I.T.As. Nos. 1616/KB, 1617/KB of 2003, 1622/KB, 1623/KB of 2003, decided on 17th March, 2005. VS I.T.As. Nos. 1616/KB, 1617/KB of 2003, 1622/KB, 1623/KB of 2003, decided on 17th March, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1941 (2005)

Income Tax Ordinance (XLIX of 2001)---

----S.122(5A)---Income Tax Ordinance (XXXI of 1979), S.59(1)---Finance Act (I of 2003), Preamble---C.B.R. Circular No.11 of 1991, dated 30-6-1991---Amendment of assessments---Issuance of show-cause notice under S.122 of the Income Tax Ordinance, 2001 for the assessment year 1998-99 on 29-4-2003 and for assessment year 1999-2000 on 19-4-2003 for amendment of already completed assess ments---Assessee contended that at the time on which the said show-cause notice had been issued proposing amendment in the earlier completed assessment for the reasons that the orders were erroneous and prejudicial to the interest of revenue, the law prevailing at that point of time did not give the requisite jurisdiction to the Assessing Officer as subsection (5A) of S.122 of the Income Tax Ordinance, 2001 containing the requisite provisions for jurisdiction purposes was inserted in law on 16-6-2003 through Finance Act, 2003---Validity---On the dates on which the show-cause notices were issued proposing action under S.122 of the Income Tax Ordinance, 2001, the Assessing Officer had no power to amend the assessment on the ground that it was erroneous and prejudicial to the interest of revenue due to the reason that the related provisions of law were not available to the Assessing Officer---Jurisdiction assumed by the Assessing Officer was without jurisdiction, as at the time when he started the proceedings, he had no jurisdiction to proceed with the case and his subsequent actions were ab initio void and illegal---Order of First Appellate Authority was vacated and orders passed by the Assessing Officer under 5.122 of the Income Tax Ordinance, 2001 were cancelled by the Appellate Tribunal.

Messrs Sui Northern Gas Company Ltd.'s case I.T.A. No.837, 838/KB of 2003 and Messrs Jahangir Siddiqui & Company Limited, Karachi v. IAC in M.As. (A.G.) Nos. 349 to 353/KB of 2004, I.T.As. Nos. 825 to 829/KB of 2003 and I.T.As. Nos. 896 to 900/KB of 2003 rel.

2003 PTD 52; 2002 PTD 248; 2001 PTD 1525 and 1984 PTD 137 ref.

Abid Shaban for Appellant (in I.T.As. Nos. 1616/KB and 1617/KB of 2003).

Ms. Farzana Jabeen, D.R. for Respondent (in I.T.As. Nos.1616/KB and 1617/KB of 2003).

Ms. Farzana Jabeen, D.R. for Appellant (in I.T.As. Nos. 1622/KB and 1623/KB of 2003).

Abid Shaban for Respondent (in I.T.As. Nos.1622/KB and 1623/KB of 2003).

ORDER

These four cross appeals have been filed against the consolidated impugned order of the learned C.I.T:(A) dated 12-8-2003 for the assessment years 1998-99 and 1999-2000.

The assessee in his two appeals has framed the following common grounds of appeal:---

(1) That the order of C.I.T.(A) is bad in law and on facts and circumstances of the case.

(2) That the learned C.I.T.(A) has seriously erred on facts and in law in ignoring the main legal objection about the validity of action under section 122 of the Income Tax Ordinance, 2001 as the original order was passed under section 59 (1) of the Income Tax Ordinance, 1979 (R). The action under section 122 of the Income Tax Ordinance, 2001 being illegal and void ab initio the order of the IAC passed under section 122 of the Income Tax Ordinance, 2001' requires to be annulled.

(3) That the order passed under section 122 of the Income Tax Ordinance, 2001 being void ab initio and illegal, the C.I.T.(A) seriously erred in not annulling the order. The order passed under section 122 of the Income Tax Ordinance, 2001 requires to be annulled.

(4) That order under section 122 of Income Tax Ordinance, 2001 is illegal and void ab initio being in violation of Rule 68 of Income Tax Rules, 2002 and as specified form of notice under section 122 as per part-II to 1st Schedule to Income Tax Rules, 2002. The order requ}res to be annulled.

(5) That CIT(A) has seriously erred on facts and circumstances of the case and in law in ignoring the legal arguments regarding the jurisdiction of Inspecting Additional Commissioner of Income Tax in invoking the provisions of section 122 of the Income Tax Ordinance, 2001 and passing order under section 122 of the Income Tax Ordinance, 2001. The order passed under section 122 of the Income Tax Ordinance, 2001 are void ab initio and the proceedings corum non judice the order under section 122 of the Income Tax Ordinance, 2001 requires to be annulled.

While for the assessment year 1999-2000, in addition to the above grounds, following two grounds have also been framed by the assessee:---

(1) The C.I.T.(A) seriously erred in law in treating transport receipts as "Contract" receipts liable to tax under section 80-C of the Income Tax Ordinance, 1979 (R) without giving any basis or reasons. The action of C.I.T.(A) is illegal.

(2) The learned C.I.T.(A) seriously erred on facts and in law in holding transport receipts as "Contract" receipts taxable under presumptive tax regime under section 80-C of the Income Tax Ordinance, 1979 (R). The same being services require to be taxed under the normal law.

While the Department for both the years under review has objected the impugned order on the following common grounds:---

(1) That the learned C.I.T.(A) was not justified to treat the Contract Receipts as services rendered in the light of the C.B.R. Circular No. 11 of 1991 dated 30-6-1991, which reads "the Services Rendered means the services whether through a contract or otherwise rendered by professional, such as medical practitioners, legal practitioners, accountants and consultants", While the assessee is not a professional.

(2) That the decision of the C.I.T.(A) is against the facts of the case since the assessee provides transportation and godown facilities under a single contract. If the receipts from transportation are final discharge of liability as held by the C.I.T.(A), the receipts from godown should have also been treated as the final discharge of liability.

The assessee, in this case, is an individual Proprietor of Messrs National Trades, Messrs Muslim Traders and Messrs G.S. International. During the years under review, the assessee has derived income in addition to the flour mills business, from rendering services for the Ministry of Food, Agricultural and Live Stock, Fertilizer Import Department, Government of Pakistan under the provisions of an agreement dated 24-8-1996. For these two years under review, the assessee filed his returns of income under Self-Assessment Scheme which were accepted under section 59(1). The Taxation Officer has reopened the case under section 122 of the Income, Tax Ordinance, 2001 giving reason in the assessment order, that for the first time, the return of income was filed for the assessment year 1996-97 which was accepted under Self-Assessment Scheme. Along with the returns for that year, Wealth Statement for the year ending 30-6-1996 was submitted reflecting total wealth of Rs.1,35,000 which is only the business capital of the assessee. For the assessment year 1997-98, the return was filed in the name of Proprietor Muhammad Dawood M.A. Sattar, under normal law along with Statement under section 143-B, but for the years under review, the appellant has opted out of Presumptive Tax Regime. The Taxation Officer observing that the case for the years under review has been finalized under section 59(l) however, no credit of tax was given at the time of processing of the return under Self-Assessment Scheme, not any question was asked about he nature of income. Even no reason was given for assessee's option to stay out of Presumptive Tax Regime. The assessee filed rectification application for allowing credit for deductions as claimed in the returns which was not given for want of verification and in these circumstances, the assessing officer reopened the case under section 122 of the Income Tax Ordinance, 2001 and amended the assessment already made for the two years under review. Against which the assessee filed appeals before the learned C.I.T.(A) . Through the impugned order partial relief regarding receipts from services rendered on account of providing godown to employer has been allowed, but the receipts from transportation have been confirmed for the reason that these are falling within the ambit of section 80-C of the repealed Ordinance, 1979. The assessee has also objected the jurisdiction of the assessing officer invoked under section 122, but the contention was not accepted by the learned C.I.T.(A) in this regard. Now both assessee and the Department have come up before this Tribunal on the grounds as mentioned supra.

Mr. Abid Shaban, Advocate has appeared on behalf of the assessee and has argued the case of the assessee mainly putting thrust on the jurisdiction assumed by the Taxation Office in both the years under appeal. He has contended that admittedly, the Taxation officer has invoked the provisions of section 122 of the Income Tax Ordinance, 2001 on the basis of material available on record which indicates that the Taxation officer has exercised the powers similar to section 66-A of the repealed Income Tax Ordinance, 1979. He has contended that subsection (5A) in section 122 of the Income Tax Ordinance, 2001 has been inserted through Finance Act, 2003 dated 16-6-2003 which is effective from first day of July, 2003 which gives authority to the Commissioner to amend or further amend the assessment order if he considers that the assessment order is erroneous and so far it is prejudicial to the interest of revenue. He has contended that these powers were not vested with the Commissioner on the basis of material already available on record at the time when the Taxation Officer has issued show-cause notice intending to amend the already finalized assessments through his letter dated 29-4-2003. Accordingly, the action is without jurisdiction ab initio and unlawful in the eyes of law.

The learned counsel, in this respect, has placed reliance on the decision of this Tribunal dated 8-11-2003 in I.T.As. Nos.837 and 838/KB of 2003 in the case of Messrs Sui Northern Gas Company Limited wherein, in similar circumstances, it has been held that the order passed by the Taxation Officer is without any jurisdiction.

Regarding the objection raised by the Department in these two appeals, the learned counsel for the assessee has contended that since the ssessee was not carrying out any contractual services in the sense of contract falling within the ambit of Section 83 of the repealed Ordinance, 1979 hence, the order of the learned C.I.T.(A) is well founded. He has further contended that as the action of the Taxation Officer is without any jurisdiction, therefore, issues raised by the Department are not maintainable. The learned counsel during the course of his arguments has also referred the following decisions in support of his contention:---

(1) 2003 PTD 52, (2) 2002 PTD 248, (3) 2001 PTD 1525 and (4) 1984 PTD 137.

On the other hand, Ms. Farzana Jabeen representing the Department has opposed the arguments of the learned AR. She has submitted that since the receipts of the assessee were contractual receipts, therefore, the Taxation Officer under the delegated powers was competent to pass an order and the learned C.I.T.(A) has rightly held that the Taxation Officer was having jurisdiction to amend the order. She has, however, contended that the order of the learned C.I.T.(A) was not in accordance with Circular No.11 of 1992 issued by Central Board of Revenue wherein it has been explained and clarified the class of persons qualifying for acceptance as rendering services. She has, therefore, requested that the impugned order of the learned C.I.T.(A) in this regard may please be vacated.

We have heard the learned representatives of both the sides and have also perused the impugned order of the learned C.I.T.(A), the assessment orders, the case law referred by the learned counsel for the assessee and other relevant record of the case.

We have found that in this case, the Taxation Officer has issued show-cause notice under section 122 for the assessment year 1998-99 on 29-4-2003 and for the assessment year 1999-2000 on 19-4-2003 showing his intention to amend the already completed assessments for the two years under review. It has been contended on behalf of the assessee that at the time on which the said show-cause notice has been issued proposing amendment in the earlier completed assessment for the years under review for the reasons that the orders were erroneous and prejudicial to the interest of revenue, the law prevailing to that point, of time did not give the requisite jurisdiction to the Taxation Officer in this regard as subsection(5A) in Section 122 containing the requisite provisions for jurisdiction purposes was inserted in law on 16-6-2003 through Finance Act, 2003. We, therefore, find force in the arguments of the learned counsel for the assessee. We are of the considered view that on the dates on which the show-cause notices were issued proposing action under section 122 of the Ordinance, 2001, the Taxation Officer has no power to amend the assessment on the ground that it was erroneous and prejudicial to the interest of revenue, due to the reason that the related provisions of law were not available to the taxation A Officer. The learned Counsel, in this regard, has also referred the decision of this Tribunal dated 8-11-2004 In this case of Messrs Jahangir Siddiqui & Company Limited, Karachi v. IAC while deciding M.As. (A.G.) Nos. 349 to 353/KB of 2004, I.T.As. Nos. 825 to 829/KB of 2003 filed by the assessee and I.T.As. Nos. 896 to 900/KB of 2003 filed by the Department for the assessment years 1997-98 to 2001-2002. The learned counsel has also referred another decision of this Tribunal dated 8-11-2004 in this case of Messrs Sui Southern Gas Company Limited, Karachi in I.T.As. Nos.837 and 838/KB of 2003 filed by the assessee and I.T.As. Nos.814, 815 and 986/KB of 2003 filed by the Department for the assessment years 1996-97 and 1997-98. in this case also, the similar findings have been given by this Tribunal.

After considering all these points, we are of the considered view that jurisdiction assigned by the Taxation Officer in this case was without jurisdiction, as at the time when he started the proceedings, he had no jurisdiction to proceed with the case and therefore, his subsequent actions are ab initio void and illegal. The consolidated impugned order of the learned C.I.T.(A) for the two years under review on the issue is, therefore, vacated and the orders passed by the Taxation Officer under section 122 of the Ordinance, 2001 for the assessment years 1998-99 and 1999-2000 are cancelled.

The other grounds of appeal need not to be adjudicated, as both the appeals filed by the assessee are allowed on this sole legal ground, Likewise as the orders, passed under section 122 have been cancelled, two cross appeals filed by the Department also require no adjudication and are consequently dismissed.

Both the appeals filed by the assessee are allowed while the two cross appeals filed by the Department are dismissed.

C.M.A./521/Tax(Trib.)Appeals allowed.