1990 PLP 873 (PTD)

SYED HAIDER ALI PIRZADA, J.‑‑‑The petitioner through this Petition has prayed the following reliefs:‑‑ "(i) Declare the impugned notice dated 26‑1‑1987 and all subsequent orders passed in pursuance thereto as without lawful authority and of no legal effects. (ii) Prohibit and restrain the Respondent from acting on the impugned notice dated 26‑1‑1987 (Annexure A) dated 19‑9‑1987 (Annexure 1) or implementing the same or taking any further action/proceedings in pursuance thereto himself or through any agency or in any manner whatsoever. (iii) Any other relief which this Hon'ble Court deems fit and proper in the circumstances of the case. (iv) Cost of the petition." The facts leading to the filing of the above petition are that the petitioner is an English Medium Lower Secondary School for boys and girls. It is the case of the petitioner that the assessment for the assessment year 1984‑85 was in the first instance finalized under Self‑assessment Scheme on 15‑12‑1984; on an income of Rs. 85,564 after submitting proof of Prize Bond Winnings, Wealth Statement and Wealth reconciliation statement. It is the further case of the petitioner that the petitioner before passing of the assessment order had also submitted full details of properties purchased. It is the further case of the petitioner that photostat copies of the sale‑deeds and also balance certificate of loan of Rs. 10,00,000 payable to Habib Bank Limited were filed vide letter dated 12‑12‑1984. The petitioner received a show cause notice dated 28‑11‑1986 calling. upon the petitioner to submit explanation which reads as under:‑‑ "Under‑assessment of Income and discrepancies in assets‑‑Explanation regarding show‑cause notice, for re‑opening Asstt: year 1984‑85." The petitioner sent a suitable reply vide letter dated 28‑12‑1981; The petitioner received notice dated 26‑1‑1987 under Section 65 of the Income Tax Ordinance. 1979 (hereinafter referred to as the Ordinance). It was alleged in the notice that the income was under‑assessed. It is the case of the petitioner that it filed necessary particulars on 3‑2‑1987 under protest. It is the further case of the petitioner that Subsequently the respondent No. 1 issued a letter dated 15‑6‑1987 desiring explanation about various items by 23‑6‑1987. The petitioner sent a reply on 12‑8‑1987 within the extended time. It is the further case of the petitioner that summons dated 7‑6‑1987 was issued under Section 148 of the Ordinance for compliance as on 11‑6‑1987 subsequently the date was extended to 23‑6‑1987 and finally fixed for 12‑8‑1987. The notice under Section 61 was issued on 19‑9‑1987. The petitioner filed the present petition on 22‑6‑1989 challenging the validity of the notice and proceedings to be taken by respondent No.

1. Respondent No. 1 filed counter‑affidavit stating that the notice has been served legally and with jurisdiction and authority after compliance of all the prerequisites. The petitioner has made contradictory statements and has not come with clean hands. The alternate remedy is available to the petitioner which it did not exhaust in the present case. Mr. Rehanul Hasan Naqvi, the learned counsel for the petitioner raised the following contentions:‑‑ (1) The impugned notice is bad, being without jurisdiction and without lawful authority. (2) No appeal or other remedy against such an excessive exercise of jurisdiction is available under the Ordinance or the Scheme. On the other hand Mr. Shaikh Haider, learned counsel for the respondents submitted that no excess in exercise of jurisdiction is involved. Mr. Shaikh further submitted that the Petitioner, being guilty of concealment, stands deprived of preferential treatment under the self‑assessment scheme. In order to appreciate the respective contentions of the learned counsel for the parties, it is advantageous to reproduce the notice in which facts in details have been given to show that the income was under‑assessed. It reads as under:‑ "Mst. Sabra B. Nanjiani Prop: M/s. Jenning Private School, 13‑Fatima Jinnah Road, Karachi.' Sub: Under‑assessment of income and discrepancies in assets ‑ Explanation regarding ‑‑ Show‑cause Notice for re opening Asstt. year 1984‑85. ______________________________________________ On going through the records it is observed that you purchased property Nos. 13/1 and 13/2 CI‑7, Civil Lines Quarters, Karachi and the cost declared has been worked out as under:‑‑ Property No. Cost. 13/1 CL‑7 Civil Lines Quarters Rs. 8,04,000 13/2, CL‑7 Civil Lines Quarters Rs. 8,56,000 Rs.16,60,800 Cost of stamps and registration charges Rs. 1,16, 282 Declared Cost. Rs. 17,77,082.

2. The value of the property is found to have been grossly under‑stated as compared to the prevailing value of the plots in the vicinity. Please state how do you justify the cost declared and state the reasons why the difference between the fair market value and the declared value of the property should not be added to your income under section 13(1)(d) of the Ordinance, 1979 by re‑opening your assessment under section 65 of the Ordinance.

3. On going through your Bank Account it is observed that the following amounts were credited in the bank: On 24‑7‑83 Rs. 2,50,000 " 25‑7‑83 Rs. 1,50,000 " 31‑7‑83 Rs. 10.00.000 Rs. 14.00.000 and against such deposits two pay orders of Rs. 7,00,000 each were issued on 31‑7‑1983. Please explain the source of above credits in the bank account with relevant evidences.

4. While explaining the source of investment in the property in your authorized representative's letter dated 12‑12‑1984, the same were stated to have been made up through Prizes on Prize Bonds Rs.6,15,000 and loan from Habib Bank Ltd. Rs. 10,00,

000. On scrutiny it is observed that the drafts of Prize Money on Prize Bonds were issued by the State Bank in March and April, 1984. Similarly Bank Loan of Rs.10,00,000 was sanctioned on 17‑8‑1984 and disbursed on 8‑10‑1984. Please state how would you justify the contention of your authorized representative in the above‑referred matter, and explain how could you justify the sources of investment in the properties.

5. On a reference made to your bankers it is observed that the loan of Rs.10,00,000 was sanctioned to you against the following securities:

1. Equitable Mortgage of Property No.13, Fatima Jinnah Road and

2. T.D.R.Rs.10,00,

000. On scrutiny, of your records no Term Deposit received is found to be appearing in Wealth Statement on records. Please state the reasons why should it not be concluded that you have suppressed the holding of the T.D.R. of rupees one million from the Wealth Statement on records. Reply to the above should please be furnished by 7‑12‑1986. It may be noted that in case a plausible explanation is not offered, proceedings under section 65 of the Ordinance, 1979 shall be initiated. Muhammad Aslam Khan Income‑tax Officer Circle ‑ Salary III Central Zone‑D, Karachi." We will take the question of maintainability of the Constitution petition. This question was considered by the Hon ble Supreme Court in Edulji Dinshaw Limited v. Income Tax Officer 1990 PTD 155 in which their Lordships came to the conclusion, after giving cogent reasons, which are fully supported by various authorities discussed by them in the said judgment, that High Court can quash the notice or the order of the Income‑tax Officer notwithstanding the existence of an alternate remedy where the impugned notice or order is without lawful authority, partial, unjust and mala fide. It is now well‑settled that though the existence of an alternate remedy is a bar to the grant of reliefs under Article 199 of the Constitution, yet it is not an absolute bar. It depends on the facts and circumstances of each case whether this Court should exercise its jurisdiction under Article 199 when there is an alternative remedy available to the petitioner.,' In the instant case, the petitioner admittedly challenged the impugned notice under Section 65 of the Ordinance. The petitioner, as stated before, made its best endeavour to assail the impugned notice under Section 65 of the Ordinance. In these circumstances, we are of the view that there is no substance in the contention of the respondent that the existence of the alternative remedy is a bar to the present Constitution petition under Article 199 of the Constitution. Section 65 of the Ordinance with which we are concerned, provides as follows:‑ "

65. Additional assessment.‑ (1) If, in any year for any reason:‑ (a) any income chargeable to tax under this Ordinance has escaped assessment; or (b) the total income of an assessee has been under‑assessed, or assessed at too low a rate, or has been the subject of excessive, relief or refund under this Ordinance: or (c) the total income of an assessee or the tax payable by him has been assessed or determined under subsection (1) of section 59 and no order of assessment has subsequently been made under this section or any other provision of this Ordinance, the Income‑tax Officer may, at any time, subject to the provisions of subsections (2), (3) and (4), issue a notice to the assessee containing all or any of the requirements of a notice under section 56 and may proceed to assess or determine, by an order in writing, the total income of the assessee or the tax payable by him, as the case may be, and all the provisions of this Ordinance shall, so far as may be, apply accordingly: Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made. (2) No proceedings under subsection (1) shall be initiated unless definite information has come into the possession of the Income -tax Officer or he has obtained the previous approval of the Inspecting Assistant Commissioner of Income‑tax in writing to do so. (3) Notice under subsection (1), in respect of any income year, may be issued within ten years from the end of the assessment year in which the total income of the said income year was first assessable. (3‑A) Where a notice under subsection (1) is issued on or after the first day of July, 1982, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served:' Then follows explanation which makes it clear that "definite information" includes information in respect of sales and purchases, made by the assessee, of any goods, and any information regarding acquisition, possession or transfer, by the assessee, of any money, asset or valuable article, or any investment made or expenditure incurred by him. The question is whether the Income‑tax Officer had any reason that income chargeable to tax had been under assessed. It has been argued by Mr. Naqvi on behalf of the petitioner that there was no definite information in possession of the Income‑tax Officer and he has not obtained the previous approval of the Inspecting Assistant Commissioner of Income‑tax in writing and so a condition precedent to the exercise of jurisdiction under Section 65 of the Ordinance did not exist. It has been urged that the Petitioner had supplied all the primary facts at the time when the return for 1984‑85 was assessed to income by order Annexure "B" in December, 1985 and that even the photostat copies of sale -deeds and also the balance certificate of loan of Rs. 10,00,000 payable to Habib Bank Limited were filed vide letter dated 12‑12‑1984 (Annexure "C" to the petition) before the finalization of the assessment. It is well‑settled legal position that the fulfilment of the said condition is mandatory and not a mere formality. In Jori Lai v. Commissioner of Income‑tax, UP 88 ITR 439 (1973) TLR 1288 (SC) and Income‑tax Officer, Hyderabad v. Nawab Mir Barkat Ali Khan, 971 ITR 235= (AIR 1975 SC 703)= (1975 TLR 2010) it was held that section 147 of Indian Income Tax Act which is pari materia to section 65 of the Ordinance, does not contemplate a purely subjective satisfaction of the Income‑tax Officer and that the "reason" referred to in the section must have a rational connection with or a relevant bearing on the formation of the belief. The main question therefore is whether the Income‑tax Officer had any such belief in this case. By this letter dated November, 28 1986, addressed to Mst. Sabra B. Nanjiani, the Income‑tax Officer stated that the reason for reopening the assessment under Section 65 are two immovable properties bearing Nos.13/1 CL 7 and 13/2, CL‑7, Civil Lines Quarters which were purchased by the petitioner, it was stated that value was grossly under‑assessed as compared to the prevailing value of the plots in the vicinity. It was further stated that sources of credits in the bank accounts were to be disclosed. It was further stated that loan of Rs. 10,00,000 was sanctioned by the bank against equitable mortgage and TDR Rs. 10,00,

000. The counter‑affidavit in reply to the Constitution petition was on similar terms to the aforesaid. In the counter‑affidavit it was alleged that the original assessment was made under the self‑assessment scheme and hence reopening is proper. It was further alleged that the principle of change of opinion does not apply to an assessment made under self‑assessment scheme without scrutiny and examination of accounts and books of assessee. The petitioner filed its income tax return for the assessment year 1984

85. Para. 1 of the scheme provides that all returns filed for assessment year 1984 85 shall be self‑assessment returns, provided they do not carry the disqualification listed in para 4 and subject to conditions mentioned in para.

1. Para. 2 of the scheme mentions requirements of the return and provides that alongwith the return of income, statements, accounts, details and documents mentioned in it shall be filed by the assessee. Para. 5 specifies five categories of cases which shall not qualify for processing under the self‑assessment scheme; one of which being the case selected for detailed scrutiny by the Board as specified in para.

5. Para. 5 specifies such class of cases which would be selected for detailed scrutiny. In the instant case, the petitioner had filed documents with the return, that is, photostat copies of prize bonds and drafts issued by the State Bank of Pakistan for prize bond money. Admittedly the petitioner had supplied photostat copies of sale‑deeds of the properties purchased from Jamshed Kaikobad Marker and another and photostat copy of balance certificate for loan payable to Habib Bank Limited with letter dated 12‑12‑1984. This letter was received on the same date. A perusal of letter dated 12‑12‑1984 would show that it contained the price of two plots and stamps and registration charges. It appears that the petitioner has disclosed their value and produced all the relevant records. The sources of payment of prices or costs of the plots were duly mentioned in the letter dated 12‑12‑1984. According to Mr. Rehanul Husan Naqvi, all the records, documents, sale- deeds, photostat of prize bonds, drafts and balance certificate were produced before the assessing officer and after scrutiny he had framed the assessment order. His submission is that picking up certain transactions and comparing them with the transactions of other immovable properties cannot be termed to be definite information received by the Income Tax Authorities for justifying re opening of the case. In Calcutta Discount Co. Ltd. v. Income‑tax Officer, Companies District I, Calcutta and another (ITR 191‑AIR 1961 SC 372) the Supreme Court of India held on page 376 para. 8 as follows. "In every assessment proceeding, the assessing authority will, for the purpose of computing the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered, by him on the basis of the facts disclosed, or otherwise‑‑‑the assessing authority has to draw inference as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be." The law laid down in the above case has been restated in several subsequent decisions (See AIR 1971 SC 2331=1971 TLR 1541: AIR 1971 SC 717=1971 TLR 77, AIR 1971 SC 1635=1971 TLR 949 to name only a few. In Gemini Leather Stores v. The Income‑tax Officer, "B" Ward Agra and others (1975 TLR= AIR 1975 SC 1268=1975 (100) ITR 1), the assessee did not disclose the transactions evidenced by the drafts, which the Income‑tax Officer discovered. After this discovery, the Income‑tax Officer had in his possession all the primary facts and it was for him to make necessary inquiries and draw proper inferences as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income Tax' Officer did not do. The Supreme Court of India held as follows:‑ "It was painly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income‑tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight." In Messrs Arafat Woollen Mills Limited v. The Income‑tax Officer, Companies Circle C‑1, Karachi (199() SCMR 697), Mr. Shaikh Haider contended before the Hon'ble Supreme Court that "the observation of the High Court that the mere change of opinion" is not the ground for reopening a closed assessment, is based on the observation made by the High Courts and the Supreme Court of India on the basis of provisions of section 34 of the Income‑tax Act, 1922 and Sections 147 and 148 of the Indian Income‑tax Act, 1962, which are not para materia to provision of section 65 of the Income Tax Ordinance, 1979, and therefore, the pronouncements of the High Courts, and the Supreme Court of India on the aforesaid sections do not lay down the correct law, applicable to the provisions of section 65 of the Income Tax Ordinance. His submission was that "the Income‑tax Officer is vested with jurisdiction to initiate proceedings either on the basis of definite information or on the basis of permission granted by the Inspecting Assistant Commissioner". The Hon'ble Supreme Court observed as follows:‑‑ "After having heard lengthy arguments in the light of the record before us and also the principles of law laid down in the several cases cited before us, we proceeded to hear the case on merits because the entire record pertaining to the Tax Returns of the Appellant Company is before us, and there is no other document or information which can have any bearing on the decision in the case." On page 704 it was further observed as under:‑ "After having gone through the record of the case we find that no exception can be taken with the above view that prevailed with the Income‑tax Officer. No other information or material, except what was already in possession of the Income‑tax Officer who passed the assessment order, came within the knowledge or possession of the Income‑tax Officer, who issued the impuged notice under Section 65 as to justify the reason that any income received by the appellant‑company and chargeable to tax under Ordinance had escaped assessment." On the same page, it was also observed as under:‑ It is un-controverted position that the income‑tax Officer as well as the Inspecting Assistant Commissioner who gave the previous approval for initiating proceedings under section 65 of the Ordinance acted on the same material that was produced and made available to the previous Income‑tax Officer who had passed the assessment order which is sought to be reopened." In the case of Messrs M. R. Sons v. Income‑tax Officer and others (C.P.D‑1195 of 1987) a Division Bench of this Court held as follows:‑ "Admittedly there is no definite information with respondent No.l nor there is any material for the satisfaction of the Inspecting Assistant Commissioner for according approval for re‑opening the case of Petitioner. Subsection (1) of section 65 again starts with the words; it in any year for any reason' and the statutory form of notice under section 65 starts, with the words, 'whereas I have reason to believe that', Which connote that these words are stronger than the word `suspect'. Therefore, the expression reason to believe does not mean a purely subjective satisfaction on the part of the Income‑tax Officer, but the reason must be held in good faith. In this view of the matter, there is no force in the contention of Mr. Shaikh Haider. learned counsel for respondents when he states that provisions of section 65 of the Income Tax Ordinance, 1979, are aimed to bring t,, tax the total income of the assessee, which escaped assessment due to negligence of the Officers concerned, The Petitioner had disclosed all the relevant material regarding the plots in question and the previous Income‑tax Officer had completed the assessment after perusing the relevant material. There was, therefore, no justification to re‑open the case merely on suspicion." This decision was followed in C.P. Nos. D‑204 of 1988 and D‑205 of 1988. Recently the Supreme Court in the case of Edulji Dinshaw Limited v. Income‑tax Officer (1990 PTD 155) held at page 177 as under:‑ "Once all the facts have been fully disclosed by the assessee and considered by the Income‑tax Authorities and the assessments have been consciously completed, and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under‑assessed, etc. in the meaning of clause (a) or (b) of subsection (1) of section 65 of the Ordinance.' In Messrs M.R. Sons v. The Income‑tax Officer and others 1989 PTD 1010 (Karachi High Court), a Division Bench held at page 1014 para. 9 that "the principle of "change of opinion" is in fact a judicial innovation of the Courts of Indian jurisdiction. In Jeson International (Pvt.) Ltd. v. Income‑tax Officer, Company Circle C‑7, Karachi and 3 others 1989 PTD 1141, a Division Bench held at page 29 as under:‑ "The action under Section 65 was initiated by issuing the impugned notice. If any notice on the basis of which action is taken is held to be ultra vires or without jurisdiction, then all subsequent proceedings taken and orders passed shall also be rendered void and illegal." We have gone through the decisions namely PLD 1985 Lah. 472; 1986 PTD 834; 1984 PTD 171; 1982 PTD 322; PLD 1987 Pesh. 12 and PLD 1984 SC 30 cited by learned counsel for both the sides. It is not necessary to discuss them in view of the principles of law laid down in 1990 SCMR 697 and 1990 PTD

155. In the above cases it has been held that jurisdiction under section 65 of the Ordinance can be exercised only in case where after the assessment any new material comes to the knowledge of the Income‑tax Officer and definite information to that effect has been received from which it can be inferred and deduced that the assessee's income has been under‑assessed or escaped assessment. Under subsection (2) of Section 65, no proceeding under subsection (1) shall be initiated unless definite information has come into his possession and he has obtained the previous approval of the Inspecting Assistant Commissioner of Income‑tax in writing to do so. It was further held that where all the material available on record including documents and accounts books produced have been scrutinized and assessment order has been passed by applying mind, merely by deducing another conclusion from the same documents and materials will amount to change of opinion and the Income Tax Officer would not be entitled to invoke section 65 of the Ordinance The principles applicable are sufficiently expounded in the above decisions. For the petitioner, it was contended that there had been a full and true disclosure of all the material facts by the petitioner and that these had been proved by the officer, as will be seen from Annexure "C" to the petition, which preceded the assessment order dated 15‑12‑1984. The Income‑tax Officer after satisfying himself about the purchase price of the two plots and the sources of the credits of bank account, finalized the assessment. The officer who issued the notice had not filed any affidavit traversing the allegations of the assessee. The stand of the Income‑tax Officer was that the assessment was finalized under the self‑assessment scheme. It has come on record that the petitioner had disclosed. all material facts by producing the photostat copies of sale‑deeds, balance certificate of Habib Bank Limited and the prize winning bonds. There was no other obligation on it to instruct the Income‑tax Officer about the inference to be drawn on these facts: If the Income‑tax Officer felt any doubt, he could have examined the vendors and satisfied himself. He having not done so, cannot be permitted to reconsider the same on a change of opinion, so to say. In this view of the matter, we hold that the question of under‑assessment did not arise in the instant case so as to attract the mischief or provisions of section 65 of the Ordinance. For the foregoing reasons, the writ petition is to be allowed and it is accordingly allowed with the result that the impugned notice dated 26‑1‑1987 and all subsequent letters dated 15‑6‑1987, summons dated 7‑6‑1987 and notice under section 61 dated 19‑9‑1987 are declared as without lawful authority and of no legal effect and the respondents are restrained from acting on the impugned notices or implementing the same or taking any further action in pursuance thereof themselves or through any agency or in any manner whatsoever. In the circumstances of the case, the parties are directed to bear their own costs. M.B.A./J‑103/K Petition allowed.