VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1491 (2008)

(a) Income-tax---

---Proration of expenses---Deviation from past treatment without solid reasons---Department had itself accepted the stance that assessment was prorating the expenses on the same pattern as in the preceding as well as succeeding years---Expenses should be prorated on reasonable basis taking account of the relative nature and size of activities and the department itself had accepted the stance of the assessee in the preceding as well as succeeding years---Assessing Officer having not given any solid reasons for deviating from the past treatment deviation was not justified.

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

---S. 122(5A)---Income Tax Ordinance (XXXI of 1979), S.66-A---Amendment of assessment---Powers of Inspecting Additional Commissioner---Under S.66A of the Income Tax Ordinance, 1979, the Inspecting Additional Commissioner had the powers to make necessary inquiries as he deemed fit but under S.122 (5A) of the Income Tax Ordinance, 2001, these powers were not there.

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

---S.122(5A)---Amendment of assessment---Show-cause notice issued were merely calling for evidence rather than inquiries---Such notices were not within the jurisdiction/powers of the amending authority.

(d) Income Tax ordinance (XLIX of 2001)---

---S. 122(5A)---Amendment of assessment---Notice calling for details and fishing enquiries---Validity---Revenue issued show-cause notice calling for details and then subsequently fishing enquiries were made and no proper findings for amending the order were given in the notices---Action of the Revenue was ab initio illegal as there was no proper/legal basis for invoking provisions of S.122(5A) of the Income Tax Ordinance, 2001---Amended order in question was cancelled by the Appellate Tribunal restoring the original one.

Farooq Ejaz, I.T.P. for Appellant.

Sardar Masood Raza Qazlibash, D.R. for Respondent.

ORDER

NASEER AHMED (ACCONTANT MEMBER).---The assessee appellant a manufacturer-cum-exporter of textiles and auxiliaries has filed an appeal before this Tribunal against order of learned CIT(A), Gujranwala Camp Office at Faisalabad, dated 16-4-2007. The assessee has taken the following grounds:--

(1) That the CIT(A) was not justified to reject the appeal as show-cause was illegal as it is more of inquiries than findings.

(2) That the CIT(A) was not justified to reject the appeal as the Assessing Officer has no definite information for invoking the provisions of section 122(1).

(3) That treatment of Assessing Officer and upholding by CIT(A) to proportionate of common expenses between export sale and local sale on the basis of turnover rather than production is unjustified.

(4) That CIT(A) was not justified to confirm the disallowing lease rental being inadmissible under sections 21(L) of the Income Tax Ordinance, where proof of payment was produced during the hearing.

3. On behalf of the assessee the learned A.R. Mr. Farooq Ijaz, attended and argued as per grounds. The learned A.R. stated that no separate manufacturing account is being maintained, and that the trading as well as the profit and loss account expenses are proportionate on the basis of yardage/meterage produced which is the most suitable basis for proportion of expenses as per section 67 of the Income Tax Ordinance, 2001. The AR further submitted that to proportionate the expenses on the basis of turnover is against the facts, as local sales include conversion receipts only which are services charges and same cannot be compared with export sales for proportionate of common expenditure. With regard to show-cause notices the learned AR stated that only evidence was called for which was provided on due time and thereafter the learned AR stated, the Revenue was not within its right to make fishing inquiries which are not possible/allowable as has been held vide a reported decision cited as 1999 PTD (Trib.) 285 whereby it has been observed that it is well-settled principle that section 66A can be invoked only when an order passed by the DCIT is found erroneous and prejudicial to the interest of Revenue. The error and the prejudice should be manifest in the show-cause notice and not subsequently by a fishing inquiry. In this decision it has further been stated that the letter issued by the IAC was more of an inquiry than a finding and therefore, the notice was ab initio illegal. While winding up his arguments the learned AR of the assessee appellant stated at Bar that in the preceding years and in the succeeding years the treatment meted out by the Revenue was different and in the year under appeal which is before this Tribunal the Revenue has deviated from its consistent treatment in the past as well as future. The learned AR categorically stated that no tinkering by way of resort to section 221 or section 122(5A) of the Income Tax Ordinance, 2001 has been made. On the other hand, the DR supported the orders of the authorities below.

4. We have heard both the sides and perused the available records. We find considerable force in the arguments of the learned AR that department has itself accepted the stance that assessee-company in prorating the expenses on the same pattern in the preceding as well as succeeding years. We also find force in the argument of the learned AR that expenses should' be prorated on reasonable basis taking account of the relative nature and size of activities and the department itself has accepted the stance of the assessee in the preceding as well as succeeding years. The Assessing Officer has not given any solid reasons for deviating from the past treatment. We have also gone through the case-law cited (supra) by the learned A.R. for the assessee which supports the contention of the assessee. In this regard it would be in the fitness of things if we look at the provisions of section 66A of the repealed Income Tax Ordinance, 1979 as well as 122(5A) of the Income tax Ordinance, 2001. As per subsection (1) of section 66A of the repealed Income Tax Ordinance, 1979 Additional Commissioner had the powers to call for and examine the record of any proceedings under repealed Ordinance, 1979 if he considers that any order passed therein by the DCIT is erroneous insofar as it is prejudicial to the interests of Revenue, the IAC may, after giving the assessee an opportunity of being heard and after making, or causing to be made such enquiry .as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment to be made. Now if we minutely study the provisions detailed above it is quite clear that under the old income tax law the IAC had the powers to make necessary enquiries if required after the initiations of proceedings under section 66A. We now come to the provisions of section 122(5A) which stated that subject to subsection (9), the Commissioner may amend or further amend an assessment order, if he considers that the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue. Now we examine the difference between section 66A of the repealed Ordinance, 1979 and section 122(5A) of the Income Tax Ordinance, 2001. It is very clear from the bare reading that under the old law the IAC had the powers to make necessary inquiries as he deems fit but under the New Ordinance of 2001 under section 122(5A) these powers are not there. So we feel that there is weight in the arguments of the learned Al; that the show-cause notices issued were merely calling for evidence and rather than inquiries on the basis of the same was not within the jurisdiction/powers of the amending authority. In view of this position we find that the decision of the learned CIT(A) Camp at Faisalabad is against the facts of the case as well as law. In this behalf we have very are fully gone through the two show-cause notices issued by the Additional Commissioner Audit-I, MTU, Faisalabad bearing No.AC (Audit-I)/MTU/FSD/23, dated 7-6-2006 and the subsequent show-cause notice bearing No.AC (Audit-I)/MTU/FSD/82, dated 18-9-2006 which support the point of view the learned AR for the assessee-appellant that firstly the Revenue issued show-cause notice calling for details and then subsequently fishing enquiries were made and no proper findings for amending the order were given in the notices. To sum up the whole issue we hold that the action of the Revenue is ab initio illegal as there was no proper/legal basis for invoking the provisions of section 122(5A). We, therefore, cancel the amended order impugned before us for the tax year, 2004 and restore the original one.

C.M.A./50/Tax (Trib.)Appeal accepted.