2010 PLP (Trib (PTD)

This appeal has been filed by the Department against order of the learned CIT(A) vide No.56 dated 26-2-2010 for Tax Year, 2004. The grounds of appeal filed by the Department are reproduced below: (1) That the order passed by the learned Commissioner Inland Revenue (Appeals) is bad in Law and contrary to the facts of the case. (2) That the learned Commissioner Inland Revenue (Appeals) has erred in holding that the exercise of jurisdiction under section 221 of the Income Tax Ordinance, 2001 tantamount to change of opinion whereas the computation mistake was apparent from the record. (3) That the learned Commissioner Inland Revenue (Appeals) was not justified in observing that provision of section 221 of the Income Tax Ordinance, 2001 on account for proration of expenses are unwarranted whereas the aforesaid provision was invoked to rectify the computation mistake floating in the order under section 122(5A) of the Income Tax Ordinance, 2001. (4) That the learned Commissioner Inland Revenue (Appeals) has erred in relying on the decision for tax year, 2005 since every year is an independent year. Moreover, the order relied upon was annulled by the Appellate Tribunal Inland Revenue. (5) That the appellant craves for permission to add after or amend all or any of the ground(s) of appeal on or before the time of hearing of appeal."

2. On the date of hearing the Department was represented by Dr. Abdul Sattar Abbasi as DR while the taxpayer was represented by Mr. Shahid Jamal Tax Consultant.

3. Brief facts of the case as transpired from the record are that in this case original deemed assessment under section 120 was amended by Additional Commissioner under provisions of section 122(5A) vide DC, No.03/02 dated 24-10-2005. His successor Additional Commissioner after examination of a case record came to the conclusion that the amendment under section 122(5A) was erroneous and prejudicial to the interest of revenue on the ground that proration of expenses made by his predecessor Additional Commissioner was not according to law. Accordingly a show-cause notice was issued to the Taxpayer with the intention to rectify the order of his predecessor under provisions of section 221 read with section 122(5A) of the Income Tax Ordinance, 2001. The Taxpayer contended that the order was amended by the Additional Commissioner under section 122(5A) and the then Additional Commissioner after conscious application of mind had come to the conclusion that expenses will be allocated to overall income as under: Business Dividend Capital gain 47% 39% 14%

4. It was contended by the Taxpayer that the proposed action under provisions of section 221 read with section 122(5A) by the Additional Commissioner would tantamount to change of opinion which is not permissible under the law. It was contended, that there is no mistake floating on the surface of the record therefore the proposed action of the Additional Commissioner is beyond his jurisdiction. Reliance was placed on following case laws. (a) 1992 SCMR 687 1992 PTD 570 and (b) 1999 PTD 850

5. The Additional Commissioner however, did not agree to the contention of the Taxpayer and proceeded to rectify the order under provisions of section 221 read with section 122(5A) and again prorated the expenses vide his order dated 24-11-2009.

6. Being aggrieved the Taxpayer filed appeal with the learned CIT(A) who decided the issue in favour of the Taxpayer vide his impugned order reproduced below: "The arguments advanced by the learned AR of the appellant are considered and impugned order perused. The contention that action under section 221 of the Income Tax Ordinance, 2001 was illegal as there was no mistake "floating on the surface of record", in terms of the judgment of the honourable Supreme Court reported as 1992 SCMR 687 = 1992 PTD 570 and honourable High Court of Sindh cited as 1991 PTD 580 an issue which was earlier dilated upon through amended order dated 12-9-2005 under section 122(5A), is well founded. In the circumstances, jurisdiction exercised under section 221 tantamounts to `change of opinion', which is not permissible under the law as was held by the learned ITAT vide ease-law reported as 2004 PTD (Trib.) 1104. Moreover, the perusal of the record reveals that on identical grounds appeal for the tax year, 2005 preferred by the appellant was allowed vide order, dated 15-7-2009, which in the appellant's own case, on further appeal also stands endorsed by the learned ITAT vide ITA. No. 715/KB/2009 Tax Year, 2005 dated 4-1-2010. Therefore, I have no hesitation to hold that the issue in hand was subject-matter of amended order passed under section 122(5A) of the Income Tax Ordinance, 2001 which was accepted by the department in the light of explanation offered and reasons mentioned therein. Since admittedly the majority of expenses incurred are held to be fixed in nature and are required to maintain/running the brokerage house, the proration of the same by invoking the provisions of section 221 of the Income Tax Ordinance, 2001 is unjust and unwarranted. Hence following the dictum laid down by the learned ITAT in the appellant's own case quoted supra the concerned Officer Inland Revenue is directed to allow the same accordingly. The appeal stands disposed off as indicated above."

7. Being aggrieved, with the order of the learned CIT(A), the Department has come in appeal before this forum..

8. During proceedings before this court the learned DR contended that there was a computation mistake in proration of expenses made by the Additional Commissioner vide his order passed under section 122(5A) on 12-9-2005. It was argued that since mistake was floating on surface of record, the successor Additional Commissioner was justified to rectify the same under provisions of section 221 read with section 122(5) of the Income Tax Ordinance, 2001. The learned D.R. placed reliance on the honourable Tribunal order vide ITA No.715/KB-2009 dated 4-1-2010. The learned counsel of the Taxpayer however, submitted that the Additional Commissioner had prorated the expenses after conscious application of mind vide his order passed under section 122(5A) on 12-9-2005 and therefore, the subsequent order by the Additional Commissioner under section 221 read with section 122(5A) of the Income Tax Ordinance, 2001 dated 24-11-2009 is nothing else than change of opinion which is not permissible under the law. The learned counsel for the taxpayer relied upon the judgment of the Supreme Court of Pakistan in the case of T.S. Balaram Income-Tax of Circle IV, Bombay v. Volkart Brothers and others wherein on the scope of rectification their Lordships observed as under:-- "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record."

9. On the facts of the case the learned counsel for the Taxpayer contended that majority of expenses incurred are fixed in nature and are required for running the brokerage house and therefore the proration of these expenses is unwarranted. In this context the learned counsel highlighted the following expenses. Legal Charges 13,520,017 NCSS 1,357,967 SECP tramation fee 2,804,008 CDC Charges 3,897,028 Bank Mark-up 11,221,396

10. We have heard to the rival arguments of both the parties, have perused the case record including order of the Taxation Officer and impugned order of the learned CIT(A) our findings are as under.

11. We have perused the ITAT order quoted supra in the case of the Taxpayer for tax year, 2005 and we are surprised to note that the Department in ground No.4 has contended that the learned CIT(A) has erred to place reliance on the decision for tax year, 2005 as the decision relied upon was annulled by the Appellate Tribunal. Perusal of the said order of the Tribunal vide I.T.A. No.715/KB/2009 dated 4-1-2010 would reveal that the order of the learned CIT(A) who had annulled the order of the Taxation Officer was upheld therefore the assertion of the Department raised in the ground No. 4 is totally in contradiction to the facts of the case. Reliance placed by the department being misplaced is therefore rejected.

12. In the instant case since the first amended order has been passed by the Additional Commissioner vide his order under section 122(5) on 12-9-2005 and therefore, his successor Additional Commissioner cannot amend the same order on the same issue of proration of expenses under provisions of section 221 read with section 122(5A) of the Income Tax Ordinance, 2001. Contention of the learned DR that only computational mistake has been rectified is not correct as the successor Additional Commissioner has given a different treatment to proportion of expenses as compared to the treatment given by his predecessor Additional Commissioner in the first amended order. We under the circumstances hold that Additional Commissioner vide his order dated 24-11-2009 under section 221 read with section 122(5A) of the Income Tax Ordinance, 2001 has not corrected computational mistake but has made a substantial change in the method of proportion of expenses which does tantamount to change of opinion. We therefore hold that the action of the Additional Commissioner under provisions of section 221 read with section 122(5A) is beyond his legal jurisdiction. Reliance is placed on judgment of the honourable Supreme Court of Pakistan reported as 2008 SCMR 204 = 2008 PTD

253. Their Lordships while discussing the facts of the case reproduced the question of law referred to the High Court as under: "Whether the learned Income Tax Appellate Tribunal was right to hold that the original order passed by the Deputy Commissioner of Income Tax under section 62 of the Income Tax Ordinance, 1979 allowing freight expenses had not recorded any finding on the issue and was not a conscious decision and therefore, there arises no question of change of opinion and thus provisions of section 156 of Income Tax Ordinance, 1979 could be invoked?" In this case the honourable High Court gave the judgment against the revenue and honourable Supreme Court of Pakistan vide cited decision agreed with the decision of the honourable High Court. Their lordships in their judgment observed as under:

"We have considered the provisions of law on the subject discussed by the High Court to its judgment and perused the record. We have not been able to find out any defect in the impugned judgment and do not agree with the contention of the department that scope of section 156(1) of the Ordinance can be enlarged to all errors of law and facts committed in the assessment."

13. Keeping in view the above facts of the case and legal position we are of the considered opinion that the action taken by the learned Additional Commissioner under provisions of section 221 read with section 122(5) of the Income Tax Ordinance, 2001 vide his order dated 24-11-2009 was a change of opinion and therefore was without legal basis and lawful authority therefore we see no reason to interfere in the impugned order of the learned CIT(A) annulling the same. Accordingly impugned order of the learned CIT(A) is maintained. Since the action taken by the Additional Commissioner has been declared illegal and without lawful authority we need not discuss the facts of the case.

14. The appeal filed by the department therefore, stands dismissed. H.B.T./163/Tax(Trib.) Appeal dismissed.