This appeal, under section 134 of the Income-tax Ordinance, 1979, has arisen in the following circumstances: The appellant is a registered Firm. It derives income from business of cotton ginning and cotton seed crushing. Assessm ent year involved is 1979-80. On 15th September, 1979, it filed return declaring net income at Rs. 63,029. Later on, it filed a revised return on 4th March, 1980 declaring net income at Rs. 2,35,000 as under: --- Rs.
Net income as per P & L Account63,029 Addition out of P & L.Account8,400 Addition for self-assessm ent1,63,571 2,35,000 The Income-tax Officer, however, started proceedings fur regular assesment under section 62 of the Ordinance. During the assessm ent proceedings the assessee vide its letter dated 8th May, 1982, requested the Income-tax Officer that its return should be accepted under the self-assessment scheme. The Income-tax Officer, vide his letter dated lath May, 1982 declined to accept his request for the reason given in the assessm ent order, The main reason for not framing the assessment under self-assessm ent scheme was that the return had not been filed voluntarily by the due date.
The assessee appeared before the Income-tax Officer from time to time and produced the account books. The Income-tax Officer ultimately framed the 4ssossmtnt sunder normal law. He rejected the book version and made addition in various sums under different heads such as `purchase of kapas account, ginning account, ginning expenses account' etc., etc. Additionally he made an addition of Rs. 68,552 towards interest chargeable under section 12(7) of the Ordinance in respect of loans advanced to the partners of the appellant firm amounting to Rs. 4,28,451. After making certain add backs out of expenses debited to P & L Account the total income of the assessee was finally estimated at Rs. 6,54,501.
2. Being aggrieved by the assessm ent so made on it, the assessee went in appeal before the learned Commissioner of Income-tax (Appeals), Zone II,------. It was pleaded on its behalf before the learned Commissioner of Income-tax that the appellant had filed the return by due date, that is, on 15 September, 1979 and that the revision of return did not amount to the filing of a new return. The authorised Representative of the appellant placed reliance on Central Board of Revenue's alleged Circular No. F. 1 (1) 23/79-80/ 335; R, dated October 24, 1979. This Circular finds place at page 63 of the booklet titled "Income-tax Circular from 1978 to 1980, Vol. II by Khawaja Amjad Saeed". Vide para. 7 of this alleged Circular, the Board had permitted the assessee to revise their return by making lump sum addition. The learned Commissioner of Income-tax refused to place reliance on this Circular allegedly issued by the Central Board of Revenue and he could not lay his hand on it anywhere also save the booklet referred to above and hence he was doubtful about its authenticity. The learned Commissioner of Income-tax further held that a revised return was 'a new return. He also held that the appellant before him could not enjoy the benefit of self- assessm ent scheme as it failed to file the return by due ,date. Upon examination of the case on merits the learned Commissioner of Income-tax allowed substantial reliefs to the assessee by deleting certain additions made in the various traling accounts as well as out of P & L Account expenses. He, however, upheld the addition of interest amounting to Rs. 84,195 made under section 12(7) of the Income-tax Ordinance. Consequent to the order of the learned Commissioner of Income-tax the total income of the appellant for the charge year under appeal stood reduced to R.s. 3,65,577. Hence this second appeal.
3. Mr. S. M., F, C. A. Learned Authorised Representative of the appellant raised two-fold contentions before us. Firstly, he attacked the propriety, validity and legality of the assessment order and secondly, he assailed the addition of Rs. 84,119 as `deemed income' from interest on alleged loans advanced to parties. In respect of the first above-noted grievance, Mr. S---------..Did not adhere to the line of argument adopted on behalf of the appellant before the two officers below to the effect that the return should have been processed under the self-assessment scheme. Developing his arguments Mr. S------.Placed reliance on subsection (2) of section 5 of the Income-tax Ordinance, 1979, which -provides that "where any directions issued under subsection (1) have assigned to "two or more Income-tax authorities the same function or functions in respect of the same persons or class of persons or the same area, they shall perform their functions in accordance with such orders as the Central Board of Revenue or any other authority to whom they are subordinate may make for the allocations of the functions and the dis--tribution of the work to be performed". He then drew our attention to sub-paragraph (3) of the paragraph 5 of Circular No. 3 of 1973 regarding ---Self-assessm ent Scheme for 1979-80 to contend that the assessment was to be made jointly by the Income-tax Officer and the Range Inspecting Assistant Commis--sioner since the assessed income exceeded Rs. L11 lakh. The assessment was admittedly made singly by the Income-tax Officer, and not jointly by the Income-tax Officer and the Inspecting Assistant Commissioner, and hence, according to the counsel for the appellant, it is fib initio void and liable to be annulled as such. He further contended that even if it is held that the assessment as made by the Income-tax Officer was proper then too it is to be knocked down for want of approval of the Commissioner of Income-tax concerned. In support of his contention that it was a fit case for annulment of assessm ent, the counsel placed reliance on the decisions reported in PLD 1978 Kar.
723 ; 1981 PTD (Trib.) 97 and 1981 PTD (Trib.) 32.th In so far as the second above-noted contention is concerned Mr. S..... Repeated the same arguments which were made before the officers below. According to him, the alleged amounts of loans depicted the position of capital accounts of partners. In his submission partner's over drawings could not be treated as loans as the partners are the owners and hence they cannot be expected to have debited their ownselves.
4. The learned Departmental Representative supported the impugned orders on both counts. He maintained that the jurisdiction conferred on the Income-tax Authorities by section 5 of the Income-tax Ordinance is "subject to the provisions of the Ordinance" and hence, in his submission, the total income of the assessee and the amount of tax payable by him was to be assessed only by the Income-tax Officer. He urged with emphasis that under section 62 of the Ordinance the assessm ent order could be passed only by the Income-tax Officer and not by any other person. He submitted that the Inspecting Assistant Commissioner has been all along associating himself with the assessm ent proceedings of the year under appeal and hence the directions of the Central Board of Revenue in this behalf were materially complied with. According to him, the Inspecting Assistant Commissioner could not sign the assessment order without doing violence to the lauguage of section 62 of the Ordinance (as enacted originally). Making his submissions on the second above-noted contention of the learned counsel the Departmental maintained that lenders and borrowers are two different provisions of section 12(7) have been rightly invoked in respect of the loans in question.
5. Before embarking upon a discussion on the points mooted before us, it would be proper to read subsections (1) and (2) of section 5, sections 7, 8, 60 and 62 of the Ordinance, which are as under: - "Section 5. Jurisdiction of income-tax authorities --(1) Subject to the provisions of this Ordinance-- -
(a) the Directors of Inspection shall perform such functions as may be assigned to them by the Central Board of Revenue ;
(b) the Commissioners and the Appellate Assistant Commissioners shall perform their functions in respect of such persons or classes of persons or such areas as the Central Board of Revenue may direct ;
(c) the Inspecting Assistant Commissioners and the Income-tax Officers shall perform their functions in respect of such persons or classes of persons or such areas as the Commissioners to whom hey are sub--ordinate, may direct ; and
(d) the Inspectors of Income-tax shall perform such functions as may be assigned to them by the Income-tax authority under whom they are appointed to work.
Explanation.- The power to confer jurisdiction .Under this subsection shall include the power to transfer jurisdiction from one Income-tax authority to another.
(2) Where any directions issued under subsection (1) have assigned to two or more Income-tax authorities the same function or functions in respect of the same person or classes of persons or the same area, they shall perform their functions in accordance with such order as the Central Board of Revenue, or any other authority to whom they are subordinate, may make for the allocation of functions and the distribution of the work to be performed.
Section 7. Guidance to Income-tax Officer.-In the course of any proceedings under this Ordinance, the Income-tax Officer may be assisted, guided or instructed by any other Income-tax authority to whom be is subordinate or any other person authorised in this behalf by the Central Board of Revenue.
Section 8. All officers to follow the orders of the C. B. R.-All Officers and persons employed in execution of this Ordinance, shall observe and follow the orders, instructions and directions of the C. B. R.
Section 60. Notice for production of evidence to support the return.-- Where a return of total income for any income year has been furnished by an assessee, the Income-tax Officer may serve upon him a notice requiring him, on a date to be specified in the notice, to attend, or to produce or cause to be produced any accounts, documents or other evidence as the Income-tax Officer may require, including accounts or documents relating to any period prior or subsequent to such income year.
Section 62. Assessm ent.-The Income-tax Officer may, after considering --the evidence on record (including evidence, if any, produced under section 60 or section 61), assess by an order in writing, the :::al income of the assessee and determine the amount of tax payable by him." .
6. We may quote clause (iii) of para. 5 of Circular No. 3 of 1979, dated 13th August, 1979, issued by the Central Board of Revenue, for giving effect to and elaborate the "Self-assessment Scheme 1979-80" on which reliance has been placed by the learned Authorised Representative of the appellant.
"5. Processing of returns.-(iii) Assessment in cases selected for detailed scrutiny $ball be made jointly by the Income-tax Officer holding jurisdiction over such cases and the Range Inspecting Assistant Com--missioner. Where the assessed income exceeds Rs. 1 lakh, the assessment shall be approved by the Commissioner of Income-tax concerned."
7. Having referred to the relevant provisions, we may now proceed to consider the point whether the assessm ent made by the Income-tax Officer is without jurisdiction, illegal and void for violating the directions given by the Central Board of Revenue in Circular No. 3 of 1979. The Departmental Representative conceded before us that it was a case for detailed scrutiny. The salient features of the Self-assessm ent Scheme for 1979-80 were released by the Finance Minister while piloting the Federal Budget for fiscal year 1979-80 and published as a Budget document wherein vide clause
(iv) under the head "processing of returns" it is stated as under :- Processing of returns.- (iv) To ensure against harassment by the Income tax Officer of the Circle, assessm ent in cases selected for detailed scrutiny shall no more be made single-handedly by the Income-tax Officers hold--ing territorial jurisdiction over such cases. Instead such assessment shall be made by a group of officers. The composition of the group shall depend on the nature of the cases. Whereas all the cases involving concealments shall be investigated by the group comprising of an I.A.C. And two Income-tax Officers. The cases completed by the group headed by I.A.C. Shall be approved by the Commissioner of Income--tax and those assessed by Income-tax Officers's group shall be approved by the I. A. C. Concerned except where the income assessed exceeds Rs. 1 lakh, in which case the approval will be done by the Commis--sioner of Income-tax."
It was in furtherance of this policy of Government that the Central Board of Revenue issued Circular No. 3 of 1979 providing, inter alia, in clause (iii) of para. 5, as reproduced above, that assessment in cases selected for detailed scrutiny shall be made jointly by the Income-tax Officer holding jurisdiction over such case and the Range I. A. C.
8. A bare, perusal of the above reproduced provisions of law makes it vested in it has issued instructions vide Circular No. 3 of 1979, which, I absolutely clear that the Central Board of Revenue in exercise of the powers vested in it has issued instructions vide Circular No. 3Y 1979, which, in terms of section 8 of the Ordinance, are binding on all officers and person employed in the execution of the Ordinance. Morever, it is specifically provided in subsection (2) of section 5 of the Ordinance that "where an directions issued under subsection (1) have assigned to two or more Income-tax Authorities the same functions or functions in respect of the same person or class of persons or the same area, they shall perform the functions in accordance with such orders as the Central Board of Revenue.............Make for the allocation of functions and the distribution of work to be performed.
The underlined idea in incorporating this provision of law is clearly ascertainable from "Self- assessm ent Scheme for 1979-80" issued by the finance Minister while laying down the Federal Budget for the fiscal year 1979-80. The Legislature was anxious to ensure that the assessee whose cases were selected for detailed scrutiny were not subject to harassment by the Income-tax Officer of the Circle while making the assessment. We have made a reference to this document particularly with a view to highlight as to what was the intention of the Legislature in making a provision for assigning the same functions or functions in respect of the same persons etc to two or more Income-tax Authorities. It has not been agitated at the bar nor do we think that any legitimate objection can taken to the vires of the instruction issued vide Circular 3 of 1979. It is however; clearly borne out from the assessment order that it has been made single-handedly by the Income-tax Officer holding jurisdiction over the appellant, although it was admittedly a case of detailed scrutiny. The Income-tax Officer as already emphasised, did not have the jurisdiction to make the impugned assessm ent single-handedly. There is nothing discernible from the contents of the assessm ent order that the Inspecting Assistant Commissioner had been associating himself with the assessm ent proceedings which he was bound to do in terms of the directions of the Central Board of Revenue or that even any guidance was given by him to the Income-tax Officer.
With a view to ascertain the actual position prevalent on the departmental record we called upon the Department to produce the assessment record of the charge year in question but despite months having elapsed by now they have failed to make the desired records available for us. Even the Commissioner of Income-tax F------.Was requested by the Assistant Registrar, Income-tax Appellate Tribunal, Lahore Bench, vide his letter No. F.32-ATE/AD/83, dated 12th September, 1983 to instruct the Income-tax Officer concerned to make available the said records immediately. It appears that the revenue authorities have not produced the said records wilfully nor any sufficient explanation is forthcoming from their side for the non-production of the records. The contention of the learned Departmental Representative that the Inspecting Assistant Commissioner has all along been associating himself with the assessment proceedings of the year under appeal thus remains un-- substantiated. There appears to be much substance in the contention of the learned Authorised Representative of the appellant that the Income-tax Officer has no lawful jurisdiction to make the assessm ent single-handedly. The assessment could only be made jointly by the Income-tax Officer and the Range Inspecting Assistant Commissioner. Moreover, the assessment is also unsustainable for want of approval of the Commissioner of Income-tax concerned since the assessed income was more than Rs. 1 lakh.
9. For the foregoing reasons, we bold that the impugned assessment is liable to be annulled. It is ordered accordingly. No finding is therefore, now required to be recorded on the second above- noted plea.