1. ' S. AHMED SARWANA, J.---The Commissioner of Income tax/Applicant ("Department") has filed this Application under section 136(2) of the Income Tax Ordinance, 1979 ("The Ordinance") referring the following question of law for opinion of this Court.
2. "Whether on the facts and circumstances of the case the learned ITAT was justified in deleting the addition made under section 12(7) which was made by confronting the assessee?"
3. ' The facts giving rise to this Reference Application are that the Respondent/Assessee filed the Return of Income for the assessm ent year 1984-85 under section 59 of the Ordinance. The Income- tax Officer before finalizing the assessment called for certain information from the assessee and thereafter, added an amount of Rs,84,975 as deemed interest income under section 12(7) on a sum of Rs,708,125 outstanding against Forward Traders Ltd., who was the Assessee's Rent Collector.
4. According to the I.T.O. Though the said amount represented the share of rent receivable from Forward Traders the Assessee had shown no such deemed income. Consequently, the I.T.O. Gave Notice to the Assessee for addition of such income but, he declined to give his consent to such addition. Nevertheless the I.T.O. Made such addition. The Respondent/Assessee being aggrieved with the assessm ent made by the Income-tax Officer filed an Appeal before the Commissioner of Income-tax Appeals) who confirmed the same. The Respondent/Assessee filed a Second Appeal before the Income-tax Appellate Tribunal, which allowed The same by order, dated 1-3-1989 holding that the Income-tax Officer while passing an order under section 59(1) of the Ordinance was not legally empowered to make additions under section 12(7) of the Ordinance as additions of such nature are not included or specified in section 59(3) of the Ordinance. The Department filed a Reference Application No,26/HQB of 1989-90 for referring the above question of law for an opinion by this Court which was rejected. Hence this Application.
5. ' Mr. Salman Pasha, learned counsel for the Respondent/assessee contended that no doubt under section 59(3) of the Ordinance as Income-tax Officer is empowered to make adjustments and additions under various sections and Rules mentioned therein but addition of the kind mentioned in section 12(7) of the Ordinance is neither specified nor included in subsection (3) of section 59 of the Ordinance. Consequently, the 'Income-tax Officer was not legally empowered to make any addition under section 12(7) of the Ordinance and the action of the Income-tax Officer in making such addition was absolutely in contravention. Of the provisions of the Ordinance and void ab initio. He added that the Commissioner of Income-tax (Appeals) also failed to consider this aspect and erred in holding that the Income-tax Officer was justified in making the addition by way of deemed interest under section 12(7) of the Ordinance.
6. ' Mr. Shaikh Haider, learned counsel for the Applicant/Department objected to the findings of the Appellate Tribunal but was unable to satisfy as to how the Income-tax Officer can legally resort to the provisions of section 12(7) of the Ordinance and make an addition by way of deemed interest in the income of the Assessee when the authority of the Income-tax Officer has specifically been confined and limited to the adjustments mentioned in subsection (3) of section 59 of the Ordinance and how any other adjustment/addition by the Income-tax Officer would not be contrary to law and illegal. We have considered the provisions of section 59 of the Ordinance thoroughly and are of the confirmed opinion that any Income-tax Officer while exercising powers under section 59 of the Ordinance cannot add or include any amount which comes within the definition of income as defined in section 12 of the Ordinance including deemed interest income to the declared income of an Assessee and has to restrict himself to adjustments like enhancement, reduction, regulation and alteration of the amount claimed as allowable expenses/deductions under the various sections and other provisions of the Ordinance as enumerated in section 59(3) of the Ordinance. If according to the I.T.O. The Assessee had failed to disclose any income which was assessable under section 12(7) of the Ordinance, he should have first completed the assessm ent under section 59(1) and thereafter, taken requisite action under section 65 of the Ordinance, if he deemed it necessary.
7. ' In light of the above discussion, we decide the question referred to us in the affirmative. The Income-tax Reference is accordingly dismissed and the order, dated 1-3-1989 of the Appellate Tribunal is upheld.