2012 PLP (Trib (PTD)

This appeal has been filed by the taxpayer company against the order of CIR(Appeals-I), Lahore, whereby the learned first appellate authority dismissed the appeal of the taxpayer company and upheld the order of the taxation officer dated 31-12-2008 passed under sections 161/205 of the Income Tax Ordinance, 2001.

2. Facts leading to the instant appeal, briefly stated, are that the taxation officer examined the withholding tax statement of the company for the assessment years 2002-2003 and tax years 2003 and 2004 and initiated proceedings by issuing notice under section 161 of the Income Tax Ordinance, 2001 asking the taxpayer to furnish information with regard to the tax withheld by it from payments made by it under different heads of account. The taxpayer submitted the requisite details and record which were subjected to thorough scrutiny by the taxation officer who passed the order under sections 161/205 of the Income Tax Ordinance, 2001 on 30-6-2005 recording the following finding:-- "The record, when examined in detail, confirms the stance of the taxpayer, as the tax was deducted and deposited as and when it became due. As such the liability of the taxpayer as withholding tax has been found fully discharged. Hence, the proceedings initiated under section 161 of the Income Tax Ordinance, 2001 for the assessment year 2002-2003 and tax years 2003 and 2004 are filed." After the lapse of period of 3-1/2 years, the succeeding incumbent again examined the record of the company and noted that the appellant had advanced an amount of Rs.37,156,269 to a shareholder Mian Amir Mehmood. The said amount of advance being in the nature of dividend under section 2(19)(e) of the Income Tax Ordinance, 2001 was, in the opinion of taxation officer liable to withholding tax but no evidence regarding deduction of tax was available on record. The company was, therefore, treated as a taxpayer in default and notice under section 161 of the Income Tax Ordinance, 2001 was served at the fax of Mr. Nawaz Khan, FCA, Qadeer and Co. at 6-46 p.m. for compliance on 31-12-2008. In response to the said notice Mr. Nawaz Khan FCA vide his letter dated 1st January, 2009 replied as under:-- "We refer to a Fax which was received in a garbled State on 31st of December, 2008 (Copy attached) you would note that it is not possible to determine, what exactly is required. In the circumstances you are requested to kindly provide a legible copy of the same and oblige."

3. In the meanwhile the taxation officer concluded the proceedings ex parte on 31-12-2008 by levying tax in the following manner:-- Tax payable under section 161 Rs.37,15,627 Additional tax under section 205 Rs.23,39,929 Total: Rs.60,55,556 Being aggrieved, the taxpayer company filed appeal before the CIR (Appeals) who vide his impugned order upheld the order of the taxation officer. Resultantly the appellant has come up in further appeal before us.

4. Initiating the arguments on appeal, Mr. Anwar-ul-Haq, Advocate, the learned AR of the company contended that no notice under section 161 of the Income Tax Ordinance, 2001 was served upon the appellant before passing the order on 31-12-2008. He submitted that Mr. Nawaz Khan, FCA of Qadeer and Co. was not the authorized repre-sentative of the company as far as proceedings under sections 161/2005 of the Income Tax Ordinance, 2001 were concerned. The order passed by the taxation officer on 31-12-2008 was also contended to be a nullity in the eye of law because of having been passed at the back of the taxpayer company without affording it adequate opportunity of being heard. The learned AR vehemently argued that the order being violative of the principle of audi alterm parterm deserved to be declared illegal and void ab-initio.

5. Without prejudice to the arguments recorded in para-4 above, the learned AR further contended that the proceedings under section 161 of the Income Tax Ordinance, 2001 were initiated and finalized on 30-6-2005 by the predecessor of the officer who passed the order on 31-12-2008. During the course of earlier round of proceedings the entire record of the company had been examined and a conscious finding was recorded by the taxation officer regarding compliance by the company with the withholding provisions in his order dated 30-6-2005. In the presence of the earlier order dated 30-6-2005 the taxation officer had no jurisdiction to initiate proceedings again on the basis of same data/accounts which had already been examined and adjudicated upon in the earlier round of proceedings. Reliance in this behalf was placed on the case reported as 2010 PTD (Trib.) 150 wherein the Tribunal under similar circumstances held as under:-- "We have considered arguments of both the sides in the light of relevant record and we tend to agree with learned AR that if there was any mistake in the first order under sections 161/205, the Assessing Officer could/should have rectified it under section

221. Passing of fresh order under sections 161/205 in respect of omitted amount of default is tantamount to a fresh independent order. When an assessment is made in respect of income of a taxpayer, any error or omission appearing therein can be rectified under section

221. Fresh assessment cannot be made in respect thereof because it will be a case of double assessment which is not permissible under law. Exactly same situation prevails in this case which in our opinion is not rightful in the eyes of law. We therefore hold that in this case rectification could/should have been made under section

221. The impugned order under sections 161/205 is therefore illegal which is hereby cancelled."

6. The learned DR, on the other hand, supported the orders of the authorities below.

7. We have given due consideration to the rival arguments and have also gone through the relevant record available on file. We have noted that in the instant case consolidated order under sections 161/205 for the assessment year 2002-2003, tax years 2003 and 2004 was passed on 30-6-2005 by the taxation officer after conscious application of mind to the accounts of the company. We are of the view that all the transactions recorded in the accounts were before the taxation officer when he finalized the proceedings under sections 161/205 of the Income Tax Ordinance, 2001 and passed the order. In the presence this order succeeding incumbent became functus officio as far as proceedings under section 161 of the Income Tax Ordinance, 2001 were concerned. We accordingly hold that the succeeding incumbent was not competent to assume jurisdiction under section 161 of the Income Tax Ordinance, 2001 and for this reason alone the order dated 31-12-2008 cannot be treated as having been passed with lawful authority.

8. Before parting with the judgment we would like to observe that the amount advanced by the company to its shareholder was disclosed as loan in the statement of accounts and there is no provision in the income tax law which provides for deduction of tax on the amount of loan. It is only by fiction of law that the amount of loan is treated as dividend in the hands of beneficiary if it fulfills the conditions laid down in section 2(19)(e) of the Income Tax Ordinance, 2001. In the facts and circumstances of the case, the best course open to the Revenue was to treat and assess the amount of loan as "dividend income" in the hands of shareholder and charge tax thereon. We are, however, not aware whether this course of action was followed by the Revenue or not.

9. In the light of discussion made hereinabove we hold that in the presence of order dated 30-6-2005 the taxation officer was not competent to initiate proceedings again under sections 161/205 of the Income Tax Ordinance, 2001 as held in the judgment of this Tribunal reported as 2010 PTD (Trib.)

150. Assumption of jurisdiction by the succeeding incumbent and the order passed under sections 161/205 of the Income Tax Ordinance, 2001 on 31-12-2008 are, therefore, held to be illegal and void ab initio.

10. Since we decided the appeal on legal ground, there is no need to dilate upon the other grounds of appeal.

11. The appeal of the appellant succeeds as above. C.M.A./264/Tax(Trib.) Appeal accepted.