2005 PLP (Trib (PTD)

MAZHAR FAROOQ SHIRAZI (ACCOUNTANT MEMBER).--These are three appeals by the an individual against the order of the learned CIT(Appeals-Zone-IV), Lahore recorded by him on 2-12-2002 in respect of the assessment years 1995-96, 1996-97 and 1997-98. It may be added here that proceedings for all the above mentioned assessment years were finalized under sections 62/65 of the Income Tax Ordinance. The main issues agitated by the learned AR before us are common in all the three assessment years are listed as under:-- "That the learned CIT(A) has grossly erred in law to dismiss the appeal without going into the merits of the case, hence, is unreasonable in law. That the SOIT/WT has erred in law to reopen the case under section 65 of the Income Tax Ordinance without any legal sanctity, hence it is illegal. That the assessment made by the department on agreed basis is also void ab initio and illegal. That the estimation of sales at Rs.23,88,12,585 on the basis of so-called definite information was also termed as void ab initio and illegal." It was prayed by the learned A.R. that the appeals of the assessee for the three assessment y ars may be accepted in the light of the above narrated facts and circumstances of the case. Brief and relevant facts of the case leading to these appeals are that the assessee is an individual who derives income from manufacturing of agricultural implements. Original assessment in the case of the assessee for the three-assessment years 1995-96 to 1997-98 were finalized at net income of Rs.15,60,850, Rs.18,73,020 and Rs.23,49,626 respectively. Latei on, he assessments were reopened in terms of section 65 of the Income Tax Ordinance with the prior approval of the I.A:C., Range-II, Zone-C, Lahore vide his letter No.1426/R-II, dated 29-6-2001. The cases for the three years were fixed for hearing from time to time and final notice under sections 62/65 along with notice under section 61 was served on 13-6-2002 for compliance on 14-6-2002. through this notice, the assessee was required to file certain documentation in the combined assessment order for the three years through which the Assessing Officer conveyed his intention to frame the assessments at a net income of Rs.1,64,73,721, Rs:1,58,79,596 and Rs. 1,50,.86,296 respectively. For ready reference, the documentation required by the Assessing Officer is listed as under:

"Total consumption of electricity as well as total production during the period 1-7-1994 to 30-6-1997. Proof of total imports made during the period 1-7-1994 to 30-6-1997. Sales Tax and Central Excise Duty record . maintained by you during the period 1-7-1994 to 30-6-1997. Proof of consignments so transported and proof of the receipts of the same by the consignee. Sales record of agricultural implements to the parties concerned with their addresses. Proof regarding closure of your business in the month of March, 1995. Copies of the bank statement maintained by you in the various banks. Complete books of accounts containing cash, ledger, production register, incoming and outgoing register. Please note that in case of non-furnishing of the same it will be established that you had definitely evaded the Central Excise Duty and other taxes and made sales of imported raw material in open market which was meant for your self-consumption. In this way you had definitely gained profit higher than the GP declared/applied in your case. Hence keeping in view of the facts of the case, evasion of certain duties and taxes by way of not using the available concession under S.R.O. 602(I)/83, dated 1-6-1983, I intend to adopt your business extent for the assessment years 1995-96 to 1997-98 as under:

Total imports made during the period 1994-95 to 1996-97 Pertain to assessment years 1995-96 to 1997-98 = 372992,805 Customs. Duty and Sales Tax paid = 62449,490 Total = 435441, 980 Add. Duty payable on import (-) duty paid = 215857757 (278307247-62449490=215857757) Total import value = 651307,052 Total Sales adding direct expenses to the extent of 10% of total import value = 65130,705 Total Sales estimated for the A/Ys 1995-96 to 1997-98 = 716437,757 1995-96 1996-97 1997-98 Sales estimated 238812585 238812585 238812585 GP @ 8%as applied in A/Y 1994-95 on the basis of Steel Re-Rolling of imported rail track as well usual GP in the case of commercial importers. 19105006 19105006 19105006 Less GP shown 4192135 499830 - Balance for addition 14912871 1410676 12736670 Add income declared 1560850 1773300 2349626 Total Income 16473721 1587956. 15086296 On the due date, the learned AR of the assessee attended the office of the Assessing Officer and filed a reply of notice, dated 19-6-2002 in which he contested the service of notice under section 65 as not being proper and valid in the eyes of law. He further drew the attention of the Assessing Officer that the Division Bench of the Customs, Excise and Sales Tax Appellate Tribunal vide Order No.202/LB/2001, dated 3-12-2001 has set aside the impugned order and remanded the case back to the Collector Adjudication, Lahore for redecision in accordance with law after hearing the parties. In fact, it was contended by him that the basis for issuance of notice under section 65 no longer was valid and it was requested that the proceedings may be filed in the case. Later, the case was discussed with the AR of the assessee in the presence of the IAC, Range-II Zone-C, Lahore and the learned CIT(A), Zone-C, Lahore and the assessee offered to be assessed with a further tax of Rs.4,00,000 in two instalments first in June, 2002 and second in July, 2002. The offer being reasonable was accepted by the Income Tax Authorities and income was determined as under:-- Assessment Year Income Assessed 1995-96 Rs.17,68,715 1996-97 Rs.23,82,090 1997-98 Rs.27,24.851 The assessee being aggrieved with the above treatment meted out by the Income Tax Authorities, preferred an appeal before the CIT (Appeals-Zone-IV), Lahore who vide his order cited supra held action of reopening under section 65 to be valid and the assessee's contention was dismissed. In fact, it was observed by the learned CIT(A) that the assessee had not agitated against this treatment before the concerned Income Tax Authorities i.e. CIT and the RCIT. The second issue as raised by the AR of the appellant was regarding assessment finalized in agreement as being illegal as the same was signed by the AR who was not competent to enter into an agreement on behalf of the appellant. This contention of the learned A.R. was also rejected by the learned CIT who observed that the agreements are always made with the consent of the assessee as the basic element involved in an agreement is the payment of tax which is always paid by the assessee and not by the AR. In this context, it was further held by the learned CIT(A) that the assessee made a payment of tax amounting to Rs.4,00,000 in two equal instalments which goes to prove that the assessee was all along associated with the proceedings in the case and was completely in picture with the action on the part' of his AR who entered into an agreement. So the plea of the appellants AR in the above context was also rejected. As regards the estimation of sales, the learned CIT (A) was of the view that this aspect cannot be agitated now when agreed assessment had been made in view of which no interference was made on his score. In the arguments before us, the learned AR of the assessee submitted that the basis for reopening the three assessment years i.e. 1995-96 to 1997-98 under section 65 of the Income Tax Ordinance was a complaint that the assessee had sold imported raw material meant for self-consumption in the open market. This information against the assessee was received by the Department from the Central Excise and 'Sales Tax Department. It was further submitted by the learned AR that the legal proceedings initiated against him by the Central Excise and Sales Tax Department were set aside by the Customs, Central Excise and Sales Tax Tribunal vide their decision, dated 7-9-2002. In support of his contention the AR submitted a copy of the judgment cited supra which has been placed on record. In this context, the AR wanted us to quash the proceedings initiated under section 65 of the I.T. Ordinance as the basis on which proceedings were undertaken against the assessee no longer existed in the allegation of sale of imported raw material meant for self-consumption against the assessee and the case accordingly was developed on it. On the other hand, the learned DR supported the orders of the Income Tax Authorities and was of the view that the assessee had entered into an agreement with the Income Tax Authorities and merely setting aside of the case by the Customs Tribunal did not warrant sufficient justification for dropping the proceedings initiated under section 65 by the Department. The DR further explained that setting aside of a case by a judicial forum did not necessarily means that the allegations contained in the complaint against the assessee were without any merit but probably some procedural aspect of the judicial proceedings had been ignored by the concerned officer while deciding the case against the assessee in the Customs Department. The DR pleaded that in case the reassessment proceedings in the Customs Department were eventually dropped if found by the competent authority to be without any basis then the corresponding action by the Income Tax Authorities could take place by dropping the proceedings initiated under section 65 and resultantly a rectification order could be passed. We have given anxious consideration to the view expressed by both sides and we are inclined to agree with the contentions of the learned DR in this context, in view of which the proceedings initiated under section 65 are held to be valid along with the consequential treatment in the shape of an agreed assessment for the three years entered into by the assessee with the Department.. During the appeal proceedings, the AR was specifically confronted by us regarding the agreed assessment entered into by the assessee with the Income Tax Department. It was pointed out by us to the learned AR that the assessee cannot "wriggle" out of the agreement because once it is made by both sides it has been held by superior Courts that neither party can back track on it. In the circumstances of the case, as dilated above, the proceedings initiated under section65 and the order of the CIT(A) for the assessment years 1995-96, 1996-97 and 1997-98 are maintained in its totality. The appeals stand disposed of as above. C.M.A./428/Tax (Trib.) Order accordingly.