2010 PLP (Trib (PTD)

MUNSIF KHAN MINHAS (JUDICIAL MEMBER).

This appeal has been filed by the Taxpayer against the order dated 15-3-2010 passed by the learned Commissioner Inland Revenue (Appeals-II), Islamabad for the Tax year, 2002-2003 on the following grounds: (a) That the order passed by the Taxation Officer and that of CIR(Appeals) without considering the law and facts of the case is liable to be declared null and void. (b) That assessment order passed by the Taxation Officer is liable to by declared illegal and void ab initio because the notices/ assessment orders were neither served upon assessee himself nor any statutory representative of the Non-Resident assessee under section 172 of the Income Tax Ordinance, 2001 was appointed. (c) That without prejudice to above the delay if any, in filing appeal by the taxpayer is liable to be condoned as the Demand notice was neither served with assessee nor was issued under the relevant provision i.e. section 137(2) of the Income Tax Ordinance, 2001 and also because the assessee was residing in Foreign country during the period of assessment. (d) That ex parte order passed by the Taxation Officer is liable to be annulled in the light of principle enunciated in a chain of Judgments passed by the Superior Courts that "No Limitation Runs against an order which is void and without Jurisdiction." (e) That the order passed by the Taxation Officer is void and without jurisdiction. (f) That without prejudice to above, proceeding initiated by the Taxation Officer by issuing notice under section 56 of the Income Tax Ordinance, 1979 on 7-5-2003 i.e. after repeal of the said Ordinance is liable to be declared illegal and without jurisdiction. (g) That addition made by the Taxation Officer under section 13(1)(d) of Rs.1,242,700 is !table to be deleted since grant of approval by "Additional Commissioner" to make addition under sec tion 13 was without jurisdiction. Even otherwise two different powers i.e. of "framing assessment" and of "granting approval" cannot be exercised by or on behalf of the same authority. (Commissioner). (h) That without prejudice to above, the addition of Rs.300,000 on account of Business Capital made under section 13(1)(d) is liable to be deleted being made under wrong provision of law. (i) That without foregoing above contentions, the estimate of receipts and the rate of valuation/construction adopted is highly excessive and unjustified. (j) That without foregoing above contentions, income estimated at Rs.1,471,500 is highly excessive and unjustified. At the time of rehearing of appeal before the learned first appellate authority the following additional/amended grounds of appeal were also filed by the assessee: (a) That assessment order passed by the Taxation Officer is liable to be declared illegal and void ab initio because the notices/ assessment order were neither served upon assessee himself nor any statutory representative of the Non-Resident assessee under section 172 of the Income Tax Ordinance, 2001 was appointed. (b) That without prejudice to above the delay if any, in filing appeal by the taxpayer is liable to be condoned as the Demand notice was neither served with assessee nor was issued under the relevant provision i.e. section 137(2) of the Income Tax Ordinance 2001 and also because the assessee was residing in Foreign country during the period of assessment. (c) That ex parte order passed by the Taxation Officer is liable to be annulled in the light of principle enunciated in a chain of Judgments passed by the Superior Courts that "No Limitation runs against an order which is void and without Jurisdiction." (d) That the order passed by the Taxation Officer is unlawful without jurisdiction and also against the facts of the case. (e) That without prejudice to above, proceeding initiated by the Taxation Officer by issuing notice under section 56 of the Income Tax Ordinance, 1979 on 7-5-2003 i.e. after repeal of the said Ordinance is liable to be declared illegal and without jurisdiction. (f) That addition made by the Taxation Officer under section 13(1)(d) of Rs.1,242,700 is liable to be deleted since grant of approval by "Additional Commissioner" to make addition under section 13 was without jurisdiction. Even otherwise two different powers i.e. of "framing assessment" and of "granting approval" cannot be exercised by or on behalf of the same authority (Commissioner). (g) That without prejudice to above, the addition of Rs.300,000 on account of Business Capital made under section 13(1)(d) is liable to be deleted being made under wrong provision of law. (h) That without foregoing above contentions, the estimate of receipts and the rate of valuation/construction adopted is highly excessive and unjustified. (i) That without foregoing above contentions, income estimated at Rs.1,471,500 is highly excessive and unjustified.

2. Brief facts of the case are that the assessee, a non-resident individual, derives income frcxn running a private hospital and rented property. Return for the assessment year under consideration was filed by Mr. Jahangir Akhtar the brother of assessee in response to notice under section 56 of the repealed Income Tax Ordinance, 1979. Show-cause notice under sections 62/13(1)(aa) was issued on 22-6-2005 by the Taxation Officer. Explanation furnished on behalf of the assessee was considered .unsatisfactory by the Assessing Officer. For the reasons recorded in the assessment order, total income of the appellant assessee was estimated at Rs.1,471,

500. Net business income from Hospital was estimated by Taxation Officer at Rs.200,000 and property income was assessed at Rs.28,

800. Addition of Rs.942,700 on account of unexplained investment in the cost of construction of the plaza building was made under section 13(1)(d) of the repealed Ordinance. An addition of Rs.300,000 on account of investment in the purchase of medical B equipment and business capital was also made by the Taxation Officer under section 13(1)(d) of the repealed Ordinance. Being aggrieved the assessee filed appeal before the learned first appellate authority who dismissed the appeal treating it barred by time. On the second appeal filed by the assessee in the first round of appeal the case was remanded back to the learned first appellate authority by this Tribunal vide its order dated 21-3-2007 with the directions "to examine the record to ascertain whether the assessment order was served with the assessee properly or not? If the contention of assessee is found to be correct, then he should proceed further by affording the assessee an opportunity of being heard".

3. The issues raised through the above additional grounds were not considered by the learned Commissioner of Inland Revenue (Appeals) for the reason of being beyond the scope of remand made by Tribunal. The CIR(Appeals) again rejected the appeal of the assessee by upholding the decision of his predecessor and by declaring that the notices were properly served. Findings of the learned first appellate authority are reproduced as hereunder:-- "On the perusal of the record it was confirmed that the wealth statements and the notices were signed by one Mr. Jehangir in almost all the previous years and also in the year under appeal. It was told by AR that Mr. Jehangir is the brother of the appellant. Secondly my predecessor in both the appellate orders have given clear finding on the issue of proper service of notices which fact is also proved beyond doubt that as per the record, these were signed by the same person who has signed most of the important documents i.e. wealth statements and the returns. It therefore becomes irrelevant whether Mr. Jehangir was the authorized agent in writing or not. As regards other points raised in the grounds of appeal, written arguments and the contentions during the course of hearing are felt to be irrelevant as far as the specific directions given by the learned ITAT. I have been directed to give my findings on the issue of proper service of the notices only." Issues raised in this appeal are discussed parawise as under:-- The first issue raised in this appeal is regarding proper service of notices/assessment order on the assessee.

4. It was contended by the learned AR that the service of notices and the assessment order was not proper one as required by law. According to learned AR it is provided in section 137(2) of the Income Tax Ordinance, 2001 that a notice of demand shall be served upon the "taxpayer" which term also includes "any representative of a person who derives an amount chargeable to tax under the Ordinance" as per clause (a) of subsection (66) of section 2 of the Ordinance. It was argued by him that despite knowledge of the facts, the Taxation Officer failed to appoint any Representative of the Non-Resident Taxpayer/appellant under subsection (5) of section 172 of the Ordinance and proceeded to frame the assessment which according to him was not sustainable being ab initio void in law. It was contention of the learned AR that without appointment of representative as required under the law, the notices issued and the order passed were without jurisdiction as such are nullity in the eye of law. In support of his contention learned AR quoted the decision of tribunal reported as 96 Tax 119 (Trib.) wherein it has been held that appointment of a statutory agent of a Non-Resident Taxpayer separately for each year was mandatory and the notice issued before appointment of agent of Non-Resident was without jurisdiction. Learned AR also quoted a judgment of Tribunal reported as 33 Tax 5 (Trib.) in which it was held that filing of Returns by assessee or his failure to take objection to his assessment would not cure the initial defects. In support of his above contention regarding mandatory appointment of representative/agent of Non-Resident, learned AR also quoted the case laws reported as 1989 PTD (Trib.) 252, 1981 PTD 192, 2002 PTD 102 (Kar.H.C.) and 6 Tax 1 (Trib.). Learned AR has further contended that no limitation runs against an illegal order passed by an authority without assuming jurisdiction. In support of his contention learned AR also quoted the Supreme Court's judgment reported as 1996 SCMR 856 and others of honourable High Court cited as 2001 MLD 1101 (Kar. H.C.) and 2000 PTD 2407 (Kar. H.C.). The learned AR also pointed out that certain other illegalities also exist in the assessment proceedings which were altogether ignored by the learned CIR(Appeals). According to him the Question of Limitation does not arise in the case of the assessee as the very initial act of the Taxation Officer of issuing notice under section 56 of the Income Tax Ordinance 1979 on 7th of May 2003 i.e. after repeal of the said Ordinance was without Jurisdiction and liable to be declared void ab initio as the notice under section 56 could not be issued w.e.f. 1st July, 2002 as the saving clause of section 239(4) only covers the pending proceedings. In support of his contention the learned AR has reproduced two judgments of Tribunal reported as 2008 PTD (Trib.) 1466 and another in I.T.A. No.1574/IB of 2005 dated 19-12-2005. Another illegality pointed out by the appellant is regarding addition in income made under section 13 of the Repealed Ordinance without a valid and mandatory approval of the Inspecting Additional Commissioner (IAC). According to the learned AR, no concept of "granting approval" or "delegation of power of approval" to make addition under section 13 exists under the new scheme of law provided by the Income Tax Ordinance, 2001. Even otherwise no power of granting approval was conferred upon Additional Commissioner to give approval of making addition under section .13 of the Repealed Ordinance. Learned AR has reproduced before me two unreported cases of this Tribunal in support of his contention. Ref: I.T.As. Nos. 86-91/PB of 2005 dated 20-5-2006 titled (CIT Peshawar v. Haji Sarwar Jan) and I.T.As. Nos.1902, 1903, 1910-1913/IB of 2005 dated: 29-7-2006 (Metro Pvt. Ltd. v. TO. Cir.18, Islamabad. It was also pleaded by the learned AR that without prejudice to above legal contention the delay if any considered to have been occurred in filing of first appeal not being wilful should have been condoned. The learned AR vehemently argued that even otherwise no assessment against a person could be made who is admittedly a Non-resident Individual and is personally not in receipt of the notices. According to the learned AR the principle settled by the apex Court in a number of cases that "No body should be condemned unheard" applies with full strength in the present case. Learned AR states that although during previous years the brother of appellant has been pursuing Tax matters but due to some family reasons he started losing his interest during the above relevant period because of strained relations. It was contention of the learned AR that issuance and service of Demand notice not being in knowledge of the assessee, the delay therefore could not be wilful. Learned AR further states that even otherwise considering the circumstances of the case there was no reason in not filing the appeal against an unprecedented, unreasonable and unjustified demand created against the appellant assessee by the Taxation Officer. It was contended by learned AR that in such circumstances the assessee would have filed appeal at once instead of waiting of expiry of limitation period because according to him no sane person will go against his own interests. According to learned AR in view of above, in any case the assessee appellant was entitled to condonation of delay. Learned AR contends that the appellant assessee has already filed an affidavit before the learned first appellate authority declaring on Oath that the delay in filing first appeal in the first round of litigation was neither intentional nor deliberate and that the Taxpayer has availed the right of appeal as soon as it came to his knowledge. In support of his contention learned AR quoted ajudgment of Hon'ble Lahore High Court reported as 2002 PTD 1035 and another of Indian Supreme Court cited as 56 Tax- 130 (S.C. Ind.). It was further contended by the learned AR that since the Assessing Officer failed to Serve Demand Notice on proper person as provided by law. Prayer for condonation of delay should be accepted/considered sympathetically. The learned AR has also reproduced before me various judgments in support of his contention reported as 2007 PTD 2389, 1967 PTD 189; 2008 PTD (Trib.) 154, 2009 PTD 1067 (Trib.) and 1986 PTD (Trib.) 188.

5. The learned DR on the other hand supported the action of learned first appellate authority. He has contended that provisions of subsection (3) of section 172 of the repealed Income Tax Ordinance, 1979 are not attracted in the present case as the assessment was made ex parte i.e. under section 63 of the Repealed Ordinance and there is no need to appoint any representative of a Non-Resident assessee where the assessment is being made ex parte. The learned DR reiterated that service of Demand Notice was on proper person therefore, the learned CIR (Appeals) has rightly refused to condone the delay in filing of first appeal in the first round of litigation. According to the learned DR the Service of Demand notice was on proper person and the first appeal in the first round of litigation was barred by time, therefore the learned Commissioner Inland Revenue (Appeals) had rightly rejected the appeal of the assessee.

6. Arguments of the representatives of both the parties have been heard. The case was originally remanded back to the CIT(Appeals) for finding of facts on issue that whether the assessment order was served with the assessee properly or not. The CIT(Appeals) vide his order, dated; 15-3-2010 has given findings that notices were properly served with the observation that wealth statement and return were signed by Mr. Jahangir the brother of the assessee in almost all the previous year and also the year under appeal. The CIR (Appeals) has further held that it therefore becomes irrelevant that whether Mr. Jahangir was authorized agent in writing or not. Whereas on the other hand contention of the learned AR is that the learned CIR (Appeals) has not given his finding regarding the service of the notice on his objection that the service of notice on a person legally not authorized to do so is not a proper service and that whether Mr. Jahangir was appointed agent under section 172 for the year under consideration since each year is an independent year.

7. In view of the relied case law as 1989 PTD (Trib.) 252, 1981 PTD 192, 2002 PTD 102 (Kar. H.C.) and 6 Tax 1 (Trib.), 1996 SCMR 856, 2001 MLD 1101 (Kar.H.C.) and 2000 PTD 2407 (Kar.H.C.) appointment of representative/Agent is mandatory. Ist step in assuming valid jurisdiction when it came into knowledge of Assessing Officer that assessee being non-resident; is appointment of Agent/Representative that too after providing him an opportunity of being heard. Philosophy behind is that department should serve a notice on Non-resident whose address is generally not known or if he himself comes to know then he can appoint his attorney in writing. In the absence of this situation, to proceed further, law has given authority to department to appoint his representative who becomes equally responsible for payment of assessed Govt. dues. In the present scenario, none is legally responsible because assessee is neither served nor has given attorney in writing to Muhammad Jahangir, with whom relations have alleged to be strained and he lost interest in pursuing. Now keeping these facts in legal framework one can say that this assessment is not enforceable against assessee as he has neither been served in person nor he appointed Jahangir as attorney. Jahangir has not been appointed as Representative/ Agent by the departmental officer, that's why in the above referred cases assessment was annulled. The thrust of the learned AR is that assessment is to be annulled; firstly due to non-appointment of Representative/Agent under section 172 of the Repealed Income Tax Ordinance, 1979; secondly notice under section 56 could only be issued in case of the pending assessment while this case was not pending at the relevant time. Various other legal aspects qua section 13 of the Repealed Income Tax Ordinance, 1979 in the light of the referred case law has also been brought into picture praying for annulment. I differ with the contention of the learned AR qua the annulment because it appears that Mr. Jahangir remained associated with the proceedings of the assessment. Subsequently, due to alleged strained relation with the assessee he lost his interest. Resultantly appeal was filed late. In this scenario, it is not the case of annulment because the legal objections raised at this forum have not been adjudicated upon by the learned First Appellate Authority. I refrain from recording any finding in the absence of the finding recorded by the learned First Appellate Forum. However, to meet the ends of justice in such situation relying on case law reported as 2002 PTD 1035 wherein it has been held that:- (i) Litigant assessee did not stand to benefit by lodging appeal late, (ii) Refusal to condone delay can defeat cause of justice, (iii) Every day's delay must be explained did not mean that pedantic approach should be made why not every minute's delay every second's delay, (iv) Non-deliberate delay should not be treated by substantial injustice, (v) There is no presumption that delay was occasioned deliberately, (vi) Judiciary is respected not because of its power to legalize injustice on account of technicalities but it is capable of removing injustice, (vii) In Revenue Matter delay should be condoned sympathetically. The same view was held by the Indian Supreme Court in the judgment reported as 56 Tax 130 (S.C. Ind.). Tribunal in its judgment reported as 2008 PTD (Trib.) 154 has also held that in revenue matters prayer for condonation of delay filed by assessee/citizen should be considered sympathetically.

8. Considering the overall facts of the case particularly that the assessee is a Non-Resident and in view of the case law cited as above, in my opinion it would be fair that delay in filing the appeal before the first appellate authority is condoned and merit be analysed. Accordingly, the case of the assessee is remanded back to the first appellate authority for decision on merits of the case. H.B.T./160/Tax(Trib.) Case remanded.