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I.T. A. No. 926/KB of 1982-83, decided on 22nd December,1985.

---Ss. 12(7) & 156--Central Board of Revenue Circular No.32, dated 8-12-1980 and No. SRO 750(1)/79, dated 23-8-1979--Addition of deemed interest income on loan under S. 12 (7)--Loans not advanced directly or indirectly for purposes of carrying on any business or profession- Such loans excluded from applicability of S. 12(7) by Notification No. SRO 750(1)/1979--Application by assessee firm for rectification--Income-tax officer taking view that all amounts of advance made by assessee firm were hit by provisions of S. 12(7) of Ordinance and, therefore, added deemed interest income to which partner of assessee firm agreed- Assessment order showing that no specific plea was raised before assessing officer 'with regard to debtors' not having used directly or indirectly loans for purposes of any business or profession carried on by them--Consent as given by assessee absolving Income-tax Officer of his responsibility to probe into fact as to whether amount of loan was actually used by debtors for purpose they were alleged to have been advanced by assessee or not--Income-tax Officer, held, could not be estopped from examining loans for purpose of any business or profession carried on by them, if any in circumstances--No mistake was, therefore, apparent on record which could be rectified without bringing material evidence establishing fact that debtors were specified persons to whom provisions of S.12(7) of Ordinance did not apply--Application for rectification was, therefore, not maintainable.

---Ss. 12(7) & 156--Central Board of Revenue Circular 8R0 750 (1)/79, dated 23-8-1979--Rectification--Pendency of revision application of assessee before Commissioner of Income-tax' (Revision), held, could not by itself come in way of assessee to seek rectification of some obvious mistake of fact or law or render Income-tax Officer deprived of his jurisdiction to pass an appropriate order under S.156 of Ordinance to rectify or decline to rectify any mistake alleged to be apparent from record on his own notion or on such mistake being brought to his notice by any other Income-tax authority or by assesses.

---Ss. 12(7) & 156--Estoppel--Income-tax proceedings--Principle of estoppel, held, not applicable to income-tax proceedings.

---Ss. 12(7) & 156--Central Board of Revenue Circulars No.32, dated 8-12-1980 and No. SRO 750(1)/79, dated 23-8-1979--Appeal--Application for rectification--Scope of appeal against order of rejection of application for rectification, held, was wide enough to enable appellate authority to examine entire acts of case for arriving at a decision whether there did or did not exist any glaring or obvious mistake on face of record calling for rectification.

---S. 156--Review--Income-tax Officer, held, was not empowered to review or revise his order while purporting to exercise jurisdiction vested in him under S. 156 of Ordinance.

Ayub I. Lambat for Appellant.

Muhammad Farid, D.R. for Respondent.

.--This appeal at the instance of assessee, a registered firm, dealing in ready-made garments pertains to the charge year 1980-81. It has arisen under the following facts and circumstances.

2. The assessee filed a return declaring an income of Rs.79,668. The return was processed under the self-assessment scheme. However, since the returned income for the year in question was lower than the last three years' highest assessed income, it was earmarked for detailed scrutiny as per Central Board of Revenue's Circular No. 32, dated 8-12-1980. During the assessment proceeding the Income-tax Officer noticed that in the Balance Sheet of "Rainbow House" two debtors were shown to the tune of Rs.1,25,000 and Rs.1,22,600 and three debtors were shown at Rs.10,000 each. He called for the assessee's explanation in that behalf. It came out with an explanation that first two debtors were the wives of the two partners of the firm and the amounts had been given to them for construction of bungalow. Likewise, the three debtors shown at Rs.10,000 each were also the wives of the other three partners, who had been advanced the said amount for purchase of Prize Bonds. The Income-tax Officer was of the view that all these amounts were hit by the provisions of section 12(7) of the Income-tax Ordinance 1979. He, therefore, decided to add the deemed interest income thereon @ 12%, i.e. 2% above the bank rate, and the partners of the firm agreed thereto. The interest amount which worked out at Rs.33,240 was added to the assessed income of Rs.1,04,880 on 30th of June, 1981. The assessee, however, presented an application for rectification before the Income-tax Officer on 25th November, 1981 requesting him for rectification of the order in respect of the addition of interest income under section 12(7). According to the assessee, the provisions of section 12(7) of the Ordinance were not applicable to the loans by virtue of C.B.R's Circular SRO 750(1)79, dated 23rd August, 1979. The assessee also presented a Revision Application before the Commissioner of Income-tax (Revision) on 5-9-1981. The Income-tax Officer vide his letter, dated 13th Decembers 1981 to the assessee declined to entertain its request for rectification in view of the pendency of Revision Petition before the Commissioner of Income-tax (Revision), Karachi. Against this order of the Income-tax Officer the assessee went in appeal before the learned Commissioner of Income-tax (Appeals), Zone 4, Karachi. He dismissed the appeal by his impugned order dated 8-12-1982. The operative part of his order reads as under:

"A perusal of the record shows that on 30-6-1981, the partners had agreed to be assessed on total income of Rs.1,38,120, the agreement had been signed by one of the partners. In view of these facts, no interference is called for and the appeal stands dismissed."

3. Mr. Ayub Lambat, learned counsel for the appellant at the outset stated that he does not press this appeal against the addition of deemed interest income in respect of loan of Rs.30,000 given to the wives of the three partners for purchase of Prize Bonds. He also said that the revision application filed before the Commissioner of Income-tax (Revision) was withdrawn on 6th April, 1982. The counsel, however, vehemently urged that the learned Commissioner of Income-tax (Appeals) erred in confirming the order of the Income-tax Officer under section 156 in respect of deemed income on loans of Rs.1,25,000 and Rs.1,22,600 under section 3.2 (7) of the Ordinance inasmuch as the said interest-free loans were advanced to the debtors for construction of bungalow and hence the provisions of subsection (7) of section 12 of the Ordinance were not attracted to the said loans as per Notification SR0.750(1)/79, dated August 23, 1979 as amended by SRO. 197 (1)/81, dated March 7, 1981. The counsel urged with vehemence that the instructions issued by the C.B.R. through above noted S.R.Os. were binding on the Income-tax Officer in terms of section 8, ibid. The counsel further submitted that the learned Commissioner of Income-tax (Appeals) had erred in law in declining to interfere with the impugned order of the Income-tax Officer refusing to rectify the order of assessment under section 156 in so far as it pertained to the addition of deemed interest income under section 12 (7) of the Ordinance on the ground that one of partners had agreed to be assessed on total income of Rs.1,38,120. The counsel urged that the illegality committed by the Income-tax Officer could not be cured by the consent of the assessee. The validity of the impugned order was to be judged in the context of the relevant provisions of law quite independent of the consent of the assessee. In his submission, the learned Commissioner of Income-tax (Appeals) should have directed the Income-tax Officer to rectify the mistake of law committed by him in adding the amount of interest under section 12(7) when the said provision of law was not to be pressed into service in the case of the appellant as per SR0.750(1)/79, dated August 23, 1979 inasmuch as the loanees had not used, directly or indirectly, the loans for purposes of any business or for investment in securities etc. The learned Departmental Representative without controverting the legal aspects of the case as pleaded by the learned counsel for the appellant, urged with vehemence that by giving consent to the addition of deemed interest income partners of the appellant-firm had estopped the assessing officer to make investigation to the facts of the case,

3-A. The main issue that arises for determination in this appeal is whether in the facts and circumstances of the case as narrated above, the Income-tax Officer was legally bound to rectify the order of assessment under section 156 of the Ordinance in so far as the application of section 12(7) ibid to the loans of Rs.1,25,000 and Rs.1,22,600 was concerned. Or to put it otherwise, whether it was a mistake apparent from record to treat the said two loans as being hit by the provisions of section 12(7) ibid. The assessee's case is that it was specifically pleaded by it that the said two sums were advanced to the debtors for construction of bungalow and consequently they (debtors) had not used, directly or indirectly, the loans for purposes of any business or profession carried on by them and hence by virtue of SRO.750 (1) /79, dated August 22, 1979 issued by the Central Board of Revenue in exercise of the powers conferred on it by clause (b) of the proviso to subsection (7) of section 12 the Income-tax Ordinance. 1979, the provisions thereof did not apply to them. Factually this statement does not appear to be absolutely correct inasmuch as there is nothing in assessment order to indicate that any specific plea was raised before the assessing officer with regard to the debtors not having used, directly or indirectly, the loans for the purposes of any business or profession carried on by them. On the contrary, a partner of the assessee firm had agreed to the amount of interest arrived at being 'calculated' at the said rate to be the income of the assessee charged to tax. The consent as given by the assessee absolved the Income-tax Officer of his responsibility to probe into the fact as to whether the amounts of loans were actually used by the debtors for the purpose they were alleged to have been advanced by the assessee or not. IL was not alleged in the application for rectification presented on behalf of the assessee that no consent was given by the assessee. On the contrary at all the stages including the hearing of this appeal before us. It was candidly conceded on behalf of the assessee that a partner of the assessee-firm had actually consented to the amount of interest being treated a deemed income and subjected to tax. Under these circumstances the Income-tax Officer could not be estopped from examining the facts as to whether the debtors had not used the loans for purpose of any business or profession carried on by them, if any. There was thus no mistake apparent on record which could be rectified as such without bringing material evidence on record establishing the fact that the debtors were the specified persons to whom the provisions of section 12(7) did not apply vide subsection (c) of the S.R.O., dated 23rd August, 1979 (supra).

4. The Income-tax Officer no doubt rejected the rectification application on a ground, which could hardly be held valid for rejecting the application for rectification. The mere fact that a revision application which was pending before the Commissioner of Income-tax (Revision), could not by itself come in the way of the assessee to seek the I rectification of some obvious mistake of fact or law or render the Income-tax Officer deprived of his jurisdiction to pass an appropriate order under section 156 of the Ordinance, to rectify or decline to rectify any mistake alleged to be apparent from record on his own notion or on such mistake being brought to his notice by any other Income-tax authority or by the assessee. Had he, in the instant case, agreed with the assesses to rectify the order then revision to that extent would have become redundant or if he had held that there was no mistake apparent on record as alleged by the assessee then it would have been for the assessee to pursue his remedy before the revisional or appellate authority. The Income-tax Officer was wrong in saying that as the revision application had been filed, the question of rectification did not arise. Similarly, the learned Commissioner of Income-tax (Appeals) does not appear to have kept in view that the principle of estoppel not apply to the income-tax proceedings and hence the mere fact that the assessee had agreed to be assessed at a particular amount of total income, it would not have deprived him of his legal right to seek rectification of an order if on the facts established on record, it could be held without any further investigation, that a particular provision of law was wrongly pressed into service.

5. However, notwithstanding the fact that the orders of both the officers below could not be sustained for technical grounds we do not deem it proper to set aside their orders and remit the case to the Income-tax Officer for fresh orders inasmuch as we have not the least hesitation in holding that it would tantamount to restricting the scope of appeal against an order of rejection of rectification.

6. In our opinion, the scope of appeal against an order of rejection of an application for rectification is wide enough to enable the appellate authority to examine the entire facts of the case for arriving at air decision whether there did or did not exist any glaring or obvious mistake on the face of the record calling for rectification. It was in this view of the matter that we have ourselves examined the maintainability or otherwise of the application for rectification and have reached the conclusion that there was no mistake apparent from the record and hence there is no justification for us to direct the Income-tax Officer to rectify the order of assessment as prayed for. We have not the least hesitation in holding that failure to apply the law to the set of facts, which needed investigation in the instant case could not be corrected through an order of rectification. The Income-tax Officer, it may be added, is not empowered to review or revise his order while purporting to exercise the jurisdiction vested in him under section 156 of the Income-tax Ordinance.

7. Under the aforesaid facts and circumstances of the case, the appeal is held to be devoid of force and it is dismissed accordingly.

M.N. H. Appeal dismissed.

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