2010 PLP (Trib (PTD)

Above captioned appeal has been filed by the department against the impugned order dated, 25-11-2009, passed by the Commissioner Inland Revenue (Appeals-I) Zone-I Karachi on the following grounds:-- (2) That the learned Commissioner (Appeals-I) Inland Revenue was not justified to hold that the proper opportunity was not provided to the appellant while proper opportunities were provided as mentioned on page 2 of order of the Taxation Officer. (3) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting the recovery of tax under section 161 of the Income Tax Ordinance, 2001 on account of advertisement expenses of Rs.1,935,427 when no exemption certificate was available to payees. (4) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting tax recovery of Rs.31,118 on account of payment made for local purchase. (5) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting recovery of tax on advance to suppliers amounting to Rs.87,880. (6) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting recovery of tax on Commission and Security Expenses amounting to Rs.262,983. (7) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in directing to rectify the order under section 221 of the Income Tax Ordinance, 2001 when rectification was refused as is observed by CIR (Appeals-I) on Page 11 and no separate appeal is filed against such refusal as is required under section 128(1). (8) Without prejudice to ground No. 7 above, the learned Commissioner (Appeals-I), Inland Revenue, Karachi was not justified in directing to rectify the order when no ground of appeal has been filed against refusal under section 221. (9) That the learned Commissioner (Appeals-I) Inland Revenue was not justified in accepting the additional evidence of reconciliation under Rule 44(4) without observing the requirement of section 128(5). "

2. Mr. Tariq Hussain Tunio, D.R., learned representative of the department vehemently argued that the learned Commissioner Inland Revenue (Appeals-I) was not justified to hold that the proper opportunity was not provided to the appellant while proper opportunities were provided as mentioned on page 2 of order of the Taxation Officer. He further argued that the learned Commissioner Inland Revenue (Appeals-I) was not justified in deleting the recovery of tax under section 161 of the Income Tax Ordinance, 2001 on account of advertisement expenses of Rs.1,935,427 when no exemption certificate was available to payees. According to him learned Commissioner Inland Revenue (Appeals-I) did not justify in deleting tax recovery of Rs.311,118 on account of payment made for local purchase and did not justify to delete recovery of tax on advance to suppliers amounting to Rs.87,

880. He argued that the learned Commissioner Inland Revenue (Appeals-I) was not justified in deleting recovery of tax on Commission and Security Expenses amounting to Rs.262,

983. He further argued that the learned Commissioner Inland Revenue (Appeals-I) was not justified in directing to rectify the order under section 221 of the Income Tax Ordinance, 2001 when rectification was refused as is observed by CIR (Appeals--I) on Page 11 and no separate appeal is filed against such refusal as is required under section 128(1). According to him, the learned Commissioner Inland Revenue (Appeals-I) was not justified in accepting the additional evidence of reconciliation under Rule 44(4) without observing the requirement of section 125(5).

3. On the other hand, Mr. A. M. FCA supported the order passed by learned CIR(Appeals-I), Karachi.

4. We have considered the arguments advanced by both the representatives and perused the relevant record.

5. A perusal of the record shows that the principle of audi alteram partem was not followed. The taxpayer submitted sufficient evidence which were not considered by the Assessing Officer.

6. FATE OF RECTIFICATION APPLICATION During the currency of this appeal, the taxpayer had applied for rectification which application was turned down by the Department; in turn he had appealed against the order in the main appeal.

7. Although the CIR(A) had discussed the entire rectification in the original order but failed to mention the heading of the rectification appeal. The taxpayer again filed appeal for this specific purpose. This was disposed of by CIR(A) on 15-4-2010 as follows: "In these circumstances the request of the appellant's AR is acceded to as issues raised in the present appeal against rejection of rectification application of the appellant under section 221 of the Ordinance have already decided in the original appeal vide Order No. 215 dated 25-11-2009. The instant appeal is dismissed being infructuous." The above facts are discussed here for bringing on record the entire perspective. In the main appellate order dated 25-11-2009 the CIR(A) had issued certain instructions for rectification which were later on complied with by the department as per evidence provided by AR. The following is the resultant appeal effect:-- "The taxpayer has also provided a schedule of actual Payments made during the year against the above heads, as under:-- Gross amount of Purchases. Stores and Spares and 1,191,644,568 Repair and Maintenance 183,423,749 Less: Purchases from Comm. Importers and Exempt 176,792,655 parties 61,070 (Exemption Certificates produced) Accounts Payable out of Purchases Payment below taxable limit Payments (on which tax deducted and paid) 831,367,094 Amount of tax deducted and deposited against above 30,195,074 heads

3. This schedule was examined in the light of Reconciliation of payments on account purchases of raw material, stores and spares and repair maintenance, filed under Rule 44(4) found in order.

8. Now coming to the main issue relating to the appeal the DR agitates against the relief allowed by the CIR(A) the same is taken up issue-wise as under: Ground No 2 -- Affording of Proper Opportunity "That the learned Commissioner (Appeals-I) Inland Revenue was not justified to hold that the proper opportunity was not provided to the appellant while proper opportunities were provided as mentioned on Page-2 of order of the Taxation Officer" DR has contended that the CIR(A) was not justified to hold that the proper opportunity not provided to the taxpayer. We have gone through the record and are of the unanimous opinion that the taxpayer was not given proper opportunity of explaining his position which is evident from the assessment which was framed without issuing proper show-cause notice specifying the exact intention of the Assessing Officer in quantifying the exact amount of default. We support the contention of the Appellate Commissioner for the reason recorded in his order. Accordingly the plea of department is rejected.

9. Ground No.

3. That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting the recovery of tax under section 161 of the Income Tax Ordinance, 2001 on account of advertisement expenses of Rs.1,935,427 when no exemption certificate was available to payees. Now taking the next ground of appeal which relates to the monitoring of withholding tax under the head advertisement expenses purported to be Rs.1.9(M). This comprises of two components (a) exemption certificate (b) sales tax on services.

10. We find that the CIR(A) was justified in ordering to delete the entire amount of Rs.193,5427. We find that the AR has already submitted the necessary details along with rectification application; as such there was no need of recovering this amount. Accordingly, we hold that the departmental appeal fails on this score. (11) Ground No.4-Recovering of tax under the head Local Purchase. That the learned Commissioner (Appeals-I) Inland Revenue was not justified in deleting tax recovery of Rs.31,118 on account of payment made for local purchase. The sum of Rs. 31,118 was recovered by the Assessing Officer. We find ourselves in agreement with the findings of the CIR(A) who order to delete the said incorrect levy on account of payment made by the appellant to commercial importers which was levied by the Assessing Officer on the pretext with the taxpayer failed to submit undertakings from these importers. These were duly furnished before the Assessing Officer. Therefore the departmental appeal also fails here. (12) Ground No.5-Advance to Suppliers That the learned Commissioner (Appeal-I) Inland Revenue was not justified in deleting recovery of tax on advance to suppliers amounting to Rs.87,

880. While ordering to delete the said addition the CIR(A) has observed as follows:-- "The AR of the appellant-company contested the recovery of tax 87,880 on the ground that Taxation Officer has erred in treating two different suppliers as one and recovered tax treating them a service provider. The AR explained that there are two different suppliers by the name of "Al Aqsa" one is supplier and other is contractor. Both the suppliers have been separately stated in annual statement under section

165. Copy of annual statement submitted clearly reveals this fact hence the action taken by the Taxation Officer is not maintainable, therefore, deleted. We find ourselves in consonance with the findings of CIR(A), the departmental appeal being devoid of material basis: is hereby rejected on this score. (13) Ground No. 6 -- Tax on commission and security expenses. That the learned Commissioner (Appeals-I) Inland Revenue was f not justified in deleting recovery of tax on commission and security expenses amounting to Rs.262,

983. The facts obtaining on record clearly suggest that the findings of CIR(A) are legally valid. Therefore, we uphold the same and departmental appeal fails on this count. (14) Ground No. 7 "That the learned Commissioner (Appeals-I) Inland Revenue was not justified in directing to rectify the order under section 221 of the Income Tax Ordinance, 2001 when rectification was refused as is observed by CIR(Appeals-I,) on Page 11 and no separate appeal is filed against such refusal as is required under section 128(1)." We have already disposed of the rectification issue. We find that the taxpayer did file another appeal separately and was decided on 15-4-2010. We find that CIR(A) did take cognizance of this issue as follows:-- "I have carefully examined the case record, the written arguments of the AR, the arguments by the learned AR of the appellant at the time of hearing and the facts of the case submitted during the original proceedings and the proceedings under rectification application." We have no hesitation in rejecting the departmental appeal on this specific issue for it is misconceived and contrary to the facts of the case. (15) Ground No.8 Without prejudice to Ground No.7 above, the learned Commissioner (Appeals-I), Inland Revenue, Karachi was not justified in directing to rectify the order when no ground of appeal has been filed against refusal under section

221. This ground of appeal is also knocked down for the reason discussed in the immediately preceding para. (16) Ground No. 9 That the learned Commissioner (Appeals-I) Inland Revenue was not justified in accepting the additional evidence of reconciliation under Rule 44(4) without observing the requirement of section 128(5)." Now, we take up the next ground of appeal which relates to the acceptance of the additional evidence of reconciliation under Rule 44(4) without observing the requirement of section 128(5). The AR of the taxpayer has adverted our attention to page 8 of Assessing Officer's order dated 18-9-2009, wherein he has stated that in case of details under Rule 44(4) are provided, the order would be rectified. The argument of the AR is forceful and we find that despite the fact that these details were provided to taxpayer for rectification on 21-10-2009; this request was turned down by the Assessing Officer, without assigning cogent reason. We find ourselves in agreement with the findings of CIR(A), who has directed that rectification order may be carried in the light of reconciliation filed under Rule 44(4). The departmental appeal has' no locus standi, thus it fails on this issue.

17. All and all the departmental appeal, as discussed above, being devoid of merits, is hereby dismissed.

18. The appeal succeeds as above. H.B.T./147/Tax(Trib.) Appeal dismissed.