VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1466 (2007)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 56---Income Tax Ordinance (XLIX of 2001), S.239(2)---Notice for furnishing return of total income---Savings---Assessment years 1998-99 and 1999-2000---Assessee contended that assessing authority erred in law while assuming jurisdiction by invoking S.56 of the Income Tax Ordinance, 1979 for the reason that no proceedings were pending and S.56 of the Income Tax Ordinance, 1979 was not saved by S.239(2) of the Income Tax Ordinance, 2001---Validity---Section 56 of the Income Tax Ordinance, 1979 though a procedural/machinery section had not been saved in S.239 of the Income Tax Ordinance, 2001---Courts never allow to dig out anything by peeping into the mind of the legislature whether something was missing---Mentioning of phrase "in accordance with the procedure specified in S.59...." would show that the word procedure mentioned in S.239 of the Income Tax Ordinance, 2001 was to be relied upon once application of S.59 etc. had come into play---Section 56 of the Income Tax Ordinance, 1979 was to be invoked by the Assessing Officer before he embarked upon making assessment under the provision of law mentioned in S.239(2) of the Income Tax Ordinance, 2001---Section 239(4) of the Income Tax Ordinance, 2001 made it abundantly clear that only the proceedings pending on or before 30-6-2002 could be continued under the Income Tax Ordinance, 1979; this was very much on record that no proceedings were pending on 30-6-2002 and for that reason proceedings could only be initiated through invocation of machinery provision provided for under the Income Tax Ordinance, 2001---If there was any ambiguity in interpretation of any provision of law, the interpretation favouring the assessee could be adopted---Proceedings commenced by issuance of notice under S.56 of the Income Tax Ordinance, 1979 were coram no judice and unsustainable in the eyes of law---If at all proceedings were to be started, those ought to have been commenced by issuance of notice under S.114 of the Income Tax Ordinance, 2001---Order passed by the First Appellate Authority was vacated and proceedings initiated through issuance of notice under S.56 of the Income Tax Ordinance, 1979 being Without jurisdiction were directed to be annulled by the Appellate Tribunal.

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

----S.114(4) & (5)---Return of income---Assessment year 1997-98---Assessee contended that initiation of proceedings through a notice under S.114(4) of the Income Tax Ordinance, 2001 was not sustainable in the eyes of law for the simple reason that notice, dated 28-6-2003 by itself was time-barred as S.114(5) of the ,Income Tax Ordinance, 2001 provided that notice under S.114(4) of the Income Tax Ordinance, 2001 could only be issued in respect of assessment year of the last five completed assessment years; that notice could only be given for the assessment year 1997-98 before 30-6-2002 and that since the very inception of the proceedings was time-barred, all the subsequent proceedings would also fall flat---Validity---Proceedings were initiated through notice under S.114 of the Income Tax Ordinance, 2001, dated 28-6-2003 which was clearly time-barred as the period provided under S.114(4) of the Income Tax Ordinance, 2001 was that the notice under S.114 of the Income Tax Ordinance, 2001 could only be issued in respect of previous five completed tax years---Since very initiation of proceedings was without jurisdiction for the reason that same commenced through a time-barred notice, all the penultimate proceedings were coram non judice, hence nullity in the eyes of law---Order of First Appellate Authority whereby appeal of the assessee was dismissed as having been held to be time-barred was vacated by the Appellate Tribunal and assessment framed by the assessing authority started in pursuance of notice under S. 114 of the Income Tax Ordinance, 2001 having been issued after 30-6-2002 was directed to be annulled.?

1992 PTD (Trib.) 1587 and 2000 PTD 2407 rel.

Qamar Haider, D.R. for Appellant.

Syed Saghir Tirmizi for Respondent.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---For the assessment years 1998-99, 1999-2000 and 1997-98, the assessee has filed appeals against the combined impugned order, dated 28-4-2005; passed by the learned CIT(A), Zone-II, Faisalabad. The common grounds which have been agitated for the said assessment years are as under:

"(1) The proceedings initiated vide notice under section 56 (of the repealed Ordinance) after 30-6-2002 were void ab initio. The entire assessment proceedings were liable to be quashed. The CIT(A) has erred in upholding the treatment.

(2) Without prejudice to the ground as above the impugned appellate order is challenged on the following grounds:

(i) That the estimate of sales adopted at Rs.36,469,216 was excessive showing an increase of Rs.1,500,000 over cash credit in the Bank Account. The CIT(A) has erroneously confirmed the estimate on the basis that the estimate is equal to cash credits.

(ii) The G.P. rate applied at 4% was illegal and excessive, as the Assessing Officer had allegedly relied upon some parallel cases without confronting, the assessee with details of such cases despite written request. The CIT(A) has erred in confirming the same, without assigning any reason or passing a speaking order."

2. With regard to the assessment year 1998-99 the revenue is also in appeal with the following contention:--

(1) That the Commissioner of Income Tax (Appeals-II), Faisalabad was not justified in deleting the addition of Rs. 20,10,348 made under section 13(1)(aa) of the Income Tax Ordinance, 1979 as the same was made on account of unexplained investment.

(2) That the Commissioner of Income Tax (Appeals-II) was not justified in restricting the additions made out of P&L a/c expenses from Rs.4,37,439 to Rs.178,769.

3. The assessee is also in appeal for the assessment year 1997-98 raising following grounds of appeal:--

(1) That CIT(A) has illegally rejected the assessee's appeal as time-barred without taking into consideration assessee's arguments and written explanation (Copy of written explanation enclosed). There is no limitation against null and void order.

(2) That the entire assessment proceedings before Taxation Officer are null and. void as the same were initiated vide notice under section 114(4), dated 29-6-2003 which was beyond period of limitation under section 114(5).

(3) That the estimate of sales adopted at Rs.23,458,242 is extremely excessive and unwarranted by facts of the case as no show-cause notice under section 62 was issued or served on the assessee.

(4) That the G.P. rate applied @ 4% is excessive and illegal as the assessee was not confronted with the proposed G.P. rate."

Assessment Years 1998-99 and 1999-2000

4. Right at the outset the learned A.R. of the assessee assailed the impugned findings passed by the learned CIT(A) with the plea that the assessing authority erred in law while assuming jurisdiction for the assessment years under consideration by invoking section 56 of the repealed Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) for the reason that no proceedings were pending in the assessee's case and also the fact that section 56 (ibid) was not saved by section 239(2) of the Income Tax Ordinance, 2001. The learned A.R. contended that the observations made by the learned First Appellate Authority while rejecting the assessee's first appeal was that the assessment proceedings have been saved which in ease of non filing of return cannot be completed without issuance of notice under section 56 of the repealed Ordinance and further observed that interpretation of law is to be made with necessary implication and application of law which amounts to going beyond the confines of law. He argued that intension of the law makers could be gathered from the provisions of law which they have enacted, and could not be inferred through implication. The learned A.R. further stated that the assessing authorities were wrong in interpreting section 232 in isolation since the same could have been read in conjunction with sections 239(1) and 239(4) of the Income Tax Ordinance, 2001. The learned A.R. also went on to argue the case on merit as well. The learned D.R. has opposed the arguments advanced by the learned A.R.

5. We have heard the learned counsel for both the parties along with the case-law cited at the bar. After hearing the contentions raised by the rival parties, we tend to agree with the assertions made by the learned A.R. There is no denying the fact that section 56 though a procedural/machinery section has not been saved in section 239 of the Income Tax Ordinance, 2001. We would like to observe that Courts have never been allowed to dig out anything by peeping into the mind of the legislature if something is missing. Even otherwise the mentioning of phrase "in accordance with the procedure specified in section 59????." would show that the word procedure mentioned in section 239 is to be relied upon once application of section 59 etc. has come into play. This is for the reason that section 56 is to be invoked by the Assessing Officer before it embarks upon making assessment under the provisions of law mentioned in section 239(2) of the Ordinance. If we go through section 239(4) of the Ordinance which makes it abundantly clear that only the proceedings pending on or before 30-6-2002 could be continued under the repealed law. This is very much on record that no proceedings were pending on 30-6-2002 and for that reason proceedings could only be initiated through invocation of machinery provision provided for under the new Ordinance. Besides we are also mindful of the fact that if there is any ambiguity in the interpretation of any provision of law, the interpretation favouring the assessee could be adopted.

6. For the foregoing reasons we are constrained to observe that proceedings commenced by issuance of notice under section 56 of the repealed Ordinance were coram non judice, hence unsustainable in the eyes of law. We would also like to add that if at all proceedings were to be started, ought to have been commenced by issuance of notice under section 114 of the Income Tax Ordinance, 2001. Resultantly, we vacate the impugned order passed by the learned First Appellate Authority and hold that proceedings initiated through issuance of notice under sections 56 of the repealed Ordinance being without jurisdiction are directed to be annulled.

7. Since we have decided the case on the legal plan, we do not feel the necessity to dilate upon the factual aspects of the case. Consequently, appeals of the assessee succeed while the appeal of the department is hereby dismissed.

Assessment Year 1997-98

8. Facts relevant to the present assessment year are that assessment proceedings were initiated on receipt of complaint of tax evasion, according to which the assessee was maintaining a Bank a/c with the Faysal Bank, Faisalabad. Bank statement was obtained from the concerned bank with the prior permission of the Commissioner of Income Tax and the assessment was completed at income of Rs.7,38,330. It was worth-mentioning that proceedings in the present case were started through issuance of notice under section 114 of the Income Tax Ordinance, 2001. The assessee failed at the first appellate level for the reason that the appeal was held to be time-barred. The assessee is in further appeal before the, Tribunal.

9. The learned A.R. submitted that the very initiation of proceedings through a notice under section 114(4) was not sustainable in the eyes of law for the simple reason that the notice, dated 28-6-2003 by itself was time-barred. He contended that section 114(5) provides that notice under section 114(4) could only be issued in respect of assessment year of the last five completed assessment years. He submitted that in the assessee's case, for the assessment year 1997-98, the notice could only have been given before 30-6-2002. He stated that since very inception of the proceedings was time-barred, all the subsequent proceedings conducted in the pursuance thereof would also fall flat. In support of his contention, the learned A.R. relied upon judgments reported as 1992 PTD (Trib.) 1587, 2000 PTD 2407 (H.C. Kar.) The learned D.R. on the other hand opposed the arguments advanced by the learned A.R.

10. We have heard the learned counsel for the both the parties and have also scanned through the relevant orders along with case-law cited at the bar. Undoubtedly, proceedings in the present case were initiated through notice under. section 114, dated 28-6-2003 which is clearly time-barred since the period provided under section 114(4) is that the notice under section 114 could only be issued in respect of previous 5 completed tax years. Case-law cited by the learned A.R. are on all fours to the case of the assessee. The relevant paragraphs of the reported judgments are as under:

1992 PTD (Trib.) 1587

"(9) The learned counsel argues that since the assessment order was a nullity, therefore, no period of limitation was required. It is clear from the impugned order that this plea was not canvassed before the learned CIT(A). However, since it is purely a legal peal, I think that the learned counsel is within his rights to raise it for the first time before me. I, therefore, turn to examine it merits."

(15) Now, turning to the next submission, I agree with the contention of Mr. Aminuddin Ansari that if an order is a nullity, an appellate authority can ascertain and decide an appeal even if it is time-barred as, this contention is fortified by Division Bench decision of Lahore High Court recorded in Mehmood Alam's case (PLD 1970 Lah. 6). Nevertheless, I am unable to hold that the assessment order was a nullity for the reasons given above."

2000 PTD 2407 (H.C. Kar.)

"(12) On the score of limitation it has been contended that the impugned orders have been rendered in violation of law, Constitution and the authorities pronouncements of the Supreme Court of Pakistan; as such the impugned orders are void ab initio, being coram non-judice and accordingly the plea of the limitation was totally misconceived, as no limitation runs against a void and illegal order. This contention also carried force since the impugned orders, as discussed below, are void and a nullity, being in conflict with the Constitution, law and the precedents of the Hon'ble Supreme Court which are binding under Article 189 of the Constitution. The principle of law that orders in contravention of mandatory provisions of law are a nullity and no limitation runs against such orders seems well settled; in this respect reference is invited to Khawaja Muhammad v. Marduman Babar Kahol 1987 SCMR 1543; also see Ali Muhammad v. Hussain Bakhsh PLD 1976 SC 37."

11. In the light of aforementioned arguments as well as case-law cited in support thereof, we tend to agree with the assertions made by the learned A.R. We are constrained to observe that since very initiation of proceedings were without jurisdiction for the reason that same were commenced through a time-barred notice, all the penultimate proceedings were coram non judice, hence nullity in the eyes of law. Resultantly, we vacate the impugned order passed by the learned CIT(A) whereby appeal of the assessee was dismissed as having been held to be time-barred. Besides, the assessment framed by the assessee authority started in pursuance of notice under section 114 of the Income Tax Ordinance, 2001 having been issued after 30-6-2002, is directed to be annulled.

12. Appeal of the assessee succeeds as indicated above.

C.M.A./43/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.