2012 PLP (Trib (PTD)

Titled appeals for the tax years 2005 and 2006 have been filed at the behest of the taxpayer calling in question the impugned order dated 19-9-2011 passed by the learned CIR (Appeals-II), Lahore.

2. Felt aggrieved, the appellant has come up in further appeal before this appellate forum against the consolidated order passed by the learned Commissioner Inland Revenue (Appeals-III), Lahore dated 19-9-2011 in respect of Tax Years 2005 and 2006.

3. That the said appellate order has been assailed on legal as well as on factual grounds. On legal plain, common grounds of appeal are that assumption of jurisdiction by the Additional Commissioner Inland Revenue (ACIR) to pass the order under section 122(5A) of the Income Tax Ordinance, 2001 was ab initio void and illegal; that the order passed by the ACIR for Tax year 2005 was barred by limitation; that the ACIR has miserably failed to establish that the order passed under section 120 of the Income Tax ordinance, 2001 was erroneous in so far as that was prejudicial to the interest of revenue and that the ACIR grossly erred in law to trench upon the jurisdiction of audit under section 177 of the Income Tax Ordinance, 2001 under the garb of section 122(5A) of the Ordinance.

4. Facts leading for disposal of the present appeal are that the appellant is a private limited company which declared loss of (Rs.1,158,745) and (Rs.2,27,204) respectively and the returns so furnished were taken to be the assessment order issued under section 120(1) of the Income Tax Ordinance, 2001 by the Commissioner. Later on, as per the amending order, the following three so-called discrepancies were observed by the Additional Commissioner Inland Revenue (ACIR) for invoking the provisions of section 122(5A) of the Income Tax Ordinance, 2001:-- (1) Advertisement expenses needed to be amortized. (2) No lease assets have been declared but lease rentals were claimed. (3) Commercialization fee paid to LDA was claimed as a revenue expense.

5. In view of the above said discrepancies, the order passed under section 120(1) of the Income Tax Ordinance, 2001 was considered by the ACIR to be erroneous and also prejudicial to the rest of revenue. Accordingly, a notice under section 122(9) read with section 122(5A) of the Income Tax Ordinance, 2001 was issued wherein besides noting the above said three discrepancies, two further points were mentioned therein but no adverse inference whatsoever was drawn on those points at the time of passing the order. In response thereto, initiation of proceedings under section 122(5A) of the Income Tax Ordinance, 2001 were contested to be without lawful authority besides the other allegations were also challenged before the ACIR. The reply furnished by the appellant could not convince the ACIR and he, accordingly, proceeded to amend the already completed assessment by making certain additions towards the original assessed net loss. Resultantly, the net income was worked out at Rs.14,05,963 and Rs.29,86,695 respectively. Appeals against that order were filed before the Commissioner (Appeals) Lahore who upheld initiation of proceedings under section 122(5A) of the Income Tax Ordinance, 2001 to be legally justified. On the issue of addition made on account of advertising expenses was set aside and remanded to the ACIR to dispose of this issue after providing an opportunity of being heard while the additions made in lease rentals and charity and donation were deleted being unsustainable in law. Felt aggrieved, the appellant has come up in further appeal before this Appellate fora.

6. It was contended that for inviting provisions of section 122(5A) this is the Commissioner who has to consider that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue and he intends to amend the assessment order but in no way this exercise has to be executed by the ACIR. After doing so, the Commissioner may delegate his power in writing, under section 210(1) of the Ordinance, to any officer of Inland Revenue subordinate to the Commissioner, all or any of the powers or functions conferred upon or assigned to the Commissioner under the Ordinance. As in this case the ACIR has considered and not the Commissioner that the assessment order passed under Section 120 of the Ordinance was erroneous and was also prejudicial to the interest of revenue and he issued the show cause notice under section 122(9) read with section 122(5A) of the Ordinance, thus, this act of the ACIR was not sustainable in law. To support this contention a case-law cited as 2011 PTD(Trib.) 750 was referred by the learned counsel for the appellant in which in identical circumstances the order passed under section 122(5A) was declared to be void ab initio illegal and unlawful. On the other hand the learned D.R. opposed the contention raised by the learned counsel by the appellant.

7. We find the argument put forth by the learned counsel to be quite weighty. Bare reading of section 122(5A) clearly envisages that the Commissioner is under legal obligation to consider and apply his conscious mind that the assessment order passed under section 120 of the Ordinance was erroneous and that was also prejudicial to the interest of revenue. After having considered so, the next step is that the Commissioner may, by an order in writing, delegate his powers to the ACIR, under section 210(1) of the Ordinance, to amend the already completed assessment. It needs hardly be emphasized that, before the powers under section 122(5A) is exercised or delegated, the Commissioner must be satisfied on the materials on record that the order being erroneous has caused prejudice to the interest of revenue or likely to cause such a prejudice. So, the powers under section 122(5A) fully vest with the Commissioner of Inland Revenue on the basis of his personal examination and consideration of the facts of the case by himself. Actually, the powers of ACIR to invoke the provisions of section 122(5A) of the Ordinance are wholly, solely and exclusively revolve around the objective consideration made by the Commissioner. There is no cavil to this proposition that the proceedings to be initiated under section 122(5A) are revisional in its character and it is a cardinal principle of law that revisional jurisdiction cannot be exercised by the same person let alone by a subordinate authorities. Where a statute directs that certain acts shall be done by a specified person and their performance by any other person is impliedly prohibited. Any authority vested with the powers or discretion is duty bound to exercise the same by himself by applying his independent mind and not influenced by extraneous consideration. In the case referred to in re 2011 PTD (Trib.) 705, it has been held as under:-- "As regards the second legal objection that the Commissioner did not apply his independent mind, we are in agreement with AR that assessment cannot be amended under section 122(5A) without conscious application of mind by Commissioner himself. This is a legal obligation imposed on the Commissioner by law itself. If legislature impose a personal obligation on an authority then the same authority is required to discharge that legal obligation. The obligation cannot be passed on to anybody else."

8. Support in this regard was also sought from the case-law cited as 2005 PTD(Trib) 344, 2007 PTD (Trib.) 1226, 2009 SCMR 1279, 2001 PTD 1467 (Lhr.H.C) and 1997 SCMR

641. Evidently, the Commissioner, in the present case, has not applied his independent consideration at any point of proceedings in order to hold that the original order was erroneous and prejudicial to the interest of revenue. We are, therefore, of the considered view that initiation of proceedings by the ACIR in terms of section 122(5A) of the Ordinance for the Tax Years under reference were ab initio illegal void.

9. Also argued that the order passed under section 122(5A) for the Tax Year 2005 was hit by limitation as the deemed assessment made under section 120 of the Ordinance can only be amended within 5 Years after the Commissioner has issued or is treated as having issued the assessment order on the Tax Payer as is envisaged in subsection (2) of section 122(5A) of the Ordinance. It was explained that, before amendment of subsection (2) through Finance Act, 2009, limitation to amend the order passed under section 120 of the Ordinance for Tax Year 2005 was to be expired on 31-12-2010 as the return for Tax Year 2005 was furnished and was taken to be the assessment order on 31-12-2005 whereas the already completed assessment was amended by the ACIR on 24-6-2011. As the limitation to amend the order passed under section 120 of the Ordinance for Tax year 2005 has been expired on 31-12-2010, thus, the order passed by the ACIR for this Tax year under section 122(5A) of the Ordinance was hit by limitation and is not tenable in law.

10. We have given anxious thought to the averment raised supra. We have noted that the Commissioner (Appeals-II), Lahore while maintaining the order passed under section 122(5A), for Tax year 2005, has not appreciated the provisions of law in its proper perspective. Perusal of the impugned appellate order reveals that the Commis-sioner (Appeals) has reckoned the date of passing the order under section 122(5A) from the date of issuance of show cause notice for Tax year 2005 which was dated 18-2-2010. It is ridiculous to reckon the period of limitation from the date of issuance of show cause notice because that merely indicates the intention of the authority as to whether to proceed against the Tax Payer or not and nothing more. For the simple reason that if the reply furnished by the appellant is convincing, then the proceedings would be dropped otherwise the proceedings would take its course. Actually the Commissioner (Appeals) has misread and misconceived the law of limitation. Without any shadow of doubt, it is settled principle of law that the period of limitation always runs from the date of passing the order and not from the date of issuance of show cause notice because that only requires explanation from the Tax Payer. Even otherwise section 122(2) of the Ordinance clearly provides that the assessment order shall only be amended under subsection (1) of this section within the period of five years after the Commissioner has issued or is treated as having issued the assessment order on the Tax payer. If the period of limitation is to be reckoned in view of sub-section (2) of section 122 of the Ordinance, then the limitation to amend the order passed by the Commissioner under section 120 of the Ordinance expires on 31-12-2010, However, that order was amended by the ACIR on 24-6-2011 by inviting the provisions of section 122(5A) of the Ordinance. In this view of the matter, the amending order passed by the ACIR, under section 122(5A) of the Ordinance, is patently hit by period of limitation. So, we feel no hesitation in holding that the order passed under section 122(5A) by the ACIR for Tax year 2005 is barred by time and is not sustainable in the eye of law.

11. Another legal objection raised was that the ACIR has miserably failed to establish that the already completed assessment made under section 120 of the Ordinance was erroneous in so far as that was prejudicial to the interest of revenue. It was explained that all the three reasons advanced by the ACIR for invocation of section 122(5A) are only tantamount to roving and fishing inquiry. None of the reason was definite and conclusive in its character on the basis of which the already completed assessment could be amended. Rather those reasons merely state "advertising expenses need to be amortized, no proof has been provided for expenses claimed in charity and donation and lease rental were claimed in absence of leased assets". As all these reasons are also debatable and arguable, hence the provisions of section 122(5A) are unwarranted and uncalled for. Also added that simultaneous existence of the two conditions for invocation of section 122(5A) of the Ordinance are precedent. It was stated that on the basis of the so called reasons, the order passed under section 122(5A) of the Ordinance could at best be held to be prejudicial to the interest of revenue but the element of erroneousness in law or fact is missing. Thus, in this backdrop the order passed by the ACIR is not maintainable.

12. We have considered the arguments of both the sides and find that the ACIR has indulged himself in fishing inquires to find out some material against the appellant in order to invoke the provisions of section 122(5A) of the Ordinance. For the purposes of exercising the revisional jurisdiction under section 122(5A) of the Ordinance, the reasons should be definite and supportive of evidence and those should not be based on conjectures and surmises. Bare reading of section 122(5A) Ordinance vividly spells out that the proceedings in the section cannot be initiated on gossips or rumors. Since, the reasons advanced are neither positive nor concrete and the truth of which had yet to be established and the entire edifice has been built on vague and fanciful assumptions, therefore, the ACIR has misdirected himself in inviting the provisions of section 122(5A) of the Ordinance in the instant case. We have also noted that for invoking the provisions of section 122(5A) of the Ordinance, the two conditions laid down thereunder, first one is that the order to be amended should be erroneous in law or fact and the second one is that the same should also be prejudicial to the interest of revenue, should co-exist. On going through the impugned order passed under section 122(5A) of the Ordinance, we are mindful of the fact that the original order passed by the Commissioner may be prejudicial to the interest of revenue but the other limb of this Section "erroneous in law or fact" is miserably missing in the present case. We do not intend to burden this judgment by citing the case-law because there are plethora of judgment on this point that for invocation of section 122(5A) of the Ordinance, simultaneous existence of the two conditions mentioned therein are must and if any one of them is missing, the amending order does not hold field. Having taken regard to the facts of the case in its entirety, we find no reason except to knock down the impugned orders and it is so ordered.

13. Since, we have dilated upon legal premises, therefore, there is hardly any need to adjudicate the other grounds pertaining to factual controversy.

14. Resume of the aforesaid is that the consolidated order passed by the ACIR, for Tax Years 2005 and 2006, dated 24-6-2011 is held to have been passed without lawful authority and that is hereby annulled/cancelled. Consequently, the order made by the learned Commissioner (Appeals) dated 19-9-2011 stands vacated. Corollary of which would be restoration of the order originally passed by the learned commissioner.

15. The appeals filed at the instance of appellant succeed accordingly. CMA/126/Tax(Trib.) Appeal accepted.