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I.T.As. Nos. 258(1‑B) to 261(1‑B) and 264(1‑B) of 1985‑86, decided on 31st August, 1986.

‑‑‑Ss. 59, 62, 65 & 85‑‑Assessment‑‑Self‑assessment‑‑Additional assessment‑‑Income of an assessee required to be assessed by an order in writing‑‑Liability under law, could not be created against an assessee in absence of an assessment order in writing‑‑Notice of Demand and IT‑30 Forms containing tax calculations could not legally substitute an assessment order‑‑Notice of demand does not itself create liability but follows an assessment order‑‑IT‑30 Forms and Notice of Demand do not confer any right of appeal or revision‑‑Proceedings for additional assessment taken under S.65, held, could not be initiated on basis of assessments said to have been made under S.59 which, in fact, were legally non‑existent and thus such proceedings were not sustainable in eye of law‑‑Assessments made under S.65 cancelled.

Commissioner of Income‑tax, Karachi v. Malik Walayat Hussain & Sons Limited, Quetta (1976) 33 Tax 285; (1967) 16 Tax 119; (1952) 21 ITR 18, (1961) 42 I T R 35 and 1975 P T D (Trib.) 27 ref.

‑‑‑Ss. 59(1), 65 & 166 (2) (a)‑‑Income‑tax Act (XI of 1922), S.22‑ Self‑assessment‑‑ Additional assessment‑‑Return of income from salary filed within specified period and prior to commencement of Income‑tax Ordinance, 1979‑‑Assessment in such case required to be made under relevant provisions of repealed Income‑tax Act, 1922 and not under S.59(1) of Ordinance‑‑Assessment made under S.59(1) of Ordinance, 1979 and without making calculation on IT‑30 Forms and without requisite notices of demand to be considered as non‑existent in circumstances‑ Additional assessment under S.65 of Ordinance made on basis of such assessment, held, without foundation and hence could not hold field.

‑‑‑S. 65‑‑Salary income‑‑Additional assessment‑‑ Assessee on his own accord filing return of income‑‑Case transferred from one Income‑tar Officer to another and still pending with latter‑‑Case, held, not one of concealment of income or escapement of income in circumstances and thus proceedings under S. 65 not valid.

Appellant in person.

Ihsan Elahi Tariq, D.R. for Respondent.

Dates of hearing: 29th and 30th July, 1986.

‑‑These five appeals brought by the assessee assail the order of the Appellate Assistant Commissioner of Income‑tax, Rawalpindi Range, Rawalpindi, dated the 28th October, 1985, by virtue of which he had upheld the assessments of income pertaining to the charge years 1978‑79 to 1982‑83, made by the Income‑tax Officer, Circle‑16, Rawalpindi, under section 65 of the Income‑tax Ordinance, 1979.

2. The facts giving rise to these appeals are that initially, for the charge years 1978‑79 to 1982‑83, salary income of Mr. Sarwat Hussain Zaidi, Finance Manager of the Colony Sarhad Textile Mills Limited, y Rawalpindi, the appellant, was assessed under section 59(l) of the Income‑tax Ordinance, 1979 (hereinafter called 'the Ordinance'), in Circle‑16, Rawalpindi. Subsequently, on transfer of a file from the Income‑tax Officer, Circle‑17, Rawalpindi it transpired that during these years, the appellant had also dealt in 'import business in his individual capacity' under the name and style of 'Markaz‑e‑Tijarat'. Hence, after seeking necessary confirmation from the Chief Controller of Imports and Exports, Islamabad, regarding issue of import licences in favour of the appellant, the Income‑tax Officer, Circle‑16, Rawalpindi, proceeded under section 65 of the Ordinance. Consequently, notices under the said provision were issued for making re‑assessments for the charge years 1978‑79 to 1982‑83 on the ground that the appellant's income had 'escaped assessment /under assessed'. In response thereof, the appellant, in the first instance, insisted upon supply of assessment orders and computation of tax for all the years under consideration said to have been made under section 59(1) ibid. The Income‑tax Officer did not supply the requisite assessment orders, etc., but kept on pestering the appellant through reminders for filing the revised returns of his income. The appellant ultimately filed the desired returns for the assessment years 1978‑79 to 1982‑83, declaring income from salary and business as detailed below:‑

3 Notices were thereafter issued to the appellant under section 61 of the Ordinance requiring him to furnish account books, bank statements and other related documents. But the appellant allegedly failed to produce the same on one pretext or other The Income‑tax Officer therefore, came to the following conclusions:

(i) The assessee had actually been carrying on import business in his individual capacity.

(ii) He had not filed any return of income from business with the exception of assessment year 1981‑82 where 'Nil' income had been declared.

(iii) The returns filed in compliance with the notice issued under section 65 of the Ordinance did not accompany any computation chart, and details in respect of profit and loss expenses and trading account. Consequently, the assessee's version 'remained undisclosed'.

(iv) The assessee had failed to disclose his bank account maintained with the Habib Bank Limited.

(v) As per bank certificate, dated the 19th June, 1984, import licences for a total amount of Rs.4,88,862 were issued to the assessee during the period from February, 1978, to December, 1982, while according to the information supplied by the Chief Controller Import and Exports, the total value of import licences issued to the assessee during this period comes to Rs.5,98,662.

4. In the light of above conclusions, the Income‑tax Officer made assessments under section 65 of the Ordinance on the basis of total face value of the import licences issued to the appellant by applying net profit rate of 15 . Accordingly, the income of the appellant was re‑assessed as under:‑

5. While computing the total income the assessing Officer had accepted the salary declared by the appellant for all the years except 1982‑83 For that year he had adopted the figure of Rs.59,951 instead of Rs.44,910 disclosed by the appellant. For this change the Income‑tax Officer drew support from his order, dated the 7th April, 1983. by virtue of which acting under section 156 of the Ordinance he had rectified the original assessment order and thereby had included a sum of Rs.4 751 paid to the appellant as ah award by his employer.

6. All these assessments were contested, in appeal, before the learned Appellate Assistant Commissioner of Income‑tax who by virtue of the impugned order rejected the appeals confirming the orders of the Income‑tax Officer. Thus, being aggrieved of the said findings of the learned Appellate Assistant Commissioner, the appellant has brought these second appeals objecting to the assessments relating to the charge years 1978‑79 to 1982‑83 on the following common grounds:‑

"(i) That the order of the learned Appellate Assistant Commissioner is against the law and facts.

(ii) That the learned Appellate Assistant Commissioner erred in stating that grounds Nos. 1 to 5 are irrelevant and irredundant.

(iii) That the learned Appellate Assistant Commissioner has not recorded his findings whether any statutory order under section 59(1) of the Ordinance was ever passed by the Income‑tax Officer.

(iv) That the learned Income‑tax Officer has never provided the assessee the alleged order under section 59(1) in spite of various requests.

(v) That the Income‑tax Officer failed to allow statutory deductions from salary permissible in the law in spite of a clear certificate to that effect from employer.

(vi) That the learned Appellate Assistant Commissioner has not given his findings in respect of, the utilization of Import Licences.

(vii) That the learned Income‑tax Officer has erred in applying the net profit rate on the value of licences.

(viii) That the rate of net profit adopted by the Income‑tax Officer is excessive.

(ix) That the learned Income‑tax Officer has erred in adopting the value of licences utilised by the appellant.

(x) That the learned Income‑tax Officer failed to allow the deductions of profit and loss expenses claimed by the appellant."

7. As regards his first objection, the appellant claimed that the learned Appellate Assistant Commissioner had erred in rejecting grounds Nos. 1 to 5 raised before him being irrelevant and redundant irrespective of the fact that all these grounds were very relevant for the adjudication of the controversy in issue. In support thereof, he also filed a copy of the grounds raised before the learned Appellate Assistant Commissioner. The said grounds of appeal were as under:‑

"(i) That the order of the learned Income‑tax Officer is against law and facts.

(ii) That the learned Income‑tax Officer has erred in adopting the income from the salary (at Rs.38,134, Rs.34,700, Rs.48,969, Rs.35,880 and Rs.59,952 respectively for the years 1978‑79, 1979‑80, 1980‑81, 1981‑82 and 1982‑83).

(iii) That the learned Income‑tax Officer has erred against facts while adopting the Income‑tax Order under section 59(1) of the Act.

(iv) That the learned Income‑tax Officer has not provided the order under section 59(1) to the appellant in spite of several requests.

(v) That the learned Income‑tax Officer, failed to allow the deductions from salary permissible under the law in spite of clear certificate to the effect from employers."

8. The learned Appellate Assistant Commissioner had disposed of these grounds with the following observations:‑

"There are 10 grounds of appeal for assessment years 1978‑79 to 1980‑81 and 1982‑83. For 1981‑82 there are only five grounds of appeal. The first five grounds of appeal for all the above years relate to salary income assessed under section 59(1). The order under section 65 shows that the I.‑T.O. while completing assessments for 1978‑79 to 1982‑83 adopted the same salary incomes which were .,assessed originally under section 59(1) or under section 156. He has not interfered with the salary incomes taken as per original assessments. As such grounds of appeal relating to salary income are irrelevant and redundant."

9. It is clear from the above observations of the learned Appellate Assistant Commissioner that he had only dealt with the issues as to which amount of salary should have been adopted for the purpose of taxation. These issues were agitated in grounds Nos. 2 and 3 above. The learned Appellate Assistant Commissioner had, however, definitely omitted to give specific findings on the questions raised by the assessee as continued grounds Nos. 4 and 5 regarding delivery of copies of the orders passed under section 59(1) of the Income‑tax Ordinance, 1979, and admissibility of certain deductions permissible under the law. Nevertheless, since similar issues have also been raised before us, instead of remitting the case to the learned Appellate Assistant Commissioner for giving findings on the said issues, we deem it appropriate to dispose of the same through this order.

10. Under subsection (1) of section 59 of the Ordinance, where a return of income furnished by the assessee qualifies for acceptance in accordance with the provisions of a scheme of self‑assessment made by the Central Board of Revenue, the Income‑tax Officer is required to assess the income of the assessee 'by an order in writing'. Similar, provision exists under section 23(3) of the repealed Income‑tax Act, 1922, which provides that after examining the necessary evidence, the Income‑tax officer shall assess the income of an assessee by an order in writing. It is the claim of the appellant that in the instant appeals, no order in writing as required under section 59(1) ibid had been made and for this reason the same had not been supplied to him despite his repeated reminders. In this respect, the appellant filed a copy of his letter, dated the 11th July, 1983, addressed to the Income‑tax Officer, Circle‑16, Rawalpinid, requesting him f6r providing the assessment orders passed under section 59(1) of the Ordinance relating to the years under appeals. Admittedly, no copy of such orders as provided to the assessee. It was rather conceded by the learned Departmental Representative that no such orders had been made specifically, but, in fact, assessments were made on the IT‑30 Forms. Mr. Qurban Hussain, the Income‑tax Officer who made the impugned assessments under section 65 of the Ordinance was present at the time of hearing. He also endorsed the views of the learned Departmental Representative and, . . .. . . . .after examination of the record, candidly admitted that no separate assessment orders under section 59(1) of the Ordinance were made but claimed that the tax was duly computed on IT‑30 Forms and through Demand Notices which were served upon the appellant as detailed below:‑----"

11. The learned Departmental Representative further informed that as per record, one Notice of Demand for Rs.26,251 pertaining to the charge years 1978‑79 to 1980‑81 was issued to the assessee, although it is not clear if the same was actually served upon the assessee. The appellant on his part categorically denied the receipt of such notice. Even for argument sake, if it is presumed that Notices of Demand and IT‑30 Forms containing the tax calculations were duly served upon the appellant, the question would arise, whether these two processes could legally substitute an assessment order. As discussed above, assessment order is a statutory requirement as envisaged in section 59 and section 62 of the Income‑tax Ordinance, 1979, and in section 23(3) of the repealed Income‑tax Act, 1922. These provisions clearly provide that the income of an assessee shall be assessed by an order in writing. On the other hand, as provided under section 85 of the Ordinance, a Notice of Demand is only issued when 'any tax is payable in consequence of any assessment or other order under the Ordinance'. In other words, the Notice of Demand does not itself create the liability but follows an assessment order. In fact, it only specify 'the sum payable' by an assessee 'within the time specified' therein.

12. Similarly, IT‑30 Form cannot take place of an assessment order. In this respect we find support from Commissioner of Income‑tax, Karachi v. Malik Walayat Hussain & Sons Limited, Quetta (1976) 33 Tax 285. In this case, in pursuance of assessment of income, a notice of demand under section 29 of the repealed Income‑tax Act, 1922, was served upon the assessee alongwith duly filled IT‑30 Form in which demand of penal interest under section 18‑A(8) of the repealed Act, was also included. Hence, a question was raised whether a regular order under section 18‑A of the repealed Act was a prerequisite to the levy of interest under subsection (6) and subsection (8) thereof. The Karachi High Court answered the said question in affirmative holding as under:‑

Under subsection (8) of section 18‑A if the Income‑tax Officer finds, on making of the regular assessment, that no payment of tax had been made in accordance with the provisions of section 18‑A the interest calculated in the manner laid down under subsection (6) is to be added to the tax as determined on the basis of regular assessment. It is obvious, therefare, that there has to be an order by the Income‑tax Officer holding that advance tax in terms of section 18‑A was not paid by the assessee, and calculation of interest on the advance tax not paid in the manner laid down in subsection (6) of section 18‑A which is to be added to the tax as determined on the basis of regular assessment."

13. As regards the legal position of a notice of demand, the Court further held that:‑

"Under the above section a notice of demand can only be served provided tax, penalty or interest is due in consequence of an order passed under the Act. Therefore, the condition precedent to the validity of the notice of demand under section 29 must be an order passed under the Act and the notice is merely consequential upon that order. Therefore, if there is no order under the Act, no notice can be served under section 29. In our view in the absence of such an order. there is no liability an assessee to comply with a notice under section 29."

14. A similar question had come up before the Appellate Tribunal is a case reported at (1967) 16 Tax 119. The Appellate Tribunal relying upon two Indian decisions reported at (1952) 21 I.T.R. 18 and (1961 42 I.T.R. 35 held that the demand of tax, penalty and interest created only in pursuance of an order passed under the repealed and it was not a substitute for an assessment order. The Tribunal is the said case had held as under:‑

"A close and careful reading of the aforesaid Rule 20 itself makes plain that the Form I.T.30 is not the same thing as assessment order; in fact, the two documents have been distinct mentioned therein. In the proviso to the rule it is clearly state that the assessment form, which is another name of I.T.‑30 needed not accompany the demand notice where a penalty has bee levied after the passing of the assessment order. Where the two documents, the assessment form and assessment order, one an the same thing then referring to them by different names in not at all necessary. The words 'regular assessment' occurring in subsection (8) of section 18‑A also clearly mean the assessment order and levying of interest under this subsection for which demand is to be made must also be in pursuance of an assessment order. The question when a lawful demand can be created are whether an assessment form is the same thing as an assessment order came to be considered in the case reported at (1961) I.T.R. 35 and it was held that the former was no substitute for the latter and in order to create an effective and a law demand for tax, penalty or interest there must be an order passed under or in pursuance of the Act."

15. In another case reported at 1975 P T D (Trib.) 27 the Appellate Tribunal had even disapproved the method of making assessment filing in a few blanks in the printed form. It was held therein the such an order was 'not an order in the eye of law'.

16. From the above discussion, it clearly emerges out that in absent of an assessment order, in writing, a liability under the law is n created against an assessee. Irrespective of the fact that such order is a legal requirement, its necessity and rationality cannot otherwise be overlooked. Under the law, tax is computed in pursuance of an assessment order, hence, it is only the said order which invests the assessee with a right of appeal and revision. Further, where appeal is accepted the appellate authority set aside, confirm reduce, annul the assessment and not I.T.‑30 Form or the notice of demand which are dependent upon, and accordingly follow the fate of, such assessment: The rules governing the filing of appeals and revision also provide that these should accompany copies of the assessment orders. There are no two opinions that I.T.‑30 Form being a creation of Income‑Tax Rules does not confer any right of appeal or revisit under the Income‑tax Ordinance, 1979. Nor does for that matter, notice of demand invests any right of appeal (although limitation to file an appeal commences from service of the said notice), because it on follows the tax demand created under an assessment order. Therefor unless an assessment order is made, no appeal or revision can lie.

17. The same is the position in the instant case where admittedly no assessment order was passed in respect of any of the year under appeal. Thus, the appellant could not be made liable to tax under the provisions of section 59 of the Ordinance without making an order, in writing, as provided therein. In turn, the proceedings taken under section 65 of the Income‑tax Ordinance, 1979, could not be initiated on the basis of assessments said to have been made under section 59 ibid which, in fact, were legally non‑existent. No other reason has been given in the notices issued on the 9th June, 1983, under section 65 of the Ordinance for making additional assessment under that provision, This fact is amply clear from the following extract, in vernacular, which is common in all the five notices issued under section 65 ibid for the charge years 1978‑79 to 1982‑83:‑--

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18. It will also not be out of place to point out that for the charge year 1978‑79, return of income from salary was admittedly filed within the specified period and prior to the commencement of the Income‑tax Ordinance, 1979. Under section 166(2)(a) of ‑the Income‑tax Ordinance, 1979, the assessments of income for the period prior to the first July, 1979, shall had to be made under the relevant provisions of the repealed Income‑tax Act, 1922, and not under the said Ordinance. Therefore, legally, the assessment in the instant case for the charge year .1978‑79 shall had to be made under the repealed Act and not under the provisions of section 59(1) of the Ordinance. It will also be pertinent to point out that as discussed in para. 10 ante, even for all the years under appeals the tax calculation had not made on I.T.‑30 Forms. Nor for all these years, the requisite notices of demand were issued to the appellant. In other words, the very foundation on which the additional assessments under section 65 of the Ordinance were made, in reality, was not in existence. Obviously then such assessments cannot hold the field.

19. The validity of proceedings under section 65 of the Ordinance initiated on the basis of notices issued on the 9th June, 1983, is Otherwise doubtful. The reason being that in the very impugned assessment order of June 2.6, 1984, the Income‑tax Officer had himself admitted that on the request of the appellant's Authorised Representative, the case relating to the 'Markaz‑e‑Tijarat' was transferred from the Income‑tax Officer, Circle‑17 to Salary Circle‑II, Rawalpindi, because the salary income of the appellant was being assessed in that Circle. In this respect, it will be pertinent to reproduce below the relevant extract of the said order:‑--

"(e) During the assessment proceedings in the case of Messrs Markaz‑e‑Tijarat the assessee's A.R. made request to the then I.T.O. on 5‑12‑1982 to transfer the case of Markaz‑e‑Taijarat to I.T.O. Salary Circle‑II, Rawalpindi on the plea that assessee case was also existing at N.T.N. 02‑13‑0278227. The request was accepted and the file of Markaz‑e‑Tijarat was, therefore, transferred to this circle accordingly on 5‑12‑1982."

20. Therefore, in this context we fully agree with the contentions, of the appellant that at least for the year 1981‑82 there was no case of concealment of income, escapement of assessee's income because for that particular year assessments were still pending and the appellant had, on his own accord, filed the returns of income from both the sources.

21. In view of the matter, we are convinced that the proceedings which were taken under section 65 of the Income‑tax Ordinance, 1979, were taken on a erroneous premises and were thus, not sustainable in the eye of law. Hence, we have no alternative except to cancel the assessments made under section 65 ibid. Since the assessments stand cancelled on preliminary grounds, we need not record our findings on other grounds of appeal raised by the appellant it respect of the quantum of income assessed thereunder.

22. In the result, all the five appeals succeed in the manner as indicated above.

S.Q. Appeals accepted.

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