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I.T.A. No. 3490 of 1979-80, decided on 29th June,1981.

---Ss. 4(2-A) & (2-B)--Deemed income--Assessment--Assessment made on deemed income--Legality or validity of an order, held, was to be judged in context or light of all relevant provisions of Law.

---Ss. 4(2-A) & (2-B)--Deemed income--Addition made under S. 4(2-A) of Act of 1922 as deemed income--Assessment finalised by assessing authority on very day on which assessee's statement of account was obtained from another source-- Assessee thus, not having a fair chance to explain each and every entry appearing therein--Such plea was specifically raised before first appellate authority on behalf of assessee but rejected on wrong assumption of facts--Facts appearing on departmental record and presented before Tribunal sufficient to conclude that miscarriage of justice had taken place because of violation of principles of natural justice-- Assessee had to be given a specific chance to accept or deny each and every entry appearing in statements which came into possession of assessing officer on day when he finalised assessment--Case remitted to Income-tax Officer for de novo proceedings and fresh orders in light of observations made by Tribunal.

Zia H. Rizvi for Appellant.

Abrar Ahmad D.R. for Respondent.

Date of hearing 29th June, 1981

This appeal pertaining to charge year 1976-77 for which the relevant accounting year ended on 30th June, 1976, and is directed inst the order, dated 2nd February, 1980 of the learned Appellate Assistant Commissioner Sargodha Range, whereby he has upheld the additions of Rs.2,47.000, made by the Income-tax Officer, under section he Income-tax Act, 1922, (hereinafter called "the Act").

2. The facts giving rise to this appeal are these. The assessee is an Association of person, which deals in motor-cycles. Its original assessment for the charge year and under appeal was finalised under section 23(3) of the Act, on 30th June, 1977, on total income of Rs.17,000. Later on the Income-tax Officer got information from the Income-tax Officer, Companies Circle, A-7, Karachi, to the effect that in the books of M/s. Performance Corporation Limited, Karachi, there was a credit balance of Rs.3,70,000, as on 30th September, 1975, standing in the name of assessee abovenamed. The Income-tax Officer, Circle 'A', Jhelum, on the basis of this definite information, initiated proceedings under section 34 of the Act on 8th March, 1978. The assessee, in compliance to the said notice, filed return disclosing an income of Rs.9,000, as originally returned on 24th June, 1977. The Income-tax Officer, thereupon, issued statutory notices under sections 23(2) and 22(4) of the Act. The assessee filed a written reply, dated 20th June, 1979 to the notice under section 23(3), dated 12th June, 1979, stating, inter alia, that it was not the case of concealment of income inasmuch as during the charge year in question, it had purchased motor-cycles of the value of Rs.2,53,000 from Performance Corporation Limited, Karachi, and that a certificate to this effect was duly filed during the original assessment proceedings. The assessee thus assailed the validity of notice under section 34 and prayed for the filing of proceedings thus initiated. He further stated: "As regard the credit balance of Rs.5,70,000, on the start of the year, it is requested that this balance was brought forward, from the last year. i.e., relevant to the charge year 1975-76." The Income-tax Officer repelled the assessee's contentions although he held that a credit entry of Rs.1,30,000, made on 25th June, 1975 pertained to the assessment year 1975-76. On 30th June, 1979, he obtained the relevant statement of its accounts as obtaining in the account books of Performance Corporation Limited, and finalised the assessment on that very day, i.e., 30th June, 1979). The operative part of his order is as under:----

"Since the credit entries in the books of assessee's ledger account of M/s. Performance Corporation Ltd., Karachi, to the extent of Rs.2,47,000 are not satisfactorily explained, therefore, the same is deemed as the assessee's income and is assessed under section 4(2-A) of the Income-tax Act:

3. The assessee filed an appeal before the Appellate Assistant Commissioner, who confirmed the Income-tax officer's findings and dismissed the appeal. In conclusion, the learned Appellate Assistant Commissioner observed: "As apparent from his reply to notice under section 23(3) it was also not the appellant's case before the Income-tax Officer that the addition could not be made under the provisions of section 4(2-A) of the Income-tax Act. After considering all the facts and circumstances of case as narrated by the Income-tax Officer at length in the impugned order, I am of the considered view that the Income-tax Officer has made out a good case of concealment of income against the appellant and would uphold the addition of Rs.2,47,000 as made by him under section 4(2-A) as being proper and legal fully justified in the facts and circumstances of the case. His assessment as framed is upheld in tote and the appeal being devoid of any merit fails id is dismissed"

4. Aggrieved by the impugned order of the learned Appellate Assistant commissioner, the assessee had brought this second appeal, Notwithstanding the several grounds taken in the Memorandum of appeal, Mr. Zia M. Rizvi, the learned Authorised Representative of the appellant, confined his attack only to the validity of the addition in question on the ground that section 4(2-A) did not have application to the facts of the instant case.

5. Before proceeding further to record and deal with the contentions of the learned counsel for the appellant, it appears desirable to refer section 4(2-A), which has been relied upon by the I.T.O. and to section 4(2-B) on which the learned Departmental Representative has sought to place reliance. Section 4(2-A) of. the Act, provides:-

"S. 4(2-A). Where any sum is found credited in the books of an assesses maintained for any previous year and the assessee offers no explanation about the nature and sources thereof the explanation offered by him is not, in the opinion of the Income-tax officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year."

Section 4(2-B) runs as under:--

S. (2-B). Where, in the previous year immediately preceding the assessment year, the assesses had made investments which are not recorded in the books of account, if any maintained by him for any source of income, nor shown in any statement furnished by him under subsection (4-A) of section 22, and the assessee offers no explanation about the nature and source of the investments of the explanation offered by him is not, in the opinion of the income-tax Officer, satisfactory, the value of the investments made be deemed to be the income of the assessee of such previous year."

6. The main and forceful contention raised by the learned counsel for the appellant was that since it was a 'no account case', the question of any sum found credited in the books of accounts of the assessee, which is the condition precedent for the application as section 4(2-A) of the Act, did not arise in the instant case The learned Departmental Representative could not, on the basis of the relevant departmental record with him dispute the correctness of the statement of the appellant's counsel with regard to the assessee's having not maintained the books of accounts.

Nevertheless, he vehemently argued that the addition in question was actually covered under the provisions of section 4(2-B) of the Act and it appeared to be simply a case of typographical error that the income-tax Officer has mentioned section 4 (2-B) in the impugned assessments,

7. We have given our earnest consideration to submissions made by the parties' representatives and we are of the opinion that the contention raised on behalf of the appellant is not without substance. As a matter of fact, the learned Departmental Representative has also not even disputed it. Realising this fallacy in the order of the officers below he developed the argument that the addition in question was sustainable under section 4(2-B) of the Act. We would, however, refrain, to deal with and dispose of finally this controversy at this stage in view of the manner in which we propose to decide this appeal. Suffice is to say that the legality or validity of an order is to be judged in the context or the light of all the relevant provisions of law. What appears from a bare perusal of the order of assessment is that the assessee's statement of accounts with Messrs Performance Corporation Limited, Karachi for the period from October, 1974 to September, 1975, was obtained on 30th June, 1979 and that it was on that very day that the impugned assessment was finalised by the assessing officer. The assessee thus did not have a fair chance to explain each and every entry appearing therein. This plea was specifically raised before the first appellate authority on behalf of the assessee but he repelled it in appreciation of the fact that the assessee had set up a specific case before the Income-tax Officer with regard to the credit balance of Rs.3,70,000 as on 15th September, 1973, vide its letter, dated 20th June, 1979. Mere the learned Appellate Assistant Commissioner patently fell into an error in ignoring the fact that the statement of accounts on the basis of which the Income-tax Officer made the impugned addition came into his possession some 10 days after the receipt of the reply made by the assessee. Likewise, the learned Appellate Assistant Commissioner failed to appreciate that the assessee did not have an opportunity to contest the proposed addition of deemed income under section 4(2-A) of the Income-tax Act, inasmuch as the Income-tax Officer did not clearly disclose his mind to the assessee to do so. We are satisfied that the facts as prevalent on the departmental record and presented before us are sufficient to hold that there has been a miscarriage of justice because of violation of principle of natural justice in this case. The assessee should in our opinion, been given a specific chance to accept or deny each and every entry appearing in the statements, which came in possession of the assessing officer on 30th June, 1979, namely, on the day when he finalized the assessment under appeal.

8. For the reasons stated hereinabove, we would vacate the impugned orders of both the officers below and remit the case to Income-taxi Officer concerned for de novo proceedings and fresh orders in the light of the observations made heretofore.

9. In the result, the appeal succeeds and is allowed as indicated above.

M. Y. H. Appeal accepted.

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