1995 PLP (Trib (PTD)

5. Mr. A.G. Chaudhry, learned counsel for the assessee, has raised a number of factual and legal objections to the treatment meted out to the assessee in both of the years. On facts it is stated that the assessee is a private limited company comprising of four Directors; two daughters, mother and a son. It is submitted that on account of the son having met an accident and there being no other male member available to run the unit, lease arrangement was entered into with a bona ride intention to keep the processing unit working while retaining control upon the premises as well as the machinery. It is claimed that this type of arrangement is neither unusual nor it was meant to use as a device to avoid incidence of taxation as alleged by the assessing officer. Based upon various clauses of the lease agreement it is submitted that the lessee was allowed to use the name and goodwill of the company and to deal with all official and private institutions/departments to pay utility bills etc. on behalf of the assessee-company. Also the assessee-company kept a kind of superintendence over the affairs of the processing unit in order to protect its interest in the same. Learned counsel also contends that after the visit of the Circle Inspector to the business premises on 4-4-1990 the assessing officer kept silent for almost 1-1/2 years and then all of a sudden got reactivated with a jet speed. He issued a notice on 18-6-1991 which was received by the assessee on 20-6-1991. Next day, 21st of June, 1991 being a Friday and from 22nd June to 25th June, 1991 there being Eid holidays, the assessee replied to the notice on the very next working day i.e. 26th of June, 1991. According to the learned counsel through this reply the assessee required copies of the alleged balance sheet etc. pointed out by the assessing officer in his notice. However, instead of informing the assessee of the acceptance or rejection of his request the assessment was framed on 30-6-1991. In case of other notice in the next year also it is pointed out that the assessee expressly denied to have ever maintained any bank account as mentioned in the notice and again requested for providing of copies of the documents being relied upon by the Department but of no avail. Learned counsel points out the infirmities in the proceedings adopted in the two years under review and the arbitrariness of the action of the assessing officer by saying that the Department in the very next years accepted the lease arrangement with the same lessee on the same terms and conditions as evidenced by the lease agreement, dated 1-7-1987. In support of the submission a copy of the order of CIT(A), Faisalabad, dated 30-12-1993 has been produced. It is further submitted that the lessee, Daulat Ali, is being assessed as an independent assessee arid that in the year 1990-91 an assessment in his respect was framed under section 62 of the Ordinance after selection of his case .for total audit. A copy of the assessment order, dated 29-6-1991 has been produced to support the submission. Learned counsel on the basis of these facts argues that there is an apparent contradiction in the course of action of the Department inasmuch as it is taxing the same income twice once in the hands of the assessee though claimed a lessor and then in the hands of the lessee as declared. The acceptance of the arrangement by the Department in the subsequent year is again referred to.

6. On legal plane it is submitted that the time allowed for reply to the notice, dated 18-6-1991 was absolutely insufficient and that the assessing officer clearly denied proper opportunity to the assessee by refusing to provide the copies of the alleged impounded documents or even to inform him these could not be provided so that the assessee could make further submissions on other matters. Relying upon PLD 1965 SC 443 (M/s. Satluj Cotton Mills, Okara v. CIT, Northern Zone, Lahore), it is argued that it was practically not possible to reply to the long and voluminous notices within the allowed time of one day only. It is also submitted that keeping in view the ratio of the reported case of this Tribunal cited as 1960 PTD (Trib.) 190 the denial of proper opportunity has resulted into rendering the assessments framed in this regard to be null and void and that the infirmity that has crept in the orders cannot be cured by setting aside of the same or by remanding the matter for fresh opportunity. Another reported decision of this Tribunal cited as 1960 PTD (Trib.) 82 is also relied upon in this regard.

7. Mr. A.G. Chaudhry further submits that the agreement-in-question being legal arrangement could not be disturbed or objected to by the Department merely on suspicion of alleged avoidance of incidence of taxation. Reliance in this connection is placed upon a reported case of Supreme Court of Pakistan in re: CIT, Peshawar v. Seimen A.G. NTR 1991 SC

40. It is also stated that the Court is to see the substance and essence of the agreement rather than its form. Reference in this regard is made to a reported case from Supreme Court of India cited as (1977) 35 Tax 189 to say that in the facts and circumstances the arrangement had to be made in order to avoid closing down of the processing unit. Learned counsel further states that an affidavit duly sworn was submitted before the assessing officer informing him of the genuineness of the arrangement and that the contents of the affidavit could not have been disbelieved without proceeding further on the documents and cross examining the deponent. Relying upon a reported case from Indian jurisdiction (1984) 146 ITR 140 it is asserted that an affidavit is a piece of evidence which alongwith other material on record had to be taken into consideration before arriving at finding which the assessing officer failed to do in the matter in hand. Further that no adverse inference could have been drawn without cross examining the deponent as held in (1958) 33 ITR

786. Learned counsel further submits that the primary reason which weighed with the assessing officer, as aforesaid, being the alleged attempt on the part of the assessee to avoid proper incidence of taxation even if accepted on its face value still could not provide him a legal authority to disregard the lease arrangement. Support in this regard is sought from a reported case of Supreme Court of Pakistan cited as PLD 1992 SC 562 wherein their Lordships found that adopting legal modes which could result in reducing tax could not be objected on the ground of prudent advisability and business practice. To the same effect are the findings of the Supreme Court of India in (1973) 91 ITR 8 re: UT, West Bengal v. Calcutta Discount Company Limited that an assessee can so-arrange his affairs as to minimize his tax burden.

8. Learned D.R. on the other hand, supports the orders of the authorities below for the reasons stated therein. It is also contended that every assessment year being an independent accounting period mere fact of acceptance of lease arrangement in the subsequent year cannot help the assessee in this case.

9. After hearing the parties we are inclined to agree with the submissions made by the learned counsel for' the assessee. To us it appears that the assessing officer stretched himself too much to disregard the lease arrangement. The opportunity allowed in this behalf cannot be described to be adequate. The terms of agreement sufficiently explain the objections of the assessing officer qua payment of Sui gas bills in the name of the company or lack of intimation of change in set-up to various official agencies. The authority of the assessing officer to examine such an arrangement is not doubted. However, in the case in hand the assessing officer totally relied upon the report of the Circle Inspector and also the documents allegedly impounded by him. These documents were not confronted to the assessee in spite of its specific request in this behalf. This coloured the whole proceedings. It is also strange to note that the assessing officer, after conduct of the said raid, went into silence and abruptly awoke after almost one and a half year to complete the assessment in the haphazard manner. Apparently due to shortage of the time available for finalization of the assessments his reliance upon the alleged documents/balance-sheet was per force as by then he could not probe the matter at length with the time available with him to arrive at the actual income. The acceptance of the lease arrangement in the immediate succeeding year at the level of the appellate authority supports the submissions made by the learned counsel of the assessee. The concluding para of the order of the appellate authority, CIT (A-II), Faisalabad dated 30-12-1993 requires a special mention. Also the other fact that the lessee was assessed as an independent assessee for the same period, once as a total audit case. This lends strong support to the contentions made at the Bar for the assessee. On the other hand the appellate authority in the year 1988-89 through its order, dated 24-12-1994 disposed of the matter in a way and in the manner which fits in or can be made to fit in every kind of assessment order. On detailing the submissions made before him in appeal and the grounds that earlier weighed with the assessing officer to disregard the defense, the appellate authority proceeded to decide the matter in the following words:

"After considering carefully the facts and reasons stated at length in the assessment order and also .the appellant's above contentions, I am inclined to agree with the learned ITO's findings, which are well founded and fortified by abundant evidence and material on record. The contentions raised by the appellant are lame excuses, afterthoughts and a vain attempt to get out of the incontrovertible evidence, which clearly suggests that the business of processing was actually continued and conducted by the appellant-company itself." Learned first appellate authority in the next year viz., 1989-90 stated the same course and after stating the view point of both the parties decided the matter only on account of the factum of his predecessor having decided the issue against the assessee. The only observation in the operative part that the appellate authority made qua the lessee could be relevant to his case but not to that of the assessee-company as lessor which was in question before him. These kinds of general remarks, which hardly need repetition, indicate absence of application of mind or at least of proper appraisal of facts. Earlier the assessing officer had framed assessment in the subsequent year by following the same pattern which, as of necessity, had been adopted to save the assessment from getting time, barred.

11. In view of the aforementioned we find that the assessee was not treated fairly and that the assessing officer did not succeed in bringing home sufficient material to discard the lease arrangement. There is apparent contradiction in the treatment meted out to the assessee when seen in the perspective of the one meted out to it in the subsequent years. Also the lessee having been assessed independently after detailed scrutiny there hardly existed any justification for assessing income from one source in the hands of two different assessees.

12. Accordingly both of the appeals succeed and the income from the unit having already been assessed in the hands of the lessee the assessing officer shall assess the income of the appellant in both of the years on the basis and to the extent of lease money only. As a natural corollary the other two appeals against imposition of penalties shall also succeed and the penalties imposed in both of the years will stand deleted.

13. It is so ordered. M.BA./113/T Appeals allowed.