I. T. A. No. 1052/KB of 2000-2001, decided on 31st October, 2001 VS I. T. A. No. 1052/KB of 2000-2001, decided on 31st October, 2001, 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2198 (2001)

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss.4(1)(2), 4A [as substituted by Finance Act III of 1998], 5(1)(1)(c) & 2(17A)‑‑‑C. B. R. Circular No.11 of 1998, dated 25‑7‑1998‑‑ Appointment of Income‑tax Authorities‑‑‑Appointment of firms of accountants‑‑‑Assessment year 1997‑98‑‑‑Assessment on the basis of report of Chartered Accountant‑‑‑Appointment of Chartered Accountant‑‑ ‑Legality‑‑‑Assessee's contention was that appointment of Chartered Accountant for the year 1997‑98 had been made under S.4(2) of the Income Tax Ordinance, 1979 for which there was no provision in law; appointment of Chartered Accountant could only be made under the provisions of S.4A of the Income Tax Ordinance, 1979 [as substituted by Finance Act, 1998] ‑and that appointment having been made without any sanction of law, assessment based on the report of an illegally appointed person was not maintainable‑‑‑Validity‑‑‑Appointment had been made on the basis of directions issued by the Central Board of Revenue, no illegality, therefore, was committed by the Commissioner of Income‑tax as there was no other way in which the appointment could be made in view of directions of the Central Board of Revenue‑‑‑Other notification issued on the same date assigning jurisdiction to the special officer under S.5(1)(c) of the Income Tax Ordinance, 1979 enabled the said special officer to exercise his functions and jurisdiction in accordance with provisions of Income Tax Ordinance, 1979‑‑‑While the said notification mentioned the appointment of Chartered Accountant as a special officer, the other notification issued under S.5(1)(c) of the Income Tax Ordinance, 1979 specified his jurisdiction without which the said officer could not proceed to conduct the specific investigative audit for which purpose he was appointed‑‑‑Series of events leading to the selection of Chartered Accountant as a special officer by the Central Board of Revenue and communication made in this regard to .Regional Commissioner of Income‑tax and subsequent directions issued by the Regional Commissioner of Income‑tax for issuing the order under S.4(2) duly authorized the Commissioner of Income‑tax to issue the notification appointing the Chartered Accountant as special officer‑‑‑Other notification on the same date under S.5(1)(c) of the Income Tax Ordinance, 1979 specified the jurisdiction of the special officer‑ ‑‑Person of special officer having been included in the definition of Deputy Commissioner of Income‑tax and Deputy Commissioner of Income‑tax being subordinate to the Commissioner of Income‑tax invoking of provision of S.4(2) of the Income Tax Ordinance, 1979 by the Commissioner of Income‑tax for the appointment of the special officer was not invalid‑‑‑Appointment of Chartered Accountant was, therefore, not in contravention of any law‑‑‑Appointment of the Chartered Accountant being not illegal, order of the First Appellate Authority was not interfered by the Tribunal.

Regional Commissioner of Agriculture Income‑tax v. B.W.M. Abdul Rehman, Manager, Tak Bara Taraf Wards Estate 1973 SCMR 445; 1997 PTD (Trib.) 1928; 1999 PTD (Trib.) 2949 and 1998 PTD (Trib.) 62 ref.

(b) Central Board of Revenue Rules, 1967‑‑‑

‑‑‑‑Rr.4 & 3‑‑‑Notification for appointment of a Chartered Accountant as special officer was issued under the signature of Director of the Directorate of Intelligence & Investigation (Direct Taxes) Central Board of Revenue and not under the signature of the Secretary ‑‑‑Validity‑‑ Business of Central Board of Revenue was transacted under Rule 3 of the Rules by a Member‑‑‑No evidence was available to the effect that copy marked by the Director to the Member was at any subsequent point of time disapproved by him‑‑‑Letter issued with the approval and sanction of the Member was sufficient to make it a validly issued letter by the Central Board of Revenue even under the Central Board of Revenue Rules, 1967‑‑‑Technical objection relating to the communication issued by the Central Board of Revenue intimating the selection of the special officer was not valid and the letter issued under the signatures of the Director did not suffer from the deficiency being attributed to it by the assessee‑‑Plea of the assessee was dismissed by the Tribunal.

Rehan Hasan Naqvi for Appellant.

Umer Faroque, D.R. for Respondent.

Date of hearing: 18th August, 2001.

ORDER

MUHAMMAD MAHBOOB ALAM (ACCOUNTANT MEMBER).‑‑‑The appeal is directed against CIT(A)'s Order No. CIT/ A‑2, dated 25‑2‑2001, confirming the appointment of special officer for audit of the case for the assessment year 1997‑98 and setting aside of the order with respect to various disallowances made by the Assessing Officer.

2. Before us, the learned counsel for the appellant has pressed the order of the learned CIT(A)'s order with respect to the jurisdiction assigned to the special officer. The learned A.R. has been heard on this point. His main objection is that the appointment of Mr. Abdul Wahid, Chartered Accountant as an special officer for conducting the audit under subsection (2) of section 4 of the Income Tax Ordinance, 1979 was not in accordance with law and since the assessment order was passed on the report of Mr. Abdul Wahid, C.A, the legality of such order was also open to question. We find that a similar plea was taken by the learned counsel for the appellant before the learned CIT(A) and as the order of the learned CIT(A) had reproduced the plea taken in this regard by the learned counsel before him, the relevant portion from his .order is quoted below:‑‑‑

"-------------That the appellant is a Private Limited Company under the name and style of Messrs City School (Pvt.) Ltd. and is running educational institutions all over Pakistan.

That the return for the assessment year 1997‑98 declaring income of Rs.31,48,371 was filed which was assessed at an income of Rs.5,86,85,915 by the DCIT, Circle‑A, Cos‑III, Karachi on the basis of Audit Report submitted by Mr. Abdul Wahid C.A. of Messrs Abdul Wahid & Co. Chartered Accountant appointed as special officer under section 4(2) of the Income Tax Ordinance, 1979.

That now in this connection it is to be examined whether Mr. Abdul Wahid CA should be appointed as special officer for conducting the audit and to submit the audit report under the provision of subsection (2) of section 4 of Income Tax Ordinance, 1979.

That, therefore, it has become imperative that subsection (2) of section 4 of the income Tax Ordinance, 1979.

"4(2): Subject to such orders or directions as may be issued on the Central Board of Revenue from time to time any other Income‑tax Authority may appoint any income‑tax authority sub -ordinance to it and such other‑executive or ministerial officers and staff as may be necessary.

That the plain reading of above section would show that only an Income Tax Authority can be appointed as Income Tax Authority subordinate to it and as such no outsider who is not an Income Tax Authority under section 4 of Income Tax Ordinance, 1979, can be appointed as special officer which authority has been included in the definition of DCIT under section 2(17‑A) of Income Tax Ordinance, 1979.

That in this connection your honour's kind indulgence is invited to the following citations Regional Commissioner of Agriculture Income Tax v. BWM Abdul Rehman, Manager, Tak Bara Taraf Wards Estate reported as 1973 SCMR 445.

There is no equity about tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look fairly at the language used.

That the said citation has also been referred to by the learned Income Tax Appellate Tribunal in a case reported as 1997 PTD (Trib.) 1928.

That keeping in view' the above proposition of law the appointment of Mr. Abdul Wahid of Messrs Abdul Wahid & Co., Chartered Accountants as special officer vide learned Commissioner of Income‑tax Companies‑III. Notification No Judgment‑ NTFN/Cos‑III/1998‑99/2794, dated May 26, 1998 is void in law and so any report as a consequence thereof is not sustainable in law. A photo copy of the said notification is enclosed.

That in addition to the above the learned Commissioner of Income Tax Co‑III, Karachi also issued a notification assigning the jurisdiction in respect of the appellant under section 5(1)(c) of Income Tax Ordinance, 1979 to Mr. Abdul Wahid, C.A. and prohibiting, AACIT Circle‑A4, Co‑III, Karachi to exercise any function and jurisdiction over the case of the appellant. Photo copy of the notification of `Change of Jurisdiction' dated 26‑5‑1998 is enclosed.

That for the first time for the employment of private income‑tax authority Finance Act, 1996 had inserted the following section as 4A of the Income Tax Ordinance, 1979.

"4A. Private Income Tax Authorities. ‑‑‑(1) Notwithstanding anything contained in this Ordinance the Central Board of Revenue may, with the prior approval of the Federal Government appoint any private agency to exercise the functions and powers, including assessment of income arid collection of taxes of any income‑tax authority subordinate to it in respect of such persons or classes of persons, incomes or classes of incomes, cases or classes of cases or such areas as may be assigned to it by the Central Board of Revenue and all the provisions of the Ordinance shall apply accordingly.

(2) The CBR may prescribe procedure for appeal against the order of the assessment made by a private agency in exercise of the powers conferred on it under subsection (1) and the provisions of sections 134 to 138 shall, mutatis mutandis, apply to the orders passed in such appeals.

The subsequently the said section was substituted vide Finance Act, 1998, which is as under, according to which for the purposes of out souring audit firms of Chartered Accountants could be appointed.

(4A.) 'Appointment of firms of accountants. ‑‑‑(1) Notwithstanding anything contained in this Ordinance, the C.B.R. may appoint a firm of Chartered Accountants as defined under Chartered Accountants Ordinance, 1961 (Ordinance of 1961) to conduct the audit of any person.

(2) Any persons authorized by the firm referred to in subsection (1), while conducting an audit enter into any premises belonging to or in the occupation of the person to whom the audit relates and call for and inspect and seize books of accounts or documents in possession of such person and wherever deemed necessary for conducting the said audit may be authorized in writing, by the Commissioner to exercise the powers laid down under sections 144, 145, 146 and 148 of the Ordinance.

(3) The scope of audit under this section shall be such as the Central Board of Revenue may determine on case‑to‑case basis.)

That your honor would appreciate that the appointment of Mr. Wahid Chartered Accountant of Messrs Abdul Wahid & Co. appellant for the assessment year 1997‑98 has been made under section 4(2) of the Income Tax Ordinance, 1979 for which there is no provision in law.

That incidentally it may also be mentioned that the appellant besides objecting to the appointment vide his letter, dated June 4, 1998 has also filed Constitution petition vide C. P. No. 1638 of 1998 which is pending decision.

That although the above‑cited notifications are still in force as no notification for their withdrawal has been issued yet the order for the assessment year 1997‑98 has been passed by the DCII Circle‑A‑4, Cos‑III, Karachi.

That your honour would appreciate the entire proceedings in respect of the assessment year 1997‑98 are without jurisdiction, hence it is challenged because it touches to the root of the matter. "

3. The plea taken by the learned counsel for the appellant was discarded by the learned CIT(A) with the following observations:‑‑‑

...........The learned counsel for the appellant has been heard. His written arguments have been considered. His main emphasis is on the retention of the books of accounts by the department as well as history of the case. He has also raised as preliminary objection to the effect that firstly the appointed Chartered Accountant was not competent to undertake the said audit and firstly the DCIT's jurisdiction having been taken away by the order of the CIT in favor of the said Chartered Accountant, the DCIT was, therefore, not empowered to pass the impugned order has appointed as per the directions of the CBR, and section 4(2) begins with the order:‑‑‑

Subject to such orders or directions as may ~be issued by the CBR from time to time-------------:"

Thus, the order of the Zonal CIT dated 26‑5‑1998 is to be seen and read with the C.B.R.'s order directing him to issue orders for appointing the stated Auditor as special officer for the purpose of auditing the accounts, which job was done accordingly. Till the job was being done by the Auditor, the DCIT's jurisdiction stood ousted; and he resumed his jurisdiction after the said completion of the job by the auditors as special officer for a special purpose. Therefore, when the notification is read in the light of the aforesaid discussion, no inconsistency exists in the provision of law as well as the order of the Zonal CIT. In this connection, reference may also be made with advantage to the ratio of the decision reported as 1999 PTD (Trib.) 2949, 2973, wherein it was held that a statute should be construed, rather then interpreted with due regard to its avowed object and to 'its characters. The appellant's preliminary objection must, therefore, fail. To put it differently an interpretation should always be avoided which would make any provision of law ineffective and Legislature never creates a redundant or superfluous provision as was held in 1998 PTD (Trib.) 62"

4. As pointed out above the, plea regarding the legality of the appointment of Mr. Abdul Wahid, C.A. 'under section 4(2) of the Ordinance and the assignment of jurisdiction by the learned Commissioner of Income Tax Companies‑III, Karachi had been assailed before us by the learned counsel on the same grounds as taken by him before the learned CIT(A). From a perusal of these submissions it appears that according to the learned counsel, the appointment of Mr. Abdul Wahid C.A could only be made under the provisions of section 4‑A of the Income Tax Ordinance, 1979 as it stood amended by Finance Act, 1998 and as said appointment of Mr. Abdul Wahid by the 'Commissioner of Income‑tax was made on 26‑5‑1998 the same was without any section of law and such assessment based on report of an illegally appointed person was, therefore, not maintainable. In order to evaluate the plea taken by the learned counsel, we have to first peruse the order of the C.B.R whereby selection of Mr. Abdul Wahid as special officer was conveyed by C.B.R under signature of its Director Mr. Qudratullah to the Regional Commissioner vide his letter reproduced below:‑

"GOVERNMENT OF PAKISTAN

DIRECTORATE OF INTELLIGENCE & INVESTIGATION

(Dikes taxes)

CENTRAL BOARD OF REVENUE

C. NoIslamabad the 11th May, 1998.

The Regional Commissioner of Income‑tax,

Southern Region,

KARACHI.

SUB: AUDIT OF EXPENSIVE SCHOOLS

With reference to discussion with you the cases of following expensive schools have been selected for special investigative audit: ‑

(i) Bayview School (Pvt.) Ltd., Karachi

(ii) City School (Pvt.) Ltd., Karachi

Mr. Abdul Wahid, Chartered Accountant has been selected as Special Officer. Necessary legal formality in this regard be completed at your end.

(QUDRATULLAH),

DIRECTOR."

As can be seen from the contents of the above letter Mr. Abdul Wahid was selected as a Special Officer by the C.B.R. and the RCIT Southern Region was asked to take necessary action in this regard fulfilling the legal formalities. These legal formalities were subsequently directed to be fulfilled by the RCIT Karachi vide 1998 reproduced below:‑‑‑

"OFFICE OF THE

REGIONAL COMMISSIONER OF INCOME‑TAX

CORPORATE REGION, KARACHI.

KARACHI/JI/05/1997‑98/2576Dated 18th May, 1998

To,

The Commissioner of Income Tax.

Companies‑III

KARACHI.

SUB: AUDIT OF EXPENSIVE SCHOOLS

Please refer to the above.

I am directed to forward herewith a copy of letter from the Directorate of Intelligence and Investigation (DT). CBR, dated 11th May, 1998 on the above subject with the request that necessary order under subsection (2) of section 4 of the Income Tax Ordinance, 1979 appointing Mr. Abdul Wahid, Chartered Accountant, as special officer in respect of the two cases mentioned in the Board's letter may please be issued immediately under intimation to this office.

(HUMAYUN AQIL),

Additional Commissioner (H.Qs.)"

6. On the basis of above direction from the office of the RCIT the following two notifications were issued on the same date of 26‑5‑1998 one regarding the appointment of Mr. Abdul Wahid as a special officer to conduct the investigation audit in respect of two Schools and another (sic) Income Tax Ordinance, 1979 in respect of same two Schools by Commissioner of Income‑tax, Companies‑III, Karachi and these orders are reproduced as under:‑‑‑

(1)

"OFFICE OF THE

COMMISSIONER OF INCOME‑TAX

COMPANIES‑III, KARACHI

No. Jud‑/NTFN/Cos.II/1997‑98/2794 Dated May 26, 1998

NOTIFICATION

In exercise of the powers conferred under subsection (2) of section 4 of the Income Tax Ordinance, 1979, Mr. Abdul Wahid, Chartered Accountant of Abdul Wahid & Co. is hereby appointed as special officer to conduct special investigative audit of the following schools:‑‑

(i) Bayview Academy (Pvt.) Ltd., Karachi

(ii) The City School (Pvt.) Ltd., Karachi.

This order shall have effect immediately and is valid until further orders.

(KHURSHID ANWER),

COMMISSIONER OF INCOME‑TAX,

COMPANIES‑III, KARACHI.

(2)

OFFICE OF THE

COMMISSIONER OF INCOME‑TAX

COMPANIES‑III, KARACHI

(INCOME‑TAX ESTABLISHMENT)

JURISDICTION OF SPECIAL OFFICER

No. _____ Jud‑II/CIT‑Cos.III/Khi/Jurisdiction/97‑98, dated ________. In exercise of powers conferred under clause (C) of subsection (1) of section 5 of the Income Tax Ordinance, 1979, I, the Commissioner of Income‑tax, Companies Zone‑III, Karachi hereby direct that Mr. Abdul Wahid of Messrs Abdul Wahid & Co., Special Officer in Column‑II, shall and the Deputy Commissioner of Income‑tax in Column‑III, shall not exercise function and jurisdiction in respect of cases mentioned in Column‑IV.

(KHURSHID ANWER),

COMMISSINOER OF WEALTH TAX,

COMPANIES‑III, KARACHI.

7. Scrutiny of the above letters and notification shows that Mr. Abdul Wahid was selected as an special officer by the C.B.R. vide letter, addressed to RCIT Southern Region, Karachi as per letter dated 11‑5‑1998 reproduced above. To consider, whether such special officer could be appointed by the C.B.R. for particular purpose we have to look at the definition of special officer as provided in the Income Tax Ordinance under the Ordinance a special officer is included in the definition of DCIT as per section 2(17A) of the Ordinance. It may be pointed out that even under the repealed Income‑tax Act, 1922 there did exist an special officer included in the definition of an Income‑tax Authority under section 5(1)(cc) of the Income‑tax Act as amended by Finance. Act, 1967. This authority of special officer stands apart from any authority appointed under section 4‑A introduced subsequently in 1998 which as explained by the C.B.R. as per Circular No. 11 of 1998 authorizing the C.B.R. to appoint a firm of Chartered Accountants for the purpose of audit of tax only. However, by virtue of C.B.R. Letter, dated 11‑5‑1998 Mr. Abdul Wahid was recommended for appointment as a special officer and C.B.R. was quite competent to appoint such officer under section 4(1) of the Income Tax Ordinance which reads as under:‑‑‑

"4. (1) Appointment of Income‑tax authority. ‑‑‑The Central Board of Revenue may appoint as many (Regional Commissioners of Income‑tax, Director‑General of Training and Research, Directors‑General of Investigation and Intelligence Director‑General of Tax Withholding, Commissioners of Income‑tax, Appellate and Inspecting Additional Commissioners of Income‑tax, Deputy Commissioner of Income tax and other executive or ministerial officers and staff as may be necessary."

8. Needless to point out that the Deputy Commissioner referred to in the above subsection includes an special officer also under section 2(17A) of the Ordinance. The selection of Mr. Abdul Wahid as an special officer by the C.B.R. as referred to in its communication addressed to the RCIT Southern Region, Karachi was thus according to provisions of law as reproduced above. Subsequent directions issued by the RCIT Corporate Region, Karachi asking the Commissioner of Income‑tax, Companies‑III, Karachi to issue necessary orders under subsection 4(2) of the Ordinance are also seen to be in accordance with law as the said section allowed an Income‑tax Authority subject to such order or directions as made by the C.B.R. to appoint any other Income tax Authority subordinate to it and such ministerial staff and as may be necessary. The Commissioner of Income‑tax, Companies‑III, Karachi accordingly in pursuance of the directions of the RCIT notifying the appointment of Mr. Abdul Wahid as an special officer to conduct special investigative audit of the following two schools:‑‑‑

(i) Bayview School (Pvt.) Ltd., Karachi.

(ii) City School (Pvt.) Ltd., Karachi.

As this appointment was made on the basis of direction issued by the C.B.R. no legality is seen to have been committed by the Commissioner of Income‑tax, Companies‑III, Karachi as there was no other way in which the appointment of Mr. Abdul Wahid could be made in view of the aforesaid direction of the C.B.R. The other notification issued on the same date i.e. 26‑5‑1998 assigning jurisdiction to the special officer under section 5(1)(c) of the Ordinance was made to enable the said special officer to exercise his functions and jurisdiction in accordance with provisions of Income Tax Ordinance, 1979. In other words while Notification No.2794, dated 26‑5‑1998 notified the appointment of Mr. Abdul Wahid as an special officer, the other order issued under section 5(1)(c) specified his jurisdiction without which the said officer' could not proceed to conduct the specific investigative audit for which purpose he was appointed vide the other notification issued on the same date. The series of events, therefore, leading to the selection of Mr. Abdul Wahid as an special officer by the C.B.R. and the communication made in this regard to the RCIT, Southern Region, Karachi and the subsequent directions issued by the RCIT for issuing the orders under section 4(2) duly authorized the Commissioner of Income‑tax, Companies‑III, Karachi to issue the Notification bearing No.2794, dated 26‑5‑1998 appointing Mr. Abdul Wahid as special officer and the other order issued on the same date under section 5(1)(c) specifying the jurisdiction of the special officer. The person of special officer having been included in the definition of DCIT as discussed above and DCIT being subordinate to the Commissioner of Income‑tax the invoking of provision of section 4(2) by the Commissioner of Income‑tax, Companies‑III, Karachi for the appointment of the special officer Mr. Abdul Wahid is, therefore, not seen to be in contravention of any law. The arguments of the learned counsel, therefore, that appointment of Mr. Abdul Wahid was illegal is, therefore, not held to be tenable and the conclusion arrived by the learned CIT(A) in rejecting the plea taken before him in this regard on this very issue is, therefore, held to be proper and no interference is made on this ground.

9. Before parting with this order we would like to take up a technical objection raised by the learned counsel for the appellant regarding validity of the notification relating to the selection of the Special Officer which according to him has not been issued according to the prescribed rules regulating the transaction of the business by the C.B.R. The learned counsel has drawn our attention to the C.B.R. Rules, 1967 issued vide S. R. O. No.178(R)/67, dated 23‑9‑1967 whereby under rule 4 it was laid down that orders and decisions of the Board may be issued or notified under the signature of the Member or the Secretary. The learned counsel has pointed out that the notification in the present case was issued by the C.B.R. under the signature of the Director of Directorate of Intelligence and Investigation (Direct Taxes), C.B.R. According to the learned counsel since the Director was not a Secretary, the notification issued was technically against the prescribed rule of business and was, therefore, an invalid communication. The matter has been considered by us. In the first place we observe that ever since the rules were framed the C.B.R. has undergone a substantial change with respect to the number of functionaries and also the nature of their duties. Instead of one Member there are quite a few and instead of one Secretary there are various Secretaries, with various function assigned to them. The learned counsel has not established that even in the present set‑up the Director was not authorized to issue the letter. The proper opportunity for taking up this matter was before the Assessing Officer when the proceedings were being carried on by him. Anyway this having not been so done and the matter being raised for the first time before the Tribunal it is still taken up for order on merit. On perusal of the C.B.R.'s Letter dated 1‑5‑1998 referred to above. We find that a copy of the same had been endorsed to the Member (Direct Taxes), C.B.R. The matter is therefore, seen to have been brought to the notice of the Member and under the Rules relied upon by the learned A.R., the business of C.B.R. is transacted under rule 3 of the said Rules by a Member. As there is no evidence placed before us that the copy marked by the Director to the Member was at any subsequent point of time disapproved by him the latter issued is held to have his approval and sanction, sufficient enough to make it a validly issued letter by C.B.R. even under the aforesaid 1967 Rules. Accordingly in our view this technical objection relating to the communication issued by the C.B.R. intimating the selection of the special officer is not held to be valid and the letter issued under the signature of the Director is rot held to suffer from the deficiency being attributed to it by the learned A.R. Inconsequence this plea of the learned counsel also stands dismissed.

10. As the learned counsel has only pressed this preliminary objection regarding to the appointment of Mr. Abdul Wahid as an special officer under section 4(2) of the Income Tax Ordinance and the ground relating to the setting aside of the order by the learned CIT(A) in respect of disallowance of expenses has not been pressed.

11. The appeal stands dismissed for the reasons discussed above.

C.M.A./M.A.K./355/Tax (Trib.)Appeal dismissed.