M.A.(AG) No.551/LB of 2006 and I.T.A. No.4780/LB of 2005, decided on 21st June, 2006. VS M.A.(AG) No.551/LB of 2006 and I.T.A. No.4780/LB of 2005, decided on 21st June, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2755 (2006)

(a) Income-tax---

---Sales---Estimation of---Estimated sales Rs.3,800,000 against declared sales Rs.2,680,000 was reduced to Rs.3,600,000 by the First Appellate Authority---Such estimation was made on the basis of enquiry report made by the Income Tax Inspector who had estimated the sales on quantum of stock available ill the shop at the time of visit at Rs.400,000 against the declared stock of Rs.2,85,000---Appellate Tribunal, keeping in view the nature of business and stock of the assessee, further reduced to the sales Rs.2,800,000.

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

---S. 210---Delegation of power---Scope---Under S.210 of the Income Tax Ordinance, 2001 Commissioner may delegate his power only to Taxation Officer.

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

---Ss. 175, 207 & 208---Income Tax Ordinance (XXX1 of 1979). Ss.3 & 146---Power to enter and search premises---Scope---Sales---Estimation on the basis of Inspector's report---Validity---Income Tax Inspector was not included in the `Income Tax Authorities under the Income Tax Ordinance, 2001 and had no jurisdiction to enter and search premises ill order to enforce any provision of the Income Tax Ordinance, 2001 and even the Commissioner could not delegate his power to the Inspector as in S. 175 of the Income Tax Ordinance, 2001 the Commissioner could only authorize an officer for the purposes of this section and the `Income Tax Inspector' had not been mentioned in the Income Tax Ordinance, 2001 as an 'officer'-Taxation Officer had estimated the sales on the basis of enquiry of Inspector's report which was made without any jurisdiction---Estimated sales were reduced keeping in view the history, turnover and other facts of the case by the Appellate Tribunal.

Naeem Munawar for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---The appellant through this appeal has objected to the impugned order of the Income CIT(A), dated 15-6-2005 for the assessment year 2001-2002 regarding estimated sales.

On behalf of the applicant, above titled miscellaneous application requesting permission for filing the following additional ground has been filed:

"That the inquiry has been conducted by the Income Tax Inspector who was not competent to conduct inquiry after the enforcement of Income Tax Ordinance, 2001".

I am of the view that the above said ground of appeal is arising out of impugned order of learned CIT(A) and the application in this regard is therefore allowed.

Mr. Nacem Munawar, Advocate has appeared on behalf of the appellant and has contended that the sales declared at Rs.2,680,000 were estimated by Taxation Officer at Rs.3,800,000 which has been reduced to Rs.3,600,000 by the learned CIT(A) but the estimation as reduced by the learned CIT(A) is still excessive, unjustified and without any basis. He has contended that Taxation Officer was not justified to estimate the sales on the basis of an inquiry report which was not relevant to the period under appeal and learned CIT(A) has also failed to properly adjudicate this issue. Regarding the inquiry conducted by the Income Tax Inspector, learned counsel has raised legal objection in this regard. He has contended that under section 207 of the new Income' Tax Ordinance, 2001, the Authorities for the purposes of Ordinance has been mentioned and Income Tax Inspector has not been included as was available in the repealed Income Tax Ordinance, 1979 in section 3 wherein in Clause (1) of subsection (1) of section 3, the Inspectors of Income Tax were included in the clauses of Income Tax Authorities. He has contended that under section 146 of the late Ordinance, 1979, the Income Tax Authorities including Inspector of Income Tax were having powers to enter and search business premises but in the new Ordinance, 2001 only the Commissioner or any officer authorized in writing by the Commissioner to enforce any provision of the Ordinance have power to enter and search premises under section 175 of the Ordinance, 2001. He has contended that under subsection (2) of section 175, the Commissioner may authorize any valuer or expert to enter in premises and perform and task assigned to him by Commissioner but he has contended that Income Tax Inspector cannot be valuer and neither expert. Even otherwise the subsection (2) has been substituted by Finance Act, 2003 and is not relevant in the present case. On the merits of the case, learned counsel has contended that declared stock in this case was at Rs.285,000 which has been estimated as per alleged enquiry conducted by the Inspector at Rs.400,000. He has submitted that even if the so-called estimated stock as made the basis for estimation, the estimated sales as reduced by the learned CIT(A) are very excessive keeping in view the nature of business as the assessee in this case is a whole seller cum retailer. In view of these submissions, learned counsel has submitted that declared version may please be directed to be accepted. On the other side learned DR is supporting the impugned orders of the officers below. She has submitted that learned CIT(A) has already allowed relief while reducing the sale and no further relief in the matter is required.

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A) and the assessment order.

I have found that assessee in this case is an individual deriving income from sale of ladies cloth on retail cum-whole sale basis. Admittedly the assessee's shop is situated at backside of the Pakistan Cloth Market. The assessee has declared sales at Rs.2,680,000 which has been estimated at Rs.3,800,000 and has been reduced to Rs.3,600,000 by the learned CIT(A). I have found that Taxation Officer has estimated the sales on the basis of enquiry report made by the Income Tax Inspector who has estimated the sales on quantum of stock available in the shop at the time of visit at Rs.400,000 against the declared stock of Rs.285,000. Keeping in view the nature of business and the stock of the assessee, the sales are further reduced to Rs.2,800,000.

Regarding the legal objection raised by the learned counsel for the assessee, I have found that under new Income Tax Ordinance, 2001, the Inspector of Income Tax has not been included in the Income Tax Authorities as provided under section 207 which reads as under:

207. Income Tax Authorities:---(1) There shall be the following Income Tax Authorities for the purposes of this Ordinance, namely:

(a) Central Board of Revenue;

(b) Regional Commissioners of Income Tax;

(c) Commissioners of Income Tax;

(d) Commissioners of Income Tax (Appeals); and

(e) Taxation officers.

(2) The Central Board of Revenue shall exercise the general administration of this Ordinance.

(3) The Regional Commissioners of Income Tax and the Commissioners of Income Tax (Appeals) shall be subordinate to the Central Board of Revenue and the Commissioners of Income Tax shall be subordinate to the Regional Commissioners.

(4) Subject to subsection (5), the Taxation Officers shall be subordinate to the Commissioners of Income Tax.

(5) A Taxation Officer invested with the powers an functions of the Commissioner, under subsection (2) of section 209, shall be subordinate to the Regional Commissioner of Income Tax.

(6) In addition to the above said authorities, the further authorities can also be appointed under section 208 which is:-

"208. Appointment of Income Tax Authorities.---(1) The Central Board of Revenue may appoint as many Regional Commissioners of Income Tax, Commissioners of Income Tax, Commissioner of Income Tax (Appeals), Taxation Officers and such other executive or ministerial officers and staff as may be necessary.

(2) Subject to such orders or directions as may be issued by the Central Board of Revenue, any Income Tax Authority may appoint any Income Tax Authority subordinate to it and such other executive or ministerial officers and staff as may be necessary.

(3) All appointments, other than of valuers, chartered accountants or experts, made under this Ordinance, shall be subject to rules and orders of the Federal Government regulating the terms and conditions of persons in public services and posts.

Under section 210, the Commissioner may delegate his power only to Taxation Officer. I have further noted that in the repealed B Ordinance, 1979, the Inspectors of Income Tax were also included among the Income Tax Authorities as provided under section 3 of the late Ordinance, 1979 which is reproduced hereunder:-

3. Income Tax Authorities:---(1) There shall be the following classes of Income Tax Authorities for the purposes of this Ordinance, namely:--

(a) Central Board of Revenue;

(aa) Regional Commissioners of Income Tax;

(b) Director-General of Investigation and Intelligence;

(bb) Director-General of Training and Research;

(bbb) Director-General of Tax Withholding;

(c) Commissioners of Income Tax;

(d) Additional Commissioners of Income Tax, who may be either Appellate (Additional Commissioners) of Income Tax or Inspecting (Additional Commissioners of Income Tax;

(dd) Income Tax Panels;

(e) Deputy Commissioners of Income Tax; and

(f) Inspectors of Income Tax.

(1A) Commissioners of Income Tax, Additional Commissioners of Income Tax, Income Tax Panels, Deputy Commissioners of Income Tax and Inspectors of Income Tax shall be subordinate to the Regional Commissioners of Income Tax within whose jurisdiction they perform their functions.

(2) Inspecting (Additional, Commissioners), Income Tax Panels, Deputy Commissioners of Income Tax and Inspectors of Income Tax shall be subordinate to the Commissioners within whose jurisdiction they perform their functions.

(3) Deputy Commissioners of Income Tax and Inspectors of Income Tax shall be subordinate to the Inspecting Additional Commissioners within whose jurisdiction they perform their functions.

(4) Inspectors of Income Tax shall be subordinate to the Deputy Commissioners of Income Tax within whose jurisdiction they perform their functions.

The powers to enter and search business premises has been provided under section 146 of the repealed Income Tax Ordinance, 1979 are reads as under:--

146. "Powers to enter and search business premises:---The Inspecting Additional Commissioner or the Deputy Commissioner or any other officer authorised in this behalf by the Central Board of Revenue or if so authorised in this behalf by the Central Board of Revenue or if so authorised in writing by the Inspecting Additional Commissioner or the Deputy Commissioner to whom he is subordinate, an Inspector of Income Tax may, for the purpose of making any inquiry, enter the premises in which a person carries on, or is believed to carry on, his business or profession, and may.

(a)search such premises and inspect any accounts or documents;

(b)stamp such accounts or documents or take extracts or copies thereof;

(c) impound such accounts or documents and retain them for so long as may be necessary for examination thereof or for the purposes of prosecution; and

(d) make any inventory of any articles found in such premises.

(2) The Director-General of Investigation and Intelligence, the Commissioner and the Inspecting Additional Commissioner may make any enquiry which they consider necessary as respects any person liable to believed to be liable to assessment under this Ordinance or require any such person to produce or cause to be produced any accounts or documents which they consider necessary, and shall have the same powers for the purpose of making any such enquiry of requiring the production of accounts or documents under this Ordinance as the Deputy Commissioner has.

(3) Notwithstanding anything contained in this Ordinance, the Deputy Commissioner may, with the prior approval of the Commissioner, authorize any valuer to enter any place and inspect such accounts and documents as may be necessary to enable him to make a valuation of any asset for the purposes of section 67.

While under section 175 of the new Ordinance, 2001, these powers to enter and search premises has been given in the following manner and Income Tax Inspector has nowhere been mentioned in this section:--

175. Power to enter and search premises.---(1) In order to enforce any provision of this Ordinance (including. for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorized in writing by the Commissioner for the purpose of this section:

(a) shall, at all times and without prior notice, have full and free access to any premises, place, accounts, documents or computer;

(b) may stap, or make an extract or copy of any accounts, documents or computer stored information to which access is obtained under clause (a);

(c) may impound any accounts or documents and retain them for so long as may benecessary for examination or for the purposes of prosecution.

(d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information required; and

(e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a).

(2) The Commissioner may authorize any valuer or expert to enter any premises and perform any task assigned to him by the Commissioner.

(3) The occupier of any premises or place to which access is sought under subsection (1) shall provide all reasonable facilities and assistance for the effective exercise of the right of access.

(4) Any accounts, documents or computer impounded and retained under subsection (1) shall be signed for by the Commissioner or an authorized officer.

(5) A person whose accounts, documents or computer have been impugned and retained under subsection (1) examine them and make extracts or copies from them during regular officer hours under such supervision as the Commissioner may determine.

(6) Where any accounts, documents or computer impounded and retained under subsection (1) are lost or destroyed while in the possession of the Commissioner, the Commissioner shall make reasonable compensation to the owner of the accounts, documents or computer for the loss or destruction.

(7) This section shall have effect notwithstanding any rule of law relating to privilege or the public interest in relation to access to premises or places, or the production of accounts, documents, or computer-stored information.

(8), In this section, "occupier" in relation to any premises or place, means the owner, manager or any other responsible person on the premises or place.

After considering all these provisions of law, I am of the considered view that Income Tax Inspector is not included in the Income Tax Authorities under the new Income Tax Ordinance, 2001 and has no jurisdiction to enter and search premises in order to enforce any provision of this Ordinance and even the Commissioner cannot delegate his power to the Inspector as in the above said section 175 the Commissioner can only authorize an officer for the purposes of this section and the Income Tax Inspector has not been mentioned in the Ordinance as an officer. I am, therefore, of the view that Taxation Officer in this case has estimated the sales on the basis of enquiry of inspector's report which was made without any jurisdiction. The estimated sales are, therefore, reduced keeping in view the history, turnover and other facts of the case in the manner as referred above.

The appeal filed by the assessee is allowed to the extent and in the manner as indicated above.

C.M.A./153/Tax (Trib.)Appeal allowed.