1985 PLP (Trib (PTD)

Amin‑e‑Ajam, D.R. for Respondent. Date of hearing: 16th Sevtember 1984 This appeal has been brought at the instance of assessee, a private Limited company, and relates to charge year 1980‑

81. The disclosing an income of Rs.60,059 The Income‑tax Officer observed that necessary details under paragraph 2 (iv)(d) of Central Board of Revenue, Circular No.18 of 1980 had been filed and as such, the return qualified for self‑assessment. He, therefore, finalised the assessment under section 59 (1) of the Income‑tax Ordinance, 1979. In doing so. and purporting to it under paragraph 7(iii) of the said circular, he added a sum of Rs.39,933 on account of deemed interest income under section 12(7) of the Ordinance, in respect of alleged loans of Rs.2,99,445 extended to four persons named in the assessment order. The interest was charged at the rate of 12$: He also added back certain expenses out of profit and loss account. The assessee filed an appeal before the Commissioner of Income‑tax (Appeals), Zone‑II, assailing inter alia the charging of deemed interest income at Rs.35,933 under section 12(7) of the Ordinance. It was pleaded on his behalf before the first appellate authority that no addition under section 12(7) of the Ordinance could be made while framing assessment under section 59(1) and, alternatively, it was urged that no opportunity was given to the assessee to prove that the amounts in question were business advances and not loans given by the appellant so as to attract the provisions of section 12(7). The learned Commissioner of Income‑tax (Appeals) did not accept the assessee's first above‑noted contention as in his opinion the addition under section 12(7) even in the case of I assessment order made under section 59(1) was covered by the instructions of the Central Board of Revenue issued on this subject authorising the Income‑tax Officer to make such adjustments or additions which are legally inadmissible. The learned Commissioner of Income‑tax, however, finding force in the alternative pleas, set aside the assessment on this point to be made de novo, after giving an opportunity to the appellant through correspondence or otherwise and after ascertaining the fact nature of the amounts.

2. Mr. F...A...learned authorised representative of the appellant drew may attention to the provisions of section 59(1) as well as of paragraph 7(iii) of the Central Board of Revenue's Circular No.18 of 1980, dated 28th July, 1980 and vehemently contended that the Income‑tax Officer was not legally competent to assess the appellant in respect of the said deemed income which was not disclosed by the assessee in its return. The counsel emphasised that the Income‑tax Officer was obliged to frame the assessment on the basis of the return filed by the assessee after making add backs out of the profit and loss account as were either not correctly added back by the assessee or were legally inadmissible expenses. The learned departmental Representative, on the other hand submitted that in terms of section 59(3) of the Ordinance the Income‑tax Officer was competent "to make such adjustments as may be necessary" and that addition of Rs.35,933 made by him on account of deemed income under section 12(7) was within the purview of the expression "adjustment" as mentioned in section 59(3) of the

3. I am of the opinion that this appeal must succeed inasmuch as the Income‑tax Officer has acted beyond jurisdiction in computing and adding the deemed income of Rs.35,933 under section 12(7) of the Ordinance while framing the assessment under section 59(1). He has in clear terms mentioned in the assessment order that the return filed by the assessee qualified to be processed under self‑Assessment Scheme. The only power conferred on him under section 59(1) is to frame the assessment on the basis of return furnished by the assessee under section 55 after making such add backs out of the expenses claimed in profit and loss account as are‑found by him to be of an inadmissible nature or to have not correctly been added back by the assessee. If the assessee had, according to the Income‑tax Officer, filed to disclose an income which was assessable under section 12(7) of the Ordinance then tie should have first completed the assessment under section 59(1) and then taken 'requisite action under section 65 of the Ordinance, if it was necessary. The Income‑tax Officer could not at any‑ rate bring said deemed income within the net of tax while framing the assessment under section 59(1), when the assessee had not included it in the return filed by it para. 7(iii) of the Central Board of Revenue's Circular No..18 of 1980 which deals with processing of case under self‑Assessment Scheme. It is laid down as under: "(iii) When the tax‑payer fails to make correct add backs or legally inadmissible expenses appear in profit and loss account, the income‑tax Officer shall be authorised to make such adjustments while completing assessment under section 59(1) of the Income‑tax Ordinance, 1979." From a bare reading of above‑reproduced para of Circular No. 18 of 1980 it is manifestly clear that the "adjustment" to which the Income‑tax Officer can have recourse to, while framing the assessment under section 59(1), should be of the nature and kinds mentioned above, that is, legally inadmissible expenses appearing in the profit and loss account or incorrectly add backs made by the tax‑payers. It is how the tax authorities have understood and interpreted the word "adjustment". The other kinds of adjustments referred to under section 59(1) do not patently cover the deemed income under section 12(7) of the Ordinance. Even otherwise, in the observe of any definition of the word adjustment in the Income‑tax Ordinance one has to fall back upon the dictionary meaning to understand its implications and scope. The most useful and comprehensive definition of "adjustment" is available in the Stroud's Judicial Dictionary, 4th Edition, at page

66. It reads: "ADJUST.‑‑(1) 'Adjustment' is a word in common use. It is commonly applied to the settlement among various parties of their several shares in respect of claims, liabilities or payments relating to a CENTRAL AVERAGE claim. That is not its only application; it is a. word, which is applied to other matters in the same manner in which it is commonly applied in marine insurance. When there are matters which require re‑arranging, regulating, or equalising so as to restore the true balance the process of so re‑arranging setting right, regulating or equalising may be described as 'adjusting'." For those reasons I am clearly of the view that the Income‑tax Officer could not unearth or discover an undisclosed fictional income and add it to the assessee's income under the umbrella of the so‑called authority available to him in section 59(l) "to make such adjustment as may be necessary".

4. Consequently, the appeal is allowed and the addition of Rs.35,933 made on account of deemed interest income is knocked off. M. B. A. Appeal accepted.