2016 PLP (Trib (PTD)

This appeal at the instance of taxpayer is directed against the order dated 07-11-2013 of Commissioner Inland Revenue (Appeals-III), Islamabad which order has been passed in 1st appeal filed against the amended assessment order for the Tax Year 2010 passed under section 122(1) read with section 122(5) of the Income Tax Ordinance (hereinafter called the Ordinance) by the Deputy Commissioner Inland Revenue, Audit Unit-I (Zone-I), RTO, Rawalpindi.

2. Brief facts of the case are that the appellant taxpayer is an individual deriving income from the sale of machinery. Return of income for tax year 2010 was filed under section 113A declaring Turnover at Rs.2,089,645/-. The case of the taxpayer was selected for audit under section 177 of the Income Tax Ordinance, 2001 and he was required to produce books of accounts and related documents. In reply to show cause notice, the AR of the taxpayer produced some documents / books. The officer examined the documents / books of accounts filed by the taxpayer and found some discrepancies and therefore, proceeded to assess income of the taxpayer by addition in trading and profit & loss account 122(9) of the Ordinance in the following manner:-- Additions Trading account, as confronted through notice under section 122(9) dated 18-06-2012 Rs. 1,341,785/- Additions P&L account, as confronted through notice under section 122(9) dated 18-06-2012 Rs. 24,800/- Add: Income declared Rs. 225,700/- Net Taxable Income Rs. 1,592,285/- Income Tax on above Rs. 398,071/- Less: Tax deducted paid as per Annex-B Rs. 10,448/- Balance tax payable Rs. 387,623/-

3. The order passed by the Deputy Commissioner Inland Revenue, Audit Unit-I (Zone-I), RTO, Rawalpindi was challenged by the taxpayer before the 1st appellate authority on various grounds as reproduced in the impugned order. The CIR (Appeals-Ill), Islamabad vide appellate order dated 07-11-2013 remanded back the case to the assessing officer. The appellant taxpayer being dissatisfied with the treatment meted out by the 1st appellate authority has come up in 2nd appeal before this Tribunal on the following grounds:-- a. That the impugned order of Commissioner Inland Revenue (Appeals-Ill), Islamabad as well as the Amended Assessment Order passed by the Deputy Commissioner Inland Revenue (hereinafter referred as DCIR) under section 122(1) read with section 122(5) of the Income Tax Ordinance 2001 (hereinafter referred as Ordinance) are against the law and facts of the case. b. That selection of case for Audit by the Commissioner Inland Revenue was against the law and principles of Natural Justice. The same should have been declared null and void, by the CIR(A). c. That the proceedings initiated by the DCIR under section 122(9) read with section 122(1), without having any kind of definite information as required under section 122(5) of the Ordinance specifically regarding Sales, are illegal and without any jurisdiction. The same should have been declared void and without jurisdiction by the CIR(A). d. That the order of amendment passed by the DCIR under section 122(1)/(5) without having any information regarding concealment of Sales is unlawful and void in law being against the provisions of section 113A of the Ordinance. The taxpayer has filed the return on the basis of turnover tax as final taxation. The CIR(A) erred in law by not declaring the same as illegal. e. That action of the DCIR to estimate the taxable income by making disallowances out of trading and profit and loss expenses and to compute the tax payable thereon through invoking the provisions of the section 122 is against concept of turnover tax as provided in section 113A of the Ordinance. The CIR(A) instead of annulling such order has set-aside the assessment order which is unjustified. f. That without foregoing above contentions, the disallowance of cost of sales of Rs.1,341,785/- at the rate of 75% out of total claimed cost of sales of Rs.1,776,721/- was highly excessive and not justified. The CIR(A) instead of deleting the addition has remanded back the case which is unjustified, as the case is covered by the provisions of section 113A of the Ordinance. g. That disallowance of 50% of claimed profit and loss expenses under the heads Salaries helper, Traveling, Stationery, Entertainment, Chowkidara, Legal Charges and Misc expenses were highly excessive and not justified. Details/Evidence reproduced in support of declared version such as CNICs of Employees and salary schedule have altogether been ignored. The same should have been deleted by the CIR(A) in views of the provisions of section 113A of the Ordinance. h. That without prejudice to above, the Show Cause Notice issued as well as the Order passed by DCIR is void and without Jurisdiction. i. That appellant begs to alter or add more at the time of hearing.

4. Mr. Atif Waheed, Advocate AR appeared on behalf of the appellant while the Respondent was represented by DR Mrs. Nazia Zaib. Arguments of the representatives of both the parties have been heard.

5. Learned AR in his arguments supported the contentions as per grounds of appeal. According to him the CIR(A) was not justified to remand back the case to the assessing officer instead of annulling the order of amendment of assessment passed by the DCIR under section 122(1)/(5) of the Ordinance. Learned AR contended that the taxpayer filed the return under the Final Tax Regime as envisaged in the then provisions of section 113A of the Ordinance. Learned AR contended that the tax was paid as a Final Tax at rates specified in Divisions 1A of Part 1 of the 1st Schedule. According to learned AR there being no information or finding out any discrepancy as is evident from the acceptance of declared turnover, the passing of order under section 122(1)/(5) is totally unjustified and illegal. Learned AR further contended that initiating of Audit proceedings and framing of assessment under section 122(1)/(5) of the Ordinance without there being any definite information or pointing out any discrepancy in the declared version was illegal and void. Learned AR vehemently contended that the CIR(A) instead of setting aside the assessment on the issue of disallowance of Trading & Profit & Loss expenses should have annulled the order passed by the DCIR in an illegal manner.

6. Learned DR in his arguments defended the impugned orders. According to the learned DR the DCIR was justified in disallowing the expenses claimed under Trading & P&L A/c since the books of accounts were not produced by the taxpayer

7. Arguments of learned representatives of both the parties have been heard and facts of the case have also been considered. The taxpayer has filed return under Final Tax Regime (FTR) and paid turnover in accordance with the provisions of section 113A of the Income Tax Ordinance, 2001. The case of the appellant taxpayer for the year under consideration was selected for audit without any material basis. All the reasons given for selection of case for audit are mere assumptions and presumptions. The main and only objection relates to declaration of turnover on lower side which ultimately has not been disturbed and accepted as declared. In these circumstance there remained no justification for initiating audit proceedings as well as the proceedings under section 122(1)/(5) of the Ordinance. Hence the order passed by the DCIR is held to be legally as well as on merits not sustainable.

8. In case of return filed and tax paid on the basis of turnover under section 13A of the Ordinance i.e. under Final Tax Regime, no proceedings could be initiated under section 122(1)/(5) without there being any definite information attracting the provisions of section 111 or regarding the concealment of turnover. In the present case there was no such information available with the assessing officer. In such cases even the selection of case for audit without there being any information regarding the incorrect declaration of turnover is legally not justified. FBR vide C.No.4(36) ITP/2002 dated 05-10-2009 and C. No.1(162)/C-TPAJ(TY 2011)/2012-13/44856R dated 08-04-2013 has also issued directions for non selection and non carrying of audit proceedings in the case falling under, Final Tax Regime.

9. The nutshell of above discussion is that the selection of case of the appellant taxpayer for audit as well as the proceedings initiated and order passed under section 122(1)/(5) of the Ordinance are held to be illegal and void ab-initio. Hence both the orders passed by DCIR for Tax Year 2010 as well as the order dated 07-11-2013 of CIR(A) are hereby vacated.

10. The relief having been allowed to the appellant taxpayer on the above grounds, the remaining grounds are not need to be adjudicated. The appeal of taxpayer succeeds. MH/25/Tax(Trib.) Appeal allowed.