2010 PLP (Trib (PTD)

MUNSIF KHAN MINHAS (JUDICIAL MEMBER).

These are six cross-appeals; three each by the Taxpayer as well as by the Department against the combined order, dated 25-3-2010 passed by the learned CIR(A) for the tax years 2004, 2005 and 2006 on the following grounds: Assessee's Appeals; (1) That the impugned order passed under section 122(1) of the Income Tax Ordinance, 2001 is illegal and liable to be declared null and void because the amended assessment order was passed against the conditions of the agreement executed between all Pakistan CNG Associations and RTO, Rawalpindi, circulated by the F.B.R. (2) That the Taxation Officer RTO, Rawalpindi while finalizing the assessment in individual cases at his own has placed a separate amended agreement on record by adding or changing the conditions of original agreement which was circulated by the F.B.R.. (3) That other RTOs of Pakistan finalized the audit cases of C.N.G. stations as per conditions of the agreement circulated by the F.B.R. by applying tax @ 4% of the value of gas purchased and also by giving due credit of tax already collected or deducted. Copies of following orders are enclosed:-- (a) RTO Sialkot Messrs Sultan CNG Station NTNo. 0408546 Tax Year 2007 Messrs Ch CNG Filling Station NTNo.2208509-2 Tax Year, 2007 (b) RTO Rawalpindi Messrs Gas Track NTNo.0043350 ax Year, 2006 Tax Year 2007 Messrs Gas International NT No. 2465602 Tax Year, 2006 (4) That foregoing above contentions the agreement executed between All Pakistan CNG Associations and RTO, Rawalpindi, which was circulated by the F.B.R. to all other RTOs of Pakistan vide Circular No.7(5)S.Asstt/2008 dated 16-8-2008 bears no such conditions that:-- (a) The appellant is not entitled to claim any adjustment of withholding tax collected or deducted under any other head during the tax year. (b) That cases where the refund of tax deducted under section 148 has already been refunded; prior to the selection of case for audit, should have been paid back. (c) That there is no separate condition in the agreement as well as any further instructions given by the F.B.R. to all the RTOs that the Taxation Officers before finalizing the audit proceedings in the each case should execute new agreement with the taxpayer. (5) That since the agreement placed on record is invalid and bogus therefore, the subsequent assessment made is null and void. (6) That without foregoing above contentions the section 234A was inserted by Finance Act, 2007 which is applicable for the Tax year, 2008 and onward therefore, the appellant is entitled to claim the adjustment of all the withholding collected or deducted under various heads during the tax year. Departmental appeal: (1) That the learned CIR(A) was not justified to annul the order passed under section 122(A) being illegal as the taxpayer was obliged to follow the conditions laid down in agreement executed with the C.N.G. in true letter and spirit while the taxpayer opted for assessment basis in pursuance of the said agreement. (2) That the learned CIR(A) was not justified to hold the order illegal as the assessment order finalized under section-122(3) in violation of the agreement made between the Department and C.N.G. owners Associations which rendered the amended order passed under section 122(3) as erroneous so far as prejudicial to the interest of Revenue, the taxpayer was not entitled for credit of tax deducted and the taxpayer was bound to deposit back the refund issued at Rs.615,235 to the government exchequer.

2. Brief facts leading to these appeal are that the taxpayer, an AOP derives income from running a C.N.G. station. That returns filed for the years under appeals were deemed to be assessment under section.

120. Thereafter, the case was selected for audit. Audit proceedings were finalized under sections 122(3) and 122(1) by charging tax @ 4% of the gas purchased and obtained revised returns on the basis of agreement between all Pakistan C.N.G. Association and RTO, Rawalpindi circulated by F.B.R. to all RTO'S in Pakistan. Thereafter, the Assessing Officer for the reasons recorded in the order observed that the assessments completed under sections 122(3) and 122(1) were erroneous and prejudicial to the interest of revenue and required action under section 122(5A). Accordingly statutory notices confronting the appellant with related issues were issued. Explanation furnished by the AR was considered unsatisfactory. For the reasons recorded in the order assessments were amended under section 122(5A) as confronted. Being aggrieved with the treatment given by the Taxation Officer the assessee preferred an appeal before the learned CIR(A) who after considering the facts and circumstances of the case annulled the assessment order with the following observation: "During the course of assessment proceedings both the department and the appellant were in a hurry to finalize the assessment. Consequently, the challan for the payment was issued on the basis of the agreement by the Department and also the revised returns submitted by the appellant. This is sustained by the order sheet entry and the point mentioned in the assessment order on the issue. The original return filed includes the income from both the C.N.G. stations i.e. one at Rawalpindi and the other at Kalar Syedan, but neither the challan issued by the department included the tax for both the stations nor the revised returns contained the income for both stations. It is quite obvious that it was inadvertently and is a mistake by both sides. This needed to be rectified and corrected. It in no way becomes a case to be treated under section 122(5A) but under section

221. Therefore, when the Department and the appellant both concede to the directions/observations that the revised return should be filed by the appellant and revised/another challan should be issued by the Department to include the amount pertaining to the second station". Being dissatisfied with the treatment accorded by the learned CIR(A-II) the assessee and the Department have come up in appeal before this Tribunal on the grounds raised in para. 1.

3. At the time of hearing it was stated by learned AR that the Additional Commissioner (Audit) has passed the amended order under section 122(5A) of the Income Tax Ordinance, 2001 without properly appreciating the facts of the case. The amendment of assessment by passing single order for the multiple years having different facts is legally not maintainable. The learned AR has further argued that only 3 days time for the compliance of the show-cause notice issued under section 122(9) read with section 122(5A) of the Income Tax Ordinance, 2001 has been given. The section 234(A) was inserted by Finance Act, 2007 which is applicable for the tax year, 2008 and onward, therefore, the appellant is entitled to claim the adjustment of all the withholding tax collected or deducted under various heads during the Tax Year 2006. The learned AR has also argued that the Additional Commissioner (Audit) has wrongly passed the amended order under section 122(5A) because any mistake apparent from the record can be rectified under section 221 of the Income Tax Ordinance, 2001. The Additional Commissioner (Audit) has wrongly passed the amended order under section 122(5A) because if the tax liability of one unit has not been taken into account by the Taxation Officer while passing the order under sections 122(3) and 122(1) of the Income Tax Ordinance, 2001 the same can be rectified on his own motion under section 221 of the Income Tax Ordinance, 2001. The learned AR has -argued that since the Additional Commissioner (Audit) himself admitted at last paragraph of page-12 of the amended order passed under section 122(5A) that the taxpayer has, however, accepted the mistake/discrepancies confronted to him as the tax liability of unit-II was not taken into ac count and requested for re-calculation of lax liability" and also when the complete figure of gas purchased by the unit-II has obtained from the Sui Gas Department and the same is available on record, therefore, this is a clear case of rectification of mistakes and accordingly the assessment for the tax years 2005 and 2006 would have been rectified under section 221 of the Income Tax Ordinance, 2001. The learned AR of the assessee has contended that the Taxation Officer RTO, Rawalpindi while finalizing the assessment in individual cases at his own has placed a separate amended agreement on record by adding or changing the conditions of original agreement which was circulated by the F.B.R. The learned AR argues that other RTOs of Pakistan finalized the audit cases of CNG stations as per conditions of the agreement circulated by the F.B.R. by applying tax 4% of the value of gas purchased and also by giving due credit of tax already collected or deducted. Copies of following orders are enclosed: (a) RTO Sialkot Messrs Sultan CNG Station NT No. 0408546 Tax year 2007 Messrs Ch CNG Filling Station NTNo.2208509-2 Tax Year, 2007 (b) RTO Rawalpindi Messrs Gas Track NTNo.0043350 Tax Year, 2006 Tax Year 2007 Messrs Gas International NT No. 2465602 Tax Year, 2006 The learned AR has contended that since the agreement placed on record is invalid and bogus therefore, the subsequent assessment made is null and void. The learned AR has contended that without foregoing above contentions the section 234A was inserted by Finance Act, 2007 which is applicable for the tax year, 2008 and onward therefore, the appellant is entitled to claim the adjustment of all the withholding collected or deducted under various heads during the tax year.

5. On the other hand learned DR has argued that the learned CIR(A) was not justified to annul the order passed under section 122(A) being illegal as the taxpayer was obliged to follow the conditions laid down in agreement executed with the Department in true letter and spirit while the taxpayer opted for assessment basis in pursuance of the said agreement. Taxpayer was not entitled for credit of tax deducted and the taxpayer was bound to deposit back the refund issued at Rs.615,235 to the government exchequer.

6. I have heard the arguments and perused the record. At the very outset, the learned DR has referred the clause (8) of the agreement but the learned AR states that there is no clause (8) in the agreement between All Pakistan CNG Association and F.B.R. This controversy is crystallized that there are two agreements one between All Pakistan C.N.G. Association and F.B.R. and the other agreement between the Assessing Officer and Taxpayer. In the said agreement clause (8) has been mentioned while in first agreement clause (8) is found missing and only clause (6) has been embodied. I have noted that although this agreement was not executed in one sitting between All Pakistan CNG Association and the Income Tax Authorities, it cannot be presumed that it is not a valid agreement. The Taxation Officer forced the taxpayer to sign another agreement in which following clause (8) of the 2nd agreement has been inserted which is against the norms of justice. "The taxpayer shall not be entitled to claim any adjustment of withholding tax collected or deducted under any other head, during the tax year." The first agreement is in the field and was finally consented by both the parties which has been rotated throughout Pakistan and assessments are being made in accordance with the first agreement in various regions of Pakistan, therefore, the second agreement made by the Taxation Officer cannot be considered with free consent of the taxpayer in presence of the first agreement which has not been rescinded by both of the parties till now. First agreement/contract is in the field. Entire contract must be performed. Federal Board of Revenue, a party to a contract is entitled to have if performed in its entirety, F.B.R. cannot allow his subordinate officer to commit a breach of a part of the contract. Departmental Officer if desired to enter into a new contract; first agreement between F.B.R. and CNG association was to be rescinded then a new agreement with CNG owners or Association could be executed keeping in confidence to F.B.R. Authorities. Here officer at his own level tried to tie the hand of the taxpayer by shaping 2nd agreement, perhaps he was not understanding the fact that right of rescission arises only when other party fails to perform the contract in its entirety. Assessment in the light of first agreement suited the taxpayer, there was no question of his failure to comply with that contract. So, whatever has been done by Assessing Officer, it is just his smart move but without any legal foundation. According to section 10 of the Contract Act only those agreements have binding force which are made by free consent of the parties. Under section 14 of the Contract Act the consent can only be said to be if it is not caused by coercion and undue influence. In this case both these factors are available, therefore, the agreement so made with the Assessing Officer is a voidable contract as has been envisaged in section 19, of the Contract Act. Thus in the given circumstances 2nd agreement lack legal sanctity. It appears that departmental officers while executing first agreement were not grasping its impacts fully and subsequently Assessing Officer tried to fill the lacuna in first agreement. The state is not supposed to cheat its citizens. Whatever, the contents of first agreement finalized stood binding qua both of the parties. Taxpayer, an individual, is also member of Pakistan C.N.G. Association. Even otherwise it does not appeal to logic that he will bind himself against his interest not fully apprised of the legal aspect. The section 234-A was inserted by Finance Act, 2007 to deduct tax at source which is applicable for the tax year, 2008 and onward, therefore, the taxpayer is entitled to claim adjustment of all the withholding tax collected or deducted under various heads during the year under appeal. However I agree with the version of Additional Commissioner regarding fitting of kits in vehicles is not manufacturing activity. Section 148(1) is reproduced as under for ready reference.

148. Imports (1) The Collector of Customs shall collect advance tax from every importer of goods on the value of the goods at the rate specified in Part-II of the First Schedule. (2) (3) (4) (5) The tax collected under this section shall be final tax on the income of the importer arising from the imports subject to subsection (1) and this subsection shall not apply in the case of import

(a) raw material, plant, machinery, equipment and parts by an industrial undertaking for its own use; Fitting of kits in vehicles cannot be said as manufacturing activity. More so these are not kits for own use of industrial undertaking. Sale of kits is commercial/trade activity. It will be treated as final discharge of liability. Taxation Officer is ordered to correct the mistake of figure of Kallar Syedan C.N.G. Station. Moreso, no adjustment will be given regarding deduction of tax at import stage on kits to be fitted in vehicle. It cannot be considered as manufacturing activity. It will be considered as final discharge of liability under Presumptive Tax Regime. Other tax credit will be given. These appeals are disposed off in the manner as indicated above. C.M.A./118/Tax (Trib.) Order accordingly.