1990 PLP (Trib (PTD)

This appeal is directed against the order of learned IAC recorded by him on 12‑7‑1987 relating to assessment year 1986‑87 under section 66‑A of the Income tax Ordinance, 1979.

2. The facts giving rise to this appeal are that originally the I.T.O recorded assessment order under Section 62 of the Income‑tax Ordinance in the case of the appellant a private limited company carrying on construction business. It further appears that the appellant had originally declared a loss of Rs. 14,00,000 with receipts of Rs. 5,82,000 and with the cost of work‑in‑progress standing at Rs. 11,86,

130. The I.T.O. however, applying 10% GP rate to Rs. 11,86,130 which was the cost of work‑in‑progress added Rs. 1,18,619 to the total income of the appellant, and thus reduced the loss to Rs. 21,

567. Moreover, he also made certain add‑backs out of profit and loss accounts amounting to Rs. 26,567 and thus assessed the net income of the appellant at Rs. 5,

000. It appears from the perusal of the departmental record that the learned CIT Hyderabad Range, Hyderabad found that aforesaid assessment order was not made in accordance with law. He therefore, addressed a letter to his IAC with copy to the I.T.O The I.T.O. on receipt of this letter addressed a letter to his IAC on 25‑2‑1987 and asserted therein that he had applied GP rate of 10% and that net profit was mentioned in the assessment order because of typing mistake. In this connection he also referred to three cases of other construction companies bearing NT No. 08‑02‑175375; 08‑02‑1765505 and 08‑02‑1765501 of Hyderabad Zone in which 10% GP rate was applied. The learned JAC by his letter, dated 25‑3‑1987 advised the I.T.O. to rectify the alleged mistake under section 156 of the Income‑tax Ordinance. However, he also made the following remarks in his aforesaid case:‑‑ "If the assessee does not agree with this treatment, then record should be submitted for the reopening of the case under section 66‑A of the Income‑tax Ordinance." Pursuant to aforesaid direction, the Income‑tax Officer, issued notice under section 156 to the appellant on 29‑3‑1987 proposing to rectify aforesaid mistake. The appellant, however, by its letter dated 6‑4‑1987 contended that no rectification was required in aforesaid case and the notice issued by the I.T.O. be discharged. The I.T.O. then in compliance with the direction of his IAC, as reproduced above, sent the matter back to him and thus IAC invoked his jurisdiction under section 66‑A. After considering the explanation of the respondent, the IAC applied GP rate of 15% on the cost of work‑in‑progress standing at Rs. 11,86,180 and thus after the add‑back assessed total income of the appellant at Rs. 64,308.

3. Having been aggrieved and dissatisfied, the appellant has come up in appeal before this Tribunal.

4. Mr. Udha Ram, the learned counsel for the appellant vehemently argued before me that since the I.T.O. had acted under section 156 on advice of the IAC, the learned IAC could not have invoked his jurisdiction under section 66‑A of the Income‑tax Ordinance for the simple reason that it amounted to change of opinion. The learned counsel further contended that since the order of the I.T.O. was not erroneous and prejudicial to revenue interest, the IAC had no jurisdiction to exercise his jurisdiction under Section 66‑A of the Income‑tax Ordinance. In this connection, the learned counsel relied upon a circular of CBR bearing No. 2 of 1975 dated 22‑1‑1975 together with three decisions reported as (1984) PTD 312, (1984) PTD‑132 and (1987) PTD‑563.

5. Mr. Ashraf Bhatti, the learned D.R., on the other. hand, has supported the learned IAC. According to learned D.R. since the order of the I.T.O. was erroneous and prejudicial to revenue interest, the IAC was within his power when he proceeded under Section 66‑A of the Income‑tax Ordinance. According to learned D.R, application of 10% GP rate was patently erroneous as it should have been 15%. According to him, the I.T.O. has mentioned net profit rate in his assessment order and when he wanted to rectify his 0mistake the appellant vehemently opposed it, leaving no alternative with the I.T.O., but to request the IAC to invoke his jurisdiction under Section 66‑A of the Income‑tax Ordinance. He concluded that the IAC had acted very much according to law and the appeal should be dismissed.

6. I have heard both the learned counsel for the appellant as well as the learned DR. Since the IAC has invoked his jurisdiction under Section 66‑A of the Income‑tax Ordinance, I would, therefore, start my discussion with it. It is reproduced herein below:‑‑ 66‑A. Powers of Inspecting Assistant Commissioner to revise Income tax Officer's order: The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Income‑tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be. made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, 'or cancelling the assessment and directing a fresh assessment to be made. (2) No order under subsection (1) shall be made after the expiry of four years from the date of the order sought to be revised. From perusal of subsection (1) of Section 66‑A as reproduced above, it appears that the learned IAC has been given jurisdiction to examine any record of any proceeding pending before the I.T.O., and he can pass any order therein if he found that the order recorded by an I.T.O. was erroneous in so far as it is prejudicial to the interest of revenue. However, under the facts and circumstances as discussed above, it is clear that the I.T.O. had already framed assessment order thus the learned IAC could have easily invoked his jurisdiction under Section 66‑A once it came to his knowledge that the order recorded by the I.T.O. was erroneous in so far as it was prejudicial to the interest of revenue. It further appears from perusal of record that all the relevant facts were brought to the knowledge of the IAC by the I.T.O. vide his letter dated 25‑2‑1987. The learned IAC, however, did not elect to exercise his powers under Section 66‑A for the reasons best known to him. On the other hand, by his letter dated 25‑3‑1987 he advised the I.T.O. to invoke his jurisdiction under Section 156, but strangely enough at the same time he also directed him to re‑submit the record if the assessee did not agree with the proposed rectification. It is, therefore clear that the I.T.O. issued notice under Section 156 as per direction of the IAC and invoked his jurisdiction strictly according to law. Thus the assessment order recorded by him earlier became subject‑matter of dispute. In other words, it can be said that the I.T.O. was seized of the list and had jurisdiction to proceed till its culmination either in favour of the assessee or in favour of the department. Had the proceedings ended in favour of the department, the assessee could have exercised his right of appeal and similarly if the matter was decided against the department, the IAC could have invoked his jurisdiction under section 66‑A of the Income‑tax Ordinance. In my humble opinion, the IAC had no jurisdiction to direct the I.T.O. to resubmit the matter before him in case the assessee did not agree with his proposed rectification. I am unable to understand as to how assessment order became erroneous in so far as it was prejudicial to the interest of revenue by refusal of the assessee to agree to the proposed rectification when it was not found so by the learned 1AC on first occasion when the I.T.O. had 4 apprised him of the relevant facts vide his letter dated 25‑2‑1987. It is, perhaps, because of this anomalous situation that Mr. Udha Ram has raised the plea of change of opinion of the learned IAC. However, I am of the view that when the I.T.O. invoked his jurisdiction under section 156, the assessment order, which the learned IAC revised by exercising his power under section 66‑A, became subject matter of rectification proceedings and during the pendency of such proceedings under section 156 that order could not be deemed to have been passed so as to enable the IAC to invoke his jurisdiction under section 66‑A. As such, during the pendency of proceedings under section 156 it could not be said to have attained finality, and consequently the assessment order could not be said to be erroneous in so far as it was prejudicial to the interest of revenue for the simple reason that the I.T.O. could have rectified the mistake in the light of the direction of the IAC, and had he done so he could have provided the assessee with a right of appeal. The IAC however, by calling for the record of the proceedings pending before the I.T.O. under section 156 had deprived the assessee of his valuable right of first appeal. Moreover, he has abdicated the I.T.O. of his rightful jurisdiction which he had to exercise under his own advice. 1t is to be kept in mind that the basic responsibility of collecting revenue lies with an assessing officer. He plays most pivotal role in revenue collecting process. The law has reposed great confidence in the assessing officer when it vested him with discretionary powers, which of course, have to be exercised judiciously and not according to his whims or caprices. Even a cursory look at Income‑tax Ordinance shows that the entire revenue collection process has been left to the satisfaction of I.T.O. On the other hand, the IAC or the Commissioner have been given supervisory jurisdiction and they can exercise it only within the prescribed limits as, laid down by the law. Thus, it is clear that under the facts and circumstances of this appeal, the learned IAC prevented the I.T.O. from exercising his jurisdiction and his order, therefore, cannot be allowed to stand. As pointed out earlier, the learned IAC would not have allowed the revenue interest to suffer had the I.T.O. decided the proceeding under section 156 in favour of assessee as he could have very much invoked his jurisdiction under section 66‑A of the Income‑tax Ordinance even at that stage.

7. In view of discussion made above, I am firmly of the view that the order of the IAC is not sustainable in law. I therefore, allow this appeal and after setting aside the impugned order send the matter back to the I.T.O. with the direction that he should dispose of the proceedings under section 156 according to law, and keeping into consideration the objection raised by the assessee. Mr. Udha Ram, the learned counsel for the appellant had contended before me that the proceedings before the I.T.O. had become time‑barred hence no useful purpose would be served by sending the matter back to him. At this stage, I am not in a position to dispose of his contention. However, it would suffice if 1 mention that he can take this plea before the I.T.O. who can surely examine it in the light of section 66 of the Income‑tax Ordinance.

8. Now, as far as cases cited by Mr. Udha Ram are concerned, I don't think they remain relevant in view of discussion made above. I, therefore, decline to dilate on them.

9. The appeal stands disposed of as indicated above. M.B.A./857/T Order accordingly.