2009 P T D (Trib.) 1609
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Mazhar Farooq Sherazi, Accountant Member
I.T.As. Nos.2795/LB of 2000 and 3926/LB of 2002, decided on 20/01/20.
May, 2009.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Order of Taxation Officer passed in compliance with the order passed by the Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979---Appeal against to Appellate Tribunal-Validity-Appellant should have firstly filed appeal before the First Appellate Authority and after the decision of First Appellate Authority he should have come up before the Appellate Tribunal---As the proper mode had not been adopted, Appellate Tribunal dismissed the appeal in line being premature.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order--Merger---Amendment of assessment order---Assessee contended that at the time of original assessment specific queries had been raised regarding issue of claim of mark-up through notices which were properly replied and no action was taken but later at belated stage when all the issues had been thrashed out up to the Appellate Tribunal, Inspecting Additional Commissioner had amended the original assessment order---Inspecting Additional Commissioner had not considered that theory of merger will come into play and the original assessment order had already merged in the higher tier order---Where the original order had gone through the test of appeals before the higher forums, the jurisdiction under S.66-A of the Income Tax Ordinance, 1979 was ousted---Department contended that issue of admissibility of financial expenses confronted to assessee had never been adjudicated upon as was evident from the assessment order---No findings whatsoever had been given by the Assessing Officer on the issue of admissibility of financial expenses or otherwise when the loan was not utilized for his own business rather it was advanced to its sister concern---Since the matter under consideration was not adjudicated upon, the question of its decision by the appellate authorities did not arise at all. and theory of merger of original order of Assessing Officer in the subsequent orders of the appellate authorities was not applicable on this specific issue/point---No objection was raised in respect of the facts of the case before the Assessing Officer which shows that financial expenses allowed by the Assessing Officer were in fact not admissible under the law---Loan was not wholly utilized for own business rather it was advanced to its sister concern---Assessee was not entitled to claim the financial expenses to minimize its profit and tax liability thereon---Assessing Officer should have disallowed the financial expenses proportionately as the interest paid in respect of capital borrowed for the purpose of business or profession was allowable deductions or allowance to the' extent of amount of loan utilized by the assessee-company---Validity---Assessee in his returns had declared bank overdrafts and loans, out of which certain amounts had been advanced: to the associated . undertakings by the assessee---Assessee against the bank's profits and loans had paid mark-up but all the mark-up had been charged against income as financial expenses---Since loan was not utilized for the assessee's business and was advanced to sister concern, the mark-up paid on loss was to be disallowed proportionately---However, at the time of assessment, Assessing Officer failed to take the cognizance of this facts and financial expenses were allowed in full instead of disallowing these proportionately as the interests paid in respect of capital borrowed for the purpose of the business or profession was allowable deduction or allowance to the extent of amount of loan---Inspecting Additional Commissioner had rightly cancelled the assessment order being erroneous in so far as prejudicial to the interest of revenue as the interest was wrongly claimed by the assessee-company and was erroneously allowed by the Assessing Officer needless to say that this resulted into loss of revenue---Assessment order had been merged on the point/issue only which was the subject matter of appeal---Since no addition on account of mark-up was made by Assessing Officer, this issue did not merge with the appellate order---No interference was warranted by the Appellate Tribunal in the order of Inspecting Additional Commissioner passed under S.66-A of the Income Tax Ordinance, 1979---However, Assessing Officer in compliance of the order of Inspecting Additional Commissioner had not taken the correct figures of total outstanding, total mark-up due to associated companies, 'average mark-up rate and other figures of amount, the order passed by the Taxation Officer was set aside for de novo consideration with the directions to Assessing Officer to pass afresh order after giving proper opportunity of being heard to assessee---Assessee was directed to place the details which had been furnished before the Bench to submit the same before the Assessing Officer who will pass order in accordance with law after considering these details---Appeals of assessee were dismissed by the Appellate Tribunal.
(1996) 73 Tax 156 (Trib.); 1999 PTD (Trib.) 700; 1992 PTD 932 and 1992 SCMR 523 distinguished.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Decisions of reopening the matter were not subject matter of appeals---Re-opening of assessment--Validity---Although original assessment had been scrutinized through process of appeal up to the Appellate Tribunal and the Inspecting Additional Commissioner had passed the order after the decision of the Appellate Tribunal but there was a material fact the decisions of reopening the matter by the Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979 were never even the subject matter of the first appeal before the First Appellate Authority or further appeals by both the parties before the Appellate Tribunal---Admittedly, in the assessment order there was nowhere mentioned regarding the financial expenses which had been allowed by the Assessing Officer in full instead of disallowing these proportionately as interest paid in respect of capital borrowed for the purpose of business or profession was allowable deductions or allowance to the extent of amount of loan utilized thus rendered the assessment erroneous in so far as prejudicial to the interest of revenue as observed by the Inspecting Additional Commis sioner.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 66-A(1A), 129, 134 & 137---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Insertion of subsection (IA) in S.66-A of the Income Tax Ordinance, 1979---Effect of and purpose---By insertion of subsection (IA) through Finance Act, 1991 in S.66-A of the Income Tax Ordinance, 1979, even where appeal had been filed under Ss. 129, 134 & 137 of the Ordinance or a Reference had been made under 5.136 of the Income Tax Ordinance, 1979 against an order passed by the Assessing Officer and where an appeal or reference had been decided in respect of any point or issue which was not the subject-matter of appeal or reference the order under S.66-A of the Income Tax Ordinance, 1979 could be made---Before the amendment of S.66-A of the Income Tax Ordinance, 1979 frivolous appeals were sometimes filed in order to protect the erroneous order against any revision by the Inspecting Additional Commissioner therefore legislature thought it appropriate to insert a new subsection in S.66-A of the Income Tax Ordinance, 1979 empowering the Inspecting Additional Commissioner to revise the order of Assessing Officer in such situation.
Zia Ullah Kayani for Appellant.
Ghazanfar Hussain, DR for Respondent.
ORDER
Out of these two appeals one has been filed against the order passed by the Inspecting Additional Commissioner, dated 14-6-2000 under section 66-A of the late Income Tax Ordinance, 1979 on the following grounds:--
(1) That the impugned order as passed under section 66-A of Income Tax Ordinance, 1979 by the learned Inspecting Additional Commissioner of Income-tax/Wealth-tax; Range-II,
(2) Companies Zone-III, Lahore is bad in law and against the facts of the case.
(3) That the learned Inspecting Additional Commissioner of Income-tax/Wealth-tax below has misconstrued and twisted the factual position obtaining on record.
(4) That the learned Inspecting Additional Commissioner of Income -tax/Wealth-tax is "coram non judice" as the order of the learned Deputy Commissioner of Income-tax/Wealth-tax below which has been cancelled is no more in the field.
(5) That the learned Inspecting Additional Commissioner of Income-Tax/Wealth-Tax below cannot sit on a judgment in the case of judgment as passed by the higher appellate forum than that of the learned Inspecting Additional Commissioner of Income-tax.
(6) That the learned Inspecting Additional Commissioner of Income -tax/Wealth-tax below has not denied that the appellant was confronted on the mark-up as paid and details in respect of advancement of loan or otherwise to the sister concerns of the appellant.
(7) That the learned Inspecting Additional Commissioner of Income -tax/Wealth-tax below has ignored the fact that the full material facts were made available by the appellant at the time of original assessment to the department passed on 23-6-1996 by the learned Deputy Commissioner of Income-tax/Wealth-tax below for the year under appeal.
(8) That the learned Inspecting Additional Commissioner Income- tax/Wealth-tax below has ignored the fact that the original assessment order was passed after obtaining information/records under section 61 of the qua Ordinance and thereafter further findings and inference drawn to compute income under section 62 of the qua Ordinance of the appellant.
(9) That the learned Inspecting Additional Commissioner of 'Income-tax/Wealth-tax below has erred in not appreciating the case-law as adduced in response to show-cause notice is issued to the appellant.
(10) That the learned Inspecting Additional Commissioner of Income -tax/Wealth-tax below has not appreciated that even after amendment as pointed out in section 66-A(1) the two conditions to reopen assessment under section 66-A are to be met simultaneously i.e. must be erroneous in law and also loss of revenue is invoked.
(11) That the proceedings as' initiated under section 66-A by the learned Inspecting Additional Commissioner of Income-tax/ Wealth-tax below are void in the eyes of law as two conditions are not fulfilled in the case of appellant.
(12) That the learned Inspecting Additional Commissioner of Income- tax/Wealth-tax below has not appreciated that the impugned assessment is a foreclosed chapter in the eyes of law.
(13) That the learned Inspecting Additional Commissioner of Income -tax/Wealth-tax below has reported the original assessment simply on change of opinion which is not permissible in the eyes of law as no new facts have come on the surface to initiate the qua proceedings.
(14) That the learned Inspecting Additional Commissioner of Income-tax/Wealth-tax below has ignored the scope of his jurisdiction in this specific case as he is an ouster.
(15) That it is incorrect to allege that the mark-up as paid by the appellant has not been considered by the Deputy Commissioner of Income-tax/Wealth-tax below and has acted without jurisdiction.
(16) That the learned Inspecting Additional Commissioner of Income-tax/Wealth-tax below has flouted the concept of finality and has acted on his whims and conjectures.
(17) That the learned Inspecting Additional Commissioner of Income- tax/Wealth-tax below has ignored the fact that the original assessment as framed by the Deputy Commissioner of Income- tax/Wealth-tax below was well within his competence to frame the assessment, the way Deputy Commissioner of Income tax/Wealth-tax "thought fit".
While the second appeal filed by the assessee is against the order of the Taxation Officer passed in compliance with the order passed by the Inspecting Additional Commissioner under section 66-A of the repealed Income Tax Ordinance, 1979. Regarding this order we are of the view that the appellant should have firstly to file appeal before the learned CIT(A) and after the decision of learned CIT(A) he should have to come up before this Tribunal but as the proper mode has not been adopted we therefore dismiss this appeal in limine being premature.
Now coming to the appeal filed by the assessee we have found that due to change in law the assessee-company in this case has furnished its return of income for a period of 18 months ending on 30-6-1995. The returns for the period was filed on 9-5-1996 after due dates. The assessee is a public limited company deriving income from manufacture and sale of papers. The assessment order in this case under sections 62/80-C of the late Ordinance, 1979 was passed on 30-6-1996. Against which the assessee being dissatisfied filed appeal before the learned CIT(A) which was decided on 13-8-1996 and the matter subsequently come up before this Tribunal and the cross appeals filed by both the parties were decided on 13-2-1998 in I.T.A. No. 7535/LB of 1996 filed by the assessee and I.T. A. No. 7321/LB of 1996 filed by the Department. It has been contended by the learned counsel for. the appellant that the time of original assessment specific queries have been raised regarding the issue of claim of mark-up by the Assessing Officer through his notices which were properly replied by the assessee and no action in this regard was taken but later at the belated stage when all the issues have been thrashed out up to this Tribunal, the Inspecting Additional Commissioner has amended the original assessment order invoking section 66-A of the repealed Ordinance, 1979. It has been contended that the learned IAC has not considered that theory of merger will come into play and the original assessment order has already merged in the higher tier order. The learned counsel representing the appellant has contended that the situation where the original order has gone through the test of appeals before the higher forums, the jurisdiction under section 66-A is ousted. In this regard the decision of this Tribunal reported as (1996) 73 Tax 156 (Trib.) has been referred. According to learned counsel in that decision it has been categorically stated that there will be no order of the lower Court available on which section 66-A can be invoked when the matter has come up before higher forums and order in this respect has been passed. He has further contended that once all the facts have been disclosed at the time of assessment and assessment has been finalized after due application of mind, there is no room left to reopen the proceedings which stand foreclosed in the eyes of law. In this respect the decision of this Tribunal reported as 1999 PTD (Trib.) 700 has been referred. On the facts of the case the learned counsel has contended that the learned IAC has cancelled the order and the Assessing Officer in the order passed under sections 62/156/66-A of the repealed Ordinance, 1979 has calculated the tax on the basis of the wrong figures of the amount. He has in this respect placed before us the chart showing average rate of mark-up of banks. He has contended that as the proper figures has not considered in the matter therefore the order passed by the Assessing Officer is liable to be cancelled.
On the other hand the learned D.R. is supporting the impugned order of the learned IAC passed under section 66-A of the late Ordinance, 1979. He has contended that the assessee referred by the learned counsel for the appellant pertained to the period prior to 30-6-1991 when subsection (1A) through Finance Act, 1991 was inserted in the late Ordinance, 1979 in section 66-A wherein the IAC has been given the power to initiate the proceedings even in those cases where appeal has been decided by the appellate authorities but the issue/point was not the subject-matter of appeal. He has contended that since the claim of financial expenses and its admissibility was not the subject matter of appeal, therefore, the quoted cases are not relevant at all. The learned DR is of the view that the theory of merger is not applicable in the instant case as the facts available on record are altogether different.
Explaining the factual position he has contended that issue of admissibility of financial expenses confronted to the assessee have never been adjudicated upon as is evident from the assessment order. No findings whatsoever have been given by the Assessing Officer on the issue of admissibility of financial expenses or otherwise when the loan was not utilized for his own business rather it was advanced to its sister concern. Since the matter under consideration was not adjudicated upon therefore the question of its decision by the appellate authorities does not raise' at all theory of merger of the original order of the Assessing Officer in the subsequent orders of the appellate authorities is not applicable on this specific issue/point. The learned DR has contended that on behalf of the assessee no objection was raised in respect of the facts of the case before the Assessing Officer which shows that financial expenses allowed by the Assessing Officer were in fact not admissible under the law. The loan was not wholly utilized for his own business rather it was advanced to its sister concern therefore the assessee was not entitled to claim the financial expenses to minimize its profit and tax liability thereon. He is of the view that the learned IAC has rightly observed that the Assessing Officer should have disallowed the financial expenses proportionately as the interest paid in respect of capital borrowed for the purpose of the business or profession was allowable deductions or allowance to the extent of amount of loan utilized by the assessee-company. He is therefore of the view that the order passed by the Inspecting Additional Commissioner require no interference.
We have heard the learned representatives from both the sides and have also perused the impugned order of the learned IAC passed under section 66-A, the original assessment order, the order of the learned CIT(A), the order of this Tribunal and the order passed by the Assessing Officer under sections 62/66-A/156 of the late Ordinance, 1979.
We have also considered the cases referred from both the sides. We have found that in this case although the original assessment has been scrutinized through process of appeal up to this Tribunal and the learned IAC has passed the order after the decision of this Tribunal but this is a material fact that the decisions of reopening the matter by the learned IAC under section 66-A were never even the subject-matter of the first appeal before the learned CIT(A) or further appeals by both the parties before this Tribunal and admittedly in the assessment order there is nowhere mentioned regarding the financial expenses which has been allowed by the Assessing Officer in full instead of disallowing these proportionately as interest paid in respect of capital borrowed for the purpose of the business or profession was allowable deductions or allowance to the extent of amount of loan utilized thus rendering the assessment erroneous in so far as pre-judicial to the interest of revenue as observed by the learned IAC. Regarding the cases referred by the learned counsel for the appellant reported as 1992 PTD 932, 1992 SCMR 523 and (1996) 73 Tax 156 (Trib.) (sic) we are of the view that these decided cases by the Honourable Supreme Court of Pakistan/High Court/Tribunal are prior to the insertion of subsection (IA) through Finance Act, 1991 wherein the IAC has been given the power to initiate the proceedings even in those cases where appeals have been decided by the appellate authorities but the issue/point was to the subject-matter of appeal. In this case the assessee in his returns has declared bank overdrafts and loans. Out of which certain amounts have been advanced to the associated undertakings by the assessee. The assessee against the bank's profits and loans has paid mark-up but all the mark-up has been charged against income as financial expenses. Since the loan was not utilized for the assessee's business and was advanced to sister concern therefore the mark-up paid on loss was to be disallowed proportionately. However, at the time of assessment the Assessing Officer failed to take the cognizance of the above facts and financial expenses were allowed in full instead of disallowing these proportionately as the interest paid in respect of capital borrowed for the purpose of the business or profession was allowable deduction or allowance to the extent of amount of loan therefore the learned IAC has rightly cancelled the assessment order being erroneous in so far as prejudicial to the interest of revenue as the interest was wrongly claimed by the assessee company and was erroneously allowed by the Assessing Officer needless to say that this resulted loss of revenue. We are of the view that by insertion of subsection (IA) through Finance Act, 1991 in section 66-A, even wherein appeal has been filed under sections 129, 134, 137 or a Reference has been made under section 136 of the late Ordinance, 1979 against an order passed by the DCIT and where an appeal or reference referred above has been decided in respect of any point or issue which was not the subject-matter of appeal or reference the order under section 66-A can be made. Before the amendment of section 66-A frivolous appeals were sometimes filed in order to protect the erroneous order against any revision by the IAC therefore legislature thought it appropriate to insert a new subsection in section 66-A empowering the IAC to revise the order of DCIT in such situation. We are of the view that in this case the assessment order has been merged on this point/issue only which was the subject-matter of appeal. Since no addition on account of mark-up was made by the Assessing Officer, therefore, this issue did not merge with the appellate order.
Keeping in view these facts and circumstances of the case and legal position we find no warrant for interference in the impugned order of the learned IAC passed under section 66-A. We are however of the view that as has been pointed out by the learned counsel for the appellant the Assessing Officer in compliance of the above referred order of the learned IAC while passing the order under sections 62/156/66-A of the repealed Income Tax Ordinance, 1979 has not taken the correct figures of total outstanding, total mark-up due to associated companies, average mark-up rate and other figures of amount the order passed by the Taxation Officer in this respect is therefore set-aside for de novo consideration with the directions to the Assessing Officer to pass afresh order after giving proper opportunity of being heard to the assessee. The assessee is directed to place the details in this respect which has been furnished before this Bench to submit the same before the Assessing Officer who will pass order in accordance with law after considering these details.
Both the appeals filed by the assessee are dismissed with the observations supra.
C.M.A./75/Tax(Trib.)Appeal dismissed.