I.T.As. Nos. 2024/LB of 2004, 1549/LB, 1550/LB of 2003, 4043/LB and 4044/LB of 2001, decided on 6th June, 2005. VS I.T.As. Nos. 2024/LB of 2004, 1549/LB, 1550/LB of 2003, 4043/LB and 4044/LB of 2001, decided on 6th June, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1888 (2005)

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

----S. 62---Assessment on production of accounts, evidence etc.---Gross profit rate---First year of business---First Appellate Authority directed the Department to accept the declared trading version in respect of Ghee Unit---Department contended that gross profit rate of 3% was applied as against declared gross profit rate of 2.92% keeping in view the other parallel cases of this line of business but the First Appellate Authority had directed to accept the declared version without any justification---Validity---First Appellate Authority had rightly directed to accept the declared gross profit rate keeping in view the facts and circumstances of the case specifically on the fact that . the year under review was the first year of business and Assessing Officer himself had admitted that in parallel' cases, gross profit rate of 3% was to be applied in such like matters despite the fact that he had neither mentioned any parallel case nor had confronted the assessee regarding parallel case.

(b) Income Tax Appellate Tribunal Rules, 1981---

----R.10---Contents of memorandum of appeal---Appeal filed by, the Department was dismissed on the ground that the grounds of appeal were vague, unspecific and against the Income Tax Appellate Tribunal's - Rules, 1981 and also against the decision in this regard made by the Appellate Tribunal that the ground should be specific and each head of account should be specifically mentioned in the grounds of appeal.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 52 & 50(4)---Liability of persons failing to deduct or pay tax---Purchase of plant and machinery---Non-deduction of tax---Assessee contended that Assessing Officer had wrongly declared the assessee as an "assessee in default" because the assessee company did not deduct tax from the party from whom the assessee company purchased plant and machinery and such things transpired from the schedule- of fixed assets filed with the return---Such type of purchases were not covered under S.50(4) of the Income Tax Ordinance, 1979---Validity---Order annulled by the First Appellate Authority, keeping in view the decision of High Court, was upheld by the Appellate Tribunal and appeal filed by the Department in respect of order under S.52 of the Income Tax Ordinance, 1979 was dismissed.

1999 PTD 4028 rel.

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

----Ss. 221 & 240---Income Tax Ordinance (XXXI of 1979), Ss.156 & 59(1)---S.R.O. No.633(I) of 2002, dated 14-9-2002---Rectification of mistake---Assessment years 1999-2000 to 2001-2002---Taxation Officer assumed powers for rectification of previous assessment order completed under the Income Tax Ordinance, 1979 vide cl. (7) S.R.O. No.633(I)/ 2002, dated 14-9-2002 issued under S. 240 of the Income Tax Ordinance, 2001 and Taxation Officer had passed the order under S.221 of the Income Tax Ordinance, 2001 for the assessment year 1999-2000 on 11-2-2004 while for the assessment year 2000-2001 and 2001-2002, the order had been made on 20-11-2002---Validity---Order passed by the Assessing Officer was invalid and against the jurisdiction---Taxation Officer had passed the order under S.221 of the Income Tax Ordinance, 2001 without any justification and the First Appellate Authority upheld the same without considering the legal as well as factual position---Orders for all the three years were vacated and the orders passed by the Taxation Officer under S.221 of the Income Tax Ordinance, 2001 for all the three years under review were annulled---Appeals filed by the assessee were allowed.

Writ Petition No.7788 of 2003 and 1992 PTD 570 rel.

1985 PTD 767; 1990 PTD (Trib.) 931; 2001 PTD (Trib.) 1988 and 2003 PTD (Trib.) 698 ref.

(e) income Tax Ordinance (XLIX or 2001)---

----S. 221---Rectification of mistake---Once the matter had been agitated and considered by the superior authority on the same issues, the rectification in the matter could not be made.

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

----S. 221---Income Tax Ordinance (XXXI of 1979), Ss, 156 & 66-A---Rectification of mistake---Proceedings were initiated under S.66-A of the Income Tax Ordinance, 1979 on 1-11-2001 which were later on dropped with the observation that the assessment order was neither erroneous nor prejudicial to the interest of Revenue, but the Taxation Officer on the same issue on which the matter was reopened under S.66-A of the Income Tax Ordinance, 1979 had made the rectification in the same order which could not be upheld in any norms of justice.

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

----S. 221---Income Tax Ordinance (XXXI of 1979), 5.156---Rectification of mistake---Rectification was without any norms of justice as the Regional Commissioner of Income Tax, after considering the reply on the issue, decided that the return will be processed under Self-Assessment Scheme but on the other hand, the Assessing Officer had rectified the order for the same year without considering the fact that the Regional Commissioner of Income Tax in this regard had already decided to process the assessment under Self-Assessment Scheme.

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

----S. 221---Income Tax Ordinance (XXXI of 1979), S. 156---Rectification of mistake---For rectification of mistake, the Taxation Officer could not go beyond his limitation, as had been provided under the law or the interpretation of law as made by the superior Courts.

1992 PTD 570 rel.

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

----S. 221---Income Tax Ordinance (XXXI of 1979), S. 156---S.R.O. No. 633(I)/2002, dated 14-9-2002---Rectification of mistake---S.R.O. No.633(I)/2002, dated 14-9-2002 was invalid and illegal documents as declared by the High Court.

Writ Petition No. 7788 of 2003 rel.

Shahid Abbas and Muhammad Hamid for Appellant (in I.T.As. Nos. 2024/LB of 2004, 1549/LB, 1550/LB of 2003).

Anwar Ali Shah, D.R. for Respondent (in I.T.As. Nos. 2024/LB of 2004, 1549/LB, 1550/LB of 2003)..

Anwar Ali Shah, D.R. for Appellant (in I.T.As. Nos. 4043/LB and 4044/LB of 2001).

Shahid Abbas and Muhammad Hamid for Respondent (in I.T.As. Nos. 4043/LB and 4044/LB of 2001).

ORDER

Out of these five appeals, two have been filed by the Department against the impugned order of the learned CIT(A), dated 9-6-2001 for the assessment year 1999-2000 directing the Assessing Officer to accept the declared trading version in respect of Ghee units while the other appeal is for the same year against annulling the order passed by the Assessing Officer under section 52 of the Repealed Income Tax Ordinance, 1979 for the reasons that the provisions of section 52 are not attracted in the case of the assessee regarding transactions as mentioned in the order as made by the Assessing Officer.

While the remaining three appeals have been filed by the assessee against the three separate orders of the learned CIT(A), dated 26-2-2004 for the assessment year 1999-2000, the order, dated 11-3-2003 for the assessment year 2000-2001 and order of even date for the assessment year 2001-2002 upholding the action of the Assessing Officer rectifying the assessments under section 221 of the Income Tax Ordinance, 2001.

The learned DR in respect of appeal filed by the Department for the assessment year 1999-2000 against directions of the learned CIT(A) to accept the declared trading version in respect of Ghee units has contended that the GP rate of 3% was applied by the Assessing Officer as against declared GP rate of 2.92%. He has contended that GP rate in this respect has been applied by the Assessing Officer keeping in view the other parallel cases of this line of business, but the learned CIT(A) has directed to accept the declared version without any justification.

On the other hand, Mr. Shahid Abbas, Advocate along with Mr. Muhammad Hamid, Advocate have appeared on behalf of the assessee and have contended that year under review i.e. 1999-2000 is the first year of production of ghee/cooking oil. According to the learned counsel, the Assessing Officer in the assessment order has neither mentioned any parallel case nor has confronted the assessee through notice under section 62 regarding any parallel case. According to the learned counsel, application of GP rate @ 3% in the instant case is unjustified being without any basis and therefore, the learned CIT(A) has rightly directed to accept the declared GP rate at 2.92% specifically for the reason that the year under review regarding production of ghee is the first year of business and the GP rate as declared by the assessee is factual and otherwise reasonable.

After considering the submissions made from both the sides and perusal of the impugned order of the learned CIT(A) and the assessment order, we find no warrant for interference in the impugned order of the learned CIT(A), as he has rightly directed to accept the declared GP rate keeping in view the facts and circumstances of the case specifically on the fact that the year under review is the first year of business and the Assessing Officer himself has admitted that in the parallel cases, GP rate of 3% is to be applied in such like matter despite the fact that he has neither mentioned any parallel case nor has confronted the assessee regarding parallel case.

Regarding the ground of appeal against allowing relief under certain heads of P&L A/c, we are of the view that the ground is vague, unspecific and against the Income Tax Appellate Tribunal's Rules and against the decision in this regard made by this Tribunal that the ground in this respect should be specific and each head of A/c should be specifically mentioned in the grounds of appeal. We, therefore, find no merits in the appeal filed by the Department for the assessment year 1999-2000 against the assessment order passed under section 62 which is, therefore, dismissed.

The Department for the same assessment year i.e. 1999-2000 has also objected the impugned order of the learned CIT(A) annulling the order passed under section 52 of the Income Tax Ordinance, 1979. The learned D.R., in this respect, has contended that the assessee company was required to deduct tax under section 50(4) from various parties as mentioned in the body of the order under section 52, but as the assessee failed to discharge its legal obligation, hence the Assessing Officer has rightly passed the order and has treated the assessee as an assessee in default under section 52 of the Repealed Income Tax Ordinance, 1979. He has contended that the Assessing Officer has specifically confronted the assessee on this issue and the representative of the assessee company admitted that no tax deduction was made at the time of payment. He has, therefore, requested that the impugned order of the learned CIT(A) may please be vacated and the assessment order be restored.

On the other hand, the learned counsels for the assessee have contended that the Assessing Officer has wrongly declared the assessee as an assessee in default because the assessee company did not deduct tax from the party mentioned in the body of the assessment from whom the assessee company purchased plant and machinery and these things transpired from the schedule of fixed assets filed with the return. He has contended that such type of purchases are not covered under section 50(4) of the Repealed Income Tax Ordinance, 1979. He has, in this respect, placed reliance on the decision of the Hon'ble Lahore High Court reported as 1999 PTD 4028 wherein, it has been held that "the interpretation of word "goods" as adopted by the Assessing Officer does not find support either from the Income Tax Ordinance or for that matter from any other law. The consistent view of Hon'ble Supreme Court of Pakistan that in cases of fiscal statute, only letter of law should be seen as sufficiently been highlighted" and after the above observation, it has specifically been concluded by the Hon'ble High Court that the provisions of section 50(4) of the Ordinance were not attracted through transaction evidencing the sale of land, building and fixed plant and machinery sold as part of the factory. There was neither a supply nor its subject-matter was goods. The transaction of sale otherwise being not liable to any instance of Income Tax under any of the heads given in section 15 of the Ordinance, the question of deduction of advance tax did not arise at all. The learned counsel has, therefore, contended that the learned CIT(A) has rightly annulled the order passed by the Assessing Officer placing reliance on the above referred decision of the Hon'ble High Court.

We have heard the learned representatives of both the sides and have also perused the impugned order of the learned CIT(A), the order passed under section 52 of the Ordinance, 1979 by the Assessing Officer and the case law as referred by the learned counsel for the assessee.

We have found that the learned CIT(A) has annulled the order keeping in view the decision of Hon'ble Lahore High Court. We, therefore, find no warrant for interference in the impugned order which is upheld and the appeal filed by the Department in respect of order under section 52 is also dismissed.

The assessee in all the three appeals for the assessment years 1999-2000 to 2001-2002 has objected to the impugned orders of the learned CIT(A) upholding the invocation of provisions of section 221 of the Income Tax Ordinance, 2001 for all the three years. The Assessing Officer for the assessment years 1999-2000 and 2001-2002 has rectified the already finalized assessments for the reasons that the assessee has wrongly claimed depreciation of leased assets. For the assessment year 2001-2002 in addition to the above common ground, the assessment has been rectified regarding application of section 80DD of the Repealed Income Tax Ordinance, 1979. While for the assessment year 2000-2001, the already finalized assessment has been rectified for the reason that the assessee company has been claiming liability against Messrs Pakistan Tankage Co. Karachi since assessment year 1996-97 which is more than three years old which attracts the provisions of section 25(c) of the Income Tax Ordinance, 1979 and has disallowed the liability and added back towards total income already assessed.

The learned counsel for the assessee has at the very outset contended that section 221 is not applicable in the proceedings completed under the Repealed Income Tax Ordinance, 1979. In this respect, he has contended that the new Income Tax Ordinance, 2001 has been promulgated w.e.f. 1-7-2002 relevant to the assessment year 2003 which is as per the new Ordinance is Tax Year 2003. According to the learned counsel, the Taxation Officer in the present case has assumed powers for rectification of previous assessment orders completed under the Repealed Income Tax Ordinance, 1979 vide clause (7) of S.R.O. No.633(I)/2002, dated 14-9-2002 issued under section 240 of the Income Tax Ordinance, 2001 and the Taxation Officer has passed the order under section 221 for the assessment year 1999-2000 on 11-2-2004 while for the assessment years 2000-2001 and 2001-2002, the order in this respect has been made on 20-11-2002. The learned counsel has contended that the Hon'ble Lahore High Court has already declared the S.R.O. No.633(1)/2002, dated 14-9-2002 to be not valid and legal document vide order, dated 7-4-2005 in Writ Petition No.7788 of 2003. According to the learned counsel, the orders passed by the Assessing Officer in this case are, therefore, liable to be declared invalid and against the jurisdiction.

The learned counsel on the merits of the case, has contended that the entire action of the Taxation Officer under section 221 of the Income Tax Ordinance, 2001 is void, ab initio and illegal because the Taxation Officer has totally changed the original assessment and has made re-assessment under the garb of section 221 of the Income Tax Ordinance, 2001. He has contended that there was no mistake floating/ apparent from the record and therefore, the action of the Taxation Officer is without any justification. According to the learned counsel, such a type of action as taken by the Taxation Officer has never been appreciated by this Tribunal as well as by the Hon'ble superior Courts. He has, in this respect, placed reliance on the decision of Hon'ble Supreme Court of Pakistan reported as 1992 PTD 570 wherein it has been held that "where an Officer exercising powers under section 35 of the Income Tax Act, 1922 enters into the controversy, investigates into the matter, re-assesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to `rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35 of the Income Tax Act, 1922". The learned counsel has, therefore, contended that in view of the above said judgment, the action taken by the Assessing Officer is not covered under mistake apparent from record and there was no justification for rectifying the order under sec ion 221.

Regarding the assessment years 1999-2000 and 2001-2002 which have been modified on the issue of depreciation claimed on lease assets, the learned counsel has contended that the assessee has claimed depreciation on lease assets as per International Accounting System (IAS-17) and instead of actual rent paid to leasing company lesser in amount. According to the learned counsel, these views of claiming depreciation are in accordance with Circular No.26 of 1988 wherein para-4, which is on the subject of leasing of capital assets, it has been said that "the most important thing to remember in this behalf is that it is not the `form' but the `substance' which determines whether it is an advance or an operating lease". In para-5 of that Circular, it has been said that "the various factors relevant to the determination of the type of lease are as under:

"(a) degree of risk and rewards relating to assets assumed by the lessee i.e. insurance, maintenance, taxes etc.

(b) guarantees by the lessee of the residual values,

(c) cancellation provisions and penalties, and

(d) reward and purchase option etc."

The learned counsel has, therefore, contended that there was no justification for rectification of the order.

For the assessment year 2001-2002, the learned counsel has submitted that the case of the assessee was selected for Total Audit but after considering the reply on the issue and after considering all the facts and circumstances of the case, assessment for the assessment year 2001-2002 was directed to be processed under Self-Assessment Scheme by the Regional Conunissioner of Income Tax. He has further contended that for the assessment year 2000-2001, assessment made by the Assessing Officer was reopened by the learned IAC invoking the provisions of section 66-A of the Repealed Income Tax Ordinance, 1979 on the two points i.e. levy of minimum tax under section 8ODD and depreciation claimed on assets obtained on lease. In this regard, assessment record was called and after considering the reply of the assessee, the returns already processed under section 59(1) were restored and assessment was declared to be not erroneous and prejudicial to the interest of Revenue and the proceedings initiated under section 66-A vide officer letter No.306, dated 1-11-2001 were dropped. He has contended that as the issues on which the Taxation Officer has rectified the already completed assessment have thoroughly been considered by the higher authorities including Inspecting Additional Commissioner and up to the Regional Commissioner of Income Tax, there was no justification for rectification of the orders. He has contended that there was a minute scrutiny of all the record including books of accounts by a team of Regional Commissioner, Additional Commissioner, Taxation Officer and Inspectors and the returns of the assessee were directed to be accepted. According to the learned counsel, this instance duly clarified the assertion of the assessee that the company has rightly claimed depreciation on lease assets and the assessment in this case has rightly been made and there was no basis for rectification for adding depreciation in the income of the assessee.

Regarding the assessment year 2000-2001, the learned counsel has contended that original assessment for the year was completed under Self-Assessment Scheme, but subsequently, the Taxation Officer found that there is a credit balance of Rs.2,23,877 available with the assessee in favour of Messrs Pakistan Tankage Co. Karachi relating to the assessment year 1996-97 which has to be paid in the three years as per law otherwise as per the contention of the Taxation Officer, the same should have been added back to the income of the assessee. The learned counsel has contended that the said Messrs Pakistan Tankage Co. Karachi had become defaulter of bank and its warehouses were closed on the orders of the Hon'ble Sindh High Court on the request of the bank which causes the delay in payment. He has contended that subsequently the assessee has made payment for the assessment year 2001-2002 on the order of Hon'ble Sindh High Court through official assignee of Karachi. The learned counsel has contended that section 23 of the Repealed Income Tax Ordinance, 1979 relates with expenses under the head Profit and Loss A/c and not with the trading A/c whereas in the present case, the said credits related with cost of purchase/sale which is the trading A/c and therefore section 25 of the Repealed Income Tax Ordinance, 1979 is not applicable in the instant case. He has further contended that mere termination of period of three years does not give the authority to the Taxation Officer to add back the amount in the income of the assessee, as has been held by the Hon'ble Karachi High Court in a case reported as 1985 PTD 767 wherein it has specifically been held that "mere expiry of period of limitation within which a creditor could sue the assessee to recover his debt, would not constitute cessation of liability of the assessee as the expiry of period of limitation does not extinguish the debtor liability to pay the debt. The learned counsel, in this respect, has also referred the decision of this Tribunal reported as 1990 PTD (Trib.) 931, 2001 PTD (Trib.) 1988 and 2003 PTD (Trib.) 698. The learned counsel in view of the above contentions has contended that the liability in this case is relating to trading A/c and not the P&L A/c because the payments in this regard are relevant to the purchase of palm oil which is used for manufacturing of ghee and cooking oil. He has, therefore, contended that section 25 is applicable only to expenses relating to Profit and Loss A/c that allows under section 23 of the Repealed Income Tax Ordinance, 1979 as deductions. Regarding application of section 80DD of the Repealed Income Tax Ordinance, 1979 as has been made reason for rectification by the Taxation Officer for the assessment year 2001-2002, he has contended that section 8ODD of the Repealed Income Tax Ordinance, 1979 is only applicable on importers and not on the manufacturers. He has contended that the assessee is a manufacturer of ghee, cooking oil and soap and therefore, the Taxation Officer has incorrectly applied section 80D. He has, therefore, in the above circumstances contended that the orders of the Assessing Officer passed under section 221 of the Income Tax Ordinance, 2001 may please be vacated and the assessments already made be restored.

We have heard the learned representatives of both the sides and have also perused the impugned order of the learned CIT(A), the three orders passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001, the case-law referred by the learned counsel for the assessee and other relevant record of the case.

We have found that the Taxation Officer has rectified the order for the assessment years 1999-2000 and 2001-2002 for the reason that the assessee has claimed depreciation on assets subject to advance lease. The learned counsel for the assessee has placed before us the order of the learned IAC passed under section 66A for the assessment year 2000-2001 wherein show-cause notice was issued intending to reopen the already completed assessment on the two points i.e. levy of minimum tax under section 8ODD and depreciation claimed on assets obtained on lease. Assessment record was called for, examined and after considering all the law and facts finally, the proceedings under section 66A were dropped with the observation that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. We are of the view that once the matter has been agitated and been considered by the superior authority on the same issues, the rectification in the matter cannot be made. In this case for the assessment year 2000-2001, the proceedings were initiated under section 66A on 1-11-2001 which was later on dropped with the observation that the assessment order is not erroneous and prejudicial to the interest of Revenue, but the Taxation Officer on the same issues on which the matter was reopened under section 66A has made the rectification in the same order which cannot be upheld in any norms of justice. The learned counsel for the assessee has also placed before us the order of the Regional Commissioner of Income Tax, dated 24-4-2002 for the assessment year 2001-2002 wherein after considering the reply on the issue, it was decided that the return for the assessment year 2001-2002 will be processed under Self-Assessment Scheme, but on the other hand, the Assessing Officer has rectified the order for the same year without considering the fact that the Regional Commissioner of Income Tax in this regard has already decided to process the assessment under Self-Assessment Scheme. We find force in the arguments raised by the learned counsel for the assessee that for rectification of mistake, the Taxation Officer cannot go beyond his limitation, as has been provided under the law or the interpretation of law as made by the Hon'ble Superior Courts. The Hon'ble Supreme Court of Pakistan in a case reported as 1992 PTD 570 has held that "where an Officer exercising powers under section 35 of the Income Tax Act, 1922 enters into the controversy, investigates into the matter, re-assess the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order; then it will not amount to `rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35 of the Income Tax Act, 1922". We are further of the view that the Taxation Officer, in the present case, has assumed powers for rectification of previous assessment orders completed under the Repealed Income Tax Ordinance, 1979 vide clause (7) of S.R.O. No.633(I)/2002, dated 14-9-2002 issued under section 240 of the Income Tax Ordinance, 2001 and the Taxation Officer has passed the order under section 221 for the assessment year 1999-2000 on 11-2-2004 while for the assessment years 2000-2001 and 2001-2002, the order in this respect has been made on 20-11-2002. It is pertinent to note that the Hon'ble Lahore High Court has already declared S.R.O. No.633(I)/2002, dated 14-9-2002 to be not valid and legal documents vide order, dated 7-4-2005 in Writ Petition No.7788 of 2003. We, therefore, keeping in view the above said decision of the Hon'ble High Court, are of the view that the orders passed by the Assessing Officer in this case are invalid and against the jurisdiction. We, therefore, without further going into the controversy regarding facts of the case, are of the view that in this case for all the three assessment years, the Taxation Officer has passed the orders under section 221 of the Income Tax Ordinance, 2001 without any justification and the m learned CIT(A) has upheld the same without considering the legal as well as factual position. The impugned orders for all the three years are, therefore, vacated and the orders passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001 for all the three years under review i.e. 1999-2000 to 2001-2002 are annulled. All the three appeals filed by the assessee for these three years are allowed.

Two appeals filed by the Department for the assessment year1999-2000 are dismissed, while the three appeals filed by the assessee for the assessment years 1999-2000 to 2001-2002 are allowed for the reasons as discussed supra.

C.M.A./482/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Orders accordingly.