2015 PLP (Trib (PTD)

These two appeals pertaining to tax years 2009 and 2010 have been filed on behalf of taxpayer, calling in question two separate orders passed by the learned CIR(A) dated 24-1-2014 and 30-10-2013 respectively. Both these appeals are disposed of in the following manner:-- Tax Year 2009

2. Briefly stated, the relevant facts reported are that taxpayer in this case is private limited company, derives income from the consultancy services in the fields of engineering to the Government, Semi Government, Provincial Government Institutions like, WAPDA, WASA, NHA, IRRIGATION etc., where the services are being offered to the client in consortium with the foreign as well as local members and the tax is being deducted by the deducting agent keeping in view the body of consortium at 6% and 15% etc. The projects are being financed by the international funding bodies. Return for the year 2009 was filed which was accepted as deemed assessment in terms of section 120 of the Income Tax Ordinance, 2001. Subsequently, the concerned Additional Commissioner found that the deemed assessment completed was erroneous insofar as prejudicial to the interest of revenue and he, accordingly, amended the deemed assessment under section 122(5A) vide order dated 25-10-2011. The taxpayer-company assailed the order under section 122(5A) before the learned CIR(A) and thereafter before this Tribunal whereby the amendment of assessment under section 122(5A) was annulled. However, the concerned Additional Commissioner again invoked the provisions of section 122 (5A) on the ground that he can amend the deemed assessment as many times as he feels necessary even if the same has been amended under section 122(5A). Accordingly, he again issued notice dated 10-5-2013 and confronted the taxpayer as to why the deemed /amended assessment may not be treated as erroneous insofar as prejudicial to the interest of revenue by charging the income in the status of AOP. In response thereto, it was submitted that the taxpayer cannot be picked as a single entity out of joint venture of the companies to be treated as AOP and even otherwise also, FBR's clarification issued on 18-1-2013 cannot be applied retrospectively. The Additional Commissioner being convinced with the submissions made by the taxpayer had dropped the said allegation.. However, the Additional Commissioner again issued notice dated 8-11-2013 whereby he confronted the taxpayer with new set of allegation and shown his intention to amendment the order under section 122(5A) on the ground that the receipts declared as compared to tax deducted does not reconcile. In response, the taxpayer seeks adjournments which were allowed till 26-11-2013. Allegedly, on the given date, allegedly, no body turned up. Therefore, the Additional Commissioner proceeded ex parte against the taxpayer and passed the impugned order under section 12(5A) whereby receipts for the year were estimated at Rs.568,777,817 as against declared Rs.317,699,432.

3. Being aggrieved, the taxpayer preferred appeal before the learned CIR(A) on a number of legal as well as factual grounds of appeal. The learned CIR(A) annulled the impugned order under section 122(5A) after observing as under:-- "In the light of the discussion made hereinabove, it is evident that the appellant was deprived of its right of proper furnishing the requisite documents and explaining of its stance. In this scenario, I am satisfied that the appellant was prevented by sufficient cause from producing such material or evidence before the OIR. As regards the computation of total receipts on the basis of total tax deduction by applying static rate of tax at 6%, the submission of the learned AR also carry weight. I totally agree with the contentions that before computing the total receipts on the basis of 6% tax rate, he should have confronted/verified from the other member of consortium which were foreign entities. Further, the OIR has brought nothing on record in support of his action. As the OIR has failed to discharge his legal obligation in this regard, the treatment accorded by him, is held to be unjust and unsustainable in law"

4. The taxpayer being still not satisfied with the order of the learned CIR(A) filed present appeal before this forum and it is the contention of the learned AR before us that with due respect to the finding of the learned CIR(A) who already annulled the impugned order but he has not given finding on the very initiation of proceedings under section 122(5A) by the Additional Commissioner which is not maintainable in the eye of law and peculiar circumstances in the case demands that such finding may be given. The learned AR explained that during the course of appellate proceedings before the learned CIR(A) he has primarily agitated the impugned order on the ground that the Additional Commissioner had not considered the record already submitted, supporting t4 taxpayer version and the evidences placed on record. He has submitted that the revenue invoices are being issued to the clients, payments to the company are being made through crossed cheques and deposited into the bank account which is mentioned in the contract, after deduction of the tax amount and a certificate is being issued verifying the total revenue, the tax deducted against it and deposited in to the Government treasury which is sufficient evidence to the effect that how much revenue / receipts are being earned from the services and tax paid for that has been submitted to the assessing authority. It is contended by the AR that all this record had already been taken from the taxpayer through letter No.375, dated 4-1-2010 and No.444 dated September, 2012, which was directly forwarded to the issuing authority for verification and in response the deducting authorities verified directly to the assessing authority and confirmed the revenue, tax deducted, amount released but the Additional Commissioner had ignored all these facts available on record and amended the assessment on guesswork/ presumption which action is not maintainable in the eye of law. As regards ex parte order passed by the Additional Commissioner, the learned AR reiterated the submissions as made before the learned CIR (A). To sum up his arguments, it is contended by the AR that the instead of cancelling the order being against the mandatory provision of law the learned CIR(A) has annulled the order on legal ground and the assessing authority has again started harassing the appellant by issuing notices on the same facts.

5. The learned DR supported the order passed by the assessing authority and submitted that he was justified to estimate the receipts and the data so utilized is being from the return filed by the taxpayer and the assessing authority is justified to start fresh proceedings.

6. We have heard the arguments put-forth by the learned representatives of both the sides and have carefully gone through the available record. After due consideration, we are convinced with the submissions made by the learned AR which are quite convincing. In the instant case, the very initiation of proceedings under section 122(5A) by the Additional Commissioner, is fatal and against the provisions of law, hence, not maintainable. During the course of proceedings the Additional Commissioner has not acted in accordance with law and proceeded on fishing enquiries as, firstly, he issued notice to amend the assessment on the ground that the taxpayer has to be treated as AOP but after being convinced with the submissions of the AR, he dropped the said allegation. However, he again confronted the taxpayer with new set of allegation which is not permissible under the law. Even otherwise, the matter of how much receipts earned and tax deducted has already been satisfactorily been looked into by the department during the course of issuance of refund to the taxpayer. The fact of business receipts and tax deducted thereupon also directly verified by the department from the concerned parties. Even otherwise, the computation of total receipts on the basis of total tax deduction by applying static rate of tax at 6% is against the facts of the case. Furthermore, the initiation of ex parte proceedings is against norms of natural justice and the learned CIR(A) has already given categorical finding in this behalf and annulled the order on this score.

7. In view of the above observations made by us, we are inclined to hold that very initiation of proceedings in the case under section 122(5A) is not maintainable in the eye of law which is liable to be tread as void, ab initio illegal and merits cancellation and we order accordingly. The order of the assessing authority being not maintainable on factual as well as legal grounds, is hereby cancelled. As regards taxpayer's plea that the department is harassing to initiate proceedings on the same facts, we observe that no such proceedings can be initiated on the facts already taken into consideration by the concerned authority in any of the proceedings. Order accordingly.

8. Appeal of the taxpayer for tax year 2009 is disposed of in the above manner. Tax Years 2010.

9. The appellant / company assailed the order of the learned CIR(A) dated 30-10-2013, on the following sole ground of appeal:-- "That the selection of case for audit under section 177(1) of the Income Tax Ordinance, 2001 by the Commissioner Inland Revenue declared as unconstitutional, illegal and without lawful authority vide W.P. No.393/2012 by the Lahore. High Court but the learned CIR(A) have not appreciated the true spirit of the judgment.

10. Briefly stated, the relevant facts in brief are that taxpayer e-filed return of income for tax year 2010 declaring income at Rs.19,100,626 which was deemed to be treated as assessment in terms of section 120 of the Income Tax Ordinance, 2001. Subsequently, the case of the taxpayer was selected for audit under section 177 by the concerned Commissioner Inland Revenue and an intimation letter dated 23-11-2011 was issued to the taxpayer. During the course of audit proceeding, books of accounts along with relevant details/documents were requisitioned which were submitted by the taxpayer. The assessing authority on scrutiny of all these documents, has observed certain discrepancies which were I confronted through statutory notices to the taxpayer. The taxpayer duly responded to these notices, however, the submissions made by the taxpayer found unsatisfactory. Accordingly, the assessing authority amended the assessment for tax year 2010 by resorting to the provisions of Section 122(5) of the Income Tax Ordinance, 2001 and made certain additions and as a result net income for the year was re-computed at Rs.30,108,

255. Being aggrieved, the taxpayer preferred, appeal before the learned CIR(A) on a number of legal as well as factual grounds of appeal. The learned CIR(A) deleted the addition made under section 21(c) whereas the taxpayer's legal ground regarding very initiation of proceedings under section 177 by the Commissioner was rejected.

11. It is submitted by the learned AR that the learned CIR(A) was not justified to upheld the illegal action of the assessing authority who amended the assessment under section 122(5) on the basis of selection of the case for under section 177 by the concerned Commissioner Inland Revenue. It is submitted by the learned AR that selection of case for audit under section 177(1) of the Income Tax Ordinance, 2001 by the Commissioner has already declared as unconstitutional, illegal and without lawful authority by the Hon'ble Lahore High Court vide judgment recorded in W.P. No.393/2012. On the contrary, the learned DR on behalf of Revenue rebutted the above legal objections raised by the learned AR and submitted that Commissioner has rightly invoked the provisions of section 177 to conduct audit in the case.

12. We have heard the arguments put-forth by the learned representatives of both the sides and have carefully gone through the available record, including the case-law cited at the bar. After due consideration, we that the issue of selection of cases for audit by the concerned Commissioner of Inland Revenue under section 177(1) of the Income Tax Ordinance, 2001, for the tax year 2010, has already been settled by the Hon'ble Lahore High Court and the amendments brought through Finance Act, 2010 under section 214 of the Income Tax Ordinance, 2001, to select cases for audit and the powers of the Commissioner have been restricted and reduced to mere conducting of the audit of the taxpayers, after the cases have been selected by the FBR under section 214C of the Income Tax Ordinance, 2001. Hon'ble High Court in Writ Petition No.393/12 titled as "Messrs Chenone Stores Ltd. v. The Federal Board of Revenue and others", after detailed deliberation was pleased to conclude the judgment in the following terms:-- "

42. It is also clarified, for the sake of completion, that section 177(8) of the Ordinance will come into operation after a person has been settled for audit by the FBR under section 214C of the Ordinance.

43. For the above reasons impugned Notice dated 23-11-2011 issued by the concerned Commissioner Inland Revenue is also set aside as being unconstitutional and illegal".

13. In view of the above, we find that since the Hon'ble High Court has already declared the selection of cases for audit under section 177 by the Commissioners Inland Revenue for tax year 2010 as illegal and unconstitutional, we respectfully following the said judgment of the Hon'ble Lahore High Court, hereby cancelled the initiation of proceedings in the instant case for audit under section 177 and subsequent amendment of assessment for tax year 2010. The impugned order passed under section 122(1)/(5) by the assessing authority is hereby canceled and that of the learned CIR(A) is accordingly vacated.

14. Appeal of the taxpayer for tax year 2010 is accepted accordingly. HBT/37/Tax(Trib.) Appeal accepted.