2019 PLP (Trib (PTD)

SHAHID MASOOD MANZAR (JUDICIAL MEMBER).

Instant appeal arises out of the impugned Order No.1066/2015 dated 22.02.2016 passed by the learned Commissioner Inland Revenue (Appeals-II), Islamabad, whereby he dismissed the appeal being time barred. The appellant has agitated on the following grounds:-- "..2. That the appellant had not received any notice nor order under section 122C as he is non-resident, nor served as per procedure prescribed by C.P.C. and various circular of FBR which is not considered by the commissioner appeal.

3. That as the appellant had filed Tax return under section 114 on due date and is a deemed assessment order under section 120 of the Income Tax Ordinance, 2001 therefore order under section 122C is illegal, void in the eye of law and judgments of superior courts.

4. That the appellant is working at Saudi Arabia since long and had sufficient sources for the purchase of plot.

5. That the order is passed without appointing Agent which is prerequisite for assessment of Non Resident Person under section 172 of the Income Tax Ordinance, 2001.

6. That Commissioner Appeal had not considered that there is no time limitation against void order as per judgments of superior courts.

7. That as per judgment of Honourable Supreme Court of Pakistan in the case of Messrs Humayyun Ltd. v. Federation of Pakistan and others as reported in PLD 1991 SC 619, 2004 SCMR 456 and 2002 PTD (Trib.) 300 wherein it is held that where the evasion of duty is not willful, the imposition penalty and additional tax is illegal, and same is considered by the Honourable Appellate Tribunal Peshatvar Bench vide Appeal No.ST/ PB/ 2003."

2. Brief facts of the case, as gathered from the impugned orders, are that the appellant is an individual. The proceedings in the case were initiated on receipt of information CDA, Islamabad that the taxpayer has purchased Property No.365, D-12/2, Islamabad Fair Market Value for Rs.3,500,000/- on 31.01.2006. Notice under section 114(4) for filing of Income Tax Return for the tax year 2006 was issued on 01.01.2011 for compliance on 31.01.2011. On the due date neither anybody attended the office nor any application for adjournment was received. A show-cause notice under section 122(c) of the Income Tax Ordinance, 2001 was issued on 17.06.2011 for compliance on 27.05.2011 served through UMS, but in vain. Resultantly, the ACIR made provisional assessment vide order dated 25.06.2011 under section 122(C) on the available information received from CDA, in the following manner: - S.NO. PROPERTY NO/SIZE FMV

1. Property No.365, D-12/2, Islamabad 3,500,000/-

2. Transfer Fee 100,000/- Total Taxable Income from other source 3,600,000/- Taxpayer being aggrieved filed the appeal before the learned Commissioner Inland Revenue (Appeals-II), Islamabad, who vide his impugned order, dismissed the appeal in the following manner:-- "...Perusal of the order passed under section 122(C) revealed that same was passed on 25-06-2011 and in the absence of contrary evidence it can safely be presumed that the same was received by the appellant by next month. Under the law appeal was to be filed within 30 days whereas appeal in the instant case has been filed on 26-08-2015 which is late by about more than four years. The AR contended that no notices/order was received and appeal was filed after obtaining attested copy of the order. No plausible reasons for late filing of appeal or application for the condonation of delay was filed. The honorable Supreme Court in a case reported as Commissioner of Sales Tax v. Chenab Textile Mills Limited, Lahore [(1980) 42 Tax 140 (SC Pak)] has already held that when a matter is barred by limitation each and every day's delay must be explained before it can be condoned. In the instant case delay is not explained. Hence the appeal being grossly time-barred is dismissed. As the appeal is dismissed on limitation, therefore, the other issues of the case are not adjudicated." Taxpayer again being aggrieved filed appeal before this Tribunal on the grounds as mentioned above.

3. During the course of hearing, learned AR of the taxpayer agitated that the appellant had not received any notice nor order under section 122C as he is non-resident, nor served as per procedure prescribed by C.P.C. and various circular of FBR which is not considered by the learned Commissioner (Appeal). He further agitated that as the appellant had filed Tax return under section 114 on due date and is a deemed assessment order under section 120 of the Income Tax Ordinance, 2001, therefore, order under section 122C is illegal, void in the eye of law and judgments of superior courts. According to him, the appellant is working at Saudi Arabia since long and had sufficient sources for the purchase of plot. Learned AR of the taxpayer contended that the impugned order is passed by the ACIR without appointing Agent which is prerequisite for assessment of Non-Resident Person under section 172 of the Income Tax Ordinance, 2001. He further contended that the learned Commissioner (Appeal) had not considered that there is no time limitation against void order as per judgments of superior courts. In support of his contention, he relied upon a judgment of the Hon'ble Supreme Court of Pakistan in the case of Messrs Humayyun Ltd. v. Federation of Pakistan and others reported as " PLD 1991 SC 619, 2004 SCMR 456 and 2002 PTD (Trib.) 300 wherein it is held that where the evasion of duty is not wilful, the imposition penalty and additional tax is illegal. He also relied upon another judgment reported as 2015 PTD 2346. During the court proceedings, he also furnished copies of return for the tax year 2006. Accordingly, he prayed that the appeal may be accepted by vacating the impugned orders of the officers below.

4. On the other hand, learned DR appeared to defend the respondent/Department. He vehemently opposed the contention of learned AR and fully supported the impugned orders of the officers below. He prayed that the orders of the below officers may be upheld and the appeal of the appellant may be dismissed, being devoid of any merit.

5. Rival parties have been heard and the record perused. Before us, the appellant's counsel has submitted that the appellant had not received any notice nor order under section 122C passed by the ACIR as he is non-resident, nor served as per procedure prescribed by C.P.C. and various circulars of FBR which is not considered by the learned CIR(A). He added that the appellant is working in Saudi Arabia since long and had sufficient sources for the purchase of plot. He further added that the order is passed without appointing Agent which is prerequisite for assessment of non-resident person under section 172 of the Income Tax Ordinance, 2001. In support of his contention, he relied upon the following:-- 1967 PTD 189, wherein the Hon'ble Supreme Court of Pakistan held that:-- "Notice -- Agent -- Notice to file return served on salesman -- Salesman not authorized in writing by assessee to accept such notices -- Fact of service of notice within knowledge of assessee

Sales received such notices on behalf of assessee in the past - Service of notice, whether valid in law

Held no Civil Procedure Code, 1908 - Order III, Rule 2(b); Order V, rules 23(1), 17-- Service of notice under Section 22(2)

Manager of assessee firm, resident within jurisdiction, carrying on firm's business - Notice to be served on such Manager -Service of notice and salesman firm - Does not, in circumstances of case, constitute due service of notice an assessee firm -" Perusal of the above, shows that the Hon'ble Supreme Court of Pakistan have held that the notice issued to file return on the person who was not authorized in writing by the assessee to accept such notices cannot be held as valid in law according to C.P.C., 1908 and it cannot be assumed as due service of notice. In this connection, learned AR has further relied upon an unreported case bearing I.T.A. No.69/IB/2008 dated 14.04.2009 passed by single bench of this Tribunal, wherein it has been held that: "

4. After considering the facts of the case and hearing the arguments of both parties, this Court is of the view that in this case assumption of jurisdiction for framing assessment is not in accordance with law. Before passing the order notice should have been served on the non-resident taxpayers representative as provided under section 218(12) read with section 172 of the Ordinance, 2001. Since the assessment proceedings have not been conducted in accordance with the law, therefore orders of both the authorities below suffer from lega infirmity. In these circumstances the departmental action cannot be upheld. Similarly the impugned order cannot be maintained, therefore it stands cancelled." Perusal of above also shows that the notice should be served upon the non-resident taxpayers as provided under section 218(12) read with section 172 of the Income Tax Ordinance, 2001. Since the assessment proceedings were not conducted in accordance with law, therefore, the Tribunal also cancelled the impugned orders being suffered from legal infirmity. For strengthening his version, learned AR placed reliance on the Circular No.RCIT/J/ S/ 154/ SO-II/ 3544 dated 04/11/1996 wherein the complete procedure for service of notice has been prescribed but the Department in the present case failed to follow their own procedure. The main extract of the circular is as under:-- "A notice under the Ordinance may be served on the person therein named either by post or in the manner provided for service of a summon issued by a Court under the Code of Civil Procedure, 1908. In the CBR Circular No. 20(33)IT-3/ 73, dated May 5, 1973 relevant rules of the C.P.C. were reproduced for guidance of the Officers. Now an amendment has been made in the Order V of Civil Procedure Code, 1908 through the Act of 1994, which has gone unnoticed. Therefore, it would be appropriate that salient point of the intact and amended C.P.C. are again explained for guidance of assessing officers. The following modes of service have been recognized by the Civil Procedure Code.

1. Service on the person named in the notice or his authorized agent or adult male member of the family residing with the person named in the notice.

2. Service by post. In the Income Tax Ordinance the word "post" only has been used whereas in the code the words of "registered post, acknowledgment due" has been used. As per Rule 10-A(2) even refusal to receive notice, endorsed by postal employee is deemed as service.

3. Service by affixture by the serving officer when there is refusal to accept service or person cannot be found.

4. Amended Rule 20 of the C.P.C. regarding "substituted service" is reproduced as under:-- "Rule

20. Substituted Service-- (1) Where the Court is satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service, or that for any other reason the summons cannot be served in ordinary way, the Court shall order for service of summons by-- (a) affixing a copy of the summons at some conspicuous part of the house, if any in which the defendant is known to have last resided or carried on business of personally worked for gain; or (b) any electronic device of communication which may include telegram, telephone, phonogram, telex, fax, radio and television; or (c) urgent mail service or public courier services; or (d) beat of drum in the locality where the defendant resides; or (e) publication in press; or (f) any other manner or mode as it may think fit; " Wording of the above Circular is patent/clear, therefore, needs no further elaboration.

6. Regarding the issue of time barred/limitation, learned AR agitated before us that the learned CIR(A) was not justified to hold that the appeal is grossly time barred and dismissed the appeal on limitation. He further agitated that the learned CIR(A) had not considered that there is no time limitation against void order as per judgments of the Superior Courts. In this respect, he relied upon the case law reported as 1986 SCMR 962, wherein their Lordships have held that: - "....there was no power in the Additional Settlement Commissioner to condone the delay, and interfere with the petitioners allotment after the lapse of more than three years. The learned counsel submits that the Additional Settlement Commissioner is in error in observing that the allotment order was made in the absence of the respondent, as he has placed on the record an affidavit, dated the 21st of February, 1974,.... We find that in the High Court the learned Judge has placed reliance on a number of precedent cases, including Allah Dino v. Faqir Muhammad and another PLD 1969 SC 582, for the proposition that if an impugned order has been passed without hearing and notice to a party whose presence is otherwise necessary before the authorities concerned, then the order will be a nullity in the eye of law, and no question of limitation would arise. Mr. Abdur Rashid was not in a position to controvert this proposition of law by reference to any authority or pronouncement of this court or even of the High Court. It would appear, therefore, that the Court below were justified in deciding the question of limitation in favour of the respondent. The affidavit filed in this Court is an afterthought." Crux of the above quoted case law is that if an impugned order has been passed without hearing and notice to a party whose presence is otherwise necessary before the authorities concerned, then the order will be a nullity in the eye of law, and no question of limitation would arise.

7. We have considered all the arguments delivered by the appellant's counsel as well as the case laws as quoted by him. Learned DR on the other hand, however, could not rebut the contention of the appellant's counsel except supporting the impugned orders of the authorities below. At first, it is observed by the Bench that the ACIR has not meted the correct treatment to the taxpayer by sending notice under section 114(4) and notice under section 122(C), whereas both the sections do not apply in the case where the taxpayer has filed his return on due date. In such cases, the Assessing Officer may invoke the provisions of Section 122(5A) of the Income Tax Ordinance, 2001. In this scenario, we are also fortified from the judgment of this Tribunal reported as 2015 PTD 2346, relied upon by the taxpayer wherein it is held that in presence of deemed assessment, assessing officer cannot proceed to frame provisional assessment for same tax year which tantamount to double taxation and is not permissible under the law and under such circumstances, there is only one recourse available to Assessing Officer is to resort to provisions of Section

122. In present case, passing of order by the Assessing Officer in presence of deemed assessment cannot sustain in the eye of law. Secondly, it is observed that the taxpayer is a non-resident, so could not receive the notices/order. In such case, the Department should have followed the procedure for sending the notice as laid in section 218(2) read with section 172 of the Income Tax Ordinance, 2001 which is also envisaged in C.P.C. as well as above quoted circular of FBR, but the Department failed to do the same. In these circumstances, we are inclined to agree with the taxpayer's counsel whose version carries weight. In our view, the case is not founded well by the authorities below. We are also opined that the assessment proceedings have not been conducted in accordance with provisions of law, therefore, impugned order of ACIR being ab initio, void and the order of learned CIR(A) are vacated and the taxpayer's appeal is accepted in above manner. Order accordingly. HBT/61/Tax(Trib.) Appeal allowed.