I.T.A. No.5727/LB of 2003, decided on 25th March, 2005. VS I.T.A. No.5727/LB of 2003, decided on 25th March, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1768 (2005)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 221(1)---Income Tax Ordinance (XXXI of 1979), 5.156---Rectification of mistake---Subsection (1) of S.221 of the Income Tax Ordinance, 2001 squarely applies to the orders passed under the Income Tax Ordinance, 2001 and not under the repealed Income Tax Ordinance, 1919.

(b) Income Tax Ordinance (XLIX of 2001)---

----S. 221(1)---Income Tax Ordinance (XXXI of 1979), 5.156---Rectification of mistake---Jurisdiction---Commissioner was not vested with the powers to amend/rectify any mistake apparent from the record where an order under the repealed Income Tax Ordinance, ,1979 was passed by the Deputy Commissioner of Income Tax or the Income Tax Panels.

(c) Income Tax Ordinance (XLIX of 2001)

---S.221(1A)-Income A)---Income Tax Ordinance (XXXI of 1979), 5.156---Finance Act (I of 2003) Preamble---Rectification of mistake---By insertion of subsection (IA) of S.221 of the Income Tax Ordinance, 2001 on June, 17, 2003 it had been made abundantly clear that power to amend/rectify the order passed by the Deputy Commissioner of Income Tax or the Income Tax Panels was not available in the Income Tax Ordinance, 2001---Such power flows to the Commissioner after insertion of subsection (IA) in S.221 of the Income Tax Ordinance, 2001 on June 17, 2003 by Finance Act, 2003.

(d) Income Tax Ordinance (XLIX of 2001)

---S.221(1A)---Income Tax Ordinance (XXXI of 1979), S.156---Finance Act (I of 2003), Preamble---Rectification of mistake---Since amendment in S.221 of the Income Tax Ordinance, 2001 had been brought on June 17, 2003 by virtue of Finance Act, 2003, therefore, subsection (IA) of S.221 of the Income Tax Ordinance, 2001 would start its voyage from the date June, 17, 2003---If any order passed by the Deputy Commissioner of Income Tax or the Income Tax Panels was rectified by the Commissioner prior to the date of insertion of sub-section (lA) to S.221 of the Income Tax Ordinance, 2001, that would be made in absence of having any legal sanctity behind it.

(e) Income Tax Ordinance (XLIX of 2001)---

----S. 221(1A)---Income Tax Ordinance (XXXI of 1979), 5.156---Finance Act (I of 2003), Preamble---Rectification of mistake---Order passed by the Assistant Commissioner, whereby rectification of the order was made, on 24-9-2002, prior to introduction of the amendment in S.221 of the Income Tax Ordinance, 2001, was not sustainable in law having been passed without lawful authority---Order passed under S.221 of the Income Tax Ordinance, 2001 being contrary to law was cancelled/annulled by the Appellate Tribunal.

PLD 1979 Lah. 703; 1984 PTD (Trib.) 95; 1988 PTD 227; 1991 PTD 843; 1993 PTD 110; 1993 PTD 83; 1993 PTD 110; 1994 PTD (Trib.) 839; 1994 PTD (Trib.) 1416, 1998 PTD (Trib.) 279 and 2003 PTD 1343 ref.

(f) Income Tax Ordinance (XLIX of 2001)---

----S. 221---Rectification of mistake---Application of appropriate clause, provision or subsection---Merely mentioning S.221 of the Income Tax Ordinance, 2001 in the order did not absolve the Assessing Officer from his responsibility to apply appropriate clause, provision or subsection of the relevant section of law.

(2003) 87 Tax 19 (Trib.) and 2004 PTD Trib.) 1052 rel.

Muhammad Bashir Malik for Appellant.

Dr. Shahid Siddique Bhatti, D.R. for Respondent.

ORDER

This appeal at the instance of the assessee-appellant, is directed against the order passed by CIT (Appeals-II) Lahore, dated 9-9-2003 in respect of assessment year 2000-2001. The leaned counsel appearing on behalf of the assessee challenged the impugned order on legal as well as factual grounds at a great length.

2. Main thrust was that the provisions of section 221 of the Income Tax Ordinance, 2001 have not been lawfully invoked in the instant case. Facts giving rise to this contention are that the assessment in this case was originally formulated in terms of section 62 of the repealed Income Tax Ordinance. Accordingly the sales were estimated by the Assessing Officer at Rs.4.5(M) which were subjected to a gross profit rate of 15%. Subsequently, a mistake in the computation chart was noticed and the assessee was show caused as to why the discrepancy appearing therein may not be rectified. It was responded that proposal to apply gross profit rate of 15% was against the facts of the case being the income declared had been accepted. This plea was turned down by the Assessing Officer. Accordingly gross profit rate of 15% was applied by the Assessing Officer to the sales earlier estimated. The assessee's plea of calculation of minimum tax under section 80-D on gross receipts, which were inclusive of Sales Tax, was also not accepted. Resultantly, net income was computed by the Assessing Officer at Rs.716,150 after making adjustment out of certain heads of the profit and loss expenses. Since, the tax liability on the amended income, after rectification of the assessment, was more than the tax liability to be calculated on the total turnover, thus, the provisions of section 80-D were not invited.

3. At the first appellate stage, legality of invoking the provisions of section 221 of the Income Tax Ordinance, 2001 was challenged. But the Appeal Commissioner, after reproducing provision of section 221(1A) in the body of the order and perusal thereof, came to the conclusion that since subsection (IA) has been introduced to section 221 of the newly born Income Tax Ordinance, 2001, the Taxation Officer was legally justified to rectify the order even passed under the Repealed Ordinance. Accordingly, the impugned order passed under section 221 of the Income Tax Ordinance, 2001 was maintained by the 1st appellate authority. This has compelled the assessee-appellant to come up in appeal before the Tribunal.

4. Before us the learned counsel for the assessee reiterated the contentions by stating that the provisions of section 221 (IA) of the Income Tax Ordinance, 2001 cannot be made applicable prior to the date of insertion of amendment in this section which was June, 17, 2003. Further stated that this amendment shall take its effect from July 1, 2003. In order to support the plea and to acquire strength the learned counsel has referred a few case law in re: PLD 1979 Lah. 703, 1984 PTD (Trib.) 95, 1988 PTD 227, 1991 PTD 843 (KYC H.C.), 1993 PTD 110, 1993 PTD 83 (K.H. Court), 1993 PTD 110 (H.C. Kar), 1994 PTD (Trib.) 839, 1994 PTD (Trib.) 1416, 1998 PTD (Trib.) 279 and 2003 PTD 1343 (L.H.C.).

5. This contention is quite weighty. It is imperative to mention here that the Income Tax Ordinance, 2001 was promulgated on the 13th September, 2001 but came into operation on 1-7-2002. Section 221 of this Ordinance is pari materia to section 156 of the Repealed Income Tax Ordinance, 1979 which had empowered any Income Tax authority or the Tribunal to rectify his/its order whereby any mistake apparent from the record had been brought to his/its notice. Even rectification of the order could be made suo motu. Similarly subsection (1) of section 221 of the Income Tax Ordinance, 2001 empowers the Commissioner, the Commissioner (Appeals) or the Appellate Tribunal to amend the order, in writing, passed by him or it, in order to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a tax payer or, any of the authorities mentioned supra. But this section circumscribes those orders which would be made/passed under the new Income Tax Ordinance, 2001 and not under the Repealed Income Tax Ordinance, 1979. Moreover this section vests the power to rectify or amend the order passed by any of the authority referred to above where the original order would be passed in the case of a "taxpayer". Whereas under section 156 of the Repealed Income Tax Ordinance, 1979, rectification of order could be sought where the order would have been made/passed only those in the case of the "assessee". Thus subsection (1) of section 221 of the Income Tax Ordinance squarely applies to the orders passed under the new Ordinance and not under the Repealed Ordinance.

5-A. Coming to saving section, if we go through the clauses enumerated in section 239 of the Income Tax Ordinance, 2001, whereby protection to certain proceedings or orders passed under the Repealed Ordinance, 1979 has been given, we come to an inescapable conclusion that the Commissioner was not vested with the powers to amend/rectify any mistake apparent from the record where an order under the Repealed Ordinance was passed by the Deputy Commissioner of Income Tax or the Income Tax Panels. For this purpose subsection (IA) has been inserted in section 221 of the Income Tax Ordinance, 2001 extending the powers to the Commissioner to rectify the order on account of a mistake apparent from the record within the period specified in the said section and requirement of issuing a notice where rectification is to result in increase of assessment, reduction in refund or otherwise applies adversely to the taxpayer. Now, by insertion of subsection (1A) to section 221 of the Income Tax Ordinance, 2001 on June 17, 2003 it has been made abundantly clear that power to amend/rectify the order passed by the Deputy Commissioner of Income Tax or the Income Tax Panels was not available on the newly born Statute Book. Rather this power flows to the Commissioner after insertion of subsection (IA) in section 221 of the Income Tax Ordinance, 2001 on June 17, 2003 by Finance Act, 2003. This subsection reads as under:--

"[(IA) The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commissioner, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance to rectify any mistake apparent from record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), subsection (3) and subsection (4) shall apply in like manner as these apply to an order under sub-section (1).]"

6. In fact, subsection (IA) to this section has been introduced to extend its applicability to the orders passed by the Deputy Commissioner of Income Tax or the Income Tax Panels, as is defined in section 2 of the Repealed Ordinance, prior to the date of commencement of the Income Tax Ordinance, 2001. Since, amendment in section 221 of the Income Tax Ordinance has been brought on Statute Book on June 17, by virtue of Finance Act, 2003, therefore, we hold that subsection (IA) would start its voyage from the said date i.e., June 17, 2003. Thus if any order passed by the Deputy Commissioner of income Tax or the Income Tax Panels is rectified by the Commissioner prior to the date of insertion of subsection (IA) of section 221 of the Income Tax Ordinance, 2001, that would be made in absence of having any legal sanctity behind it.

7. Reverting to the facts of the case, the consolidated order under section 62 and under section 80D of the Repealed Income Tax Ordinance, 1979 was made by the Assistant Commissioner of Income Tax on 27-10-2001 which was subsequently rectified on 24-9-2002 by inviting section 221 of the Income Tax Ordinance, 2001. It is to be pointed out that the Assistant Commissioner of Income Tax was included within the definition of "Deputy Commissioner" under clause (17A) of subsection (1) of section 2 of the Repealed Ordinance. Admittedly rectification of the order made under sections 62 and 80-D of the Repealed Ordinance has been sought prior to introduction of amendment in section 221 of the Income Tax Ordinance, 2001. Hence, the order E passed by the Assistant Commissioner, Circle-15, Companies Zone, Faisalabad, whereby rectification of the order was made, on 24-9-2002, prior to introduction of the amendment in section 221 of the Income Tax Ordinance, 2001, is not sustainable in law having been passed without lawful authority.

8. It also does not transpire from the rectificatory order as to whether the Assistant Commissioner of Circle-15, Companies Zone Faisalabad was delegated with the powers by the Commissioner to rectify the order made under section 62 of the Repealed Ordinance or not. Because nothing has been mentioned in this regard in the rectifcatory order. It would not be out of place to bring on record that the Assessing Officer has merely mentioned at page 1 of the rectificatory order "assessment order under section 221". From this it is quite evident that the Assessing Officer has not applied his mind to state that which subsection of section 221 of the Income Tax Ordinance, 2001 is attracted to the facts of the present assessee such as whether subsection (1) or (IA) of section 221 of the Income Tax Ordinance, 2001. Actually two different eventualities have been enumerated under section 221 of the Income Tax Ordinance, 2001. As regards subsection (1) of this section, this deals with the orders passed under the new Income Tax Ordinance while subsection (lA) covers the situation where the orders were passed by the DCIT or Income Panels under the Repealed Ordinance. From this, it is quite evident that the Assessing Officer was not mindful of the fact as under which subsection he is exercising his powers. Thus merely mentioning section 221 of the Income Tax Ordinance, 2001 in the order does not absolve the Assessing Officer from his responsibility to apply appropriate clause, provision or subsection of the relevant section of law. Strength in this regard is drawn from the case-law reported as (2003) 87 Tax 19 (Trib.). In the said case, the impugned addition made under section 13 of the Repealed Ordinance was deleted on account of non-quoting of relevant clause of this section. In another case cited as 2004 PTD (Trib.) 1052 whereby it was held by the Tribunal that rion-ticking of relevant clause of the notice issued under sections 65 and 66A of the Repealed Income Tax Ordinance, 1979 rendered the additional assessment/revisional assessment to have been not lawfully made. Even on this count, the rectificatory order passed by the Assistant Commissioner of Income Tax, dated 24-9-2002 is not sustainable in the eye of law.

9. In view of foregoing discussion, we have no ambiguity in our mind to declare the order passed under section 221 of the Income Tax Ordinance, 2001 to be contrary to law which is hereby cancelled/annulled. Resultantly, the order passed by the Assistant Commissioner of Income Tax Circle-37 Faisalabad under section 62 and under section 80-D, dated 27-10-2001 shall hold the field.

10. Since, the appeal has been accepted on legal premises, we therefore refrain from dilating upon merits of the case hereunder.

11. Hence, the assessee's appeal succeeds.

C.M.A./539/Tax (Trib.)Appeal accepted.