VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2182 (2009)

Income Tax Ordinance (XLIX of 2001)---

---Ss. 65, 68, 111(3), 113, 120(1)(b), 122(5-A), 131 & 176---Assessment---Filing of return---Acceptance of return---Appeal to the Appellate Tribunal---Respondent/Taxpayer company running a hospital, filed return for relevant year declaring loss, whereon tax amount was paid under provisions of S.113 of the Income Tax Ordinance, 2001---Said return stood accepted and deemed to be assessment order as per the provisions of S.120(1)(b) of Income Tax Ordinance, 2001---Taxation Officer, allegedly issued, show-cause notice under provisions of S.122(5-A) of the Income Tax Ordinance, 2001 to the respondent/ taxpayer that assessment finalized was erroneous and prejudicial to the interest of revenue---Taxation Officer observed that as on the date of hearing no one having appeared on behalf of the taxpayer, he proceeded and determined the cost of construction and declared cost was worked out, which was added income of the taxpayer under the provisions of S.111(3) of Income Tax Ordinance, 2001-Respondent taxpayer aggrieved by order of Taxation Officer filed appeal with Commissioner Income Tax (Appeals) contending that he had never received said show-cause notice allegedly issued under the provisions of S.122(5-A) of Income Tax Ordinance, 2001 allegedly sent through TCS courier service---Order passed by the Commissioner Income Tax (Appeals) had revealed that TCS courier service had informed that alleged TCS tracking number reported by the appellant department was an invalid tracking number---Departmental representative could not produce before the court copy of receipt of TCS courier service through which alleged show-cause notice was sent to the respondent/Taxpayer---Action of the department could not stand the test of the appeal where reasonable opportunity of being heard was not afforded to the taxpayer---No one was to be condemned unheard---Audi alteram partem was universally accepted principle of law, which had laid down that nobody could be condemned unheard and reasonable opportunity of being heard be provided before drawing any adverse inference---On basis of non-service of notice on assessee/respondent, order of Assessing Officer, on appeal by the taxpayer, was cancelled by the Commissioner Income Tax (Appeals)---Validity---Commissioner Income Tax (Appeals), had rightly held that without proper service of show-cause notice and without confrontation to taxpayer, action taken by Taxation Officer, was not sustainable in the eyes of law---Appeal filed by department was dismissed and order passed by Commissioner Income Tax (Appeal), was upheld.

(2007) 95 Tax 236 (H.C. Lahore) '(sic) and ITAT No.165 of 2000 ref.

Gohar Ali, D.R. for Appellant.

Muhammad Iqbal Ibrahim, I.T.P. for Respondent.

ORDER

This appeal has been filed by the Department against the decision of the learned CIT (A) vide his Order No.33 dated 27-3-2007 for Tax .Year, 2004.

2. The grounds of appeal filed by the Department are reproduced below:--

"1. That the order of the learned CIT (Appeals) bearing No.33 dated 27-3-2007 is bad in law as well as on facts of the case.

(2) That the CIT (Appeals) has erred in accepting the evidence of TCS submitted by the taxpayer of non-service without 'cross verifying the same from department of the TCS by invoking the provisions of section 176 of the Income Tax Ordinance, 2001, as the demand notice and assessment order were also served upon the taxpayer on the same address through same service authority i.e. TCS which was not denied by the taxpayer.

(3) That the order passed by the Taxation Officer is speaking as it was passed after fulfilling the legal requirement i.e. issuing notice under section 122(5A) of the Income Tax Ordinance, 2001 and issuing notice under section 122(9) of the Income Tax Ordinance, 2001 with proper service through TCS.

(4) That the order was passed by the Taxation Officer, after providing the opportunity of being heard to the Taxpayer.

(5) The appellant craves permission to add, alter, amend or substitute any of the above grounds of appeal on or before the date of hearing."

3. On the date of hearing Mr. Gohar Ali represented the Department as D.R. and Mr. Muhammad Iqbal Ibrahim ITP appeared on behalf of the taxpayer.

4. Brief facts of the case are that the taxpayer is a Private Limited Company and is engaged in running a hospital in name and style of Messrs National Medical Centre (Pvt.) Ltd. Return of income for Tax year, 2004 was filed on the 31-12-2004 declaring loss at Rs.2,915,821 whereon tax -amount to Rs.427,744 was paid under the provisions of section 113 of the Income Tax Ordinance, 2001. The said return stood accepted and deemed to be assessment order as per the provisions of section 120(1)(b) of the Income Tax Ordinance, 2001.

5. The Additional Commissioner Income Tax issued a show-cause notice dated 22-6-2006 under the provision of section 122(5A) of the Income Tax Ordinance, 2001 to the taxpayer stating that deemed assessment finalized under section 120(1)(b) of the Income Tax Ordinance, 2001 is erroneous and prejudicial to the interest of Revenue on the ground that from the assessment year, 2001-2002 to the Tax Year, 2004, the taxpayer has incurred cost of Rs.44,859,148 on construction of hospital building on total constructed area of 78222 sq. ft. The Additional Commissioner through his show-cause notice informed the taxpayer that the cost of construction declared worked out at Rs.573 per sq.ft. which is less than the cost of construction fixed at Rs.9,720 per sq. ft. on the collector's valuation table for 2002, therefore the taxpayer has understated cost of construction. The taxpayer was asked to explain as to why order deemed to have been finalized under section 120(1)(b) should not be amended under the provisions of section 122(5A) of the Income Tax Ordinance, 2001. The notice dated 22-6-2006 was sent through TCS courier service vide Airway Bill No.300273938 dated 23-6-2006 for compliance on 28-6-2006.

6. It was observed by the Additional Commissioner/Taxation Officer that on the date of hearing no one appeared on behalf of the taxpayer nor any application for adjournment was received. The Assessing Officer proceeded accordingly and determined the cost of construction under the provisions of section 68(3) of the Income Tax Ordinance, 2001 at Rs.1080 per sq.ft and determined cost of construction at Rs.84,479,911. The difference between the determined cost and declared cost was worked out at Rs. 39,620,003 which was added in the income of the taxpayer under the provisions of section, 111(3) of the Income Tax Ordinance, 2001. The Additional Commissioner/Taxation Officer in his order also observed that the year of discovery in respect of understated cost of construction is the period 1-7-2004 to 30-6-2005 i.e. when the return for the tax year, 2004 was filed therefore,'Rs.39,620,003 is being added under section 111(3) read with section 39 of the Income Tax Ordinance, 2001 in the tax year, 2004.

7. The taxpayer being aggrieved with above treatment preferred appeal with the learned CIT(A). It was contended before learned CIT(A) that the taxpayer never received the said show-cause notice dated 22-6-2006 issued under the provisions of section 122(5A) by the Additional Commissioner of Income Tax allegedly sent through TCS Courier Service. It was contended that on inquiry by the taxpayer from TCS Courier, they denied to have delivered any such letter with above tracking number. The taxpayer produced evidence of denial of the TCS Courier before learned CIT(A).

8. The date of completion of construction of the hospital and covered area as determined by the Department was also disputed before learned CIT(A). The CIT(A) vide his impugned order dated 27-3-2007 has not, given findings on the issue of period of construction and date of completion and covered area etc., but decided the issue on the ground of non receipt of show-cause notice allegedly issued under section 122(5A) dated 22-6-2006 through TCS Courier Service. The relevant portion of the decision of learned CIT(A) impugned order quoted supra is produced below:--

"After cautious study of the arguments of the learned A.R. and the contents of the impugned order, whereby huge difference of cost of construction of Hospital Building of Rs.39,620,003 has been added under section 111(3) read with section 39 in the declared income of Rs.2,915,821 raising amended income to Rs.36,404,182 and picking up liability to Rs.14825315, there is no evidence whatsoever about the service of the show-cause notice on the appellant. The T.O. as is evident from impugned order, issued a notice under section 122(5A) dated 22-6-2006 on the address of the appellant through TCS Courier vide Airway Bill No. 300273938 dated 23-6-2006 for compliance on 28-6-2006. According to the amended assessment order the appellant did not appear on .date of hearing nor adjournment application was sent for the consideration of the Taxation Officer. The non-attendance of the appellant led the T.O. to presume that taxpayer has no explanation to offer in respect of the proposed addition. Thereafter, T.O. finding no other alternative decided to finalize amended assessment and passed the impugned order.

The A.R. of the appellant on the other hand has vehemently denied the receipt of the said notice and produced an evidence from TCS, which has been placed on file, showing the result of the shipment tracking Messrs TCS reported that the Tracking No.300273938 as reported by the appellant (as referred to in the impugned order) is an invalid shipment tracking number. More crucially the amended assessment order itself is completely silent about the service of the show-cause notice issued by the T.O. containing his proposal of addition. From above facts it is sufficiently clear that the T.O.'s reliance in respect of valid and proper service of the only notice issued to the appellant is totally misplaced and based on presumptions and assumptions. I have also not been able to comprehend the compulsions or the circumstances under which the Taxation Officer had to exercise an undue and unnecessary haste in completing the amended assessment without ensuring proper and valid service of the notice mandatory under the law or even without affording one more opportunity of defence to the appellant. For the sake of caution it would be pertinent to observe here that whenever an unprecedented amount is warranted for addition in the income of taxpayer, that too under penal, provision of section 111(b), the significance of the legal requirement of law with regard to the proper and valid service of the show-cause notice for providing adequate opportunity of defence assumes more relevance and importance in view of the inviolable principle of natural justice which is missing in the case of the appellant.

In view of above facts and circumstances of the case the addition made without service of the show-cause notice and confrontation to the appellant is not sustainable in the eyes of law which is hereby deleted and the impugned order is annulled.

The appeal succeeds in the manner discussed above."

9. Perusal of learned CIT(A) order would reveal that the TCS Courier Service informed that alleged TCS Tracking No.300273938 reported by the department is an invalid tracking number. During appellate proceedings before learned CIT(A) opportunity of being heard was afforded to the department by learned CIT(A) as would be observed from the impugned order of learned CIT(A) vide para 2 that learned CIT(A) issued I.T.59 and served upon the Taxation Officer, but none attended nor record was produced by the department. On the date of hearing in ITAT, the learned DR was asked to produce before the Court the copy of receipt of the TCS Courier Service vide Airway Bill No.300273938 dated 23-6-2006 through which the alleged show-cause notice was sent to the taxpayer, but he could not produce the same.

10. There are a number of case laws indicating that action of the department could not stand the test of appeal where reasonable opportunity of being heard was not afforded to the taxpayer. No one is to be condemned unheard audi alteram partem is universally accepted principle of law which has laid down that nobody can be condemned unheard and reasonable opportunity of being heard be provided before drawing any adverse inference. In a reported case cited as (2007) 95 Tax 236 (H.C. Lahore) on the basis of non-service of notice under section 65 on assessee, the order of the Assessing Officer on appeal by the taxpayer was cancelled by learned CIT(A). The Department went in appeal before learned ITAT and learned ITAT vide its order No.ITAT No.165 of 2000 dated on 9-1-2007 dismissed the departmental appeal. The department went in reference in the Honourable High Court Lahore and the Honourable High Court Lahore vide its judgment quoted supra also dismissed the departmental appeal.

11. After listening to the arguments of both the representatives and going to the decision of the learned CIT(A), and following with due respect decision of the Honourable High Court Lahore quoted supra, we agree with the decision of learned CIT(A) that without proper service of show-cause notice and confrontation to the appellant action taken by the Additional Commissioner/Taxation Officer under section 122(5A) of the Income Tax Ordinance, 2001 is ,not sustainable in the eyes of law. Therefore, appeal filed by the Department is hereby dismissed and order of the learned CIT(A) quoted supra is upheld.

H.B.T./144/Tax(Trib.)????????????????????????????????????????????????????????????????????????? Appeal dismissed.