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I.T.A. No.818/PB of 1981-82, heard on 4th February. 1985.
--S. 66-A--Question of law--Powers of Inspecting Assistant Commissioner to revise Income-tax Officer's Order--Conditions--Word "erroneous"--Meaning--Covers both errors of law and of fact- Administrative approval of an assessment does not make the assessment as that of the Inspecting Assistant Commissioner--Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income-tax Officer.
Administrative approval of an assessment does not make the assessment as that of the Inspecting Assistant Commissioner. Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income-tax Officer.
The re-opening of assessment at the level of Inspecting Assistant Commissioner under section 66-A of the Income-tax Ordinance, 1979, is, however, subject to the condition that the assessment made by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of revenue. The word "erroneous" has not been defined anywhere in the Ordinance. Its dictionary meaning, however, means mistaken, incorrect; in the legal sense. The word "erroneous" means involving error; deviating from the law. According to this definition of the word "erroneous", an assessment can be re-opened by the Inspecting Assistant Commissioner if it deviates from law. In the present case assessment relating to the charge year 1978-79 was ordered to be re-opened by the Inspecting Assistant Commissioner on the ground that declared turnover as well as gross profit rate was too low to be accepted when compared t,) the previous history of this case and parallel cases. This admitted fact on record leaves in no manner of hesitation to conclude that assessment did not deviate from law. On account of this fact assessment could not be re-opened under section 66-A of the Ordinance.
1984 P T D 137 and Black's Law Dictionary, p.486 ref.
Per Muhammad Azam Khan, Judicial Member (not agreeing with Sikandar Hayat, Accountant Member)--
The term "erroneous" is not defined in the Income-tax Ordinance, 1979. It is defined in dictionary as involving error; deviating from the law. A simple error, according to this definition will also be an error whether it be deviating from law or not. As also deviating from law will be an error. So there can be two situations covered by the term. One of a simple error, and the other of an error of law. Anything reflecting either can be designated as "erroneous". Deviation from law, therefore, will not only amount to an error according to the definition. It will also include a common sense error, i.e. a mistake not only of law, but also of fact. I n interpreting the term one cannot restrict the meaning only to deviation from law. What it means in addition to deviating from law, is an error of any kind the result of which in relation to an assessment may be prejudicial to the interests of revenue. In this context an error of calculation, which works to the detriment of revenue, will also be an error falling within the ambit of this term. To correct the same it will be within his right for the Inspecting Assistant Commissioner to move and set it right either by passing an order himself or directing the assessing officer to do so, after going through the relevant formalities.
In the present case there was an established history of application of gross profit rate at 20%. Throughout, this rate was applied, except in the year under consideration, when deviating from the history, the Income-tax Officer accepted the disclosed rate of 13.4% without any convincing reason. The fact came to light when the Commissioner carried out inspection and during the course of the same happened to see the case. As a result of his note to that effect, the Inspecting Assistant Commissioner later re-opened the assessment, exercising the power available to him under section 66-A of the Ordinance, 1979, where the term "erroneous" stands employed. In deviating from the history, the Income-tax Officer had erred. The error had worked to the prejudice of the interest of revenue, because instead of 20% the rate of 13.4% had been applied. The error had made the assessment erroneous, rendering it liable to be revised. The Inspecting Assistant Commissioner, therefore, could step in to direct it to be re-opened. The order passed by him is correct.
The meanings assigned to the term- "erroneous" are not exhaustive.
The meaning of the term "erroneous" is not confined to error in law only, but it includes error in fact as well. Nevertheless in the instant case, the expression "erroneous" shall have to be examined in conjunction with the expression prejudicial to the interests of revenues, as used in section 66-A of the Ordinance. The section requires the Inspecting Assistant Commissioner to come to the conclusion that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the revenue. It is not sufficient that order is merely erroneous. It must be erroneous in so far it is prejudicial to the interests of the revenue. Again it is pot sufficient for an order in question to be prejudicial, it must also be erroneous. Thus, there should be a clear finding on the basis of material to support both the conditions. In the present case, order of the income-tax Officer could be regarded as prejudicial to the interest of revenue but it is definitely not erroneous as does not involve any error of law or fact. The only fault, which the Inspecting Assistant Commissioner has found in the assessment was that the assessing Officer did not apply the gross profit rate as applied in the case of the assessee during the previous year. It is true that the assessee had the history of application of gross profit rate of 20%. Although the past history is a relevant factor but it cannot always be taken as a sole criteria for rejection of accounts. It is clear from the impugned order that the Inspecting Assistant Commissioner himself admitted that, since the average sale rates disclosed compare favourably with those of other such cases no adverse inference was drawn. It is also clear from the assessment order as well as from the order of the Inspecting Assistant Commissioner, that no serious fault has been identified in the trading account except that the addresses of the parties to whom sales were made were not given. However, record is silent to show if any attempt was made to ask the assessee to produce such parties. Therefore, one fails to understand as to what illegality had been committed by the assessing officer in accepting the declared gross profit rate when there was nothing adverse available on the record against the assessee. Each year had to be considered as single unit in accordance with the circumstances prevailing in that year. When the assessing officer had accepted the trading results, simply for non-availability of addresses of the parties to whom sales were made a ground for re-opening of the assessment could not be made out. In the context, the previous history could not be taken as a ground for rejection of accounts irrespective of the fact that the assessee may have made an honest attempt to maintain its accounts correctly and free from any error.
Although the expressions "erroneous" and "prejudicial" to the interests of revenue used in section 66-A in the Income Tax Ordinance, 1979, empowers the Inspecting Assistant Commissioner of Income-tax to pass order for fresh assessment an assessment by the I.T.O. suffers from any illegality based on a question of law or fact. In the instant case the order of the' assessing officer does not suffer from any irregularity, illegally or otherwise, which required re-opening of the assessment.
Stroud's Judicial Dictionary, Vol. 2, p. 932; Corpus Juris Scandum, Vol. 30-A, p. 867: Burton's Legal Theseaurus, p.207 and Balenting's Law Dictionary ref.
Ashiq Hussain I.T.P. for Appellant.
Istataat Ali D.R. for Respondent.
Date of hearing: 4th February, 1985.
.--This appeal is directed against the impugned order of the learned Inspecting Assistant Commissioner passed under section 66-A of the Income-tax Ordinance, 1979. It was contested on the ground that the order passed by the learned Inspecting Assistant Commissioner was illegal. Alternative plea of the assessee is that there was no justification with the learned Inspecting Assistant Commissioner to have enhanced gross profit rate from 13.4% to 20%. It was accordingly prayed that appropriate relief may be allowed to the assessee by the Tribunal.
2. Briefly speaking the facts of this case are that the assessee, a registered firm, derives income as Forest Contractor. In so far as present contract is concerned it was taken during the previous year relevant to charge year 1976-77. Thus, in respect of this contract assessment relating to the charge year 1978-79 was last one.
3. The assessee disclosed a net income of Rs.1,69,763 in respect of the charge year 1978-79. On the basis of evidence available before us we find that the trading result of the assessee was accepted with the prior approval of the concerned Inspecting Assistant Commissioner subject to certain add backs out of profit and loss expenses subsequently assessment for the charge year,1978-79 was re-opened by the Inspecting Assistant Commissioner Range-II, Peshawar on the basis of an inspection note recorded by the Commissioner of Income-tax, Peshawar Zone, Peshawar on 25-10-1981.
4. The learned Inspecting Assistant Commissioner, Peshawar Zone, Peshawar passed an order under section 66-A of the Ordinance fixing the estimate of not income at Rs.3,00,227. In this connection we would like to observe that the learned Inspecting Assistant Commissioner accepted the average sale rate of the assessee as it appeared favourable in comparison with parallel cases. However, gross profit was computed at the rate of 20% as against 13.4% disclosed by the assessee. This manner of making the impugned order under section 66-A of the Ordinance was contested by the assessee by way of filing an appeal before the Tribunal.
5. The learned counsel of the assessee stated that in this case original assessment was made by the Income Tax Officer with the prior approval of the concerned Inspecting Assistant Commissioner. On account of this admitted fact he submitted that the case could be not re-opened under section 66-A of the Ordinance. Arguing further the learned counsel of the assessee invited our attention to the fact that no definite information came in the knowledge of the learned Inspecting Assistant Commissioner so as to make original assessment erroneous necessitating its modification under section 66-A of the Ordinance. In support of this contention he relied on 1984 P T D 137.
6. The learned Departmental Representative in his turn submitted that this case having an established history of 20% gross profit rate was rightly considered for re-opening under section 66-A of the Ordinance as there was no justification with the Income Tax Officer to have accepted disclosed rate of 13.4%. He further stated that administrative approval of the assessment by the concerned Inspecting Assistant Commissioner did not imply that the assessment was made by him. In this connection he dealt at length with the respective functions of the Income 'Tax Officer and the Inspecting Assistant Commissioner of a range. Finally he brought to our notice that I.T.A. Nos.423 to 427/dated 26-8-1972 being distinguishable from the case of the assessee could not be imported by the learned counsel of the assessee for accepting a lesser gross profit rate.
7. It is an admitted fact that assessment relating to the charge year 1978-79 was made with the prior approval of the concerned inspecting Assistant Commissioner. This administrative approval did not make the assessment as that of the concerned Inspecting Assistant Commissioner. In this view of the matter we are not prepared to accept the contention of the learned counsel of the assessee that the order of the Income Tax Officer after its administrative approval stood merged in the order of the concerned Inspecting Assistant. Commissioner and consequently went beyond the scope of section 66-A of the Ordinance. As has been rightly stated by the learned Departmental. Representative administrative approval of an assessment clog not make the assessment as that of the Inspecting Assistant Commissioner. Such an assessment for all purposes of the Ordinance remains an assessment of the concerned Income-tax Officer.
8. Section 66-A of the Ordinance empowers the Inspecting Assistant Conmissioner of a range to revise Income Tax Officer's order. This is set out below for facility of reference:-
"The Inspecting Assistant Commissioner may Fall 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 interests 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 cancelling the assessment and directing a fresh assessment to be made."
9. As we find the Inspecting Assistant Commissioner can either make an order under section 66-A of the Ordinance at his own level or direct a fresh assessment to be made. The re-opening of assessment of the level of Inspecting Assistant Commissioner under section 66-A of the Ordinance is, however, subject to the condition that the assessment made by the Income-tax Officer is erroneous in so far as it s prejudicial to the interests of revenue. The word 'erroneous' a not been defined anywhere in the Ordinance. Its dictionary meaning, however, means mistaken, incorrect; in the legal sense. The word 'erroneous' as defined in Black's Law Dictionary, page 486 involving error; deviating from the law. According to this definition of the word 'erroneous an assessment can be re-opened the Inspecting Assistant Commissioner, if it deviates from law however, was not the position in respect of the assessment consideration. As is evident from the impugned order under, section 66-A of the Ordinance, assessment relating to the charge year 1978-79 was ordered to be re-opened by the Inspecting Assistant Commissioner on the ground that declared turnover as well as gross profit rate was too low to be accepted when compared to the previous history of this case and parallel cases. This admitted fact on record leaves us in no manner of hesitation to conclude that assessment did not deviate from law. On account of this fact assessment could not be re-opened under section 66-A of the Ordinance. In coming to this conclusion we have sought support from 1984 P T D 137 (H.C.A.I K). Before proceeding further we would like to reproduce below the relevant part of the judgment delivered by Mr. Abdul Majeed Malik. C.J.-
"The powers conferred under section 34-A indicated that such powers were exercisable only on the proof and satisfaction that the order of Income Tax Officer was unlawful, as such erroneous, so as to be prejudicial to, the interest of revenue. Unless such a condition was fulfilled, powers under the section could not to be invoked.
10. As relief has been allowed to the assessee on a preliminary objection we will not at this stage like to well on the alternative plea of the assessee.
11. In consequence of the above order appeal of the assessee succeeds to the extent and in the manner indicated above.
12.
--With respect I disagree with my learned brother, Mr. Sikandar Hayat Khan, as to the meaning of the term erroneous as understood by him. According to him the term means only what deviates from law. The term is not defined in the Income Tax Ordinance, 1979. It is defined in Black's Law Dictionary, Fifth Edition at page 486 as involving error; deviating from the law. A simple error, according to this definition will also be, an error whether it be deviating from law or not. As also deviating from law will be an error. So there can be two situations covered bye, the term. One of a simple error, and the other of the an error of law. Anything reflecting either can be designated as 'erroneous'. Deviation from law, therefore, will not only amount to an error according to the definition,. It will also include a common sense error, i.e. a mistake not only of law, but also of fact. The learned Brother in interpreting the term has restricted the meaning only to deviation' from law. What I understand it to mean, in addition to deviating from law, is an error of any kind the result of which in relation to an assessment may be prejudicial to be interest of revenue. In this context an error of calculation, which works to the detriment of revenue, will also be an error falling within the ambit of this term. To correct the same it will be within his right for the Inspecting Assistant Commissioner to move and set it right either by passing an order himself or directing the assessing officer to do so, after going" through the relevant formalities.
13. It can be seen that in this case there was an established history of application of gross profit rate at 20%. Throughout, this rate was applied, except in the year consideration, when deviating from the history the Income Tax Officer accepted the disclosed rate of 13.4%, without of course, any convincing reason. The fact came to light when the Commissioner carried out inspection and during the, course of the same happened to see the case. As a result of his note' to that effect, the Inspecting Assistant Commissioner later re-opened the assessment, exercising the power available to him under section 66-A of the Ordinance, 1979, where the term erroneous employed.
14. In deviating from the history, the Income Tax Officer had erred the error had worked to the prejudice of the interest of revenue because instead of 20%, the rate of 13.4% had been applied. The error in my view, had made the assessment erroneous, rendering liable to be revised. The Inspecting Assistant Commissioner therefore could step it to direct it to be re-opened. The Order passed by him is correct.
15. A difference of opinion has thus arisen between us as to the meaning of the term erroneous and the matter needs to be laid before the Chairman for referring the point to one or more Members of the Tribunal for opinion.
--In this case, there has been difference of opinion between me and the learned Judicial Member with regard to the interpretation of the word 'erroneous' as it occurs under section 66-A of the Income-tax Ordinance, 1979 and consequently the circumstances under which an assessment may be ordered to be revised by the Inspecting Assistant Commissioner at his own level or on a directive from him. Thus the following question of law which arises out of the order of the Tribunal, may kindly be referred to one or more members of the Tribunal for opinion:-
"Whether on the facts and circumstances of this case, the Inspecting Assistant Commissioner. Income Tax, acted legally to reopen the assessment already made with the prior approval of the concerned Inspecting Assistant Commissioner on the ground that it was erroneous and the prejudicial to the interest of the revenue.
.--This appeal was heard by a Division Bench of the Appellate Tribunal who differed in their view and the following question of law has been referred to me for my opinion: -
"Whether on the facts and circumstances of this case, the Inspecting Assistant Commissioner, Income Tax, acted legally to reopen the assessment already made with the prior approval of the concerned Inspecting Assistant Commissioner on the ground that it was erroneous and prejudicial to the interest of the revenue."
2. Briefly, the facts leading to appeal are that the assessee, a registered firm derived income from forest contracts. For the assessment year 1978-79, it declared income of Rs.1,69,763. This income was computed on the basis of gross profit sales of Rs.17.66.z45 and the gross profit rate 13.4%. The Income Tax Officer accepted the trading results and after making certain- add backs out of the profit and loss expenses made assessment of income of the assessee by his order, dated the ''4th February, 1981, at Rs.1.84,655. The assessment of income was duly approved by the then Inspecting Assistant Commissioner of Income-Tax, Abbotabad. Later on the Commissioner of Income-tax Peshawar Zone, Peshawar by his inspection note, dated the 25th October, 1981, observed that the declared sales rate as well as the gross profit rate were too low as compared to the previous history of the case and the market rate and also the gross profit rate applied in other parallel cases. In consequence thereof, the Inspecting Assistant Commissioner of Income Tax issued a notice under section 66-A of the Income Tax Ordinance, 1979, to the assessee considering the assessment to the, prejudicial to the interest of revenues. The assessee claimed that the gross profit rate of 20% applied last -year was calculated on provisional basis therefore the same could not be taken as a precedent four making assessment fir the year 197'8-79. The Inspecting Assistant: Commissioner, however, rejected this plea. He also held that, since earlier assessment was made and approved because of misconception the same. Was not with the conformity of the history of the case. Hence, he held the gross profit rate as accepted -by the Income Tax 'Officer to be erroneous and prejudicial to the interest of revenue. Consequently, it was .directed that for computing income gross profit rate of 120% as in the post be applied. The assessee has therefore contested .the legality of the order passed by the learned Inspecting Assistant Commissioner and has also claimed that the, enhancement, of gross profit rate from 13.4% to 20% was unjustified.
3. The learned Accountant Member was of the view that since the assessment did not deviate from law. The same could not be reopened under section 66-A of the Income 'fax Ordinance 1979. On the other hand, the learned Judicial Member opined that since the assessment order was prejudicial to the interest of revenue as Income Tax Officer has accepted the gross profit rate of 13.4% as against 20% as was invariably applied in the past, the assessment order could be re-opened by the Inspecting Assistant Commissioner. In my opinion in the instant case the real controversy evolves around the fact whether section 66-A of the Income Tax Ordinance, 1979, empowers the Inspecting Assistant Commissioner to re-open the case on a question of law alone. In this respect, it will be pertinent to reproduce the provisions of the said section:----
66-_A
"Powers of Inspecting Assistant Commissioner to revise Income Tax 'Officer Order (1). The Inspecting Assistant Commissioner may call for and examine the record of any proceeding under this Ordinances, 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 interests of revenues he may after giving the assessee opportunity of being heard and after giving the assessee on being heard and after making or causing to be made, such enquiry as he deems necessary, pass such order thereon, a4 the circumstances of the case justify, including order .enhancing pr modifying and directing a fresh assessment "to be made.
(2) No order under sub-section, (1) shall be made after the expiry of four years from the date of order sought to be revised."
4. The, learned. Accountant Member had arrived at the conclusion that under' section 66-A of the Ordinance the assessment can be reopened by the Inspecting Assistant Commissioner if it deviate; from law. This, however, was not the position in respect of the assessment under consideration. In this respect, he relied upon the definition of erroneous as defined in Black's. Law, Dictionary wherein this expression has been defined as under:----
Erroneous: Involving error deviating from the law: This' term is not generally used as designating a corrupt or evil or act.
The learned Judicial Member; on the other land, has interpreted that in addition 'to deviation from law, this term also includes an error of any kind the result .of which in relation, to: an assessment may be prejudicial to the interests of revenue.
(3) In my view 'the meanings assigned to this term in the Black' Law Dictionary are not exhaustive. In Stroud's Judicial Dictionary (Volume Jaqe-2 page-932) the expression erroneous' has been defined to mean erroneous not only when erroneous in point of law but erroneous in any sense "In, Crpus Juris Scandum (Volume-30A, page-867). The same expression, has been defined as under:----
Erroneously"--Deviating from the law, inequitable, irregular he term is never used by Courts or, law writers as designating gas corrupt or evil act. It has been held synonymous with "false" used in the sense not involving evil intent and has been compared with :distinguished from, "false" used in the sense involving evil intent, illegal irregular and void Erroneous assessment as occurring when accessors have power to act but err in the exercise of the power as distinguished from an illegal assessment, that is, one made in the absence of a power."
6. In Burton's Legal Thesaurus at' page 207 the expression erroneous has been explained as under:
"Erroneous: adherent, amiss blundering counting error, counterfeit, devoid of truth, erring, , fallacious, false, falsus faulty,, fictitious' groundless, Illogical inaccurate, incorrect: ' inexact; mistaken spurious, Unfounded, under-grounded' unreal'. unsound, unsubstantial, unsustainable, untrue, wrong."
Similar meanings have been assigned in Balentine's Law Dictionary.
7. It is clear from the above that the meaning of the term erroneous is not confined to error in law only, -but it includes error in' fact as well. Nevertheless, in the instant' case, the expression erroneous shall have to be examined in conjunction with the expression prejudicial to the. interest.. of revenues, as, used in section 66-.A :of the Ordinance: The section, requires the Inspecting Assistant Commissioner to .come: to ;the conclusion that,. the., order of the Income Tax Officer was erroneous and prejudicial to the interest-of the revenue. It is not sufficient that order is merely erroneous. It must be erroneous in so far it is prejudicial to the interest 'of 'revenue. Again it is not sufficient for an order in question to be prejudicial, it must also be erroneous. Thus there should be a clear finding on the basis of material to support' both the conditions. In the present case, order of the Income Tax Officer could be regarded as prejudicial to the interest of revenue but it is definitely not erroneous as does not involve any error of law of facts. The only fault which the learned Inspecting Assistant Commissioner has found in the assessment was that the assessing officer did not apply the gross profit rate as applied in the case of the assessee during the previous year. It will be pertinent to reproduce here the relevant extract of the learned Inspecting Assistant Commissioner.
The gross profit rate declared was completely against the history of the case since the 'rate lower than 20% was' never applied nor accepted in the case of the assessee."
8. It is true that the assessee had the history of application of gross profit rate of 20%. But it may be pointed out although the past history is a relevant factor but it cannot always be taken as a role criteria for rejection of accounts. It is clear from the impugned order that the learned Inspecting Assistant Commissioner himself admitted that, since the average sale rates disclosed compare favourable with those of other such cases no adverse inference was drawn. It is also clear from the assessment order as well as from the order of the learned Inspecting Assistant Commissioner, that no serious fault has been identified in the trading account except that the addresses of the parties to whom sales were made were not given. However, record is silent to show if any attempt was made to ask the appellant to produce such parties. Therefore, one fails to understand as to what illegality had been committed by the assessing officer in accepting the declared gross profit rate when there was nothing adverse available on the record against the assessee. As observed earlier each year had to be considered as single unit in accordance with the circumstances prevailing in that year. When the assessing officer had accepted the trading result, simply for non-availability of addresses of the parties to whom sales were made a ground for re-opening of the assessment. In the context, the previous history could not be taken as a ground for rejection of accounts irrespective of the fact that the assessee may have made an honest attempt to maintain its accounts correctly and free from any error.
9. In the circumstances I am of the view that although the expression erroneous and prejudicial to the interest of revenue used in section 66-A in the Income Tax Ordinance, 1979, empowers the Inspecting Assistant Commissioner of Income-tax suffers from any illegality based on a question of law of facts. But I agree with the conclusion arrived at by the learned Accountant Member that in the instant case the order of the assessing officer does not suffer from any irregularity illegality or otherwise, which required re-opening of the assessment. Hence, the question referred to me is answered in negative.
10. Consequently agreeing with the learned Accountant Member, the impugned order is vacated and that of the Income Tax Officer, dated the 24th February, 1981, is restored. The appeal succeeds accordingly.
M.B.A./394/T Appeal accepted.
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