2005 PLP (Trib (PTD)

This appeal at the instance of the assessee-appellant is directed against the order passed by CIT(A) Zone-IV, Lahore, dated 22-8-2003 in respect of assessment year 1999-2000.

2. In this case besides objecting reopening of assessment under section 65, confirmation of addition made under section 13(1)(e) of the Repealed Income Tax Ordinance and determination of set off in terms of section 80C(7) of the Repealed Ordinance have also been contested. Main thrust of the learned counsel for the assessee was that the already completed assessment has not been lawfully reopened as no definite information whatsoever was in possession of the department to do so. It was explained that the learned Assessing Officer has malafidely reopened the assessment and has ignored the gift of Rs.500,000 made to the daughter, appearing in the wealth reconciliation statement which is part of the record, prior to reopening of the assessment. Without prejudice to the above, it was also the learned counsel s contention that the addition under section 13(1)(e) amounting to Rs. 199,970 was not unlawful made besides that was also baseless in view of the amount of gift already declared in the wealth reconciliation statement. Also added that the learned Assessing Officer has failed to allow set off of income imputable in terms of section 80C of the Ordinance against the impugned addition made under section 13(1)(e) of the Ordinance. It was accordingly prayed that as the proceedings under section 65 of the Ordinance have been initiated on the strength of issuance of illegal notice, therefore, all the subsequent proceedings or the additional assessment made thereunder cannot hold the field and certainly merits cancellation of such assessment. On the other hand the learned DR appearing on behalf of the Revenue supported the impugned orders for the reasons recorded therein.

3. What happened in this case was that the assessee allegedly supplied raw hides consequent upon which statement under section 143B of the Ordinance was filed wherein supplies worth Rs.58,35,600 and tax deducted at source amounting to Rs.58,356 was shown. In additional, wealth tax return for the year under appeal was also filed by the assessee. Subsequently on receipt of an information it was found that payment of Rs.199,970 was made by the assessee on his daughter s marriage to the Pearl Continental Authority, Lahore whereas personal expenses in the wealth tax return were claimed at Rs.118,

356. It was, thus, inferred by the Assessing Officer that lesser expenses are claimed than actually expanded by the assessee which fact certainly constituted definite information to which the provisions of section 65 are attracted. Before drawing any adverse inference, the assessee was confronted as to why the proceedings under section 65 may not be initiated but the explanation tendered was not found satisfactory. Accordingly the case was reopened by observing that since the receipt issued by the hotel authority was in the assessee s own made which is a valid piece of evidence for believing that payment on daughter s marriage was made by him and not by the daughter as has been stated in the reply. This resulted into taxing the sum of Rs.199,970 under section 13(1)(e) of the Ordinance. At the first appellate stage, the Appeal Commissioner maintained the Assessing Officer s action in its entirety. This has compelled the assessee-appellant to come up in appeal before the Tribunal.

4. The matter has been considered in the light of deliberation held by the rival parties in appeal citations in re: 2000 PTD (Trib.) 2193 and 2003 PTD (Trib.) 1978 and the facts of the case were duly mulled. As regard the learned AR s first contention that the provisions of section 65 of the Ordinance are not attracted in the eventuality whereby the assessee has already displayed his cards on the table prior to finalization of assessment. It was explained that since the assessee has already declared gift of Rs.500,000 made to the daughter, in the wealth tax return out of which she had made payment to the hotel, therefore, proceedings under section 65 are not lawfully initiated. This could be one of the assessee s plea but to my mind the learned counsel for the assessee has canvassed the arguments on altogether different premises. Actually the learned counsel s sole contention should be that the provisions of section 65 are not attracted where no order in writing has been passed. The condition precedent for invocation of section 65 is that there should be an order in the field. Since in this case a statement under section 143-B of the Ordinance has been filed instead of the normal tax return therefore the assessment is deemed to have been made under section 80C of the Ordinance. This section clearly envisaged that the persons covered under section 80C are not required to file return of total income. Even the firms, association of persons and body of individuals are not required to file the return of wealth. A perusal of sections 59, 59A, 59B, 60, 62, 63 shows that the Assessing Officer is required to assess the total income of an assessee. On the other hand, under section 80C a concept of deemed income has been introduced and the tax on the deemed income is to be charged at the rate specified in First Schedule. In entire section 80C the expression, total income has not been used anywhere on the other hand, it is specifically provided under subsection (4) of section 80C that, where the assessee has no income other than income referred to in subsection (1) in respect of which tax has been deducted or collected under section 50 shall be deemed to be the final discharge of his tax liability under this Ordinance and he shall not be required to file the return of total income under section 55 . Thus, the presumptive tax regime under section 80C is at complete variance with the scheme of income tax under the normal law envisaged under the Income Tax Ordinance, 1979. The departure is so completed that the income tax under section 80C is to be levied on the income of a person on the rates specified in the First Schedule which are different from the rates of income-tax to be levied on the total income and it has been further clarified that no return of total income under section 55 is required to be filed. Even subsection (7) of section 80C where an assessment order in respect of total income under section 59A it is not provided that it shall be an assessment order in respect of total income but it is provided that in a case to which subsection (4) applies an order under section 59A shall be deemed to have been made in respect of income referred to in subsection (1).

5. A resume of the above provisions shows that in respect of income covered under section 80C neither there is any concept of total income nor is assessable under the Ordinance. Under section 80C of the Income Tax Ordinance, 1979 there is a concept of deemed income which has been subjected to tax without going through the process of assessment by any Assessing Officer and without determining the total income. Thus, the very first condition of assessing total income, as has been envisaged in sections 59, 59A, 59B, 60, 62 and 63 is not available in case of income falling under the regime of presumptive tax.

6. In view of the foregoing discussion it is an admitted fact that the tax liability in the present case arose out of supply of raw hides which is covered under the presumptive tax regime in terms of section 80C, therefore, it is held that flagrant violation of law has been committed by the Assessing Officer while reopening the assessment under section 65 and calling upon the assessee to file return of income which is clear contravention of the provisions of section 80C of the Ordinance. Since, the Assessing Officer has travelled beyond his lawful authority by issuing a notice under section 65 which is held to be of no legal effect. This would result into cancellation/annulment of the assessment order made under sections 62/65 of the Repealed Income Tax Ordinance, dated 20-10-2001. The assessee s appeal is accordingly accepted. C.M.A./361/Tax (Trib.) Appeal accepted.