2010 PLP (Trib (PTD)

MUNSIF KHAN MINHAS (JUDICIAL MEMBER).

The Department has filed this appeal against the impugned order dated 28-4-2010 passed by CIR(A-II) Islamabad for the tax year, 2008 on the following grounds:- (1) "That the learned CIR(Appeals-II) was not justifies( to annul the assessment without any cogent reason, rather he should have given his legal reasons. (2) That the learned CIR (Appeals-II) was not justified to hold that the assessment is illegal without giving legal footings/reasons. (3) That the learned CIR(Appeals-II) was not justified to ignore the facts and circumstances of the case, as before finalizing the assessment, the Taxpayer was afforded sufficient opportunities to explain his position. (4) That the learned CIR (Appeals-II) should have quoted each ground of appeal, matched it with facts and circumstances of the case and then tested on the touchstone of relevant provisions of law which he had not done."

2. Brief facts of the case are that the taxpayer is an AOP deriving income from running an auto workshop. Return for the tax year, 2008 was filed declaring following results:-- Gross Sales: Rs.1627443 Services receipts: Rs.7315334 Less P&L expenses: Rs.1643355 Net Profit: Rs.7299422 Admissible deductions: Rs.1304368 Income relating to final taxation: Rs.5995054 Supply of goods: Goods Rs.1871559 Tax @ 3.5% Rs.65506 Services receipts Total gross receipts: Rs.7315334 Tax @ 6% Rs.438920 The case of the taxpayer was selected for composite audit and report of the composite audit was received. During the composite audit some discrepancies were found and confronted to the taxpayer vide letter No.24, dated 18-3-2010. The Additional Commissioner found that supplies were disclosed at Rs.1,871,559 and tax was deducted thereon @ 3.5% whereas such payments were related to the execution of contract in view of F.B.R's. clarification vide C.No. i(1)SS(Rev.Bud) 2008 (176942-R) dated 23-10-2008. In view of the F.B.R's. clarification (supplies and services) came within the purview of section 153(1)(c) and tax was to be deducted @ 6%. Tax calculated as per declared version of the return for the tax year 2008 Activity PTR incomes (Rs) Tax Amount (Rs) Supplies (3.5%) 1871559 65505 Services (6%) 7315334 438920 Total 9186893 504425 Tax calculation as per deduction certificates provided with the return for tax year 2008 Activity PTR incomes (Rs) Tax Amount (Rs) Execution (6%) 12880333 772820 Tax demanded 268395 The Additional Commissioner calculated the difference of Rs.268,395 @ 6% and added to the income of the taxpayer. The Additional Commissioner has also observed that total bank credits of Rs.23,524,787 were found whereas the taxpayer had declared total gross receipts under all heads at RS.9,186,893 (including supplies of Rs.1,871,559) during the year under review. The Additional Commissioner calculated the difference of Rs.14,337,894 and added to the income of the assessee. Copy of rent agreement clearly shows that the premises were obtained at the monthly rent of Rs.40,000 and the difference at Rs.240,000 was added to the income of the assessee under section 111(1)(c) of the Income Tax Ordinance, 2001. Nobody attended the office on 30-3-2010 and reply of the discrepancies was not received by the Additional Commissioner. Therefore, assessment already finalized under section 120 was amended under section 122(5A) of the Income Tax Ordinance, 2001 in the following manner: Tax on PTR Rs. 268,395 Default surcharge Rs. 33,207 Concealment of receipts as per Bank Rs.3,584,473 Statement under section III Lease Agreement Concealed under section III Rs.240,000 Total Revenue under Income Tax Rs.3,996,211 For the reasons recorded in the order, assessment was amended as confronted. Being aggrieved with the treatment meted out by the Additional Commissioner, the assessee preferred an appeal before the learned First Appellate Authority who annulled the assessment with the following observation:-- "There was no such provision under the law in the Income Tax Ordinance, 2001 which provided for selection of cases for audit under section 177 as the Board has done for the tax year, 2008 and Commissioner was empowered to do the same and not the Board which was not done in this case whereas assessment section applied to the assessment order was also not proper as the assessment was to be made under section 122(5) and not under section 122(5A) "The arguments presented have been given due consideration and found these to be legally sound enough. Accordingly the assessment so made is held to be illegal; hence annulled. Since the assessment order is found to be illegal the facts do not require to be adjudicated upon." Being dissatisfied with the treatment accorded by the learned CIR(A), Department has come up in 2nd appeal before the Tribunal on the .grounds raised supra.

3. The learned DR has supported the order of Additional Commissioner (Audit-III) amending the assessment under section 122(5A) of the Income Tax Ordinance, 2001 which was deemed to be finalized under section 120 of the said Ordinance. The learned DR has contended that the learned CIR (Appeals-II) is not justified to annul the assessment without any cogent reason. The learned DR further contends that the learned CIR (Appeals-II) should have quoted each ground of appeal, matched it with facts and circumstances of the case, then tested on the touchstone of relevant provisions of law which he had not done.

4. On the other hand learned AR appearing on behalf of the taxpayer has argued that the selection of the case for audit through random ballet by the Board is illegal and without any jurisdiction. As per section 177 of the Income Tax amended Ordinance, 2001 the Commissioner can only select the case for audit and Board has no authority to select the case for audit, as such the whole proceeding are illegal. The learned AR has also argued that no selection can be made under section 177 after the amended Ordinance dated 28th October, 2009, as such the selection is illegal. Resultantly the order under section 122(5A) is illegal, void ab initio and without any jurisdiction. The AR of the taxpayer has argued that passing order on 30-3-2010 is illegal and unwarranted because on that particular date the appellant has filed adjournment application. He has raised objection that initiating of proceedings under section 177, selection of the case for audit and passing order under section 122(5A) is illegal, void because learned Additional Commissioner has not adopted the procedure prescribed under the law. The learned counsel of the taxpayer has pinpointed effect of jurisdiction empowering revisional jurisdiction under section 122 (5A) which according to him has become a settled issue as it has categorically been held in the case of Messrs Fauji Oil Terminal and Distribution Company Ltd. v. Additional Commissioner reported as 2006 PTD 734 and order of the honourable Supreme Court of Pakistan dated 22-5-2009 in C.A. No.778 etc. wherein it has been held that under subsection (5) of 122 it is the original jurisdiction whereas subsection (5A) of section specifies the revisional jurisdiction. The learned counsel has also contended that the revisional jurisdiction can be exercised when there is an actual order and not the deemed order. He has in this respect referred the decision of the honourable High Court reported as 2002 PTD

441. The learned AR of the taxpayer has raised objection with regard to assumption of jurisdiction by Additional Commissioner when jurisdiction after selection of case for audit was assigned to Taxation Officer/DCIT, Audit-II and the Taxation Officer DCIT had not parted with jurisdiction. After audit proceedings the order was required to be passed under section 122(5) as has been specified in this section. Moreso in the provision of section 177(6) it is embodied that "after completion of the audit under subsection (5) or subsection (8), the Commissioner may, if considers necessary, after obtaining taxpayer explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122 as the case may be". This order is in fact against the settled norms. Additional Commissioner has invaded upon delegated Jurisdiction of Taxation Officer. Taxpayer deals in supply and services, repair maintenance, which are fully verifiable and were accepted by the sales tax authorities, as such passing a different order by Additional Commissioner Audit-Ill is illegal. The learned AR stresses that passing of order on the basis of F.B.R. clarification by ignoring the basic provisions of law is illegal and unjustified. He submits that that the addition made under section 111 at Rs.14,337,894 on account of difference of bank deposit is illegal and against the provision of section

111. The learned AR insists that no notice under section 111 for the concealment was ever issued as such the addition is totally illegal and un-warranted. Apart from it, F.B.R. is not entitled to select cases for audit. The learned AR contends that the assessment section applied to amended assessment order is also not proper as the assessment should have been made under section 122(5) and not under section 122(5A) because the provisions of section 122(5A) do not apply to this case which says that: "122(5A) Subject to subsection (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of Revenue." Assessing Officer proceeded ex parte without providing an opportunity to be heard or furnishing of reply to the show-cause notice. Appellant had applied for adjournment for 30-3-2010 which was not entertained.

5. I have heard the arguments and perused the record. Assessment already passed/deemed or otherwise may be amended or rectified under the specific provision of law. I am of the view that regarding the cases selected for audit it has specifically been mentioned in subsection (6) of section 177 that after obtaining taxpayer's explanation on all the issues raised in audit, the assessment will be amended under subsection (1) or subsection (4) of section 122 as the case may be. Even otherwise the honourable High Court has also discussed this issued in a case reported as 2006 PTD 734 placing reliance on which the learned CIT(A) has cancelled the amended assessment order passed by the Additional Commissioner. It is due to this reason that honourable Supreme Court of Pakistan has always laid its utmost stress on strict observance of norms of natural justice in general and principles of audi alteram partem in particular. These principles are to be read into every statute. Reliance has been placed on judgment as PLD 2008 SC 663, 2007 SCMR 330, 2005 SCMR 678-1814 and PLD 2004 SC

441. The proceedings under section 122(5A) have to be based on fresh evidence. Placing reliance on the audit report for considering the assessment as erroneous so far as prejudicial to the interest of Revenue is not proper as the proceedings in this respect have not been initiated with independent mind. I have noted that after the selection of case for audit by the Commissioner, the matter was assigned to the DCIT/Taxation Officer, Audit-II, and the proceedings were pending before him but the Additional Commissioner without considering this fact has amended the assessment, that too without considering the explanations given by the appellant. The cases which are selected for audit, in field practice are finalized by 'the Taxation Officer. However, invoking section 122(5A) by the Additional Commissioner is in those cases wherein he feels that deemed assessment or any other order is erroneous insofar as prejudicial to the interest of Revenue. Undoubtedly, in the Income Tax Ordinance, 2001 Commissioner is focal and pivotal authority. All of the powers to the, authorized officers are delegated by him. He delegates his powers to the Taxation Officer and to the Additional Commissioner. However, the cases selected for audit will fall in the domain of the Taxation Officer and Additional Commissioner can invoke section 122(5A) only when the Taxation Officer finalized the amended assessment under section

5. From initiation of the proceedings of selection of the case for audit to its final destiny of amended assessment, Additional Commissioner will not be supposed to grasp the file on the plea of invoking his revisional jurisdiction which can only be invoked after finalization of amended assessment in audit process and not during the pendency of the proceedings under the domain of Taxation Officers Furthermore, if Additional Commissioner has passed this order by way of exercising revisional jurisdiction and despite after passing this order, still it is considered as prejudicial to the interest of revenue then there is no one to exercise revisional jurisdiction. In cases selected for audit it is exclusive domain of Taxation Officer and revisional jurisdiction by the Additional Commissioner can only be exercised after the finalization of amended assessment order by Taxation Officer. Revisional jurisdiction of the Additional Commissioner can only be exercised if he finds any deemed assessment or the amended assessment as in so far as prejudicial to the interest of revenue by the application of his own independent mind. Even otherwise,' I feel that there must be a demarcation line between exercise of powers by the Taxation Officer and that the Additional Commissioner. The domain-of the Taxation Officer is not to be intruded without having valid jurisdiction just on the plea of being Senior Officer. The Provision of section 122(5A) does not apply to this case. Hence the order passed by the Additional Commissioner has rightly be annulled by the learned CIR(A). I find no error or lacuna in the order passed by the CIR(A) which is upheld and maintained.

6. The departmental appeal is dismissed being bereft of any merit. H.B.T./173/Tax (Trib.) Appeal dismissed.