2014 PLP (Trib (PTD)

ABDUL NASIR BUTT, ACCOUNTANT MEMBER.

These cross appeals have arisen out of order of CIR (Appeals),Lahore, whereby the learned CIR(Appeals) vide Order No. 11 dated 30-9-2013 though accepted the appeal of the taxpayer but remanded the case back to ACIR to pass speaking order under sections 161/205 of the Income Tax Ordinance, 2001 (Ordinance).

2. Facts leading to the instant appeals, briefly stated, are that the ACIR examined the withholding tax statement of the taxpayer, income tax return for the Tax Year 2011 and initiated proceedings under section 161 of the Ordinance asking the appellant to furnish information with regard to the tax withheld by it. The taxpayer submitted the requisite details and record vide letter dated 30-8-2013 which were totally ignored by the ACIR and passed the order under sections 161/ 205.

3. Being aggrieved, the appellant taxpayer filed appeal before the learned CIR(Appeals) who vide his impugned Order No. 11 dated 30-9-2013 though disregarded/disapproved the treatment of the ACIR under sections 161/205, however, finally remanded the case back to the ACIR for passing speaking order within 40 days. Resultantly both taxpayer and the department have come up in further appeal before us.

4. Initiating the arguments on taxpayer's appeal, the learned AR of the appellant contended that no statutory notice under section 161 of the Ordinance was served/issued upon the appellant before passing the void order and the proceedings initiated and concluded by the ACIR based on vague notice having no effect in the eyes of law. This fact has also been observed by the learned Appeal Commissioner, however, case has wrongly and arbitrarily been remanded back by the CIR(Appeals) to the ACIR. In support of his contention learned AR relies upon various judgments of the higher appellate forums including 2012 PTD 122, CIT v. Ravi Plastic Industries 2008 PTD 1227, 2008 PTD 787, ITA No.4575/LB of 2004 dated 4-5-2005 Vol, 10/7TF34, 1971 SCMR 681, 1997 SCMR 524, 1997 SCMR 1849, 2002 PTD 407 (High Court), 2003 PTD 593 and recently decided cases by this Tribunal in I.T.A. No.1461/LB of 2013 and I.T.A. No. 1183/LB of 2013 dated 19-9-2013 and I.T.A. No. 1490/LB of 2013 dated 21-11-2013.

5. The AR vehemently argued that treatment of the ACIR is contrary to the principles of natural justice, one cannot be blamed or penalized for default of the taxation authorities. It also proves that notice has been issued by the ACIR with mala fide intention to harass the taxpayer while record of the taxpayer company duly submitted vide letter dated 30-8-2013 has not been consulted fairly with open mind and ignored intentionally solely to penalize the appellant. There no question that exhaustive examination of taxpayer accounts for the preceding tax years, specifically by exercising powers vested under section 161 of the Ordinance had already been conducted by the predecessor IRS officials having lawful jurisdiction over the case and after examination of accounts/record of income tax deductions being withholding agent, proceedings initiated were disposed of by passing speaking orders under sections 161/205 of the Ordinance and for tax years 2005, 2006, 2007, 2008, 2009 and 2010, a petty demand of withholding tax merely on the basis of BTL cash purchases were raised at Rs.60,546 Rs.73,588 Rs.76,471 Rs.79,064 Rs.140,258 Rs.200,000 respectively.

6. The learned DR, on the other hand, while arguing the departmental appeal strongly supported the order passed by ACIR and contested the remand order of CIR (Appeals). It was argued that order passed by ACIR is in order and does not suffer from any loophole as pointed out by the CIR (Appeals).

7. In support of taxpayer's appeal, main argument of the learned AR revolve around the fact that the origin of the proceeding under sections 161/205 is not valid in the eyes of law, consequently the whole super structure based on that illegal foundation would automatically become void ab-initio. It is strongly contested that basis of proceeding under section 161 i.e. statutory show-cause notice required to the be issued under section 161 of the Ordinance is void and invalid, being merely based on assumed facts and law, therefore, the proceedings disposed of under section 161 of the Ordinance, merits cancellation. The learned AR has vehemently contended that initiation of proceedings as well as order framed under sections 161/205 is patently illegal, since the same is suffering from incurable legal defects. The learned counsel for the appellant argued the case at length on facts as well as on law, raising manifold objections. He has at the very outset challenged the legality and validity of the impugned order which according to him is beyond the scope and jurisdiction vested with ACIR under the provisions of the Ordinance. Alternatively, the AR contended that powers vested under sections 161/205 of the Ordinance have arbitrarily been misused by the ACIR in the instance case. It is further contented by the AR that in the instance case there is strong presumption that disposal of order under sections 161/205 is deliberate or on account of culpable negligence, or on account of mala fides at the part of ACIR, in support he read out following vital text out of impugned order before us:-- "It is observed that proceedings under sections 161/205 in this case were wrongly initiated without establishing default of tax withholding" "Making aggregate figures appearing in the return as basis for proceedings under section 161 is without any statutory authority has no legs to stand upon at the appellate forum"...I am of the considered opinion that the appellant has, duly discharged its legal obligation by filing all the requisite details and supporting documents and addressed the queries raised in this respect. The ACIR by misconstruing the law has proceeded to hold the appellant as taxpayer in default in respect of claims recorded in the income tax return form. Holding the appellant as taxpayer in default is devoid of any legal sanction behind it but also it is a transgression which cannot be approved"... "... all this gross misuse of the provisions of law and recklessness cannot stand the test of appeal"... "As such, the entire demand under section 161 is found to have been created purely on guess work and presumption. For these reasons, the impugned order under section 161 is not sustainable."

8. The AR further contented that the order under appeal is contrary to the directions of superior appellate authorities. At the same time the AR also argued that the appellant already faced the cumbersome round of proceedings at the first stance and duly fulfilled its statutory obligations under section 161 of the Ordinance by filing comprehensive written version vide letter dated 30-8-2013 duly submitted to ACIR with cumbersome record of tax deductions, BTL/exempt payments, exemption certificate etc, therefore, another round would have meant that the appellant would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna [2002 PTD 407 (High Court)]. The Learned AR has also referred the reported verdicts of Honorable Supreme Court of Pakistan 1997 SCMR 524 and 1997 SCMR 1849.

9. Learned AR after concluding his arguments has prayed for vacation of order passed by learned CIR (Appeals) and annulment of order passed by ACIR. We have heard the arguments and perused the record. We find that the contentions of the AR are forceful. Complete supporting documents were duly submitted in compliance with the proceedings initiated under section 161 by the ACIR and all the queries raised by the ACIR were duly explained vide letter dated 30-8-2013 but the ACIR acted illegally and arbitrarily. In view of entire scenario and discussions made above, we are of the considered opinion that the appellant has duly discharged its statutory obligation by filing all the requisite details and supporting documents and addressed the queries raised in this respect on 30-8-2013. ACIR by misconstruing the law has proceeded to hold the appellant as taxpayer in default in respect of claims recorded in the income tax return form. Holding the appellant as taxpayer in default is devoid of any legal sanction behind it but also it is a transgression which cannot be approved at appellate fora, which has no legal existence at all. Even the show-cause notice is not legally valid and thereafter mode of assessment adopted by the ACIR to charge tax on total receipts after deducting profit on presumed flimsy basis and applying rate of tax @ 6% on balancing figure of contract receipts disclosed in the income tax return, all these recklessness cannot stand the test of appeal. Being a vigilant and efficient IRS official, as a matter of fact, it was the duty of the ACIR to identify the names and addresses of the parties or persons from whom and how much the tax was to be deducted out of details/documents/record presented by the appellant vide letter dated 30-8-2013 but he opted otherwise and raised a flimsy demand of tax, which has not legs to stand the test of appeal. This bent of mind at the part of ACIR reflects poor appreciation of law and facts which being based on surmises and stock phrases does not find place in the Income Tax Ordinance, 2001. Any order passed without highlighting such vital details, levy of tax on guess work has been reprimanded by the higher appellate fora. In our conclusive view ultimate fate of order in question passed by ACIR is nothing but annulment by respectfully following the binding precedents reported as 2012 PTD 122, 2008 PTD 1227, 2008 PTD 787, Vol.10/7TF34, 1971 SCMR 681, 1997 SCMR 524, 1997 SCMR 1849, 2002 PTD 407 (High Court), 2003 PTD 593.

10. After carefully examining the provisions of sections 161 and 153 of the Ordinance, we agree with the arguments of the AR that without identifying names and addresses of the parties or persons from whom and how much tax was to be deducted, provisions of section 161 could not be invoked, where taxpayer has duly submitted complete data/record/ documents. In the instance case data/record with supporting documents were provided vide letter dated 30-8-2013. It appears that ACIR was in surreptitious frame of mind and could not appreciate that the tax referred to be deducted under section 161 has to be of some identified taxpayer/ person and a taxpayer can be declared personally liable only after establishing that he was a withholding agent, who failed to withhold the tax from a transaction, liable to such tax. In this case details and documentary evidence about the transaction in question was disbelieved and discarded by the ACIR for his own flimsy reasons, which is mal-administration of justice at the part of ACIR. He intentionally misunderstood the spirit of section 161 of the Ordinance. He could only see whether withholdings, as per return and statutory statements, were made or not escaped taxation. It is reiterated that no transaction can be held to have escaped deduction under section 161, unless it is established that, (i) taxpayer is a withholding agent, (ii) a particular transaction is liable to deduction/withholding and (iii) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section

161. Subsection (2) declares that a person held personally liable under section 161(1) shall be entitled to recover the tax from the person, from whom the tax should have been collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person whose tax was not collected or deducted and without identifying the amount of such tax. Show-cause notice issued by ACIR also found vague, having no effect in the eyes of law and does not stand the test of appeal.

11. Keeping in view the above narrated facts and law and examining the available record, we have no hesitation in holding that action of the ACIR is not sustainable in the eyes of law, hence, mode and method of withholding tax default charged under section 161 is disapproved. The ACIR's intervention under section 161 is fatally flawed. It is riddled with grave, multiple defects from a legal standpoint. The order framed lacks the required nexus with the lawful proceedings under section

161. It is bereft of proper objective basis necessary to sustain the action taken. The invocation of section 161 without specifying/highlighting the deficiencies in withholding tax deduction is legally indefensible when complete data/record was presented. The allegation against the appellant is both outlandish and baseless, however the grave defects in the order have made no impression on the learned CIR(Appeal), rather, he has gone a step further and has mobilized evidence against the appellant by remanding back the case to ACIR for fresh proceedings to pass speaking order solely to give another chance to fill up the lacunas and covering his negligence and incompetency while framing order under sections 161/ 205.

12. Before parting with the judgment we would like to record our observations that the conduct of ACIR is violative of law. It may be noted that under the Constitution all functionaries of the Government are expected to work within the permissible norms of law and justice and where law has been properly interpreted by the superior forums, undue and harsh action by the functionaries against a taxpayer speaks volume of mala fide on the part of functionaries as a flagrant violation of law and procedure. There is a plethora of authorities on this point from the superior appellate fora. The action of the learned CIR (Appeals) as well as ACIR is highhanded and illegal. For the reasons recorded supra we have no hesitation in holding the appeal commissioner's remand order to be squarely in conflict with statutory stipulation and applicable binding verdicts of higher appellate fora, it must therefore, be struck down decisively. Resultantly, orders passed by both officers below CIR(Appeals) and ACIR are therefore, held to be illegal, hence ordered to be vacated and annulled respectively, being without lawful authority and overstepping the lawful jurisdiction vested with IRS authorities.

13. As a consequence common issue raised in the cross appeals against the remand order passed by the learned CIR (Appeals) stands resolved because it is correct that under the given facts and circumstances of the case as narrated by the learned Appeal Commissioner, he was not legally justified to remand the void order passed by ACIR, however, issue has been dilated upon by us in the aforementioned paragraphs. Resultantly appeal filed by the taxpayer succeeds and cross appeal filed by department is dismissed being without any merits.

14. The cross appeals are disposed of in the manner and to the extent as cited supra. CMA/37/Tax(Trib.) Order accordingly.