2008 P T D (Trib.) 1253
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Ch. Nazir Ahmad, Accountant Member
M.A. No.1115/LB of 2006, decided on 01/09/2007.
(a) Income Tax Ordinance (XLIX of 2001)---
----S.221---Rectification of mistake---Decisions of the Appellate Tribunal of equal strength have binding force and an omission to follow them entails a mistake apparent from record.
(b) Income Tax Ordinance (XLIX of 2001)---
----S. 221---Rectification of mistake---Inadvertently ignoring ratio settled by the High Court was a mistake floating on the face of record.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 38(8)-Income Tax Ordinance (XLIX of 2001), S.221---Limitation as to set off and carry forward of losses in the case of firms, partners, etc.---For purpose of carrying forward and setting off a loss, an order under S.38(8) of the Income Tax Ordinance, 1979 was mandatory---No loss could be made to carry forward and set off on the basis of merely a computation chart by the Assessing Officer in the rectification order.
(d) Income Tax Ordinance (XLIX of 2001)---
---S. 221---Income Tax Ordinance (XXXI of 1979), S.38(8)---Rectification of mistake---Unless any mistake in the preceding year was corrected in that year, or within the period of limitation specifically provided, the figure of the brought forward loss could not be altered merely on the basis of a computation chart outside the assessment record.
(e) Income Tax Ordinance (XLIX of 2001)---
----S.221---Rectification of mistake---Brought forwarded losses---If the figure of loss brought forward and set off in ay year was in conformity with the assessment record of the immediately preceding year, no mistake therein could be attributed to the current assessment year---Mistake, if any, occurring in an earlier year, could not be held to be a mistake for the current year and the inadvertent findings of the Appellate Tribunal were thus not in consonance with law.
(f) Income Tax Ordinance (XLIX of 2001)---
---S.221---Income Tax Ordinance (XXXI of 1979), Ss.35 & 38---Rectification of mistake---Mistake occurring in respect of business loss could not be held rectifiable by curtailing depreciation loss, which was altogether different in nature and was allowable under distinct provisions of law vis-a-vis S.38(6) as against the business loss allowable under S.35 read with S.38(8) of the Income Tax Ordinance, 1979.
(g) Income Tax Ordinance (XLIX of 2001)---
----S. 221---Finance Ordinance (XXV of 2001)---Rectification of mistake---Assumption of jurisdiction---Scope---Income Tax Ordinance, 2001 was enacted through Finance Act, 2001, which came into force with effect from 1-7-2003---Order was passed on 28-6-2003 before enforcement of Income Tax Ordinance, 2001---Assumption of jurisdiction through show-cause notice, dated 24-1-2003 for making rectification under S.221 of the Income Tax Ordinance, 2001 and the consequential order was ab initio void and illegal and could not be maintained---Appellate Tribunal had inadvertently not considered said legal position although same was specifically contended on behalf of the assessee---Such was an apparent mistake, which was liable to be rectified---Rectification made by the Assessing Officer vide order, dated 28-6-2003 was not sustainable in the eyes of law---Orders of Appellate Tribunal were recalled and order of First Appellate Authority was vacated and order passed by the Taxation Officer under S.221 of the Income Tax Ordinance, 1979 was cancelled by the Appellate Tribunal--Miscellaneous application filed by the assessee was allowed and his main appeal also succeeded.
2002 PTD (Trib.) 2422; 1997 PTD (Trib.) 879; 2004 PTD (Trib.) 745; 1992 PTD 570 SC (Pak.); 2006 PTD 2474; 2005 PTD (Trib.) 1697; 2007 PTD (Trib.) 322 and 2007 PTD (Trib.) 394 ref.
Shabbir Ahmed, I.T.P. for Applicant.
Rai Tallat Maqbool, DR for Respondent.
ORDER
Through this miscellaneous application, the applicant has requested for recalling of the order of this Tribunal, dated 17-9-2005 in M.A. No.640/LB of 2004 and the order of this Tribunal, dated 5-8-2006 in I.T.A. No.2716/LB of 2004 (Assessment year /2000-01) on the following grounds:---
(1) Brief facts giving rise to this miscellaneous application are that the second appeal filed by the applicant was dispose of by this learned Tribunal vide order, bearing I.T.A. No.2716/LB of 2006, dated 5-8-2006.
(2) That, the applicant filed first miscellaneous application for rectification which was disposed of vide M.A. No.640/LB of 2004.
(3) That, the following mistakes which are apparent from record have been noticed in the above two orders of the learned ITAT:---
"That a mistake in respect of carry forward of business loss or depreciation loss cropped up in an earlier assessment year, which have been attained finality and thus a past and closed transaction, cannot be corrected after expiry of limitation period by rectifying any subsequent year."
(I) That, the following ratio already decided in the judgment of the learned ITAT re: 2002 PTD (Trib.) 2422 which was binding upon the learned bench, has not been followed.
(II) That, the core issue involved being the same, the ruling of the learned ITAT in the precedent judgment was that rectification in a subsequent year cannot be made whereas the ruling on the same issue in both the impugned judgments of the learned ITAT is that rectification in a subsequent year can be made.
(III) That, without prejudice, the impugned order of rectification, pertaining to the period prior to the enactment of the Income Tax Ordinance, 2001, passed under the provisions of the Income Tax Ordinance, 2001 instead of the provisions of the repealed Income Tax Ordinance, 1979, was illegal and liable to be quashed as held-by the learned ITAT in re:---
(4) That, both the precedents quoted above were existing at the time of disposal of the miscellaneous application vide order, dated 17-9-2005 and were ought to be followed as binding authorities.
(5) That, non following the binding judgment is a mistake apparent from record liable to be rectified under the law.
(6) That, the first authority has been held as distinguishable merely on the basis. of facts only without comprehending the ratio decided as submitted above.
(7) That, the legal ground involved which remained un-adjudicated that whether a mistake, if any, in respect of carry forward of business loss under section 35 of the repealed Ordinance could be corrected by altering/curtailing the undisputed claim of depreciation under section 23, read with section 38(6) ibid.
The mistake pointed out above, being apparent from record may kindly be rectified.
The facts in brief as recollected from the arguments from both the sides and impugned orders are that income of the assessee in this case for the year 2000-01 was originally computed at Rs.19,77,804 after adjustment of carried forward losses amounting to Rs.1,15,92,075. However, subsequently, on examination of record it was observed by the assessing officer that certain excessive loss was allowed in the years 1994-95 and 1995-96 which being carried forward in the succeeding years was a mistake apparent on the face of record and rectifiable. As per the impugned assessment order, since excessive depreciation was carried forward, resultant business loss were set off excessively. Therefore, a show-cause notice was issued and considering the reply as unsatisfactory, the original order was rectified and income was determined at Rs.1,08,27,046.
The plea of the assessee before the learned C.I.T. (A) and the Tribunal all along was that mistake occurred in the assessment years 1994-95 and 1996-97 could not be rectified due to bar of time limit stipulated by law. As per the contentions of the assessee, even otherwise, if there was any mistake, that mistake could have been rectified in that particular year and not in the year under consideration. Grounds of appeal field by the assessee are reproduced hereunder, which are nearly same as were before the learned C.I.T. (A):---
(1) That the impugned order under section 221 of the Income Tax Ordinance, 2001, dated 28-6-2003 (ANN-A), suffering from serious legal infirmities, is without jurisdiction, ab initio void and mala fide, therefore, without legal effect.
(2) That the impugned order has been based upon the show-cause notice, dated 24-1-2003 (ANN-B) only which was issued under section 122 ibid and not under section 221 ibid.
(3) That the notice under section 221 ibid. dated 18-3-2003 and reply thereto (ANN-C and D), have malafidely been ignored, rendering the impugned order passed without complying with the mandatory provisions of subsection (2) of section 221 ibid.
(4) That there was no mistake, whatsoever, apparent from the record, in the original assessment order, sought to be rectified through the impugned order.
(5) That the alleged mistake, as per impugned order, pertained to carry forward of business loss and not to unabsorbed depreciation.
(6) That the action of the assessing officer is beyond the scope of "the mistake apparent from and floating on the record".
(7) That if at all, the mistake, if any, lay in the assessment years prior to assessment year 1996-97 and the impugned order is an attempt to rectify those assessment years which have been barred by limitation.
(8) That the issue/ratio stands already decided by the learned ITAT in re:---
(9) That the learned Commissioner of Income Tax (Appeals), Zone-II, Lahore has erred in upholding the impugned assessment order under gross misconception of law and facts of the case.
(10) That the order of the learned C.I.T. (Appeals) is arbitrary, perverse and is liable to be vacated.
(11) That, the impugned orders are bad in law and on facts as may further be urged at the time of hearing.
(12) That the appellant craves permission to alter, amend or add to the above grounds of appeal.
Prayer
The impugned order of the learned C.I.T. (A) be vacated and the impugned assessment order be struck down as without jurisdiction, ab initio void and of no legal effect.
While the grounds of miscellaneous application filed under section 221 of the Income Tax Ordinance, 2001 before this Tribunal are as follows:---
(1) That the above appeal was decided vide order, dated 5-8-2004.
(2) That following mistakes which are apparent from record have been noticed in the above order of the learned ITAT: ---
(i) That the impugned order of the Assessing Officer under section 221 of the I.T. Ordinance, 2001, dated 28-6-2003 was passed without complying with the mandatory provisions of section 221(2) ibid, which was liable to be cancelled/annulled, has been confirmed.
(ii) That the ratio already decided by a bench of equal strength in re: 2002 PTD (Trib.) 2422 that was binding upon the learned bench, was not followed, which amounts to a mistake apparent from record as held by the learned ITAT in the following judgments:---
(a) 1997 PTD (Trib.) 879, (b) 2004 PTD (Trib.) 745.
(iii) That it has erroneously been held that the AR conceded that there was no mistake in the impugned order, whereas, it was avered by the AR that there was no mistake in the original assessment order.
(3) That it is now well settled that an order passed without complying with a mandatory provisions of law is liable to be cancelled/annulled.
(4) That the impugned order involved the following facts:---
(i) The order was passed taking into account only the notice under section 122 ibid. and reply of the applicant thereto but without taking into account the show-cause notice under section 221 ibid. And the reply of the applicant, which amounted to non-compliance of the mandatory provisions of subsection (2) of that section rendering the impugned order liable to be cancelled/ annulled.
(ii) Business loss amounting to Rs.7,169,692 and Rs.1,489,550 pertaining for the assessment years 1987-88 and 1988-89 respectively, which lapsed to be carried forward under section 35 of the repealed I.T. Ordinance, 1979, was carried forward and set off in the assessment years 1994-95, 1995-96 and 1996-97.
(iii) After completing set off of business loss as above, the set off of unabsorbed depreciation, accumulated since assessment' years 1986-87 to 1990-91, aggregating to assessment year 1995-96 and completed in the year under appeal.
(iv) Consequent upon the set off of lapsed loss as aforesaid, the amount of balance unabsorbed depreciation, to be carried forward, was overstated in the assessment year 1996-97 to the extent of the said lapsed loss, but was correctly brought forward and set off in all the subsequent years upto the year under appeal.
(5) That it is evident from the above, that, .as a matter of fact, mistake occurred in the assessment years 1993-94 to 1996-97 only and that too in respect of business loss only and not in respect of depreciation allowance.
(6) That under section 380) ibid, the unabsorbed depreciation allowance .when carried forward to the subsequent year, is deemed to be the allowance of such subsequent year.
(7) That the brought forward figure is adopted in an assessment order as determined per assessment record, which obviously is the assessment order of the preceding year, and not on the basis of extraneous working of figures.
(8) That in all the subsequent years from 1997-98 to 2000-01, figures of loss was correctly adopted on the basis of the record for the immediately preceding year and became an allowance of each year: Thus, there was no mistake, whatsoever, in bringing forward and carrying forward the figures of depreciation loss in all the said years.
(9) That the amount of brought forward depreciation loss adopted in the assessment year under appeal could not be altered unless the base amount stated as carried forward in the preceding year is altered and so on.
(10) That accordingly, the ratio decided by the learned ITAT in the judgment re: 2002 PTD (Trib.) 2422 is as under:---
(i) That rectification in a subsequent year on the basis of a mistake in an earlier year amounts to rectification of the concerned earlier year in which the mistake arose.
(ii) That if the earlier 'years are barred by time, they have attained finality and thus it is a closed and past transaction, the impugned rectification order shall be treated as an order having been passed after the expiry of limitation period.
(iii) That the assessing officer not only overridden statutory limitation concerning very matter of depreciation which cropped up and got barred in the relevant earlier year.
(iv) That resort to rectification provisions of law is absolutely uncalled for in an issue involving no mistake apparent from record.
(11) That the leaned ITAT, on the strength of the judgment of the apex Court in re: 1992 PTD 570 SC (Pak.), in the above judgment, ruled that a mistake discovered by entering into investigation was not a mistake apparent from record.
(12) That the alleged mistake mentioned in the impugned order, discovered by investigating record of the last fourteen years cannot be termed as mistake apparent from the record, therefore, did not fall within the purview the section 221 ibid. as held by the Supreme Court.
Prayer
That the mistakes pointed out in para. 2 above, being apparent from the record, may kindly be rectified.
However, the taxpayer could not succeed in first appeal before the learned C.I.T. (A) as well as before this Tribunal and the above referred miscellaneous application filed in this regard before this Tribunal also failed. The reason for not accepting of the assessee's appeal and the miscellaneous application by the Tribunal were as under:
"In case of business losses or depreciation allowance if there is any mistake in any assessment year that mistake continues in the subsequent assessment years also because loss carried forward has to be adjusted against income of a particular succeeding year if the loss was not set off fully in the assessment year in which it was incurred against any other head of income. Thus the incorrect figure of business loss or depreciation allowance carried forward from earlier years of adjustment against income of a subsequent assessment year does become a mistake for that year being the year in which the loss is sought to be adjusted."
Now in the wake of facts stated above, the precise question arose whether a mistake occurred in a particular year which, by operation of law, has become time barred, can be rectified in the succeeding year.
The learned counsel for the assessee/applicant firstly contended that excessive relief of business loss allowed in the assessment years 1994-95 to 1996-97 could not be rectified by restoring to the provisions of section 221 of the Ordinance, 2001 in the assessment year 2000-01 by curtailing the brought forward depreciation allowance which becomes part of allowance of the current year under section 38(6) of the repealed Ordinance, 1979. According to the learned counsel, even if there was any mistake that occurred in the assessment years 1994-95 to 1996-9 and limitation provided by law for such rectification has been elapsed. Therefore, the finding of the Tribunal that "if there is any mistake in any assessment year that mistake continues in the subsequent assessment years" was patently wrong and a mistake apparent on the face of record. If, this principle is accepted, no assessment could be attained finality and the assessing officer can reopen/rectify any assessment year on the mere presumption of any wrong and the limitation providing provisions would become redundant. The order has been passed under subsection (4) of section 221, which says that "No order under subsection (1) may be made after five years from the date of the order sought to be rectified". Admittedly, the case of the department was that excess losses were adjusted in the assessment years 1994-95 to 1996-97. Therefore, the mistake, if any, can be rectified for that year and not in the assessment, year 2001-02. In support of his contention, the learned AR has relied upon the judgments reported as 2002 PTD (Trib.) 2422 and 2006 PTD 2474. The learned counsel contended that earlier judgments of the Tribunal as well as of the superior Courts have binding force and no different finding can be given. Therefore, according to him, a serious mistake was crept in the Tribunal's order, which should have to be rectified.
Second rectifiable mistake pointed out by the learned counsel is that the impugned order, dated 28-6-2003 passed by the Taxation Officer under section 221 of the Income Tax Ordinance, 2001 is before the enforcement thereof the new Ordinance. He argued that subsection (1A) of section 221 ibid, which empowers the action under that section in respect of an order passed under the repealed Ordinance was enacted through the Finance Act, 2003 which came into force with effect from 177-2003. Therefore, any such action under that section before the enforcement thereof was ab initio, illegal and without jurisdiction. Hence, the impugned action initiated by issuance of notice on 24-1-2003 before the enforcement of Income Tax Ordinance, 2001 was without assumption of lawful jurisdiction and therefore all the superstructure constructed thereon was ab initio void and nullity. Reliance in this regard was placed on Tribunal judgments reported as 2005 PTD (Trib.) 1697, 2007 PTD (Trib.) 322 and 2006 PTD 2474. On this issue also, there is a mistake apparent in the Tribunal's order, which according to the learned counsel have to be considered and the rectificatory order under section 221 should have to be cancelled.
Thirdly, the learned AR has invited our attention towards another legal lacuna that the effect of alleged correct set off and carry forward of business losses in the relevant years is resorted to be given through a simple computation chart which is absolutely illegal being violative of the provisions of section 38(8) of the repealed Ordinance, which provides the mechanism for setting off or carry forward of loss the amount whereof is required to be determined in pursuance of an order made under sections 59, 59A, 62, 63 or 65, which is always the assessment order of the immediately preceding year and not a mere computation chart. When asked as to how the above relief could be sought through a rectification, the learned AR pleaded that a similar relief has been allowed in a reported judgment of the Tribunal 2007 PTD (Trio.) 394, therefore prayed that the order of the Tribunal may be rectified and the assessee's appeal be accepted.
We have heard the learned representatives of the parties, perused the impugned orders, relevant record and the case law cited at the bar.
We are of the view that there is no cavil to the proposition that the decisions of the Tribunal of equal strength have binding force and an omission to follow them entails a mistake apparent from record. The case law cited as 2002 PTD (Trio.) 2422 referred by the learned counsel for the assessee deals with the main issue that mistakes occurred in earlier years cannot be rectified in subsequent years. We have examined this case. In that case, on the basis of a computation chart, similar to the one in the present case, it was contended by the department that excess relief in respect of business loss and depreciation loss was allowed in earlier years. After careful study of the above referred reported judgment, we are of the view that the ratio decidendi relied upon by the learned representative of the assessee is very much relevant, as in that case, rectification was identical (excessive allowance of business loss and depreciation in earlier years) and the timing of rectification was also identical (in subsequent year), therefore, the inadvertent distinction drawn by this Tribunal in the two earlier decisions in the original appeal as well as in the rectification application was totally wrong and without any lawful authority. Moreover, the facts as well as the ratio decided by the Honourable Peshawar High Court in its judgment reported as 2006 PTD 2474 are identical, whereby it is held that "remedial action cannot be taken in subsequent year". We are of the view that inadvertently ignoring ratio settled by the Honourable High Court is another mistake seen floating on the face of record, which has not been considered in the earlier orders of this Tribunal in this case.
We have further noted that this Tribunal despite contentions of the assessee as taken in the grounds of appeal and application and arguments of the learned counsel ignored that the rectification made by the Taxation Officer suffers from serious legal lacunas being violative of the provisions contained in section, 38(8) of the repealed Ordinance, which provides for the mechanism of set off and carry forward of loss. The said section 38(8) is reproduced for ready reference as under:---
"(8) Notwithstanding anything contained in this Ordinance, no loss which has not been determined in pursuance of an order made under sections 59, 59A, 62, 63 or 65 shall be carried forward an set off under section 35, subsection (2) of section 36 or section 37."
It is abundantly clear from the above section that for carry forward and set off a loss, an order under the said sections is mandatory, therefore, no loss could be made carry forward and set off on the basis of merely a computation chart, as has been done in this case by the assessing officer in the rectification order. We are, therefore, of the view that unless any mistake in the preceding year is correct in that year, or within the period of limitation specifically provided the figure of the brought forward loss cannot be altered merely on the basis of a computation chart outside the assessment record. Consequently, if the figure of loss brought forward and set off in any year is in conformity with the assessment record of the immediately preceding year, no mistake therein could be attributed to the current assessment year. Thus mistake, if any, occurred in an earlier year, cannot be held to be a mistake for the current year and the inadvertent findings of the Tribunal in this regard are not in consonance with law. Moreover, a mistake occurred in respect of business loss cannot be held rectifiable by curtailing depreciation loss, which is altogether different in nature and is allowable under distinct provisions of law vis-a-vis section 38(6) as against the business loss allowable under section 35 read with section 38(8). But this Tribunal has inadvertently ignored these legal aspects.
This brings us to the last issue contended by the learned counsel for the assessee regarding order passed on 28-6-2003 under section 221 of the Income Tax Ordinance, 2001. In this regard, it has been contended that this issue being the legal one can be raised at any stage of the proceedings, but the assessee has raised this issue throughout before the Taxation Officer, before learned C.I.T. (A) and before this Tribunal in the grounds of appeal as well during the course of arguments, but this Tribunal has not given finding on this issue. We find force in the contentions made by the learned counsel that the new Income Tax Ordinance, 2001 was enacted through Finance Ordinance, 2001, which came into force with effect from 1-7-2003. The order under section 221 of the Ordinance, 2001 has been passed on 28-6-2003 before the enforcement thereof the new- Ordinance, 2001. We are of the view that assumption of jurisdiction through show-cause notice, dated 24-1-2003 for making rectification under section 221 of the Ordinance, 2001 and the consequential order was ab initio void and illegal and cannot be maintained, but this Tribunal in both the orders has inadvertently not considered this legal position although it was specifically contended on behalf of the assessee. It is, therefore, an apparent mistake, which is liable to be rectified.
For the foregoing reasons, it is observed that the relevant provisions of law and the case law have either not been appreciated in its true perspective or had been inadvertently ignored. After considering all the above said legal as well as factual position, we are of the view that rectification made by the assessing officer under section 221 vide order, dated 28-6-2003 was not sustainable in the eyes of law and merits cancellation. Resultantly, Tribunal's order, dated 17-9-2005 in MA. No.640/LB of 2004 and in the main appeal bearing I.T.A. No.2716/LB of 2004 are recalled. The impugned order of the learned C.I.T. (A), dated 28-4-2004 on this issue is vacated and the order passed by the Taxation Officer under section 221 of the Ordinance, 2001, dated 28-6-2003 is cancelled.
The miscellaneous application filed by the assessee is allowed. Consequently, the main appeal filed by the assessee succeeds.
C.M.A./22/Tax(Trib.)Application allowed.