1989 PLP (Trib (PTD)

(4) Amir Begum Rs. 80,000 (5) Ali Khurshid Rs. 28.000 Total:-- Rs.7.08.000 The I.T.O. discarded the assessee's declared valuation of entire property at Rs.13,00,000 as he had gathered some information regarding total consideration of the sale transaction to be at Rs.20,00,

000. The assessee had also purchased 10 marlas plot in Chak No.224/RB, Faisalabad with its purchase price at Rs.40,

000. The I.T.O. thought the declared purchase price as to be understated. Notice under section 62 of the Ordinance was issued by the ITO stating that the declared valuation of both the properties was an under-statement and he was of the view that the correct valuation of the property No.4-A Peoples Colony was at Rs.20,00,

000. In the same notice the ITO gave his mind for adopting the valuation of plot at the rate of Rs.10,000 per marla. In response thereto the assessee flied detailed reply stating that the declared valuation at Rs.13,00,000 being in accordance with the registered sale- deed merited acceptance as the Excise Authorities in their independent assessment had valued this property at Rs.12,00,

000. The other explanation stated by the assessee was that proposed price at Rs.4,00,000 per kanal of property No.4-A Peoples Colony, Faisalabad was highly excessive as the property was 30 years old construction situated in a back lane and in a low lying area wherein level of the road is little above the plinth of the house,. The assessee also furnished a sale-deed of another bungalow bearing 71-A Peoples Colony, Faisalabad wherein sale transaction was registered in 1985 and bungalow of two kanals having constructed building was sold for Rs.6,00,

000. The assessee also explained that in Peoples Colony, Faisalabad the Deputy Commissioner had fixed the sale price at Rs.10,000 per marla vide Circular No.116 dated 29th July, 1986. On these basis the assessee's reply was that the declared valuation merited acceptance. The ITO discarded the assessee's explanation and determined valuation of the property at Rs.20,00,

000. This valuation was worked out by taking price of land measuring four kanals at Rs.16,00,000 with valuation of structure at Rs.4,00,

000. The assessee's one-half share was adopted at Rs.10,00,

000. Accepting the assessee's investment at Rs.8,00,000 sum of Rs.2,00,000 was added under section 13(1) (d) of the Ordinance. Valuation of plot of 10 marlas was adopted at Rs.1,00,000 @ Rs.10,000 per marla and addition of Rs.60,000 was made under section 13(1)(d) of the Ordinance. Total addition under Section 13 (1) (d) was thus made at Rs.2,60,

000. This addition was stated to be with the approval of the learned IAC Range-1, Faisalabad dated 17th February, 1988.

3. The ITO directed the assessee to produce Mr. Umar Hayat to establish obtaining of loan of Rs.5,00,

000. The assessee filed affidavit of Mr. Umar Hayat alongwith identity card. On the ITO's specific asking Mr. Umar Hayat was produced before the ITO on 18th June, 1987 and his statement was recorded. Mr. Umar Hayat stated that he owned 16 squares of agricultural land and had advanced Rs.5,00,000 to the assessee in the form of prize bonds in the month of. December, 1985. The creditor further deposed that he lived at 9-Shadman Colony, Multan City and he was having three cars and three tractors. The ITO disbelieved the creditor on the basis of some .minor discrepancies in his statement. Sum of Rs.5,00,000 was added under section 13(1)(aa) of the Ordinance with the same approval order of the learned IAC dated 17th February, 1988. Rest of the liabilities amounting to Rs.2,08,000 were accepted. The ITO adopted the assessee's declared share income at Rs.31,

122. Adding thereto additions of Rs.2,60,000 and Rs.5,00,000 the assessee's total income was determined at Rs.7,91,122.

4. On appeal, the learned CIT (A) passed a comprehensive order. The creditor Mr. Umar Hayat was summoned at appeal stage. Therein again the creditor reiterated his earlier statement that he owned 16 squares of land and he had advanced Rs.5,00,000 to the assessee in December, 1985 in the form of prize bonds. It was again deposed by the creditor that he had a bank account having credit balance ranging between Rs.50,000 to Rs.60,000 and he owns three cars and three tractors. The tractors were stated to have been obtained through ADBP loan. The learned CIT (A) modified the assessment directing that the addition made at Rs.2,60,000 under section 13(1)(d) of the Ordinance was untenabe. The assessee's declared total valuation of property No.4-A Peoples Colony, Faisalabad was directed to be accepted at Rs.13,00,

000. The assessee's declared valuation of 10 marlas plot of land at Rs.40,000 was also accepted. After recording the statement of the creditor and making a good deal of discussion regarding his financial position, it was concluded that requirement for establishment of loan was identity of the creditor and nature/source of receipt of the credit amount. 'The creditor was held to be a known person and his credit-worthiness for giving loan of Rs.5,00,000 was also accepted, he being owner of 16 squares of land. Thereafter the learned CIT (A) held the assessee's claim of loan from Mr. Umar Hayat as to be on wet wicket. Addition made on this account at Rs.5,00,000 was maintained. In the assessee's appeal, the grievance was regarding addition of Rs.5,00,000 made under section 13(1)(aa) of the Ordinance. It, was pleaded that the departmental officers erroneously disbelieved the creditor despite the fact that the creditor appeared twice and admitted advancing of sum Rs.5,00,

000. The assessee's AR pleaded that after holding the creditor to be a man of means and accepting the nature and source of the credit amount, the learned CIT (A) erred in maintaining the addition. The assessee also pleaded that on the date of appearance of the creditor before the first appellate authority i.e. 4th June, 1988 a sum of Rs.1,00,000 stood duly paid by the assessee to the creditor through bank. The assessee's AR produced photo copies of the documents regarding repayment of sum of .Rs.5,00,000 to Mr. Umar Hayat. All these payments were through bank. In the departmental appeal objection was regarding deletion of addition of Rs.2,60,

000. The D.R. reiterated the reasons as advanced by the ITO and in reply the assessee's AR stated that valuation as mentioned in the registered sane-deed has been rightly accepted by the first appellate authority after taking into consideration the valuation adopted by the Excite Authorities, sale rate per marla of land fixed by the Deputy Commissioner in that area and other allied factors. The assessee's AR also attacked the additions made by the ITO on legal scores.

5. We have heard the representatives of the parties tit considerable length. Assessment record has also been examined. We are of the considered Knew that the additions made by the ITO under sections 13 (1)(d) and 13 (1)(aa) of the Ordinance are unwarranted on merits as well as on legal scores. Taking up the departmental grievance regarding deletion of addition of Rs.2,60,000, we feel that the learned, CIT (A) rightly deleted that addition on merits. The ITO erred in assuming the valuation of the whole property at Rs.20,00,

000. He also fell in error in bifurcating the valuation of the land underneath the building at Rs.16,00,000 with cost of structure at Rs.4,CO,

000. The property being built up its valuation had to be worked out as a compact unit. The ITO could not lay hands to any material or evidence for holding the valuation of property at Rs.20,00,

000. No reason could be given by the ITO for discarding the valuation adopted by the Excise Authorities despite the fact that the Gains Tax was not to be paid by the assessee rather it was payable by the seller. Similarly no reason was assigned by the ITO for discarding the valuation as per registered deed declared at Rs.13,00,

000. Mere fact that in sale agreement lesser valuation was shown was not enough to discard the valuation as per registered deed. The ITO failed to ascertain the built up area of the property alongwith the position of location despite the fact that the assessee had advanced cogent reasons in the form of situation of the property in a low lying area in a side lane and other allied factors. On merits the ITO failed to make out a case for discarding the assessee's declared valuation. That being so, there was no occasion on the part of the ITO for adopting his own estimate of valuation. The assessee had furnished reply to the notice issued under section 62 of the Ordinance alongwith documentary evidence regarding prevalent sale price of bungalows in Peoples Colony in 1985 in the same year as of the assessee's purchase. This piece of evidence was the guiding factor for ascertaining the valuation of the property in the year 19$

5. On the basis of this evidence the declared valuation of property at Rs.13,00,000 having total area of four kanals seems to be fully reasonable. The ITO's adopted valuation was based on conjectures and surmises and was nothing short of guess work as no effort was made to find out the covered area of the assessee's property and the prevailing market value in that very area in the year 1985. Similar was the position regarding adopted valuation of Rs.1,00,000 for 10 marlas plot. Neither any reason was assigned for discarding the assessee's version on some basis nor any evidence could be procured by the ITO to hold that valuation of per marla of land in the year of purchase was more than the assessee's declared version. The adopted valuation of plot was thus without any basis, Taking up the legal aspect of the matter we feel no hesitation in holding that valuation adopted by the Excise Authorities though not binding on the ITO but could be, considered as one of the guiding factors. For disagreeing with the valuation fixed y the Excise Authorities, the ITO, is required to make out a case on some basis. The Tribunal vide its decision reported as 1986 PTD (Trib.) 855 held:-- "Assessment made by the Excise and Taxation Authorities may riot be strictly binding on the Income Tax Authorities but valuation determined by one agency of the Government will have to be discarded on some solid basis and material:" The Tribunal vide its decision in ITA No.5518 through 5522/LB/1986-87, dated 1st August, 1987 held:-- "At the same time we also feel inclined to observe that a registered sale -deed cannot be brushed aside by an ITO without collecting relevant material on record to support his action. Had we observed that, absolute sanctity was to be attached to a registered sale deed we might have been taken to mean and imply that the ITO had no powers as to estimate the market value of a property other than that which was given in the registered sale-decd. Let us also point out that the market value disclosed in a registered sale-deed has not been made a gospel truth even for revenue authorities. It should also be made subject-matter of re valuation by revenue authorities themselves for the purposes of stamp duty etc. As such we cannot say that registered sale-deed carries absolute sanctity." The Tribunal in its decision in I.T.As Nos. 5589, 5588 5587, 5586, 5585/LB/1986-87, dated 13th May, 1987 held:-- "it is important to note that the capital gains tax is to be paid by the vendors on an immovable property to which the purchaser is not a party, We, therefore, would prefer the valuation to be arrived at on the basis of the value of the land given by the Collector of 'Land Revenue and the estimated cost arrived at by the property tax authorities. After all some sanctity is to be attached to a registered sale-deed which is strictly in accordance with law and proper stamp duty has been paid thereon:' In the aforementioned cases the Tribunal directed acceptance of the valuation as mentioned in the registered sale-deeds. In the instant case another aspect of the matter is that the ITO conducted inquiries in 1987 regarding valuation of the property purchased in 1985. On merits of the case the ITO erred in making addition of Rs.2,60,000 on account of attributed lowness of valuation of property No.4-A Peoples Colony, Faisalabad and 10 marlas plot in Chak No.2?.4/R.B. The learned CIT (A) was fully justified in deleting the additions. No case could be made out by the D.R. for our interference in the impugned order. Taking up the assessee's grievance regarding addition of Rs.5,00,000 made under section 13 (aa) of the Ordinance, we are of the view that both the departmental officers erred in making that addition. On merits this addition was not called for. In his wealth statement the assessee had mentioned the liabilities of Rs.7,08,

000. Names of all the five creditors were furnished alongwith their affidavits and identity cards. The ITO did not doubt the liabilities of Rs.2,08,000 pertaining to creditors namely Sardaran Bibi, Rukhsana Begum, Amir Begum and Ali Khurshid. On the ITO's specific asking the assessee produced creditor namely Mr. Umar Hayat. The identity of the creditor stood duly established. The only requirement remaining in the field was nature and source of receipt of the credit amount. When the ITO had held the creditor to be a man of means having 16 squares of agricultural land, a residential bungalow in Multan City, owner of three cars and three tractors, there was no sense in discarding the loan of Rs.5,00,000 to the assessee. In fact the ITO tried to import his own meanings in the statement of the creditor. The factors that the creditor had purchased three tractors through IDBP loan or that he had not seen the residence of the assessee or that there was less bank balance in his bank account were not enough to discard the advancing of loan of Rs.5,00,000 in the form of prize bonds. Tractors are provided to the agriculturists through IDBP loan for giving temptation of purchase and use of sophisticated machinery. The retention of Rs.5,00,000 by a landlord in the form of prize bonds is not an unusual phenomena as cash will give lesser yield of interest in bank as compared to chances of winning of prize amounts. All these factors were nothing short of extraneous considerations. The requirement was identification of the creditor and his sources for making credit. Not only before the ITO rather before the learned CIT (A). The creditor appeared and stated facts regarding his financial position and admitted advance of Rs.5,00,000 to the assessee. Before the first appellate authority the creditor even stated that he had received back Rs.1,00,000 through bank from the assessee. The fact that the assessee had paid the balance amount to the creditor through bank transactions dated 15th -October, 1988 and 4th September, .1988, 28th September, 1988 and 22nd October, 1988 is fully established from the documentary evidence in the form of bank receipts. This also lends full support to our conclusion that the creditor had advanced the loan to the assessee. The learned CIT (A) in fact passed a self-contradictory order. In the earlier portion of the order the identification and credibility of the creditor was accepted while in the concluding paragraph the credit was held to be on wok wicket without any basis. In the light of facts stated by the creditor in his two statements the orders of the departmental officers are modified holding that credit of Rs.5,00,000 advanced by Mr. Umar Hayat to the assessee stands duly established. The addition made by the departmental officers at Rs.5,00,000 under section 13(1)(aa) of the Ordinance being untenable on merits is deleted.

6. Additions made by the departmental officers under sections 13(1)(aa) and 13(1)(d) of the Ordinance are untenable on legal scores as well. The ITO had issued a notice under section 62 of the Ordinance giving his mind for discarding the declared valuation of property No.4-A Peoples Colony Faisalabad and adopting the same at Rs.20,00,

000. Notice under section 62 of the Ordinance was irrelevant as that could be given. for pointing out any specific defect in the assessee's books of accounts and for seeking explanation m the form of any evidence for making assessment under section 62 of the Ordinance. For making addition under section 13 of the Ordinance as deemed income requirement of law is that the assessee is to be afforded an opportunity of hearing as provided under section 13 (2) of the Ordinance. The Tribunal vide its decision in I.T.As. Nos. 6292/6293/1258/1257/LB of 1987-88 dated 31st July, 1988 held:-- "Notice under section 62 of the Ordinance could not be considered as a substitute of requirement of section 13 of the Ordinance. Though in the language used in the section 13 of the Ordinance no specific notice has been provided but the provision `after giving a reasonable opportunity to the assessee of being heard' as added .by Finance Ordinance, 1980 in subsection (2) of section 13 of the Ordinance leaves us in no doubt that reasonable opportunity is to be afforded to the assessee on specific issue of addition as deemed income under any sub-clause of section 13 of the Ordinance and that can be only in the form of a notice. Under section 62 of the Ordinance before assessing the total income of an assessee, the ITO has been empowered-to call for the evidence on specific points. The word `other evidence' as mentioned in the language of section 62 of the Ordinance is relevant for the purposes of determination of quantum of assessment of income. It cannot be considered to be inclusive of income to be assessed under section 13 of the Ordinance as deemed income." In the light of this discussion our first conclusion on legal scores is that additions under section 13 of the Ordinance were made by the departmental officers without issuing notice of being heard to the assessee as required under law. The other legal lacuna is that the ITO did not obtain prior approval of the learned IAC as required under section 13 of the Ordinance. The I.T.O. had issued only one notice to the assessee giving his mind for estimating the valuation of the property at Rs.20,00,

000. After, determining the valuation of the property under section 13 (2) of the Ordinance; the assessing officer was required to issue another notice to the assessee giving the exact amount of addition to be made. The Tribunal has held so in its decision reported as 1987 P T D (Trib.)

300. That view was again followed by another Division Bench in I.T.As Nos. 1603, 1604/LB/1987-88, dated 22nd December, 1988. Therein it was concluded: "The Tribunal in its Full Bench decision in I.TA. No. 2506/LB/1986-87, dated 4th September 1988 has laid down that two separate approvals of the IAC had to be obtained one after the other. It has further been held that following the procedure as laid down under section 13 (1) and under section 13 (2) is a sine qua non for making the addition under section 13 of the Ordinance and in such a case the addition has to be deleted." In the light of above discussion we are of the considered view that the additions made by the departmental officers under section 13 of the Ordinance are untenable on legal scores as well. The upshot of the above discussion is that the orders of the learned C.I.T. (A), Faisalabad, dated 29th September, 1988 are modified deleting the addition of Rs.5,00,000 made under section 13 (1) (aa) of the Ordinance. The assessee's appeal succeeds to that extent. Addition made at Rs.2,60,000 under section 13 (1) (aa) of the Ordinance was rightly deleted by the first appellate authority. The: departmental appeal being devoid of any merits is dismissed. M.B.A./689/T Order accordingly.