2011 PLP (Trib (PTD)

KHALID SIDDIQUI (ACCOUNTANT MEMBER).

Above captioned appeal has been filed by the department against the order, dated 12-12-2009, passed by the learned Commissioner Inland Revenue Service (Appeals) Karachi @ Hyderabad, on the following grounds: That the order passed by the learned Commissioner Inland Revenue (Appeals) Hyderabad is bad in law and against facts of the case. That learned Commissioner Inland Revenue (Appeals) Hyder abad has erred to delete the addition under section 111(1)(b) of the Income Tax Ordinance, 2001 (Un-explained investment) without observing the facts of the case. That learned Commissioner Inland Revenue (Appeals) Hyderabad is not justified to hold that closure of audit in the cases of other members of the same AOP out rightly goes in favour of the, identical case of appellant without observing the facts of the case.

2. Brief facts as recorded in the order are that the case of an AOP Messrs Subzazar Lawn was selected for audit. During the course of proceeding it was discovered that the AOP purchased a property in Latifabad Hyderabad wherein huge investment was involved which had been invested by the members of Association. The proceedings in the case of AOP were dropped while in the case of members initiated through selection of their (Individuals Members) cases for audit. The proceedings initiated were culminated in amendment of assessment under section 122(5) by making addition under section 111(1)(b) of the Income Tax Ordinance, 2001 which was challenged before the learned CIR(A), who vide his order dated 12-12-2009 deleted the addition on the ground that the `addition was made against the principle of quid pro quo. Dissatisfied with the treatment the department has preferred appeal before the Tribunal.

3. The learned D.R contested the order of learned CIR(A) and contended that he has deleted the addition without taking into account the facts available on record. He further contended with vehemence that a thorough and detailed deliberation was made by the Taxation 'Officer while making the addition but has been ignored by the learned CIR(A) which is not justifiable. He reemphasized department's stance on the strength of grounds of appeal.

4. The learned A. R on his turn contested the appeal on legal as well as factual grounds. He pleaded with same set of arguments which was presented before the Taxation Officer as well as learned CIR(A) during course of audit as well as appellate proceedings.

5. I have heard the two representatives and also perused the amended assessment order and the appeal order. Before dilating upon the findings of learned CIR(A) I deem it appropriate to highlight certain aspects of the order of Assessing Officer which carry serious legal implications.

6. It has been noted that amended assessment has been framed by the Assessing Officer under section 122(5)'of the Income Tax Ordinance, 2001. This has been done intentionally as would he evident from the perusal of relevant portion of the order of Assessing Officer .to be reproduced in the subsequent paras of this decision. Needless to emphasize here that/amendment of assessment by an Assessing Officer other than Additional Commissioner of the Income Tax, could either be made under section 122(1) or 122(4) of the Income Tax Ordinance, 2001 whereas an Additional Commissioner can amend an assessment under section 122(5A) of the Income Tax Ordinance, 2001 provided original assessment order is erroneous so far as it is prejudicial to the interest of revenue. Besides sub section (3) of section 122 authorises a taxpayer to amend the assessment in its own case finalized under section 120 by way of revising the return filed under section

114. There is no other provision in section 122 under which an assessment could be amended by a Taxation Officer. I am of the considered view that subsection (5) of section 122 is not a provision to amend an assessment order. It only sets out the criteria under which an officer can amend an assessment by invoking the provisions of subsections (1) and (4) of section

122. Thus subsection (5) of section 122 does not constitute a legal authority to amend an assessment. An assessment as indicated C above can only be amended by an officer either under subsections (1) and (4) or (5A) of section 122 of the Income Tax Ordinance, 2001. Therefore, action of the Assessing Officer in the instant case to amend the assessment order by invoking the provision of section 122(5) is ab initio, void and illegal, hence not sustainable in the eyes of law.

7. The order of Assessing Officer further shows that taxpayer income tax affairs for the tax year 2004 were taken up for audit. However amendment has been made in the order of the tax year' 2008 that too without issuance of show-cause notice in respect of that year. The order of the Assessing Officer does not show that he was delegated powers to amend assessment for the tax year 2008. Therefore, his action to amend the assessment order for tax year 2008 is without jurisdiction and patently illegal.

8. The conclusion as above drawn by me is very well supported by the following discussion made by the Assessing Officer in paragraphs 40, 41, 42, 46 and 47 of his order. Same are reproduced here under for the sake of convenience and reference:- "

40. On 16-09-2009 the taxpayer was served statutory notice under section 122(9), ibid for amendment assessment under section 122(5), read with section 111(l)(b), ibid. The taxpayer was required to submit any explanations supported by documented evidences. (41) On 25-9-2009 the taxpayer submitted reply. The taxpayer has stated that (para-wise):-- (i) Proceedings under section 122 is nullified reasoning that no subsection was mentioned thereby. (ii) IAC has no jurisdiction to pass order under section 122(5A). In this respect the taxpayer has referred to a decision by Hon'ble Income Tax Appellate Tribunal Lahore Bench. (iii) The Commissioner has no powers to select the case audit under section 177(4) ibid. In this respect, the taxpayer has referred to a judgment by the Hon'ble LHC, 2009 PTD (1507). (iv) Explanation have been submitted earlier, and (v) Tax year 2008 is not the particular year for amendment of assessment. (42) The above points raised by the taxpayer are discussed below: (i) The assessment is amended or further amended in the light of provisions of three subsections of section 122 ibid. Firstly the amendment made by the' taxpayer himself by revising this income. This has not happened secondly, the amendment by the Additional Commissioner of Income Tax, in case of erroneous assessment. This situation is also not related with the case under discussion. Finally, the only subsection left is 122(5), ibid, to amend the assessment. The taxpayer cannot be ignorant of the fact that since long time his case has remained under audit proceedings. Further, referral to the provisions of section 111, ibid, regarding amendment might have erased any doubt in this respect. (ii) The IAC has never intended to pass order under section 122(5A), or communicated the same to the taxpayer. Therefore, this point is irrelevant to the case under discussion. (iii) The referral to the Hon 'LHC's judgment that the Commissioner cannot select case for audit under section 177(4) ibid again lacks proper forum to be taken with. The taxpayer knew well that the under signed has been assigned only to conduct the audit proceedings. Any matter regarding selection of the case for audit should have been dealt with Commissioner of Income Tax Audit Division. (iv) The taxpayer's contention that he has already submitted relevant information details in support of his point of view. The same are unsatisfactory on the basis of examination and conclusion made above. (v) The contention that tax year for amendment is not the particular year. The A.R of the taxpayer was well aware of the fact (during the proceedings the same was discussed with him verbally many times) that issue of source capital investment in the AOP was the main focal point of the audit proceedings. Since the replies submitted were unsatisfactory on the grounds discussed in detail in above paras, the action was to be taken in accordance with the provisions of section 111(1)(b), ibid. As the A.R submitted second time revised 'Balance Sheet' of the AOP in February, 2009, so the actual fact regarding investment surfaced during Tax year 2009. The law says to include that unexplained income to the person's income from other sources in the tax year proceeding to the tax year in which the same has surfaced. Therefore, the tax year for amendment of assessment regarding the case under discussion is 2008. (46) Since the un-explained investment has been surfaced/detected in February, 2009. The taxpayer was confronted in April and September, 2009. The rebuttal submitted by the taxpayer is unsatisfactory, lacking material evidences and contrary to established documented facts (as discussed above). (47) the unexplained investment is detected during the tax year 2009, therefore, the amount of investment made by the taxpayer in Messrs Sabzazar Lawn is included in his income chargeable to tax under head "Income from other sources" for tax year 2008, to the extent it is not adequately explained; as per provisions of section 111(1)(b) of the Income Tax Ordinance, 2001."'

9. A plain reading of the paragraphs of the Assessing Officers order makes it abundantly clear that the completion of assessment under section 122(5) by the officer is not an oversight or mistake but it is the result of the thought process by which the officer has been guided and conducted the amendment proceedings. Failure to mention the specific subsection of the relevant section or not mentioning the same at all has been viewed seriously and adversely by the higher appellate courts. Reference may be made Sales Tax Tribunal order in ST No.215/KB/2001 dated 14-6-2006 [cited as STAT 0487(2006) COST 404 (Trib) S. Tax]. It has been held as under:-- "On failure of the department to specifically mention in the show-cause notice the specific subsection of section 36 of Sales Tax Act, 1990, the learned D. R has no answer. It is time that allegation of tax evasion have been made but the same are once again vague and defective in material particulars. What apex Court in the case of Assessment Collector v. Khyber Electric Lamp 2001 SCMR 838 has held that show-cause notice should specifically state the subsection (32) of Customs Act, 1969 and in doing so it must be specifically stated as to whether the action is being taken for collusion, deliberate act, inadvertence error or misconstruction. We are afraid that name of these particulars have been spelt out in the show-cause notice merely alleging that "tax evasion" or wilful attempt to defecate or circumvent the tax is hardly sufficient Thus in respect of the second question framed by the Hon'ble Supreme Court it is held that the show-cause notice, not being in consonance with the law laid down by the Apex Court in Assessment Collector v. Khyber Electric Lamp is completely unlawful, illegal and without jurisdiction and accordingly all subsequent proceedings were ab initio are not narrated by law"

10. In Para 42(iii) the Assessing Officer has very candidly admitted that he was assigned only to conduct audit proceedings. After this submission by the Assessing Officer there remains no legal or moral justification on part of the Assessing Officer to amend the assessment that too for the tax year 2008 for which he admittedly had no mandate l and has not issued any show-cause notice to amend the assessment.

11. In view of above legal infirmities as well as the reasons assigned by the learned CIR(A) in his impugned order, I have no alternate but to annul the order of the Assessing Officer being without jurisdiction, void ab initio and illegal.

12. The appeal is disposed of in the manner indicated above. C.M.A./215/Tax(Trib.) Appeal dismissed.