SALEEM AKHTAR,J.--1In these two petitions the action of the respondent No. 1 issuing show cause notice under section 66-A of the Income Tax Ordinance, 1979 has been challenged. Parties in both the petitions are the same with the only difference that Petition No. 343/87 relates to the assessm ent year 1981-82 while Petition No. 344/87 relates to assessment year 1982-83. We propose to dispose of both the petitions by this judgment.
2. The petitioner is an individual who was assessed to income tax as a partner of M/s. Rajputana Hardware Store. For the assessm ent year 1981-82 the petitioner filed his return of income under section'59 of the Income Tax Ordinance before the Income Tax Officer Circle 'A' West Zone, Karachi, declaring his income from the business at Rs. 15,064. Although the return of income qualified for being processed under the self-assessment scheme announced by the respondent No. 4 for the assessm ent year 1981-82, this benefit was denied to the petitioner on the ground that there were various allegations against him to higher Income-tax Authorities. Consequently the case was kept apart for detailed scrutiny under para 8 of the Self-Assessment Scheme. The main investigation directed against the petitioner was regarding investment in property No. 25/I-5-B-IV, Nazimabad, Karachi constructed by the wife of the petitioner. The Income Tax Officer made thorough investigation into the matter, issued various notices under sections 61 and 148 of the Income Tax Ordinance, 1979 fo: personal attendance of the witnesses. The investigation continued from 26th September, 1981 to 26th August, 1984 and statements of several persons were recorded on oath.
The Income Tax Authorities referred the matter to Official Valuer under section 67 of the Income Tax Ordinance for ascertaining the proper value. Mr. Umar Munshi Architect submitted his report. Again M/s. Naqvi and Siddiqui were appointed as Valuer. During investigation the respondents Nos. 1 and 2 were closely associated and the Income Tax Officer reported the matter to the respondents Nos. 1 and 2 who directed that as nothing adverse had come out from the investigation, the income declared by the petitioner should be accepted. The Income Tax Officer accepted the declared income with the prior approval of the Commissioner of Income Tax, the respondent No. 2. The assessm ent was, therefore, made by an order dated 28th June, 1984 purported to be under section 59- A of the Income Tax Ordinance. After about two years of the assessment, the respondent No. 1 issued a notice, dated 7th June, 1986 calling upon the petitioner to show cause against the proposed action to initiate proceedings under section 66-A for the assessment years 1981-82 and 1982-83 on the ground that the assessment made under section 59-A was erroneous as having issued notice under section 61 assessment could be made either under section 62 or 63 and not 59-A, and further that the investment made in the property was not examined by the Income Tax Officer which has resulted in substantial loss of revenue. The petitioner appeared before the respondent No. 1 and explained the investment made in the property and pleaded for dropping the action which he promised to do. It is alleged that again a notice dated 29th March, 1987 has been issued by the respondent No. 1 in respect of assessment years 1981-82 and 1982-83 in the same terms as the earlier notice. The petitioner has challenged this notice as illegal, without jurisdiction and void.
3. The respondent No. 1 has filed his counter-affidavit in which besides taking preliminary objection relating to maintainability of the petition it has been pleaded that the notice in express terms has disclosed that the order of Income Tax Officer is erroneous and prejudicial to the revenue. The ^order passed by him is not a speaking order and it has not discussed the facts and evidence which were obtained during investigation. It has further been pleaded that the proceedings had commenced on 7th June, 1986 and the petitioner's related petition is intended to defeat the proceedings which ought to be completed before the expiry of 28th June, 1988 as provided by section 66(1) sub-section (2).
The petitioner has riot availed of the remedy provided under the statute and is not entitled to any relief.
4. Mr. Sirajul Haq' the learned counsel for the petitioner, has contended that the assessment order dated 28th June, 1984 was framed by the Income Tax Officer with prior approval of the Commissioner of Income Tax. Therefore, the order of the Income Tax Officer was merged in the order of the Commissioner who is a superior authority and consequently the respondent No. 1 has no jurisdiction to issue notice under section 66-A. In this regard reference has been made to sections 5, 7 and 62 sub-section (2) of the Income Tax Ordinance to establish the hierarchy of the Income Tax Authorities in which the Income Tax Officer and Inspecting Assistant Commissioner of Income Tax are subordinate to the Commissioner of Income Tax. There can not be two opinions about it but the question is, whether assessment was framed by the Income Tax Officer with the prior approval of the Commissioner of Income Tax. In order to substantiate this contention the learned counsel for the petitioner has referred to the assessment order which states that "with the prior approval of the Commissioner of Income Tax (vide letter Jud- I/W/83-84/3563, dated 28th June, 1984) the assessm ent is completed under section 59-A on the declared income of Rs. 15,064".
We had asked the learned counsel for the respondents to produce a copy of the letter referred in this order. The same has been produced by him alongwith letter dated 3rd September, 1983.
The letter dated 28th June, 1984 of the Commissioner of Income Tax reads as follows:-- "The undersigned is directed to refer to your letter No. Cir.VIII/W/83-84/495, dated 27th June, 1984, on the subject cited above and to say that you may complete the assessments for assessment years 1981-82 and 1982-83 under Self Assessment Scheme, if no adverse inference can he drawn against the assessee."
5. The relevant part of the letter of the Inspecting Assistant Commissioner dated 3rd September, 1983 reads as follows:- "In view of positive evidence regarding investment in the construction of property, approval is accorded for reopening of assessm ent for the assessment year 1979-80 under section 65 of the Income Tax Ordinance, 1979. You should, therefore, initiate proceedings accordingly and also complete the pending assessm ent for 1981-82 and 1982-83' under normal law."
6. From both these letters it is obvious that the respondents Nos. 1 and 2 had not at any stage approved the assessm ent order which was framed by the Income Tax Officer. In fact in the first letter he was directed to complete the assessment according to law and in the second letter he was asked to initiate proceedings and complete the assessment under normal law. In these circumstances, the question of merger of the order of assessment in the order of the respondent No. 2 or its approval by respondent No. 2 does not arise. Therefore, the contention that as the order was that of a Commissioner section 66-A cannot be invoked has no force.
7. It was contended that as the matter had been thoroughly probed there was no occasion to reopen the case under section 66-A of the Income Tax Ordinance. On the other hand Mr. Shaikh Haider the learned counsel for the respondent has contended that the respondent No. 1 has ample power under law to revise or cancel the assessment whether earlier any probe had been made or not. He further contended that in the present case the Income Tax Officer had not considered the evidence on record and did not pass a speaking order which has resulted in wrong conclusion and loss of revenue. This question brings us to the interpretation of section 66-A which reads as follows:-- "66-A. Powers of Inspecting Assistant Commissioner to revise Income Tax Officer's order.-(l) The Inspecting Assistant Commissioner may call for and examine record of any proceedings under this Ordinance, and if he considers that any order passed therein by the Income Tax Officer is erroneous in so far as it is prejudicial to the interest of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessm ent to be made.
(2) No order under sub-section (1) shall be made after the expiry of four years from the date of the order sought to be revised.
8. Under this provision the Inspecting Assistant Commissioner has been empowered to call for and examine the record of any proceedings under this Ordinance and if he is of the opinion that the Income Tax Officer has passed erroneous order prejudicially affecting the interest of revenue he may after show-cause notice to the assessee order for such inquiry as he may deem fit or may pass such order as may be necessary. He is also empowered to cancel, enhance or modify the assessm ent or direct for a fresh assessment. These are vast powers conferred on the Inspecting Assistant Commissioner for interfering with the assessment framed by the Income Tax Officer. The limitations placed under law are that the order should have been passed by the Income Tax Officer and ought to be erroneous adversely affecting the interest of revenue. All erroneous orders of the Income Tax Officer cannot be made subject matter of section 66-A unless the error has the effect of causing loss to the revenue. In a case where Appellate Assistant Commissioner of Income Tax has passed an order disposing of an appeal against the assessment order of Income Tax Officer, the Inspecting Assistant Commissioner is not competent to pass order under section 66-A because the original assessm ent order is merged in the appellate order whether it confirms the order or sets it aside. Reference can be made to Commissioner of Income Tax vs. KK D. Kharawala 23 I.T.R. 412. But if the order of Income Tax Officer is under appeal which is still pending the power under section 66-A can be invoked because till such time the appeal is not decided the order of Income Tax Officer must be regarded as substantive and effective in law. Reference can be made to Commissioner of Income Tax vs. Amrat Lal Bhoji Lal 34 I.T.R. 130.
9. In section 66-A, the key words are "prejudicial to the interest of the revenue" and it is to be seen how this term should be interpreted. The learned counsel for the petitioner has referred to Dawjee Dada Bhoy & Co. Vs. S.P. Jain and another (1957) 31 I.T.R. 872. This is a case under section 33-B of the Indian Income Tax Act, 1922 which was identical to section 66-A of the Income Tax Ordinance where it was observed:-- "The words prejudicial to the interest of the revenue' have not been defined, but it must mean that the orders of assessm ent challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised."
10. While analysing section 34-A of the Income Tax Act, 1922 now section 66-A of the Income Tax Ordinance the following observation was made in Commissioner of Income Tax vs. M. Iqbal Saigal PLD 1976 Lah. 547:- "On a plain reading of section 34-A of the Act there is no express bar imposed on the powers of the Inspecting Assistant Commissioner that he cannot interfere unless the mistake in the order under revision is apparent from the record. Indeed under this section he is vested with a very wide power to call for and examine the record of any proceeding under the Act. After examination of the record if he considers that any order passed therein by the Income-tax Officer is erroneous in so far it is prejudicial to the interest of the revenue, he may take cognizance of the case in revision. At this initial stage of the case even before any notice is issued to the assessee he is required to make up his mind on an altogether subjective consideration. But there is nothing in this section to warrant the conclusion that at that stage of the case he must confine himself solely to the examination of the record of the Income Tax Officer called by him or in other words in deciding to entertain the revision he is not permitted to rely on any other material or information not forming part of the record. Any such narrow interpretation on the opening part of sub-section (1) of this section is bound to unnecessarily curtail the power of superintendence and control vested in the Inspecting Assistant Commissioner to sit in revision against the order passed by the Income Tax Officer. This power is liable to be rendered almost nugatory and meaningless if indeed its exercise is confined only to the correction of errors on the face of the record, it is expressly laid down in this section that the Inspecting Assistant Commissioner may, after notice to the assessee, and after making, or causing to be made such enquiry as he may deem necessary, pass such order as the circumstances of the case may justify. This in itself implies that his enquiry in revision is not necessarily confined to the rectification of mistakes apparent on the face of the record. By all means in the course of his enquiry he can even go behind the record if he finds it necessary so to do."
11. Where any error in the order of the Income Tax Officer is of such a nature which in any manner results in yielding or recovery of less amount of tax it shall prejudicially affect the revenue. Such errors may not be restricted to cases where income has escaped or is under assessed but may be wide enough to cover cases which directly or indirectly adversely affect the revenue. An assessm ent was made on an income voluntarily returned but it was found that the income had not been earned by the assessee and the return had been filed to assist someone else who would have been assessed to a larger amount. This assessment was held to be erroneous and prejudicial to the revenue. See Tera Devi Aggarwal vs. Commissioner of Income Tax (1973) 88 I.T.R. 323.
Therefore, the word error has to be given a wide meaning.
12. The Inspecting Assistant Commissioner of Income Tax is empowered to call for and examine the record of any proceeding under the Ordinance. But the issuance of notice under section 66-A is not based merely on examination of the record of the case. The consideration by the authority is subjective in nature and the basis for issuance of notice is not necessarily restricted to the record of the case. The process started before issuing a notice is purely administrative and subjective. But once a notice is issued the proceeding becomes quasi-judicial in nature. We may point out that proceeding under section 66-A can be initiated if the Inspecting Assistant Commissioner considers the order as erroneous resulting in loss of revenue. The word 'consider' means to look at attentively, or carefully, to think, to take into account, to regard, hold the opinion Chambers 20th Century Dictionary. The word 'consider' cannot be equivated with the word 'satisfaction'. Satisfaction is always at a much higher degree which implies a result achieved after full consideration on all aspects of the case and by a process of logical and legal reasoning. But in the present case mere opinion has to be formed by the Inspecting Assistant Commissioner. This does not mean that while forming such an opinion he has to act arbitrarily, capriciously and without any regard to the rules of justice. The demerit of discretion which is vested in the Inspecting Assistant Commissioner is to be exercised in accordance with the recognised and well settled principles.
Even in cases where the actions are taken by administrative authorities under the discretionary power they do not have an unflattered discretion to act arbitrarily. In this regard recently Mr. Naimuddin, J. The Chief Justice, in an unreported judgment in Manthar Ali M. Jatoi vs. Government of Sind after considering a host of authorities observed:-- "The competent Authority may have discretion in the matter still the discretion has to be exercised on well-settled principles, that is, it should be exercised in good faith having regard to all relevant considerations and for public purposes and in accordance with law and it should be exercised justly, fairly and reasonably, it should not be exercised arbitrarily, or capriciously."
13. In Montgomery Flour and General Mills Ltd. Vs. The Director Food, Purchases, West Pakistan and two others PLD 1957 Lah. 914 Kaikais, J. (as he then was) observed:-- "It should be remembered that no discretion vested in an executive officer is an absolute and arbitrary discretion. The discretion is vested in him for a public purpose and must be exercised for the attainment of that purpose. Even though there be no express words in the relevant legal provision to that effect, the discretion is always circumscribed by the scope and object of the law that creates it and has at the same time to be exercised justly, fairly and reasonably."
14. In the present case it is an admitted position that notice was issued by the respondent No. 2 and a reply has been submitted by the petitioner and further proceedings are in progress. The learned counsel for the petitioner has challenged the notice by contending that the assessment is not erroneous and prejudicial to the revenue. The notice specifies two grounds for initiating an action.
First is that the Income Tax Officer had issued notice under section 61 for Assessment years 1981-82 and 1982-83 and therefore, the assessment could be made either under section 62 or 63 of the Income Tax Ordinance and not under section 59-A. The learned counsel for the petitioner contended that according to Circular No. 15 of 1980 it was provided that section 59-A (1) is equivalent to section 21 of the repealed Act under which an Income Tax Officer had the discretion to accept a return under this subsection and that a return not qualifying for self assessment can still be accepted under this provision. The learned counsel has contended that this circular is binding upon the Income Tax Officer and therefore, there is no error in the order. The learned counsel has referred to Rajan Ram Krishna vs. Commissioner of Wealth Tax (1981) 127ITR1. In this judgment it was held that the beneficial circular issued by the Board are binding on all Income Tax Officers. Reference can be made to Navit Lal Zaveri vs. KK Sen A.A. C. (1965) 56 I.T.R. 158, R.C. Miller & Sons v. Commissioner of Income Tax (1959) 36 I.T.R. 194, Ellennan Lines Ltd. Vs. Commissioner of Income Tax (1971) 82 I.T.R. 913; Tata Iron and Steel Co. Ltd. Vs. N. C. Upadh Yahya (1974) 96 I.T.R. 1, Navanti Lal vs. Commissioner of Income Tax (1976) 105 I.T.R. 735; Commissioner of Income , Tax vs. B.
Meawar (1979) 119 I.T.R. 334. The consensus of the authorities is that any circular benevolent for the assessee issued by the Board of Revenue is binding on the Income Tax Officer and other functionaries acting under it. Such circulars are usually expected to have the backing of vast experience of administrative working in implementing the provisions of law taking into consideration the exigencies and likely deviation which strictly do not violate the legal sanctions.
Such circulars should be beneficial to the assessee and in our view slight deviation from legal provision may be permissible but surely a conflict is neither intended nor permitted.
15. The circular referred by the learned counsel for the petitioner is merely a guideline which states that return not qualifying for self-assessment can still be accepted under section 59-A (1) which provides that if the Income Tax Officer is satisfied that without requiring the presence of assessee or production of the account books a return furnished under section 55 is correct then he can pass the assessm ent order. In the present case the Income Tax Officer was not satisfied with the return and probing inquiries were made, witnesses were examined and account books were scrutinized.
In these circumstances how section 59-A (1) could be invoked. The respondent No. 1 was, therefore, justified in forming an opinion that the order may be erroneous and prejudicial to the revenue. The question whether it is erroneous and has caused loss to the revenue can be decided by the respondent No. 1 and at this stage it is not proper for us to consider this aspect of the case.
16. The second ground shown in the notice is that the records of investment made in the immovable property were not examined properly which has resulted in substantial loss to revenue.
The learned counsel has pointed out that the assessment was framed after two valuers had been appointed by the Income Tax Authorities under the direction of respondent No. 1. So far the evidence on record is concerned that is completely left to the respondent No. 1 to consider whether on that basis or other material available error as contemplated by section 66-A has crept in the order of the Income Tax Officer or not. At this stage it would be rather premature to come to such a conclusion. Merely because the evidence of substantial nature had been produced on record it does not mean that the respondent No. 1 cannot form an opinion for the purposes of reopening a case.
17. Mr. Shaikh Haider the learned counsel for the respondent has contended that the petition is premature and alternate remedy under the Ordinance has not been availed, therefore, it should be dismissed. In this regard the learned counsel has referred to Dawji Dada Bhoy & Co. Vs. S.P. Jain and others (1957) 31 I.T.R. 872 where similar notice as in this petition was challenged and it was observed that as the notice did not show on the face of it that it was illegal or without jurisdiction and its illegality could not be determined without ascertaining the facts which had yet not been finally investigated and whether the provisions of rules were complied or not cannot be decided in the petition which was dismissed as premature.
18. Reference was also made to Geeta Devi Agarwal vs. Commissioner of Income Tax West Bengal and others 1970 I.T.R. 496 where as no explanation had been given by the appellant in the writ petition for not preferring an appeal under the Act it was dismissed.
19. In this regard reference has also been made by the learned counsel for the respondent to Messrs Burhan Engineering Co. Ltd. Vs. Income Tax Officer Companies Circle Phase-II Karachi (reported as PTCL 1985 CL-394) where it was held "that constitutional corrective jurisdiction in form of writs is pressed into service by superior Courts to nullify, capricious, arbitrary and mala fide actions and orders of the Government functionaries". Therefore, in cases where a notice has been issued for initiating any action by any government functionary or authority, if the petitioner without availing the remedy provided under the Statute Challenges it by filing a petition under the Constitutional Jurisdiction of the High Court, he must satisfy that the impugned action suffers from mala fides, there is lack or want of jurisdiction, is arbitrary, infringes fundamental rights, violates the principles of natural justice or the Statute under which action has been taken is unconstitutional. If none of these conditions are fulfilled the petitioner will have to follow the procedure laid down by the statute and he cannot by pass such remedy. The Income Tax Ordinance has provided a machinery for dealing with cases at all stages and several Officers, functionaries, and Tribunal have been established to hear appeals and revisions against the orders. It also provides Reference to be heard by High Court. In the present case if any order is passed by the respondent No. 1 the petitioner would be entitled to file an appeal before the Tribunal. Except the two allegations as discussed nothing has been brought on record to show that the respondent No. 1 has acted mala fide or he lacks jurisdiction or that the impugned action is against the principles of natural justice.
In this regard reference can be made to Burma Oil Co. Vs. Trustees of the Port of Chittagong P.L.D.
1962 S.C. 11, Bashir & Co. Vs. Income Tax Officer of the Beaward 1968 S.C.M.R. 997, Habib Ahmed vs. Income Tax Officer 1972 S.C.M.R. 631, Colony Textile Mill Ltd. Vs. Income-Tax Appellate Tribunal P.L.D.
1978 Lah. 861 and Julian Hoshang Dinshaw Trust vs. Income Tax Officer Karachi and 2 others 1981 P.T.D. 53.
20. The petitioner has not availed the statutory remedy available to him and he has rushed to the Court at the initial stage when only notice has been served. He will have the opportunity to examine the material if any produced before the Income Tax Authorities and rebut it, before any final order is passed. In the facts and circumstances of the case in our view the notice issued by the respondent No. 2 is neither arbitrary, nor without jurisdiction. We, therefore, dismiss the petition with no order as to cost.