I.T.AS. NOS. 3168/LB, 3163/LB, 3169/LB, 3167/LB, 3166/LB, 3165/LB, 3164/LB, 3256/LB, 3257/LB, VS 3258/LB AND 3259/LB OF 1996
2001 P T D (Trib.) 2906
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Judicial Member and
Mazhar Farooq Shirazi, Accountant Member
I:T..As. Nos. 3168/LB, 3163/LB, 3169/LB, 3.167/LB, 3166/LB, 3165/LB, 3164/LB, 3256/LB, 3257/LB/ 3258/LB and 3259/LB of 1996, decided on 23/12/2000.
(a) Income Tax Ordinance (XXXI of 1979)--.
----Ss.87 & 156---Charge of additional tax for failure to pay advance tax-- Rectification of mistake---Additional tax could be charged through an order of rectification if the same had not been charged at the time of framing the assessment.
1996 PTD (Trib.) 65 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
--Ss.87 & 156---Charge of additional tax for failure to pay advance tax-- Limitation---Rectification of mistake---Additional tax was charged after a time lag of 9, 8 and 4.5 years from the completion of assessment ---Validity- Order passed by the Assessing Officer whereby the additional tax was charged under S.87 of the Income Tax Ordinance, 1979 after completion of assessment of income was considered to be an order of rectification under S.156 of-the Income Tax Ordinance, 1979---Order passed under S.87 after the limitation period of 4 years provided by S.156(4) of the Income Tax Ordinance, 1979 was barred by limitation---Additional tax deleted by the First Appellate Authority was confirmed by the Tribunal.
PLD 1964 SC 410 and 1987 PTD (Trib.) 256 ref.
1996-PTD (Trib.) 65 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.87 & 156---Charge of additional tax for-failure to pay advance tax-- Show-cause notice---Rectification of mistake---Additional tax was charged under S.87 of the Income Tax Ordinance, 1979 without show-cause notice subsequent to the completion of assessment---Validity---Order passed under S.87 of the Income Tax Ordinance, 1979 was an order of rectification under S.156 of the Income Tax Ordinance, 1979---Assessing Officer was required to confront the assessee and provide him opportunity of being heard before charging the additional tax under S.87 of the Income Tax Ordinance, 1979 because as a result of his order the liability of the assessee was enhanced-- Order setting aside the assessment by the First Appellate Authority was declared illegal and the same was cancelled by the Tribunal.
PLD 1964 SC 410 and 1987 PTD (Trib.) 256 ref.
1996 PTD (Trib.) 65 rel.
S.A. Khan for Appellant.
Ashraf Ahmed Ali, D.R. for Respondent.
Date of hearing: 16th November, 2000.
ORDER
The above 11 appeals, first seven of which pertaining to assessment years 1985-86, 1986-87, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93 have been filed by the revenue and the other four appeals relating to assessment years 1989-90, 1990-91, 1991-92 and 1992-93 have been moved by the assessee to assail the combined order dated 30-3-1996 passed by the first appellate authority.
2. Representatives of both the parties are present and have been heard as well as the orders of the authorities below have also been perused.
3. Brief facts of the case are that under the provisions of section 53 (1) of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance), the assessee-company was required to make advance payment of tax during the charge years 1985-86, 1986-87, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93 in four equal instalments during each of the year. The additional tax under section 87 of the Ordinance was not charged by the assessing officer at the time of finalising the assessments for all the years under consideration. Later on the assessing officer through the assessment orders passed under section 87 of the Ordinance on 18-4-1994 charged additional tax amounting, to Rs.16,699, Rs.18,639, Rs.33,525, Rs.42,350, Rs.42,461, Rs.135,338, and Rs.139,827 for the assessment years 1985-86, 1986-87, 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93 respectively.
4. This levy of additional tax was contested by the assessee mainly on the ground that since the additional tax was not charged within a reasonable time, it could not be charged through a subsequent order at belated stage. It was also the contention of the assessee. that the fresh computations and issuing of fresh demand notices if deemed to have been made under section 156 of the Ordinance were also time-barred. According to learned A.R. the orders if deemed to have been made under section 156 were also not maintainable in the eye of law because no show-cause notice was issued to the assessee before enhancing the demand for ail the years under consideration. The CIT (Appeals) deleted the levy of additional tax for the assessment years 1985-86, 1986-87 and 1988-89 with the observation that the same could not be considered to have been charged within a reasonable time. The relevant portion of the findings of the CIT (Appeals) are reproduced as follows:---
Perusal of the record reveals that the contention of the appellant regarding time lag is partly correct. For the years 1985-86, 1986-87, and 1988-89, the order regarding- additional tax was passed after a time lag of 9, 8 and 4.5 years respectively. Obviously, this could not be considered to be a reasonable time limit as provided for such an action under section 87. In this view of the matter, the orders for these three years are not maintainable. The additional tax imposed for these three years is, therefore, deleted"
5. While deciding the first appeals of the assessee for the assessment years 1989-90 to 1992-93, it has been observed by the CIT (Appeals' that the time limit is not unreasonable. However, accepting the plea of the assessee that no show-cause notice was given as required by the norms of natural justice the assessments for these years were set aside with the following observations:---
"Perusal of the record reveals that the appellant was not given ample opportunity to defend his case before imposing- the additional tax for these years. The orders for these years, therefore, cannot be sustained as such, and are set aside with the clear directions that the appellant should invariably be provided an adequate opportunity to defend its case before imposing the additional tax, if any".
6. Being aggrieved with the above findings of the CIT (Appeals) to delete the additional tax under section 87 for the assessment years 1985-86, 1986-87 and 1988-89 and the setting aside of the order passed under section 87 of the Ordinance for the assessment years 1989-90 to 1992-93 are contested to be unjustified.
7. The assessee also not being satisfied with the setting aside of the orders passed by the DCIT of Income Tax Companies Circle-10 Lahore for the assessment years 1989-90 to 1992-93 has also come up on 'second appeal with the contention that the CIT (Appeals) was not justified to set aside the order which should have been cancelled tinder the circumstances of the case.
8. The main and foremost contention of learned A.R. is that the orders were passed beyond reasonable time. It was also pointed out by the learned A.R. that the additional tax was not charged properly. However, learned A.R. was pointed out that .the correctness of the amount of additional tax charged has neither been contested through the grounds of appeals nor; the same arise out of the orders of the authorities below. The contentions of learned A.R. is that where no time limit is prescribed the order is ought to have been passed within reasonable ,time. According to learned A.R. a period of 40 days was considered as a reasonable time limit for charging of additional tax. Learned A.R. further submitted that the main charging section was section 62 of the Ordinance and the additional tax was to be charged in consequence thereof. According to learned A.R. section 87 was not a charging section and only relates to the computation of tax. According to learned A.R. the orders passed under section 87 with inordinate delay ranging from 9 to 10 years were time-barred. The contention of learned A.R. is that since the charge of additional tax under section 87 is a part of the main assessment order passed under section 62 of the Ordinance, the additional tax may be charged by rectification under section 156 of the Ordinance, if any mistake apparent from the record is established. Learned A.R. contended that CIT (Appeals) after observing that no show-cause notice was issued to the assessee before passing of order under section 87 of the Ordinance was not justified to set aside the orders for the assessment years 1989-90 to 1992-93 which were liable to be annulled. Learned A.R. submitted that it is an established law that no man shall be condemned unheard. According to learned A.R. no show-cause notice was issued to the assessee before passing the order under section 87 of the Ordinance and thus the assessee was not provided any opportunity of being heard before the enhancement of tax demand. Learned A.R. relied on the case-law reported as PLD 1964 SC 410.
9. Learned P.R. on the other hand contended that the CIT(Appeals) was not justified in deleting the additions tax charged under section 87 of the Ordinance for the assessment years 1985-86, 1986-87 and 1988-89 with the observation that it was not charged within a reasonable time. According to learned D.R. default of non-payment of additional tax required under section 53 of the Ordinance .is not disputed. Learned D.R. further submitted that no time limit for charging of additional tax under the provisions of section 87 of the Ordinance is provided. Learned D.R. further contended that there were no legal requirements to pass an order under section 87 of the Ordinance during a specified time or to issue any show-cause notice for the same. The learned D.R. further submitted that the order of the CIT (Appeals) is in itself contradictory. According to the learned D.R. the CIT (Appeals) deleted the additional tax charged under section 87 for the assessment years 1985-86, 1986-87 and 1988-89 as having not been charged within a reasonable time while the orders for the assessment years 1989-90 to 1992-93 to charge additional tax under section 87 has been set aside by the CIT (Appeals).
10. Arguments of representatives of both the parties have been heard as well as orders of the authorities below and the case-law cited have also been perused. The assessee in his grounds of appeal for all the three years under consideration has mainly contested the order passed by the Assessing Officer through lengthy and argumentative grounds which are not in accordance with the Rule 10 of the Income Tax Appellate Tribunal Rules, 1981. However, the appeals of both the parties are being decided on merits.
11. The contention of the learned A.R. of the assessee by making reference to the judgment of the Tribunal reported as 1987 PTD (Trib.) 256 that the additional tax under section 87 of the Ordinance could only be charged within a reasonable time i.e. within 40 days after framing the assessment of income a misconception of the findings of the Tribunal whereby it was held that order to charge penal interest under subsections (7) and (8) of section 18-A of the (Repealed) Income Tax Act, 1922 after more than 40 days from the date of passing of order of assessment was not an order under section 18-A but an order read with section 35 of the Repealed Income Tax Act. The facts of the case in the above quoted decision-are that the appeals filed by the assessee against the additional tax charged for non payment of advance tax were dismissed by the CIT (Appeals) saying that no appeal against such order lay. The Tribunal accepted the plea of the assessee with the following observations:---
"In our judgment as Income-tax Officer is required by subsection (8) of section 18A to add additional tax calculated in the manner laid down in subsection (6) to the tax as determined on the basis of regular assessment. Thus, it is obvious that additional tax could be added to the tax determined on the basis of regular assessment if both are made at one and the same time or, in any case, before the notice of demand is issued. The additional tax, therefore, is deemed to be part and parcel of the tax determined on the basis of regular assessment and if an appeal lies against tax mentioned in demand notice, there appears no reason why an appeal should not lie against an order recorded under section 18A. The latest decision on this point is reported as (1985) 51 Tax 96 (HC Karachi). Now, to conclude we hold that the Income Tax Officer is required to record an order under section 18A either alongwith and for reasonable cause but, in any case, before notice of demand is issued. In such case the appeal would lie under section 30 of the- Repealed Income Tax Act. However, if the Income Tax Officer records an order under section 18A after lapse of same time and that too on discovery of mistake that would be an order under section 35 read with section 18A of the Repealed Income Tax Act and again would be appealable. The order of learned Commissioner of Income Tax (Appeals), therefore, is not sustainable in law and we set it aside. The appeal is sent back to him with the direction to dispose it of on this issue according to merits".
The above findings of the Judicial Members was endorsed by the learned Accountant Member with the addition of following observations:---
"In other words if the Assessing Authority deliberately does not calculate additional 'tax at the time of regular assessment but later on without invoking sectidn 35 adds such additional tax to the demand payable by the assessee then thereby he deprives to assessee of the right of appeal which would be a very ridiculous situations. Hence, in my humble opinion the Assessing Officer in spite of not incorporating in his order section 35 then in spite of absence of reference to this provision of law, the order passed by him `would nonetheless be deemed to be under section 35. Needless to quote the authorities who have laid down in unequivocal terms that just because a wrong section or provision of law is referred to, the order of rectification would not be nugatory or against the provisions of law. Hence the order passed by the Assessing Officer would be an order under section 35 read with section 18 (A-6) and 18(A-8) of the repealed Act and the order of the CIT (Appeals) is not sustainable and has rightly been set aside for disposal according to merits by my learned brothers".
12. From the above quoted observation the resultant findings of the Tribunal is that the Assessing Officer could charge additional tax through an order of rectification if the same has not been charged at the time of framing the assessment. The Larger Bench of the Tribunal in the case reported as 1996 PTD (Trib.) 65 it e has also been held that any subsequent order of the Assessing Officer levying additional tax under section 87 after completion of assessment is to be treated as an order under section 156 of the Ordinance.
13. In the case reported as 1996 PTD (Trib.) 65 while deciding the question that "whether any order under section 87 of the Ordinance is appealable under any circumstances" the larger bench of the ITAT decided the issue in the following manner:---
"After coming to the conclusion that the payment of advance tax under section 53 and the levy of additional tax under section 87 is a part of the process of assessment we find no difficulty in holding that although the issue related to levy of additional tax under section 87 should be decided at the time of making the assessment order but if at that stage such order is not made it will be deemed to be a mistake apparent on record and such order can be made subsequently l5y recourse to the provisions contained in section 156 of the Income Tax Ordinance, 1979 by way of rectification of mistake. As we have held that notwithstanding the repeal of Income Tax Act, 1922 and promulgation of Income Tax Ordinance, 1979 the requirement of law is that the additional tax on account of default in payment of advance tax be made at the time of completion of assessment, therefore, the judgments from the Indian jurisdiction on the point that subsequent order should be treated as mistake apparent on record still holds the field. It has been held by Madras High Court in the case of V.N.S. Sockalingam Chettiar and others v. ITO (1959) 36 ITR 451 that if no additional tax is levied under section 18-A(8) of the Income-tax Act, 1922 and it has not been added to the tax determined on the basis of regular assessment such omission is a mistake and section 35 of the Income tax Act applies and mistake can be rectified under that section. It was further held that the requirement of law is that the mistake should be apparent in the record and it is not necessary that it should be in the assessment as such. It was held by the Bombay High Court in the case of Lata Mangeshkar v. Union of India and others that where no penal interest was charged on non-payment of advance tax in the regular assessment it could be rectified subsequently as a mistake apparent from the record by recourse to section 35 of the Income-tax Act, 1922. It has been held by Supreme Court of India in the case of ITO Alwaye v. Asoka Textiles Limited (1961) 3 Tax 303 that if Assessing Officer omitted to levy penal tax under section 18-A of the Income-tax Act, 1922, mistake can be rectified- under section 35 of the said Act.
After coming to the conclusion that any subsequent order of the Assessing Officer, after the completion of assessment, levying additional tax under section 87 is to be treated as an order under section 156 we need not to dilate on the point if such order is appealable or not because now under the Income Tax Ordinance, 1979 a specific right of appeal has been conferred against an order under section 156".
14. The result of the above discussion is that an order passed by the Assessing Officer whereby the additional tax is to be charged under section 87 of the Ordinance after the completion of assessment of income is considered to be an order of rectification under section 156 of the Ordinance. Thus the order of the Assessing Officer to charge additional tax under section 87 of the Ordinance for the assessment years 1985-86, 1986-87 and 1988-89 after the limitation period of 4 years provided under sub section (4) of section 156 of the Ordinance are barred by limitation of time. The order of CIT(Appeals) whereby the additional tax charged under section 87 of the Ordinance pertaining to assessment years 1985-86, 1986-87 and 1988-89 after a time lag of 9.8 and 4.5 years respectively was deleted, is held to be justified and is hereby confirmed.
15. For the assessment years 1989-90, 1990-91, 1991-92 and 1992-93 the CIT (Appeals) with the observation that the assessee was not given ample opportunity to defend his case before imposing the additional tax held that the order for these years could not be sustained as such and set aside the same with the directions that the adequate opportunity be provided to the assessee. Both the parties are aggrieved with the setting aside of the orders for these four years. The contention of the revenue is that the additional tax was rightly charged under section 87 for which no notice was required to be issued to the assessee. On the other hand according to learned A.R. the order passed without providing the assessee the opportunity of being heard was an illegal order having been passed in contravention of provisions of subsection (2) of section 156 of the Ordinance. In our opinion the contention of the learned A.R. carries weight. It has been specifically provided in subsection (2) of section 156 that no order under subsection (1) which has the effect of enhancing an. assessment or reducing a refund or otherwise increasing the liability of the assessee, shall be made unless the parties affected thereby have been given a reasonable opportunity of being heard. As discussed above it has already been held that an order passed under section 87 of the Ordinance subsequently to the completion of assessment is an order of rectification under section 156 of the Ordinance. The Assessing Officer was required to confront and provide him the opportunity of being heard the assessee before charging the additional tax under section 87 because as a result of his order the liability of the assessee was enhanced. Accordingly in our opinion the CIT(A) was not justified to set aside the orders after holding that the order to charge additional tax under section 87 for the assessment years 1989-90, 1990-91. 1991-92 and 1992-93 could not be sustained. The order of the Assessing Officer for the assessment years 1989-90 to 1992-93 being not sustainable in law is hereby declared illegal and stands cancelled.
16. As a result the appeals of the revenue for all the years under. consideration fail while the appeals of the assessee for the assessment years 1989-90 to 1992-93 succeeds.
C.M.A./M.A.K./101/Tax(Trib.)Order accordingly.