2021 PLP (Trib (PTD)

ZAHID SIKANDAR, JUDICIAL MEMBER.

The titled appeal has been filed by the department against the Order No.5454 dated 19.12.2013 passed by the Learned Commissioner Inland Revenue (Appeal), Faisalabad wherein the Learned Commissioner (Appeals) deleted the disallowance of expenses under section 21(c) of Income Tax Ordinance, 2001 (hereinafter, referred as "ITO") @ Rs.47,73,341/- and also directed the department to give credit of tax paid at Rs.17,59,486/- after due verification.

2. The grounds of the instant appeal as set forth in the memo. of appeal and contested by the appellant CIR are as under: i. That the order passed by the Learned Commissioner Inland Revenue (Appeals) is bad in law and against the facts of the case. ii. That the Learned Commissioner Inland Revenue (Appeals) was not justified in terms of section 128(5) of the Income Tax Ordinance, 2001 to admit the evidence which was produced before the Additional Commissioner Inland Revenue, during the amendment proceedings. iii. That the Learned Commissioner Inland Revenue (Appeals) was not justified to delete the disallowance of Rs.4,773,341/- under section 21(c) of the Income Tax Ordinance, 2001 on account of advertisement and sales promotion expenses. iv. That the Learned Commissioner Inland Revenue (Appeals) was not justified in holding that, interest of WPPF was not liable to tax deduction under section 151 of the Income Tax Ordinance, 2001. v. That the Learned Commissioner Inland Revenue (Appeals) was not justified to delete the disallowance of Rs.16,617/- under section 21(c) of the Income Tax Ordinance, 2001, on account interest on workers profit participation fund.

3. Brief facts of the case are that the respondent/taxpayer is a private limited company doing business of manufacturing and sales of textile goods. Initially, the taxpayer company filed its return for the tax year 2007 on 14.01.2008 declaring net income of Rs.48,47,069/- but later on the taxpayer revised its return and declared loss of Rs.1,73,30,971/-. The case of the taxpayer company was selected for Audit and the taxpayer filed revised return declaring loss of Rs.1,00,00,000/-. The Learned assessing officer considering the deemed assessment under section 122(3) erroneous sent notice bearing No.692 dated 17.06.2013 and confronted the taxpayer company with the following reasons: "

1. The perusal of your record indicates that tax depreciation was claimed at Rs.15,293,777/- in the return dated 14.01.2008 however the same was claimed at Rs.37,471,817/- in the revised return dated 02.02.2009. No schedule of tax depreciation as required under Rule 12 of the Income Tax Rules, 2002 was annexed with the revised return to justify the claim of tax depreciation.

2. The perusal of record indicates that you have claimed expense on account interest on WPPF at Rs.16,617/-. But no deduction of tax under section 151 has been made. Therefore, the claim is not admissible in view of provisions contained in Section 21(1) of the Income Tax Ordinance, 2001.

3. The perusal record reveals that you have claimed advertisement and sale promotion at Rs.4,773,341/-. As per section 156 of the Income Tax Ordinance, 2001 you were required to deduct tax @ 20% on the amounts paid on account of sale promotion. But the deduction of tax under section 156 is not established from your record. Therefore, the expense is inadmissible in view of Section 21(c) of the Income Tax Ordinance, 2001." The taxpayer company submitted its reply/contentions as follows: "

1. The instant proceedings are time barred in view of provisions contained in section 122(4) of the Income Tax Ordinance, 2001.

2. The Additional Commissioner (IR) cannot initiate the proceedings under section 12(5A)."

4. After hearing the taxpayer, the assessing officer turned down the legal objections with regards to limitation and initiation of provisions by the Additional Commissioner. The Learned officer held that the amended assessment of the taxpayer was within time and not time-barred and the amendment in section 122(2) vide Finance Act, 2009 has increased the limitation for the assessment of the taxpayer and the time period after the amendment in Finance Act, 2009 stood extended till 30.06.2013 for the instant case. The other objection of the taxpayer regarding the powers exercised by Additional Commissioner was also rejected by the learned assessing officer after referring to various case laws given by the apex courts in which this issue had already been settled in favour of the department.

5. On Merits, the Learned assessing officer observed that the expenses fell under the ambit of interest therefore taxpayer was required to deduct tax under section 151 of ITO but failed to do so hence, expenses claimed were inadmissible under section 21(c). He further held that the taxpayer failed to corroborate its expenses with evidence under the Heads of 'Advertisement' and 'Sales Promotion' and also did not provide evidence of tax deduction. Resultantly, the Learned ACIR amended the revised return of the taxpayer as under vide order dated 30.06.2013. Declared Loss in the revised return (10,000,000) Ad inadmissible expenses on account of WPPF 16,617 Inadmissible advertisement and sale promotion expenses 4,773,341 Balance loss (5,210,042) In view of above loss, the turnover tax charged as under:- Business turnover 293,877,826 Tax @0.5% 1,469,389 Less tax paid 1,469,389 Balance payable

6. The respondent taxpayer company filed an appeal under section 127 before the Learned CIR (Appeals) against the order dated 30.06.2013 passed by the Learned ACIR. The Learned Commissioner after perusing the record/evidence submitted by the Learned AR held that the payments to all parties fell below the taxable limit and tax was not required to be deducted and the Learned ACIR also misunderstood the nature of expenses as services rendered rather it was in the nature of supply of goods. Hence, the default of non deduction of tax did not attract the provisions of section 21(c) of ITO. The Learned Commissioner deleted the disallowance of expenses amounting to Rs.47,73,341/-. The Learned Commissioner (Appeals) also deleted the addition of Rs.16,617/- under section 21 under the Head 'interest on workers profit participation fund' being exempt. Hence, this second appeal has been filed by the CIR.

7. The Learned AR on behalf of the respondent taxpayer at the start of arguments submitted that the amended assessment by the Learned ACIR in the instant case was time barred. The ground of limitation was rejected by the Learned assessing officer. He further submitted that since the amended assessment was time barred therefore the instant second appeal is liable to be dismissed on this score only. On merits, the Learned AR supported the order and submitted that the Learned Commissioner (Appeals) was provided all the evidence with regards to the payments in issue and the Learned Commissioner after perusing all the record furnished before him has rightly deleted the disallowance of expenses in various Heads enumerated in the order. The Learned DR vehemently contested that the amended assessment was within time keeping in view the amendment in section 122(2) vide Finance Act, 2009 and the Learned Commissioner has passed the impugned order against the law and facts of the case.

8. We have heard the learned representatives from both the sides and have also perused the impugned order as well as the order passed by the Learned ACIR.

9. The issue of limitation has been agitated by the respondent taxpayer company throughout. The Learned Commissioner (Appeals) though decided the appeal in favour of the taxpayer on merits but did not discuss the issue of limitation despite being agitated. Before going into the merits of the case, we consider it appropriate to dilate upon the issue of limitation with regards to amendment in assessment under section 122 after the promulgation of Finance Act, 2009.

10. The respondent taxpayer company filed its return for the tax year 2007 on 14.01.2008 but later on revised its return on 16.07.2009. In the year 2008 before the promulgation of Finance Act, 2009, the limitation to amend the assessment by the commissioner under section 122(2) was five years from the date of assessment. The previous relevant section is reproduced as under: "Section 122(2) An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer"

11. This section was amended in the year 2009 vide Finance Act by virtue of which the commissioner may amend the assessment order till the end of the financial year of the last fifth year of the assessment order. The present section 122(2) of ITO, 2001 is as follows: "Section 122(2). No order under subsection (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer."

12. In case of any amendment in the assessment by the taxpayer, the commissioner under section 122(4) may further amend the assessment order within five years (from the end of the financial year in which) the commissioner has issued or is treated as having issued the original assessment order to the taxpayer or one year (from the end of the financial year in which) the commissioner has issued or is treated as having issued the amended assessment order to the taxpayer whichever is later.

13. The issue of amendment in section 122(2) in the Finance Act, 2009 has been discussed in detail by the Hon'ble Supreme Court in the case titled Additional Commissioner (IR) v. Eden Builders reported in 2018 SCMR

991. It was held by the apex court that the amendment in section 122(2) ITO vide Finance Act, 2009 is not retrospective and taxpayers who filed returns before 30.06.2009 would be governed by the Section 122(2) as it stood before the amendment.

14. The Learned DR has vehemently contested that since the assessment was revised by the taxpayer after the promulgation of Finance Act, 2009 i.e. on 16.07.2009 therefore the time limitation is to be taken from the present section which is till the ending of the financial year and the assessment order under section 122(5A) dated 30.06.2013 by the Learned ACIR is within time. We are afraid that this argument of the Learned DR also does not hold water as it is the well recognized principle of law that once time begins to run from a specified date it cannot be interrupted or extended unless the legislature intervenes and makes express provisions to the contrary. Reliance is placed on PLD 1963 SC

322. No specific provision exists in this case extending the limitation. The Hon'ble Supreme Court in a case titled as Khushi Muhammad v. Fazal Bibi reported in PLD 2016 SC 872 held that the intention of the law of limitation is not to give a right where there is not one, but to interpose a bar after a certain period to a suit to enforce an existing right. The limitation in the instant case started from the date of filing of initial return i.e 14.01.2008 under the then provisions of section 122(2) which was to expire on 13.01.2013. By just filing a revised return on 16.07.2009 after the Finance Act, 2009 the limitation to amend the assessment order by the commissioner does not stand extended by virtue of that amendment and that too without any express provision in this regard. Moreover, once the assessment attains finality at the expiry of the limitation, vested rights accrue in favour of the taxpayer which cannot be snatched away through procedural law. The Assessing officer amended the assessment order after 5 months beyond the time limitation and is therefore not maintainable under the eye of law being hit by the doctrine of limitation.

15. Even on Merits the appellant failed to establish before this Bench that the disputed expenses by the respondent were not below taxable limit and are in the nature of services and not supply of goods. The record reflects that expenses were incurred on supply of sample books, posters, hanger cards, advertising pads etc for advertisement purposes which fall in the category of supply of goods and not services. Hence, the Learned Commissioner rightly held that the provisions of section 21(c) in the instant case are not attracted. The addition under section 21(c) under the head 'interest on Workers Profit Participation Fund' due to non-deduction of tax under section 151(1)(d) was also rightly deleted by the Learned CIR on account of interest being 'exempt'.

16. In view of above discussion, the instant appeal is dismissed and the order dated 19-12-2013 passed by the Learned CIR (Appeals) is upheld.

17. Order accordingly. SA/77/Tax (Trib.) Appeal dismissed.