1. In this appeal filed by the assessee a number of grounds have been taken, however, the main issue is that the assessee who was maintaining proper books of accounts was entitled to service of a notice on him before rejection of his account version. The issuance of notice in the opinion of the taxpayer as argued by the learned counsel is mandatory and its default is fatal.
2. On facts the claim of the assessee's A.R. Is that there is not even a confrontation as alleged by the Assessing Officer in his order.
3. So far as the first issue is concerned there are already many judgments by the Hon'ble Lahore High Court including 2007 PTD 345 (Trib.). Further, this Tribunal also in a number of cases has held that non-issuance of notice makes the assessment as illegal. Reliance is on 2006 PTD 2179 (Trib.), 2003 PTD 2157 (Trib.), 2001 PTD 1480 (Trib.) and 2001 PTD (Trib.) 2938.
4. Even if one presumes that the assessee was confronted through order-sheet it still does not fulfill the requirement of issuance of a notice under proviso to section 62(1). The said proviso has very clearly mentioned about issuance of notice and confrontation on order-sheet, cannot be considered its substitute.
5. Since the higher court has adjudicated this issue in detail and non-issuance of specific notice is not being denied by the department, the proceedings hereby are cancelled.
6. Order accordingly.
7. (Sd.)
8. (Khawaja Farooq Saeed) Chairperson DISSENTING NOTE AMJAD IKRAM ALI (ACCOUNT MEMBER).---I have gone through the order written by my learned brother and am of the view as follows:--- This is second round of appeals, the Tribunal in its earlier finding had set aside the assessment for two reasons. Firstly there was no solid basis for estimates and secondly notice under section 62 was issued without examination of books of accounts. Improper issuance of notice under section 62 resulted in setting aside and not cancellation. In this round the books of accounts have been examined and Taxation Officer has confronted the taxpayer vide order sheet entry dated 12-5- 2005. The confrontation is reproduced from the assessment order of the second round:-- "After examination of books of accounts the taxpayer was confronted under section 62 vide order sheet entry dated 12-5-2005 as provided under section 62(1) of the Income Tax Ordinance, 1979 as below:--
(1) The taxpayer has the history of rejection of accounts.
(2) No production register is maintained by the taxpayer.
(3) No gate inward/outward register is maintained. The A.R of the taxpayer could not give plausible explanation in this respect."
9. The confrontation was regarding non-production of certain books and keeping in view history of the case. Admitted that more formal opportunity under Section 62(1) was not given but the opportunity was provided by confrontation. This brings this case as a parallel to the case of 2006 PTD 2179 wherein the Taxation Officer had provided opportunity regarding inadmissibility of financial charges and the Tribunal disposed of the case of merits. The assessment was not cancelled for non-issuance of formal notice under section 62(1). Another case on point is 2003 PTD (Trib.) 2157. Herein the add backs were deleted as taxpayer was not interrogated specifically under section 62. In the instant case confrontation under section 62 was made to distinct notice under section 62(1) was not given.
10. In the case reported as 2007 PTD (Trib.) 345 the books of accounts were produced on 12-5-2003 and assessm ent was completed on 13-5-2003 without confrontation or formal issuance of notice under section 62. The assessm ent was cancelled.
11. In a case reported as 2004 PTD 441, I.T.A.T. After thoroughly discussing the meaning of words notice and opportunity as well as intent of the law held as under:- "It is thus clear from the extensive quotations made above that the purpose of giving mandatory notice referred to in the proviso to section 62(1) will be served for all legal intents if the defects in accounts and preferably warning of some intended future action are communicated or brought to the knowledge of the assessee in any proper or permissible manner and reasonable opportunity to explain the defects is provided to the assessee. Once this has been done and if the assessee gives an explanation, then after recording the explanation of the assessee in the assessment order, the DCIT cannot still jump in the dark and estimate income but he is supposed to give the basis of computation of total income in the assessment order. The opportunity to the assessee is to be given to meet with the defects pointed out in the accounts and to explain his point of view regarding these defects the basis of computation of income is legally to form a part of the assessm ent order and not that of the notice to the assessee which mandatorily is required so as to confront the defects in the accounts.
12. There is no denying the fact that order-sheet generally contains recording of the day to day proceedings. However, this may not always be the position. We feel that if the defects in accounts are confronted to an assessee or his authorized representative through recordings on the order- sheet, which is obviously a permissible mean of communication, C this means that the Assessing Officer has duly given a notice of the defects to the assessee and the first two parts of the proceedings on first occasion referred to in para.5 supra thus stand fulfilled in this way.
13. As observed in the foregoing paragraphs, the order-sheet generally is not a substitute for statutory notice under section 62, if it records only the proceedings of the day. As against this, here we find that the entries made on the order-sheet on 30-5-2002 and 31-5-2002 quoted supra especially the portions underlined by us are tantamount to a D I "notice" and "giving a notice of the defects in the accounts" to the assessee. The Assessing Officer, however, concluded the proceedings without getting a written explanation from the assessee due to the fact that the learned AR had agreed to making suitable add-backs out of direct expenses and P&L account and this agreement meant nothing but the explanation on behalf of the assessee as required in the proviso to section 62(1).
14. This explanation has duly been made part of the assessment order by the DCIT. In our view the mandatory requirements of the said proviso were duly met in the circumstances of this case. Had the Commissioner gone minutely through the records in the way we have done, he would have instead of setting aside the case decided the matter at this level. However, since setting aside by the learned CIT(A) is in no way prejudice to the interest of the appellant, we refrain from interfering in the order of the learned CIT(A)".
15. Keeping in view the above case-law and facts it would be fair to set aside orders of the authorities below and direct the Taxation Officer to proceed de novo and ensure that formal notice under section 62(1) is issued on all aspects of the case.
16. It is also noted that the assessm ent has been made as under:- "(1) Addition made out of Trading Account. Rs,397,330
(2) Addition made out of P&L Account. Rs,199,336
(3) Add declared lease income. Rs,141,174
(4) Income Assessed. Rs,737,848
(5) Less W.W.F. @ 2%. Rs,14,757
(6) Balance taxable income. Rs,723,091"
17. It would be observed that additions have been made without identifying the income or loss to which adjustment has been made. The order should be more speaking.
18. In view of foregoing, in my opinion the assessment does not merit cancellation for non-issuance of notice under section 62(1) of the repealed Ordinance. However, since the taxpayer interpreted the order-sheet entry as not sufficient notice under section 62(1), therefore, the assessment may be set aside.
19. (Sd.)
20. (AMJAD-IKRAM ALI), Accountant Member As a difference of opinion has arisen, the following question is formulated for reference to the Hon'ble Chairperson, ATIR for appointment of third Member to resolve the difference: "Whether the notice under section 62(1) through order-sheet entry tantamount to no notice under section 62(1), thus, justifying cancellation for not following the mandatory provision" ?
21. (Sd.) (Sd.)
22. (KHAWAJA FAROOQ SAEED) (AMJAD IKRAM ALI)
23. Chairperson Accountant Member JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---This Difference of Opinion matter in the titled case has been entrusted to me by the Hon'ble Chairperson. I have carefully gone through the Judgments/views recorded by my both the learned brothers and have also heard the learned A.R representing the appellant. I have gone through the dissenting note of my learned brother.
24. Accountant Member and with utmost respect. I find myself unable to agree with the findings on the issue under consideration.
25. The simple issue raised in the above referred appeal is that the appellant-assessment in this case was maintaining proper books of accounts and before rejection of accounts, it was mandatory requirement for the Taxation Officer to serve a notice under section 62(1) of the late Ordinance, 1979. As the default of not sending the notice is settled, issue by this Tribunal as well as before the Hon'ble Higher Courts, therefore, the Hon'ble Chairperson as the author of the order has cancelled the order passed by the Taxation Officer due to settled proposition of law placing reliance on the decisions of this Tribunal. On the same decisions referred in his order, he has rightly observed that even if one presumes that the assessee was confronted through order sheet, it still does not fulfil the requirement of issuance of notice under proviso of section 62(1) of the Ordinance, 1979. As in that proviso, it has D specifically been mentioned about the issuance of notice and the confrontation on the order sheet cannot be considered its substitute. My brother learned Accountant Member in his dissenting note had not agreed to the above-mentioned view for the reasons that this is second round of appeal and the Tribunal in its earlier findings had set aside the assessm ents on various reasons. He has, in this respect, referred the Entries of the Order Sheet and in his opinion, though, the formal opportunity under section 62(1) was not given but the opportunity according to learned Accountant Member was provided by confrontation through order sheet entry. But to my view as the matter has already been dilated upto by the Hon'ble higher Courts declaring that in the case where the assessee furnishes books of accounts, the accounts cannot be rejected without confronting in writing through notice under section 62(1) of the late Ordinance.
26. 1979.
27. I also cannot agree with the view of my brother learned Accountant Member that due to second round before this Tribunal this legal issue cannot be raised. It is settled law that the legal issues can be raised at any stage of the proceedings and in this case mandatory provision of law has been violated by the Taxation Officer which cannot be cured through the subsequent proceedings.
28. After considering the legal position of the case, I need not to go through the facts of the case which have already been dilated, upon by my learned brothers in the earlier paragraphs of this order. I concur with the findings of the Hon'ble Chairperson cancelling the assessment order and to my view the notice under section 62(1) through order sheet's entry tantamounts to no notice under section 62(1) being the mandatory requirement of law. Consequently, the appeal filed by the assessee is allowed.