1989 PLP 308 (PTD)

ABRAR HUSSAIN ZAQVI (JUDICIAL MEMBER), J.--These are two cross appeals, one by the assessee and the other by the department relating to the assessment year 1983-84.

2. The assessee is a Private Limited Company deriving income from running a cinema on rental basis. The assessee declared gross receipts at Rs.1,57,904 against which the Income-tax officer estimated the receipts at Rs.3,15,

000. The rent per week adopted by the Income-tax Officer was Rs.9,000 which was reduced by the learned, Commissioner of Income-tax (Appeals) to Rs.7,500 per week. The assessee feels aggrieved against the estimate of receipts as still excessive while the department is aggrieved against the reduction of receipt. The second grievance of the assessee is against the addition made under section 13(1)(d) of Income Tax Ordinance. The assessee had purchased a cinema on 30th October, 1982. The cost of land, building and furniture excluding the machinery declared by the assessee was as under:- Land Rs.8,23,255 Building Rs.3,29,799 Furniture Rs. 46,946 Legal charges Rs. 78,051 Total value declared Rs.12.78,051 The Income-tax Officer was however of the view that the value of the land declared by the assessee was low. Consequently, he estimated the value of the land measuring 3 kanals 11 marlas at the rate of Rs.12,00,000 per kanal, and estimated the total value of the land at Rs.42,60,

000. The value of the building machinery etc. were accepted by the Income-tax Officer. Thus the difference between the value ' declared by the assessee and adopted by the Income-tax Officer was added as income under section 13(1)(d) of the Income-tax Ordinance. On appeal the learned Commissioner of Income Tax (Appeals), for various reasons given in detail, reduced the value to Rs.28,78,

051. The department is aggrieved against the reduction of value made by the learned Commissioner of Income-tax (Appeals) while the assessee has attacked the orders of the officers below on two grounds. Firstly, that the addition was liable in be deleted on the ground that no notice under section 13(1) of the Ordinance was given to the assessee. Secondly, the value as declared by the assessee in the registered deed should have been accepted.

3. Business income: The learned counsel for the assessee contended that the cinema business is no longer a lucrative business and cinema was run on rental basis at an average rate of rent of Rs.5,000 per week which should have been accepted. On perusal of the orders of the officers below, we find, that the Income Tax Officer made inquiries from various parties out of which rive were admitted to have paid rent at the rate of 11,0,500 per week. Therefore, the contention of the learned counsel for the assessee that the rate of rent adopted by the Commissioner of Income-tax at Rs.7,500 is still excessive, is absolutely baseless. When it is admitted at least by five parties that they had paid A rent at Rs.7,500 per week the assessee has no case to say that he had been charging lesser rent. At the same time the Income Tax Officer was also not justified in adopting the rate of rent at Rs.9,000 per week on the basis of parallel cases. 1t is common knowledge that the rent of cinema depends on various factors such as location of the cinema, the equipments of the cinema and how it is maintained. On face of the fact that on the income-tax Officer's own verification some of the parties had stated to have paid rent at Rs.7,500 per week, the reasonable rent to be adopted was Rs.7,500 as has been adopted by the learned Commissioner of Income-tax (Appeals). For the foregoing reasons, we maintain the order of the learned Commissioner of Income Tax (Appeals) so far as it relates to the estimate of receipts at the rate of Rs.7,500 per week. On this issue both the assessee and the department fail.

4. Addition under section 13(1)(d): The learned counsel for the assessee vehemently "tended that no notice under section 13(1) was issued to the assessee. We asked the learned Departmental Representative to verify this fact. The assessment record has also been perused. It was discovered that the assessing officer issued a notice under section 61 of the Ordinance on 29th February, 1981 and then another notice was issued under section 62 of the Ordinance on 27th March, 1984. A letter had also been issued by the Income Tax Officer on 4th April, 1984 and then notice under section 62 on 7th April, 1984. However, in none of these notices/letters the assessing officer asked the assessee to explain the nature and source of the investment made by him as required by Section 13(1) of the Ordinance. In the notice under section 61 the assessing officer had only called for the account books etc. The notice under section fit dated 27th March, 1984 is only m regard to the valuation of the property and was a notice under section 13(2) of the Ordinance. In para 2 of the notice the assessing officer also asked the assessee to explain the source of deposits for shares of various share holders amounting to Rs.19,88,

300. However, no notice in regard to the proposed addition under section 13(1) of the Ordinance on account of difference in valuation of the property was given to the assessee as required under section 13(1). It may be noted that no addition had been made by the assessing officer on account of source of deposits of the share holders amounting to Rs.19,88,300 for which the notice had been given by the assessing officer.

5. The learned counsel for the assessee contended that since the statutory compliance of confronting the assessee with the determined amount had not been given by the assessing officer therefore the order of the assessing officer is void ab initio. He has relied upon the following decisions of the Tribunal: 1987 P T D (Trib.) 36: In this case the Tribunal held that the assessee should be given an opportunity of being heard in regard to the quantum of the addition which is in the mind of the Income Tax Officer and failure of such notice makes the addition as invalid. Similarly in (1984) 50-Tax-44 the Tribunal held that failure to comply with the mandatory provisions of the Statute with regard to giving of reasonable opportunity of being heard renders the impugned order as wholly void. In that case no specific opportunity of being heard was provided to the assessee and the Assistant Appellate Commissioner had set aside the assessment but the Tribunal held that in such a case the assessment order had to be annulled. This view is further supported by a decision of the Supreme Court in Collector Sahiwal v. Muhammad Akhtar reported as 1971 S C M R

681. In this case the Supreme Court has made a distinction between the case where giving of the notice is provided by the Statute itself and the case where there is no such statutory provision but general principle of audi alteram partem is applicable. In cases where giving of the notice is provided by the Statute itself it has been held that failure to give this notice is fatal and cannot be cured. At page 685 of the report it has been held: "This Court has gone to the extent of pointing out that the mere absence of a provision in a statute as to notice cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without an opportunity of hearing and also held that where the giving of a notice is a necessary condition for the proper exercise of jurisdiction then failure to comply with this requirement renders the order void and the entire proceedings which follow also become illegal." "The principle, so far as this country is concerned, is accordingly well -settled that where notice required to be given by the statute is a mandatory notice, then the failure to comply with such mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute. Furthermore any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage".

6. Since admittedly the assessee was not provided in opportunity to explain the nature and source of investment the amount which was determined by the assessing officer under section 13(2) of the Ordinance, this addition made by the assessing officer was void ab initio. Consequently, we direct that this addition should be deleted.

7. Since, on the legal ground the assessee succeeds there is no need to go into the merits of the case in regard to the valuation of the property. Both the appeals are disposed of as above. M.B.A./568/T. Order accordingly.