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Income-tax Reference No. 3 of 1978 decided on 11th May, 1987.
---S. 34-A--Revisiorial powers of Inspecting Assistant Commissioner-- Limitations.
Subject to the limitations contained in section 34-A of the income-tax Act, 1922;.:the power of revision conferred on the1nspecting Assistant Commissioner is very wide. He may revise orders both on points of law and facts. The revisional jurisdiction thus vested in him is one of superintendence and correction. One of the main functions of the Inspecting Assistant Commissioner for which he is appointed is to detect tax evasions. Under this section the Inspecting Assistant Commissioner may call for and examine the record of "any proceedings" under this Act 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 interest of the 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. In doing so he may enhance or modify the assessment or cancel the assessment made by the Income-tax Officer and direct him to make a fresh assessment. But under subsection (2) of this section he cannot interfere in revision after a period of four years from the date of the order under revision. The only restrictions imposed on his revisional jurisdiction under this section are that he cannot interfere (a) unless he considers that the order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the revenue; (b) without affording the assessee a reasonable opportunity of being heard; and (c) after the expiry of four years of the date, of the order under revision.
Commissioner of Income-tax, Lahore Zone v. M. Iqbal Saigol. P L D 1976 Lah. 547 ref.
Khawaja Salahuddin for Applicant
Nemo for Respondent (absent).
Date of hearing: 11th May, 1987.
.--This is an application under section 66(2) of the Income-tax Act, 1922, (hereinafter called the Act). Notice of this application was issued to the respondents who could not be served in the ordinary way. They have been served by substituted service. They are called absent. We have heard Mr. Khawaja Salahuddin, Advocate for the applicant.
The facts giving rise to this application are as follows:--
The respondents filed a return of income for the assessment year 1970-71, declaring a profit of Rs.5,0101- which return was subsequently revised showing a net loss of Rs.2,193/-. The respondents filed another return of income for the assessment year 1971 for accounting period ending 31st December, 1970 declaring gross profit of Rs.12,807/- on the total sales of Rs.29,69,279/- which worked about 6.5 per cent without charging depreciation against the last year gross profit of 23.7 per cent on sale of Rs.16,17,322/-. The Income-tax Officer sought the explanation for the difference in gross profit and after considering the explanation he did not accept the version of the assessee and while rejecting the same added a sum of Rs.10,000 in the trading account and assessed the respondents accordingly, by the order dated 6-4-1973. The assessee did riot file any appeal against this order. However, the Inspecting Assistant Commissioner of Income-tax, Companies Range 1, Karachi issued show-cause notice under section 34-A of the Income-tax Act, 1922 and after hearing the respondent cancelled the assessment order relating to the charged year 1971-72 holding the same to be erroneous and prejudicial to the interest of the revenue and directing to frame a fresh assessment in accordance with law, by the order dated 12-3-1974. Aggrieved by this order the respondents filed an appeal with the Income-tax Appellate Tribunal, Karachi Bench, being I.T.A. No. 4087-KB of 1973-74. The Tribunal by the order dated 10-6-1975, allowed the appeal holding that though the order was erroneous but not prejudicial to the interest of revenue and one of the two conditions precedent prescribed by section 34-A of the Act were not fulfilled and further holding that consequently the Income-tax Appellate Commissioner had no jurisdiction to review the order of assessment passed by the Income-tax Officer. Accordingly, the Tribunal cancelled the order. This order led the appellant to file an application under section 66(1) of the Act for referring the following questions purporting to be of law and said to arise out of the order of the Tribunal, to this Court:--
"(1) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the order of the Income-tax Officer was not prejudicial to the interest of the revenue.
(2) Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to review the assessment order.
(3) Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in cancelling the order of the Inspecting Assistant Commissioner of Income-tax."
The Tribunal rejected the application again holding that the order of Income-tax Officer was erroneous but he was definitely not prejudicial to the interest of revenue Therefore, the Commissioner of Income-tax Central Zone, Karachi, has filed aforesaid application in this Court which has come up for hearing before us.
We have heard Mr. Khawaja Salahuddin the learned Counsel for applicant. It is fairly conceded by Mr. Khawaja Salahuddin that question Nos. 1 & 3 quoted above are questions of fact and not questions of law. He however, submitted that question No. 2 is a question of law inasmuch as that after holding that the order was erroneous in the circumstances of the case the Tribunal seriously erred in holding that it was not prejudicial to the interest of revenue. It is submitted that once the accounts were rejected taking into consideration the margin of gross profit in the previous years and no appeal was preferred against the order of rejection of accounts, the addition of only Rs.10,000/- on an income arrived at on the basis of 61 gross profit on declared sales at Rs.29,69,279/- was prejudicial to the interest of revenue as in the previous years the gross profit declared was 23.7 per cent on sales of Rs.16,17,322/-. It is not necessary to go into the question whether the order was erroneous or not for it is also the finding of Tribunal that the order was erroneous. As far as the question that the order is prejudicial to the interest of revenue is concerned we do agree with Mr. Khawaja Salahuddin that the order was prejudicial to the interest of revenue because the addition of Rs.10,000/- to the declared income would increase the yield on sales by only .5 per cent making it 7 per cent as against previous years' gross profit on turn over of Rs.16,17,322/ at 23.7 per cent. Mr. Khawaja Salahuddin has invited our attention to the case of Commissioner of Income-tax Lahore Zone v. M. Iqbal Saigol P L D 1976 Lah. 547, wherein in paragraph 11 the limitations contained in Section 34-A of the Act with regard to exercise of powers of revision conferred on the Inspecting Assistant Commissioner has been succinctly stated. We may reproduce that paragraph here which reads as follows:-
"11. Subject to the limitations contained in section 34-A of the Act, the power of revision conferred on the Inspecting Assistant Commissioner is very wide. He may revise orders both on points of law and facts. The revisional jurisdiction thus vested in him is one of superintendence and correction. One of the main functions of the Inspecting Assistant Commissioner for which he is appointed is to detect tax evasions, Under this section the Inspecting Assistant Commissioner may call for and examine the record of "any proceedings" under this Act 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 interest of the 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. In doing so he may enhance ors- modify the assessment or cancel the assessment made by the Income-tax Officer and direct him to make a fresh assessment. But under subsection (2) of this section he cannot interfere in revision after a period of four years from the date of the order under revision. To sum up the only restrictions imposed on his revisional jurisdiction under this section are that he cannot interfere (a) unless he considers that the order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the revenue; (b) without affording the assessee a reasonable opportunity of being heard; and (c) after the expiry of four years of the date of the order under revision,"
We are in agreement with the above observation and find that in the present case the powers exercised by the Assistant Commissioner of Income-tax were within the limitation provided in section 34-A of the Act.
We would, therefore, accept this application and answer the second question in the negative.
Applicant is left to bear his costs as the respondent has not appeared and contested the application.
M.B.A./ C-15/ K Application accepted.
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