I.T.A. No.1783/KB of 2002, decided on 5th October, 2004. VS I.T.A. No.1783/KB of 2002, decided on 5th October, 2004., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 508 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 59, 61, 62, 80-D, 134 & 156---Filing of return under Self-Assessment Scheme---Selection of case for total audit---Exclusion of return from purview of Self-Assessment Scheme---Plea of assessee was that his return qualified for Self-Assessment Scheme and its selection for total audit could not alter the factum of acceptance of return under Self-Assessment Scheme---Plea of Department, on the other hand, was that after selection for total audit, the return was excluded from purview of Self-Assessment Scheme' for assessment under S. 62 of Income Tax Ordinance, 1979 and that Assessing Officer was correct in charging tax under S.80-D of Income Tax Ordinance, 1979---Plea of Department was reasonable because relevant Notification was effective for non-application of S.80-D of Income Tax Ordinance, 1979 when return qualified for Self-Assessment Scheme and accepted under S.59(1) of the Ordinance---Scope of Scheme was, however, limited to Self-Assessment Scheme and if Scheme provided that return which qualified under Self-Assessment Scheme, would be selected for total audit, same, after selection would go out of ambit of Self-Assessment Scheme and all the provisions of law in case of normal assessment would be applicable to all such assessments, in circumstances and it was not legally possible to assess under normal law and instead of charging under normal law to charge under Self-Assessment Scheme---Even otherwise to ask assessee to pay further Tax and to amend his return under Self-Assessment Scheme was also not legally possible---Present case having been selected for total audit and assessment in consequence thereof was carried under S.62 of Income Tax Ordinance, 1979, the levy of minimum tax under S.80-D of Income Tax Ordinance, 1979 on turnover was legal---Finding of Commissioner of Income Tax (A) that return in fact qualified for Self-Assessment Scheme, and that there remained no question of application of S.80-D of Income Tax Ordinance, 1979, had no merit---Once return was selected for total audit, it would go out of ambit of S.59(1) of Income Tax Ordinance, 1979---Sufficient reason in circumstances, was available to cancel assessment under S.62 of Income Tax Ordinance, 1979 and to direct to accept return under S.59(1) of Income Tax Ordinance, 1979---Order of C.I.T.(A) stood vacated, accordingly.

2001 PTD 121 ref.

Ghulam Shabbir Memon, D.R. for Appellant.

Akbar Azim Ansari for Respondent.

Date of heating: 22nd September, 2004.

ORDER

The Department in this appeal captioned above has taken objection to the order, dated 7-6-2002 directing to assess income at the rates provided in Schedule 1 of the Income Tax Ordinance, 1979 and that CIT(A) has erred in holding that law provides exclusion of the return which qualifies under Self-Assessment Scheme from application of section 80D of the Income Tax Ordinance, 1979. It is added in the grounds of appeal that in the first paragraph of the appellate order, it is mentioned that the appeal is filed against the order under section 156 whereas assessment has been carried out under total audit, hence no rectification is involved.

2. The assessee, an individual, furnished return under Self-Assessment Scheme declaring income of Rs.158,180 as a new assessee being successor of Late Ehtesham-ur-Rehman possessing NTN-0267176. Since the return qualifies for acceptance, it was selected for total audit, notice under section 61 along with detailed letter was served on the assessee. In response thereof the A.R. of the assessee furnished letter, dated 26-6-2001 containing trading, P&L Account, Statement of Wealth, detail of expenses, copies of utility bills, claiming that after the death of his father, the returns have been filed in an unfortunate condition, besides the death of his father also hampered the results of the business for the year under consideration, therefore, sales have been declared at Rs.6,90,190 and G.P. at 2.3%. Since it was no account case the Assessing Officer rejected the trading version, estimated receipts at Rs.1,10,00,000 and applied G.P. rate of '3% with the consent of the A.R. of the assessee. The details are hereunder:

Income declared?????????? =????????????????????????????????????????????? Rs. 1,58,180

Sale????????????????????????????? =????????????????????????????????????????????? Rs.110,00,000

G.P. @ 3 %???????????????? =????????????????????????????????????????????? Rs. 3,30,000

Less: G.P. declared????? =????????????????????????????????????????????? Rs. 2,53,883??????????????? Rs. 76,117

3. It is worth-mentioning that the assessment order is silent regarding application of 80D or levy of tax as provided in Schedule I of the Income Tax Ordinance, 1979. However, through I.T. 30 the Assessing Officer applied section 80D of the Income Tax Ordinance for levying minimum tax on turn over. Assessee therefore, challenged the order for reason recorded below:--

"That the learned Deputy Commissioner of Income Tax, Circle A-17, Zone-A, Karachi has erred in holding that assessee's case does not qualify for assessment under self-assessment scheme under subsection (1) of section 59 of Income Tax Ordinance, 1979 and in levying minimum tax @ 0.5% of the turnover of your appellant."

4. The learned CIT(A) turned down the treatment consequently directed to levy tax in accordance with Schedule I of the Income Tax Ordinance, 1979 observing, "the assessee's case did qualify for self-assessment scheme, however, have been picked up for total audit whereas only those returns could be selected for total audit which qualify under self-assessment scheme and other returns were to be processed under normal law". As such the assessee has been punished twice by selection of his case for total audit and by levying minimum tax under section 80D on his turn over. The ratio of the order at present subject matter of Department appeal is reproduced hereunder:--

"The arguments of the A.R. carry some force, it is apparent from record that assessee's return qualified for self-assessment scheme and as such its selection for total audit cannot alter the fact, that the return in fact qualified for self-assessment scheme. Since the law provides exclusion of the return which qualified for self-assessment from application of 80D, appellants assessed income must be taxed at the rates as provided in Schedule I of Income Tax Ordinance, 1979."

5. Heard the learned representatives of the two parties at length. The learned D.R. vehemently argued that after the case is selected for total audit, it is processed under normal law, after selection for total audit the return is excluded from the purview of Self-Assessment Scheme for assessment under section 62 of the Income Tax Ordinance. Assessing Officer was correct in charging tax under section 80D treating it normal law assessment.

6. The learned D.R. further argued that section 156 of the Income Tax Ordinance, 1979 mentioned in the impugned order is mere mistake as assessment in this case was completed under total audit, hence no rectification is involved, even otherwise it will not affect assessee, appeal before the Tribunal or appellant order already passed by the learned CIT(A).

7. Contrary to above, the learned counsel for the assessee argued that assessee's return qualifies for Self-Assessment Scheme, as such its selection for total audit cannot alter the factum of acceptance of return under Self-Assessment Scheme. To support his version, learned counsel referred the Notification issued through S.R.O. 773(I)/2000, dated October 31, 2000 passed by the C.B.R.

8. The counsel also urged that the selection through Computer Random Ballot for the year under appeal is in violation of provisions of Self-Assessment Scheme, the order of the FTO in this context that Computer Random Ballot is against the provisions of Self-Assessment Scheme and the order of the Hon'ble High Court Lahore reported as 2001 PTD 3121 that selection of such case through Parametric method of selection was violative of para-6 of Self-Assessment Scheme for the year 2000-2001, is sufficient to hold that order under section 62 possess no legal effect.

9. Counsel further argued that after the amendment brought in section 80D, by Finance Ordinance, 2000 through which the words "which, not being a company does not qualify for assessment under "Self-Assessment Scheme under subsection (1) of section 59" are omitted from section 80D, the C.B.R. issued a Circular contained in S.R.O. No.773(I)/2000, dated October 31, 2000 to exclude the case of individual, URF, HUF and AOP from the purview of minimum tax leviable under section 80D for those cases which qualify for Self-Assessment Scheme for the assessment year 2000-2001. The Circular is reproduced hereunder:--

Islamabad: Oct. 31, 2000,

NOTIFICATION

(INCOME TAX)

S.R.O. 773(I)/2000.---In exercise of the powers conferred by subsection (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979), the Federal Government is pleased to direct that the following further amendment shall be made in the Second Schedule to the said ordinance namely:

"(32D)" The provisions of section 80D shall not apply to turnover of an individual, an association of person, an unregistered firm or a Hindu undivided family which qualify for self-assessment scheme made under subsection (1) of section 59 for the Assessment year 2000-2001."

(Sd.)

(Mansoor Ahmed)

Additional Secretary

Member (Direct Taxes)

10. Counsel taking benefit of the above Circular stressed that return which qualify for Self-Assessment Scheme if picked for total audit for normal assessment under section 62 would remain beyond the clutches of section 80D thus levy under section 80D would be illegal as only those returns are selected for total audit which qualify under Self-Assessment Scheme.

11. However, we are not in agreement with the learned counsel for the assessee on the contrary find reasons in the arguments of the learned D.R. that the case has been processed under normal law and after selection under total audit, the return is automatically excluded from the purview of Self-Assessment Scheme, as such in normal course of assessment the levy of charge under section 80D would not be fatal, irregular or illegal and notification above would also not be effective due to its restricted limitations.

12. The reason behind this very opinion is that the Notification, dated October 31, 2000 referring S.R.O. 773(I) read with section 32D of Second Schedule is effective for non-application of section 80D when the return qualify for Self-Assessment Scheme and accepted under section 59(1) of the Ordinance. The scope of this Notification is however, limited to Self-Assessment Scheme and if scheme provides that return which qualify under Self-Assessment Scheme would be selected for total audit, the same after selection goes out of ambit of Self-Assessment Scheme as such all provisions of law relevant in case of normal assessment would be applicable to all such assessments.

13. It is not legally possible to assess under normal law and instead of charging under normal law to charge under Self-Assessment Scheme, even otherwise to ask assessee to pay further tax and to amend his return under Self-Assessment Scheme is also not legally possible. Since the present case is selected for total audit and assessment in consequence thereof is carried out under section 62, the levy of minimum tax under section 80D on turn over is legal as such the finding of the learned CIT(A) that return in fact qualifies for Self-Assessment Scheme there remain no question of application of section 80D, finds no merit, once the return is selected for total audit it goes out of ambit of section 59(1) of the Ordinance. Consequently the order of the learned CIT(A) stands vacated to the extent indicated above.

14. The learned counsel for the assessee further argued on a very crucial issue arising in this case that the Random Ballot conducted for the year was found to be parametric selection of the case by the learned Tax Ombudsman and therefore, invalid. Perusal of the record shows that in view of the order of the FTO and judgment of the Hon'ble High Court Lahore reported as 2001 PTD 3121 the C.B.R. subsequently through its Circular No. 7, dated 17-7-2001 directed that all list of cases selected for total audit under para. 6-B of the Board's Circular No.21 of 2000 shall be withdrawn. In this view of the matter the directions were issued to the concerned Authorities for acceptance of returns filed for the year under Self-Assessment Scheme. In the circumstances, we find sufficient reasons to cancel the assessment under section 62, and to direct to accept the return under section 59(1) of the Income Tax Ordinance.

15. The appeal is decided in the manner indicated above.

H.B.T./469/Tax (Trib.)???????????????????????????????????????????????????????????? Order accordingly.