2012 PLP (Trib (PTD)

The above titled appeal pertaining to tax year 2007 at the instance of the taxpayer has been directed against the appellate order dated 28-10-2010, recorded by CIR(Appeals-III), Lahore, whereby confirmation of addition amounting to Rs. 30,00,000 made under section 111(1)(b) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) has been agitated.

2. Brief facts emanating from record are that the taxpayer, an individual, derives income from show business. For the year under consideration, the case of the, taxpayer was selected for audit under section 177 of the Ordinance, as a result of which it was observed that the taxpayer had purchased two plots i.e., 1-Kanal Plot No.R-580, Phase-VII, DHA, Lahore on 8-3-2005 and.1-Kanal Plot No.OL-1280, Phase-VII, DHA, Lahore on 9-5-2005 against professional receipts of Rs.11,32,500 disclosed in the return. Consequently, notice under section 122(9) of the Ordinance was issued on 16-3-2009 confronting the taxpayer with the intention of making addition amounting to Rs.30,00,000 under section 111(l)(b) but remained uncomplied, which compelled the Taxation Officer to finalize ex parte assessment by resorting to provisions of section 122(1) of the Ordinance as per break up given below:- Income declared. Rs.404,850 Addition made on account of Rs.30,00,000 concealment. Taxable income. Rs.34,04,850

Feeling aggrieved, the taxpayer preferred appeal before learned CIT(A), who also upheld the action of taxation officer in toto. Still, discontented, the taxpayer has come up in appeal before this Tribunal.

3. Learned counsel appearing on behalf of the taxpayer has termed the action of both authorities below to be arbitrary and contrary to facts of the case. He has elaborated his view point that the addition amounting to Rs.30,00,000 under section 111(1)(b) of the Ordinance has been made in wrong tax year. According to him, the addition under consideration could only be made in the tax year 2008 as the notice under section 122(9) of the Ordinance was issued 16-3-2009. The learned counsel has further' objected that before making impugned addition, the taxpayer was not confronted by way of issuance of notice under section 111(1)(b). He, therefore, prays for vacation of the orders passed by both authorities below by way of deletion of impugned addition.

4. On the other hand, learned DR appearing on behalf of the department has fully supported the action of both authorities below simply by reiterating the basis evolved in the impugned orders.

5. Arguments of the representatives of both the parties heard and record perused. The issue of year of discovery as per section 111(2) of the Ordinance has been thrashed out by the Full Bench of this Tribunal vide order in I.T.As. Nos.756 and 757/LB/2009 dated 2009, the relevant part of the said judgment is reproduced as under: "While following the said principle of interpretation, we can safely hold that it is not a receipt of information which could be treated as "Discovery" for the purposes of section 111(2) but the word "Discovery" implies more than that i.e. the person against whom action is to be taken has been served with a notice in order to get his explanation. The receipt of information could not be treated as "Discovery" also for the reason that it would open floodgate of harassment to the taxpayer as well as give leeway in the hands of the department to use any information (either true or false) to exploit section 111 in favour of department. It is also worth noting that had it been the intention of the legislature they would have used the word information instead of the word "Discovery" while enacting section 111(2). We can also look at section 111 from another angle that the wording of section 111(1)(a,b,c) commence with the word "where" which means this is the stage where process of receipt of informa tion is complete but the taxation authority could only convert such information into the form of "Discovery" when the have completed the process of seeking explanation from the taxpayer."

6. The above extract of the judgment is self explanatory and need no further dilation. In the instant case the addition was made under section 111 of the Ordinance in the tax year 2007 on the basis of information, against which notice under section 122(9) of the Ordinance as per assessment order was issued to the taxpayer on 16-3-2009, which falls in the financial year 2009. In the light of Tribunal's finding quoted in pre-paras, addition under section 111(1). of the Ordinance, if any, was required to be made in tax year 2008 being immediately preceding the financial year in which it was discovered. As the addition under section 111 of the Ordinance has been made in the tax year 2007 not 13 being the immediately preceding tax year of the year of discovery, is not in accordance with law and merits deletion.

7. In view of the above discussion, we are left with no other alternative but to vacate the orders passed by both authorities below and accept the appeal preferred by the taxpayer by way of deletion of addition amounting to Rs.30,00,000 made under section 111(1)(b) of the Ordinance by appreciating the legal .points raised by learned counsel.

8. Appeal of the taxpayer is accepted in the manner indicated above. CMA/143/Tax(Trib.) Appeal accepted.