2003 PLP (Trib (PTD)

1995‑96 46,141,818 58,300,114 (12,158,296) 1996‑97 58,300,114 68,552,089 (10,251,975) 1997‑98 68,552,089 119,367,943 (50,815,854) 1998‑99 119,367,943 299,643,281 (180,275,338) 1999‑2000 299,643,281 196,928,474 (102,714,807) 2000‑2001 196,928,474 137,501,402 (59,427,072). 2001‑2002 137,501,402 35,214,935 (102,286,467) 964,688,173 999,903,108 (35,214,935)

8. He commented that it is very much evident from the above produced chart that since 1999‑2000 the income under section 17 of the Ordinance on receipt basis is more than what is chargeable on accrual basis. Thus action under section 66‑A of the Ordinance is misconceived as the learned IAC has failed to view the matter in its total perspective and invoked section 66‑A just for one year without realizing and computing its impact in the subsequent assessment years where the department will suffer losses if regular method of accounting is discarded. While summing up his arguments the learned A.R. pleaded at the bar that it is proved beyond any doubt that neither any loss is caused to the department nor the‑same is established by the learned IAC.

9. Conversely, the learned D.R. while opposing the contentions raised by the learned A.R. made a feeble attempt to persuade the Court that section 66‑A has rightly been invoked by the learned IAC, She reiterated almost all the arguments relied upon by the learned IAC while applying section 66‑A of the Ordinance.

10. We have heard the learned counsel for both the parties and have gone through the relevant order alongwith the case‑law cited by the learned A.R. in support of his contentions. The first case relied upon by the learned A.R. to substantiate his contentions was reported as 1993 PTD (Trib.) 739 in re: Commissioner of Income Tax, Companies‑III, Karachi v. Krudd Sons Ltd. wherein it was held:‑‑‑ "It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of accounting from which income, profits and gains can properly be deduced: In this case the Assessing Officer did not proceed in the indicated manner although from the accounts laid down on its examination true income and profit could be deduced. This judgment is of no help to the appellant. There can be no cavil that a regular method of accounting in the past cannot be accepted as a matter of routine without examining it and if the Assessing Authority comes to the conclusion that it is defective and true income, profit and gain cannot be deducted from it then on the principle, stated above it cyan be rejected. In the present case the reasons given for rejecting the accounts are not proper, sufficient and valid."

11. Perusal of the above mentioned paragraph of supra judgment clearly shows that if income, profit and gain are properly deducted from the method of accounting adopted by the assessee and reasons given for rejecting the account are not, sufficient and valid then the same cannot be discarded without, assigning any cogent reason.

12. The next judgment relied upon by the learned A.R. is‑reported as PLD 1992 SC 549 = 1992 PTD 932 in Re: Glaxo Laboratories Ltd. v. IAC and others. The august Supreme Court of Pakistan settled the ratio with regard to the powers of the IAC and laid down the guidelines in order to invoke section 66‑A of the Ordinance with the following observations:‑‑ "It may be clarified that subsection (1‑A) was inserted by Finance Act, 1991 after the impugned notice under section 66‑A had been issued by the JAC. Subsection (1) .of section 66‑A authorises Inspecting Assistant Commissioner to issue a notice for reopening the case if he considers that any order passed by the Income Tax Officer is erroneous causing prejudice to the interest of revenue. A mere erroneous order of the Income Tax Ordinance without causing any prejudice to the interest of the revenue will not authorise Inspecting Assistant Commissioner to exercise power under section 66‑A. These two ingredients must be satisfied before invoking it."

13. Lastly, the learned 'A.R. sought strength from the Indian jurisdiction reported as 22 ITR 13 (Bombay High Court) in the case of Seth Lalbhai Dalpatbhai v. Commissioner of Income‑tax, Bombay North. In the supra judgment section 8 of the Repealed Act, 1922 which is almost identical to section 17 of the Income Tax Ordinance, 1979 was the subject‑matter of discussion; the instant case is very much relevant especially in view of the fact that in the above‑cited judgment the Honourable Bombay High Court was seized of the matter to determine the meaning of word "receivable". The facts of the supra cited case are that interest on security was payable on the 15th April and 15th October, every year. These securities were lodged with the Imperial Bank of India. 15th October, 1944 was holiday, 16th October was a working day and 17th and 18th October were again Diwali holidays. The Imperial Bank collected the interest in respect of this half year on the 21st October, 1944 and credited it to the assessee's account in the bank pass book on the same date. The assessee, however, passed the corresponding entry in his books of account on 25th October, 1944. This half yearly income falling due for payment on 15th October, 1944, had been treated by the Department as income of the assessment year 1945‑

46. The assessee contended that this should be included in the assessment year 1946‑

47. In this regard the assessee had relied upon section 8 of the Repealed Income‑tax Act, 1922 which' dealt with the assessability of income under the head "Interest on securities" which reads as under:‑‑ "The tax shall be payable by an assessee under the head `interest on securities' in respect of the interest receivable by him on any security of the Central Government or Provincial Government, or on debentures or other securities for money issued by or on behalf of a local authority or a company."

14. It was the contention of the assessee that word "receivable" in this connection means "received' and as the interest was credited by the bank to the assessee's account on 21st October, 1944, it should be treated as the income of the year in which this date falls, i.e. assessment year 1946‑

47. The Tribunal held that the interest was receivable by the assessee on the 16th October, which was a working day, and, therefore, it was the income of the year in which this date falls, i.e. the accounting year relevant to the assessment year 1945‑

46. The Tribunal did not agree with the assessee that "receivable" means "received". On a reference application forwarded to the High Court for the determination of the same, it was held: "Undoubtedly, the language used by the Legislature is 'receivable' and not 'received' and we are asked to draw the necessary inference that the Legislature was attempting to tax interest or securities not when it was received, but when it was capable of being received. But when one looks a little more closely into the scheme of the Act, it is clear that 'receivable' in this case does not mean 'capable of being received'.

15. We have given our anxious consideration to the arguments addressed by the counsel for the respective parties and the case‑law cited at the bar, in the light of above discussion we are of the considered opinion that the learned IAC was not justified in invoking section 66‑A of the Ordinance. Bate perusal of the impugned order shows that the learned IAC has failed to establish any loss of revenue to the department Admittedly; there has been no change whatsoever in the method of accounting accepted by the department over the year. Though the method, of accounting adopted by the assessee might be erroneous but for the attraction of section 66‑A of the Ordinance, it should not only be an erroneous order but simultaneously it should be prejudicial to the interest of revenue as well. Assessee's stance stands substantiated by the judgment of the Supreme Court reported as PLD 1992 SC 549 = 1992 PTD

932. Even otherwise arguments of the assessee that interest income which the learned IAC ordered to be charged to tax on accrual basis was taxed on receipt basis cannot be brushed aside because by not ordering for deletion of said amount in the subsequent year the learned IAC has tried to tax the same amount twice. We have no hesitation in observing that practice of double taxation has never been approved by the Courts. Another argument pressed by the learned A.R. was also worth‑giving weight, and that was amply proved by the learned A.R. through a chart reproduced above that since 1999‑2000 income under section 17 of the Ordinance on receipt basis is more than chargeable on accrual basis. We, feel ourselves persuaded with the arguments advanced by the learned A.R. that the IAC has failed to view the matter in its total perspective and involved section 66‑A of the Ordinance and that too only for one year without realizing in impact in the subsequent year where the department would suffer loss if method of accounting adopted by the assessee is discarded.

16. For the foregoing reasons, we annul the impugned order passed by the learned IAC and restore the assessment order since as per judgment of the Supreme Court one of the basic ingredients that not only that order should be erroneous but it should be prejudicial to the interest of revenue was altogether missing which is a prerequisite for invoking section 66‑A of the Ordinance.

17. Resultantly appeal of the assessee succeeds. C.M.A./632/Tax(Trib.) Appeal succeeded.