2014 PLP 1085 (PTD)

These two appeals have been filed on behalf of the taxpayer against the consolidated impugned order of the learned CIR(A), Multan dated 15-11-2012 for the tax years 2010 and 2011 on the following grounds of appeal:-- GROUNDS OF APPEAL FOR THE TAX YEAR 2010 (i) That the learned Commissioner of Appeals, Multan's decision of upholding the ex parte assessment under section 121 is illegal and against the provisions of Income Tax Ordinance, 2001. Assessment under section 121 cannot be framed in a situation when notice under section 114(4) was issued. (ii) That the proceeding has been initiated in this case without allotting TR No. only TR No. is written on the Demand notice. Assessment order bears no TR Number. Similar is the case with notice dated 4-9-2012. This is improper and illegal. (iii) That income assessed at Rs.15,21,377 from Dairy Farm is wrong Application of G.P. @ 25% is wrong. CIR Appeals was not justified in upholding the application of G.P. rate. Inland Revenue Officer has neither referred any parallel case nor mentioned in the assessment order. CIR Appeals has its own upheld the G.P. rate to be without referring any parallel case. Expenses disallowed are too meager and should be enhanced. The appellant supplied milk to Messrs Nestle Pak Limited being a milk supplier receipts fall under final tax regime. (iv) That the CIR(A) observation that appellant failed to submit any account statement/income and expenditure statement is wrong and against the facts available on record. IRO never asked for any such statements. Notice is completely silent on this issue. CIR Appeals has upheld IRO's finding without verifying the facts from the record. (v) That CIR Appeals has wrongly upheld the service of notices to be proper being a renowned person. CIR appeals had misconceived the facts of the case. Proper and valid service of notice is a legal issue/fact irrespective of the status of a person. Notice issued dated 4-9-2012 for compliance on 10-9-2012 was served on 18-9-2012 through postal authorities whereas assessment was also framed on the same date. CIR Appeals has upheld the service to be correct without ensuring proper service from the record. Higher Appellate Authorities in a number of Appellate decisions has annulled the assessment. (vi) That separate notice should be issued for each of the year. Only a single notice was issued for both the years. Appellate has not been provided sufficient and reasonable opportunity for hearing. Same is the case with assessment order. Assessment has been completed in hurry appellant has been condemned unheard. Each year has its own peculiar facts. Higher Appellate Authorities has not appreciated this treatment. GROUNDS OF APPEAL FOR THE TAX YEAR 2011 (i) That the learned Commissioner of Appeals, Multan's decision of upholding the ex parte assessment under section 121 is illegal and against the provisions of Income Tax Ordinance, 2001. Assessment under section 121 cannot be framed in a situation when notice under section 114(4) was issued. (ii) That the proceeding has been initiated in this case without allotting TR No. only TR No. is written on the Demand notice. Assessment order bears no TR Number. Similar is the case with notice dated 4-9-2012. This is improper and illegal. (iii) That income assessed at Rs.15,60,372 from Dairy Farm is wrong. Application of G.P. @ 25% is wrong. CIR Appeals was not justified in upholding the application of G.P. rate. Inland Revenue Officer has neither referred any parallel case nor mentioned in the assessment order. CIR Appeals has its own upheld the G.P. rate to be without referring any parallel case. Expenses disallowed are too meager and should be enhanced. The appellant supplied milk to Messrs Nestle Pak Limited being a milk supplier receipts fall under final tax regime. (iv) That the CIR(A) observation that appellant failed to submit any account statement/income and expenditure statement is wrong and against the facts available on record. IRO never asked for any such statements. Notice is completely silent on this issue. CIR Appeals has upheld IRO's finding without verifying the facts from the record. (v) That CIR Appeals has wrongly upheld the service of notices to be proper being a renowned person. CIR appeals had misconceived the facts of the case. Proper and valid service of notice is a legal issue/fact irrespective of the status of a person. Notice issued dated 4-9-2012 for compliance on 10-9-2012 was served on 18-9-2012 through postal authorities whereas assessment was also framed on the same date. CIR Appeals has upheld the service to be correct without ensuring proper service from the record. Higher Appellate Authorities in a number of Appellate decisions has annulled the assessment. (vi) That separate notice should be issued for each of the year. Only a single notice was issued for both the years. Appellant has not been provided sufficient and reasonable opportunity for hearing. Same is the case with assessment order. Assessment has been completed in hurry appellant has been condemned unheard. Each year has its own peculiar facts. Higher Appellate Authorities has not appreciated this treatment.

2. Brief facts emanating from the record of the case are that the taxpayer is an individual deriving income from supply of milk to the Nestle Pakistan Limited. A valley of notices for the years under review were issued by the department but no compliance was made. Due to non-compliance attitude of the taxpayer the IRO passed combined ex parte order under section 121 of the Income Tax Ordinance, 2001 on 10-9-2012, subjecting the supplies (made to Nestle Pakistan Limited) of milk to gross profit rate of 25% adding salary income deriving by the taxpayer and determining total income of Rs.20,61,377 and Rs.20,55,372 for the tax years 2010 and 2011 respectively.

3. Being aggrieved with the treatment meted out by the revenue the taxpayer preferred an appeal before the learned first appellate authority. The learned CIR(A) after examining the facts of the case, grounds of appeal filed by the taxpayer and arguments advanced before him rejected the appeal of the taxpayer being baseless, frivolous and incorrect. This has brought the taxpayer to file these appeals before this forum.

4. At the very outset the AR of the taxpayer has raised the following essential law points, despite other point of law and factual points, which will go to the root of the matter in the instant case:-- (i) Whether in the facts and in the circumstances of the case CIR(A) is justified to hold that service of notices on the taxpayer are proper and under the law? (ii) Whether, where notice under section 114 has been issued by the Assessing Officer and notice remained uncomplied with, assessment can be finalized under section 121 of the Income Tax Ordinance, 2001 particularly after amendment made in section 121 through Finance Act, 2010? 5 (i) Since in substance the question No.1 framed above will go to the root of the matter of the order. Therefore, we proceed to consider the legal validity of a notice issued under ordinary post. (ii) Learned AR of the appellant states that both the authorities below have wrongly held that notices were properly served upon the appellant on the basis that he is a known person in the locality, being a member of Provincial Assembly. This assumptions, according to him is not supported from any material or record. Also states that neither the provisions of Income Tax Ordinance nor the civil procedure code or for that matters even the Rules of the Tribunal provide for service of order, summons etc. under ordinary post. (iii) The provisions of section 218 of the Income Tax Ordinance, 2001 provide for service of a notice, order or requisition on a taxpayer therein either by registered post or courier service or in the manner provided for service of summons issued by the court under the code of civil procedure. Section 27 of the General Clauses Act, 1897 provides that wherever in a provincial or a central statute the expression "served by post" or any other similar expression is used then "the service shall be deemed to be effected by properly addressing, preparing and posting by registered post a letter containing the documents." This section further provides for raising of a presumption in that specific back ground. It is laid down that unless the contrary is proved the service of addressee shall be deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post. It naturally means two things. Firstly, that where letter containing the document is posted in the manner laid down in the section. It shall be presumed to have reached the addressee at the time it would be delivered in the ordinary course of post. Secondly, that the presumption raised is rebuttal, which was so found by Honourable Lahore High Court in a case reported as PLD 1955 Lahore

417. Where a letter has been addressed in the manner given in the section, a person denying service shall have to prove that service of notice was not in fact affected on him. In the aforesaid judgment Honourable Lahore High Court expressed the opinion that a further presumption arose on account of an endorsement made on the letter by the postal authorities. The provisions of section 218 of the Ordinance and those of the section 27 of the General Clauses Act, 1897 when read together mean that presumption of effective service will arise only if the method explains in section 27 of the Act has been strictly followed. This naturally means that a notice, order and requisition issued in a manner not prescribed in that section will not give rise to a presumption of effective service. It will however, be seen at the same time that if an assessee, witness or other person actually appears, make compliance or is represented after receipt of a notice issued even in violation of said provisions, then subsection (5) of section 218 providing for a bar to challenge the validity of service will come into play 2003 PTD 1516. (iv) In the present case, we find that notices were not issued under Registered Post or through Courier Service, which action of the Assessing Officer is in violation of provisions of section 218 of the Ordinance read with section 27 of the General Clauses Act, 1897. Further, the assessment order was passed by the Assessing Officer on 10-9-2012, whereas the notice bearing No.261 dated 4-9-2012 issued for compliance on 10-9-2012, on the basis of which assessment was completed, was delivered by the postal authorities on 18-9-2012. A copy of the envelope stamped by the postal authorities dated 18th September, 2012 was provided by the A.R. of the taxpayer to substantiate his plea that notice was not properly served and the taxpayer was condemned unheard. Since the impugned assessment order was passed much before the receipt of the notice by the taxpayer. The assumption arises by the taxpayer that notice was not properly served have force. (v) Since in the present case, the notice for compliance was issued in violation of provisions of section 218 of the Ordinance read with section 27 of the General Clauses Act, 1897 and there was nothing on record to show that it was properly served upon the taxpayer. Hence, we give the answer to Question No.1 in negative i.e. in favour of the taxpayer and against the revenue. 6 (i) Now we will decide the Question No.II supra. Since the main controversy resolves around of sections 121 and 122 C. For the purposes of convenience these two sections are reproduced hereunder:- 121 Best judgment assessment.

(1) Where a person fails to [(aa) furnish a statement as required by a notice under subsection (5) of section 115; or] (b) furnish a return as required under section 143 or section 144; or (c) furnish the statement as required under section 116; or (d) produce before the Commissioner, or any person employed by a firm of chartered accountants [or a firm of cost and management accountants] under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon, the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income [or income] of the person and the tax due thereon. (2) As soon as possible after making an assessment under this section, the Commissioner shall issue the assessment order to the taxpayer stating

(a) the taxable income; (b) the amount of tax due; (c) the amount of tax paid, if any; and (d) the time, place and manner of appealing the assessment order. (3) An assessment order under this section shall only be issued within five years after the end of the tax year or the income year to which it relates. 122C. Provisional assessment.

(1) Where in response to a notice under subsection (3) or subsection (4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income or income of the person and issue a provisional assessment order specifying the taxable income or income assessment and the tax due thereon. (2) Notwithstanding anything contained in this Ordinance, the provisional assessment order completed under subsection (1) shall be treated as the final assessment order after the expiry of sixty days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly: Provided that the provisions of subsection (2) shall not apply if return of income along with wealth statement, wealth reconciliation statement and other documents required under subsection (2A) of section 116 are filled by the person for the relevant tax year during the said period of sixty days. (ii) It is observed that almost identical issue was brought before honourable Lahore High Court in the case of CIR v. Islam-ud-Din and others reported as 2013 PTD

914. The honourable Lahore High Court has held that before amendment brought in section 121 through Finance Act, 2010, the Assessing Officer framed assessment under section 121, where the taxpayer failed to file return under section 120 or in compliance to notice issued under section 114 of the Ordinance. Through Finance (Amendment) Ordinance, 2010, clause (a) of subsection (1) of section 121 was deleted and re-inserted in the Ordinance in the shape of section 122 C of the Ordinance which provides that if a person fails to furnish return of income for any tax year, the Commissioner, on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income and issue a provisional assessment order specifying the taxable income or income assessed to tax under subsection (2) of section 122 C, it also provides that after the expiry of 60 days from the date of service of order of provisional assessment, it will be deemed as final assessment order. The proviso to the said subsection states that the final assessment will not be made if return of income along with wealth statement, wealth reconciliation statement and other documents required under subsection (2A) of section 116 of the Ordinance are filed by the taxpayer for the relevant tax year during the period of 60 days (Now this period has been reduced to 45 days through Finance Act, 2013). (iii) Through the Finance Act, 2010, the deletion of clause (a) of subsection (1) of section 121 shows the intention of the legislature. Meaning thereby, the legislature intends that best judgment assessment cannot be made under section 121 of the Ordinance after 1-7-2010. However, to cater such eventualities section 122C has been introduced in the Income Tax Ordinance, 2001 through the Finance Act, 2010. The bare reading of provisions of section 122-C shows that where a person has failed to file return of income under section 120 or in compliance to notice under section

114. The Assessing Officer can frame best judgment assessment under said section on the basis of available facts and material. (iv) In view of the above, we also answer the Question No.II in negative i.e. in favour of the taxpayer and against the revenue.

7. Since we have decided the appeal on legal issues, therefore, there is no need to dilate upon the other legal and factual issues. Particularly, whether income arising from supplies of mlik to Messrs Nestle is exempt from tax or not, as this issue is not arising from the assessment order framed by the Taxation Officer or appeal order passed by the learned CIR[A]. So, we decline to answer this proposition, which is not before us.

8. The upshot of the above discussion is that we are constrained to agree with the contention of the A.R. of the taxpayer that assessment framed by the Assessing Officer is illegal and void ab-initio and the order of the CIR(A) is nullity in the eyes of law. Hence, the orders of both the authorities below are cancelled.

9. The appeals filed by the taxpayer are disposed of as above. CMA/33/Tax(Trib.) Order accordingly.