2012 PLP (Trib (PTD)

The department has filed instant appeal against the order dated 17-2-2011 passed by learned CIR(A-III) Islamabad for the tax year 2006 on the following grounds:-- (1) "That the order of the learned CIR (A-III) is bad in law and against the circumstances of the case. (2) That the CIR (A-III), Islamabad was not justified in holding that the Commissioner has wrongly applied the provision of section 177(10) of the Income Tax Ordinance, 2001 retrospectively. (3) That the CIR (appeals-III), Islamabad was not justified in holding that the order passed under section 121(1)(d) is illegal, in spite of the fact that the taxpayer failed to produce books of accounts, documents and record in response to show cause notice under section 122(9) of the Income Tax Ordinance, 2001 which was duly served upon the tax payer".

2. Brief facts leading to this appeal are that the taxpayer, an individual, derives income from running a hotel. The taxpayer filed return declaring income at Rs.145,000 for the tax year 2006. The case was selected for audit under section 177 of the Income Tax Ordinance, 2001 regarding which the taxpayer was duly intimated. Various details/documents were required but no compliance was made. That during the course of hearing appellant submitted written reply requesting withdrawal of Audit, Which was rejected by the department for the reasons recorded in assessment order, assessment was framed under section 121(1)(d). Being aggrieved with the treatment given by the Officer Inland Revenue, the assessee preferred appeal before the learned CIR(A) who after considering the facts and circumstances of the case annulled the assessment order with the following observation:-- "The case record has been examined and the arguments of the learned AR have also been considered. The decisions of the higher appellate forum on the issue of best judgment assessment under section 121(1)(d) in the presence of deemed assessment in terms of section 120 of the Income Tax Ordinance, 2001, have also been considered. In this case the Taxation Officer has amended the deemed assessment under section 121(1)(d) of the Income Tax Ordinance, 2001. The provisions of section 121(1)(d) would be attracted only in the cases where no return is filed or the record/accounts called for are not provided in response to a notice under section 114(3) or (4) for default of which the return is declared invalid under section 120(4) read with subsection (3) and section (6) thereof. It has been further held in Appellate Tribunal Inland Revenue, Islamabad bench, Islamabad's decision I.T.A. No. 635/IB/2010 tax year 2008 that an amended order can be passed under section 122 even if no compliance of notices under section 177 or 122(9) is made by the taxpayer and/or no accounts/record or evidence etc. required by the Assessing Officer are produced by him. Contrary to the ratio settled in the above decisions the learned Appellate Tribunal, the Assessing Officer has amended the assessment under section 121(1)(d) with reference to section 177(10), without declaring the return invalid and ignoring the fact that subsection (10) of section 177, which was inserted in the Income Tax Ordinance through Finance (Amendment) Ordinance, 2009 had no retrospective effect. Following the ratio already settled in the aforesaid cases I feel no hesitation to hold that the order passed by the taxation officer is not legally sustainable. The impugned order accordingly annulled and declared of no legal effect. Since the assessment order is being annulled on legal grounds rest of the issues are not adjudicated upon."

3. Being dissatisfied with the treatment accorded by the learned CIR (A), Department has come up in 2nd appeal before the Tribunal on the ground raised supra.

4. Arguments put forth by the learned representatives of both the parties have been heard.

5. During arguments learned AR states that 177(10) is under the Head of the procedure. Procedural amendment can be applied retrospectively. For ready reference we think it appropriate to reproduce contents of the said section:-- 177(10).

"Notwithstanding anything contained in sub-sections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under subsection (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect." We differ with the view of the learned DR that it is a machinery or a procedural legislation. Last line of this section says that assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect. So it has charging impact. The said section attacks on the sanctity of the deemed assessment, rather cut roots of deemed assessment. How can we say that it does not adversely affect the right of the taxpayer. Taxpayer is accrued with a right of the deemed assessment and this section snatches its accrued right. So it affects the taxpayer adversely which is the only test to determine fact as to whether any peace of legislation is procedural or substantive. In this scenario we did not agree with the contention of the learned DR.

6. In this case, return has been filed and provisions of clause (d) of subsection (1) of section 121 of the Ordinance attracted only, in the case, of absence of a valid return i.e. either the return furnished by the taxpayer has been declared invalid under the provisions of subsection (4) read with subsections (3) and (6) of section 120 of the Ordinance or no return in filed in compliance of notice issued under subsection (3) or (4) of section 114 of the Ordinance. An order of amendment under section 122 of the Ordinance could be passed by the Assessing Officer even if no compliance of all or any statutory notices issued under section 177 or 122(9) is made by the taxpayer and/or no accounts record or evidence etc. required by the Assessing Officer is produced by him. So far as introduction of section 177(10) of the Income Tax Ordinance, 2001 through Finance Amended Ordinance, 2009 is concerned, it is applicable for the Tax Year 2010 onward and no assessment under section 121 can be made where a return is filed under section 114, in a case selected for audit, for the tax years prior to Tax Year 2010.The judgment referred by the learned counsel in I.T.As. Nos.30 to 32/IB/2009 tax years 2004 to 2006 reported as 2010 PTD (Trib.) 2602, 2010 PTD (Trib.) 819, 2010 PTD (Trib.) 1552 and 2010 PTD (Trib.) 2140 applies in all four to the facts and circumstances of the case. Upholding the application of section 121 in the presence of a valid return will amount to two assessments in field simultaneously, one i.e. deemed assessment and 2nd as ex parte assessment under section 121 which is not warranted under the law. Hence assessment under section 121 in this case where return has been filed is legally not sustainable. So we do not feel any hesitation to hold that proceedings conducted in this case were legally defective.

7. The departmental appeal has been found without weight on another legal ground. The bench has already decided same kind of issue in many cases that assessment is not sustainable. Resultantly, departmental appeal under consideration hereby stands dismissed. C.M.A./228/Tax(Trib.) Appeal dismissed.