Additional Assessment

Question before High Court was whether income tax assessment of taxpayer, which was an insurance company, could be reopened under S.65 of Income Tax Ordinance, 1979, inter alia, on basis that amounts paid by taxpayer in taxes, including those deducted at source, were inadmissible expenditures, benefit of which could not be claimed by taxpayer

Held, that provision of S.65 of Income Tax Ordinance, 1979 was attracted when income of an assesee had either been under assessed or assessed at a lower rate or that such income had been subject to excessive relief

Assessments, in the present case, were rightly reopened as such income for assessment years in question, was under assessed and amount of taxes actually paid including tax deducted as source, had been incorrectly allowed to company as expenditures, meaning thereby that taxpayer got incorrect relief which it was not entitled to

Reference was answered, accordingly.

If the concerned authority such as an Income Tax Officer, acting on his own or under instructions from superior officers, subsequently came to a different conclusion with regard to the proper applicability or interpretation of a statutory provision that was a mere change of opinion and not "definite information".

Judgment of a Superior Court (available at the relevant time) could, in appropriate circumstances, constitute "definite information" in relation to the facts of a case.

Appellant-company filed its return for the relevant assessment year but thereafter (before the assessment was framed) filed a revised return

Reason for the revised return was that the appellant claimed that in respect of "interest or profit on which the tax deductible under subsection (2-A) of S. 50" of the Income Tax Ordinanxe, 1979 ("Ordinance"), it was liable to be taxed in terms of S. 80B of the said Ordinance

Income Tax Officer accepted said claim of appellant, and the said amounts were taxed accordingly

However, subsequently, by a notice issued under S. 65 of the Ordinance, Income Tax Officer sought to reopen the assessment on the ground that the appellant was not so entitled

Revised assessment order, adverse to the appellant, was made

Appellant contended that action under S. 65 of the Ordinance could only be taken if there existed any "definite information" for reopening the assessment, and that no such information existed in the facts and circumstances of the case

Appellate Tribunal accepted such contention of the appellant, however, the High Court found that the "definite information" was available with the Income Tax Officer in the form of a judgment of the Supreme Court and hence found against the appellant

Legality

High Court erroneously relied on a judgment of the Supreme Court, without appreciating that the said judgment was rendered many years after the initiation of action under S. 65 of the Ordinance against the appellant

Since the judgment did not exist at the relevant time it could not ipso facto constitute "definite information" within the meaning of law that would have made it permissible for the Income Tax Officer to reopen the assessment

Judgment of the High Court was set aside in circumstances and that of the Appellate Tribunal was restored

Appeal was allowed accordingly.

If the concerned authority such as an Income Tax Officer, acting on his own or under instructions from superior officers, subsequently came to a different conclusion with regard to the proper applicability or interpretation of a statutory provision that was a mere change of opinion and not "definite information".

Judgment of a Superior Court (available at the relevant time) could, in appropriate circumstances, constitute "definite information" in relation to the facts of a case.

Appellant-company filed its return for the relevant assessment year but thereafter (before the assessment was framed) filed a revised return

Reason for the revised return was that the appellant claimed that in respect of "interest or profit on which the tax deductible under subsection (2-A) of S. 50 of the Income Tax Ordinance, 1979 ("Ordinance"), it was liable to be taxed in terms of S. 80B of the said Ordinance

Income Tax Officer accepted said claim of appellant, and the said amounts were taxed accordingly

However, subsequently, by a notice issued under S. 65 of the Ordinance, Income Tax Officer sought to reopen the assessment on the ground that the appellant was not so entitled

Revised assessment order, adverse to the appellant, was made

Appellant contended that action under S. 65 of the Ordinance could only be taken if there existed any "definite information" for reopening the assessment, and that no such information existed in the facts and circumstances of the case

Appellate Tribunal accepted such contention of the appellant, however, the High Court found that the "definite information" was available with the Income Tax Officer in the form of a judgment of the Supreme Court and hence found against the appellant

Legality

High Court erroneously relied on a judgment of the Supreme Court, without appreciating that the said judgment was rendered many years after the initiation of action under S. 65 of the Ordinance against the appellant

Since the judgment did not exist at the relevant time it could not ipso facto constitute "definite information" within the meaning of law that would have made it permissible for the Income Tax Officer to reopen the assessment

Judgment of the High Court was set aside in circumstances and that of the Appellate Tribunal was restored

Appeal was allowed accordingly.

Taxpayer contended that although assessments were reopened on the basis of maintenance of bank accounts, yet, at the end of the day the Assessing Officer could not draw an adverse inference regarding bank deposits; and having failed to draw an adverse inference, the Assessing Officer resorted to estimation of sales as Assessing Officer observed in his order that "no adverse inference is drawn as far as the source of deposit is concerned and no action being taken under S.13 of the Income Tax Ordinance, 1979"; that in the absence of any adverse inference to the grounds of reopening, the Assessing Officer should have dropped the proceedings instead of continuing; and that notices under S.65 of the Income Tax Ordinance, 1979 had not been lawfully issued, since the relevant clauses of the notices were not ticked which was the statutory requirement

Validity

After being satisfied with the genuineness of deposits in accounts, the Assessing Officer had no jurisdiction to proceed further under S.65 of the Income Tax Ordinance, 1979

No action under S.13 of the Income Tax Ordinance, 1979 appeared to have been taken with reference to deposits except in one year which was again on altogether different grounds

Issuance of notices and culmination of proceedings initiated was held to be void ab initio and illegal and all subsequent proceedings were without jurisdiction and liable to be quashed

Assessing Officer was bound to let the assessee know as to precise basis warranting reopening of his already completed assessment by ticking appropriate clause and striking off the remaining clauses

In the absence of any such exercise inference would be that Assessing Officer was himself not sure as to the basis of reopening

Irrefutable inference in such like situations was that the information being utilized by the Assessing Officer did not fulfil the conditions of being a "definite information"

Such defect alone was sufficient to declare the whole proceedings as void ab initio

Notice under S.65 of the Income Tax Ordinance, 1979 was held as having been issued without lawful jurisdiction for lack of "definite information"

All the subsequent proceedings and whole series of orders passed on the basis of such notice were not allowed to hold the field

Orders passed by the lower authorities were vacated as having been passed without lawful authority

Proceedings initiated and orders passed thereunder having been declared to be without lawful authority, imposition of penalty was to crumble down.

Assessing Officer was not empowered to invoke the provisions of S.65 of the Income Tax Ordinance, 1979 on the basis of facts which were disclosed by an assessee and considered by him in the course of making assessment.

Scope-Provisions of Ss.65 and 66-A of the Income Tax Ordinance, 1979 could be invoked to retrieve the loss of revenue but in different situations and by different authorities, for instance, an assessment finalized under S.62 of the Income Tax Ordinance, 1979 could be reopened under S.65 of the Income Tax Ordinance, 1979 by the Assessing Officer on the basis of some definite information which could conclusively establish that the income of an assessee had either escaped assessment or under-assessed or assessed at too low a rate or was the subject-mater of excessive relief

Such information was, required to be about material facts which had not been considered by the Assessing Authority while framing the assessment under S.62 of the Income Tax Ordinance, 1979, however, if those facts were found to have been disclosed faithfully by an assessee and also considered by the Assessing Officer, the assessment could not be reopened on the same set of facts under S.65 of the Income Tax Ordinance, 1979 because an authority was not vested with the jurisdiction to change opinion about facts which had already been adjudicated upon by it.

Additional assessment was formulated and the claim of the assessee, having relationship of "seller and purchaser" between the two companies (one manufacturing and the other marketing company) was rejected

Revenue had reopened the case of the assessee (manufacturing company) for the reasons that Ministry of Production had made a representation to the Central Board of Revenue for exemption of the marketing company from levy of turn-over tax under S.80-D, Income Tax Ordinance, 1979 on the grounds that marketing company had obtained exemption from levy of tax under S.80-D of the Income Tax Ordinance, 1979 on the point that it was not selling any product on profit and that marketing company was operating on "no profit no loss basis" making the sales on behalf of its associated companies which were engaged in the manufacturing; that Central Board of Revenue granted exemption to the marketing company from charging minimum tax under S.80-D on its turn-over that department considering this to be "definite information" to invoke S.65 of the Ordinance held that relationship of manufacturing company and marketing company was not a "seller and purchaser" but of a "principal and agent" and thus show cause notice was issued under S.62 of the Ordinance and assessment order was passed accordingly

Assessment under Ss.62/65, Income Tax Ordinance, 1979 was set aside in appeal and the appeal before the Appellate Tribunal also met the fate of dismissal

Validity

Held, Income Tax Appellate Tribunal had rightly found that provisions of S.80-C of the Income Tax Ordinance, 1979 were attracted to the facts of the present case and the reopening of the assessment for completion of additional assessment under Ss.62/65, Income Tax Ordinance, 1979 was not legally justified

Principles.

Case was reopened under S.65 of the Income Tax Ordinance, 1979 on the basis of such alleged `definite information' that ex-husband of the assessee was not present in Pakistan on the date of execution of gift deed and addition was made under S.13(1)(aa) of the Income Tax Ordinance, 1979

Validity

At the time of processing assessment, ex-husband of the assessee himself appeared before the Assessing Officer and stated that he had provided the gift to the assessee

Nobody should be allowed to approbate and reprobate and the given two versions being contrary to each other could not be allowed to stand

Ex-husband of the assessee paid advance against purchase of property to the seller through his bank account

Assessee had been house wife and the property was purchased in her name whereas the payment was made, through his ex-husband as he was only earning member and having sufficient funds which was evident from bank transaction

Gift may also be oral and in the present case cash gift deed was from husband to wife although, later on, the marriage had been dissolved

Since source of investment was fully explainable, S.13(1)(aa) of the Income Tax Ordinance, 1979 was not attracted

Order of First Appellate Authority was upheld and the appeal filed by the Department was dismissed by the Appellate Tribunal.

Assessee was granted final adjournment for 25-4-2001 but in the diary sheet there was no entry for the date 25-4-2001 and next entry was 28-4-2001 for which date the 'assessee had no intimation for appearance and order had been passed on 30-4-2001 whereby the case was entered in the demand and collection register which had also not been initialed/signed by the Assessing Officer

After finding such discrepancies, there was no justification for remanding the matter

Condition precedent for reopening of already completed assessment with the Assessing Officer must have come into possession of a `definite information' of a concealment based on material evidence which otherwise was not available at the time of completing the original assessment.

Assessment finalized under S.59(1) of the Income Tax Ordinance, 1979 was reopened on an anonymous complaint regarding concealment of actual profit and income

Validity

Under S.13(1)(aa) of the Income Tax Ordinance, 1979, the unexplained investment could be deemed to be income of the assessee if it was found that assessee had made any investment or was found to be owner of any money or valuable articles in any year

Assessing Officer failed to bring on record that assessee was found to have made any investment or was to be found to be the owner of money or valuable articles in any of the years

Assessee specifically explained that being wholesaler, the commission earned by him had been further distributed to the retailers

Burden of proof was on the department to establish that assessee had made any investment or was found to be the owner of any or valuable articles which onus had not been fulfilled by the Assessing Officer

No notice had been served on the assessee

First Appellate Authority had remanded the assessment affording the Assessing Officer to fill in the legal gaps and lacunas which was not justified

Order of the First Appellate Authority was vacated and order passed under Ss.62/65 of the Income Tax Ordinance, 1979 was annulled being without any justification

Assessments completed under S.59(1) of the Income Tax Ordinance, 1979 was restored by the Appellate Tribunal.

Notice under S.65 of the Income Tax Ordinance, 1979 ticking two clauses (a) and (b) was illegal and without jurisdiction

Doubled ticking/marking of clauses as per notice under S.65 of the Income Tax Ordinance, 1979 being not clear expression of a charge against the assessee as well as lacking the proper application of mind was illegal and without jurisdiction

Assessing Officer for framing the proceedings under S.65 of the Income Tax Ordinance, 1979 should have to express his view very categorically that under which specific provision of law the assessee was being subjected to the proposed action

Assessments being illegal and void ab initio were annulled by the Appellate Tribunal.

Show-cause notice was issued to express the intention for initiating the proceedings under S.65 of the Income Tax Ordinance, 1979

Subsequent to such show-cause notice, approval from Inspecting Additional Commissioner was obtained and statutory notice under S.65 of the Income Tax Ordinance, 1979 was issued

Assessee contended that it was illegal as prior to assumption of jurisdiction, no approval existed for issuance of show-cause notice

Validity

Held, it was merely a pre-show-cause notice being the compliance of the principle of audi alteram partem because the proceedings under section 65 of the Income Tax Ordinance, 1979 were penal in nature, prior to it the Assessing Officer afforded opportunity to the assessee for explaining the correct factual and legal position

After considering the reply, the prescribed procedure was adopted i.e. seeking approval and issuance of notice under S.65 of the Income Tax Ordinance, 1979.

Appellate Tribunal directed that income falling under S.80D of the Income Tax Ordinance, 1979 regime shall 'be properly sifted/examined and after providing, an opportunity to the assessee, the income may be worked out as pointed out in the order of the Appellate Tribunal

Against such direction, Assessing Officer rectified the assessment order and increased the amounts of items assessed as well as brought in new taxes instead of confining himself to the specific directions of the Appellate Tribunal

Assessing Officer charged tax on dividend income @ 5% which was not charged in the original assessment order which was subject-matter of earlier appeal

First Appellate Authority observed that Assessing Officer could not do so without first issuing notice under S.65 of the Income Tax Ordinance, 1979

If, Assessing Officer felt that some of the source of income or quantum of income from some of the sources were missing, which required the reopening of the assessment under S.65 of the Income Tax Ordinance, 1979, for which he was legally authorized/empowered

Dividend income were deleted by the First Appellate Authority and original assessment orders were restored-Validity-Fourth Schedule of the Income Tax Ordinance, 1979 laid the prescribed rules for computation of profits and gains of insurance business

Income of Life Insurance Company was to be taken as one unit income or a single basket income

First Appellate Authority had rightly decided that no notice under S.65 of the Income Tax Ordinance, 1979 was issued which was a legal requirement

Order of First Appellate Authority was confirmed by the Appellate Tribunal in circumstances.

Observation in the Additional assessment order that the discrepancies were discovered when "assessment record was perused" was an unequivocal admission that on definite information was acquired after the completion of assessments and the information already existing on record was made a basis for initiation of action under S.65 of the Income Tax Ordinance, 1979.

Withholding of refund illegally constituted maladministration within the meaning of section 2(3)(i),(b) and 2(3)(v) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 on account of inefficiency, inattention, negligence and inaptitude in performance of duties

Revenue authorities had failed to prove that non-issuance of the refund was bona fide and for valid reasons

Federal Tax Ombudsman therefore recommended that Refund due to the complainant be issued immediately by the Taxation Authorities and compliance report submitted within 30 days.

Re-opening of assessment on the ground that assessee had imported a new material consignment and the assessee was required to explain the source of its investments

Validity

Show-cause notice was evidently investigative in nature and based on no definite information

Assessing Officer undertook investigation to gather evidence under S.148 of the Income Tax Ordinance, 1979 and that too without affording opportunity to cross-examine the witness long after issuing notice under S.65 of the Income Tax Ordinance, 1979

Such course of action was not permissible under the law as the said notice could only be issue after completing the investigation, if such investigation had resulted in definite information in terms of S.65 of the Income Tax Ordinance, 1979, rejection of original documents without verification was not sustainable

Even otherwise, the record which was made basis for. reopening of assessment was available at the time of original assessment and existing record could not be made basis for reopening the case

Assessing Officer reviewed the proceedings of his predecessor and presumed that the figures of the creditors were fictitious which he later on investigated under S.148 of the Income Tax Ordinance, 1979 which was an afterthought

Action of Assessing Officer was not supported by legal provisions

Assessment order was unsustainable which was annulled/cancelled on the point of jurisdiction by the Appellate Tribunal.

Non-ticking of relevant clause renders the notice to be nullity in law and superstructure built thereon was apt to fall down.