JUDGMENT NASIM SIKANDAR, J.- This further appeal under Section 136 of the late Income Tax Ordinance, 1979 impugns an order dated 27.4.1998 recorded by a Division Bench of the Income Tax Appellate Tribunal, Lahore.
2. The appellant-assessee is a company limited by shares incorporated at Lahore on 27.10.1992. For the assessm ent year 1994-95 in response to a notice under Section 56 of the late Income Tax Ordinance, 1979 the assessee returned nil income on the ground of having done no business in the period relevant to the assessm ent year 1994-95. However, the Assessing Officer found that the company during this period had purchased a house on a plot measuring 9 kanals, 10 marlas at Main Gulberg, Lahore for a consideration of Rs. 2,20,10,000/- through a sale-deed dated 10.7.1993.
Accordingly the assessee was served with a notice under Section 13(1)(d) of the late Ordinance, in response thereto the assessee declared the value of the said property at Rs. 3,39,30,826/- and also attempted to explain the sources to that extent. The Assessing Officer however, disbelieved the declared value as against the registered value at Rs. 2,20,10,000/- and proceeded to make an addition under the aforesaid provisions of the Ordinance at Rs. 12,19,174/- through assessment order recorded on 29.6.1995.
3. Subsequently on 22.11.1995 the assessee was issued a notice u/S. 13(1)(b) of the Ordinance for the assessm ent year 1993-94. In the notice it was stated that the assessee had returned nil income through a return filed on 3.4.1995 while the registered sale-deed executed on 10.7.1993 in respect of the said house indicated that it had paid a sum of Rs. 2,500,000/- as earnest money in cash at the time of execution of sale agreement dated 12.6.1993. According to the Assessing Officer DCIT, Companies Zone-ll, Lahore the amount had neither been disclosed in the statement of accounts including the balance sheet for the period ending 30.6.1994 nor its sources were explained, in reply dated 28.11.1995 the assessee maintained that the amount paid at the time of agreement to sell was contributed by the Directors directly to the seller and that it was never received by the company. Therefore, the balance shown by the company as on 30.6.1993 was correctly disclosed at Rs. 25,000/-. Also it was maintained that since the assessee itself had disclosed a higher value of the property as against the registered value no separate or independent addition of the earnest money at Rs.
25,0, 000/- could be made, it was further claimed that the enhanced value of the property also having been rejected by the department ana an addition of Rs. 12,19,176/- haying already been made under Section 13(1)(d) of the Ordinance there was no question of any further' addition to be made in the hands of the assessee-company.
4. . Th , Assessing Officer however, was not safoin *. Th ougn an assessment order recorded on : Vol iX 13.12.1995 he proceeded to moke an addition of Rs.
25.0. .000/- m the hands ot tho assessee-company after observing that the sum paid as earnest money in the period relevant to the year 1 992 94 remained unexplained.
5. The assessee appears to have failed in the first appeal while the Tribunal on 27.4.1998 also rejected the second appeal almost for similar reasons which earlier weighed with the Assessing Officer. Earlier the Tribunal also refused the alternate prayer for adjustment to the extent of addition made in the next year 1994-95 under Section 13(1)(d) of the Ordinance. Hence this further appeal.
6. We have heard the learned counsel for the parties. The appellant appears justified in complaining of a raw deal at the hands of the Department. Although it is not exactly a case of double taxation as asserted by the learned counsel for the appellant, in our considered view the amount of Rs. 25,00,000/- could not have been assessed in the hands of the assessee company for two reasons. First of all it needs to be noted that during the assessment year 1993-94 the assessee- company showed its total assets at Rs. 25,000/-. In reply to the notice under Section 12(1) (b) at the very outset the assessee explained that the payment of Rs.
25.0. 000/- paid as advance money to the seller of the said house emanated from the Directors of the company. Obviously since the company had done no business and was otherwise not possessed with these funds the payment of earnest money could not have resulted from its on sources. Once the assessee company had identified the source, namely the Directors of the company, the Assessing Officer must nave stopped there to seek the reply of the Directors of the company. He could have reverted back to the companv only if the Directors had contradicted the stand o* the company or otherwise they were found to have not been in a position to contribute that amount. Instead of confronting the Directors with the statement of the company the Assessing Officer kept treading a wrong path and insisted that the assessee company had made the payment from its on sources which were not properly explained.
7. The second reason for our disapproval of the addition being lack of identification of the source wherefrom the company could have possibly acquired these funds. Before making such like addition it is always desirable that the Assessing Officer identifies the source wherefrom the company received the amount for the alleged investment. Here the company had admittedly not done any business and had total assets of paltry sum of Rs. 25,000/-. Therefore, the exercise was not at all needed inasmuch as the assessee company itself had explained the source. That source was never probed nor even really inquired into. Accordingly all exercise after reply to the notice was misdirected and unjustified. The provision of law invoked could come into play only if the source was not explained. Here the source was property explained though improperly ignored.
8. The assessee has also a strong point to argue that the revenue unnecessarily extended its strong arm after once having made an addition under Section 13(1 )(d) of the Ordinance in the assessm ent year 1994- 95. The issuance of a notice under Section 13( 1)(b) in the assessment year 1993-94 on 22.11.1995, only months after having completed the assessment for the assessment year 1994-95 on 29.6.1995 amounted to further squeeze an assessee who had already disclosed a higher value for the property as against the registered value. The department still being dissatisfied made an addition of the aforesaid sum. Having done so it proceeded to take benefit of a technical flaw that the recital of the sale-deed also indicated the payment of an advance of Rs. 2,500,000/- before the end of the assessment year 1993-94. The Assessing Officer deliberately did not reopen the assessment framed in the year 1994-95 as the document in question had thoroughly been examined in that year. Instead, as observed earlier, he took benefit of a technical lacuna that the investment was made before 30.6.1994 and therefore, needed to be explained in that assessm ent year.
9. The learned Members of the Tribunal as well as the first appellate authority in our view failed to consider the reply made by the assessee on 28.11.1995 which sufficiently explained the case of the assessee. If that reply had objectively been considered by the Assessing Officer, the first appellate authority as well as the Tribunal they would certainly have come to the conclusion that an addition under Section 13(1 )(b) of the late Income Tax Ordinance, 1979 was not possible in the hands of the assessee-company. That kind of addition was possible only after the Directors of the company had either controverted the claim of the company to have contributed the advance payment or were otherwise found to be lacking in possession of sufficient funds to make the payment. At the cost of repetition it is pointed out that where a person or a company is not in any business and has no assets to justify the investment, then before making of addition of the kind the Assessing Officer must point out and identify the source wherefrom these funds emanated. And to follow the source where it is so possible.
10. That having not been done in this case the impugned addition in the hands of the assessee- company was totally illegal and unjustified, it shall accordingly stand deleted and all consequential penalties will follow the suit.
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