2009 P T D (Trib.) 1919
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Chairperson and Anisul Hasnain Mousvi, Accountant Member
I.T.As. Nos. 85/KB and 86/KB of 2008, decided on 14/02/2008.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss. 122 & 111(1)(a)---Amendment of assessment---Definite informa tion---Salary case-Credit entries in the bank statement---Addition---Assessee contended that amendment in deemed order had been suggested on account of difference of opinion and not on the basis of definite information---Entire amount credited in the bank statement was actually reconciled and there was "Nil" amount which was to be added under S.111(1)(a) of the Income Tax Ordinance, 2001---Validity---Provisions of S.122 of the Income Tax Ordinance, 2001 had been invoked in absence of definite information---Assessing Officer, while reconciling the credit entries could not conceive cash in hand at the beginning of the assessment year---Such amount had completely escaped consideration---Contra entries were also appearing in the credit side of the bank statement which were not taken into account---As regards, sale of plot, although sale-deed could not be produced by the assessee but the fact remained that copy of the sale receipt was produced coupled with it the said asset was not declared by the assessee in his wealth statement in the subsequent tax year---Nothing was available on record wherefrom it could be deduced that there was a definite information in possession of the Assessing Officer on the strength of which the deemed order could be amended---Entire edifice of the assessment had been built by the Assessing Officer on the assumed facts --- No tangible material was in possession of the department capable of sustaining such opinion---Statutory authority could not be exercised in order to amend the deemed order on the whimsical inference drawn from certain set of facts---Order under S.122(1) of the Income Tax Ordinance, 2001 was passed by the Taxation Officer without having any lawful jurisdiction---Even otherwise the addition was not sustainable in the eye of law---Order passed under S.122(1) of the Income Tax Ordinance, 2001 was knocked out by the Appellate Tribunal.
200 PTD 253 (Trib.); PLD 1947 Note 129 at page 189; 1991 PTD (Trib.) 802 and (1983) 141 ITR 67 (Bom.) ref.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 122 & 120---Amendment of assessment---Non-ticking of sub-sections in the notice---Effect---Until and unless relevant subsection of S.122 of the Income Tax Ordinance, 2001 was ticked the Assessing Officer could not assume jurisdiction to amend the order---Ticking of relevant subsection of 5.122 of the Income Tax Ordinance, 2001 was sine qua non for assumption of jurisdiction to amend the deemed order which had been made under S. 120 of the Income Tax Ordinance, 2001.
(c) Income Tax Ordinance (XLIX of 2001)---
----S.111(1)(a) --- Income Tax Ordinance (XXXI of 1979), S.13(1)(a)---Unexplained income or assets---Salary case---Credit entries in the bank statement---Addition---Validity---Addition to be made under S.111A(1)(a) of the Income Tax Ordinance, 2001 was para materia to S.13(1)(a) of the Income Tax Ordinance, 1979 which envisaged maintenance of books of accounts whereas this was a case of salary income wherein no books of accounts were required to be maintained under the rules---In no way the. bank account or the bank statement maintained and supplied by the bank to the taxpayer could be treated to be the books of accounts maintained by the person/taxpayer as is laid down in subsection (1)(a) of S.122 of the Income Tax Ordinance, 2001---Since, subsection (1)(a) of S.122 of the Income Tax Ordinance, 2001 was not attracted to the facts of the case, the addition made was not sustainable in law.
(d) Income Tax Ordinance (XLIX of 2001)---
---Ss. 122(9).& 111(1)(a)---Amendment of assessment---Addition was made in the year in which the discovery was made---Validity---Law was very much clear that addition under S.122 of the Income Tax Ordinance, 2001 could be made in the immediately preceding year after the year in which it was discovered---Discovery of the fact that assessee was maintaining a bank account, was in the tax year 2006---Amount should have been included in the person's income chargeable to tax in the tax year immediately preceding the financial year in which it was discovered---Such would be the tax year 2005 and not the year under appeal---After discovery, law had prescribed. a complete procedure as how to proceed and in what manner the addition would be made---Year of discovery, would be taken in the year in which the fact came to the knowledge of department and not the year in which show-cause notice was issued---Addition was to be made in the tax year 2005 and not the year under appeal.
(e) Income Tax Ordinance (XLIX of 2001)---
----Ss. 111(1)(a) & (2)---Unexplained income or assets---Credit entries in the bank statement---Addition---Principles---Only the amount of peak deposit was to be probed and if found unexplained that should be treated as income ` from undisclosed sources under the provision of S. 111(1)(a) and (2) of the Income Tax Ordinance, 2001.
1998 PTD 88; 1995 PTD 666 and 2007 PTD 2140 rel.
(f) Income Tax Ordinance (XLIX of 2001)---
----Ss. 184, 122(1) & 111(1) (a)---Penalty for concealment of income---As the order passed under S.122 (1) of the Income Tax Ordinance, 2001 had been declared by the Appellate Tribunal to have been passed without any lawful jurisdiction coupled with the fact that the addition made under S.111 (1) (a) of the Income Tax Ordinance, 2001 had been held to be not tenable in law, the penalty order was also liable to be quashed.
Javaid Zakaria for Appellant.
Muhammad Ali Saand, D.R. for Respondent.
ORDER
Vide these appeals, the assessee-appellant has called into question two separate orders passed by CIT(Appeals-I), Karachi; each one is dated 31-1-2008 in respect of tax year, 2006.
2. Facts leading for disposal of the present appeals are that the assessee-appellant enjoys salary income from APL Pakistan Limited. The return of income filed declaring total payment of salary and wages at Rs.460,279 was accepted by the Department to be the deemed order in terms of section 120 of the Income Tax Ordinance, 2001. Subsequently, on receipt of a complaint, dated 28-1-2006, it was discovered to the department that the taxpayer is maintaining a bank account in Allied Bank Ltd., 17 Tower Branch, Faisalabad in which a huge transactions were made. After obtaining permission from the Commissioner of Income Tax, bank statement was fetched from the Bank under section 176(1) of the Income Tax Ordinance, 2001. Accordingly, notice under section 122(9) of the Income Tax Ordinance, 2001 was issued on 20-6-2007 whereby the taxpayer was required to explain nature and sources of total of credit entries appearing in the bank statement amounting to Rs.617,500 for the assessment year, 2002-2003, Rs.870,000 for tax year, 2003, Rs.11,27,000 for tax year, 2004, Rs.27,88,000 for tax year, 2005 and Rs.44,88,500 for tax year, 2006. In response thereto it was stated that the amount, appearing in the bank is the assessee's own money saved over the years earned from salary income. Also stated that sum of Rs.750,000 was received through sale proceed of the plot located at FDA, Faisalabad and the jewellery amounting to Rs.274,316. In addition to, encashment of prize bonds was made which amounted to Rs.255,000 and a sum of Rs.370,000 was also received on account of sale of car. The explanation tendered by the assessee could not convince the Taxation Officer. However, sale proceed of plot was not accepted by the Assessing Officer on account of non-submission of sale-deed. As regards, saving from salary income, that was allowed by the Assessing Officer to the extent of 20% of the salary earned in each year under appeal. Accordingly, the Assessing Officer proceeded to make addition under section 111(1)(a) of the Income Tax Ordinance, 2001 for the assessment year 2002-2003 at Rs.23,669 for tax year 2003 at Rs.441,360, for the tax year, 2004 at Rs.91,977 for the tax year 2005 at Rs.27,03,509 and for the tax year, 2006 at Rs.450,649.
3. At the first appellate stage, the learned Appeal Commissioner, after deliberating the arguments advanced by the learned counsel for the assessee, held that the order passed under section 122(1) of the Income Tax Ordinance, 2001 was legally justified. However, direction was given to the Assessing Officer to revise his computation after giving a benefit of 30% savings irrespective of credit entries. Felt aggrieved by this order, further appeal has been filed before the Tribunal.
4. The learned counsel for the assessee has attacked the impugned order on legal as well as on factual grounds at a great length. Case-law in re 2000 PTD (Trib.) 253, PLD 1947 Note 129 at page. 189 1991 PTD (Trib.) 802, (1983) 141 ITR 67 (Bombay) have been, referred to support the contentions. On the other hand the learned D.R. appearing on behalf of the department supported the orders passed by the two authorities below to contend that proceedings under section 122 were rightly invoked and the additions under section 111(1)(a) of the Income Tax Ordinance were validly made on the facts and in the circumstances of the case.
5. After giving anxious thought to the rival contention, we find the contention raised by the learned counsel for the assessee that the proceeding initiated under section 122 of the Income Tax Ordinance 2001 were ab initio void, illegal for want of definite information with the department whereby the order deemed to have been made under section 120 of the Ordinance could be amended in terms of section 122 of the Ordinance. According to the learned A.R., amendment in the deemed order has been. suggested on account of difference of opinion and not on the basis of definite information. In this regard, it was stated that the entire amount credited in the bank statement was actually reconciled and, as such, there was "Nil" amount which was to be added under section 111(1)(a) of the Ordinance. This assertion was explained by the learned counsel for the assessee as under:--
| Assessment | Opening Cash and Bank Balance | Sources of | Total | Peak Balance As per Bank Statement | Amount Remained Unexplained |
| 2002-2003 | 1,107,792 | 543,333 | 1,651,125 | 618,520.60 | NIL |
| 2003 | 1,355,114 | 363,718 | 1,718,832 | 876,777.56 | NIL |
| 2004 | 1,480,790 | 363,718 | 1,844,508 | 883,090.74 | NIL |
| 2005 | 1,783,514 | 502,682 | 2,286,196 | 870,881.66 | NIL |
| 2006 | 1,996,052 | 776,092 | 2,772,144 | 1,34,4852. 55 | NIL |
While the departmental contention was that the credit entries remained unexplained. Thus, the provisions of section 122 of the Income Tax Ordinance, 2001 have been invited in absence of definite information. On going through the impugned orders we have noted that the Assessing Officer, while reconciling the credit entries could not conceive that the assessee had cash in hand at Rs.11,07,792 at the beginning of the assessment year, 2002-2003. Thus amount was completely escaped consideration by the 'Assessing Officer. Besides, contra entries are also appearing in the credit side of the bank statement which were not taken into account. As regards, sale of plot, although sale-deed could not be produced by the assessee but the fact remains that copy of the sale receipt was produced coupled with it the said asset was not declared by the assessee in his wealth statement in the subsequent tax year. We are also convinced that there was nothing on record wherefrom it could be deduced that there was a definite information in possession of the Assessing Officer on the strength of which the deemed order could be amended. Actually, the entire edifice of the assessment has been built by the Assessing Officer on the assumed facts. Rather no tangible material was in possession of the department capable of sustaining such opinion. Thus the statutory authority cannot be exercised in order to amend the deemed order on the whimsical inference drawn from certain set of facts.
6. It was also contended that the order under section 122 of the Ordinance has been passed without any lawful authority as relevant subsection of this section has not been ticked. The Authority to amend the order is only vested when the relevant subsection of section 122 of the Ordinance is ticked by the Assessing Officer. It was explained that different eventualities have been enumerated under section 122 of the Income Tax Ordinance, 2001 for its invocation. Such as subsection (5) or subsection (5A) has been cited in this section and in each situation powers to mend the order have been assigned to different authorities.
7. We tend to agree with the learned A.R. that until and unless relevant subsection of section 122 of the Ordinance is not ticked, the Assessing Officer does not assume jurisdiction to amend the order under this section. So, we are convinced that ticking of relevant subsection of this section is sine qua non for assumption of jurisdiction to amend the deemed order which has been made under section 120 of the Ordinance.
8. Even otherwise the addition made under section 111(1)(a) of the Income Tax Ordinance is not sustainable in law on account of other legal lacunas. In fact, the addition to be made under section 111(1)(a) of the Income Tax Ordinance, 2001 is para materia to section 13(1)(a) of the Repealed Income Tax Ordinance, 1979. This section envisages maintenance of books of accounts whereas this is a case of salary income wherein no books of accounts are required to be maintained under the Rules. In no way the bank account or the bank statement maintained and supplied by the bank to the taxpayer can be treated._ to be the books of accounts maintained by the person/taxpayer as is laid down in subsection (1)(a) of section 122 of the Income Tax Ordinance, 2001. Since, subsection (1)(a) of section 122 of the Ordinance does not attracted to the facts of the present case, therefore, the addition made thereunder is not sustainable in law.
9. Another legal objection was that the addition under sec tion 111(1)(a) of the Ordinance has illegally been made in the tax year, 2006 .whereas that could be made in the year, 2005. As is evident from the assessment order, the complaint was received by the Commissioner of Income Tax, on 28-1-2006 which is the year of discovery. However notice under section 122(9) of the Income Tax Ordinance was issued by the Department for compliance to be made on 20-6-2007. That is after the lapse of one and a half year from its discovery. The law is very much clear that the addition under this section can be made in the immediately preceding year after the' year in which it was discovered. So far as discovery of the fact that the assessee is maintaining a bank account is concerned, evidently it was in the tax year, 2006. Thus, the amount shall be included in 'the person's income chargeable to tax in the Tax year immediately preceding the financial year in which it was discovered. That would be the Tax year, 2005 and not the year under appeal. However, after the discovery, the law has prescribed a complete procedure as how to proceed and in what manner the addition would be made. Thus, the year of discovery would be taken in the year in which the fact came to the knowledge of the Department and not the year in which show-cause notice was issued. We are therefore inclined to hold that the addition, if any, was to be made in the Tax Year, 2005 and not the year under appeal.
10. Next legal objection was that if credit entries are appearing in the account or in the statement, this the peak deposit which could be added. There is no ambiguity to this proposition that only the amount of peak deposit is to be probed and if found unexplained that should be treated as income from undisclosed sources under the provision of section 111(1)(a) and (2) of the Income Tax Ordinance, 2001. This principle is settled in the case-law 1998 PTD 88, 1995 PTD 666 and 2007 PTD 2140. Thus, the addition made on the basis devised by the Assessing Officer cannot be held to be tenable in law.
11. We are, therefore, persuaded to hold that the order under section 122(1) of the Ordinance was passed by the Taxation Officer without having any lawful jurisdiction in view of the discussion made supra. Even otherwise the addition made under section 122 of the Income Tax Ordinance, 2001 was not sustainable in the eye of law. Thus, the order passed under section 122(1) for the tax year, 2006 is knocked off.
PENALTY ORDER UNDER SECTION 184 OF THE INCOME TAX ORDINANCE, 2001
12. It was the departmental contention that since the assessment has been amended under section 122(1) of the Income Tax Ordinance, whereby addition of Rs.37,11,165 was made to be the unexplained income under section 111(1)(a) of the Ordinance, therefore, the taxpayer was liable for imposition of penalty on account of concealment of income. Before imposition of the penalty, the taxpayer was confronted and the explanation filed was found unsatisfactory by the Taxation Officer. Accordingly, the Assessing Officer proceeded to calculate the amount of tax which was sought to be evaded by the taxpayer on the concealed income discussed in the amended assessment made in terms of section 122(1) of the Ordinance, 2001. That was amounting to Rs.13,14,140. However, the learned Appeal Commissioner directed to recompute the amount of penalty in view of the relief granted by him in the main appellate order.
13. We do not take long to dispose of the issue in hand because the order passed under section 122(1) has been declared by us to have been passed without any lawful jurisdiction coupled with it the addition made under section 111(1)(a) of the Ordinance has been held to be not tenable in law, therefore, the penalty order is also liable to be quashed.
14. Both the assessee's appeals for the tax year, 2006 accordingly succeed.
C.M.A./101/Tax(Trib.)Appeals accepted.