2005 PLP (Trib (PTD)

8. The learned AR of the assessee in respect of action of the learned Appeal Commissioner of setting aside the assessment took the plea that the case was not a case of setting aside the assessments but of annulment of the assessments and acceptance of the declared version of the assessee and he raised by the following arguments in support of his plea.

9. Firstly, the learned AR of the assessee argued that reopening of the case by the Assessing Officer was not in accordance with mandatory requirement of law. He explained that there was a mandatory provision in section 65(2) requiring for approval of the IAC for reopening of the assessment but the Assessing Officer has not obtained the `approval' C from the IAC in this case. He then contended that the `permission' which was stated to have been obtained by the Assessing Officer from the IAC could not be equated with the `approval' of the IAC which was a mandatory requirement for reopening of the case. He, in support of his above contention with regard to the non-equation of word `permission' with the word `approval' relied upon a case of the Tribunal reported as (2003) 87 Tax 3 (Trib.) = 2003 PTD (Trib.) 1238.

10. Secondly, the learned AR of the assessee argued than: the Assessing Officer has made the ex parte assessments under sections 65/63 and made additions on account of concealment of income but has not shown as to under what provisions of law the said additions were being made by him. He stated that the Assessing Officer has not quoted any provision of law while making the said addition and only the words "Concealed Income" have been entered in the computation of income for each year separately. He, then, from the provisions of section 13 of the Ordinance, 1979, pointed out that second Proviso to subsection (1) of section 13 was imposing a condition on the Assessing Officer for obtain ing prior approval of the IAC for making additions under clauses (aa) to (e) of the said subsection. He stated that the said provision of law clearly provide that such income shall not be chargeable to tax until approval of the IAC was obtained. The learned AR of the assessee further contended that no show-cause notice under section 13 was issued by the Assessing Officer to the assessee for making addition or his intention to make the addition and neither any prior approval for making the said addition was obtained by him from the IAC. In support of above contentions, the learned AR placed reliance on the following case-law:-- (i) Syed Mehmood Shah v. CIT (2001) 83 Tax 132 (H.C. Lah.) = 2000 PTD 3788 (ii) 1993 PTD (Trib.) 1172 and (iii) 1987 PTD (Trib.) 424.

11. Third argument of the learned AR of the assessee was that there was no room for filling up a lacuna in the process of law and filling up such lacuna was not permitted through action of setting aside the order for fresh consideration. He then contended that if mandatory provisions of law for framing an assessment was not complied with then the action of setting aside the assessment was not a proper remedy and the case would in fact become a case of annulment of the assessment. He further explained that if the basic foundation was illegal then whole of the structure would demolish. He finally contended that there was a legal lacuna in the case in hand with regard to seeking the approval from the IAC for invoking the provisions of section 65 and for making addition under section 13 of the Ordinance, 1979 for which the proper remedy was of annulment of assessments and not of setting aside the assessments or filing up the said legal lacunas. He strengthened his above contention while relying on the case-law as under:-- (i) 1985 PTD (Trib.) 178, (ii) (1999) 79 Tax 263 (Trib.) = 1999 PTD (Trib.) 3892 and (iii) (2003) 87 Tax 359 (Trib.) = 2003 PTD (Trib.) 1121.

12. On the merits of the case with regard to assessment anal estimation of sales, the learned AR of the assessee contended that the Assessing Officer has estimated the sales without any basis and without confronting the assessee with the proposed estimation through notice under section 62 of the Ordinance, 1979.

13. While reiterating the stance on behalf of the assessee with regard to permission as obtained by the Assessing Officer for reopening of the case under section 65, the learned AR of the assessee further argued that the `permission' did not tantamount to the `Approval' of the IAC. He, while referring the case of the Tribunal reported as (2003) 87 Tax 3 (Trib.) = 2003 PTD (Trib.) 1238 stated that the words `Permission' and `Approval' have been interpreted and distinguished in the said case and the `permission' cannot be equated with the `Approval' for fulfilling the legal requirement as laid down by the law. Lastly, the learned AR of the assessee raised another point to the effect that the assessment was framed by the Assessing Officer in the status of AOP but notice was issued to only one member of the alleged AOP namely Mr. Fawad Younis and no notice was issued to other members of the AOP and hence the assessment was not properly framed and liable to be annulled.

14. On the other hand, the learned DR, first of all, raised objection to the additional grounds of appeals taken by the assessee that the said grounds were not arising from the order of the first appellate forum.

15. The learned DR in respect of original grounds, as raised by the assessee with the memo. of appeal, contended that there was a definite information with the department provided from the assessment record of the owner of the building of business premises that the assessee was doing business in the status of AOP along with his father and brother and hence the Assessing Officer was justified to reopen the case under section

65. He further contended that proper show-cause notice under section 65 was issued but no one attended and thereafter statutory prior approval for reopening of the case un6er section 65 was obtained from the IAC and then notice under section 65 was issued to the assessee but that notice remained without any compliance. He then stated that notice under section 61 was issued and the assessee appeared and sought adjournment and the case was adjourned but the assessee failed to appear on the adjourned date and thereafter final notice under section 61 along with notice under section 62 were issued and the assessee through said notices was fully confronted with all the details of information along with exact working of proposed assessment but these notices too remained without any compliance and the assessment was finalized ex parte. At this juncture on a question by the Bench with regard to issuance of any show-cause notice under section 13 to the assessee, the learned DR could not answer positively in respect of issuance of notice under section 13 and impliedly conceded that perhaps no notice was issued by the Assessing Officer in that regard. However, the learned DR repelled the ground raised by the learned AR in respect of notice under section 13 with the argument that the ground in respect of non-issuance of notice under section 13 was not taken by the learned AR of the assessee at first appellate stage which amounted to implied acceptance of the proceedings of the Assessing Officer in that regard. The learned DR further argued that there was no adjudication by the learned Appeal Commissioner on the point of non-issuance of notice under section 13 and as such the said ground was not available to the assessee because .the same was not arising from the impugned order. The learned DR finally contended that the action of learned Appeal Commissioner was proper in the circumstances of the case and as such liable to be maintained.

16. At this stage, the learned AR, in order to meet the above objection of the learned DR. contended that a legal ground or issue can be taken at any stage of the proceedings before a higher forum irrespective of its having not been agitated or raised at any earlier stage of the proceedings before a lower forum.

17. We have considered the contentions of the parties and have gone through the orders of the respective forums.

18. Before taking up discussion on the merits of the case, we may like to first have a view of the case-law which has been relied upon by the learned AR of the assessee for having a clear picture before us while applying the said case-law to the case in hand.

19. In the case reported as 1985 PTD (Trib.) 178, the major issue was with regard to making of an addition as deemed income on account of unexplained investment without providing specific opportunity to the assessee under section 13(2) of the Ordinance, 1979. The Tribunal accepted the appeal of the assessee by holding that the failure to comply with mandatory provision of statute with regard to giving reasonable opportunity to the assessee has rendered the impugned order in this behalf wholly void. In that case, consequently the impugned order was modified with the annulment of assessment instead of having been set aside in that behalf.

20. In the case reported as 1987 PTD (Trib.) 424, the point was with regard to obtaining of fresh approval of the IAC under section 13 of the Ordinance, 1979 in re-assessment proceedings for making additions on account of unexplained expenditure. The Tribunal in that case came to the conclusion that while making re-assessments approval from the IAC is also required for making addition on account of unexplained expenditure. Consequently, the Tribunal maintained the action of the learned Appellate Commissioner of deletion of the additions which were made by the ITO without taking approval from the IAC.

21. In the case reported as 1993 PTD (Trib.) 1172, the facts were that the case was reopened under section 65 and the Assessing Officer made addition on account of investment out of undisclosed sources and point involved was with regard to prior approval of IAC for making the addition. The assessment was set aside by the first appellate forum. The Tribunal held that once the learned CIT(A) came to the conclusion that the addition was not sustainable in law for want of mandatory prior approval of IAC he ought to have deleted the addition instead of setting aside the same with a direction for filling up the lacunas.

22. In the case reported as (1999) 79 Tax 263 (Trib.) = 1999 PTD (Trib.) 3892, the point involved was that whether in terms of proviso to subsection (1) of section 62, the ITO was bound to confront the assessee with the defects found in the books of accounts. The Tribunal held that the ITO in terms of proviso to subsection (1) of section 62 should have confronted the assessee with the defects found in the books of accounts and it was a mandatory provision which he was required to follow. The Tribunal resultantly adjudged the addition made thereof as ab initio, illegal and void and then deleted the same.

23. In the case reported as Syed Mehmood Shah v. CIT (2001) 83 Tax 132 (H.C. Lah.) = 2000 PTD 3788 (Lahore High Court, Lahore), the issue was with regard to prior approval of the IAC contemplated in second Proviso to section 13 for making addition under section 13(1)(aa) to (e) of the Ordinance, 1979 which was admittedly not obtained in the said case. The Honourable Lahore High Court, Lahore in that case held that addition requiring the approval of the IAC and made without such approval could not be sustained. It was further held that it will be seen that the approval 'of the IAC as contemplated in proviso to section 13 of Ordinance, 1979 is not procedural and that it is a condition precedent for exercise of jurisdiction to make addition under sub-clauses (aa) to (e) of section 13 and that the absence of such approval clearly renders the addition to be illegal.

24. In the case of (2003) 87 Tax 359 (Trib.) = 2003 PTD (Trib.) 1121, the facts were that the assessment had been finalized under section 62 without issuance of a mandatory notice required under the law. The Tribunal held that it indeed looks very strange to us that assessment has been finalized under section 62 without issuance of a single mandatory notice, be it under sections 65 or 56 or 61 and that even a show-cause notice under section 13 with regard to addition of Rs.7,00,000 was not issued and indeed such a notice could not have been issued without having assumed proper jurisdiction for the assessment of income. It was further held that first of all the reasons had to be recorded for issuance of notice under section 65 and none of this was done. Finally, the Tribunal in that case cancelled the assessment by terming the same as ab initio illegal and void.

25. The case cited as (2003) 87 Tax 3 (Trib.) = 2003 PTD (Trib.) 1238 was a recent case of the Tribunal wherein the main dispute was regarding the interpretation of words "Permission" and "approval" of the IAC for making addition under section 13(1)(aa) of the Ordinance, 1979 and there the Assessing Officer sought `permission' instead of approval of the IAC and both the authorities (i.e. Assessing Officer and IAC) used the word "permission". The Tribunal in that case, while referring case-law of the Honourable High Court and of the Tribunal in the context of approval of IAC, observed that the words `approval' and `permission' have different meaning and their impact is also quite different and that admittedly Assessing Officer sought permission and the learned IAC allowed permission and hence addition made by the learned Assessing Officer after seeking permission from the IAC is not tenable in the eye of law. The Tribunal further observed that when the law requires one thing is to be done in a particular manner the same should be done in the same manner or not done at all. The Tribunal then held that since in this case permission was sought and permission was granted we have no hesitation in observing that approval in this case has never been sought nor granted and the permission allowed for making addition is not tenable in the eye of law. Accordingly, the Tribunal finally deleted the addition made under section 13(1)(aa) while accepting the Miscellaneous Application for rectification-of its earlier order.

26. From a comprehensive look on the principles laid down in the above case-law, one thing was very pertinent and obvious that non observance of a mandatory requirement under the law would lead to declaring such an action as ab initio illegal and void resulting in canceling or annulling of the assessment instead of setting aside the case r for filling up the legal lacunas to remove such defects.

27. Now, we would like to analyze the position of the case in hand in the light of contentions of the parties and the case-law as relied upon and cited above. It was an admitted fact in assessment order passed under sections 63/65 that the Assessing Officer has used the words `permission' from the IAC for re-opening the assessments which has been stated to have accorded The Tribunal, in the case reported as (2003) 87 Tax 3 (Trib.) = 2003 PTD 1238, has drawn distinction between the words `permission' and `approval' and did not equate the word `permission' with the word `approval'. The Tribunal in that case observed that the words `approval' and `permission' have different meanings and their impact is also quote different and that admittedly the Assessing Officer sought permission and the learned AAC allowed permission and hence addition made b he learned Assessing Officer after seeking permission from the AAC was not tenable in the eye of law. The Tribunal in that case quoted the case reported as (1994) 70 Tax 90 (Trib.) as relied upon by the learned AR for interpreting the words `permission' and `approval' who further strengthened this from the judgment of Honourable Lahore High Court, Lahore reported as Syed Mehmood Shah v. CIT (2001) 83 Tax 132 (H.C. Lah.) = 2000 PTD 3788 which has also been referred by the learned AR in the instant case. In that case, the Tribunal has also referred a judgment of the Tribunal reported as (1998) 77 Tax 204 (Trib.) = 1998 PTD (Trib.) 1935 for the differentiation drawn between the words `approval' and `permission'. In the situation as depicted above, there can be no second opinion to answer the - proposition, regarding seeking of `approval' and grant of `approval' by the IAC for an action as contemplated in the law which can be an action under section 65 or an action under section 13(1)(aa) to (e) of the Ordinance, 1979 in this way that a mandatory requirement of law must be fulfilled in accordance with the law and no departure there from can be allowed. Hence, the very re opening of case under section 65 of the Ordinance, 1979 by the Assessing Officer was falling short of mandatory requirement of law under the provisions of section 65 in the manner as provided by the law. Such an action would lead to term the assumption of jurisdiction by the E Assessing Officer to re-open and reprocess the case under section 65 as illegal and the whole action as void. However, if for the sake of the arguments, it is assumed that the Assessing Officer as argued by the learned DR sought the `approval' from the IAC and consequently the `permission' was granted by the IAC even then any departure or deviation or irregularity, or illegality at any level by any authority for the use of the `terms' or the `words' denoting a definite meaning for doing or taking an action in the manner as specifically provided in the law was not permissible. We, may, however, like to mention here in respect of a difference in the proposition involved in the case in hand with regard to re-opening-of the case under section 65 of the Ordinance, 1979 when seen in the context of recent case law cited as (2003) 87 Tax 3 (Trib.) = 2003 PTD 1238 (Trib.). In the said case law, the matter was regarding addition under section 13(1)(aa) of the Ordinance, 1979 which was made by the Assessing Officer by seeking `permission' and not `approval' of the IAC and the addition was deleted by the Tribunal by rectifying its earlier order of setting aside the matter. But in all circumstances, all the case-law relied upon by the learned AR applied to all the issues involved in the case in hand and the whole premises on which the case has been built up would go to the ground on account of legal lacunas pointed out above.

28. Now remains the second point with regard to making of addition by the Assessing Officer in respect of `alleged concealed income of the assessee. We have noticed from the assessment order that although a detailed notice under section 62 was issued to the assessee in respect of his running the business jointly with his father and brother and the expenses claimed under the head `rent' being understated and having been suppressed/concealed and details of rent agreement executed by different members of AOP with regard to each assessment year but yet there, was nothing to disclose from the assessment order that the Assessing officer ever issued any show-cause notice to the assessee under section 13(1) to explain his position for making the addition. The Assessing Officer has framed ex parte assessment under sections. 65/63 and only mentioned the words "concealed income" in the computation of income of each year separately without mentioning any provision of law as applicable for the same. It was further obvious from the assessment order that the Assessing Officer did not obtain the `Approval' of the IAC for making the addition on account of concealed income. The Assessing Officer has not complied with the mandatory legal requirements of law for taken action under section 13 of the Ordinance, 1979. These legal lacunas in the assessment order could not be allowed to be filled up by way of setting aside the assessment as has been done in the instant-case by the learned CIT(A). Although., there was no adjudication by the learned Appeal Commissioner on this issue as no ground was raised by the assessee before the first appellate forum in that regard but yet if a legal requirement has not been met with by any forum in doing any thing in a particular manner as provided under the law then the order passed thereon would become a void order and such order would remain a void order even if not assailed before any appellate forum and subsequently there would be no bar in declaring or terming such an order as void order by any higher appellate forum. Therefore, in these circumstances, the second plea/point raised' by the learned AR of the, assessee with regard to non-issuance of show-cause notice- under section 13(1) to the assessee and non-approval of the IAC of making the said addition was tenable in the eye of law and liable to the accepted as such because nothing was suggested or stated on behalf of the department to negate the said contention and everything in that regard also stoop established from the assessment order.

29. As regards the third issue with respect to estimation of sales as made by the Assessing Officer, suffice it would be to say that as the whole edifice of the assessment order would fall to the ground due to legal lacunas in processing the case and in making the additions and the estimation of sales. Therefore, the assessments is a whole as framed by the Assessing Officer' would not stand the test of the law and would become liable to be annulled.

30. As far as the last point regarding service of notice on only one member of AOP is concerned, as the assessee had at one stage of assessment proceedings appeared in response to notice under section 611 after service of notice and then he has been pursuing the case from they stage of first appellate forum to the stage of this Tribunal, therefore, the argument raised by the learned AR in that behalf need not to be dilated upon because no such ground was raised at the first appellate stage or before us specifically.

31. As a result of above discussion, the impugned order of learned first appellate forum as well as the order under sections 65/63 of the Assessing Officer are vacated and the assessments framed by the Assessing Officer shall stand annulled.

32. Resultantly appeals of the assessee are allowed. H.B.T./327/Tax (Trib.) Appeals allowed.