VS, 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2319 (2007)

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

----S.2(13)(65)---Commissioner---Taxation Officer---Additional Commis sioner---Authority---In the light of provision of subsections (13) and (65) of S.2 of the Income Tax Ordinance, 2001 the Additional Commissioner was legally competent "authority" under the Income Tax Ordinance, 2001 to perform the functions of Taxation Officer as delegated to him by the Commissioner.

2006 PTD (Trib.) 1515 and 2006 PTD (Trib.) 2413 distinguished.

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

----Ss. 111 & 122(9)---Unexplained income or assets---Addition---Assessee contended that notice under S.122(9) of the Income Tax Ordinance, 2001 was issued and addition was made under S.111 of the Income Tax Ordinance, 2001 without mentioning the clause of sub-section (1) of S.111 of the Income Tax Ordinance, 2001 under which the addition was made, which was absolutely an illegal act---Validity---Held, it was legal right of a taxpayer to know as to under what law he was being proceeded again--Assessing authorities were obliged to communicate to the taxpayer as under what clause of subsection (1) of section S. 111 of the Income Tax Ordinance, 2001, he was being required to furnish his explanation---Where assessee was deprived of his right to know about the law being applied to him, the proceedings taken against him would be of no legal consequence---Additional Commissioner completed proceedings under S.111 of the Income Tax. Ordinance, 2001 but he did not indicate to the assessee as to what clause of subsection (1) of S.111 of the Income Tax Ordinance, 2001 was being applied to him, taxpayer was thus deprived of his legal, right---All the actions taken by the assessing authorities and the consequential orders passed by them were legally not maintainable--Action of the Additional Commissioner and that of First Appellate Authority was vacated by the Appellate Tribunal being legally defective.

2002 PTD (Trib.) 2106 and 2006 PTD (Trib.) 2729 ref.

2006 PTD (Trib.) 673 rel.

Ch. Naeem-ul-Haq for Appellant.

Mir Alam Khan, D.R. for Respondent.

ORDER

This appeal has been filed by the assessee against order, dated 30-3-2007 passed by learned CIT(A), Islamabad.

2. As per facts the assessee an individual deriving income from medical practice filed return for the year under consideration declaring income of Rs.6,00,000 which was deemed to have been accepted under section 120(1). Subsequently, the Additional Commissioner of Income Tax Companies, while examining the assessment records found that the assessment in question was erroneous insofar as being prejudicial to the interest of Revenue because in the reconciliation statement attached along with wealth statement accretion of assets amounting to Rs.11,05,100 was not explained. He, therefore, proceeding for amendment of assessment under section 122(5A) and issued specific notice under section 122(9) confronting the assessee on this issue. The observations of the additional Commissioner about unexplained .accretion of Rs.11,05,100 were based on the following calculations:--

(i) Plot No.780, E-11, Islamabad was purchased during the year and its cost was declared at Rs. 1,550,000.

(ii) Plot No. 791, E-11, Islamabad was purchased during the year and its cost was declared at Rs.1,550,000.

(iii) Plot No.584-E, E-11; Islamabad was gifted out during the year, Cost of the said plot had been declared at Rs. 1,105,100 in wealth statement.

3. The effect of the above charges in assets on wealth was as under. ---

4. The assessee stated that Plot No. 584-A, E/11, Islamabad was in fact gifted to his brother and was shown as "hiba bill on iwaz" (gift against consideration which is not a free gift). The Additional Commissioner observed that the assessee had been changing his position and giving different explanations on different points of time about the aforesaid amount of Rs.11,05,100. For the reasons recorded in order under section 122(SA), dated 16-1-2006, the amount of Rs.11,05,100 was added as .unexplained amount under, section 111 in assessee's declared income of Rs.6,00,000 and total income for the year was assessed at Rs.17,05,100. The assessee filed appeal against this addition before the learned CIT(A) who vide impugned order, dated 30-6-2006 observed that accretion in assets was not properly explained and the Additional Commissioner had correctly added it under section 111 of the Income Tax Ordinance, 2001. The assessee filed second appeal against this order on the following grounds:--

(i) ----------------------------

(ii) That the CIT(A)was not justified in maintaining the illegal order of Additional Commissioner under section 122(5A) of the Income Tax, Ordinance, 2001.

(iii) That the CIT('A) was not justified in maintaining the income at Rs.17,05,100 and

(iv) ----------------------------

5. Subsequently, the assessee filed additional .grounds in Miscellaneous Applications Nos. 77, 81 and 86(IB)/2007 raising: following additional grounds:.---

M.A.(R) No.77(IB) 2007:--

That section 122(5A) was not applicable on tax year, 2003 as same was inserted through Finance Act, 2003 so the order was illegal and void ab initio.

M.A.(R) No.81(IB)2007:

That while making amended assessment the -Assessing Officer has note mentioned any sub-clause of subsection (1) of section 111 of Income Tax Ordinance, 2001 so the order was illegal and void ab initio.

M.A.(R) No. 86(IB)2007:

(i) That the order under section 122(5A) passed by the Additional Commissioner was illegal, unwarranted, without jurisdiction and-void ab initio.

(ii) That the CIT(A) was not at all justified in confirming the order of Additional- Commissioner which was illegal and highly unjustified, and

(iii) That the addition under section 111 was illegal and highly unjustified, and

(iv) That the appellant had not furnished any inaccurate particulars and on account of inaccurate particulars proceedings under section 122(SA) cannot be initiated so the order of Additional Commissioner and confirmation by CIT(A) was illegal.

6. Authority of Additional Commissioner. At the time of hearing it was stated by learned AR that Additional Commissioner is not an "authority" prescribed under Income Tax Ordinance, 1979, therefore, all the actions taken and all the proceedings conducted by him in the case of this assessee were nullity in the eye of law. He stated that the Tribunal in .its decision reported as 2006 PTD (Trib.) 1515 has held that Deputy Commissioner is not a competent authority. He further stated that the Tribunal in another decision reported as 2006 PTD (Trib.) 2413 has held that ACIT is not an assessing authority. He further stated that under the scheme of new Income Tax Ordinance, 2001 all the functions and powers are vested with the Commissioner. Without delegation of powers by the Commissioner to subordinate officers such subordinate officers cannot legally perform functions under the law. He stated that in this case the Commissioner had not delegated powers to the Additional Commissioner, therefore, all the notices issued and orders made by him in the case of the assessee are without lawful jurisdiction. Learned AR emphasized that all the proceedings and actions taken in the case of this assessee and final orders passed by the Additional Commissioner are totally unlawful. Therefore, the impugned order under section 122(5A), dated 16-1-2006 was void ab initio.

7. Learned DR stated that case-law cited by assessee's AR is distinguishable because it deals with Deputy Commissioner or Assistant Commissioner and not the Additional Commissioner being an authority. He further stated that section 2(13) of the income Tax Ordinance provides that "Commissioner" means a person appointed as Commissioner of Income Tax under section 208 and includes a "Taxation Officer" vested with all or any of the powers and functions of the Commissioner. He stated that section 2(65) provides that "taxation officer" means any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer or any other officer however designated, appointed by the Central Board of Revenue for the purpose of this Ordinance. Learned DR further stated that vide Order No. CIT/(c)05-06/J Br./1280, dated 1-9-2005, the Commissioner Companies Zone Islamabad had delegated powers to function under section 122(5A) to the concerned Additional Commissioner: Photocopy of this order was filed for record. It was asserted by learned DR that Additional Commissioner is competent legal "authority" under the new Income Tax Ordinance, 2001, therefore, all the actions taken by him were legally correct. He further emphasized that delegation of powers was properly made by the Commissioner through aforesaid jurisdiction order, hence the Additional Commissioner had correctly taken action under section 122(5A) for amendment of assessment in the case of this assessee.

8. We have given due consideration to arguments of both the parties in the light of material laid before us and we are of the opinion that in the light of provision of subsections (13) and (65) of section 2 of the Income Tax Ordinance, 2001 the Additional Commissioner is legally competent "authority" under the Income Tax Ordinance, 2001 to perform the functions of Taxation Officer as delegated to him by he Commissioner. Objection of learned AR of the assessee relating to competence of legal authority of the Additional Commissioner, is, therefore, not maintainable. It has also been found that the Commissioner had properly delegated powers to the Additional Commissioner to perform functions under section 122(5A). Jurisdiction was in this manner delegated vide order, dated 16-1-2006 and order under section 122(5A) has been made in a legally correct manner. Objection of the learned AR of the assessee on this point is not maintainable.

9. Legality of notice: It was stated by learned AR that while issuing notice under section 122(9) (read with section 111) the Additional Commissioner did not mention relevant clause of subsection (1) of section 111. He stated that in this situation the said notice was legally incorrect because it is the right of the assessee to know that under what provisions of law he is being proceeded against and if the assessee is deprived of this right, the orders passed in this regard will be legally void. He stated that the Tribunal in its judgments reported as 2002 PTD (Trib.) 2106, 2006 PTD (Trib.) 2729 and 2006 PTD (Trib.) 673 have held that order passed under section 122 without specifying exact provision of applicable law did not have any legal cover. It was stated by learned AR that it has been held by the Tribunal that legislation has initially catered for six eventualities in which addition could be made on account of unexplained sources of investment. Quoting wrong clause of relevant law or applying incorrect clauses was unlawful. Learned AR heavily relied on a case reported as 2006 PTD (Trib.) 673 wherein it was held that notice issued for assumption of jurisdiction was defective without indication of specific provision of section 122(1) of the Income Tax Ordinance, 1979, and when initial action. was defective subsequent action could not be termed as legal Learned AR summarized his arguments by stating that if relevant clause of section 122(1) is not clearly communicated to the assessee such notice or order-will not have any force of law. He stressed that in this case the Additional Commissioner of Income Tax issued notice under section 122(9) and made additions under section 111 without mentioning the clause of subsection (1) of section 111 under which the addition was made. Learned AR emphasized that the addition so made was, therefore, absolutely illegal.

10. It was stated by learned DR that this a case of unexplained investment in property which is liable for addition under section 111 of the Income Tax Ordinance, 2001 as "income from other sources". He stated that this assessee initially showed a sum of Rs.11,05,100 as a free gift. However, when he was confronted by the. Assessing Officer about sources of property as acquired during the year as per aforesaid details he changed his position by stating that he had received cash consideration in respect of gift given to his brother. The assessee; did not stop here and once again changed his position by stating that through an internal family arrangement arrived at under the pressure of parents, he transferred Plot No.584, E-11 to his brother, Muhammad Asif who had given advance token money of Rs.4,00,000 to a property dealer and the balance value of Rs.7,.00,000 in respect of the property was received by him from his brother in cash which was duly deposited into bank account. The assessee had been persistently changing his position with regard to explanation in respect of sources of investment made in the property. He contended that the Additional Commissioner was satisfied that the assessee did not have sufficient financial sources for investment in the purchase of above mentioned property, therefore, he rightly, made the addition of unexplained amount-under section 111 of the Income Tax Ordinance, 2001.

11. We have given due consideration to arguments of both the parties and we have found that section 111of the Income Tax Ordinance, 2001 provide that where any amount is credited in a person's books of accounts or person has made any investment or is the owner of any money or valuable article or a position has incurred any expenditure and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made or the explanation offered by the person is not, in the Commissioner's opinion satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head "income from other-sources" to the extent it is not adequately explained. There are three clear situations wherein sources of investment are required to be explained by a taxpayer and if he is not able to furnish evidence to the satisfaction of the Assessing Officer, about: sources of investment, the investment or part thereof which remained unexplained is liable for addition. At the same time we are of the opinion that it is legal right of a taxpayer- to know as under what 'law he is being proceeded against. It is legal obligation of the assessing authorities to communicate to the taxpayer as under what clause of subsection- (1) of section 111, he is being required to furnish his' explanation. The higher appellate forums have conclusively held that where an assessee is deprived of his right to know about the law being applied to him, the proceedings taken against him will be of no legal consequence. In this case the Additional Commissioner completed proceedings under section 111 but he did not indicate to the assessee 'as to what clause of subsection (1) of section 111 was being applied to him. In this .manner the taxpayer was deprived of his legal right. Hence all the actions taken by the assessing authority and the consequential orders passed by them, are legally not maintainable. In view of this legal position of the matter action of the Additional Commissioner and CIT(A) being legally defective is hereby vacated.

12. Conclusion. In the light of foregoing ,discussion the impugned orders of both the authorities below are hereby vacated being legally not maintainable. Other points/grounds raised by learned AR of the assessee are not being adjudicated for being not necessary. The appeal is disposed off in the manner and to the extent as indicated above.

C.M.A./108/Tax (Trib.)Appeal accepted.