VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 929 (2007)

Income Tax Ordinance (XLIX of 2001)---

----Ss.122(5A), 122(3), 114(6) 177(4)(6) & 115(4)---Income Tax Ordinance (XXXI of 1979), Ss.80C, 143-B, 50(4) & Second Sched., Part-IV, Cl. (9)---C.B.R. Circular No.11 of 1998 dated 25-7-1998---C.B.P. Letter C. No.1(1)S.(ITAS) 2004 dated 28-7-2004---Amendment of assessment---Tax years 2003 and 2004---Assessment was amended on the ground that taxpayer exercised option to be assessed under presumptive tax regime by filing statement under S.143-B of the Income Tax Ordinance, 1979 for the assessment year 1002-2003 and the said option was irrevocable for tax year 2003 and tax year 2004 and taxpayer was obliged to file statement under S.115(4) of the Income Tax Ordinance, 2001---Validity---No declaration had been furnished opting for the presumptive tax regime---No justification existed for amending the order on the basis of statement filed by the assessee under S.143-B of the Income Tax Ordinance, 1979 which had been upheld by the First Appellate Authority without any basis---Order of First Appellate Authority for the two years was vacated and orders passed under S.122(5A) of the Income Tax Ordinance, 2001 were cancelled by the Appellate Tribunal with the direction to accept the declared version and issue refund vouchers in accordance with law.

Zeeshan Riaz, A.C.A. for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---Through these two appeals consolidated order of the learned C.I.T. (A), dated 3-12-2005 for the tax years 2003 and 2004 upholding the orders passed under section 122(5A) for the two years under review have been objected on the following grounds:---

Tax Year 2003

(1) That the assessment orders of the learned Commissioner of Income Tax Medium Tax Payer Unit and Commissioner of Income Tax Appeals are bad in law and against the facts of the law.

(2) That the learned Commissioner has completely misinterpreted the simple meaning of clause (9) Part-IV of the Second Schedule of Income Tax Ordinance, 1979. Whether the mere filing of statements under section 143-B is more important or filing the irrevocable option within three months of the commencement of income year and twelve months before the filing of Income Tax Return, opt in the presumptive tax regime. If the Commissioner of Income Tax presume that filing of statement under section 143-B after the close of the Tax year is sufficient to opt in the presumptive tax regime then what will be need of adding provision in clause 9 through the Finance Act 1998 and issuance of Circular No.11 of 1998, mated July 25, 1998. The Commissioner of Income Tax has manipulated and misreported the facts on account of option exercised to opt for the presumptive tax regime to deprive the taxpayer from its right by putting the matter into appeals.

(3) The Commissioner of Income Tax has not considered the following provisions of the law, which need to be looked into by him before passing the assessment order.

(a) The Commissioner of Income Tax declared that the return was received under section 114(6) on February, 3, 2005 for the Tax Year 2003 was not true and an attempt to hide the facts. The section 114(6) relates to filing or revised return on the discovery of omission or wrong statement in the return already filed. The return for the Tax Year 2003 was the revised return under Central Board of Revenue Letter No. C.No.1(1) S. ITAS 2004, dated July, 28, 2004.

(b) The case of the Taxpayer was selected for Total Audit and then the audit was challenged in the Court of Law and then the C.B.R. offered to the non-corporative taxpayers, a sort of agreement, to close the audit in their case, if they enhance the tax payable by 20% and if there is no definite information against the taxpayer and the audit shall be closed in their cases. The taxpayer accepted this offer and the Commissioner of Income Tax closed the audit. The Commissioner of Income Tax did not disclose these facts behind the revision of the return, which was actually an agreed assessment for the year.

(c) The amendment under section 122 (5A) which is against the law, amendment under this section is only proceeded if the return is revised under section 114(6), where as in the said case the return is revised in compliance to the C.B.R's. letter No.C.No.1(1)(S)(ITAS(2004, dated July, 28, 2004, and that revision is not a revision but the completion of the Total Audit under section 177 and evident from the letter issued by Commissioner. On completion/compliance of the Audit procedure the amendment could be only under section 122(1) or 122(4) not under section 122(5A) [see section 177(6)]

(d) The amendment under section 122(5A) is again an act to misuse of authority and play with the simple law procedure in the law. The section 77(4) provides that the Commissioner ma also select a person's income tax affairs having retard to:

the person history of compliance or not compliance with this Ordinance.

*the amount of tax payable by the persons.

*the class of business conducted b the person.

*an other matter which in the opinion of the Commissioner is material for the determination of the correct income

Now it is difficult to understand that what is new that the Commissioner considers not known to him when the taxpayer's assessment was previously amended under section 122(3), as claimed by the Commissioner, on the basis of total audit and audit-closing certificate was issued."

Tax Year 2004

(1) That the assessment orders of the learned Commissioner of Income Tax Medium Tax Payer Unit and Commissioner of Income Tax Appeals are bad in law and against the facts of the law.

(2) That the learned Commissioner has completely misinterpreted the simple meaning of clause 9 Part-IV of the Second Schedule of Income Tax Ordinance, 1979. 'Whether the mere filing of statement under section 143-B is more important or filing the irrevocable option within three months of the commencement of income year and twelve months before the filing of Income Tax return, to opt in the presumptive tax regime. If the Commissioner of Income Tax presume that filing of statement under section 143-B after the close of the Tax Year is sufficient to opt in the presumptive tax regime then what will be need of adding provision in clause 9 through the Finance Act, 1998 and issuance of Circular No.11 of 1998, dated July, 25, 1998. The Commissioner of Income Tax has manipulated and misreported the facts on account of option exercised to opt for the presumptive tax regime to deprive the taxpayer from its right by putting the matter into appeals.

(3) That the "learned Commissioner of Income Tax again wilfully made the calculations error by including himself the Tax Year, 2004 in the presumptive Tax Regime even though we have filed the normal tax return for that year too. The Taxpayer had never filed any declaration but if the department's own view point is analyzed there is hostile situation that a declaration filed in 1998, see C.B.R's. Circular 11 of 1998, dated July, 23, 1998 is sufficient for income years 1999 and 2000 respectively and then filed and opted for 2001 will also cover tax year 2002 and 2003 respectively and again the firm require to file declaration for the tax year 2004 and again there is no declaration we don't know how this tax office playing with the law. This is such a non-professional approach in the law that we have never experience ever."

Mr. Zeeshan Riaz, has appeared on behalf of the assessee and has contended that these appeals are due to the deliberate withholding and non-payment of the refund for the two tax years under review. It has been contended that taxpayer in this case is manufacturer of springs from the imported steel wire. The taxpayer supplied 100% of its production to the companies like Honda, Millat Tractors, Atlas Honda, SPELL, Rustam and Sohrab etc. and the sale receipts are subject to the withholding tax.

The return of income for the tax year 2003 has been filed on October, 11, 2003 under the Universal Self-Assessment Scheme claiming a refund of Rs.1,689,420 while the return for the tax year 2004 has been filed on September, 30, 2004 claiming a refund of Rs.42,97,929. For the tax year 2003, the case has been selected for Total Audit but the matter went before the Honourable High Court and it was offered by the C.B.R. vide Circular, dated July 28, 2004 that non-corporate taxpayers selected for Total Audit may be closed if they revise their income tax returns by paying 20% higher tax as compared to the tax payable in their original returns provided there is no definite information against them. The Taxpayer had opted the above said officer of the C.B.R. and filed the revised return of total income on February 3, 2005 enhancing the tax payable by 20% and reducing the refund amount to Rs.1,684,929. In response the Commissioner of Income Tax instead of intimating the acceptance of the revised return and closure of audit has been issued an order, dated February 28, 2005. It has been contended that the taxpayer has filed the return on February 17, 2005 and requested to issue the refund order and release of refund voucher. Thereafter, the Commissioner issued a notice under section 122(5A) on April 9, 2005 without affording any opportunity of being heard to the taxpayer. It has been contended that as per the departmental view the return was received under section 114(6) on February 3, 2005 but this is not the correct observation by the department as section 114(6) relates to filing of revised return on the discovery of omission of wrong statement in the return already filed.

According to the learned counsel the return for the tax year 2003 was the revised return under the Circular issued by the C.B.R., dated July 28, 2004. The learned counsel has contended that the assessment can be amended under section 122(5) if the return is revised under section 114(6) whereas in the present case the return is revised in compliance to the C.B.R. Circular and that return is not revised but the completion of the Total Audit under section 177. On completion/ compliance of the audit procedure, the amendment can only be made under sections 122(1) and 122(4) and not under section 122(5A) as has been provided under section 177(6). The learned counsel referring the section 177(4) of the Ordinance, 2001 has submitted that the Commissioner may select a person's income tax affairs having regard to:---

(a) the persons history of compliance or non-compliance with the Ordinance;

(b) the amount of tax payable by the ;

(c) the class of business conducted by the person;

(d) any other matter which in the opinion of the Commissioner is material for the determination of the correct income.

According to the learned counsel in the present case there was no justification for amending the order as the assessment was previously amended under section 122(3), as claimed by the Commissioner, on the basis of total audit and audit-closing certificate was issued. He has contended that the Commissioner has manipulated and misreported the facts on account of option exercised to opt for the presumptive tax regime to deprive the taxpayer from its right by putting the matter into appeals. Explaining the position he has submitted that the assessee company has started business from 1993 and before income year ending June, 30, 1998 had filed statement under section 143-B of the repealed Income Tax Ordinance, 1979 but no request was fled for opting the presumptive tax regime. He has contended that under clause 9 of Part-IV of the Second Schedule of the repealed Ordinance, 1979 the provision of section 80C in so far as they relate to payment on account of the supply of goods on which tax is deductible under subsection (4) of section 50 shall not apply in respect of any person, being a manufacture of goods unless he opts for the presumptive tax regime provided that a declaration of option is furnished in writing within three months off the commencement of the income year and such declaration shall be irrevocable and shall remain in force for three years. The learned counsel has insisted that no option in this regard written or oral has ever been made by the assessee for the presumptive tax regime. He has in this regard referred C. No.11, dated July, 25, 1998 wherein it has been said that the provision of clauses (9) and (9A) have been modified to provided that w.e.f. 1st July, 1998 persons who opt for the presumptive tax regime must file their declaration of their option within three months but, however, for the assessment year 1998-99 the assessee may file the declaration of option along with the return of income. According to the learned counsel the provision of law referred supra clearly depicts that the written document is legal requirement to be proceeded a document under the presumptive tax regime and if no such document has been furnished the return should be processed otherwise and that is the normal law. According to the learned counsel in the present case the Assessing Officer or learned C.I.T. (A) has no-where mentioned that on behalf of the assessee any written or oral request has been made opting for the presumptive tax regime but the Department is adamant that the present taxpayer shall be treated as presumptive tax regime case despite processing the case under normal law.

The learned counsel has contended that filing of the declaration is a mandatory requirement avail the provisions of sections 80(c) and 143-B and where the option is not exercised as per procedure again given in the law all post compliance are null and void attracting the other provisions of the law. He has submitted that the option if not exercised at all the question of irrevocability for next three years is no more there and hence return filed for the Tax year 2003 is truly compliance of the law. He has, therefore, requested for the acceptance of the declared version and issuance of the refund voucher.

Regarding the Tax year 2004, the learned counsel has contended that the legal position in this year is also similar to that of the above referred tax year.

On the other hand, the learned DR is supporting the impugned order of the learned C.I.T. (A).

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned C.I.T. (A) and the assessment orders. I have found that the Taxation Officer in this case for the tax year 2003 has passed the order under section 122(5A) issued under section 122(9) of the Income Tax Ordinance, 2001, dated 9-4-2005, which according to the assessment order, was duly served upon the taxpayer through TCS while the order has been made on April 19, 2005 admitting therein that the return was revised under section 114(6) of the Ordinance, 2001 on 3-2-2005 and that the assessment order was amended under section 122(3) vide order, dated 3-2-2005 and that order has been treated to be .erroneous and prejudicial to the interest of Revenue as the "first ever option to be assessed under presumptive tax regime under clause (9) Part-IV to the Second Schedule of the Income Tax Ordinance, 1979 as substituted vide proviso by Finance Act, 1998, was exercised for assessment year 1999-2000 by filing statement under section 143-B of Income Tax Ordinance, 1979. On the basis of the said option, the taxpayer was liable to be assessed under presumptive tax regime upto assessment year 2001-2002. Again the taxpayer exercised option to be assessed under presumptive tax regime by filing statement under section 143-B of the Ordinance, 1979 for the assessment year 2002-2003. The said option was irrevocable for tax year 2003 and tax year 2004 and taxpayer was obliged to file statement under section 115(4) of the Income Tax Ordinance, 2001 for the said tax years however, return of the total income under section 114 was filed for tax year 2003 which was assessed under Universal Self-Assessment Scheme."

So far the tax year 2004 for the similar reasons the already finalized assessment has been amended being erroneous and prejudicial to the interest of Revenue under section 122(5A) of the Ordinance, 2001.

After considering the arguments put forth by the representative of the assessee and perusal of the said clause (9) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979, I am of the view that as on behalf of the assessee no declaration has been furnished opting for the presumptive tax regime, therefore, there was no justification for amending the order on the basis of the statement filed by the assessee under section 143-B of the repealed Ordinance, 1979 for the previous assessment year. I find no justification for amending the finalized assessment in this case which has been upheld by the learned C.I.T. (A) without any basis.

In view of these facts as well as legal position the consolidated impugned order of the learned C.I.T. (A) for the two tax years under review is vacated and the orders passed under section 122(5A) of the Ordinance, .2001 are cancelled. The Commissioner of Income Tax is directed to accept the declared version and issue refund vouchers in accordance with law.

Both the appeals filed by the assessee are allowed.

C.M.A./16/Tax(Trib.)Appeals accepted.