1993 PLP (Trib (PTD)

3. According to the A.R. of the assessee the I.T.O. had taken action under section 65 on the ground that BMR was not allowed to the assessee correctly and action was required as envisaged under section 107(5) of the Income Tax Ordinance, 1979. However, according to the A.R. of the assessee for taking action under section 65 the I.T.O. must have some definite information and he should obtain the approval of the IAC. The A.R. of the assessee contended that the I.T.O. did not have any fresh information because information regarding rebate etc. was already available in the assessment record and I.T.O. had already taken a conscious decision. Subsequently action under section 65 was nothing but a change of opinion. The A.R. of the assessee further contended that provisions of section 107(5) are applicable in this case only if the assessee had violated the provisions of subsection (1) and subsection (2) of section -107 of the Income Tax Ordinance. But this was not the case. The assessee had fulfilled all the conditions for BMR under section 107 i.e. (a) it should be a Pakistani Company, (b) that investment should be made in Plant and Machinery, (c) that investment should be made in a specific period i.e. 1-7-1975 to 30-6-1988. The A.R. of the assessee contended that all these conditions were fulfilled by the assessee hence there was no violation under section 107(5).

4. The A.R. of the assessee further argued that BMR claim was not made by the assessee in the assessment year 1978-79 because the assessee had declared loss and BMR could not be adjusted against the loss hence BMR claimed on machinery installed in 1978-79 was included in the BMR claim for the assessment year 1979-80. The A.R. further argued that if the assessee had not claimed rebate in the assessment year 1978-79 it should be allowed now. According of the A.R. of the assessee in any case there was no occasion for issuing notice under section 65 for the assessment year 1979-80.

5. The D.R. supported the re-assessment order made by the I.T.O. and contended that provisions of section 107(5) supported action under section 65.

6. We have carefully considered the arguments advanced at the Bar from both the sides. The undisputed facts in this case are as under: (i) That the assessee installed machinery to the extent of Rs.7,39,780 in the assessment year 1978-79. (ii) That the assessee did not claim BMR under section 107 on the addition of this machinery in the assessment year 1978-79. (iii) That the amount of Rs.7,39,780 was included by the assessee in the value of machinery installed in the assessment year 1979-80 and for the purpose of BMR the value of this machinery was claimed at Rs.1,804,220.

7. The contention of the A.R. of the assessee that it was a change of opinion and that necessary information was available in the assessment record does not appear to be correct. A perusal of the assessment order made under section 65 indicates that while examining refund claim for the assessment years 1982-83 to 1983-84 the I.T.O. found that claim of the assessee under section 107 for the assessment year 1979-80 was incorrect. The A.R. of the assessee has not furnished any evidence before the I.T.O. or even before us to contradict this observation of the I.T.O.

8. A perusal of the assessment order indicates that before issuing notice under section 65 the I.T.O. confronted the assessee with the above position. The reply of the assessee in response to show-cause notice issued by the I.T.O. is reproduced as under: "We have no objection to rectifying the mistake by your honour in allowing the rebate claim under section 107 on the value of addition made during the year 1979-80. However, we reserve the right to claim the rebate under section 107 for the addition made in the assessment year 1978-79. We are enclosing herewith Income Tax return for the assessment year 1979-80 in compliance with your directions."

9. From the above reply of the assessee it is quite evident that the assessee admitted BMR claim for the assessment year 1979-80 was not correct. The A.R. of the assessee did not contend before the I.T.O. that action under section 65 was not justified and that it was mere change of opinion.

10. Regarding contention of the A.R. of the assessee that all conditions of section 107(5) have been fulfilled we reproduce the subsection (5) of section 107 as under: "107(5) Where any credit is allowed under this section and subsequently it is discovered by the Income Tax Officer that any one or more of the conditions specified in this section was or were not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Income Tax Officer may, notwithstanding anything contained in this Ordinance, recomputed the tax payable by the assessee for the relevant year and the provisions of section 65 shall, so far as may be, apply accordingly, the period of ten years specified in subsection (3) of that section being reckoned from the end of the assessment year relevant to the income year in which the infringement was discovered." From the perusal of the above subsection (5) of section 107 it is quite evident that if any one or more of the conditions specified in this section are not fulfilled the I.T.O. can take corrective action. Subsection (2) of section 107 of the Ordinance is reproduced as under: "107(2). The amount of credit admissible under this section shall be deducted from the tax payable by the assessee in respect of the income year in which the machinery or plant in the purchase of which the amount referred to in subsection (1) is invested is installed." From a perusal of the above subsection it is quite evident that amount of credit admissible under section 107 shall be deducted from the tax payable by the assessee in respect of income year in which the machinery or plant in the purchase of which the amount referred invested is installed. In other words tax credit can only be available to the assessee in the year in which machinery is installed and not in any other year. However, subsection (3) of section 107 indicated that if excess credit cannot be adjusted against the income it can be carried forward in the next year but credit can only be allowed in the year in which the machinery is installed. In this case the machinery to the extent of Rs.7,39,780 was installed in the assessment year 1978-79 and the assessee did not prefer any claim. Because of these reasons action under section 65 was justified and the action of the I.T.O. under section 65 is upheld. [Remaining part of the order is omitted]. M.BA./2247/T???????????????????????????????????????????????????????????????????????????????????? Order accordingly.