I. T. AS. NOS.3729/LB AND 3730/LB OF 1994, DECIDED ON 2ND JUNE, 1996 VS I. T. AS. NOS.3729/LB AND 3730/LB OF 1994, DECIDED ON 2ND JUNE, 1996
1999 PTD (Trib) 2289
[Income-tax Appellate Tribunal Pakistan]
Before Iftikhar Ahmad Bajwa, Accountant Member and Syed Mumtaz Alam Gillani, Judicial Member
I. T. As. Nos.3729/LB and 3730/LB of 1994, decided on 02/06/1996.
Income Tax Ordinance (XXXI of 1979)---
----Ss.55, 56, 57, 65, 62, 66-A & Second Sched., Part IV, c1.9, proviso-- Income Tax Rules, 1982, 8.190---Late filing of return of total income-- Option of assessee to go out of presumptive tax regime ---Permissibility-- Assessment order completed under S.62, Income Tax Ordinance, 1979 was revised under S.66-A of the Ordinance by the Commissioner of Income-tax on the ground that option to go out of presumptive tax regime under cl. 9 of Part IV of Second Schedule of the Income Tax Ordinance, 1979, could not be exercised by the assessee as the return was not filed within time prescribed by S.55 of the Income Tax Ordinance, 1979---Validity---Return of income filed under Ss.56, 57 & 65 of the Ordinance was at par and as valid as the return filed under S.55 of the Income Tax Ordinance, 1979 except for its liability to penal action for late filing of return---Declaration under cl. 9 of Part IV of Second Schedule filed alongwith delayed return was also as valid as the one accompanying the return filed in time---Order under S.66-A, Income Tax Ordinance, 1979 by Commissioner was annulled by the Income tax Appellate Tribunal in circumstances.
Gopynath Bishwamal Roy's case (1950) 18 ITR 1976; CIT v. Royal Textiles (1979) 120 ITR 506 and Noor Hussain Natha v. CED 1968 PTD 405 ref.
Muhammad Ali Khan, Saadat Ali Khan, Advocates and Masood Kazi, T.P. for Appellant.
Haji Ahmad, D. R. for Respondent.
Date of hearing; 15th May, 1995.
ORDER
IFTIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER).---The two appeals relating to assessment years 1991-92 anti 1992-93 are directed against orders of the Commissioner of Income-tax who, in exercise of the powers under section 66-A, had revised the orders of the Inspecting Additional Commissioner who had been assigned the jurisdiction over this case under section 5(1)(c) of the Income Tax Ordinance.
2. Assessee, a private limited company, derived income from manufacturing and supply of 'electric meters' to WAPDA and Azad Jammu Kashmir Government. For assessment years 1991-92 and 1992-93, returns were filed after the due dates prescribed under section 55 of the Ordinance. After processing the returns and examining the accounts as well as relevant facts of the case, the two assessments were completed under section 62 by the Inspecting Additional Commissioner on 1-6-1992 and 20-6-1993 on income of Rs.22,66,767 and Rs.41,17,302 respectively. On examining the records, the Commissioner of Income-tax considered the two assessments as erroneous and prejudicial to the interest of revenue on the following grounds:---
"(a) The assessee had not filed its returns oft income for the impugned assessment years under section 55 of the Income Tax Ordinance, 1979, and
(b) had not filed written irrevocable option under section 9 of Part IV of Second Schedule to the Income Tax Ordinance, 1979, to opt out of presumptive tax regime. Thus, the assessments were wrongly finalized under section 62 instead of section 80C."
Appellant had opposed the action under section 66-A and had claimed that the proceedings were initiated when appellants insisted for payment of the determined refunds alongwith interest for the delayed payment. Appellant had claimed that there was nothing erroneous in the orders under section 62 on the basis of returns which were accompanied by the prescribed statements as well as the option prescribed under clause (9) of Part IV of the Second Schedule. Appellant's arguments were rejected by the CIT mainly on the following grounds:---
"The A.R. of the assessee in his written reply stated that the assessee had exercised irrevocable option 'in writing as required under clause (9) of Part IV of the Second Schedule. The claim of the A.R. that he had filed the option is not borne from the record. He has also been unable to file any proof in support of his claim. In the absence of the written option the question of 'rejecting, ignoring or, by passing' the option does not arise.
The second argument by the A. R. is that proceedings under section 66-A have been initiated on the presumption that the returns on record are not returns under section 55, but are in response to notice under section 56. The argument does not carry any weight, as the assessee was required to file the returns under section 55 on or before December 31, 1991 and 1992 respectively. The assessee failed to file the same on the due date and as such filed the returns on February 26, 1992 and April 26, 1993. A belated return cannot be considered a return under section 55, as this section clearly provides a specific date on which the return is to be filed. If an assessee under subsection (3) of section 55 takes an extension of time in filing of return, then the return, if filed within the said extended date would also qualify to be a return under section 55. Thus, returns filed by the assessee are returns under section 57 of the Income Tax Ordinance, 1979, as they were filed after the due date and the extended time allowed under section 55(3). Any return filed, other than under section 55, does not entitle the assessee to opt out of assessment under sections 62, 63 etc. The facility of opting out is available only to the assessee who file their returns on due dates mentioned in section 55. Similarly, the option to opt out of section 80-C has to be filed within' the dates permitted by section 55. "
3. At the time of hearing of appeals, appellant's Authorised Representative disputed the finding regarding non-filing of option and argued at length that the returns even if filed after the due date, are nothing but returns under section 55. Thus, the orders under section 66-A in respect of the two years were claimed to be unjustified.
4. In support of the claim of filing of the option alongwith the return, appellant's A.R. produced copies of covering letters wherein the documents accompanying the returns had been enumerated which included the option under clause (9) of Part IV of the Second Schedule. The peon books acknowledging the receipts of returns on 26-2-1992 and 28-4-1993 were also produced. It was contended that receipts of options was duly mentioned in the order sheet. Copies of the covering letters produced on the date of hearing do not bear acknowledgment of receipt by any official of the Income tax Officer. The acknowledgment of the peon book of appellant's A.R. also do not specifically mention whether the option in writing had been filed alongwith the return. However, the fact remains that the returns were accompanied by a number of statements which were mentioned in the assessment order also. The senior officers like the Inspecting Additional Commissioners who normally exercise supervisory jurisdiction over the Assessing Officers are presumed to have been satisfied that the returns fulfilled all the requirements necessary for processing under section 62 of the Ordinance. In the absence of written option, the Inspecting Additional Commissioners could not have proceeded with the-processing of the returns. Either they would have insisted on the written option or they would have enforced the filing of statement under section 143(b) to determine the liability under section 80-C of the Income Tax Ordinance. The fact that proceedings under section 66-A were initiated only after repeated requests for issuance of refunds alongwith the interest for belated payment is also borne out by record. The CIT also appears to be unsure of the position regarding the filing or non-filing of the option as he dwelt at length on the point that the option prescribed under clause (9) of Part IV of the Second Schedule could be exercised only at the time of filing of return under section 55 and on the expiry of the due date for filing the return under section 55 the appellant had missed the bus. Appellant's contention that it opted out the presumptive tax regime at the time of filing of return for assessment years 1991-92 and 1992-93 finds support from the circumstantial evidence. Apparently, the written options had been misplaced or otherwise escaped the notice of the CIT. On this basis, the finding that assessment under section 62 in respect of assessment years 1991-92 and 1992-93 were erroneous, is unsustainable.
5. That brings us to the question whether an assessee's failure to file the option on the date due for filing of return under section 55 is fatal to his claim for opting out of the presumptive tax regime and whether a return filed after the due date is or is not a return under section 55. Section 80-C, bringing receipts covered under section 54 into presumptive tax regime, was inserted in the Ordinance by Finance Act, 1991. The rationale of the new provision was explained by the Finance Minister in his budget speech in the following words:--
"Withholding tax to the tune of 2.5% to 3% is being charged on commercial importers and from contractors and from payments to contractors and suppliers. However, they face quite a few difficulties later with regard to assessment and refund. We propose that in case of business men who have no other source of income, this deduction should be treated as the final tax and they should not be put to the inconvenience of filing of tax return. "
The new provision was, thus, a concession to the traders who were saved from the hassle of filing the tax returns and undergoing the rigours of assessment procedure. Instead of filing the return under section 55 they could file a simple statement under section 143(b) showing the amount of receipts and the tax deducted. However, the provision could be very harsh in the case of manufacturers-suppliers as it did not take into account such statutory allowance as the depreciation for the relevant year as well as the unabsorbed depreciation brought forward from earlier years. Realising their difficulty the Federal Government issued S.R.O. 829(1)91, dated 24-8-1991 inserting clause .(9) in Para. IV of the Second Schedule which reads as under:---
"(9) The provisions of section 80-C as far as they relate to payments on account of supply of goods on which tax is deductible under subsection (4) of section 50 shall not apply in respect of any person being a manufacturer of such goods who opts out of the presumptive tax regime:
Provided that a declaration of final and irrevocable option is furnished in writing is furnished alongwith the return of total income under section 55. "
In the presumptive tax regime, an assessee is exempted from filing a return under section 55 and undergoing the rigorous process of assessment but for a person intending to stay under the procedure of normal law the aforementioned clause obliges him to file proper return of income under section 55 rendering him liable to undergo the process of assessment and also to file a final and irrevocable option with the return. Not only the form of the return required to be filed under section 55 is prescribed but the format of verification and documents to be attached with such return are also prescribed under Rule 190 of the Income Tax Rules, 1982. No form. however, has been prescribed for the option. Even in the case of forms documents and Annexures which are so important that these have been prescribed under the law, it has been held in a number of judgments of the Supreme Courts that failure to file such essential documents is not of such consequence. A return not accompanied by copies of P&L Account and balance-sheet was held to be valid by the Dacca High Court in the case of Gopynath Bishwamal Roy (1950) 18 ITR 1976. Likewise a return filed in the wrong form was held to be a valid return by the Madras High Court in CIT v. Royal Textiles (1979) 120 ITR 506. In the case of Noor Hussain Natha v. CED 1968 PTD 405 the Karachi High Court, relying on a number of judgments held that the presentation of memorandum of appeal under rule being directory in nature, its non-compliance ought not to have resulted in the rejection of the appeal. Non-filing of prescribed particulars is not considered to be fatal either to the validity of the return or a claim to other benefits by even the C.B.R. which in various circulars, especially those governing the Self-Assessment Scheme, have often directed the Assessing Officers for subsequently obtaining such particulars/documents.
6. It may be pointed out that the option is not meant to be filed once and for all but each year alongwith the return as was confirmed by C.B.R.'s Circular No.4(20)TR-1/91, dated 7-9-1993. Since the option is to be exercised every year, the filing of separate declaration is a mere formality. Where an assessee files the return but fails to file the option with the return this failure cannot be considered as fatal to his claim of opting out of the presumptive tax regime. The proviso to clause (9) of Part IV of the Second Schedule emphasised that the declaration should be final and irrevocable to prevent an assessee from later claiming that he wants to embrace the presumptive tax regime but had filed the return under these normal law by mistake.
7. Section 55 providing for filing of return has two parts, the first part lays down what is to be filed (i.e. the return) while the other part stipulates when it is to be filed. Section 57 substitutes only the second part of section 55 allowing a belated return to be filed before the assessment is made Rule 190 of the Income Tax Rules, prescribing the farm of return reads as under:---
"Return of total income. ---(I) The return of total income required to be furnished under section 55 shall.... be in the following manner . . .. "
It is significant that although return of total income can be filed under many sections e.g. 56, 57, 65, 72, 81, 99 (etc.), the return prescribed by the rules had been termed as return under section 55. As rule 190 prescribing the return of total income terms it as return under section 55, the use of the words "under section 55" in clause (9), Part IV of the Second Schedule is with reference to the return of total income only not necessarily (?) the entire provision of section 55 which also lays down the time by which a return is to be filed. A return of income filed under sections 56, 57, 65 (etc.) is as valid as the return filed under section 55. Likewise, a declaration under clause (9) of Part IV of Second Schedule filed alongwith a delayed return is as valid as the one accompanying the return filed in time. The finding that appellant could be assessed under normal law only if the return had been filed under section 55 was, therefore, unwarranted and unjustified by law.
8. In view of the foregoing discussion, we have no hesitation in holding that a return filed under section 57 is at par with a return filed under section 55 in all respects except for its liability to penal action for late filing and a declaration opting out of the presumptive tax regime filed with a return under sections 56 or 57 fulfils the requirements of clause (9) of Part IV of Second Schedule of the Ordinance. The orders under section 66-A in respect of the assessment years 1991-92 and 1992-93 are, therefore, unsustainable and are hereby annulled.
C.M.A./53/(Trib.) Order accordingly