MUHAMMAD SIDDIQUE VS COMMISSIONER OF INCOME TAX AND WEALTH TAX, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 622 (2005)

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

----S. 122(5A)-Income Tax Ordinance (XXXI of 1979), S.59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Finance Act (I of 2003), Preamble---C.B.R's letter C.No.3(12) IT-Jud/04, dated 24-4-2004---Amendment of assessments for the assessment years 2000-2001 and 2001-2002 finalized under Self-Assessment Scheme prior to enactment of Finance Act, 2003---Validity---Admittedly, notices, dated 28-6-2004 and 15-3-2005 under S.122(5A) of the Income Tax Ordinance, 2001 pertained to assessment years 2000-2001 and 2001-2002---Assessment of these years would be deemed to have been made in respect of income referred to in S.80(1) of the Income Tax Ordinance, 1979---Assessments orders were framed on 1-6-2002 and 27-5-2002---Substituted subsection (5A) in S.122 of the Income Tax Ordinance, 2001 was effective from 1-7-2003 and was not applicable to the matter decided and closed prior to enactment of Finance Act, 2003---Proceedings initiated against the complainant/assessee under S.122 of the Income Tax Ordinance, 2001 were without jurisdiction, illegal and void ab inito---Federal Tax Ombudsman recommended that the proceedings initiated against the complainant under S.122 of the Income Tax Ordinance, 2001 by issue of notices, dated 28-6-2004 and 15-3-2005 be dropped/withdrawn and cancelled.

Zikaria H.A. Sattar Bilwani and another v. Inspecting Additional Commissioner of Wealth Tax, Range II, Kar. 2003 PTD 52 (SC Pak.); 2007 PTD 2051; Monnoo Industries Ltd. v. C.I.T., Lab. 2001 PTD 1525 and Honda Shahrah-e-Faisal Association of Persons v. Regional Commissioner of Income Tax, Karachi and others 2005 PTD 1316 rel.

Muhammad Sirjees Nagi, Advisor, Dealing Officer.

Ahmad Naseer Sheikh for the Complainant.

Manzoor Hussain Shad, I.A.C. for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---A common question of law is involved in both the above mentioned complaints and action against the complainant was initiated through a single notice pertaining to Tax Years 2000-01 and 2001-02, therefore, these complaints are disposed of by this single consolidated finding/decision.

2. The complainant, an individual, derives income from employments agency under the name M/s S.I. Employment Agency, Ugoke Road, Sialkot. He filed returns for the assessment years 2000-01 and 2001-02 under the `Self-Assessment Scheme' by declaring net income of Rs. 2,50,000 and Rs.8,00,000 respectively. The returns were processed under S.A.S. and the assessment orders were passed on 27-5-2002 and 1-6-2002 well before the insertion of subsection (5A) of section 122 through Finance Act, 2003 dated 17-6-2003. On 28-6-2004 the complainant was served with a combined notice under section 122 (5A) of Ordinance XLIX of 2001 for the assessment years 2000-01 and 2001-02 issued by the Additional Commissioner of Income Tax and Wealth Tax, Companies Range, Sialkot. The complainant replied to the notice and submitted that the assessments framed were strictly under the law and were neither erroneous nor prejudicial to the interest of the revenue. So action under section 122(5A) was not attracted for both the years. After receipt of reply on 12-7-2004. Respondent No.2 did not take action for a period of about 9 months and on 15-3-2005 another notice was issued under section 122(5A) calling upon him to submit his books of accounts etc. He submits that initiation of proceedings by respondent No.2 in respect of these assessment years amount to `mal administration'. Therefore, proceedings initiated by respondent No.2 be declared null and void and be dropped.

3. In the reply the respondent submitted that the complainant had wrongly claimed expenses under the heads Donations, Subscriptions and Fees and calling for books of account and other documentary evidence was not with mala fide intention and does not amount to `mal administration'. The complainant had admitted that the relevant expenses of Overseas Workers Welfare Fund and Insurance Premium were paid by the emigrants themselves. As such, this expense could not be allowed which had not been incurred by him for earning business profits.

4. Regarding applicability of section 122 the respondents have relied on C.B.R's. letter C.No.3(12)IT-Jud/04 dated 24-4-2004 which is explained as under:--

"3. The matter has been considered in the Board. It is clarified that subsection (1) of section 122 of the Income Tax Ordinance, 2001 was amended through. Finance Ordinance, 2002 to extend its applicability to an assessment order issued under sections 59, 59A, 62, 63 and 65 of the repealed Ordinance, 1979 as well. As such the observation of the Honourable President of Pakistan being in the context of the facts of a specific case relevant to assessment for the assessment year 2000-01 framed before the aforesaid amendment in law is, therefore, not operative".

A reference has also been made to the case Zakaria H.A. Sattar Bilwani and another v. Inspecting Additional Commissioner of Wealth Tax, Range II, Karachi 2003 PTD 52 (SC Pak) in which it was observed that where a statute affects a substantive right, it operates prospectively unless by "express enactment or necessary intendment" retrospective operation has been given...A statute which is procedural in nature, operates retrospectively unless it effects an existing right on the date of promulgation or causes injustice or prejudicial to a substantive right.

5. It is further submitted that amendment in section 122 was made through Finance Ordinance, 2002 and assessment completed under the repealed Ordinance could be amended if the circumstances so warranted. An assessment completed under the repealed Ordinance could be amended in accordance with provisions of section 65 of the repealed Ordinance read with provisions of subsection (4A) of section 122 of the Income Tax Ordinance, 2001. The impugned notices were issued to provide reasonable opportunity to the complainant to explain his case. Books of accounts can be requisitioned to examine the genuineness of the claim. The notices are not arbitrary and contrary to law but were issued on the basis of information contained in Profit and Loss account not considered by the Assessing Officer while finalizing the original assessments.

6. In the hearing of the complaint on 26-5-2005 the complainant was represented by Mr. Ahmad Naseer Sheikh, Advocate and the respondents were represented by Mr. Manzoor Hussain Shad (I.A.C.) Sialkot. The A.R. reiterated the arguments contained in the complaint and submitted that the core issue involved was whether the assessment finalized before 30-6-2002 could be amended after insertion of subsection (5A) in section 122 of Ordinance XLIX by Finance Act of 2003. He placed reliance on F.T.O's: decision in Complaint No.502 of 2004 reported at 2007 PTD 2051 and decision of the Lahore High Court in Monnoo Industries Ltd. v. C.I.T., Lahore reported at 2001 PTD 1525 in which it was held that section 66A was not procedural in nature and could not have retrospective effect to touch the completed assessments before its introduction on the statute book. "He also relied on a case decided by a Division Bench of the Karachi High Court in the case of Honda Shahrah-e-Faisal Association of persons v. Regional Commissioner of Income Tax, Karachi and others reported at 2005 PTD 1316 which clearly held that provisions contained in section 122(5A) of Income Tax Ordinance, 2001 were not retrospective in operation. Assessments finalized before 1-7-2003 [date of enforcement of section 122(5A)] could not be reopened/revised/amended in exercise of jurisdiction under the said provisions. So the notices issued in respect of assessments finalized before 1-7-2003 were without jurisdiction, illegal and void ab initio and quashed by the Court.

7. The D.R. reiterated the stand taken in the reply and submitted that the respondents had filed a petition for special leave to appeal in the Supreme Court of Pakistan against the judgment of the Karachi High Court in the case of Honda Shahrah-e-Faisal Association of Persons v. Regional Commissioner of Income Tax, Karachi.

8. It is an admitted fact that the impugned notices dated 28-6-2004 and 15-3-2005 under section 122(5A) of the Income Tax Ordinance,' 2001 pertain to assessment years 2000-01 and 2001-02. The assessment of these years will be deemed to have been made in respect of income referred to in subsection (1) of S.80 of repealed Ordinance XXXI of 1979. In the complainant's case the assessment orders were framed on 1-6-2002 and 27-5-2002. The Lahore High Court in the case of Messrs Monnoo Industries Limited v. The Commissioner of Income Tax, Central Zone, Lahore has held that substituted subsection (5A) in section 122 of Income Tax Ordinance, 2001 is effective from 1-7-2003 hence not applicable to a matter decided and closed prior to enactment of Finance Act, 2003. So the proceedings initiated against the complainant under section 122 of the Ordinance XLIX of 2001 are without jurisdiction, illegal and void ab initio.

9. In view of the finding in Para 8 above it is recommended:---

(a) That proceedings initiated against the complainant by respondent No.2 under section 122 of Ordinance XLIX of 2001 by issue of notices dated 28-6-2004, and 15-3-2005 be dropped/withdrawn and cancelled.

(b) Compliance to be reported within 30 days from the date of receipt of the findings.

C.M.A./464/F.T.O.Order accordingly.