VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 765 (2008)

(a) Income Tax---

----Additional grounds arising out of the proceedings of the case and being the legal issue could be taken at any stage of the proceeding.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.66(c), 79, 132 & 62---Limitation for assessment in certain cases---Setting aside of an issue out of two---Appeal was filed against order passed by the Assessing Officer before First Appellate Authority on two grounds only---Firstly invocation of provisions of S.79 of the Income Tax Ordinance, 1979 and secondly, on issue of applicability of Workers' Welfare Fund---First Appellate Authority set aside the issue of invocation of provisions of S.79 of the Income Tax Ordinance, 1979 vide his order dated 30-4-2001 and deleted the addition made on the issue of applicability of Workers' Welfare Fund---Department filed appeal before Appellate Tribunal on the issue of chargeability of Worker's Welfare Fund only which was dismissed vide order dated 20-6-2002---No appeal in respect of invocation of S.79 of the Income Tax Ordinance, 1979 was filed by the department before Appellate Tribunal meaning thereby the department had accepted the order passed by the First Appellate Authority---Provision of S.66(c) of the Income Tax Ordinance, 1979 specifically states that if an appeal is preferred against an order which was set aside in full or in part and a.. further appeal was preferred in respect thereof either under S.134 or under S.136 of the Income Tax Ordinance, 1979, then the limitation provided under S.66 of the Income Tax Ordinance, 1979 would not apply---Appellate Tribunal did not set aside the issue of Workers' Welfare Fund either in full or in part therefore, subsequent filing of reference application by the department before High Court would not defer the limitation as provided under the provisions of S.66 of the Income Tax Ordinance, 1979---Order passed by the Appellate Tribunal was served on the Department on 9-7-2002 therefore the assessment framed by the Taxation Officer as on 30-6-2005 was barred by limitation---Order of Taxation Officer was annulled by the Appellate Tribunal being ab initio void and illegal.

PLD 1998 Kar. 373; 2007 PTD 1418; PLD 1990 SC 934 and PLD 2008 Kar. 38 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.66(c)---Limitation for assessment in certain cases---If no appeal is filed in respect of a particular issue the limitation would then be governed squarely under provisions 9f Cl.(c) of S.66 of the Income Tax Ordinance, 1979 but if either the assessee or the department prefers any appeal in respect of an order which is set aside in full or in part then the limitation provided under this clause would not run.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.66(c)---Limitation for assessment in certain cases---Limitation would only stop if an order is set aside in full or in part and a further appeal in respect thereof had been preferred to the higher authority.

(e) Interpretation of Statutes---

----No law is to be interpreted in a manner to make any part of the law redundant.

PLD 1990 SC 934 and PLD 2008 Kar. 38 rel.

Irfan Saddat Khan for Appellant.

Yousaf Haider Shaikh, D.R. for Respondent.

ORDER

The appellant through this appeal has objected to the impugned order of the learned CIT (A) dated 9-3-2006 on the following grounds:--

"(1) That the learned CIT (A) has erred in confirming the action of the learned Taxation Officer (T.0) who made an addition of Rs.136,740,987 under section 79 of the Income Tax Ordinance, 1979 (the repealed Ordinance) to the appellants' income. It is contended that the action is arbitrary, contrary to law and facts of the case.

(2) That the learned CIT (A) has erred in confirming the action of the learned Taxation Officer (T.O.) who omitted to take cognizance of the fact that section 79 of the repealed Ordinance has been substituted by the Finance Act, 1992 and the implications of the substituted provision does not warrant any addition in the manner perpetrated by the learned CIT(A). The learned CIT (A) has failed to establish absence of arm's length principle in the purchases of your appellant.

(3) That the learned CIT (A) has erred in confirming the action of the learned Taxation Officer (T.0) who observed that the appellant purchased raw material from non-resident parent company at higher rates than by other pharmaceutical companies in Pakistan for similar raw materials of same quality. The observation of the learned T.O. is based on assumption and no factual position."

Along with the above referred grounds of appeal on behalf of the assessee an application seeking permission to allow the following additional ground has also been filed:---

"That the order passed by the learned T.O. under the provision of sections 62/132 of the repealed Ordinance dated June 30, 2005 is barred by limitation and hence, is liable to be annulled."

Regarding the additional ground the learned counsel representing the assessee has submitted that the assessee in this case is an un-quoted public limited company engaged in the manufacturing and sale of pharmaceutical products. The return of income was filed on December 31st, 1999 and the assessment under section 62 of the late Ordinance, 1979 was finalized vide order dated June 30, 2000. Against which the assessee filed appeal before the learned CIT(A) who vide 'his order dated April 30, 2001 set aside the issue regarding the application of the provision of section 79 of the repealed Ordinance, 1979. However, the learned CIT(A) deleted the addition made by the DCIT regarding Workers Welfare Fund. The department against that order of the learned CIT(A) in respect of deletion of W. W. F filed appeal before this Tribunal who vide its order dated June 20th, 2002 in ITA No.1834/KB/2001 dismissed the same.

Subsequently, the Taxation Officer vide his order dated June 30, 2005 has passed order under sections 62/132 of the repealed Ordinance, 1979 in compliance with the order of the learned CIT(A). Against which the assessee has again filed appeal before the learned CIT(A) being dis satisfied with the treatment meted out by the Taxation Officer but the learned CIT(A) had up-held the order passed by the Taxation Officer vide impugned order dated March 9, 2006 and now the assessee is in appeal before this Tribunal.

The learned counsel has contended that although on behalf of the assessee in the memo. of appeal it has been specifically taken the ground that "the appellate order passed by the learned CIT (A) is bad in law and on facts". He has submitted that in the ground No.5 of the main appeal the following ground was also taken:---

"That the appellant craves permission to add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal."

The learned counsel has contended that the above referred additional ground is arising out of the proceeding of the case and the assessee shall be seriously prejudiced and bear irreparable loss and injury if the request regarding additional ground is not granted.

On the other hand, the learned DR is opposing the application regarding the additional ground.

After considering the facts and circumstances of the case, we are of the view that the above referred additional ground is arising out of the proceedings of the case and being the legal issue can be taken at any stage of the proceeding.

The application filed by the assessee in this regard is, therefore, allowed and the additional ground taken by the assessee is included in the grounds of appeal.

The learned counsel appearing on behalf of the assessee made a request that he may first be heard on the additional ground of appeal, which permission was granted by us. Briefly stated this appeal has been filed by the company engaged in the selling and manufacturing of pharmaceutical items. The return of total income was filed on December 30, 1999 by declaring of an income of Rs.10,075,757. The case was then processed by the then Taxation Officer, by assessing the income at Rs.187,336,374 under the provisions of section 62 of the repealed Ordinance vide order dated June 30, 2000. An appeal was then preferred before the learned CIT(A) on two grounds i.e. invocation of the provisions of section 79 of the repealed Ordinance and the application of Worker's Welfare Fund (W.W.F.). The learned CIT(A) deleted the addition made by the Taxation Officer on the application of WWF however, remanded the case back to the Taxation Officer for de novo assessment on the point of application of section 79. The department then filed an appeal before the Tribunal on the sole ground of application of W.W.F. vide ITA 1834/KB of 2001 dated 20-6-2002, which order was received by the department on July 9, 2002.

The learned counsel submitted that the order passed by the Taxation Officer under sections 62/132 dated June 30, 2005 is barred by limitation as in the said order the Taxation Officer has counted the limitation for framing the revised order from the order of the Tribunal passed in ITA 1416/KB of 2001 dated August 30, 2003, which relates to assessment year 1997-98, whereas the Taxation Officer should have counted the limitation for passing the revised order from I.T.A. 1834/KB of 2001 dated June 20, 2002 which relates to the Assessment year 1999-2000. The learned Counsel also produced before us both the above-mentioned orders.

While elaborating his case the learned counsel submitted that as per the provisions of section 66 of the repealed Ordinance, if an assessment has been set aside in full or in part by an order under section 132 or section 135 and no appeal is filed under section 134 against such order or no appeal is filed under section 136 in respect thereof such assessment may be made at any time within one year from the end of the financial year in which such order is received by the Dy. Commissioner. The learned counsel then submitted that/as the order passed by the Tribunal pertaining to the year under consideration was served on the department on July 9, 2002 the limitation for passing the revised order expired on June 30, 2004 and as the present order has been passed on June 30, 2005, hence the assessment framed by the Taxation Officer is barred by limitation. The learned counsel further submitted that in the appeal filed by the assessee before the learned CIT(A) against the order passed by the Taxation Officer under section 62, the CIT(A) vide his order dated April 30, 2001 remanded the case back to the Taxation Officer for de novo consideration as far as the issue of application of the provisions of section 79 is concerned. However, so far as the issue of WWF is concerned, the same was deleted by the learned CIT(A). Moreover, the department did not file any appeal on the issue of the application of the provisions of section 79 and only filed the appeal on the issue of the applicability of WWF; meaning thereby that the department did not agitate the issue of the applicability of the provision of section 79 before the Tribunal. This Tribunal however, after hearing both the parties vide its order dated June 20, 2002. dismissed the appeal filed by the department on the sole issue of WWF. Hence, as per the learned counsel as no appeal has been filed by the department on the applicability of the provisions of section 79 before the Tribunal the provisions of section 66 are squarely applicable to the present case and the case of the assessee falls under clause (c) of section 66 and the limitation in this regard provided in the said section which clearly stipulates that where no appeal is filed the assessment has been completed within one year from the end of the financial year in which such order is received by the Deputy Commissioner. He further explained that admittedly the order of the Tribunal was received by the department on July 9, 2002 the Taxation Officer should have finalized the revised order by June 30, 2004. As, the same has not been done by the due date rather the order was passed on June 30, 2005 therefore, the revised order passed by the Taxation Officer is barred by limitation and is liable to be annulled.

The learned counsel has invited our attention to the decisions reported as PLD 1998 Kar. 373 and 2007 PTD 1418 wherein it has been held that an affected party could not be penalized for negligence of the statutory authority and if the officials of the department were not vigilant enough the assessee could not be penalized by way of passing a time barred order and raising demand thereof. He further submitted that as the department has not only been negligent in misreading the order passed by the Tribunal and instead of quoting the correct order but were also negligent to not only quote the incorrect order but also in counting the limitation from that order. The learned counsel stressed that the limitation could only be counted from ITA 1834/KB of 2001 which is the correct and relevant order in respect of the appeal under question whereas the department has counted the limitation from I.T.A. No.1416/KB of 2001 which pertains to assessment year 1997-98. Hence as the department was negligent in framing the revised order in the stipulated time as enshrined in the provisions of section 66 hence, the assessment which is barred by limitation deserves to be declared as ab initio void and illegal.

On the other hand learned departmental representative on his turn tried to wriggle out of the situation however, conceded before us that the Taxation Officer was not justified in counting the limitation from I.T.A. 1416/KB of 2001 which relates to the assessment year 1997-98 whereas the limitation in the present case should have been counted from ITAT 1834/KB of 2001 dated June 20, 2002. The learned DR however, added that as the department has filed reference application before the Hon'ble High Court on the issue of the applicability of WWF hence in his opinion the limitation should have been counted from the order passed by the Hon'ble High Court and not from the date of the order passed by the Tribunal. He submitted that as the department has filed another appeal therefore in his opinion the limitation as provided under section 66 would not be applicable till the decision given by the final authority and whenever a further appeal is filed against an order the limitation to frame the revised order is stopped and limitation in such situation would start from the order passed by the final authority against which no appeal is preferred. He therefore submitted that the order is not barred by limitation and therefore the appeal filed by the assessee on this additional ground may be dismissed.

The learned counsel of the assessee while making his rebuttal submitted that the interpretation made by the department is totally misplaced and out of context as this has never been the intention of the Legislators regarding section 66 to leave the set aside cases unattended. It has specifically been provided that if an appeal is filed against a set aside order the limitation would only be deferred till the decision given by the higher forum. In the instant case the department did not file any appeal against the order passed by the CIT(A) dated 30-4-2001 before the Tribunal on the issue of the applicability of section 79 of the repealed Ordinance hence, the limitation to frame the assessment on the invocation of the provision of section 79 has started the moment the Tribunal has dismissed the appeal filed by the department vide I.T.A. 1834/KB of 2001 dated June 20, 2002. The reference application filed by the department is not against any set aside order of the learned ITAT rather the same was against the applicability of the provisions of WWF only hence, how could the limitation would be deferred on an issue which was neither set aside nor was the issue under appeal before the learned ITAT. Hence, as per the learned counsel the limitation to frame the assessment on the issue of the invocation of the provisions of section 79 started on June 20, 2002 and expired on June 30, 2004. The learned counsel finally submitted that if this interpretation of department is accepted then section 66 would become redundant and no such interpretation is to be made which would make any provision of the law as redundant. The learned counsel further submitted that the words used "in respect thereof" in clause (c) of section 66 are very significant and implies that appeal to the higher forum should contain the issue which is being contested either by the department or by the assessee. In the instant appeal as no appeal has been filed by the department in respect of the invocation of section 79 before the Tribunal hence, how could the limitation would start from the order passed by the Hon'ble High Court. This limitation has to be counted from the order of the Tribunal dated June 20, 2006 as no appeal has been filed by the department in respect thereof regarding the invocation of section 79 before the Tribunal against the order of the learned CIT(A) whereby this issue was set aside by him. He therefore, finally concluded that the appeal may be allowed by annulling the order framed by the Taxation Officer.

We have heard both the learned counsel at length and have also perused the record, various case laws cited before us and the law laid down in this regard. There are no two opinions that the revised assessment framed under sections 62/132 was passed on June 30, 2005 and this order is primarily based on the decision of this Tribunal bearing I.T.A. No.1416/KB of 2001 dated August 30, 2003 which is not the correct and pertinent order relating to the, year under appeal rather this Order relates to the assessment year 1997-98. Hence, at the very outset the assessment framed by the learned Taxation Officer is ab initio void and illegal and is barred by limitation. However, coming to the second aspect of the appeal and to the issue raised by the learned DR after first conceding that the Taxation Officer has placed incorrect reliance on the order ITA 1416/KB of 2001 dated August 30, 2003 that as the department has filed yet another reference application against the order passed by this Tribunal bearing ITAT vide ITA No.1834/KB/2001 dated June 20, 2002 before the Hon'ble High Court hence the limitation has to be counted from the date when the Hon'ble High Court has dismissed the reference application filed by the department on the issue of WWF. Before we proceed to give our decision on the above mentioned issue raised by the DR and very ably rebutted by the learned counsel it would be pertinent if the provisions of section 66 are reproduced:-

66. Limitation for assessment in certain cases.---(1) Notwith standing anything contained in section 64 and sub-section (3) of section 65 where in consequence of, or to give effect to, any finding or direction contained in any order made under this Chapter or Chapter VIII, XIII or XIV or any order made by any High Court or the Supreme Court of Pakistan in exercise of its original or appellate jurisdiction,

(a) an assessment is to be made on any firm or a any firm; or partner of any firm; or

(b) an assessment is to be made on the assessee or any other person; or

(c) an assessment has been set aside, in full or in part, by an order under section 132 or section 135 and no appeal is filed under section 134 against such order or no appeal filed under section 136 in respect thereof, as the case may be,

such assessment may be made at any time within two years in any case to which clause (a) or clause (b) applies, and within one year in any case to which clause (c) applies, from the end of , the financial year in which such order is received by the Deputy Commissioner.

A bare reading of this section would reveal that the case of the assessee falls in clause (c) of this section which states that if an assess ment is set aside in full or in part by an order under section 132 (the order of the learned CIT[(A)] or section 135 (the order of the Tribunal) and no appeal was filed under section 134 (appeal before the Tribunal) or under section 136 (reference before High Court) in respect thereof the revised assessment has to be framed within one year from the end of the financial year in which such order is received by the Dy. Commissioner.

In the instant appeal admittedly the appeal was filed against the order passed by the Deputy Commissioner dated June 30, 2000 before the CIT(A) on two grounds only. Firstly, the invocation of the provisions of section 79 and secondly, on the issue of the applicability of WWF. The learned CIT(A) vide his order dated April 30, 2001 set aside the issue of invocation of the provisions of section 79 however, deleted the addition made on the issue of applicability of WWF. Being aggrieved with the order, the department filed an appeal before this Tribunal on the issue of the chargeability of WWF only which appeal was also dismissed vide order dated June 20, 2002 in I.T.A. 1834/KB of 2001. It is pertinent to note that no appeal in respect of the invocation of section 79 was filed by the department before the Tribunal meaning thereby that the department has accepted the order passed by the learned CIT(A) Clause (c) of section 66 of the repealed Ordinance specifically states that if an appeal is preferred against an order which is set aside in full or in part and a further appeal is preferred in respect thereof either under section 134 or under section 136 as the case may be then the limitation provided under section 66 would not apply. In our opinion however, if no appeal is filed in respect of a particular issue the limitation would then be governed squarely under the provisions of clause (c) of section 66 but if either the assessee or the department prefers any appeal in respect of an order which is set aside in full or in part then the limitation provided under this clause would not run. In the instant appeal the learned CIT(A) vide his order dated April 30, 2001 set aside the issue of invocation of section 79 and the department preferred an appeal against this set aside order before the Tribunal on the issue of WWF only hence the limitation would not start running. However the reference application filed by the department before the Hon'ble High Court was not against an order which was set aside in full or in part. Hence, the contention made by the learned counsel appearing on behalf of the assessee in our opinion is correct. The limitation would only stop if an order is set aside in full or in part and a further appeal in respect thereof has been preferred to the higher authority. In the present case the Tribunal vide its order dated June 20, 2002 did not set aside the issue of W.W.F either in full or in part, hence the subsequent filing of the reference application by the department before the Hon'ble High Court in our opinion would not defer the limitation as provided under the provisions of section 66. Moreover, the words in respect "thereof" used in the section are very significant and implies that in order to defer the limitation of section 66 an appeal on a particular issue has to be preferred before the higher forum in respect of an order which has been set aside in full or in part whereas, the order of the Tribunal dated June 20, 2002 was not an order which has been set aside in full or in part hence the assertion of the departmental representative that the limitation of the present appeal would be governed from the order passed by the Hon'ble High Court. In our opinion it is neither correct nor appears to be the intention of the legislature. We agree with the learned counsel that if this interpretation of the Departmental representative is accepted then section 66 would become redundant. It has been held in a number of decisions given by the superior courts that no law is to be interpreted in a manner to make any part of the law redundant. Reference in this regard may be made to PLD 1990 SC 934 and PLD 2008 Kar. 38. We therefore, allow this appeal by holding that the order passed by the Taxation Officer is barred by limitation as a consequence therefore the order of the Taxation Officer is hereby annulled being ab initio void and illegal.

As we have allowed this appeal on the legal issue raised by the learned counsel we would not like to dilate upon the other issues raised in the main appeal.

C.M. A./10/Tax(Trib.)Appeal allowed.