' SALEEM AKHTAR, J.--The petitioner company is engaged in the business of developer and contractor of buildings and has so far constructed several apartments. The assessment year 1984- 85 was the first year when the petitioner filed a return declaring income of Rs,34,024 and produced balance sheet, construction account and profit and loss account giving full particulars of land and building under construction. In pursuance of notice under section 61 of the Income Tax Ordinance issued by the Assessing Officer books of accounts consisting of cash book, ledger salary register, vouchers conveyance deed and her documents were produced. After scrutiny of the documents produced, the assessing officer accepted the receipt of Rs,87,79,795 but applied gross profit rate of 15% on the declared receipt. Consequently assessment order was passed on 9-6-1985 on an income of Rs,46,618. Respondent No,1 issued a show-cause notice dated 13-6-1987 intimating the petitioner that he intended to reopen the assessment for the year 1984-85 on demote information received details of which were given in it and further stated that the total income for the year 1984- 85 was order-assessed. The petitioner was required to submit explanation within seven days. By his letter dated 2-6-1987 the petitioner' Advocate requested for extension of time for a period of 14 days. Respondent No,1 however issued notice under section 65 of the Ordinance which was received by the petitioner's Advocate on Ist July 1987 in which it was stated that as there are reasons to believe that the petitioners income has been under assessed he would reopen the assessm ent for re-assessing the income which has escaped or under assessed. The petitioner was required to file return within seven days. The petitioner filed this petition on 13-81987 challenging the validity of the notice and proceedings to be taken by respondent No,1.
' Respondent No,1 has filed counter-affidavit stating that the petitioner's case was transferred to him by the Commissioner of Income Tax and he was competent to initiate proceedings according to law. The notice issued for reopening the case was valid. The first show-cause dated 13-6-1987 was issued giving details and specific grounds showing under assessment or escaped assessm ent. The petitioner did not reply the show-cause notice and has neither explained nor invoked the departmental remedy available to him. It has been alleged that notice under section 65 is valid and according to law. Respondent No,1 had obtained prior approval for reopening the case of the petitioner. It has been alleged that petitioner has not disclosed true facts in the return. It had shown false liability as mentioned in the show cause notice and the queries raised by respondent No,1 were not replied.
' Mr. Rehanul Hassan Naqvi the learned counsel for the petitioner has contended that respondent No,1 was not in possession of any fresh and defmite information which may justify reopening of the assessm ent. According to the learned counsel this is a case of change of opinion and the before no action under section 65 can be taken. In order to appreciate this contention it is necessary to examine the show-cause notice in which facts in detail have been given to show that the income had escaped assessm ent. It is reproduced hereunder:- OFFICE OF THE INCOME-TAX OFFICER, COMPANIES CIRCLE C-7, KARACHI ' No, CO.CIR C-7/1986-87/1314 Dated: 13-6-1987.
' To ' The Principal Officer, Jason International (Pvt.) Ltd., Karachi.
' Subject:- Assessm ent Year 1984-85 (Verification Note) Show-cause Notice U/S.65 ' You are aware that your above-mentioned assessment was complete under section 62 at total income of Rs,46,618 on 29-6-1985. In view of information received from Survey & Collation this office is of the view, that your total income for the year was under-assessed and needs to be re-opened under section 65 of the Income Tax Ordinance.
' Our Survey & Collation Wing has observed and informed this as under:
1. In the Balance-sheet of Jason Luxury Apartments as at 30-6-1984 accounts payable have been declared at Rs, 11,29,908 out of which Rs,11,00, have been shown from sister concern. 'Al Yousuf Construction Co.' Details of sundry creditors confirm the same. However certificate available on file (Firm Yousuf Construction Co. Shows that in fact, they had taken loan of Rs,11,00, from Jason International Ltd. @ 12% per annum. This calls for addition of Rs,11,00,000 under section 13 of the Income Tax Ordinance.
2. In the details filed in respect of salaries claimed at Rs,311,315 salaries of three Engineers have been claimed at Rs,32,200 each and that of Storekeepers a Rs,22,400. The expenses are debatable to trading account and ought to be disallowed in the Profit & Loss Account.
3. PLOT NO.FL-4 BLOCK-7 (Jason VIP Apartment)
' Plot of land FL-4 Block 7, measuring 9,555 sq. Yds. Was purchased be your Company vide an agreement of sale dated 21-12-1983 reportedly for Rs,38,22,220 i.e, @ Rs, 400 per square yard. In view of following facts, your admitted purchase price appears under-stated grossly.
(i) U.B.L. Had sold their residential plot of land G-B in Block-7, measuring 3,750 sq. Yds on 23-11-1979 for Rs,1,160 per sq. Yd.
(ii) Sassi Ltd. Had purchased Commercial Plot No,BC-5 & BC-6 in Block 7, on 20-11-1977 @ Rs,500 per sq. Yard. In view of above facts, the market value of your plot works out to Rs,1, 330 per sq. Yard. In the circumstances, you are required to explain/lead evidence as under:--
(a) Why the purchase price of your above-said plot may not be adopted @ Rs,1,330 and why the balance amount may not be treated as paid from undisclosed sources.
(b) What were the special circumstances that you were able to purchase the said plot at such a low price--as claimed by you.
4. Similarly a plot of land No,2/4 Block 3 Clifton admeasuring 2266 sq.Yds. Agreed to be purchased by you from Kamran Corporation Ltd. Vide agreement to sell dated 25-2-1984 for a reported value of Rs,995,000 (@ Rs,440 per sq.Yd.) has been found to be under-stated grossly.
' This office has reasons to believe, that market value of your plot at the time of the transaction was not less than Rs,1,600 per sq. Yd. In the circumstances, you are requested to explain/lead evidence as under:-
(i) As to why the purchase price of the plot may not be adopted @ Rs,1,600 at Rs,36,25,000 and why the balance investment i.e, Rs,26,30,600 may not be treated as paid from undisclosed sources.
(ii) What were the special circumstances, that you were able to purchase the said plot at a price, so lower than the then prevalent market rate.
' PLOT NO. COM-2 BLOCK 3 CLIFTON KARACHI
5. Similarly, learned IA.O. (S & C) has observed that commercial plot No,Com-2, Block-3, Clifton measuring 1,820 sq. Yds. Purchased from one Mr. Amanullah Khan vide Agreement to sell dated 16- 4-1984 for a reported value of Rs,11,83,000 (@ Rs,650 per sq.Yd.) is a gross under-statement of purchase price. This observation is based upon following facts.
(i) On 5-9-1983, the commercial Plot No,Com 1/B and Com.1/A were sold @ Rs,900 per sq. Yd.
(ii) Your plot is located on 300 feet wide road facing the sea.
(iii) Commercial Plot 11/8, in Block-II measuring 977 sq.Yds. Was sold by K.D.A. In open auction on 25-7-1984 @ Rs,1,130 per sq. Yd. This plot is also situated on 300 feet wide road facing the sea.
(iv) Your plot being situated in a more developed area is better located than the Plot No,11/87 Block 2 Clifton.
(v) Similarly Commercial Plot No,7/8 Block-2, Clifton was sold by National Construction Co. Ltd.
(Govt. Owned Co.) at the rate of Rs,1,971 per sq. Yd. On 12-9-1985. This plot also faces the sea and is hardly 200 sq. Yds. Away from your plot. In the circumstances, this office is of the view that your investment in the purchase of the plot @ Rs,1,700 was at Rs,30.94,000. Therefore please explain.
(a) Why in view of above facts your assessment for the year may not be treated as under- assessed.
(b) Why in view of above facts, investment in the purchase of the plot may, to the extent of Rs,19,11,000 may not be treated as made from undisclosed sources.
(c) Why the understatement in purchase price may not be held as intentional.
6. Similarly purchase price of plot Com-4 Block 2, Clifton admeasuring 2,133 sq. Yds. Purchased from Mr. Kausar Ali vide agreement to sell dated 18-2-1984 for a reported value of Rs,14,93,331 (@ 700 per sq. Yds) is a gross understatement. According to Survey & Collation on 16-10-1984 Commercial Plot No,Com-1/1 Block-2, Clifton was sold @ Rs,1,272 per Sq.Yd. Your plot was hardly 500 yards away from the said plot. In the circumstances you are requested to explain/lead evidence as under:-
(i) What were the special circumstances, that you were able to purchase the plot @ 700 per sq.Yd.
While the market value was above 1,200 per sq.Yds.
(ii) Why your purchase price may not be taken at the rate of Rs,1,200 per sq.Yd. At 25,59,600 and why the balance amount may not be treated as paid from unexplainable sources.
(iii) Why the under-statement of purchase price may not be held as intentional.
7. Following documents may please also be made available.
(a) PLOT No, FL-4 Block-7 (9,555 square yards)
(i) Copy of Agreement to Sell dated 21-12-1983.
(ii) Copy of Final Conveyance Deed.
(b) PLOT NO. COM 2/4 BLOCK-3 CLIFTON (2,266 Sq.Yds.)
(i) Copy of Agreement to Sell dated 25-2-1984
(ii) Copy of final Conveyance Deed.
(C) PLOT NO.COM-2, BLOCK-3, CLIFTON (1,820 Sq.Yar)
(i) Copy of Agreement to Sell dated 16-41984.
(ii) Copy of final Conveyance Deed.
(d) PLOT No,COM-4 BLOCK-2, CLIFTON (2,133 Sq.Yds.)
(i) Copy of Agreement to Sell dated 18-2-1984
(ii) Copy of final Conveyance Deed.
' This notice may be complied with within seven days of its receipt. (BASHARATULLAH KHAN) Income Tax Officer, Companies Circle C-7, Karachi Copy submitted to the I.A.C. Range-II, C.Z.C, Karachi for information. (BASHARATULLAH KHAN) I.T.O. CO.CIR C-7, Karachi ' According to Mr. Naqvi all the records, documents, vouchers, sale-deeds and receipts were produced before the assessing officer and after scrutiny he had framed the assessment order and therefore by picking up certain transactions and comparing them with the transactions of other immovable properties cannot be termed to be definite information received by the department for justifying reopening of the case. In this regard the learned counsel has referred to Commissioner of Income Tax, Madras v. Janab S. Khaderwalli Sahib 1951 (20) I.T.R. 308 where it was observed that: "A mere change of opinion based on the same facts and figures which were present to the mind of the Income Tax Officer at the time of the original assessment does not amount to discovery within the meaning of section 34 of the Indian Income Tax Act, 1922. The discovery must be the result of definite information, that is to say, new information that has come to the knowledge of the Income Tax Officer."
' The same view has been taken in Brij Mohan Laxmi Narain v. Commissioner of Income Tax, Delhi.
' The learned counsel also placed reliance on a judgment of our Supreme Court in Civil Appeal No, K-1 of 1983 (Edulji Dinshaw Limited v. The Income Tax Officer) where it was observed as follows:-- "Once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and the assessm ents have been consciously completed, and no new fact has been discovered there can be no scope for interference with these concluded transactions under the provisions of Section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under-assessed, etc. In the meaning of clause (a) or (b) of subsection (1) of section 65 of the Ordinance."
' It is now well settled that jurisdiction under section 65 of the Ordinance can be exercised only in case where after the assessm ent any new material comes to the knowledge of the Income Tax Officer and definite information to that effect has been received from which it can be inferred and deduced that the assessee's income has been under assessed or escaped assessment. Unless such definite information is available on record the Income Tax Officer cannot exercise jurisdiction by reopening the case under section 65. Where all the materials available on record including documents and account books produced have been scrutinized and assessment order has been passed by applying mind, merely by deducing another conclusion from the same documents and materials will amount to change of opinion and the Income Tax Authorities would not be entitled to invoke section 65. But there may be cases where documents may have been filed but neither they have been examined nor considered and the assessment order has been passed without referring to those documents and materials then proceedings under section 65 can be initiated. However when the materials have been placed and a considered speaking order has been passed it would be difficult to say that the order does not take into consideration all the disclosed materials.
' Mr. Rehanul Hassan Naqvi the learned counsel for the petitioner has referred to Gemini Leather Stores v. Income Tax Officer, B-Ward, Agra, and others (1975) 100. where it was observed that in a case where all material facts were before the Income Tax officer but due to oversight it was not considered it will not amount to fresh information.
' In view of the judgment passed by the Supreme Court it is clear that where facts have fully been disclosed and assessm ent has been made consciously and no new facts have been discovered the assessm ent cannot be made under section 65 of the Income Tax Act.
' In the present case there are three items of controversy. One relates to the purchase of the plots.
The petitioner had disclosed in its balance-sheet the price of the plots it had paid to the sellers. All these purchases were made through registered sale-deeds. At the time of assessment the Income Tax Officer accepted the particulars of purchases and transactions. It was open to him to have challenged the correctness of the sale consideration and refused to accept them. Now the Income Tax Officer claims to open the case on the basis of information which has been collected with regard to the rate prevailing in the market during the period when sale was made. Such facts were available and could have been investigated provided a bit of effort would have been made and the relevant officer would have been vigilant to investigate such cases. In. Gemini Leather Stores v.
Income Tax Officer A.I.R. 1975 S.C. 1268 during assessment Income Tax Officer had discovered certain transactions not disclosed by the assessee which were carried out through drafts. He did not make necessary enquiries and draw proper inferences as to whether that amount could be treated as part of total income of the assessee. It was held that no notice for fresh assessment can be issued. In Income Tax Officer v. Madnani Engineering Works Ltd. (1979), 118 I.T.R. 1 the assessee had declared and produced all the original hundis on the basis of which it had obtained loans and interest paid were entered in the books of account. The Income Tax Officer did not investigate whether these documents were genuine or not. The Court refused to reopen the case. In Jawaharlal Daraybuxmal v. Commissioner of Income Tax (1982) 137 I.T.R. 54 the assessee had disclosed the purchase of land and construction of a house thereon. The Assessing Officer framed the assessm ent without making an enquiry into the costs of construction. Subsequently on the basis of report made by the Income Tax Department's Valuation Cell the Income Tax Officer sought to reopen the assessm ent. The notice was quashed as the Income Tax Officer could have investigated and question the value at the time of framing the assessment and therefore reopening of the case was not justified.
So far as purchase of land is concerned the petitioner had disclosed its value and produced all the relevant records. It was open to the assessing officer to have questioned the correctness of the value but it has not been done. In fact on the basis of a report from the Survey and Collation respondent No,1 has sought to reopen the assessment which in our view is not permissible.
The next item is in respect of a sum of Rs,1,100,000. In this regard the allegation of the Department is that in the account books of the 'petitioner this amount has been shown as liability being a loan borrowed from Yousuf Construction Company. This is completely contradicted by the certificate of Yousuf Construction Company which has been found by the Department in which it has been stated that Yousuf Construction Company has taken a loan of Rs,1,100,000 from the petitioner. This definite information has been received by the respondents. In our view in respect of this entry of Rs,110000 the assessing officer was competent to issue notice under section 65 for reopening the case.
Another item in the notice is in respect of salaries paid to the Engineers and the Store-keepers which according to respondent No,1 was debitable to trading account and ought to be disallowed in the profit and loss account. This can hardly be said to be a discovery of any new material on the basis of which the reassessm ent can be made under section 65.
' The learned counsel for the Department contended that during the pendency of the petition the Income Tax Officer has completed the assessment under section 65. Mr. Naqvi the learned counsel stated that the petitioner is not aware of those proceedings as the order has not yet been served on it. Mr. Waheed Farooqui the learned counsel for the Department produced photo copy of the order which we have placed on record. The learned counsel for the Department contended that as assessm ent has been framed and the same has not been challenged this petition has become infructuous. This petition was filed immediately after the notice had been served and it was during the pendency of the petition that the Income Tax Officer completed the assessment. The action under section 65 was initiated by issuing the impugned notice. If any notice on the basis of which action is taken is held to be ultra vires or without jurisdiction then all subsequent proceedings taken and orders passed shall also be rendered void and illegal. The learned counsel for the Department contended that after the fresh assessment order was passed the notice has merged in it and the petition has become infructuous. The petitioner has challenged the notice and if it is ultra vires or without jurisdiction, the passing of order will neither validate the notice nor the proceedings and order passed in pursuance of such notice will be proper, legal and valid.
In the assessm ent order made in pursuance of notice under section 65 the Income Tax Officer has on the basis of fresh valuation of plots and entry of Rs,11,00,000 as liability assessed the total income of the petitioner at Rs,1,30,09,817. The item relating to salary of Engineers and Store-Keepers has not been taken into consideration. As we have held that part of the notice relating to purchase of lands and entry of Rs311315 in the trading account is illegal and without jurisdiction and partly relating to Rs,11,00,000 is legal, the question arises what will be its effect on the validity of the notice.
The notice as it stands is severable and if one part of it is illegal it will not render the whole notice as illegal and without jurisdiction. Therefore the notice to the extent of illegality mentioned above is not valid and any order passed on the basis of that part of the notice cannot stand. We therefore declare the impugned show-cause notice relating to purchase of plots and salary of engineers and store-keepers as without jurisdiction and of no legal effect. Therefore the fresh assessment order which has been placed on record passed in pursuance of the illegal notice relating to purchase of plots is also illegal, without lawful authority and of no legal effect. The notice so far it relates to entry of Rs,11,00,000 is legal and valid and any proceeding taken in pursuance thereof is with lawful authority.
' The petition is partly allowed with no order as to costs.