VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 357 (2007)

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

----S. 170(4)---Refund---Limitation---Refund was withheld on the ground that assessee was not engaged in manufacturing activities rather was engaged in business of processing and bottling of pesticides---Assessee contended that pesticides in bulk was imported and after refilling and packing the bottles those were sold in the market---First Appellate Authority concluded that assessee was involved in manufacturing activities and assessee was entitled for refund in accordance with law which may be issued as claimed---Validity---Assessee was registered with Sales Tax Department as an "importer-cum-manufacturer"---Zone Commissioner had also issued an exemption certificate in terms of S.148 of the Income Tax Ordinance, 2001---In view of the matter, tax deducted at source could not be held to be the final discharge of the tax liability rather than was adjustable against the tax worked out on the total net income declared by the assessee---Issue of refund was processed after the lapse of prescribed period of 45 days from the date of receipt of application---Commissioner had clearly violated the provisions of S.170(4) of the Income Tax Ordinance, 2001---Assessee was entitled for refund---Findings of First Appellate Authority were endorsed by the Appellate Tribunal in its verbatim and departmental appeal was dismissed being bereft of any merit.

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

----S. 170(4)---Refund---Limitation---Statute had provided forty five (45) days for issuance of refund, either full or in part or refuse to allow the same---Commissioner was under legal obligation to serve on the person applying for the refund an order in writing about the fate of his refund application which had been filed under S.170(1) of the Income Tax Ordinance, 2001.

S.A. Masood Raza Qazalbash, D.R. for Appellant.

Shabbir Fakhar-ud-Din, ITP for Respondent.

ORDER

This appeal at the behest of the Revenue is directed against the order passed by CIT(Appeals) Multan, dated 5-12-2006 in respect of tax year, 2005 whereby direction was given for issuance of refund, as was claimed by the assessee-respondent.

2. The precise question which was posed for our consideration was as to whether the Commissioner was entitled to withhold refund after expiry of forty five (45) days from the date of receipt of the refund application.

3. Both the learned representatives appearing at the bar have been heard in this regard and have deliberated the rival arguments advanced by the them with the help of the relevant provisions of law contained in the Income Tax Ordinance, 2001; such as sections 120 and 170 of this Ordinance. What happened in this case was that the assessee-respondent is statedly engaged in manufacturing and sale of pesticides etc., income tax return was filed declaring net income of Rs.200,000 and refund of Rs.18,36,379 was also calculated to be payable by 'the department. Subsequently, application for issuance of refund voucher was submitted by the assessee-respondent on 2-8-2006. However, the refund was withheld by the Commissioner on the ground that the assessee-respondent is not engaged in manufacturing activities rather business of processing and bottling of pesticides is being carried on by him. The machinery statedly to have installed at the business premises is not actually fitted therein. To say so strength was acquired from the letter issued by a company namely Messrs Engineering Company (Pvt.) Ltd., Karachi bearing ECPL/FEE/240, dated 14-2-2005 from whom no machinery was purchased by the assessee-respondent. One of the letter issued by the Commissioner of Income Tax was also referred, dated 3-8-2005, in which non-purchase of machinery was discussed. Accordingly, the assessee-respondent was required to furnish manufacturing record of the pesticides.

4. In response thereto it was explained by the assessee-respondent that pesticides in bulk are imported and after refilling and in packing the bottles those are sold in the market. Regarding letter issued by Messrs Engineering Company (Pvt.) Ltd., it was pointed out that the appellant, in January, 2005, intended to install formulation plaint in order to balance and modernize the manufacturing process and for that purpose a quotation was acquired from the said company wherein price of the plant was mentioned. Since, that deal could not be materialized, therefore, plant was not purchased from the above said company. According to the assessee-respondent contents of the quotation letter are misread by the department to be the sale invoice.

5. However, to contend that the assessee-respondent is engaged in manufacturing activities, it was stated that the machinery was purchased in the year, 2004 from one of the firm namely Messrs Al-Rehman Engineering Works, Lahore and was installed in the business premises which started its operation for the period pertaining to the Tax year, 2005. To corroborate this assertion necessary documents evidence regarding machinery purchased as well as its installation and operation were placed on record. After tendering the reply nothing could be heard from the department, as to whether the refund application has been accepted or rejected, within the period of forty five (45) days from the date of receipt of the application by it.

6. Before the First Appellate Authority, it was pleaded that evidently the order for issuance of refund was not passed by the Revenue within the stipulated period of forty five (45) days, as is provided in subsection (4) of section 170 of the Income Tax Ordinance, 2001. Therefore, the assessee-respondent was entitled for issuance of refund. The documentary evidences which were furnished before the Commissioner of Income Tax, regarding purchase of machinery and its operation were also adduced before the First Appellate Authority. After weighing pros and cons of the arguments and on going through the evidence, it was concluded by the learned Appeal Commissioner that the assessee-respondent was involved in manufacturing activities in the tax year, 2005. Accordingly, direction was given by him that the assessee was entitled for the refund in accordance with law which may be issued as was claimed by him.

7. Before dilating on the departmental contention that the learned Appeal Commissioner has fallen in grave error in holding that the assessee-appellant was entitled for issuance of refund in accordance with law, we would like to discuss scheme of the relevant provisions of law which clinches the issue hereunder. First one is section 120 of the Income Tax Ordinance, 2001. Under this section, the return of income, if it is complete that shall be taken, for all purposes of this Ordinance, to be the assessment order issued to the taxpayer by the Commissioner on the day the return was furnished. Nevertheless, under subsection (1A) of this section, the Commissioner may select a person for an audit of his income tax affairs under section 177 of the Ordinance and all the provisions of that section shall apply accordingly. Subsections 3, 4, 5 and 6 of section 120 of the Ordinance cover different situations with regard to furnishing of income tax return which are not relevant for disposal of the issue in hand. And if the tax paid or deducted is more than the tax to be payable on the returned income, then the excess amount would be refundable to the taxpayer and for this purpose section 170 of the Income Tax Ordinance, 2001 will come into play. Under subsection (1) of this section the taxpayer may apply to the Commissioner of Income Tax for a refund who has paid the tax in excess of the amount which is properly chargeable under this Ordinance. In order to apply for refund, application to that effect shall be made to the Commissioner in the prescribed form and verified in the prescribed manner in terms of subsection (2) of this section. This subsection also envisages that application for issuance of refund can be made within two years from the date on which the Commissioner has issued the assessment order to the taxpayer for the Tax year to which the refund application relates or the date on which the tax was paid, whichever happens later. In subsection (3) of this section it has been provided that if the Commissioner is satisfied that the tax has been overpaid, he is empowered to apply the excess in reduction of any other tax due from the taxpayer under this Ordinance.

8. The Commissioner is also entitled to apply balance of excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes and can refund the residual amount, if any, to the taxpayer. Coming to the significant subsection which is pivotal one around which whole controversy of the case is revolved. That is subsection (4) of section 170 of the Income Tax Ordinance, 2001 which in an unambiguous words lays down that the Commissioner shall, within forty five (45) days of receipt of a refund application under subsection (1), serve on the person applying for the refund an order in writing of the decision. It is also sine qua non upon the Commissioner to afford an opportunity of being heard to the taxpayer prior to drawing any adverse inference on the refund application. While under subsection (5) of this section, if the person is aggrieved, against the order passed under subsection (4) or on failure of the Commissioner to pass an order under this subsection within, the limit of time specified in that section, may prefer an appeal under Part-III of Chapter X of the Income Tax Ordinance, 2001 which deals in appeals.

9. Coming to the question posed supra, we have no ambiguity in our mind but to hold that since the Statute has provided forty five (45) days for issuance of refund, either full or in part or refuse to allow the same, therefore, the Commissioner is under legal obligation to serve on the person applying for the refund an order in writing about the fate of the refund application which has been filed under subsection (1) of section 170 of the Income Tax Ordinance, 2001.

10. We are also mindful of the fact that the letter issued by Messrs Engineering Concern (Pvt.) Ltd., has been misconceived as a result of which the department was persuaded to hold that the assessee-respondent was not a manufacturer. Actually that was estimated price of the machinery the quotation" wherefrom adverse inference was drawn by the department which act cannot be appreciated at any stage. Moreover, the assessee-respondent was registered with the Sales Tax Department to be the "importer-cum-manufacturer w.e.f. 11-4-2002". Besides, the Zonal Commissioner had also issued an exemption certificate in terms of section 148 of the Income Tax Ordinance, 2001 for the year ending on 30-6-2006 and 30-6-2007. In this view of the matter the tax deducted at source cannot be held to be the final discharge of the tax liability rather that is adjustable against the tax worked out on the total net income declared by the assessee-respondent.

11. Admittedly this is not the departmental contention that the issue of refund was processed within the time framed provided under subsection (4) of section 170 of the Income Tax Ordinance, 2001. Rather that was processed after the lapse of prescribed period of 45 days from the date of receipt of the application. To our mind the Commissioner has clear-cut violated the provisions of section 170(4) of the Income Tax Ordinance, 2001. Resume of the aforesaid discussion is that the assessee- respondent was entitled for refund.

12. We, therefore, endorse the findings recorded by the Appeal Commissioner in his order, dated -supra in its verbatim. As a result the departmental appeal fails and is dismissed being bereft of any merit.

C.M.A./172/Tax (Trib.)Appeal dismissed.