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I .T. As. Nos. 1637 to 1639 and 6182/LB of 198h-ad, decided on 20th august, 1987.

---S. 65--Civil Procedure Code (V of 1908), O. XX, R.3 Assessment is complete on the date when Assessing Officer affixes his signatures thereon--Income-tax Officer is not-.empowered to make any alteration, in his assessment order, after he has signed it.

----S. 65--When an Income-tax Officer signs an assessment order within one year from the end of the financial year in which notice under issued, his order shall not be timebarred.

Under the Income-tax Ordinance, 1979 the service of the demand notice is material not only for purposes of period of limitation prescribed for filing of appeal but also regarding the creation of tax liability. As such generally the demand notice is signed alongwith assessment order and both are sent to the assessee together. However, sometimes for some good reason, the signing and service of the demand notice may be delayed but as far as the assessment order is concerned it would be deemed to have been made on the date when it was signed. If an Income-tax Officer signs an assessment order within one year from the end of the financial year in which notice under section 65 of the Ordinance was issued, his order shall not be time-barred.

C.I.T., Bombay Presidency and Aden v. Khemchand Ramdas (1938) 69 I T R 414 and C.I.T. West Bengal v. Mahabir Prasad Poddar (1974) 93 I T R 215 ref.

---S. 65(3-A) [as added by Finance Ordinance XII of 1982]- Assessment-- Limitation--Notice--No order under S.65(3-A) could be made after expiration of , one year from the end of the financial year in which such notice was served--Where assessment for year 1979-80 was framed on 30th June, 1982, i.e. before Finance Ordinance, 1982 became effective and said Ordinance not being retrospective in operation, assessment made was within time.

--

---S. 65(3-A) [as added by Finance Ordinance XII of 1982]- Assessment-- Limitation--Law of limitation being a procedural law, there was no vested right in procedure--Where assessment year involved was 1980-81 and assessment was framed on 27th .June, 1983 when 5.65(3-A) was already on Statute, Book, provision of S.65(3-A), held, would be applicable and assessment made on 27th June, 1983 was time-barred.

Law of Limitation is a procedural law and that there is no vested right in procedure. Subsection (3-A) was brought on Statute Book on 1st July, 1982. An Assessing Officer framing assessment on 27th June, 1983 should un-disputably be presumed to have the knowledge of aforesaid subsection. In other words, it should be presumed that every tax-payer as well as assessing officer knew about the limitation as laid down under subsection (3-A) of section 65 since the date it came on Statute Book. As such, the assessing officer who was framing assessment on 27th June, 1983 should have known what the law was on the relevant date.

On the date when he was framing assessment aforesaid subsection was already on the Statute Book. It is true that the assessment year involved was 1980-81. Nevertheless, aforesaid subsection (3-A) applied on 27th June, 1983 when the assessment was framed as it enacted merely a procedural law and was already on Statute Book. Since the Income-tax Officer was proceeding under section 65, which lays down an exception to the general law of tax, he should have been careful in knowing all the laws made applicable from time to time.

The assessment framed on 27th June, 1983 was time--barred.

----Ss 65 & 155--Notice--Assessment year 1979-80--Record showing that Income-tax Officer had sought approval of I.A.C. by his letter dated 6th April, 1981 but same was accorded on 25th April, 1981: notice was served on assessee on 4th May, 1981 though it was dated 20th April, 1981--Irregularity, held, was not that of substantial nature.

Shri Ramakrishna Talkies v: I.T.O. (1985) 153 I T R 794 distinguished.

Ali Bin Abdul Qadir for Appellant.

Saqib Bashir D.R. for Respondent.

Date of hearing: 18th July, 1987.

-These appeals are directed against the consolidated order of learned Commissioner of Income-tax (appeals), Zone-2, Rawalpindi (Headquarters at Faisalabad) recorded by him on 5th July, 1985 relating to assessment years 1979-80, 1980-81, 1982-83 and 1984-85.

2. The brief facts giving rise to the appeal regarding assessment year 1979-80 are that the original assessment for this year was recorded on 2nd January, 1981. However, subsequently on 20th April, 1981, the assessment was re-opened under section 65 of the Income-tax Ordinance (hereinafter referred to as "the Ordinance") but the notice was served on the appellant on 4th May, 1981. It appears that the assessment order for this assessment year was framed on 30th June, 1981, but the demand notice and the assessment order were served on the appellant on 28th November 1982.

3. It appears that regarding assessment year 1980-81 the original assessment was framed on 29th December, 1980. However, subsequently, notice under section 65 of the Ordinance was issued and the assessment order was framed under section 65 of the Income-tax Ordinance, on 27th June; 1983. However, the demand notice and assessment orders were served on the appellant on 11th October, 1983.

4. Having been aggrieved and dissatisfied the appellant went up in appeal against both the assessment orders for assessment years 1979-80 and 1980-81, but the learned Commissioner of Income-tax (Appeals) by his consolidated impugned order rejected the appeals. The appellant still felt aggrieved and has come up in second appeal before us.

5. Mr. Ali Bin Abdul Qadir, the learned counsel for the appellant supporting the appeals for these assessment years firstly contended that both the assessment orders were timebarred under sub-section (3-A) of section 65 of the Ordinance. The learned counsel vehemently argued that the assessment should be deemed to have been framed on the date when the demand and not the assessment orders were served on the appellant. For this proposition of law Mr. Ali Bin Abdul Qadir relied upon a ruling coming from no less an authority than Privy Council reported as (1938) 69-ITR-414, CIT, Bombay Presidency & Aden v. Khemchand Ramdas. According to learned counsel both the assessments were barred by limitation. Mr. Saqib Bashir, the learned Departmental Representative, ors the other hand, contended that framing of assessment order and issuing of demand notice were two separate acts and for the purposes of period of limitation prescribed by subsection (3-A) of section 65 the date on which the assessment was framed would be material and not the date on which the demand notice was served.

6. We have heard both the learned counsel for the appellant as well as learned Departmental Representative and have also perused the Privy Council's decision mentioned above, recorded in Khemchand's case (Supra). In our judgment, the submission of Mr. Ali Bin Abdul Qadir that the assessment is made when demand notice is served does not appear to be correct. In Khemchand's case (Supra), Their Lordships, of Privy Council have simply discussed various stages of creating a tax liability. With due respect, this case is not an authority for the proposition of law which has been put forth' by the learned counsel. On the analogy of Order XX, Rule 3 of Civil Procedure Code, we are of the view that the assessment is complete on the date when the assessing officer affixes his signatures thereon. We are firmly, of the view that the law does not empower an Income-tax Officer to make any alteration in his assessment order, if he has signed it. If we accept the contention of the learned counsel for the appellant, we would be giving a very big stick' to the Income-tax Officer to beat any one he likes, which would definitely be against policy of law. Nevertheless we do not mean and 'imply that such assessment order would affect an assessee in any way., The learned counsel has cited a decision from Calcutta High Court reported as (1974) 93-ITR-215, CIT West Bengal v. Mahabir Prasad Poddar. Their Lordships of Calcutta High Court have laid down in this case that an order becomes effective only when it is served upon the party who is affected by it.' With due respect, we are in respectful agreement with this proposition of law. However, under the Income-tax Ordinance, the service of the demand notice is material not only for purposes of period of limitation prescribed for filing of appeal but also regarding the creation of tax liability. As such, generally the demand notice is signed alongwith assessment order and both are sent to the assessee together. However, sometimes for some good reason, the signing and service of the demand notice may be delayed, but as far as the assessment order is concerned it would be deemed to have been made on the date when it was signed. We are, therefore, of the view that if an Income-tax Officer signs an assessment order within one year from the end of the financial year in which notice under section 65 of the Ordinance was issued, his order shall not be time-barred.

7. Before reverting to the merits of the appeals for assessment years 1979-80 and 1980-81 let us examine one more aspect of the submissions. Mr. Ali Bin Abdul Qadir has argued before us that subsection (3-A) of section 65 though introduced by Finance Ordinance of 1982 was applicable in assessment years 1979-80 and 1980-81. Mr. Saqib Bashir, the learned Departmental Representative, on the other hand, has vehemently argued that aforesaid subsection was not retrospective in operation.

8. We have heard both the learned counsel for the appellant as well as learned Departmental Representative on this aspect of the matter. Let us start by reproducing aforesaid subsection. It reads:

"(3-A) where a notice under subsection (1) has been issued, no order under the said subsection shall be made after the expiration of one year from the end of the financial year in which such notice was served."

From its Perusal it appears that no order under this subsection could be made after the expiration of one year from the end of the financial year in which such notice was served. This provision of law was brought on Statute Book by Finance Ordinance of 1,982. However, the assessment for assessment year 1979-80 was framed on 30th June, 1982. In other words the assessment was made before the Finance Ordinance for 19182 became effective. Thus, as far as assessment near 1979-80 is concerned, the question regarding retrospective operation of aforesaid subsection is irrelevant. This assessment order is, therefore, within time.

9. Now, the assessment for the assessment year 1980-81 was framed on 27th June, 1983. In other words, when it was framed, aforesaid subsection was already on Statute Book. Thus, for this year we have to answer the question as to whether the aforesaid subsection was applicable. We have given our careful consideration to it. It is settled law that law of Limitation is a procedural law and that there is no vested right in procedure. Subsection (3-A) was brought on Statute Book on 1st July; 1982. An assessing officer framing assessment on 27th June, 1983 should un-disputably be presumed to have the knowledge of aforesaid subsection. In other words, it should be presumed that every tax-saver as well as assessing officer knew about the limitations laid down under subsection (3-A) of section 65 Since the date it came on Statute Book. As such, the assessing officer who was framing assessment on 27th June, 1983.should have known what the law was on the relevant date. Mr. Saqib Bashir, the learned Departmental Representative, however argued that if we apply aforesaid subsection retrospectively, we would be punishing the assessing officer for something, which he was not required to do at the relevant time. With due respect we do, not find any force in this submission for the simple reason that on the date when he was framing assessment aforesaid subsection was already on the Statute Book. It is true that the assessment year involved was 1980-81. Nevertheless, aforesaid subsection (3A) applied on 27th June, 1983 when the assessment was framed as it enacted merely a procedural law and was already on Statute Book. Let us point out that since the Income-tax Officer was proceeding under section 65, which lays down an exception to the general law of tax, he should have been carefully in knowing all the laws made applicable from time to time. We do not think that this is the case in which the Income-tax Officer is being punished for an act, which he was not- required to do on the date when he framed the assessment. Consequently, we hold that the assessment framed on 27th June, 1983 was timebarred. Thus, we hereby reject the first submission of Mr. Ali Bin Abdul Qadir regarding assessment year 1979-80 and hold that the assessment framed for, that year was within time. However, we accept his submission regarding assessment year 1980-81 and hold that the assessment framed on 27th June 1983 was time barred.

10. This takes us to second leg of submission of Mr. Ali Bin Abdul Qadir. He argued that the notices under section 65 were issued regarding both the assessment years on 20th April 1981, whereas the approval of Inspecting Assistant 'Commissioner was obtained on 25th April, 1981. In this connection he put his reliance on a Division Bench case of Andhra Pradesh High Court reported as (1985) 153-ITR-794, Shri Ramakrishna Talkies v. I.T.O. Mr. Saqib Bashir, the learned Departmental Representative, however, regretted his inability to argue on this point as the departmental record was not available with him. Nevertheless, from perusal of the impugned order it appears that the Income-tax Officer had sought approval by his letter dated 6th April, 1981, but the same was accorded on 25th April, 1981: It also appears that the notice was served on the appellant on 4th May, 1981 though it was dated 20t.h April, 1981. The learned Commissioner of Income-tax (Appeals) has found that since the notice was served after the approval, the irregularity; if any, was not of substantial nature. We think that in view of section 155 of the Ordinance and the facts and circumstance-- discussed above for assessment year 1979-80, the finding of learned Commissioner of Income-tax (Appeals) is sustainable in law. We, therefore, reject the submission of Mr. Ali Bin Abdul Qadir. Now as far as the notice under section 65 regarding assessment year 1980-81 is concerned, there appears no controversy regarding the approval. We, therefore, hold that as far as the approval of Inspecting Assistant Commissioner, was concerned, notices for both the assessment years 1979-80 and 1980-81 were legal and valid notices. Let us point out that as far as the-case of Shri Ramakrishna Talkies is concerned it revolves round its own facts.

11. The next submission of Mr. -Ali Bin Abdul Qadir is regarding the information received by the Income-tax Officer, on the basis of which he ordered issuance of notice under section 65. The learned counsel argued that the Inspector's report dated 16th April, 1979 was already on record; an affidavit was also filed on 19th April, 1980. He, had all the relevant material before' him while framing the original assessment. He, therefore, argued that when the Income-tax Officer issued notice under section 65, he had no new information. In this connection he relied upon a decision from Indian Supreme Court Cases (Tax) '329, ITO v. Nawab Mir Barkat Ali Khan Bahndur. Mr. Saqib Bashir, the learned Departmental Representative, however, contended that since the assessment proceedings for assessment year 1979-80 were completed under section 59, therefore, the case of the Indian Supreme Court could not be applied under the facts and circumstances of these appeals. In the case relied upon by the learned counsel for the appellant some Trust Deeds executed in 1950 disclosed certain facts which were repeated in Trust Deeds executed subsequently in - 1957. The Income-tax Officer relying upon, the Trust Deeds of 1957, issued notice under section 147 of the Indian Income-tax Act., It was held- that since the Trust Deeds of 1950 were before the Income-tax Officer and since contents of both the Trust Deeds were same, he cannot be taken to have received information subsequently which was not within his knowledge. However, in the case before us the assessment proceedings were completed under section 59 which are very much summary in nature. Nevertheless', let us point out that the affidavit was not filed during the proceedings for assessment year 1979-80. It appears that the affidavit was filed to challenge the Inspector's report dated 16th April 1979 regarding the assessment year, 1978-79. Thus, the matter came to the notice of the Income-tax Officer at that point of time and it cannot be said that he got formation subsequently. We therefore; hold that for assessment ear 1979-80 he had no new information. But, let us point out, this finding does not affect the merits of the appeal for the simple reason hat under section 65(2) of the Ordinance, the approval of I.A.C. is enough to sustain the proceedings.

12. Thus, in view of discussion made above it appears to us that far as assessment order for assessment year 1979-80 is concerned, it is valid and legal assessment order. It is not timebarred. Similarly, it is valid because the approval of the inspecting Assistant Commissioner was obtained though the Income-tax Officer had obtained definite information much before issuing notice order section 65. However, assessment order regarding assessment year 1980-81 is timebarred as discussed above. The issue regarding approval of inspecting Assistant Commissioner, or definite information coming in Commissioner of Income-tax Officer, is tot involved in this assessment year.

13. Let us now turn to the merits of these appeals also. It appears that in assessment year' .1979-8.0 the appellant declared his sales at 1,50,000 with GP rate of 20%. The Income-tax Officer, however, rejected the trading results and after estimating his sales at 5, 00, 000 applied GP rate of 25%. On appeal, however, the estimated des were reduced to Rs.3,75.000 but GP rate was maintained. Thus, the income assessed amounted to Rs.73,750 in this assessment year.

14. Similarly, in assessment year l9&0-81 the appellant declared his sale at Rs.1,60,000 with 20% GP rate The Income-tax Officer, however, after rejecting the trading results, estimated the sales at Rs. 5,00,000 and applied GP rate of 25%. On appeal, however, the learned AAC brought down the estimated sales to Rs.3,80,000 but maintained the GP rate and that determined the net income of the appellant at Rs.75,000. Mr. Ali Bin Abdul Qadir, the learned counsel the appellant has contended that .the assessed incomes for both the assessment years are excessive. Mr. Saqib Bashir, however, invited our attention to a decision of this Tribunal recorded in ITA No.169/LB /82-83 on 30th September 1983 regarding assessment year 1978-79, according to learned D.R. the income of the appellant was finally determined at Rs.65,000 for immediately preceding year of 1978-79. The learned D. R. therefore; argued that income assessed at Rs.73, 750 and Rs.75000 for assessment years 1979-80 and 1980-81 were in line the past history. We have heard both the learned counsel for appellant as well as learned D.R. As far as income determined assessment year 1979-80 is concerned, we think that it has been rightly determined a at Rs.73,750 and is strictly in line with the past history. However, in view of our finding regarding assessment year 1980-81 on point of limitation we refrain to record any finding on merits.

14. Now we turn to other two appeals regarding assessment years 1982-83 and 1984-85, It appears that the appellant declared its sales at Rs.2,30,000 and applied GP rate of 20% regarding assessment year 1982-83, However, the Income-tax Officer assessed the sales at Rs. 600000 and applied GP rate of 20%. On appeal, the sales were, however, reduced to Rs.4,00,000 but the GP rate was maintained. Similarly in assessment year 1984-85 the appellant declared its sales at Rs.3,40,000 with GP rate of 20% but the Income-tax Officer again rejected the trading results and estimated the sales at Rs.6,00,000 and applied GP rate of 25 as usual. However, this time the learned A.A.G. maintained both sales and G.P. rate. The appellant again felt aggrieved and came up in second appeal.

15. Mr. Ali Bin Abdul Qadir, the learned counsel for the appellant, argued before us that the assessed income in all the assessment years was not in line with the past history. He further contended that it was based on Inspector's report whereby he estimated the capital employed at Rs.5,00,000 but in assessment year 1984-85 the Income-tax Officer himself accepted the capital employed at Rs.1,00,C00. Lastly, he argued that the Income-tax Officer had to evolve some basis in support of his estimated income. Mr. Saqib Bashir, the leaned D. R., on the other hand, argued that the assessed income for both the assessment years 1982-83 and 1984-85 was in line with the past history. According to learned D.R. the Income-tax Officer estimated the income in both the relevant assessment years on the basis of part history. Regarding the car ital Employed he contended that the finding of the Income-tax officer in assessment year 1984-85 was not relevant for the earlier assessment years.

16. We have heard both the learned counsel for the appellant as well as learned D.R. If the income assessed in assessment year 1978-79, which has finally been confirmed by a Division Bench of this Tribunal mentioned above is kept into consideration, the income assessed in assessment year 1979-80 at Rs.73,750 as against Rs.65,000 appears to be in line with the past history. Similarly, if the income finally determined at Rs.75,000 in assessment year 1982-83 again appears to be in line with the past history and cells for no interference.

17. Now as far as the order of the learned A.A.C. regarding assessment year 1984-85 is concerned, we think that the assessed income as confirmed by the learned A.A.C. is on higher side. It appears that in addition to Rs.1,00,000, the capital employed, a loan of Rs.3,00,000 was obtained from the Industrial Bank of Pakistan during the income year relating to the relevant assessment year. Thus, the total capital employed was to the extent of Rs.4,00,000 whereas the earlier assessment was framed on the basis that the capital employed was to the tune of Rs.5,00,000 as reported by the Inspector by his report dated 16th April, 1979. Thus, if on the basis of Inspector's report the estimated sales were brought down to Rs.4,00,.000 in earlier assessment year, the sales should not be raised to Rs.6,00,000 without any reason. After all it was the first year of higher capital employed and sales would not go up so soon. It is to kept into consideration that in immediately preceding year the capital employed was Rs.5,00,000 whereas in this year it is oily Rs.4,00,000. We, therefore, think that under the facts and circumstances the sales could be estimated at Rs.4,50,000. We, however, maintain G.P. rate. Let us also mention here that the Income-tax Officer has actually evolved basis for all his estimated income and the submission of learned counsel for the appellant does not appear to be correct.

18. Thus, in view of the discussion made above, the appeals regarding quantum of tax determined also stand disposed of, as indicated above.

M.B.A./418/T Order accordingly.

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