunal observed that if the IAC has invoked the provision of section 35 of the Income Tax Act, 1922 (equivalent to section 66‑A of Income Tax Ordinance, 1979) at the behest of audit party and not by applying independent mind by the IAC that cannot be justified under the law. The relevant extract of the said judgment is reproduced as under: "This is interesting to note that the only issue which is highlighted by the audit party is with regard to exemption allowed by the Assessing Officer and no other defects were pointed by the Assessing Officer which means that the instant proceedings under section 35 of the Acts were solely initiated on the behest of recommendations of the audit party." In another case referred by the learned counsel reported as 1990 PTD 974 (H.C. Kar.) their Lordships of Hon'ble High Court has observed as under:‑‑ "the sales tax officer while passing an' order acts as quasi judicial officer and he should pass the order according to his own reasoning, thinking and finding after analyzing evidence on record and applying the provisions of law. In arriving at his decision the officer should not be influenced by any person be he his superior officer or any one else nor can be, behind the back of the parties, consult any other person or take advice for framing the assessment unless specifically provided by law .The sales tax officer may pass the order according to his own conscious understanding. The Courts and quasi judicial officers are required not only to do justice but to perform their duties in such a manner that justice is seen to have been done." Learned counsel has also cited and relied on another judgment on this score reported as 1984 PTD

137. The learned counsel for the appellant submitted that from a bare reading of section 66A of the Income Tax Ordinance, 1979, it is manifestly clear that following precedent conditions ought to be fulfilled before invoking provisions of section 66A of Income Tax Ordinance, 1979:‑‑ (1) The learned Inspecting Assistant Commissioner of Income Tax, should call for and examine the records of the proceedings. (2) The order proposed to be revised should be erroneous. (3) Such an order should have resulted in prejudice to the interests of Revenue. (4) The order of the Assessing Officer in‑question must not only be erroneous but also the error in the Assessing Officer's order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer's order is erroneous, the IAC cannot interfere. Further, merely because the order of the officer is prejudicial to the interests of the Revenue then again, that is not enough to confer jurisdiction on the IAC to interfere in revision. These two elements must co‑exist. (5) The learned Inspecting Assistant Commissioner of Income Tax, must provided the assessee an opportunity of being heard. (6) The learned Inspecting Assistant Commissioner of Income tax, must make or cause to be made such inquiry which, he deems fit. (7) There should a proceeding under the Ordinance. (8) In such proceedings, the Assessing Officer must have passed an order. (9) The IAC should consider that the said order is erroneous and prejudicial to the interests of the Revenue. On the factual grounds learned counsel has argued that subsequent information/Reports/Judgment are not permissible for invoking section 66‑A of Income Tax Ordinance, 1979. According to him, the learned IAC relied on subsequent judgment reported as 2002 PTD (Trib.) 900 even without confrontation to the assessee. The learned counsel, submitted that facts in the judgment of the Hon'ble Tribunal relied upon by the learned IAC are entirely distinguishable and secondly, it was not available at the time of passing original assessment order before Assessing Officer nor before CIT(A). This action of the learned IAC is beyond the scope of section 66‑A of Income Tax Ordinance, 1979. He has contended that the aforementioned judgment has no binding force and the learned IAC ought not have followed this judgment as this judgment of Tribunal has not discussed legal points as well as other case‑laws cited before it. In this regard as case‑law reported as 2000 PTD (Trib.) 3773 was referred. He has pleaded that the judgment of the Tribunal in the presence of the Hon'ble High Court's judgment and other binding judgments of Tribunals cannot be followed and the order passed by the learned IAC is liable to be annulled. He has contended that in Central Insurance Company case reported as 1993 SCMR 1232 the Hon'ble Superior Court has held that any subsequent decision after the disposal of case by the Assessing Officer cannot be said to be discovering of a mistake or error and thus order of IAC under section 66‑A of income Tax. Ordinance, 1979 is unlawful. In EFU case reported as 1997 PTD 1693 the above observation of the Hon'ble Superior Court was again reaffirmed holding that a subsequent binding decision after the disposal of .the case cannot be said to be discovery of a new important matter or of a mistake or an error apparent on the face of record. On this issue he also relied on the following case laws. 2002 YTD (Trib.) 901; 2000 PTD (Trib.) 3773; 2002 PTD (Trib.) 3047; 1999 PTD (Trib.) 2851; NTR 1990 (Trib.) 240; 1990 PTD (Trib.) 914; I.T.A. No. 2158/113 of 1996‑97 and 2159/KB of 1996‑97, dated 2‑10‑2002; 2002 PTD (Trib.) 900; 1992 PTD (SC) 570; 1992 SCMR 687; (1962) 45 ITR 271 (SC Ind.); 1988 PTD 147 (H.C. Kar.) and (1978) 111 ITR

326. Regarding set‑off of capital loss against operating income for the assessment year, 1995‑96 learned AR has contended that in fact, it was trading loss paid out of funds/capital of the company being the first year of business. The learned IAC in his order under section 66A has alleged that the appellant has charged "capital loss" against "operating revenue", and the capital loss can be adjusted/set‑off against capital gain only. In this connection it was submitted that the issue came up during the assessment proceedings and the DCIT issued a notice under section 61, dated 16‑2‑1997 requiring the appellant to file the further detailed information about the declared loss of Rs.14,68,208 from trading in marketable securities and the DCIT after considering the explanation offered by the appellant observed that the same is not adjustable against appellant's regular income being a loss on speculation business and is adjustable against the same income only. The learned counsel submitted that while replying show‑cause notice under section 66‑A vide letter, dated 31‑5‑2000 it was specifically explained that the said transactions were undertaken to abide by the rule/regulations of the stock exchange of which the company is a member and could not back out at the last moment due to the withdrawal/non‑fulfilment of its clients/customers. The same was allowed by the Assessing Officer after forming an opinion. It has been submitted that in fact it is trading loss due to transactions conducted on behalf of new customers due to lack of experience. The assessment year, 1995‑96 was the first year of assessment and also of business. In this year, he contended that, the company have to oblige new customers. The new customers wished to avail the opportunity and booked various shares but when share market fell down they backed out, hence, the assessee‑company being a corporate member of the KSE, was obliged to honour its business transactions and had to pay and suffered this trading loss. The company earned only commission income on transactions conducted on behalf of customers but particularly in this year due to errors and omissions and backing out of by various new customers suffered this trading loss. The mechanism entailed that every transaction executed on the floor of the stock exchange, arid the dealer of the company nothing the transaction, pursuant to instructions received from the customers and order delivered to the company's agent, traded on floor on behalf of the company. It was further submitted by the learned counsel that to avoid errors and omissions company adopted comprehensive customers reporting procedure in subsequent assessment years. Explaining the position; learned AR has submitted that in respect of every transaction of sale, or purchase of securities, entered into by the company on behalf of the customer, the company will make a contract note which will contain all the necessary information about the trading and that shall be delivered to customers not later than 3 days after the deal was executed. The company also undertakes as soon as practicable after effecting such transactions, to confirm the essential features of the transactions to customer either orally or in writing by hand fax electronic transmission` or any other permanent form of communication.` According to learned counsel the company for the subsequent years has introduced a device procedures in connection with any commission with the customer or in order to record instructions from any authorized person. A voice recording made by the broker shall constitute evidence of the communication so recorded. However, such communication shall be confirmed by the customer to the broker in writing within three days of the issue thereof. According to learned AR, unfortunately this device and recording systems and mode and method was neither developed nor available in the first year of assessment i.e. 1995‑

96. Hence, this trading loss suffered out of own source on transactions conducted in good faith in the normal course of business. According to learned counsel, keeping in view the factual position at the time of finalizing the assessment under section 62 the Assessing Officer has applied his mind, therefore, his order, for the reasons as mentioned hereinabove cannot be revised under section 66A and disallowing trading loss was unjustified. According to him, due to the above facts and on the basis of reported judgment cited supra the action of the learned IAC in disallowing capital loss is perverse, void and illegal. He has contended that as the learned IAC has approved the assessment order under section 62 in writing therefore, legally the order of Assessing Officer cannot be presumed to be erroneous hence cannot be reopened under section 66‑A of Income Tax Ordinance, 1979 and, therefore, the learned Inspecting Additional Commissioner was not justified in not allowing adjustment of operational loss. In respect of treatment given by the learned Inspecting Additional Commissioner in prorating expenses between exempt income and non exempt income it has been contended that the learned IAC himself on the same date i.e. 31‑5‑2001 has held that there will be no allocation/proportion of expenses between taxable income and capital gain (loss) for the assessment year, 1995‑

96. It is urged that this is not permissible for the IAC to blow hot and cold in one breath that is to say accept. favourable to Revenue and ignore which is not favourable to him: According to him, the learned IAC has seriously erred in stating for the assessment years, 1996‑97 to 1998‑99 that the shares transactions in the name of company is a regular feature of the appellant's business, but expenditure allocable/relatable to such business has been charged to revenue receipt. In this connection the learned counsel has referred the concept of deductions and allowances under various provisions in income tax law and concept of clause 116 of Second Schedule of Income Tax Ordinance, 1979 and Rule of interpretations. According to him, the concept of Allowances and Deductions has been given under various classification of income falling under sections 17 to

30. Section 22 of Income Tax Ordinance, 1979 deals with Income from business or profession. Learned counsel has submitted that for the purpose of business, occurring 'in section 23(xviii) of Income Tax Ordinance, 1979 is much wider in scope than the expression for the purposes of making or earning income occurring in section 31(b) of Income Tax Ordinance, 1979. Therefore, the scope for allowing a deduction under section 23(xviii) would be much wider than the one available under section 31(b). The learned counsel has in this regard referred a case‑law reported as (Madhav Prasad Jatia v. CIT (1979) 118 ITR 200, 208 (SC)). Wherein, it has been held that the purpose may be to acquire a capital asset or stock in trade, as also to pay off a trading debt or loss. Capital borrowed to pay off such a debt is capital borrowed for the purpose of the business. It was further submitted that section 24 is applicable for computation of capital gain read with section 28 but not section 23 of Income Tax Ordinance, 1979. If the intention of the legislature was to allocate the expenses/deductions as envisaged, under section 23 they could use the different words but the legislature has not done so. According to the learned counsel it is trite law that the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax transaction which had the legislature thought of it would have been covered by appropriate words. According to him, the learned IAC has failed to bring on record any evidence that the appellant has incurred expenses on account of capital gain but has claimed it against revenue income. He has contended that it was the duty of the learned IAC to establish that any expenditure incurred on capital gain was related to revenue income. Section 28 has only referred to two expenditures i.e. cost of acquisition and other expenses incurred on transfer thereof. He has contended that section 23 has larger magnitude which speaks of many allowances and deduction while computing business income, hence it has to be proved that whether any expenditure which actually referable to capital gains was linked with business income. In simple terminology whether any cost of acquisition or transfer thereof which related to capital gains was related by the appellant with business‑ income. Learned counsel submitted that capital gains were exempted from tax under proviso to section 17(5) of the previous income Tax Act, 1922. Such gains are also exempted under clause 116 of Part I of Second Schedule to the Income Tax Ordinance, 1979 with the amendments made in this regard time to time. According to him, the expression "income" as used in clause 116 of Part I of Second Schedule of the Income Tax Ordinance, 1979 as read with the definition of "income" given in subsection (24) of section 2 of the Ordinance means gross income and not net income and therefore the gross income of capital gains are exempt under clause 116 of the Repealed Income Tax Ordinance, 1979. According to him, the learned IAC has failed to discharge the onus laid on him as to whether any violation of clause 116 of the Second Schedule to the Income Tax Ordinance was committed by the appellant. According to him, there is no concept of allocation of expenses under clause 116 and it does not matter whether any expenses has been claimed or not because it has no impact on exempt income. He has argued that the appellant has declared and claimed exemption on net capital gains instead of gross capital gain and net capital gains claimed are exempt under clause 116 as held by this Tribunal in M. A. No.113/96‑97 in I.T.A. No. 970/KB of 1987‑88 in the case of Mst. Mashallah Khatoon which clearly defines the scope of clause 116 of Second Schedule to the Income Tax Ordinance, 1979. The relevant extract is given below:‑‑ "Any income earned as a result of purchase and sale of shares must automatically fall in the category of "capital gain". In other words, an income earned from dealings in shares, whether as investment or . commodity will be treated as income from `capital gain' and would thus be entitled to exemption from tax if it fulfilled the other conditions as laid down in clause (116) of the, Second Schedule to the Income Tax Ordinance. This provision of law, unfortunately, could not be considered at the time of original decision of appeal due to lack of proper assistance from the representatives of both the parties. The relevant law is so explicit that it leaves absolutely no room for any controversy. Unfortunately, this provision of law escaped the notice of the Tribunal at the time of original decision which resulted in the occurrence of an apparent mistake in the original order dated 12‑11‑(sic) we hereby rectify the said mistake by amending the said order by exception from tax under clause (116) of the Second Schedule to the Income Tax Ordinance. Consequently, we dismiss the departmental appeal." He has in this respect referred an other case reported as 2003 PTD (Trib.) 1536. In, this case the original assessment re‑opened under section 66‑A of Income Tax Ordinance, 1979 by the learned IAC on the ground that manufacturing expenses like depreciation on machinery and repair of machinery have been charged in profit and loss account where a these expenses ate related to trading manufacturing account, hence, the appellant declared enhance GP. IAC did not accept the explanation of the assessee, Tribunal deleted the addition while holding that these expenses were claimed in profit and loss account and as per history of the case and it is further held that the provision of section 66‑A of Income Tax Ordinance, 1979 have been wrongly invoked consequently the order under section 66A was cancelled by the Tribunal. The learned counsel has submitted that constant and preponderant view of the various superior Courts and various superior appellate forum is that no proration of expenses between exempt income and taxable income be resorted to. In this connection he has referred the following judgments:‑‑ (i) I.T.A. No. 1601/KB of 2001, dated 31‑1‑2002; (ii) I.T.A. No. 106/LB to 108/LB, dated 3‑4‑2003; (iii) 1988 PTD 626 (H.C. Kar.); (iv) I.T.A. No. 39/KB of 1984‑85, dated 28‑11‑1994; (v) 1992 PTD 1353; (vi) 1975 PTD (Trib.) 63; (vii) I.T.A. No. 1197/KB of 1998‑99, dated 20‑5‑1999; (viii) I.T.A. No.10/HQ 1987‑88, dated 15‑8‑1993; (ix) I.T.A. No. 852/HQ of 1989‑90, dated 1‑8‑1997; (x) I.T.A. No. 1295/HQ of 199‑91, dated 7‑6‑1994; (xi) I.T.A. No.197/KB to 203/KB of 1998‑99, dated 19‑6‑1999; (xii) I.T.A. No. 4234/KB of 1986‑87, dated 15‑5‑1994; (xiii) I.T.A. No. 3912/KB of 1987‑88, dated 15‑3‑1995; (xiv) I.T.A. No. 2147/KB of 1994‑95, dated 24‑7‑1999; (xv) I.T.A. No. 62/HQ of 1988‑89, dated 27‑3‑1996; (xvi) I.T.A. No.1769/KB of 1991‑92, dated 18‑4‑1998; (xvii) 1984 PTD 341( High Court); (xviii) 1984 PTD 390 (High Court); (xix) 1986 SC MR 968; (xx) (1968) 68 ITR 512 (High Court); (xxi) (1971) 82 ITR 452 (SC of India); (xxii) 1993 PTD (Trib.) 472; (xxiii) I.T.A. No.729/KB of 1995‑96, dated 19‑10‑2001; (xxiv) (1965) 56 ITR 77 (SC of India); (xxv) (1938) 6 ITR 636; (xxvi) (1968) 67 ITR 436 (High Court) and (xxvii) 1991 PTD (Trib.)

531. According to the learned counsel the Learned I.A.C. was not justified in disallowing the technical fee paid to its undertaking and added back after ignoring the fact that an amount had already been deducted under section 50(4) thereon. According to him, the Learned I.A.C. was wrong in observing while disallowing technical fee paid to its associated undertaking that "it is a simply business pay back which the assessee himself admitted in his letter, dated 31‑5‑2001 at page 12". The learned counsel submitted that reference of IAC on page 12 of appellant's reply, dated 31‑5‑2001 for disallowances of said expenses is misconceived. On this page of reply it was with reference to payment to creditors for the assessment year, 1998‑99 only and not with reference to technical fee and no addition on the score of payment to creditors was made in any of the assessment years under appeal. According to him, the fact is that the appellant has never admitted that it was simply business pay back. This observation of successor I.A.C. according to learned counsel is wrong based on misconception. The successor I.A.C has arrived this conclusion on the basis of incorrect insinuation which has neither been confronted nor it was disclosed in the show‑cause notice. Learned AR has submitted that the learned Inspecting Additional Commissioner has hanged double edge sword on the head of the appellant as the learned IAC on the one hand disallowed 100% the full quantum of claim of technical fees and on the other hand also made allocation of this expenditure and in this way the appellant has been caused double jeopardy and double taxation. He has therefore, requested to vacate the impugned orders passed under section 66A of the repealed Income Tax Ordinance by the learned IAC.

5. On the other hand, Mr. Jawed Iqbal Rana, who is the author of the impugned order is representing the Department alongwith Mr. Aqeel Ahmed Abbasi, Legal Advisor Mr. Rana has supported the orders passed under section 66‑A of Income Tax Ordinance, 1979. He has mostly reiterated the arguments on the basis of which he has passed orders under section 66A. He argued that the appellant has set off the capital loss against revenue income which as per provision of section 37 of the Income Tax Ordinance, 1979 is not admissible. In this connection he has placed reliance on the judgment of this Tribunal in I.T.A. No.2323/KB of 1992‑93 in the case of Messrs Standard Chartered Bank wherein the Tribunal has not accepted the assessee's plea that NIT Units were dealt in frequently, hence the loss was revenue in nature and adjustable against the revenue profit of the year. The learned DR has argued that in view of the aforesaid findings of this Tribunal, an amount in this respect has been rightly added back to the assessee's income. The next ground agitated four all the years tinder consideration by the learned DR is in respect of legal and professional charges/technical fee paid to Messrs Indosuez W.I. Carr Securities (F.E.) Ltd. Hong Kong. He has contended that it is simply business pay back and this is in fact payment on account of trading liability. He has submitted that basing on the assessment year, 1995‑96, the addition has been made under the head Technical fee. He has submitted that the basis of this addition is same for all remaining years under appeal except quantum of additions which are different for all the years. In respect of proportionate of expenses between exempt income and taxable income which is involved in the assessment years 1996‑97 to 1998‑99, learned D.R. has almost reiterated same arguments as in his orders under section 66A on the same basis as for the assessment year, 1995‑96 the learned IAC allocated the expenses for all the years under consideration. The learned D.R. has submitted that it is impractical and imaginary that no‑expenses were incurred for earning capital gain. According to him, the appellant has charged the entire expenditure, against the revenue income which is not permissible keeping in view the judgment of Tribunal reported as 2002 PTD

900. In this respect, he has further referred the judgment of this Tribunal in I.T.A. No. 2128/LB, dated 3‑2‑2001 now reported as 2002 PTD (Trib.)

900. He submitted that the guideline has been given in this judgment and the learned IAC has to follow the guidelines and the said judgment which is binding on the department has been rightly followed while passing the impugned orders. It has been submitted by the learned DR that apportionment/pro‑ration of expenses is permissible as per standing instructions of the C. B. R. Circular No.12 of 1991, dated June 30, 1991. According to him, the said circular has been approved by the Tribunal in the case of Messrs Ishaq Textile. In the nutshell the learned DR has submitted that the impugned orders are detailed and each and every issue has been fully debated/dealt in the orders, therefore, the orders may please be maintained.

6. Mr. Aqeel Ahmed Abbasi, Advocate, the learned legal advisor of the department apart from supporting the arguments of the learned D.R. has further argued on legal issues. He has coextended that after insertion of clauses (a) and (b) of subsection (1A) of section 66‑A of the Income Tax Ordinance; 1979 through Finance Act, 1991, the theory of "Merger" is not applicable in the proceeding of section 66‑A. He has contended that the issues under review have never been before learned CIT(A). In support of his contentions, he relied on the case law reported as Glaxo Laboratories Ltd. v. IAC 1992 PTD 932 wherein according to learned counsel, it has been held that after amendment in section 66A the IAC is fully authorized to initiate proceeding under section 66A even if appellate and revisional order has passed. He has referred the decision of the Hon'ble High Court reported as 1995 PTD 882 wherein according to him, it has been held that the IAC, is competent to reopen the assessment order on the basis of change of opinion. He has contended that in this case the Hon'ble Lahore High Court has held that the IAC is fully empowered to revise any order under section 66A even if appeals or reference has been filed, therefore, theory of merger is not applicable. It has been contended by the learned Legal advisor that the learned IAC was fully justified on relying on audit and inspection note/report as he has not solely depended on the report but has given specific reasons for his treatment and has, applied his mind. In support of his contention he has relied on a reported judgments of Messrs National Beverages (P.) Ltd. v. Federation of Pakistan and others reported as 2001 PTD 633 and Messrs Al‑Ahram. Builder (P.) Ltd. v. ITAT reported as 1992 PTD 1671 = 1993 SCMR

29. The learned Legal Advisor for the department further elaborating the scope of section 66A has submitted that the power under section 66A is very vast power and the learned IAC can revise orders both on points of law and on facts. He has contended that the consideration of IAC under section 66A is "subjective consideration": Therefore, the IAC in this case was fully justified in assumption of jurisdiction under section 66A. He has in this respect placed reliance on the case CIT v. M. Iqbal Saigal reported as PLD 1976 Lah.

547. Wherein the Hon'ble Lahore High Court has held that the Tribunal was not justified in holding the order of the learned IAC under section 34‑A of the Old Income Tax Act, 1922, as bad in law and without jurisdiction if the assessment order passed by ITO found erroneous as being prejudicial: to interest of revenue and the learned IAC has revised such order in exercise of jurisdiction under section 34A. The learned Legal Advisor in this respect has also relied on the judgment of the Hon'ble High Court reported as Artex Ind. Ltd. v. CIT reported as 198' PTD 528 (Kar. H.C.). He has submitted that in this case the judgment of the Hon'ble Lahore High, Court in the case of CIT v. M. Iqbal Saigal reported as PLD 1976 Lah. 547 was followed, wherein, it was held: "Subject to the limitations contained in section 34A of the Act, the power of revision on IAC is very wide. He may revise order both on point of law and facts ..to sum up, the only, restriction imposed on the revisional jurisdiction under this section are that the cannot interfere (a) unless he considers that the order passed by the I.T.O. is erroneous so far as it is prejudicial to the interest of the Revenue, (b) without affording the assessee a reasonable opportunity of being heard, and (c) after expiry of four years of the date of the order under revision." The learned Legal Adviser further proceeded to refer to the judgment reported as Shahabuddin v. IAC reported as PLD 1988 Kar.

587. In this case also the Hon'ble Karachi High Court followed the judgment of the Hon'ble Lahore High Court reported as PLD 1976 Lah. 547 quoted supra. It has been argued by the learned Legal Advisor that the principle of res judicata is not applicable in income tax cases as every assessment year is an independent year and is decided on its own merits, in this regard, he cited reported judgment of the Hon'ble Karachi High Court Roche Pakistan Ltd. v. DCIT reported as 2001 PTD 3090. While concluding his arguments, the learned Legal Advisor cited the judgment of the Hon'ble Karachi High Court in the case of CIT v. NIT reported as 2003 PTD

589. Referring to that judgment he submitted that it is well‑settled principles of interpretation of taxing statutes that while interpreting a fiscal statute, there is no room for any intendment, inference or presumption and the plain words used by the legislature are to be looked only, for application of a particular provision.

7. Using the right of reply to the arguments of the learned representatives of the department in his rejoinder the learned counsel for the appellant Mr. Jawed Zakaria has contended that the arguments of the learned DR as well as that of the Legal Advisor for the Department are not on sound factual and legal footings. He reiterated that for the assessment year, 1995‑96, the loss was not capital in nature but in fact it was operational loss. It was further submitted that this assessment was not only duly approved in writing by the then IAC but IAC in approval letter has also observed that the assessment order for the assessment year, 1995‑96 is found to be in order. The evidence of approval in writing has been placed on record. In respect of technical fee, the learned counsel for the appellant contended that assertions/allegations made by the learned IAC are based on assumption, presumptions, conjectures and surmises. In respect of submission of the learned DR regarding Circular No.12 of 1991, dated 30‑6‑1991 issued for the purpose of allocation of expenses it was contended by learned counsel for the appellant that Circular No. 12 is not related to exempt capital gain under clause 116 of Second Schedule read with, provision of section 27 or

28. He has submitted that this Tribunal in judgment reported as 1999 PTD (Trib.) 2884 has held that examples provided in a Circular No. 12 of 1991 has no significance as the example given in, the circular were only hypothetical and any effect of prescribed pro forma could not be attributed to such examples. The learned counsel for the appellant further submitted that there is no provision in law or any rule prescribed under the law regarding preparation of Administrative and selling and general expenses to be prorated in proration to the ratio between the operational taxable, income and exempt capital gain under clause 116 and section 27 and 28 of Income Tax Ordinance, 1979. Regarding the case of (I.T.A. No. 332/KB (Ishaq Textile) reported as 1999 PTD (Trib.) 4100 referred by the learned representatives of the Department, learned AR has submitted in this case is exclusively relating to income from local sale and export sales and not relating to exempt income under clause 116 read with provisions to sections 27 and 28 and this case has not interpreted the concept of deduction under section 27/28 of Income Tax Ordinance, 1979 in respect of exempted capital gain. He has pleaded that in 1991, the presumptive tax regime was introduced by inserting section 80C vide Finance Ordinance, 1992, presumptive tax extended to exports vide section 80CC. Both the sections 80C and 80CC were brought in law to a certain portion of receipts of the business of an assessee under the PTR. The receipts from business of a person included receipts liable to be assessed under normal law and receipts liable to be assessed under PTR, it was necessary to give a method for determining the income liable to be assessed under normal law. For this purpose for allocation of income between normal law and 80C, Circular 12 of 1991 was issued by C.B.R. and the further clarifications were issued by subsequent circulars. In respect of income consisting of local sales and export sales clarification were also issued through various circulars. However, the purpose of the circulars was to explain the mode of determining the proportion of income liable to be assessed under normal law from the joint receipts/income consisting of local sales and exports gales covered under PTR. According to him, there was lot of controversy about the mode and method of allocation/proration of income/profit between exports sales and local sales, which was set‑at‑rest by Circular 5 of 2000 issued by CBR where by it was explained, as to what would be the method of pro‑ration of profit between export proceeds falling under section 80CC and local sales. It clarified that prorating of profit between export sales and local sales has to be done in accordance with rule 216 of .the Income Tax Rules 1982. He has argued that in a case having business receipts for normal assessment and from property income under section 19, or capital gain under section 27 no allocation of expenses is made in respect of income falling under these heads on prorata basis. If, there are specific expenses allocable to such income say property tax in respect of property income i.e. the allocated directly to the property income a blanket allocation of total expenses is not permissible. According to learned counsel, the case of Ishaq Textile, referred supra was decided before the issue of Circular 5 of 2000, by C.B.R. He has argued that the prime purpose of prorata is to give a method for determining income liable to be assessed under normal law because the income was combined of two distinct businesses i.e. Local Sale and Export Sale which is not incidental to local sales as it is an independent business. Superstructure of business and establishment have been made for both businesses and income of local sales is not determinable for the purpose of levying normal tax being inseparable income. According to him, in the instant case, there was no dispute of determination of income from business and exempt capital gain. In computation of income and in return of total income, taxable business income and exempt capital gain separately declared. There is no dispute of determination of, income disclosed for taxable income and exempt capital gain. It is also worth‑mentioning that the appellant has deducted cost of acquisition etc. before declaring capital gain as per provision of section

28. Learned counsel has contended that the C.B.R. Circular No.12 of 1991 is only applicable to the income related to PTR and income/profit is inseparable from various businesses including local sales, supply, import, purchases, local purchases, export sales and local sales etc. The prime purpose to determine the income relating to normal taxation. Hence apportionate/prorata of expenses is being made as per rule 216 which was subsequently approved by the Tribunal. According to him, the circular No.5 of 2000 has been approved by the latest judgment reported 2003 PTD (Trib.) 1053. He has submitted that the concept of Circular 5 of 2000 and rule 216 of Income Tax Rules, 1981 has been made part of income Tax Rule, 2002 vide Rule

231. The said circular is applicable only for the income relatable to PTR. The learned counsel for the appellant submitted that the case of the appellant fully covered by the latest judgment of this Tribunal in the case bearing I. T. A. No. 1601/KB of 2001 wherein the Assessing Officer allocated proportionate expenses towards income from capital gains exempt under clause 116 of the Second Schedule .of the Income Tax Ordinance, 1979. The Tribunal held that the Assessing Officer had failed to appreciate the provision contained in section 28 of the Income Tax Ordinance, 1979 while computing income from capital gain. According to him section 28 of the Income Tax Ordinance, 1979 states that "In computing the income under the head capital gains, the cost of acquisition of the capital asset and any expenditure incurred wholly and exclusively in connection with the transfer thereof shall be deducted". According to him in order to compute capital gain only expenses incurred wholly and exclusively in connection with the transfer of assets should be deducted, and no prorata would be made for expenditure not incurred for S.28 and other administrative and other expenses, could not be linked with acquisition/ transfer of capital assets.

8. We have given our earnest consideration to the rival arguments addressed by the contending parties, the facts of the case and have also perused the relevant records, impugned orders/documents/case papers, statutory law and case laws submitted by the learned representatives of both the parties. We have observed that the impugned orders were finalized after more than one year of the issue of show‑cause and during intermediary period no fresh show‑cause notices were issued. The show- cause notice was issued by another IAC and order was passed by another IAC. The successor IAC has finalized the proceedings under section 66A after one year without issuing a fresh show‑cause notice. We have further noted that regarding technical fee the IAC's finding and reasoning in impugned orders are different from show‑cause notice. We have noted that the Assessing Officer had passed the order under section 62 after calling various details by issuing various notices under section 61/62 and has allowed the appellant to adjust the alleged capital loss, against the revenue income in the assessment year, 1995‑96 after going through the books of account furnished by the appellant before the Assessing Officer who according to appellant retained the same for more than six months. Therefore, the Assessing Officer, has had a lot of time to examine each and every aspect of the case. We have noted that the Assessing Officer has not blindly allowed to the appellant the adjustment against the operating income but it was allowed after examining various details, books of account and explanations. It has been contended by the learned counsel for the appellant that it is operational loss due to transaction conducted on behalf of newly customers. The assessment year, 1995‑96 was the first year of assessment and also, of business. In this year, as per the contention of the appellant the company have to oblige new customers. The new customers wish to avail the opportunity and booked various shares when share market failed down they backed out, hence, the company being a corporate member of the KSE, was bound to abide by the rules and regulation enforced by the Stock Exchange and therefore the company was obliged to honour its business transactions and had to pay out of their funds and suffered this trading loss. It has been contended that the company earned only commission income on transactions conducted on behalf of customers but particularly in this year due to errors and omissions and backing out by various new customers the appellant‑company has suffered this trading loss and paid out its own` funds hence, labelled it capital loss which in fact was trading loss therefore, the Assessing' Officer after forming judicious opinion allowed the same.

9. Regarding the contention of the learned counsel for the appellant that the learned Inspecting Additional Commissioner has invoked the provision of section 66‑A on the basis of audit party/inspection note. We have noted that the case record was requisitioned examined by the Additional Director of Inspection who in his inspection note directed that in the instant ease order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue liable to be cancelled under section 66A read with sections 65 and 111 for the reasons (i) that the capital loss was adjusted against operating revenue income which is not liable to be adjusted, set‑off as per section 37(ii) legal and professional charges were allowed by the Assessing Officer without obtaining the explanation and without withholding tax under section 50(4) and (iii) it is not ascertained by the Assessing Officer whether expenditure relates to capital income or otherwise. It was therefore directed that same points be considered for all the subsequent years and compliance be made within 30 days from the receipt of inspection note. It is also evident from the inspection note that this case, was basically revised/reopened under section 66A because the assessee has obtained the refund as the figure of refund has also been mentioned in the inspection note. The conjective and cumulative reading of the inspection note of audit party and impugned order passed under section 66A shows that in the inspection note it was directed that the capital loss for the assessment year, 1995‑96 has been set‑off against revenue income and as per provision of section 37 the capital loss is to be adjusted/set off 'against capital gain, We have observed that the learned IAC has made additions on the three reasons pointed out by the audit and inspection note without appreciating the, facts of the case and without applying his judicious mind. While perusal of the notices issued by the Assessing. Officer during course of assessment, replies furnished by the assessee and the assessment order passed by the DCIT for the respective years it is evident that the DCIT has thrashed out all the issues after calling various details explanations and examination of books of accounts. We are of the view that as envisaged in section 66‑A the Inspecting Additional Commissioner can suo motu take action if he finds that the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue but as tier scheme of section 66‑A, the Inspecting Additional Commissioner himself should apply his own independent mind and should not be influenced by the direction/command of anyone else. The law on this subject is very clear and section 66‑A has provided in unambiguous term that independent mind has to be applied by the Inspecting Additional Commissioner. This Tribunal in a case reported as 2002 PTD 2696 while following its earlier judgment reported as 2001 PTD (Trib.) 3810 has disapproved the initiation of action under section 66‑A by the learned Inspecting Additional, Commissioner on behest of recommendations of the audit party, holding that the action under section 66A can be initiated by the IAC on his own initiation after calling for and examining the records of the case and not on the instruction and directions of any other authority including the inspection and audit department who has no authority, and jurisdiction over the case. In many other cases it has been held by the superior Courts/appellate forum that information from audit and inspection cannot be considered for reopening of the case either under section 65 or under section 66A until and unless proved otherwise. On behalf of the appellant, a case‑law reported as NTR 1991 Trib. 21 has been referred. The relevant extract of the said judgment is reproduced as under: ‑‑ "A bare perusal of the language of the section leaves us in no doubt that power under section 66A of the Ordinance is independent and suo motu as is apparent from the use of words "if he considers". There is no doubt in concluding that consideration is of the learned IAC without any directions and after perusal and examination of record of any proceedings. In. PLD 1972 Lah. 316 it was laid down that the officer having power is required to decide himself without any directions. Same view was taken in 1990 PTD

974. In this view of the matter; issuance of notice and assumption of powers of the learned IAC under section 66‑A of the Ordinance on the directions of the learned CIT(A) was without any lawful authority."

10. The learned counsel for the appellant has produced evidence from the record of the case, before us to the effect that the learned Inspecting Additional Commissioner was all along associated with the assessment proceedings. He has in this respect, submitted covering letter with paid challan and copies of departmental record showing supervision of Inspecting Additional Commissioner over the case of the appellant. It will be pertinent to reproduce the communications exchanged between the Assessing Officer and the learned Inspecting Additional Commissioner. First we would like to reproduce the contents of the letter written by the DCIT to the learned Inspecting Additional Commissioner regarding his approval of draft order:‑‑ DEPUTY COMMISSIONER OF INCOME TAX CIRCLE‑07, RANGE‑II, COS.II. KARACHI No. DCIT/Cir/07/R=II/Cos.II/1997‑98/353, dated 30‑5‑1998. To, The Inspecting Additional Commissioner, of Income Tax, Range‑II, Karachi. SUBJECT:‑‑DRAFT ASSESSMENT ORDER IN THE CASE OF MESSRS INDOSUEZ W.I. CARR SECURITIES (PVT.) LTD. ASSESSMENT YEAR 1995‑

96. Ref:‑‑YOUR KIND LETTER NO. JUD‑34/07/R‑II/COS II/97 98/1294 DATED 26‑5‑1998. Kindly refer to the above, I have the honour to submit that the draft assessment order in the above mentioned case for Assessment year 1995‑96 at net income of Rs.132,073 is submitted for your kind perusal and guidance. The case has been recently transferred from Cos. Zone‑III to this Circle. The proceedings for the Assessment years 1996‑97 and 1997-98 are in process. The assessee has not filed necessary details for both the Assessment years, 1996‑97 and 1997‑98 and now the A/R of the assessee has been requested to file the details by 8‑6‑1998. The assessment will be finalized for the Assessment year 1996‑97 and 1997‑98 after getting necessary details sand the report will be submitted in due course of time. (Sd.) Deputy Commissioner of Income Tax Circle‑07, Range‑II, COS, II, Karachi" (Underlining is ours for emphasis) The learned Inspecting Additional Commissioner accorded his approval to the draft assessment order submitted by the DCIT and remarked that he perused the draft assessment order and find in order. Therefore, learned IAC in his letter addressed to the DCIT had directed him to release the assessment order. The said letter of the Inspecting Additional Commissioner granting approval to the assessment order is also reproduced as under:‑‑ INSPECTING ADDITIONAL, COMMISSIONER OF INCOME TAX, RANGE‑II, COS‑II, KHI No. JUD‑1/7/R‑II/COS‑II/1997‑98/1342 JUNE 5, 1998 To, The Deputy Commissioner of Income Tax, Circle‑07, Companies‑II, Karachi SUBJECT:‑‑DRAFT ASSESSMENT ORDER IN THE CASE OF MESSRS INDOSUEZ W.I. CARR SECURITIES (PVT.) LIMITED, KARACHI‑ASSESSMENT YEAR 1995‑96:‑‑ Please refer to the subject noted above. The draft assessment order submitted by you in the above mentioned case vide your Letter No.353, dated 30‑5‑1998 has been perused and found in order Approval is therefore accorded to release the order. Case record in (1) volumes is returned. (Sd.) (Muhammad Ilyas Shaikh) Inspecting Additional Commissioner Of Income Tax, Range‑II, COS‑II, KHI (Underlining is ours for emphasis). From perusal of the above correspondence it is unambiguously clear that the Inspecting Additional Commissioner has supervised assessment proceedings. We have already held in many cases that if the assessment order is passed by the Assessing Officer under guidance and supervision then the Inspecting Additional Commissioner‑has ipso facto debarred to revise such assessment. In observing this we are fortified by an order of this Tribunal, bearing ITA Nos. 1913 to 1915, 334 to 335 and 1507/KB of 1996‑97, dated 26‑10‑1998 wherein the learned Division Bench of this Tribunal has observed as under:‑‑ "

35. Having given our careful consideration to the foregoing facts and circumstances as well as the submissions made from the two sides supra, we find that firstly, the ratio of decisions on the question of validity of jurisdiction exercised by the learned. Inspecting Additional Commissioner under section 66A, under the, circumstances is in favour of the appellant because, admittedly, the claim of the appellant for exemption under clause (86) supra, being the only issue considered by the DCIT and the Inspecting Additional Commissioner, has been allowed in the assessment order passed under section 62 with the approval of the Inspecting Additional Commissioner. The revision of such orders by him or his successor, therefore is nothing but change of opinion which cannot be sustained; hence vacated. (Underlining is ours): In this respect; further 'rely on, a case‑law reported as 1996 PTD (Trib.) 750 wherein it was held that:‑‑ "If the assessment in, a particular case is made under the supervision and with consultation of the JAC (predecessor‑in‑office) then the successor IAC is, ipso facto, debarred to revise such assessment". From perusal of the above judgments it is manifestly clear that if an IAC is all along associated with assessment proceedings or if an order is approved by the Inspecting Additional Commissioner then revision of such order is not permissible. We have noted that the learned predecessor Additional Commissioner in this case has retained the case paper/record of the case almost for 9 months and have retained the same for the, purpose of deliberate consideration. On behalf of the appellant a letter, dated 8‑4‑1999 has been, referred which confirms this fact. The contents of the letter are reproduced hereunder:‑‑ "OFFICE OF THE DEPUTY COMMISSIONER OF INCOME‑TAX CIRCLE‑07, RANGE‑II, COS.II KARACHI No. DCIT/CIR/07/R = II/Cos. II/1998‑99/769, dated 8 April, 1999. To, The Inspecting Additional Commissioner of Income Tax, Range‑II, Companies Zone‑II, Karachi. SUBJECT:‑‑CASE PAPERS OF MESSRS INDOSUEZ W.I. CARR A.Y. 1995-96 1996‑97 & 1997‑98 (5 VOLE). Please refer above. The case papers of Messrs Indosuez W.I. Carr an assessee of the circle was submitted to your office vide peon Book, dated 28‑11‑1998 and received in your office in 5 volumes. Since the case is on final stage therefore it is requested that the case papers may be send back to finalise the case. (Sd.) (Asem Iftikhar) Assistant Commissioner of Income Tax Circle‑07, Range‑II, COS‑II, Karachi" From this letter, it is established that the DCIT sent all case papers of proceedings to the Inspecting Additional Commissioner on 30‑5‑1998 and Inspecting Additional Commissioner after giving his deliberate consideration accorded his approval for release the assessment order as he found the same in order. We are of the view that if such eventuality goes on befalling then no order of the subordinate officer would attain finality. It would, not only aggravate the miseries of the taxpayer but also lead to multiple series of assessments which is‑ not the intention of the Legislature and there will be no end of litigation. The IAC has not been given free hand to invoke the provision of section 66‑A of the Income Tax Ordinance in each and every assessment/order made by the Assessing Officer. The very purport and tenor of the said section is to safeguard the interest of revenue and for that purpose the IAC is vested with the power to revise the order of the subordinate officer which he has acted with flagrant violation of law and fact. Merely disagreeing by the IAC with the conclusion of the Assessing Officer arrived at by him in the assessment order of a particular case is not warranted by law. It would also frustrate the very purpose of the said section where the successor IAC after assuming charge, calls and examines the record of a particular case and on similar set of fact, which have already been considered by the earlier IAC and with his involvement/consultation a conscious assessment has been framed by the Deputy Commissioner of Income Tax cancels that assessment and directs fresh assessment to be made or enhances or modifies the assessment. Undoubtedly, it amounts to excess of jurisdiction which is not tenable in law and the successor IAC should refrain not to invoke the provisions of section 66‑A of the Income Tax Ordinance, 1979.

11. Now, taking grounds relating to allocation of expenses between exempt income and non‑exempt income, it is noted that the Inspecting Additional Commissioner had prorated the same on the basis of subsequent judgment. The judgment I.T.A. No.2128/LB of 2000, dated 3‑2‑2001 relied upon by the IAC is entirely distinguishable. In the said judgment, the peculiar circumstances of the case, the core issue of, deduction‑under section 28 and the relevant rulings of law have been ignored. We have almost thrashed out the entire cases made available on the subject. After having going through the relevant case laws the consensus seems to be that once a conscious and deliberate decision is given by the higher appellate authorities it should be followed by the sub‑ordinate Courts. In this case there is cantina of case‑laws of the superior Courts as well of this Tribunal wherein the Courts have disapprove the hypothetical formula method of allocation of expenses between exempt income and non‑exempt income. On touchstone of criterion as mentioned herein above we have carefully examined the contention as agitated by the learned counsel for the appellant and have also perused all cited judgments and judgments relied by the IAC in his impugned orders. The contention of the learned counsel for the appellant is that the issue of expenses was very much before the CIT(A), therefore, the DCIT's order has merged with his order and hence the learned IAC is precluded from taking any action under section 66‑A. The argument of the learned representatives of both the parties have already been incorporated in the earlier part of this order. On the issue of merger we find force in the arguments of learned DR and Learned Legal Advisor for the department and we hold that issues regarding proportionate of expenses between exempt capital gain under clause 116 read with sections 27 and 28 and other operational taxable income was not the subject‑matter of appeal before the appellate authority, hence, doctrine of merger did not apply to the facts of the case, the contention of the learned AR on this score is repelled.

12. We have however found that the learned IAC has passed the impugned orders on the basis of Tribunal judgment in ITA No. 2128/LB of 2000, dated 3‑2‑2001 which is subsequent to the assessment as well as the proceedings under section 66A. Original assessment orders were passed under section 62 in the year, 1998 and 1999 and said judgment was pronounced on 3rd February, 2001 and has reported in 2002 PTD

900. This judgment was not existed before the DCIT who passed the original order under section 62, therefore, the contentions of the learned counsel for the appellant carry force, as under section 66A the IAC may call for and examine "the record" of the proceedings in order to consider in his revisional jurisdiction as to whether the order in question by the DCIT is "erroneous" and which is part of the record of proceedings and was before the DCIT and examine it in order to consider whether on the basis of the materials/evidence/report/binding precedents which were before the DCIT or available at the time of framing of original assessments by the DCIT and all these materials formed the part of the record then the IAC can come to definite finding based on material evidence from the said record that the order passed by the DCIT is erroneous and prejudicial to the interest of Revenue. The various case laws have been cited by the learned AR in support of his contention; that IAC for the purposes of invoking section 66A cannot rely on the subsequent events, information; material, reports and judgments which neither were part of the 'record nor available before the Assessing officer, hence, action under section 66A cannot be initiated on the basis of any event/material/report/proceedings/judgment which .is subsequent in time. We are therefore of the view that on this ground the impugned orders are not sustainable and cannot be called erroneous.

13. We have found that issue of proration of expenses to capital gain was considered by the Assessing Officer. The Assessing Officer has applied his conscious mind to this crucial point and after considering and relying/following the judgments of superior Courts and superior appellate forum has not prorated the expenses. However, he disallowed certain expenses which were not related to business income. We are therefore, of .the view that an order passed by the DCIT following the decision of the Appellate Tribunal/Higher Appellate Authorities and superior Courts cannot be held to be erroneous and prejudicial to, the interest of Revenue and such order cannot be revised. We are of the view that for the purpose of computation of capital gains only two expenses are liable to be deducted. (i) Cost of Acquisition (ii) Transfer, expenses The learned IAC has failed to point out that which specific expenses and to what extent has been claimed against business income under section 23, which were related to capital gain under section

28. The learned IAC has failed to discharge his onus with proof that expenses incurred in connection with capital gains have been deducted from operational business income. Therefore, it is our considered opinion that no part of expenditure has been proved to have been incurred in earning capital gain. Therefore, the action of the learned IAC cannot be maintained. The proration of expenses between exempt income as well as non‑exempt income is not permissible because the Legislature has never directed the ascertainment of the purpose of an expenditure and, therefore, the law is not concerned to find out whether the expenditure has produced or will produce taxable income. Thus, Tribunal as well as the Hon'ble Superior Courts of Pakistan in many judgments have disapproved the hypothetical formula method of proration between exempt income and taxable income. Following cases in this regard has been cited by the learned counsel for the appellant:‑ 1992 PTD (Trib.) 1141; 1975 PTD (Trib.) 63; I.T.A. No. 1601/KB of 2001, dated 31‑1‑2002; Order of this Tribunal in I.T.A. No.10.11/HQ/87‑88, 60, 324/325/HQ/1988‑89, dated 15‑8‑1993; Order of this Tribunal in I.T.A. No.852/HQ of 1989‑90, dated 1‑8‑1997; Tribunal order in I.T.A. No. 4234/KB 86‑87; I.T.A. No. 3683, 3684/KB 87‑88 and I.T.A. No. 66/HQ of 1991‑92 etc. dated 15‑5‑1994; Tribunal order in. I.T.A. No.3912/KB/87‑88, dated 15‑3‑1995; 1993 PTD (Trib.) 472; I.T.A. No. 106/LB to 108/LB, dated 3‑4‑2003; 1988 PTD 626 (H.‑C. Kar); I.T.A. No.39/KB of 1984‑85, dated 28‑11‑1994; I.T.A. No. 1197/KB of 1998‑99, dated 20‑5‑1999; I.T.A. No. 1295/HQ of 1990‑91, dated 7‑6‑1994; I.T.A. No. 197/KB to 203/KB of 1998‑99, dated 19‑6‑1999; I.T.A. No. 2147/KB of 1994‑95, dated 24‑7‑1996; I.T.A. No. 62/HQ of 1988‑89, dated, 27‑3‑1996; I.T.A. No. 1769/KB of .1991‑92, dated 18‑4‑1998; 1984 PTD 341 (High Court); 1984.PTD 390 (High Court); 1986 SCMR 968; (1968) 68 ITR 512 (High Court); (1971) 82 ITR 452 (SC of India); I.T.A. No. 729/KB of 1995‑96, dated 19‑10‑2001; (1965) 56 ITR 77 (SC of India); (1938) 6 ITR 636 (High Court) and 1991 PTD (Trib.)

531. From the in‑depth study of the above mentioned orders/judgments of the superior Courts as well as of the Tribunal, it is abundantly clear that the issue of proration 6f expenses was decided in. the past in favour of the assessee and as mentioned supra the most recent judgments are in favour of the assessee. The legal position as it emerged from the above case laws is against the action of the learned IAC. It has been clearly, laid down through these judgments that "No part of the administrative and other expenses and interest should be allocated against income which was exempt from tax and other income which was not so exempt." The learned IAC has failed to establish from the record of proceedings that any expenditure had been incurred in earning capital gain. In other words he has failed to establish nexus of impugned expenditure to the income from capital gains. Therefore, his action cannot be upheld on factual plane. Further, it is quality of expenditure that has to be seen and not the source of income. After all there can be no trade within a trade. The proration, as we have already stated was designed to pass an some of the expenditure to capital gain which is not permissible both on factual and legal premises. As we narrated supra the only permissible expenditure in computing capital gains under section 28 of the Ordinance, is cost of acquisition or expenditure related to transfer of such capital asset. Hence there is no concept of allowing administrative, managerial or 1979. The question of apportionment of expenses under the facts and circumstances of the case and due to the specific nature of this income does not arise, as administrative and ‑other expenses were neither required to earn this exempted gain nor are allowable under the Ordinance. Even otherwise the expenses could not be apportioned as held by the Lahore Bench of this Tribunal recently in I.T.As. Nos. 106/LB to 108/LB of 2000, dated 3‑4‑2003 referred by the learned, counsel for the appellant. In the said judgment, this Tribunal relying on its earlier judgments has held that expenses cannot be apportioned between taxable income and exempt income. Relevant portion of the judgment is reproduced hereunder:‑‑ "The learned counsel submitted that the learned ITAT in an order, dated 18‑11‑1997 passed in I.T.A. No. 1216/LB of 1993 in the case of Bank of Punjab has held that the department cannot allocate interest of other expenses to income claimed to be exempt by the assessee. In arriving at this conclusion the learned ITAT has relied on its earlier decisions reported as 1993 PTD (Trib.) 472; 1992 PTD (Trib.) 1141; 1984 PTD 341; 1984 PTD 390 and 1988 PTD

626. The Hon'ble Karachi High Court in a reported cases 1984 PTD 341 and 1984 PTD 390 held that "No part of the administrative and other expenses and interest should be allocated against dividend income which was exempt from tax and other income which was not so exempt." In view .f the decisions of the superior Courts the learned CIT(A) was fully justified to delete the addition made on account of disallowance of interest expenses." In another judgment in I.T.A. No.1601/KB of 2001, dated 31‑1‑2002 this Tribunal had, dismissed the departmental appeal contesting the deletion of expenditure under section 23(1)(xviii) which was held by the Assessing Officer to be capital in nature and made proportion but the Tribunal maintained the deletion made by the CIT(A) by observing that the Assessing Officer had failed to establish nexus between the impugned expenditure to the income from ‑capital gain. The appellant has admittedly and undoubtedly earned capital gain for which no expenses whatsoever was incurred except related costs of acquisitions which have already been deducted and declared net capital gain. In such circumstances, there is no legal or factual justification to prorate expenses between exempt capital gain and income earned from other operation. We are, therefore, of the view that the assessments order in this respect were neither erroneous nor prejudicial to the interest of Revenue and there was no justification for reopening the case on this score.

14. Now, taking last point which relates to disallowance of technical fee for all the four assessment years under appeal i.e. 1995‑96 to 1998‑99, we have noted from perusal of the impugned orders that the learned Inspecting Additional Commissioner has, brought a new logic/phenomenon in his order that the amount of technical fee claimed as Legal and Professional charges was in fact settlement of trading liability and in the garb of technical fee the assessee has evaded the proper tax. It has been stated by the learned IAC in the impugned orders that the appellant has himself admitted through his representatives vide letter, dated 31‑5‑2001 written by Messrs A.F. Ferguson that the assessee pays to its associated undertaking various amounts on account of trading, of securities on their behalf and there was element of setting off the 'current liabilities within each financial year. The learned IAC, therefore, added back the full quantum of expenses claimed as technical fee under the accounting heads "Legal and Professional charges paid by the appellant to Messrs Indosuez W. Carr Securities (F.E.) Limited, Hong Kong. It has been contended by the representative of he appellant that the learned IAC has added back this amount on totally different logic and his aspect of the case has not been brought out in the show‑cause notice. We have observed that in the show‑cause notice it was alleged by the learned IAC that amount of technical fee had been allowed by the DCIT without deduction of tax and without obtaining the explanation of the assessee, but on the other hand, we have noted that the learned IAC had himself incorporated in his order that tax had been deducted by the appellant before making payments. We have also noted that the assertions made by' the learned IAC in his show‑cause notice that the expense had been allowed by the DCIT without obtaining explanation of the assessee is not correct as the DCIT hack called various details by issuing notices under sections 61 and 62 during the course of proceedings and has specifically called proof of deduction tax on technical fee paid to W.I. Carr (Hong Kong) and in response to which the A.R. of the Appellant had submitted the relevant details of Technical fee/Legal and professional charges and proof of deduction of tax vide their letters bearing Nos. 6429, dated 18‑3‑1997, 7993, dated 31‑5‑1997 for the Assessment year, 1995‑

96. No. A.T. 6331, dated 16‑3‑1999. No. 8327, dated 12‑4‑1999 for the Assessment year 1996‑97, No. 8207, dated 1‑4‑1999 for the Assessment year, 1997‑98 and No. 8207, dated 1‑4‑1999 for the Assessment year, 1998‑

99. The DCIT after examining the detail has allowed the expenses. Therefore, both these allegations levelled by the learned IAC in his show‑cause notice viz. allowance of technical fee without obtaining explanation of the assessee and without applying conscious mind by the DCIT are hereby repelled. However, in the order passed under section 66‑A new stand was taken by the learned IAC that it was in fact settlement of trading liability and that no agreement was existed between assessee and its associated undertaking i.e. Indosuez W.I. Carr Securities JF.E.) Limited, Hong Kong. The learned counsel has produced before us the copy of Agreement executed between the appellant and Hong Kong Office which according to him was also provided to Assessing Officer and the learned IAC also. From perusal of the said Agreement, it is clear that that Hong Kong Office is bound to provide legal assistance to the appellant. Under this agreement the Hong Kong Office has provided various technical services including printing material, and evidence in respect thereof has been produced before us. It is also noted that the appellant has suffered double jeopardy due to this action of the IAC, on the one hand disallowing. 100% the, full quantum of claim of technical fees, and on other hand also made proration of this expenditure. Further, for this issue of technical fee, the learned IAC has purely initiated the proceedings under section 66‑A at the behest of Audit Note as such he was influenced by the higher authorities and has not applied his independent mind to the facts and circumstances of the case. It appears that he has not even. perused the record of proceedings that to speak of consideration and examination. Hence, basic ingredient of section which speaks of suo moto action by the IAC is missing, inter alia among others, in the case of the appellant. For these eminently factual reasons the order of the IAC cannot be sustained on this point also.

15. Corollary of the foregoing analysis of facts, the appraisal of attending circumstances and after scrutiny of the records of the case and statutory laws also the Judge made law/case‑law and consequent to our findings and discussions made supra we have no hesitation to hold that the original assessment orders particularly for the assessment year 1995‑96 passed by the DCIT/Assessing Officer having been admittedly approved and found in order by the learned IAC, the same, cannot be revised by the learned IAC under the garb of section 66A and the learned IAC has acted transgressing the powers bestowed under the said section. Even on the factual planes bearing aside other reasons and various discussions mentioned infra, it is established that the adjustment of capital loss against revenue income was not in fact a capital loss rather it was operational loss, being first year of business, under peculiar circumstances and to comply with the rules and regulations of KSE. At any payment is made to fulfil trading commitments according to stipulated principles during the course of normal business, it cannot be categorized as capital loss from whatever fund it is paid. As such, the action of IAC was in excess of the authority conferred by the statute who had not applied his own mind to the facts of the case available on record and acted in violation 'of section 66‑A of the, Repealed Income Tax Ordinance, 1979. No valid order in the circumstances was made by the learned IAC as it was the product of a biased mind influenced by the dictation and command of the audit department. He did not exercise his suo moto discretion and independent judgment. The DCIT/Assessing' Officer after making enquiry, investigation of accounts/evidence, calling for explanation/details and after considering the judgments of the superior Courts and appellate forums; having satisfied determined and computed the income of the assessee. The DCIT has applied his mind to the case in all its perspectives. The aspects of the case as raised subsequently in. audit note as well as additions and disallowances made by the learned IAC in his orders under section 66A were considered by the Assessing Officer while finalizing the assessments. All the assessment orders for the four years, were finalized and expenditure/deduction was allowed after examination of books of account and considering representations of the assessee to queries made by the DCIT which were on record. Hence almost same queries without any contrary evidence by the IAC in his show‑cause notice the assessments framed by DCIT cannot be termed as erroneous and prejudicial to the interest of revenue. It is trite law that while finalizing regular assessment proceeding, the Assessing Officer is bound to follow, the binding precedents of High Court and superior appellate forum. In the present case, the Assessing Officer has followed and relied upon the decisions of the Hon'ble High Courts ‑and Tribunal. His orders, on this count cannot be said to be erroneous and prejudicial to the interest of Revenue, and cannot be revised by the learned IAC under section 66A.

16. The fact of instant case are distinguishable from the facts as mentioned in the case of Tribunal in I.T.A. No.2128/LB of 2000, dated 3‑2‑2001 which has been relied upon by the learned IAC for the purpose of invoking revisional, jurisdiction. The distinguishing features have been elaborated before us by the learned counsel for the appellant who has contended that the appellant is a private limited company while the case relied by the Inspecting Additional Commissioner is that of a public limited company whose major earning is from providing financial advisory and also brokerage; consultancy, underwriting, dividend and capital gains etc. whereas in the instant case the appellant‑company having been established for the purpose of earning share trading commission income the total infrastructure of the establishment and expenses incurred were wholly and exclusively for the purpose of operational trading income and the principal business of the appellant is share trading for its local as well as international clients/customers. In the case relied by the IAC, the major earning activity is also from capital gains which is more than 50%. In the said case it was not incidental to business activity but major separate business activity while in the case of the appellant the ratio of net capital gain is 8.95% 17.16% and 25% for three assessment years. The appellant does not carry on several distinct business it carried on a. single business of trading in shares on behalf of its clients/customers. The earning of exempted capital gain is incidental and not distinct arid separate business of the appellant. The establishment of company has not been formed/created for earning capital gain. The capital gain occasionally arises during the course of usual business transactions. In fact, the appellant/assessee is doing business i.e. purchase and share for its customers/clients and entire expenses have been incurred wholly and exclusively for the purpose of normal business activity: The appellant declared the capital gain in return of income as exempt in the column of exemption and so also declared other business income as taxable income in relevant column. In this case there is no dispute of determination of taxable income. In the case relied by the learned IAC no finding has been given regarding expenses under section 28 or in respect of violation of the clause 116 of Second Schedule to the Income Tax Ordinance, 1979. We have observed that no finding in that judgment has been given to the effect that any other expenditure over and above envisaged under section 28 are admissible while computing‑income under section

28. We are of the view that only two expenditure are admissible i.e. cost of acquisition and expenditure incurred wholly and exclusively in connection with the transfer thereof shall be deducted. In view of this section other administration and other expenses cannot be allowed for computing capital gain.

17. Apart from that the learned JAC for justification of his action under section 66A for proportionate expenses between exempt income and other income has merely relied on a judgment which is subsequent in time which becomes extraneous matter and cannot form part of expression "record" as used in section 66A. The scrutiny and perusal of entire record of assessment proceedings does not reveal that the said assessments suffers from any illegality or impropriety of facts and law. The learned IAC, in his order under' section 66A, has not established from the record of assessment proceeding with evidence that the expenses claimed under section 23 which were partly allowed after examination of books of accounts by the Assessing Officer in the orders framed by him under section 62, were in fact inadmissible under section 24 or 23 or non deductible for the reason that these were not incurred wholly and exclusively for the purpose of business (which is very wide (connotation). In the impugned orders the learned IAC has not discussed separately with any evidence from the record the nature of each expenses incurred and their irrelevancy under section 23 and specific identification or relevancy under section

28. Hence, the impugned orders of the learned IAC under section 66A are unsupported by any evidence from the record of assessment proceeding. The instant case is of non est record or of non est evidence. Even otherwise the idea of apportionment of expenses vis‑a‑vis capital gains exempted under clause (116), Part‑I of the Second Schedule to the Ordinance is misconceived. Against income chargeable under section 27 no expenses except cost of acquisition and related directly with "transfer" are admissible. It is because of this specific nature of the income that the Legislature only allowed the following two expenses while computing income under this head:‑‑ (i) Cost of acquisition of capital asset (ii) Any expenditure incurred wholly and exclusively in connection with the transfer of such capital asset. As narrated above the only permissible expenditure in computing capital gains under section 28 of the Ordinance is capital cost of acquisition or expenditure related to transfer of such capital, hence there is no concept of allowing administrative, managerial or other expenditure while computing income under section 27 of the Ordinance. Under the facts and circumstances of the case the question of apportionment of expenses due to the specific nature of this income does not arise, as administrative and general expenses are not allowable/permissible deductions under section

28. If such expenses cannot be allowed in computing income under sections 27 and 28, how the same can be apportioned vis‑a‑vis any other head of income? Therefore, there is no legal or factual justification to prorate expenses between capital gains and income earned from other operations. In the instant case, there was no dispute of determination of income from business and exempt capital gain. In computation of income and in return of total income, taxable business income and exempt capital gain has been separately declared. We have found that the learned IAC and DCIT both have allowed the exemption. The learned IAC has not brought any tangible evidence that any flagrant violation of clause 116 of Second Schedule to the Income Tax Ordinance, 1979 was committed by the appellant. It is also settled law that once claim of exemption was allowed the question of income claimed so exempt cannot be probed under the garb of provision of section 66A until, and unless a case is made out that the exemption is claimed on false and fraudulent basis. In this case, not only the Assessing Officer, but also the learned IAC has not raised any objection regarding capital gain under clause 116 of the Second Schedule of the Income Tax Ordinance, 1979 which is admittedly exempt. It is also trite law that clause 116 of Part‑I of Second Schedule to the Income Tax Ordinance, 1979 or other provisions of Second Schedule are for the benefit of assessee and could never be strained to ‑the determent or disadvantage of assessee. Interpretation of a provision in a taxing statute rendered years back, and accepted, acted upon by the department, approved and followed consistently by the superior Courts and appellate forum the preponderance view should not be easily departed from. While re-considering decisions rendered a long time back, particularly under taxing statutes, the Courts cannot ignore the harm that is likely to happen by un‑setting law that has once been settled. It is trite law that while construing fiscal provision of taxing statute the law is to be construed in favour of the tax‑payer and in case of any substantial doubt the same is to be resolved in favour of the citizen. The learned IAC has disallowed the technical fee on the basis of purely surmises and conjectures. There is conflicting stand taken in the audit note, show‑cause notice and in the impugned orders. It seems that the learned IAC was not clear in his mind that he wants to do as he adopted different basis and reasons for disallowing the technical fee in full and on the other hand prorating the same. Therefore, action of the learned IAC is not sustainable both in law and on facts also.

18. The learned IAC has not brought on record any evidence from record of proceeding that, the DCIT had not properly exercised his discretion in accordance with law or done mala fide or that the DCIT had not examined or applied his mind and the assessment orders were erroneous and prejudicial to the interest of Revenue. We are of the view that unless the IAC prove with any evidence from record that which particular expenses were incurred for the earning of capital gain and were not incurred for the purpose of business of taxable income, the IAC would not have jurisdiction to interfere with such exercise of the bona fide discretion. Therefore, it is necessary, to clutch at the jurisdiction, there must be evidence to inter that the assessment orders are not only erroneous but also the interests of the revenue suffered prejudice. The power of the revisional authority is a quasi judicial in character, it is must for the IAC to give material reasons how the assessment order is erroneous in so far as it is prejudicial to the interest of Revenue without any presumption or assumption and guess work. If he does not give material reasons, the revisional order would be vitiated. It is necessary for the revisional authority to state clearly in what manner and what was the evidence and basis for such a conclusion. When judicial power is exercised by an authority normally performing executive or administrative functions, this Court would require to be satisfied that the decision has been reached after due consideration of the merits of the dispute, uninfluenced by extraneous considerations of policy or expediency. It appears that the line of arguments which has been adopted on behalf of the assessee in the present case, is not devoid of force because the show‑cause notices under section 66A and orders passed thereof are based on mere possibilities, probabilities, presumption, surmises and conjectures and without any iota of concrete evidence. All the material and facts were duly considered by the DCIT/Assessing Officer at the time of original assessment and all the relevant material and facts also duly discussed and mentioned either in notices issued by tire DCIT/Assessing Officer during the course of proceedings under section 62 or in the original assessment orders under section

62. The learned IAC has not appreciated this very aspect of the case. The orders of the IAC by no means could be considered as a correct appreciation of facts and circumstances of the case nor it is correct appreciation of the jurisdiction under section 66‑A of Income Tax Ordinance, 1979. As such, the orders of the IAC do not have any legs to stand upon.

19. We are constrained to observe that, in spite of various authoritative pronouncements of superior Courts to the effect that powers conferred on the IACs are restricted within in‑built limitation s supervisory in nature and that if an assessment order is passed consciously after application of mind to the material facts by the DCIT after calling for various details, examination books of accounts, following the judgments of superior Courts and confronting the issues involved to the appellant, the same assessment cannot be branded as erroneous. The IAC is debarred to take action under section 66‑A. But there is a constant tendency on the part of the authorities concerned to violate the precedent conditions of section 66‑A. Most unfortunate aspect is, that, when one set of incumbent in office is replaced the new incumbent in office indiscriminately resorts to his authority to the detrimental interest of the other. The revising of assessment under section 66‑A if based on genuine and valid ground, has a serious and hitherto unattended dimension inasmuch as it exposes the inefficiency or indifference of the Assessing Officers who routinely pass so many erroneous order which are prejudicial to the interest of revenue thus knowingly or otherwise cause loss to the revenue. It is to be ascertained whether IACs CITs or the RCITs have ever taken notice of working of the officers or simply issue notice to the taxpayers for retrieving the suspected/presumed loss. In case proceedings initiated under section 66‑A had to be dropped/filed without affecting the assessment, or these fails at the appellate stage, the IAC's efficiency for invoking section 66‑A is to be evaluated by his superiors. It can safely be presumed that no such cognizance has been taken systematically and seriously. Similar is the position with respect to the action for re‑opening of assessment, under section 65 of the Ordinance. A well‑focused study of the percentage of success of such proceeding is necessary to establish the bona fide of action under section 65 or section 66‑A of the Repealed Income Tax Ordinance, 1979. It is, therefore, suggested that the CBR may take some appropriate action to analyze the number of cases initiated both under section 65 or 66A and their success or failure at the appellate stage and check and balance on the IACs by the Zonal Commissioners regularly. By taking these precautionary measures the precious time of the Court as well as of the Department could be saved and no illegal order could be passed by using abusive powers under section 66‑A or 65 of the Repealed Income Tax Ordinance, 1979 by the concerned authorities. Contents of both these sections have also been included in the new Income Tax Ordinance, 2001 as subsections (5) and (5A) of section 122.

20. Consequent to our conclusions/findings, the impugned orders for the Assessment years, 1995‑96 to 1998‑99 passed by the learned Inspecting Additional Commissioners under section 66A of the Repealed Income Tax Ordinance, 1979 are arbitrary, unjustified and unlawful. Hence, legally and factually cannot be sustained and are therefore, vacated and the assessment orders are restored for all the years under appeal.

21. All the four appeals filed by the assessee against the order passed under section 66A are allowed as above. (Sd.) (Jawaid Masood Tahir Bhatti) Judicial Member

22. AGHA KAFEEL BARIK, (ACCOUNTANT MEMBER).‑‑ While I agree with my learned brother, the Judicial Member, on so many points discussed in this case, I beg to differ with him on the following issues.

23. AGHA KAFEEL BARIK, (ACCOUNTANT MEMBER).‑‑‑The appeals relate to four assessment years i.e. 1995‑96, 1996‑97, 1997‑98 and 1998‑99 against orders of the IAC who has reopened all the assessments vide his order under section 66‑A of the repealed Income Tax Ordinance, 1979 passed on the same date i.e. 31‑5‑2001. The learned Judicial Member has also disposed of all, the appeals in the consolidated order, taking similar views in respect of all .the orders passed under section 66‑A. For assessment year, 1995-96 he has made the observation that the assessment passed by the DCIT under section 62 was approved by the then IAC vide his letter, dated 4‑6‑1998 and thus subsequent re‑opening of the said order by the successor IAC is change of opinion. In this respect reference is made to a Full Bench decision of ITAT reported as 1987 PTD (Trib.) 563 in which it was held that:‑‑ "In this view of the matter we are not prepared to accept the contention of the learned counsel of the assessee that the order of the Income Tax Officer after its administrative approval stood merged in the order of the concerned Inspecting Assistant Commissioner and consequently went beyond the scope of section 66‑A of the Ordinance. As has been rightly stated by the learned Departmental Representative administrative approval of an assessment does not make the assessment as that of the Inspecting Assistant Commissioner. Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income‑tax Officer."

24. Further the observation of the learned Judicial Member that subsequent three assessments were also approved by the IAC and thus reopening by the successor IAC is also change of opinion is not factually correct. A letter of the DCIT, dated 8‑4‑1999, reproduced by the Judicial Member at pages 33 and 34 of the order, simply indicates that the case papers for 3 assessment years were submitted to the IAC vide peon book dated 28‑11‑1998 and the DCIT requested the same to be returned as he had to finalize the cases; apparently because same were going to be time‑barred. But there is no evidence to the effect that the IAC also approved the assessment orders for 1996‑97, 1997‑98 and 1998‑

99. As such the observation of the Judicial Member for these three years is not justified, on this score.

25. It has also been observed by the learned Judicial Member that the IAC passed orders under section 66A on the basis of a judgment of the Tribunal in I.T.A. No. 2128/KB of 2000, dated 3-1‑2001, which date is subsequent to the date of assessment orders as well as proceedings initiated under section 66‑A by the IAC which cannot be initiated on the basis of any subsequent judgment in the opinion of the learned Judicial Member. However, I may point out that during the hearing of the appeal the P.R. had pointed out that proceedings under section 66‑A were originally initiated vide a show‑cause notice, dated 10‑5‑2000 and same were not closed at any time before passing the orders under section 66A. Hence action under section 66‑A of the IAC is not subsequent to the order of the Tribunal, dated 3‑2‑2001, as it was initiated before the said date.

26. Regarding the proration of the expenses to capital gain, .my learned brother has observed that the Assessing Officer had done the same following certain decisions, of the superior Courts and thus his orders were not erroneous. However I may submit that even if an Assessing Officer passes an assessment order following certain decision of the appellate authority, but his supervisory officer the IAC has solid reasons to establish that the assessment of the DCIT was erroneous, it can be reopened under section 66‑A. In fact the case‑law reported as 2002 PTD 900 in support of the original assessment orders, was not irk the field when the assessments were actually finalized. On the other hand the CBR vide Circular No. 12 of 1991 has given guide lines for proration of the expenses and the methodology given by the CBR has been approved by the. Tribunal in the case of Messrs Ishaque Textile Mills reported as 1999 PTD (Trib.) 4100 referred by the D.R.

27. In para. 13, my Hon'ble brother has pointed out that "the learned IAC has failed to point out that which specified expenses and to what extent has been claimed against business income under section 23 which were related to capital gain under section

28. The learned IAC has R failed to discharge his onus with proof that expenses incurred in connection with capital gains have been deducted from operational business". In my humble opinion this is not the correct appreciation of legal and factual position. The assessee is a brokerage house and earns commission income assessable under section 23 and also capital gains assessable under section 28 of the repealed Ordinance. It was the duty of the assessee to furnish separate accounts of each head of his income. The burden of proof is on the assessee and not on the IAC to show as to which of the expenses relate to business income or otherwise. If the assessee fails to furnish separate accounts then it is not the job of the Assessing Officer or IAC to re‑cast the accounts. Here the IAC's case is not proration of expenses between exempt income and the regular income but apportionment of expenses relatable to each head of income i.e. business and capital gain.

28. In Para. 14 of the instant order my learned brother has assailed the disallowance made by the JAC in the impugned orders under section 66‑A regarding expenses claimed as `technical fee' under the accounting head "Legal and Professional Charges" paid by the assessee to Messrs Indosuez W.I. Carr Securities (FE.) Limited Hong Kong. My brother has given the finding that from the perusal of the agreement executed between 'the assessee and Messrs W.I. Carr Securities (F.E.) Limited Hong Kong it appears that the Hong Kong office is bound to provide legal, assistance to the appellant and has provided various technical services including printing material and evidence thereof has been produced. This printed material has also been perused by us. It is noted that it is mainly security market survey reports. and widely/openly available for general public. It is not an exclusive or restricted material to be used by the assessee. Such market surveys are usually published by all leading English Newspapers like Business Recorded etc. The readers are not bound or supposed to pay such huge fees for the publications. Therefore, the finding of my learned brother is not correct on this, score. Besides, no data has been provided either to the DCIT or IAC nor produced even before us to quantity the quantum of business acquired and the profits earned in return of technical fees paid by the assessee. As such it is clear that the said payment was not‑an actual business expenditure, and could to be allowed as such.

29. I also respectfully differ with the findings given by my learned brother that the IAC has purely initiated the proceedings under section 66‑A at the behest of an Audit Note as such he was influenced by higher authorities and has not applied his independent mind to the facts and circumstances of the case. In fact under the provisions of section 66‑A the IAC is required to establish the legal error and prejudice to the loss of revenue only. Mere presence of any audit note cannot strip him off from this powers. In a judgment reported as 2000 Tax 81 135 H.C. it has been held that "Re‑opening is justified on the basis of Audit observations". In the present case the learned IAC has apparently exercised this jurisdiction by applying his mind and cited case‑laws etc. which were not available in the inspection note. (Sd.) (Agha Kafeel Barik) Accountant Member Since difference of opinion has arisen between the learned members, therefore, it is requested that the learned Chairman may refer this matter to, any member for resolving the issue on the following point. "Whether under the facts and circumstances the IAC was justified in re‑opening the assessments under section 66‑A for all the four assessment years i.e. 1995‑96, 1996‑96, 1997‑98 and 1998‑997". (Sd.) (Sd.) (Agha Kafeel Barik) (Jawaid Masood Tahir Bhatti) Accountant Member Judicial Member

30. RASHEED AHMED SHEIKH (JUDICIAL MEMBER).‑‑‑The, case has been entrusted to me by the Hon'ble Chairman of the Income Tax Appellate Tribunal to act as a "referee" because difference of opinion has cropped up between the learned Judicial Member and the learned Accountant Member while rendering judgment in this case. Further directed that this case be heard on my tour at Income Tax Appellate Tribunal Lahore vide his letter, dated 3rd August, 2004.

31. The question which has been posed for my consideration relate, to the controversy pertaining to invocation of section 66‑A of the Income Tax Ordinance, 1979 (since repealed).

32. Both the learned representatives appearing at the bear have been heard at a great length. Each one of them besides referring to certain paras has also read out relevant paras of the proposed and the dissented order as well as from various judgments rendered not only by Pakistan but also of Indian jurisdiction in support of their contentions.

33. Perusal of the proposed order reveals that recording of the facts, the observations made and the reasonings advanced by the learned Judicial Member are spread out 49 pages to hold that provisions section 66‑A have not been invoked lawfully while that of the learned Accountant Member's dissenting note extends to page 55 to observe that the provision of section 66‑A were duly attracted to the facts of the present case. Anyhow, for the purposes of brevity and also for resolution of the controversy, the relevant facts of the case are recapitulated hereunder.

34. What happened in this cases was, that the already completed assessment's, formulated under section 62 of the Repealed Ordinance, were cancelled by the IAC. This occasion arose when notice from the office of the Additional Director Inspection (hereinafter called ADI) was received by he IAC. For the assessment year, 1995‑96 it was noted by the ADI that the Assessing Officer has erroneously adjusted capital loss against operating revenue expenditure. Thus, this act of the Assessing Officer was not tenable because capital loss has to be set off against capital gain in. accordance with the provision of section 37 of the Repealed Ordinance. For the subsequent assessment years, 1996‑97 to 1998‑99, observations of the ADI that expenses were related to the capital income or otherwise. With regard to the payments made to Indosuez W.I. CARR Securities Pak (Pvt.) Ltd., Hongkong it was also noted by the ADI that those payments were allowed by the Assessing Officer without obtaining explanation from the assessee and also without ascertaining as to whether tax under section 50(4) of the Repealed Ordinance was deducted thereon or not? According to ADI this part of the expenditure was not allowable in terms of section 24(c) of the Repealed Ordinance.

35. All the alleged discrepancies noted by the ADI, in the assessment orders had, in fact, prompted the IAC to invoke the provisions of section 66‑A in the instant case and he, after confronting the assessee with the deficiencies narrated supra and also after disbelieving the assessee's reply, resorted to modify the already completed assessment orders by himself for all the years under appeals.

36. Although the learned Accountant Member has observed that he is in agreement on many points with the learned Judicial Member nevertheless he has shown his disagreement on some points. Before agreeing with the views and findings recorded either by the learned Judicial Member or the learned Accountant Member, I deem .it appropriate to discuss as what is the ambit, scope and powers of revisionary authority under section 66‑A of the Repealed Ordinance.

37. Bare reading of section 66‑A, clearly spells out that the powers of the IAC to invoke the provisions of this section are wholly, solely and exclusively dependent upon consideration by himself which must be based on objective basis. Criterion of reasonableness to invoke the provisions of section 66‑A is not subjective but objective. Administrative decision in exercise of powers even if conferred in subjective term are to be made in good faith on relevant considerations and must be based on reasonable material evidence. The order which is sought to be revised must be erroneous and also by virtue of its being erroneous and prejudice must have been caused to the interest of Revenue. In no way section 66A empowers the IAC to substitute his own judgment for that of the assessing officer unless the decision is held to be erroneous. It is also imperative to mention that error and prejudice must manifest in the show‑cause notice to be issued under section 66‑A and not to establish by conducting fishing and roving enquiries subsequently. In my considered view findings of the IAC should not be merely charge‑sheet of the Assessing Officer showing his incompetency and inefficiency and ought not to be in the nature of further enquiry.

38. It is also to be understood that the IAC cannot travel beyond the record of the proceedings in which the order has been made. The expression "record" as has been used in section 66‑A denotes record of proceedings of that particular year and not the record related to the subsequent year or any other year. If any events/material/information/ report/proceedings come into possession of the department subsequent to passing the order by the Assessing Officer cannot form part of the record of that assessment proceedings to be examined by the IAC. It is also settled law that the error as is envisaged in section 66‑A is not the one which is dependent on possibility or whims or guess work but it should be actually some grievous error. To check quality of assessment is also not a valid reason for considering the order as erroneous and prejudicial to the interest of Revenue. The suspicion and presumption and to conduct a detailed enquiry with the motives to hold that more revenue would be generated is, in fact, no basis to cancel or modify or set aside the already completed assessment is against the spirit of law. This section also does not permit the IAC to assume powers on the command and dictation of any other authority including the appellate authorities. The order which is perfectly legal ought not to be disturbed under the umbrella of section 66‑A. In a nutshell the IAC's powers are quasi‑judicial hedged with limitations and has to be exercised subject to those limitations and has to be exercised subject to the same and within its scope and ambit. Meaning thereby the IAC's powers to modify/cancel or set aside the already completed assessment are circumscribed around himself and not on the basis of any information and material supplied or directions given by some other authority otherwise the sanctity accorded to the already completed assessment would smash.

39. After hearing Mr. Jawed Zakaria the learned counsel for the appellant who assisted the Bench very ably and so also Mr. Basharat Ullah the learned D.R., as well as perused the proposed orders, record and various case laws cited by the learned AR.

40. To start with Mr. Jawed Zakaria the learned counsel for the appellant has assailed the observation of the learned Accountant Member contained at para. 23 of his order "that approval of, the IAC for the assessment year, 1995‑96 is an administrative approval" and in observing so the learned Accountant Member relied on the case reported as 1987 PTD (Trib.)

563. Advancing further it was submitted that when an order is passed under the guidance/supervision/association of an IAC, he is then debarred to invoke the provisions of the Repealed Ordinance. As regards the case law relied upon by the learned Accountant Member, it was added that the same is of academic in nature. The learned counsel has invited my attention to a case law cited as 2001 PTD (Trib.) 3810 to contend that the Law is abundantly clear on the point that where the IAC is involved at the assessment stage, he becomes functus officio to invoke the provision of section 66A of the Income Tax Ordinance, 1979 in that case. Reference was also made to a judgment recently delivered by the Hon'ble Sindh High Court in re: (SNH Industries (P.) Ltd. v. Income Tax Department 2004 PTD 330 (H.C. Kar.) whereby the view expressed by the Tribunal in the cited case, has been approved and reaffirmed. Their Lordship, the Chief Justice of that High Court, speaking for the Court has held that "if assessment order had been finalized in consultation with approval of the CIT or IAC thus both the CIT as well as IAC, in circumstances, were stripped of the powers to exercise jurisdiction under section 66A of Income Tax Ordinance, 1979 and the impugned notice was not issued in lawful exercise of jurisdiction."

41. Reliance was also placed upon another judgment reported as 1996 PTD (Trib.) 750 wherein in similar circumstances it was observed that: (i) If the assessment in a particular case is made under the supervision and with consultation of the Inspecting Assistant Commissioner (predecessor‑in‑office) then the successor I.A.C. is, ipso facto, debarred to revise such assessment." (ii) "In the present case, though the approval granted by the I. A. C. was not the statutory requirement of the Act, yet, par excellence'."

42. In addition to, the following reported and unreported judgments are referred to support the contention raised supra. (i) I.T.As. Nos. 1913 to 1915, 334 to, 335 and 1507/KB of 1996‑97, dated 26‑10‑1998 (the learned JM in the proposed order at para. No. 10 page 32 relied on this decision). (ii) 1996 PTD (Trib.) 750 (the learned JM in the proposed order at para. No. 10 page 33 placed reliance on this case). (iii) NTR 1991 (Trib.) 21.

43. It was also pointed out by the learned counsel for the appellant that the judgment in re: 1987 PTD (Trib.) 563 relied upon by the learned Accountant Member to give dissenting note also goes in favour of the appellant instead of the Revenue as in that case legal aspects of the case was also examined and decided in the appellant's favour.

44. My attention was also invited to some other unreported judgments of the Tribunal whereby the learned Accountant Member (Author of the instant dissenting note) while rendering judgments on the point of association of the IAC at the assessment stage, had annulled the order passed under section 66‑A of the Repealed Ordinance by following the consistent view adopted by the appellate authorities on this point. Reference in this regard has been made to I.T.A. No. 1559/KB, dated 5‑1‑2003. Thus, deviation of the learned Accountant Member, in the present case, from his earlier considered view, without adducing any substantial reasons thereof is not maintainable.

45. The learned counsel for appellant has vehemently repudiated the learned Accountant Member's observation contained in para. 24 such as. "Further the observation of the learned Judicial Member that subsequent three assessments were also approved by the IAC and thus re‑opening by the successor IAC is also `change of opinion' is not factually correct". As per the learned counsel such findings of the learned Accountant Member are incorrect as the learned Judicial Member has nowhere in the order has made such observation. Reference was made to para. 15 of the order to contend that the learned Accountant Member has overlooked the learned Judicial Member's findings recoded therein. It was merely observed by the learned Judicial Member that the assessment year, 1995‑96 passed by the DCIT having been admittedly approved and found in order by the learned IAC. As per the learned counsel the learned Judicial Member's proposed order is completely silent that all the subsequent three assessment years were also approved by the IAC. Thus this observation of the learned Accountant Member is factually incorrect being based on misconception, surmises, conjectures and incorrect insinuation. The learned counsel' for the appellant, however, stated that the purport and the tenor' of the learned Judicial Member findings so far as assessment years 1996‑97 and 1997‑98 are concerned, was that the IAC remained associated in the finalization of assessments. Such observation was arrived at by the learned Judicial Member after going through the correspondence/letters either addressed by the DCIT or the IAC, out of them some of the letters, have been reproduced by the learned Judicial Member to support his findings. It was, thus, submitted by the learned counsel for the appellant that the IAC was all along associated with the assessment proceedings. Thus, if an order is passed under the consultation/involvement/guidance of the IAC, invocation of section 66A is bound to be held unjustified. In support of the arguments the learned counsel again relied upon the case laws which were earlier cited by him while arguing against the observation of learned Accountant Member contained in para. 23 ante. Concluding the arguments on this point it was stated that if such eventualities, as observed by the learned Accountant Member, are permitted to be allowed, then process of un ending series of litigation would start which would ultimately result into burdening the higher appellate Courts.

46. As far as para. 29 of the dissenting note is concerned, this relates to initiation of proceedings under section. 66‑A on the basis of Audit Note. In this regard it was contended that the learned Judicial Member has relied upon many case‑laws of the superior Courts and those of the Tribunal of our own country, reported as well as unreported, cited in the proposed order which were neither distinguished nor rebutted by the learned Accountant Member. On the other hand the judgment cited by the learned Accountant Member, reported as 2000 Tax 81‑135‑H.C. relates to firstly, that of Indian jurisdiction and secondly, it deals with section 147(b) of the Indian Act, 1965 which corresponds to section 65 of the Income Tax Ordinance and not to that of section 66‑A. Thirdly, if the learned Accountant Member had intended to rely on Indian judgments, then quite a number of judgments in favour of the appellant even from Indian jurisdiction could be furnished on this score. He urged that if a case law on the subject of our own country is available, then as per the ratio laid down in the case of Nishat Talkies reported as 1989 PTD 591 wherein it is held that when a ruling or a case law is available from Pakistani jurisdiction, there is no need to rely on the case‑law of foreign country or that of Indian jurisdiction. The learned counsel very amply submitted that "initiation of proceedings under section 66A of the Income Tax Ordinance, 1979 based upon a report of any other authority negates the whole scheme of section 66A" 2001 PTD (Trib.) 3810. It was also submitted that if the learned Accountant Member, who has written this dissenting note, has himself followed this view in some other cases in re: I.T.A. No. 1559/KB, dated 5‑1‑2003 and ultimately rendered the judgment in, favour of appellant, relying on those case‑laws.

47. It was further submitted by the learned counsel for the appellant that the learned Judicial Member has not annulled the order made under section 66A merely on the points of granting approval, or involvement or guidance or association of the IAC or the audit note but he has also, after having taken cognizance to the factual planes recorded in his proposed order, cancelled the impugned order. My attention has also been invited towards relevant portion of para. 15 wherein the learned Judicial Member has categorically held that "Even on the factual planes, bearing aside other reasons and various discussion mentioned infra, it is established that adjustment of capital loss against revenue income was not in fact a capital loss rather it was operational loss, being first year of business and under peculiar circumstances as well as to comply with the rules and regulation of Karachi. Stock Exchange." From these observations, it is unequivocally clear that the learned Judicial Member has allowed the assessee's appeal on two counts. Firstly, on legal and secondly, on factual premises. It is also evident from the dissenting note that the learned Accountant Member has not differed with the learned Judicial Member on factual position obtaining from the record. Meaning thereby the learned Members are in agreement on this score.

48. Mr. Jawed Zakaria, the learned counsel for the appellant has also proceeded to assail the learned Accountant Member's observation recorded in Para. 25 of the dissenting note which is again based on misconception and in absence of correct appraisal of section 66A. It was explained that the original orders passed under section 62 were either finalized in the year, 1998 or in the year, 1999 while the strength drawn by the IAC to invoke the provisions of section 66‑A is from the judgment of the Tribunal which is subsequent in time. According to the counsel the said judgment is post dated i.e. February, 2001 bearing I.T.A. No. 2128/LB of 2000, dated 3‑2‑2001 (now reported as 2002 PTD 900) was not available before the Assessing Officer when the original order under section 62 was passed. Thus, this judgment of the Tribunal does not fall within the definition of "Record of the Proceeding" and also "any order passed therein by the DCIT" the phrases used in section 66‑A of the Ordinance. According to the learned counsel, for the purposes of invoking the provision of section 66‑A, "record" means the material information/events proceedings/judgments/findings available at the time of passing the original order and not the one which is subsequently made available. The learned counsel for the appellant has submitted that there is no dearth of case‑laws on the point of impact of availability of subsequent judgment/report/information which are cited and relied upon by the learned Judicial Member in the proposed order and reference in this regard was made to para. 4, page 14 of the proposed order. Thus the said judgment in re: 2002 PTD 900 (Trib.) is not a binding precedent and should not be made basis for invoking the provisions of section 66‑A as this judgment was not available before the Assessing Officer at the time of the assessments under section 62 of the Ordinance.

49. Further emphasized by the learned counsel for the appellant that as the already completed assessments were finalized after conscious application of mind and also to all the details and documents' furnished as well as after examination of the books of accounts, thus such orders cannot be subjected to provisions of section 66‑A of Income Tax Ordinance, 1979. It is so because such act of‑the IAC amounts to mere disagreement with the results of the assessment. Moreover, such orders of, DCIT/Assessing Officer cannot be termed to be erroneous under the garb of section 66A. Also contented that as the original order under section 62 was passed after detailed scrutiny of Facts and the relevant law and also after adhering to the decisions of the High Court and the Tribunal, therefore, those orders cannot be held to be erroneous being prejudicial to the revenue and as such cannot be revised by the IAC in terms of section 66A. Reliance in this regard was placed on the following case laws and copies whereof have been made part of our record:‑‑ (i) 1997 PTD (Trib.) 902, (ii) 1984 PTD 137, (iii) 2003 PTD (Trib.) 1536, (iv) (1996) PTD 750 (Trib.), (v) 2004 PTD 440 (H.C.); (vi) 2001 PTD 3810 (Trib.), (vii) (2003) 87 Tax 264, (viii) 1997 PTD 2137, (ix) (1977) 109 ITR 229, (x) 1991 SDTD 830 and (xi) 2003 ITR 108.

50. It was also mentioned by the learned counsel for the appellant that the decision of the learned Tribunal bearing I.T.A. No. 2128/LB of 2000, dated 3‑1‑2000 (now reported as 2002 PTD 900) which has been made basis for cancelling the already completed assessments, was neither confronted to the appellant nor a fresh show‑cause notice, under section 66‑A, was issued on this score before finalization of impugned order under section 66‑A. Observations of the learned Judicial Member in para. 8 at page 27 have also been referred by the learned counsel in order to draw strength in this regard. It was observed therein that the impugned orders were finalized after more than one year after issuance of show‑cause notice and in the intervening period no fresh show‑cause notice was issued. Also observed by the learned Judicial Member that the show‑cause notice was issued by one IAC while the order was passed by another IAC who (the successor‑in‑office) had ultimately modified the assessment orders in terms of section 66A after one year without issuing a fresh show‑cause notice. Thus, pleaded that the IAC has violated the principle of` natural justice by not affording an opportunity of being heard and not confronting the contents of the case‑law relied upon by him and was used at the appellant's back. According to him it is a settled law that any material/information/report/judgment used without disclosing or confronting to the appellant such order is certainly suffered from illegality and as such is not sustainable in the eye of law. It was explained by the learned counsel that first show‑cause notice under section 66A was issued on 10‑5‑2000 by .the predecessor IAC. In response to that show‑cause notice the appellant through its counsel Messrs AF Ferguson and Co., C.A. (s) submitted a detailed reply vide their letter, dated 31‑5‑2000. Till 29‑5‑2001 that almost for one year, nothing was heard from the department side. It was thus assumed that the IAC, predecessor‑in‑office, was satisfied with the reply of the assessee. However, the IAC, (successor‑in‑office) soon on receipt of the Tribunal's order bearing I.T.A. No. 2128/LB of 2000, dated 3‑2‑2001 became active consequent upon which the already completed assessments were modified by the IAC in terms of section 66‑A. Besides, the order was passed by the IAC on more or less different footings viz. the action proposed in the show‑cause notice issued under section 66‑A dated 10‑5‑2000. Also stated that neither the learned IAC nor the learned Accountant Member has distinguished or rebutted the numerous orders/judgments of the House of Lords (England), the apex Courts and the High Courts of Pakistan as well as those of Indian jurisdiction furnished before them. According to the learned counsel for the appellant that the Tribunal's only judgment now reported as (2002 PTD 900, dated 3‑2‑2001) has, in fact, disturbed the well‑settled ratios and principles of law. Also added that the numerous judgments of the higher appellate forums which favoured the assessee were discarded without distinguishing them. Conversely, the IAC after laying hands on a single judgment of the Tribunal modified the already completed assessment under the mask of provisions of section 66‑A of the Ordinance besides violating the principle of natural justice. Thus, to rely upon such sole judgment of the Tribunal for unsettling the settled proposition is highly uncalled for.

51. The observations of the learned Accountant Member's recorded in para. 26 that even if an Assessing Officer passes an assessment order following certain decision of the appellate authority, but his supervisory officer, the IAC, has solid reasons to establish that the assessment of the DCIT was erroneous that can be reopened under section 66‑A has also been attacked by the learned counsel for the assessee. In this regard it was vociferously contended that the observation of the learned Accountant Member is misplaced and also against the Constitution of Islamic Republic of Pakistan because every subordinate Court is under obligation to follow decision of the higher, appellate forums in its letter and spirit being having binding precedent. Support in this regard was sought from the reported case‑law in re: Nishat Talkies .v. CIT 1989 PTD 591.

52. As regards observation of the learned Accountant Member contained in para. 26 of the proposed order which pertains to apportionment of expenses and reference in this regard was made to application of Circular. No.12 of 1991 of CBR and its approval by the Tribunal in the case of Ishaque Textile Mills, it was submitted that the said circular and the case‑law relied by the learned DR as well as by the learned Accountant Member are distinguishable on the facts and in the circumstances of the present case. The circulars and the case‑law relied by them cover altogether different situation. In fact those deal with income covered under the "presumptive tax regime" while case of, the present appellant relates to exempt income under clause 116 of the Second Schedule read with sections 27 and 28 of the Repealed Income Tax Ordinance, 1979. According to the learned counsel the learned Judicial Member in paras. 13, 16, 17 and 18 of his order has arrived at proper conclusion that question of apportionment of expenses under the facts and circumstances, of the case and due to specific nature of the appellant's income does not arise, as administrative and other expenses were neither required to earn this exempted income nor allowable under the Ordinance.

53. Mr. Jawed Zakaria, the learned counsel for the appellant has next assailed the findings of the learned Accountant Member contained in para. 27 of the dissenting note whereby he has observed that "it was the duty of the assessee to furnish separate accounts to each, head of income and as such burden of proof is on the assessee and not on the IAC to show as to which of the expenses relate to business income or otherwise. " In this connection it was stated that the learned Judicial Member has arrived at a proper conclusion after proper appraisal and appreciation of the law and the facts of the case by holding that the learned IAC has failed to discharge his onus with proof that expenses incurred in connection with capital gains have been deducted from the operational business. The case‑law relied upon by the learned Accountant Member at para. 23 of the dissenting note in re: 1987 PTD (Trib.) 563 also supports the appellant's contention on legal premises. It was held therein that the powers under section 34A of the Income Tax Act (equivalent to section 66A) are exercisable only on the proof and satisfaction that the order of ITO was unlawful. Thus, while exercising jurisdiction under section 66‑A onus is on the IAC to prove the basis of his action and considering the judgment reported supra the. IAC had to prove that as to which part of the expenses relates to business income or otherwise. He contended that while invoking the provisions of section 66‑A the IAC had failed to establish nexus between expenditure relating to capital gain under sections 27 and

28. Also added that for the purpose of computation of capital gain under section 27, only the following two expenses are to be deducted from the income under this head:-- (i) Cost of the acquisition of capital assets. (ii) Any expenditure incurred wholly and exclusive in connection with the transfer of such capital assets. The learned counsel submitted that under the facts and circumstances of the case, the question of apportionment of expenses due to specific nature of his part of income does not arise, as administrative and general expenses are not allowable/permissible deduction in terms of section

28. If such expenses are not to be allowed in computing the income from capital gain under sections 27 and 28, then how some such expenses can be apportioned vis‑a‑vis any other head of income. Thus, there is no legal or factual justification to prorate expenses between exempt capital gain and the taxable income earned from other operations in absence of any material evidence.

54. Coming to para. 28 of the dissenting note, it is submitted by the learned counsel for the appellant that the learned Accountant Member has laid hands on irrelevant material while observing that "in para. 14 of the instant order my learned brother has assailed the disallowance made by the IAC, in the impugned orders under section 66‑A regarding expenses claimed as `technical fee' under the accounting head "Legal and Professional Charges" paid by 'the assessee to Messrs Indosuez W.I. Carr Securities (F.E.) Limited Hong Kong. My brother has given the finding that from, the perusal of the agreement executed between the assessee and Messrs W.I. Carr Securities (F.E.) Limited Hong Kong it appears that the Hong‑Kong office is bound to provide legal assistance to the appellant and .has provided various technical services including printing material and. evidence thereof has been produced. This printed material has also been perused by me. It is noted that it is mainly security market survey reports and widely/openly available for general public. It is not an exclusive or restricted material to be used by the assessee. Such market surveys are usually published by all leading English Newspapers like Business Recorder etc. The readers are not bound or supposed to pay such huge fees for the publications. Therefore, the finding of my learned brother is not correct on this score. Besides, no data has been provided either to the DCIT or the IAC nor produced even before us to quantify the quantum of business acquired and the profits earned in return of technical fees paid by the assessee. As such it is clear that the said payment was not an actual business expenditure, and could not be allowed as such.

55. In this regard the learned counsel submitted that the Indosuez W.I. Carr group maintains its headquarter in Hong Kong, which operates as the financial and administrative Hub of the network of sixteen worldwide offices. Indosuez W.I: Carr Securities offers high quality of technical research to their clients. The financial research reports which were issued and published by the Hong Kong Office and other technical and legal services on the specific sector of Securities of Karachi Stock Exchange for the purpose to provide complete technical knowledge and information to the customers and tips for investment with targets of expected profit. These are not such market survey reports which print in the various newspapers as observed by the learned Accountant Member. The newspaper does not provide such technical services to the investor on weekly basis. They can‑never cover the whole technical information and knowledge of the specific security or sector for Investor's interest. Secondly, Hong Kong Office provided technical and legal services to Pakistan office as well. He contended that the department cannot dictate trader how to conduct trade and the department cannot command to the trader that how he should incur expenditure. It is the principle of indoor management that the company is empowered legally to conduct its business as deems proper. It is submitted that the learned IAC has disallowed payment of technical fee in a confused manner. The learned IAC has given different reasons on different occasions such as in the show‑cause notice he has given another reason while revising/modifying the assessment he has given different basis for disallowing the expenses and also without confrontation. The learned counsel also submitted that details regarding Technical fee were provided to the DCIT through the appellant's Tax Consultant Messrs AF Ferguson and Co. CAs which are incorporated by the learned Judicial Member at para. 14 of the proposed order. The learned IAC has himself admitted in his orders that tax on payments was also deducted and the learned Accountant Member has inclined to this factum. As per Mr. Jawed Zakaria, the learned counsel for the appellant, double edged sword has been hanged on the appellant's, head as the learned IAC on the one hand added back. 100% quantum of payment of technical fees while on the other hand this expenditure was prorated and allocated to exempt income and in this manner the appellant had caused further jeopardy and double taxation. Arguing further that, in fact, this amounts to taxation in thrice what to speak of, double taxation. Firstly, it was fully disallowed, secondly it was, included in total proportioned expenses and thirdly, the tax deducted from the payments made on account of technical fee from the non‑resident company and deposited in Govt. treasury. This fact is evident from the impugned orders. Thus, the learned Judicial Member's observation were based on sound reasonings/footing which cannot be termed, as incorrect observations.

56. Lastly, the learned counsel for the appellant has submitted that not for the purposes of conceding but for the argument sake, if the points relating to approval, inspection note/audit note, following subsequent judgment etc. are kept aside and also on the point of want of valid jurisdiction, the IAC's orders made under section 66A are not sustainable in the eye of law as conscious assessment orders were framed by the Assessing Officer under section 62 after 'taking into account the relevant material facts and binding precedent which were duly considered. Thus, the assessments so framed cannot be called or labelled as erroneous under the garb of section 66A. He submitted that impugned orders of IAC for all the assessment years are not maintainable on this ground alone. He stressed that the learned Accountant Member has not correctly appreciated this factual position under the facts and circumstances of the case.

57. Mr. Jawed Zakaria, while concluding his arguments, submitted that the learned Accountant Member has not given any clear‑cut finding in his dissenting note as to whether, the IAC was justified in invoking the provisions of section 66‑A or he has not ordered for restoration of the orders passed by the IAC under section 66‑A. Most probably the IAC has not recorded such findings as he has observed that he is agreed with learned Judicial Member on so many points. Thus, in absence of the IACs, such finding/order/judgment, his observations in dissenting note are only of academic nature and needs to be ignored.

58. At last, the learned counsel prayed that the question as framed by he learned Accountant Member may be answered in negative as learned Judicial Member has arrived at a proper conclusion after apprising and threshing out all the facts, material, record and case‑laws as discussed in paras. 8 to 19 of his order.

59. I have given anxious thoughts to the averment advanced by the learned representatives appearing at the bar. I have also the privilege to go through minutely the respective orders of the my learned brothers. At the first place I am taking up the issue relating to involvement of the IAC in the assessment proceedings. Reference to the learned Accountant Member's dissenting note whereby he has observed that approval of the IAC for the assessment year, 1995‑96 is an administrative approval, hence the successor IAC can invoke the provisions of section 66‑A of the Repealed Income Tax Ordinance and a case law reported as 1987. PTD (Trib.) 563 has been relied. I have no ambiguity in my mind that where the IAC, in a case, was involved at the time of formulating the assessment, the IAC successor‑in‑office is not all competent to invoke the provisions of section 66‑A of the Repealed Income Tax Ordinance, in such eventuality the higher officer than the IAC in the Income Tax hierarchy can step into the shoes of the IAC for the purpose of invoking section 66‑A. This is undoubted a consistent view of the higher appellate Courts that if an assessment order is approved by the IAC, then he becomes functus officio to exercise powers under section 66A. The High Court in a recent judgment (2004 PTD 330 (H.C. Kar.)) has observed that "If the assessment order had been finalized in consultation and with approval of the CIT or the IAC, thus both the CIT as well as the IAC, in circumstances, were stripped of the powers to exercise jurisdiction under section 66A of Income Tax Ordinance, 1979 and the impugned notice issued under section 66A was declared to have been issued in absence of lawful exercise of jurisdiction." I also remember that I myself has rendered judgments on the issue of involvement of IAC at the assessment stage and ultimately invocation of section 66‑A by the IAC successor‑in‑office was held to be without lawful authority. Citation of those cases has been referred in earlier part of this order. It is imperative to mention here that learned Accountant) Member, who has made dissenting note in this case, in an unreported case bearing I.T.A. No. 1559/KB of 2000, dated 5‑1‑2003 has rendered judgment in favour of the subject on the similar issue. It was held therein that we are agreed with a view that in this case the learned IAC was associated with assessment proceedings as is evident from the order sheet entry, dated 5‑6‑1999 and finally he has approved the assessment order, as the latter action under sect‑ion 66A was not proper which was cancelled. While arriving at this conclusion, the learned Accountant Member 'had also relied on all these judgments on which the learned Judicial Member has relied and followed to hold invocation of section 66‑A in the present case to be without lawful jurisdiction. So deviation of learned Accountant Member from his earlier considered view without assigning substantial reasons thereof is not‑all maintainable.

60. Since the IAC was all along involved and associated in the' assessment proceedings, as is evident from the fact available on record, therefore, the IAC, whether the same or the successor‑in‑office was debarred to invoke the provisions of section 66‑A in the instant case. This is mistaken view that only those assessments can be cancelled or modified or set‑aside wherein statutory approval was granted by the IAC. This point of view negates whole philosophy of section 66‑A, it is so because the IAC's role under this section is merely supervisory and if the supervisor is involved or associated in the finalization of assessment and he subsequently cancels or modifies or sets aside that assessment order, this act of his would certainly aggravate the assessee's miseries which is not the intention of the Legislature. In such eventuality the higher authority in the Income Tax hierarchy should invoke the provisions of section 66‑A rather the IAC concerned. Since, this situation is not catered in section 66‑A, therefore, the Legislature should ponder to make suitable amendment in this section.

61. If the case‑law on the point that where the IAC was involved/associated in the assessment stage, the provisions of section 66‑A are not attracted in such circumstances, are to be traced, first of all, I come across a reported judgment in re: 2001 PTD (Trib.) 3810. It was laid down therein that "if the IAC was involved in a case at the assessment stage, he becomes functus officio to invoke section 65 or section 66A of the Income Tax Ordinance, 1979 in that case." As regards the learned Accountant Member's observation that approval for the assessment year, 1995‑96 was an administrative approval and not statutory approval is a contrary view as it has already been declared by the Tribunal that both are par excellence. One may refer to a case‑law reported as (1996 PTD (Trib.) 750) where it was announced that though the approval granted by the IAC was not, the statutory requirement of the Act, yet, par excellence. "

62. In view of foregoing discussion I am of the considered view that the observation of the learned Accountant Member in this regard is in juxtaposition to the facts of the case law relied upon by him reported as 1987 PTD 563 (Trib.) and also negates his own findings recorded by him in the order bearing I.T.A. No. 1559/KB‑99‑2000, dated 5‑1‑2003. Following is the extract of the observation made by the learned Judicial Member which has already resolved the controversy involved in the present case:‑ "We are of the view that if such eventuality goes on befalling; then no order of the subordinate officer would attain finality. It would not only aggravate the miseries‑of the taxpayer but also lead to multiple series of assessments which is not the intention of the‑legislature and there will be no end of litigation. The IAC has not been given free hand to invoke the provisions of section 66‑A of the Income Tax Ordinance in each and every assessment/order made by the assessing officer. The very purport and tenor of the said section is to safeguard the interest of revenue and for that purpose the IAC is vested with the power to revise the order of the subordinate officer where he has acted with flagrant violation of law and fact. Merely disagreeing by the IAC with the conclusion of the assessing officer arrived at by him in the assessment order of a particular case is not warranted by law. It would also frustrate the very purpose of the said section where the successor IAC, after assuming charge, calls and examines the record of a particular case and on similar set of facts, which have already been considered by the earlier IAC and with his involvement/consultation a conscious assessment has been framed by the Deputy Commissioner of Income' Tax, cancels that assessment and directs fresh assessment to be made or enhances or modifies the assessment. Undoubtedly, it amounts to excess of jurisdiction which is not tenable in law and, the successor IAC should refrain not to invoke the provisions of section 66‑A of the Income Tax Ordinance, 1979."

63. Next observation of the learned Accountant Member demonstrates that the learned Judicial Member is not factually correct in noting that subsequent three assessments were also got approved by the IAC, thus re‑opening of these assessments by the successor IAC amounts to change of opinion. I have carefully thrashed out the proposed order of the learned Judicial Member's order and find myself that no such findings are recorded there. Rather the observation made by the learned Judicial Member at paras. 10 and 15 of his proposed order pertains to assessment year 1995‑96 only which speaks as under:‑‑‑ "The assessment year, 1995‑96 passed by the DCIT/Assessing Officer‑having been admittedly, approved and found in order by the learned IAC, the same cannot be revised by the learned IAC under the garb of section 66A and the learned IAC has acted transgressing the powers bestowed under the said section:" As regard approval of subsequent assessment years, it has nowhere been observed by the learned Judicial Member in his order that the approval was also granted by the IAC in respect of subsequent assessment years. To my mind such finding has been made by the learned Accountant Member owing to some misconception.

64. To the reference made by the learned Accountant Member to a communication letter, dated 8‑4‑1999 to contend that the assessments for the subsequent assessment years were not approved by the IAC this is factually correct. But the fact remains that the IAC was throughout involved and associated in the finalization of assessments for the subsequent assessments as is evident from the correspondence made in between the DCIT and the IAC and Vice Versa. Out of which some letters have been reproduced by the learned Judicial Member in his order to support the observation. For the purpose of emphasis a letter, dated 30‑5‑1998 is being referred wherein the DCIT has informed the IAC that the assessment proceeding for the years, 1996‑97 and 1997‑98 are in process and the report in this regard would be submitted to the IAC for his consideration after getting necessary details in due course of time. From this letter it is quite evident that the IAC was not only associated but was also involved in the assessment proceedings for the subsequent assessment years as well and the learned Accountant Member has lost sight of this factum and has drawn adverse inference in this regard. So, in a case where the IAC was associated and had supervised the assessment proceedings, that order of the DCIT cannot be termed to have been erroneously made.

65. Even on factual plans the impugned order of the IAC is not sustainable in law. The learned Judicial Member While discussing factual controversy, has observed at para. 15 of his order as under:‑‑ "We have given our earnest consideration, to the rival arguments addressed by the contending parties, the facts of the case and have also perused the relevant records, impugned orders/document case/papers, statutory law and case‑laws submitted by the learned representatives of both the parties. We have observed that the impugned orders were finalized after more than one year of the issue of show cause and during intermediary period no fresh show‑cause notices were issued. The show‑cause notice was issued by another IAC and order was passed by another IAC. The successor IAC has finalized the proceedings under section 66A after one year without issuing a fresh show‑cause notice. We have further noted that regarding technical fee the IAC's finding and reasoning in impugned orders are different from show‑cause notice. We have noted that the Assessing Officer had passed the order under section 62 after calling various details by issuing various notices under sections 61/62 and has allowed the appellant to adjust the alleged capital loss against the revenue income in the assessment, year, 1995‑96 after going through the books of account furnished by the appellant before the Assessing Officer who according to appellant retained the same for more than six months. Therefore, the Assessing Officer has had a lost of time to examine each and every aspect of the case. We have noted that the Assessing Officer has not blindly allowed to the appellant the adjustment against the operating income but it was allowed after examining various details, books of account and explanations. It has been contended by the learned counsel for the appellant that it is operational loss due to transaction conducted on behalf of newly customers. The assessment year, 1995‑96 was the first year of assessment and also of business. In this year, as per the contention of the appellant the company has to oblige new customers. The new customer wishes to avail the, `opportunity and booked various shares when share market failed down they backed out, hence, the company being a corporate member of the KSE, was bound to abide by the rules and regulation enforced by the Stock Exchange and therefore the company was obliged to honour its business, transactions and had to pay out of their funds and suffered this trading loss. It has been contended that the company earned only commission income on transac tions conducted on behalf of customers but particularly in this year due to errors and omissions and backing out of by various new customer the appellant company has suffered this trading loss and paid out of its own funds hence, labelled it capital loss which in fact was trading loss therefore, the Assessing Officer after forming judicious opinion allowed the same". "Even on the factual planes bearing, aside other reasons and various discussion mentioned infra, it is established that the adjustment of capital loss against revenue income was not in fact a capital loss rather it was operational loss, being first year of business, under peculiar circumstances and to comply with the rules and regulations of KSE. If any payment is made to, fulfil trading commitments according, to stipulated principles during the course of normal business, it cannot be categorized as capital loss from whatever fund it is paid. As such the action of, IAC was in excess of the authority conferred by the statute who had not applied his own mind to the facts of the case available on record and acted in violation of section 66‑A of Repealed Income Tax Ordinance, 1979."

66. While on going through the dissenting note, it is vividly clear that the learned Accountant Member has neither deferred nor controverted the findings of the learned Judicial Member recorded supra on factual planes. It could, therefore, be inferred safely that the learned Accountant Member has principle agreed to the findings recorded by the learned Judicial Member on ground reality.

67. So far as para. 25 of the learned Accountant Member's order which speaks about initiation of proceedings by the IAC under section 66‑A and issuance of show‑cause notice under section 66‑A was not subsequent to announcement of judgment by the Tribunal in another case bearing ITA No. 2128/LB of 2000, dated 3‑2‑2001, in my humble opinion the learned Accountant Member has misconstrued the word "subsequent" and has also could not take cognizance to factum of date of issuance of show‑cause notice and passing the order by the IAC under section 66‑A which was, dated 10‑5‑2001. According to section 66‑A the IAC is empowered to call for record of the proceedings which was made available at the time of finalizing the assessment and not the one which was subsequently made available on record. This fact was also admitted by the learned Accountant Member in para. 26 of his dissenting note that at the time of finalization of assessment under section 62 by the DCIT, the Tribunal's, order bearing I.T.A. No.2128/LB of 2000 was not available on the record. Thus the judgment subsequent in time cannot form part of the record of the assessment proceedings for a particular assessment year. I am of the considered view that the IAC is under legal obligation to call for and examine the record of the proceedings made available at the time of finalizing the assessment and not the one which was subsequently made available. This is a well‑established practice that judgment/information/report/events/proceedings subsequent in time cannot be made basis for invoking section 66‑A, if such practice of using subsequent, judgment/information/report is in vogue for initiating proceeding under section 66‑A, then no order of the Assessing Officer would attain finality. I am constraint to observe further that the revisional authority/IAC under section 66‑A of Income Tax Ordinance, 1979 cannot rely on any extraneous matter/material or cannot travel beyond the record of the proceeding in which, the order has been made for the purposes of cancelling, modifying or setting aside the already completed assessment. The expression "record" as used in section 66‑A certainly denotes record of proceedings of that particular assessment year and not the record of a subsequent assessment year. In no way any other material/events/information/report/judgments subsequent in time or proceeding subsequent to passing of the order by the assessing authority can form part of the record of that assessment proceedings to be examined by the IAC. Relevant extract of the learned Judicial Member's order at para. 12 is being reproduced hereunder for the purposes of emphasis. "(12). We have however found that the learned IAC has passed the impugned orders on the basis of Tribunal judgment in I.T.A. No. 2128/LB of 2000, dated 3‑2‑2001 which is subsequent to the assessment as well as the proceedings under section 66A. Original assessment orders were passed under section 62 in the years 1998 and 1999 and said judgment was pronounced on 3rd February, 2001 and has been reported in 2002 PTD

900. This judgment was not existed before the DCIT who passed the original order under section 62, therefore, the contentions of the learned counsel for the appellant carry force, as under section 66A the IAC may call for and examine "the record" of the proceedings in order to consider in his revisional jurisdiction as to whether the order in question by the DCIT is "erroneous", and which is part of the record of proceedings and was before the DCIT and examine it in order to consider whether on the basis of materials/evidence/report/binding precedents which were before the DCIT or available at the time of framing of original assessments by the DCIT and all these materials formed the part of the record then the IAC can come to definite finding based on material evidence from the said record that the order passed by the DCIT is erroneous and prejudicial to the interest of Revenue. The various case‑laws have been cited by the learned AR in support of his contention, that IAC for the purposes of invoking section 66A cannot rely on the subsequent events, information, material, reports and judgments which neither were part of the record nor available before the Assessing Officer, hence, action under section 66A cannot be initiated on the basis of any event/material/report/proceeding/ judgment which is subsequent in time. We are therefore, of the view that on this ground the impugned orders are not sustainable and cannot be called erroneous"

68. It is also interesting to note that the case‑law relied upon by the IAC for finalization of his order under section 66‑A, though rendered by the Tribunal after finalization of the assessment, has never been confronted to the appellant. Meaning thereby opportunity of rebuttal and to distinguish the facts of that case were denied to the appellant. Rather the IAC, successor in office has hurriedly modified the already completed assessment in terms of 66‑A on the basis of the judgment subsequently rendered by the Tribunal. It is also an established principle of law that no evidence can be used against the assessee at his back. Thus, principle of audi alteram partem has been violated in the present case as well. Reference in this regard can be made to a case‑law reported as 1994 SCMR 2232.

69. I also endorse observations of the learned Judicial Member that the assessment orders have been passed by the Assessing Officer after conscious application of mind and after calling various details and examination thereof, thus invocation of section 66‑A in such circumstances is absolutely, uncalled for. While doing so it was observed by the order of the learned Judicial Member at page 18 as under:‑‑ "It appears that the line of arguments which has been adopted on behalf of the assessment discussed at length (supra) is not devoid of force because the show‑cause notices under section 66A and orders passed thereof are based on mere possibilities, probabilities presumption surmises and conjectures and without any iota of concrete evidence All the material and facts were duly considered by the DCIT/Assessing Officer at the time of original assessment and all the relevant material and facts also duly discussed and mentioned either in notices issued by the DCIT/Assessing Officer during the course of proceedings under section 62 or in the original assessment orders under section