VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 216 (2007)

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

----S.122(5A)---Income Tax Ordinance (XXXI of 1979), S.62---Amendment of assessment---Power to modify an `assessment' to be exercised by Additional Commissioner was restricted to an order passed by an Assessing Officer---Cut-off date was provided as 1-7-2003 in respect of original assessment order issued under S.62 of the Income Tax Ordinance, 1979 only.

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

----S.122(5A)---Amendment of assessment, finalized before 1-7-2003---Interpretation of---Rational interpretation of the expression "finalized before 1-7-2003 with reference to proceedings under S.122(5A) of the Income Tax Ordinance, 2001 would be that the matter would be taken to have been finalized when Assessing Officer exercised his original jurisdiction regarding assessment prior to the said date as the powers to modify/revise an assessment order by an Additional Commissioner was restricted to an `order' issued by the Assessing Officer---Record clearly revealed that original assessment was finalized prior to 1-7-2003 and such order had admittedly been attempted to be revised by the Additional Commissioner of Income Tax---First Appellate Authority had rightly annulled the assessment order as the finding of the First Appellate Authority did not suffer from any infirmity.

2005 PTD 1316 rel.

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

----S.122(5A)---Income Tax Ordinance (XXXI of 1979), S.66(1A)---Amendment of assessment---Doctrine of merger explained---Time limitation---Correct explanation of the doctrine of merger, while applying the `time limitation' provided for in statute, was that a later order merges into former order and modifies/corrects the original/former order to the extent of issues decided in the later order---Time limitation, in respect of issues that had not been the subject-matter of the later order runs from the date of the former/original order-et-Time limitation in respect of exercise of jurisdiction under S.122(5A) of the Income Tax Ordinance, 2001 implies that the cut-off date of 1-7-2003 was to be applied in respect of original assessment order passed under S.62 of the Income Tax Ordinance, 1979---Revised order was also not maintainable for the reason that no provisions parallel to S.66(1A) of the Income Tax Ordinance, 1979 had been introduced in the Income Tax Ordinance, 2001---Order of First Appellate Authority, was upheld by the Appellate Tribunal in toto in the circumstances.

2005 PTD 1316 and 2005 PTD 1679 rel.

1993 SCMR 39 = 1992 PTD 1681; 2000 PTD 2407; 1999 PTD 3419; 1996 PTD 562; 1984 PTD 234 and 2003 PTD 2109 distinguished.

Rana Javed Iqbal, I.A.C. for Appellant.

Asim Zulfiqar, A.C.A. for Respondent.

ORDER

NASEER AHMAD (ACCOUNTANT MEMBER).---The titled appeal has been filed by the Revenue against order dated 31-3-2007 passed by the learned CIT (A) relating to the assessment year 2001-2002 to agitate the finding of the First Appellate Authority whereby he has annulled amendment order dated 27-6-2006 as being without jurisdiction in the light of ratio settled by Sindh High Court in 2005 PTD 1316. It is the departmental contention that the findings of the Sindh High Court in the aforesaid reported judgment is not applicable in the present case.

2. The facts in brief of the case are that the original assessment was finalized through assessment order dated 29-6-2002 following which various orders were issued by the Income Tax Authorities through which either effect was given to appellate orders issued from time to time or rectifications were carried out. `It is an admitted position that these appeal effect orders .and/or rectification orders are not the subject-matter of present appeal. Vide notice dated- 12-6-2006, the Additional Commissioner assumed jurisdiction under section 122(5A) of the Income Tax Ordinance, 2001 through which in the context of post-retirement benefits, he intended to amend the original assessment order issued under section 62 of the repealed Income Tax Ordinance, 1979. The assessee, besides responding on the merits of the issue, also objected to the initiation of proceedings, being without jurisdiction on the strength of aforesaid order of Sindh High Court. However, the Additional Commissioner overruled the objection on the grounds that since the aforesaid order was subjudice before the Supreme Court of Pakistan, therefore, he was legally allowed to disregard the findings of the Sindh High Court. The Additional Commissioner, however, did not cite any, reason as to how he had the mandate to disregard a binding precedent.

3. The assessee thereafter preferred first appeal before the First Appellate Authority who vide the impugned judgment, annulled the order being without jurisdiction in terms of the findings of the Sindh High Court. The First Appellate Authority, did not adjudicate the merits of the case. The department now feels aggrieved by these findings, hence the present appeal.

4. Before us the learned DR vehemently argued that the finding of the Sindh High Court does not apply in the present matter. In view of the fact that the entire arguments of the learned DR revolve around the operative part of the judgment of the Sindh High Court, therefore, it would be appropriate if these are reproduced for the sake of convenience:

"-----that the provision contained in subsection (5-A) of section 122 of the Income Tax Ordinance, 2001, inserted with effect from 1-7-2003 is not retrospective in operation. Consequently, the assessments finalized before 1-7-2003 cannot be reopened/revised/amended in exercise of jurisdiction under the above provisions. Admittedly, all the notices impugned in these petitions are in respect of the assessments finalized before 1-7-2003, and consequently all the impugned notices are without jurisdiction, illegal and void ab initio. "

5. It is the only argument of the learned DR that since in the case of the assessee the assessment had not attained finality before 1-7-2003 therefore, the ratio of the aforesaid judgment does not apply. While arguing that the assessment had not finalized, the learned DR placed reliance on (1993 SCMR 39 = 1992 PTD 1681) whereby the apex Court while deliberating upon the expression "finalized" ruled that an assessment stands finalized only when it goes through all the forums including appellate forums. It is the contention of the learned DR that until an assessee has exhausted all appellate forums in respect of an assessment year, the assessment will not be regarded as being finalized.

6. Taking this line of argument the learned DR also referred to doctrine of merger and submitted that since under this doctrine a former order merges with any later order, therefore, the time limitation would have to be taken from the date of the later order. On the strength of these arguments the learned DR argued that in the case of the assessee since various orders were issued after 1-7-2003, therefore, the matter cannot be taken to have been finalized before 1-7-2003 and hence falls outside the purview of the judgment of Sindh High Court. The learned DR also placed reliance on 2000 PTD 2407, 1999 PTD 3419, (Madras High Court) 1996 PTD 562 (Supreme Court of India), 1984 PTD 234 (H.C. Kar.) and 2003 PTD 2109.

7. The learned AR of the assessee-defendant while responding to the aforesaid arguments of the learned DR submitted that the decisions relied upon by learned DR do not relate to the matter under consideration. It is the contention of the learned AR that the interpretation of the expression "finalized" as emerging from the order of the apex Court is in an altogether different context. The Supreme Court determined the scope of expression "finalized" while determining the eligibility of a benefit to a taxpayer vis-a-vis past and closed transactions and that too with reference to a particular transaction and not in general. This, the learned AR submitted, is not the mater in the present appeal. in relation to revisional proceedings under section 122(5A) of the Income Tax Ordinance, 2001 (provisions pari materia to section 66A. of the repealed Income Ordinance, 1979). It has been further argued, the matter would have to be taken as "finalized" when the assessing officer completes the assessment proceedings.

8. The learned AR further argued that since the Additional Commissioner of Income Tax has been vested with the power to revise only an assessment order passed by an Assessing Officer, therefore, for this purpose the assessment would be taken as "finalized" once an assessing officer issues an assessment order in exercise of such jurisdiction. While supporting this proposition, the learned AR also submitted that after an appellate order has been issued, the assessment order ceases to exist to such an extent, as having been substituted by the finding of the Appellate Authority. Therefore, as per AR it would not he covered within the scope of impugned provisions under which an Additional Commissioner is only vested with powers to modify the order of an assessing officer. The Additional Commissioner is not empowered to revise the order of an Appellate Authority.

9. In the context of decisions relied upon vis-a-vis doctrine of merger, the learned AR Clarified that he does not dispute the ratio. He, however, submitted that the interpretation of the learned DR is contrary to what has been laid down in the cited judgments. As per these judgments, it was further argued, the merger operates in a manner that later findings merges with the earlier findings and what remains operative is the earlier order as modified. On this principle it has been submitted that the limitation would run from the date of the earlier order and in the present case that being prior to 1-7-2003, the amendment, would not be legal in the light of the ratio of the judgment of Sindh High Court cited supra.

10. We have heard both the sides and have given due consideration to the rival arguments and we have also gone through the judgments relied upon by both the sides. In our considered view the present controversy has to be resolved in a different background i.e. the finding of the Honourable Sindh High Court recorded in 2005 PTD 1316 and not otherwise on the scope and extent of revisional proceedings, in general.

11. The case-laws cited by the learned DR. in our view address the issue of finalization of assessment in a general manner, whereas while deciding the applicability of Honourable High Court's judgment 2005 PTD 1316, the context, in which the verdict was given by the Honourable High Court, has to be analyzed. Obviously, power to modify an 'assessment' to be exercised by Additional Commissioner is restricted to an order passed by an Assessing Officer and in our view the date of 1-7-2003, held by the High Court to be cut-off date, is in respect of original assessment orders issued under section 62 of the repealed Income Tax Ordinance, 1979 only. The issue in the appeal before us is to decide as to whether the revision, in the background of principle laid down by the Sindh High Court on the basis of the date of insertion of such provisions, could be undertaken or not. It is not the matter as to whether otherwise a revision could be permissible had the legislative developments i.e. promulgation of a new statute, not taken place.

12. We are not persuaded to agree with the line of argument taken by the learned DR vis-a-vis the expression "finalized before 1-7-2003" as used in 2005 PTD 1316. The rational interpretation of the expression "finalized before 1-7-2003" with reference to proceedings under section 122(5A) of the Income Tax Ordinance, 2001, particularly the overall analysis of their lordships, would be that the 'matter would be taken to have been finalized when Assessing Officer exercises his original jurisdiction regarding assessment prior to the said date as the powers to modify/revise an assessment order by an Additional Commissioner is restricted to an 'order' issued by the Assessing Officer. The record before us clearly reveals that in the instant case, the original assessment was finalized prior to 1-7-2003 and which order has admittedly been attempted to be revised by the Additional Commissioner of Income Tax, we hold that the finding of the First Appellate Authority does not suffer from any infirmity, therefore, he has rightly annulled the assessment order.

13. We further observed that the doctrine of merger, as elaborated by the learned AR. supports the respondent's case. The correct explanation of doctrine of merger, while applying the 'time limitations' provided for in statute, is that a later order merges into the former order and modifies/corrects the original/former order to the extent of issues decided in the later order. Accordingly, the time limitation, in respect of issues that had not been the subject-matter of the later order runs from the date of the former/original order. If the doctrine of merger is interpreted in the manner the learned DR has advocated, it would imply that tax authorities are given an indefinite period of time to revise/ modify the assessments which is clearly against the spirit of the legislative framework. Since the judgment reported as 2005 PTD 1316 specifies a time limitation in respect of exercise of jurisdiction under section 122(5A) of the Income Tax Ordinance, 2001, the above explanation of doctrine of merger implies that the cut-off date of 1-7-2003 is to be applied in respect of original assessment orders passed under section 62 of the repealed Income Tax Ordinance, 1979.

14. Further to above, we would add that in the light of ratio settled in 2005 PTD 1679 decided by this Tribunal, the revisional order is also not maintainable for the reason that no provisions parallel to section 66(1A) of the repealed Income Tax Ordinance, 1979 have been introduced in the Income Tax Ordinance, 2001. Consequently, we observe that the order of the First Appellate Authority is maintainable and does not suffer from any legal infirmity and uphold it in toto for the observations recorded supra.

15. Resultantly, in the light of the discussion supra, the departmental appeal stands dismissed being devoid of any merit.

C. M. A./165/Tax(Trib.)Appeal dismissed.