2004 PLP (Trib (PTD)

Subsequently the said house was disposed, off for Rs.13,000,000 on 9-4-1996 which is relevant to the assessment year 1996-97. The assets were explained and reconciled in the following manner:-- Shares in S.A. Corporation Ltd. 23,000 23,000 C/A S.A. Corporation 191,018 191,018 Share in Taj Traders Ltd. 8,000 8,000 C/A Colony Sarhad Mills Ltd. 898,316 107,042 H. No.483-D Peoples Colony F/abad 586,200 Nil share in Shop P-238 M. Bazaar F/abad 611,000 611,000 Vehicle 693,000 Nil Jewellery (As before) 3,000 3,000 Furniture at Residence (As before) 10,500 10,500 Cash Bank & Prize Bond 218,979 855,253 CIA Taj Traders (Pvt.) Ltd. 700 000 700,000 3,943,013 2,508,813 Net wealth as on 30-6-1995 (inclusive of amount invested in renovation) Rs.3,943,013 Business incomes declared Rs.191,000 Property income as declared Rs.24,000 Sales proceeds of House Rs.13,000,000 Less: Declared as on 30-6-1995 Rs.586,200 Rs.12,413,800 Total Rs.16,571,813 Less: Gifted to family members 13,500,000 Personal Expenses & Tax Rs.540,000 Loss in sale of car Rs. 23,000 Rs. 14 063 000 Net Balance Wealth as on 30-6-1996 Rs.2,5.08,813 He said that the show-cause notice, dated 29-4-2000 was issued without prior approval of IAC which as per finding/decision of Honourable Federal Tax Ombudsman and circulated by C.B.R. vide Letter No.7(29) S. Asstt/96; dated 7-1-2002 is deviation of the instructions contained in section 65 hence illegal on the face of it. That Inspector's report, dated 8-12-1995 was available at the time of finalizing assessment under section 62 on 30-6-1996 for year 1993-94, which was reopened under section 65. on account, of concealment of expenditure incurred against said Mobil Telephone and accordingly decided under sections 62/132/65, dated 30-11-1996. This evidence, therefore, cannot be used again. He also argued that there was no definite information available with the learned Assessing Officer to reopen assessment for the year 1996-97 under section 65 and to invoke provision of section 13(1)(b) for the reason that the matter had already been discussed by his predecessor during the assessment year 1991-92. Regarding charge of deemed income in the year it is found, he remarked, th4t the first proviso to sub section (1) of section 13 was kept in abeyance vide clause (7) in Part IV of the 2nd Schedule and it was omitted by Finance Ordinance, 2000: As such, the same cannot be applied earlier. Further the simultaneously issuance of notice under section 65 and intimation of appointment of valuer itself proves that there was no definite information with the Assessing Officer to invoke provision of section 13 in the instant case. In support of the contentions that case cannot be reopened without definite information the AR has placed reliance on decision reported as 1993 SCMR 1232 which after relying upon the famous judgment of Supreme Court of Pakistan holds:-- "In the case of Messrs Central Insurance Co. And others v. Central Board of Revenue, Islamabad and others (1993 SCMR 1232), it has bean specifically laid down by the Supreme Court that once an assessee disclosed all the material facts without concealment and the assessment has been consciously completed by the Income Tax Officer, in such a case in the absence of discovery .of any new facts, which can be treated as "definite information", there could be any scope for reopening of the assessment under section 65 on the grounds referred to in section 65(1)(a)(b) of the Income Tax Ordinance, 1979. It was further observed that any change of opinion on the basis of the same material by the Income Tax Officer would not warrant pressing into services section 65(1) and .." further reliance also been placed of the following judgment:-- "PLD (1997) SC 700:--The word `definite information 'is the key 'words for the purpose of justifying action under sub section (1) and the said words have not been defined in the Ordinance, they will carry their literary meanings. Every information cannot be treated as tile basis for reopening of the assessment but the information should be of the nature which qualify as 'definite information' and that the expression definite information could not be given-universal meaning but have to be construed in each case. Where an assessee discloses all material facts without any concealment and the assessment had been consciously completed by the Income Tax Officer, in such case, in the absence of the discovery of any new facts which can be treated as `definite information' there cannot be any scope for reopening of the assessment under section

65. Any change of opinion on the basis of the same materials by the Income Tax Officer will not warrant pressing into service the said provision:" In 'support of his argument that permission does not mean approval he has referred 2003 PTD (Trib.) 1238. M.A. No.347/LB of 2002 (decided on 16-8-2002) wherein the learned Tribunal has held that:-- "In view of the above facts and the case-law cited at the bar we are constrained to observe that the words "approval" and "permission" have different meaning and their impact is also quite different. Admittedly; Assessing Officer sought permission and the learned IAC allowed permission, hence addition made by the learned Assessing Officer after seeking permission from the IAC is not tenable in eye of law. It is pertinent to mention here that when law requires one thing to be done in a particular manner the same should be done in the same manner or not done at all. 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 permission is not tenable in the eye of law." The A.R. urged that in view of foregoing facts, principle of law enunciated by superior Courts and the submissions made at bar, the entire proceedings be declared ab initio illegal, void, without lawful authority and jurisdiction. The facts of the case transpire very surprising situation of the issue before us. The investment in this case has not been made during the assessment year 1996-97 which factor has been accepted by the ITO itself in the manner that the valuer has reported that there is no reconstruction after demolishing. The building is constructed in a single 'attempt around 10 years back. Furthermore, the gift-deed has been executed on 8th April, 1996 and it is from Mr. Muhammad Afzal S/o. Haji Muhammad Yaqoob to Mst. Asima Asif. It is on Rs.50 Stamp paper and it does not explain as to what was the circumstances of this gift. The donor and the donee do not have any relationship and the only reason mentioned in the deed is that they are close relatives and are having affectionate relations: Neither the relationship has been mentioned nor the base of 'affectionateness is there. A plain receipt saying that the house has been sold out by Sh. Muhammad Afzal measuring 4 Kanals and 10 Marlas to Mst. Asima wife of Mr. Muhammad Asif for Rs.1,30,00,000 has also been enclosed. An agreement to sell, again on non judicial stamp paper of Rs.50 has also been furnished which speaks that Sh. Muhammad Afzal son of Haji Muhammad Yaqoob has sold out his house to Mst. Asima Asif wife of Mr. Muhammad Asif for Rs.1,30,00,

000. It also says that the entire money has been handed over and the possession of the property- has been transferred. This paper again has also not been registered with the Registrar. However, all these papers and discussion become irrelevant as neither the Assessing Officer has taken any cognizance of the same nor the same was subject-matter of discussion before the subordinate officers. The entire addition is on the basis of the report of the valuer who says that the constructed area of the property owned by the said assessee was more than what has been declared. It does not disclose as to in what year exactly the same has been constructed. Though, however, he says that the same seems to have been constructed during the year 1992-93. The Assessing Officer has used the said report in totality against the assessee by taking resort to proviso to section 13 that says:-- Provided that, where any act referred to in clauses (a) to (e) is discovered after the assessment of income of the income year to which the said act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in, which the said discovery is made. This proviso was substituted by Finance Act, 1987, for proviso which was earlier inserted by Finance Ordinance, 1980 (Identical to the existing 2nd proviso). This proviso however, was made inapplicable by inclusion of clause (7) in Part IV of the Second Schedule, as per which the provisions of the said proviso were not to apply in respect of ally person. This clause has subsequently been omitted by Finance Ordinance, 2000. The result of this omission is obvious. The Assessing Officers from 1-7-2000 to 30-6-2001 after which the Income Tax Ordinance, 2001 was promulgated were equipped with the proviso to section

13. In the present case the reopening under section 65 having been made earlier to 30-6-2000 and the addition being on 30th of June, 2001 is fully covered by the proviso hence the arguments regarding, inapplicability of the same in principle is not approved as the law had come into operation during the period 1-7-2000 to 30-6-2001. However whether it was, applicable on the facts and circumstances of this case requires further discussion. The issue with regard to application of section 65, which has been argued to be without definite information is supported by these facts:-- (1) That the additions made by the Assessing Officer were not subject-matter of discussion prior to the notice and the valuer wag appointed after reopening of the assessment. (2) That on the date of reopening i.e. 30th of June 2000 the proviso of section 13 was not applicable and was revived after 1-7-2001. Obviously on the date of issuance of notice under section 65 which is 18-5-2000 this information was not there. (3) That the valuer himself mentioned in his report, dated 30-5-2001 that the building was constructed approximately 10 years back which means on and before 30-6-1991. He also said that the basis of reopening was not conveyed to the assessee. The averments of the AR compared with facts of the case apparently do not portrait a correct picture of the facts. The Assessing Officer for reopening the assessment have taken cognizance of the following facts:-- Information was however, collected from the Deputy Director, Housing and Physical Planning; Faisalabad which revealed that the said property has been gifted by Mr. Muhammad 'Afzal, the assessee vide gift deed, dated 8-4-1996 to the donee Mst. Asima Asif wife of Mr. Muhammad Asif resident of 259-B Peoples Colony, Faisalabad without any consideration. On the basis of these new facts of filing of inaccurate particulars/concealment of income, the case of the assessee was reopened after affording proper opportunity .of being heard to the assessee and after' obtaining prior approval in writing from the IAC, Companies Range-II, Faisalabad accorded vide his Letter No.IAC-II/99 2000/I&E-11-53/153, dated 18-5-2000. Notice under section 65 was, therefore, issued on 18-5-2000 which was properly served upon the assessee and complied with. The assessee filed return in response to notice under section 65 declaring income as before. As is apparent from above para., the notice under section 65 issued on 18-5-2000 was on the basis of the information that the assessee has not sold out his property and that the same was gifted to her cousin. The facts with regard thereto has been mentioned by us in the earlier part of this order. However, the relevance of the same is only up to the extent that the assessee has practically accepted this situation. He in turn had filed a return mentioning the same figure, but at the same time filed a declaration of assets under amnesty scheme, 2000. The form of declaration is in respect of assessment year 1996-97 declaring Rs.130,00,000 as income on which Rs.13,00,000 were paid as tax. As a consequence the purpose of reopening stood met with as the department having accepted the same vide order, dated 7-11-2000 the matter should have ended there and then. The Assessing Officer at this stage found himself further equipped with the proviso which was given alive w.e.f 1-7-2000. In principle we agree that if reopening of assessment is legally correct the Assessing' Officer can add other source also. However, whether facts and law so permits shall be discussed incoming part of this order. To us in the back drop of facts dilated upon and the case-law discussed the issues can be framed in the following manner:-- (i) Whether reopening under section 65 was justified or not? (ii) Whether the department was, justified in making addition for assessment year 1996-97 under proviso of section 13? (iii) Whether proviso of section 13 which was revived w.e.f. 1-7-2000 can be applied on a case the proceedings of which, were initiated on or before 30-6-2000? First issue is almost conceded in the sense that the assessee has filed declaration of undisclosed income for Rs.1,30,00,000 after reopening of the assessment. This apparently was to cover the amount distributed by the assessee to his children under the garb of the sale of the house, which was found to have been gifted by the assessee. Under these circumstances arguing at length that the department had not definite information seems more an effort to waste time than being serious about the issue. The arguments with regard to permission and approval and previous approval from the IAC before issue of show-cause is also of no help. The department has taken care of the legal formalities and the assessee has conceded to the reopening practically. However, one thing which requires further dilation is as to whether the notice under section 65 issued prior to 30th of June can extend jurisdiction so as to add the investment made in 1992-93 and 1993-94 in 1996-97. In this regard the general principle is that the law as is obtaining on the date of notice holds precedence on the laws, which come into force subsequently In the present case it is correct that the proviso became operative during the continuation of the proceedings, but legally speaking it was not operative on the day the notice was served upon the assessee. Even otherwise the language of the proviso does leave any room for its addition for the assessment year 1996-97 on the basis of notice issued on 18-5-2000. We are willing to agree with the department that the proviso -is alive with its full force but at the same time this being a charge in fact of a punitive nature, a deemed income, its application cannot be extended beyond the language mentioned therein. The provision says that if an act referred to in clause (a) to (e) is discovered after the assessment of income of the income year to which the said act relates this income shall be included in the total income of the income year relevant to assessment year in which the said recovery is made (underlining ours). Even if we consider the value proposed by the valuer after 10 years to be as correct estimate the. discovery (underlining for emphasis) of the investment was in the income year which is relevant to assessment year 2001-2002. Thus we say in keeping view the date of report by the valuer which is dated 6-6-2001. This hardly needs any reference that a deemed income provision needs strict application and going beyond the intendments of the Legislature is never permitted. When the law says it shall be included in the total, income of the income year relevant to assessment year in which said recovery is made, it could not have been added for the assessment year 1996-97 which was reopened under section 65 on the basis of some other through definite information. There is another angle i.e. with reference to the arguments regarding limitation of section

65. It is correct that one can not be allowed to extend his arms beyond the prescribed limitation. under section 65 by application of above provision. The cases in which the limitation has expired on 30-6-2000, whether this proviso can be invoked or not will need a detailed study. Since we have come to a conclusion through the interpretation of the provision of law, in our humble opinion this should be left for some other case. We, therefore, without any hesitation feel that the proviso of section 13 has not been applied in its correct spirit. This is a very stringent legislation and we have no doubt in our mind in commenting that it is against the settled rules of jurisprudence and against the general spirit and rules of law. There is always a limitation provided for penalizing or in respect of charge under all enactments. No charge can be left for unlimited application. This proviso has got into operation a charge which is unlimited in its application. The only exception is that it shall be added in the assessment year for which the said discovery has been made. However, since we are not here to discuss the vires of a provision of law we shall leave this for the higher Courts. In the present case, however; the discovery has been made on the basis of the valuer report which was, dated 30-5-2001, the said undisclosed amount could be assessed in the relevant assessment year 2001-2002 and not in 1996-97 i.e. the year under appeal before us. Another factor which would require attention in such additions is that the proviso is a part and parcel of section 13 while taking recourse to the same the Assessing Officer will have to comply with the requirements of section 13(1)(a) to 13(1)(e) before embarking upon this provision. The provision only says that if the assessment in respect of the year for which said undisclosed income has been finalized, the said unexplained investment shall be added in the year of detection. It does not give any power to ignore the requirements mentioned in section 13(1)(a) to 13(1)(e). The most important factor therein is the usage of word "found" which is common in section 13(1)(a) to 13(1)(d). For section 13(1)(e) the key words are "and the assessee offers no explanation about the nature and source of such sum

." Furthermore, these additions except for 13(1)(a) required approval of the IAC. The upshot of this para., is that before charging undisclosed money investment or expenditure in the year of discovery the earlier requirements provided in section 13(1)(a) to section 13(1)(e) must be fulfilled. In the absence of any of the same the proviso cannot be invoked. In the present case the information given by valuer is vague and uncertain. He himself has used the words:-- "Note: There are no signs that building is reconstructed after the demolishing. The building is constructed in a single attempt around 10 years back". The language unequivocally says that the valuer is himself not confident that the building was constructed around ten years back. These words in itself are uncertain. Such ambiguous and non-confident reports cannot be said to be covered with the definition of word found". This aspect, therefore, also was not be ignored by the Assessing Officer in this case. The fact that the assessee has paid an additional sum of Rs.13,00,000 after filing declaration also should not entirely be used against him. By virtue of this undisclosed declaration he has come under the cover of a contract provided to such taxpayers through legislation. So practically on facts also the assessee needs some sympathetic treatment by the department. We, therefore, hold that in the present cash entire addition made under the proviso of section 13 was illegal and is hereby deleted. The appeal stands decided accordingly. C.M.A./939/Tax (Trib.) Appeal accepted accordingly.