VS State, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 947 (2608)

(a) Income Tax Ordinance (XLIX of 2001)----

----S. 221(1)---Rectification of mistake---Appeal was rejected by the First Appellate Authority---Assessee moved application for rectification stating that notice of hearing was not delivered properly---First appellate authority observed that call notice was not properly served and recalled its order after considering facts---Assessment was set aside with the directions to re-frame it on merits after providing reasonable opportunity of hearing to assessee---Department contended that First Appellate Authority had no powers to recall its own order and rectification was contrary to law---Validity---When a decision was given after careful consideration of facts, rectification could not be made in a case in the same set of circumstances and in such situation no attempt could be made to circumvent the law-First appellate authority had given a conscious decision through which assessee's appeal had been rejected---Mistake or an error could be rectified only where it was floating on the surface of record and it did not involve reappraisal of facts or evidence---First appellate authority did not have powers under the law to recall its order for rectification---Proper course of action was that the taxpayer should have agitated the matter in appeal before appellate tribunal, who was competent to take into account all the relevant facts to arrive at a judicious conclusion---Order of First Appellate Authority passed under S.221(1) of the Income Tax Ordinance 2001 was not only illegal but also in violation of judicial discipline because First Appellate Authority had reversed its own order by way of sitting as a judge on its own findings---Order passed under S. 221 of the Income Tax Ordinance, 2001 by the First Appellate Authority was vacated by the Appellate Tribunal and restored its original appellate order.

Shaukat Masood v. Federation of Pakistan Civil Petition Nos.752, 753, 754, dated 27-2-2008; 2007 PTD 967; 1992 SCMR 687; 2003 SCMR 1401 and 2000 PTD 306 rel.

(b) Income Tax Ordinance (XLIX of 2001)----

----Ss.182, 184, 186 & 114(4)--- Income Tax Ordinance (XXXI of 1979), Ss. 61, 62, & 13(1)(aa)---Penalty for failure to furnish a return or statement, concealment of income and for non-compliance with notices---Return was neither filed suo motu nor in response to notices---Notices issued remained uncomplied with---Assessment was framed ex parte--Penalty orders were passed ex parte and penalties were imposed---First appellate authority deleted such penalties with the observations that penalties were levied without establishing actual concealment as well as wilful default of notices---Department contended that First Appellate Authority was not justified to delete such penalties specially in view of the fact that ex parte assessment order on the basis of which penalties were imposed was confirmed by the First Appellate Authority---Validity---Deletion of penalties was fully justified as the penalties were imposed without establishing wilful concealment of income or intentional default of statutory notices---Although, appellate tribunal reversed the orders of First Appellate Authority regarding assessment of income on technical grounds but the penalties were not imposed according to law ---Orders of First Appellate Authority on deletion of penalties were upheld by the appellate tribunal and rejected the departmental appeals.

1981 PTD (Trib.) 15; 2003 PTD (Trib.) 1085; 1998 PTD (Trib.) 3507; (2003) 87 Tax 426; 2004 PTD (Trib.) 1225; 2001 PTD 678 and 2005 PTD 1 rel.

Muhammad Zaheer Qureshi, D R for Appellant.

Khalid Masood for Respondent.

ORDER

ISTATAAT ALI (ACCOUNTANT MEMBER).---Rectification order for assessment year 1999-2000.---The department has filed appeal against order dated 31-1-2008 passed by CIT(A) Islamabad through which rectification of Order No. 349, dated 31-8-2007 was made and assessment for assessment year1999-2000 was remanded to the Assessing Officer.

2. Originally, appeal was rejected by CIT(A) vide his Order No.349 of 2007 dated 31-8-2007. However assessee moved application for rectification stating that notice of hearing was not delivered properly because he is residing in Rawalpindi whereas call notice was sent at the postal address of Kot Sarang. Learned CIT(A) observed that call notice was not properly served. Therefore, he recalled his order dated 31-8-2007 and after considering facts set aside the assessment for assessment year 1999-2000 with directions to re-frame it on merits after providing reasonable opportunity of hearing to the assessee. The department has filed appeal against this appellate order contesting that CIT(A) has no powers to recall his own order and impugned rectification order dated 31-1-2008 was contrary to the taw.

3. It was stated by learned DR that CIT(A) was not justified to recall his previous order, dated 31-8-2007 through which assessee's appeal had already been rejected. He stated that the assessee should have filed second appeal against the said order dated 31-8-2007 before the Tribunal and the points raised in application for rectification should actually have been agitated before the higher appellate forum. Learned D.R. contended that impugned appellate order under section 221(1) dated 31-8-2008 passed by CIT(A) is contrary to the law because mistake, if any, apparent from record in his previous order dated 31-8-2007 could only be rectified whereas the appellate order could not be reversed. He stated that the impugned order of CIT(A) dated 31-1-2008 is in violation of judicial discipline. He pressed that if assessment made in the case of a taxpayer is not acceptable for him, he has to seek remedy at appellate forum and not through rectification by the Assessing Officer. Similarly, if appeal of a taxpayer is rejected by the CIT(A) then he has to file second appeal before the Tribunal and the CIT(A) is not legally empowered to recall his order for rectifying it in such a manner that a previous judgment is totally reversed. Learned D.R. emphasized that impugned order of CIT(A) dated 31-1-2008 passed under section 221(1) is not only illegal but also in violation of judicial discipline because learned CIT(A) has reversed his own order by way of sitting as a Judge on his own findings. Learned D.R emphatically pressed that the assessee instead of filing second appeal before the Tribunal has adopted an extra legal course of action and learned CIT(A) has also violated the principles of judicial discipline.

4. Learned AR stated that the call notice for hearing of appeal was not properly served on the assessee due to which CIT(A) had previously rejected the assessee's appeal vide his order dated 31-8-2007. He stated that improper service of the call notice was a mistake apparent from record, which was rightly rectified by CIT(A).

5. We have taken into account arguments of both the rival parties. About scope of rectification Honourable Supreme Court of Pakistan in Civil Petitions Nos. 752, 753, 754, dated 27-2-2008 in the case of Mr. Shaukat Masood v. Federation of Pakistan held that when a decision is given after careful consideration of facts, rectification cannot be made in a case in the same set of circumstances and in such situation no attempt can be made to circumvent the law. In our opinion, learned CIT(A) had given a conscious decision on 31-8-2007 through which assessee's appeal had been rejected. The CIT(A) could not recall his order for rectification, which has very limited scope. This viewpoint is supported by judgment of Honourable Supreme Court of Pakistan reported as 2007 PTD 967 (SC Pak.) wherein it was held that an error can be rectified only when it is apparent on the face of record and if the issue requires reconsideration/review then the appellate authorities should refrain from making rectification. The appellate authority cannot sit as a Judge on its own order. Neither any attempt can be made to circumvent the law. Scope of rectification has been elaborately explained in judgments of higher Court reported as 1992 SCMR 687, 2003 SCMR 1401 and 2000 PTD 306 (Kar. H.C.) and it has been clearly held that a mistake or an error can be rectified only where it is floating on the surface of record and it does not involve reappraisal of facts or evidence. In our opinion, learned CIT(A) did not have powers under the law to recall his order for rectification. The proper course of action in this situation was that the taxpayer should have agitated the matter in appeal before the Tribunal, who was competent to, take into account all the relevant facts to arrive at a judicious conclusion. The impugned rectification order under section 221 passed by CIT(A) is contrary to provisions of law and has no legal standing.

6. We are of the considered opinion that assessee's appeal had already been rejected by CIT(A) and he was not justified to recall his previous rejection order, dated 31-8-2007. The assessee should have filed second appeal against the said rejection order, dated 31-8-2007 before the Tribunal and the points raised in application for rectification should actually have been agitated before the Tribunal in second appeal. Impugned appellate order under section 221(1), dated 31-1-2008 passed by CIT(A) is contrary to the law because only a mistake apparent from record could be rectified and appellate order could not be totally reversed. This order of CIT(A), dated 31-1-2008 is in violation of law, rules, principles and judicial discipline. If this practice of rectification is approved by higher appellate forums, then the system of appeals will lose its legal sanctity/authority and the lower appellate authorities as well as Assessing Officers will start rectifying their own orders, in any manner they like. We tend to agree with arguments of learned DR that if assessment is made in the case of taxpayer, which is not acceptable for him, he has to seek remedy at appellate forum and not through rectification by the Assessing Officer. Similarly, if appeal of a taxpayer is rejected by the CIT(A), then he has to file second appeal before the Tribunal and the CIT(A) is not legally empowered to recall his order for rectifying it in such a manner that a previous judgment is totally reversed. We do not feel any hesitation to hold that impugned order of CIT(A), dated 31-1-2008 passed under section 221(1) is not only illegal but also in violation of judicial discipline because learned CIT(A) has reversed his own order by way of sitting as a Judge on his own findings.

7. In the light of these observations, we hereby vacate the order, dated 31-1-2008 passed under section 221 by CIT(A) and restore his appellate order, dated 31-8-2007.

8. Penalty.---The department has filed appeals against same order, dated 31-1-2008 passed by CIT(A) Islamabad through which penalties were deleted. As per facts, the assessee, an individual, purchased property for a consideration of Rs.650,000. Return for assessment year 1999-2000 was neither filed suo motu nor in response to notice under section 114(4). Notices issued under sections 61, 62 and 13(1)(aa) remained uncomplied with. Assessment was framed ex parte. Investment made in purchase of shop was treated as unexplained. Show-cause notice issued under section 190 and reminder issued in this regard remained un-complied with. Hence penalty orders were passed ex pate. For the reasons recorded in the impugned orders penalties were imposed under sections 182, 184 and 186 amounting to Rs.29,012, Rs.1,16,050 and Rs.2,000 for the years under appeal, respectively.

9. The assessee filed appeals against imposition of aforesaid penalties and learned CIT(A) vide order, dated 31-1-2008 deleted the said penalties with the observations that penalties were levied without establishing actual concealment as well as wilful default of notices. Learned CIT(A) held that penalties could not be imposed in the light of ratio settled in cases reported as 1981 (Trib.) 15, 2003 PTD (Trib.) 1085, 1998 PTD (Trib.) 3507, 2004 PTD (Trib.) 1225, 2001 PTD 678 and 2005 PTD 1 wherein it was held that mens rea is essential to be proved whereas in this case, the Assessing Officer did not establish that wilful concealment of income or default of notices was made. The department filed second appeals against deletion of these penalties contesting that CIT(A) was not justified to delete the penalties specially in view of the fact that ex parte assessment order on the basis of which penalties were imposed was confirmed by CIT(A) vide his order, dated 31-8-2007.

10. Learned DR stated that assessment order on the basis of which the impugned penalties were, imposed, had been confirmed by CIT(A) vide his order, dated 31-8-2007. Hence there was no justification available with him to delete these penalties. He further stated that wilful concealment of income and intentional default of statutory notices is established in this case. Therefore, deletion of penalties in question was unjustified.

11. Learned AR stated that CIT(A) himself rectified his order, dated 31-8-2007 for the reason that notices were not properly served and there was no wilful default of statutory notices or intentional concealment of income. He reiterated that due to change of address the call notices were not properly served and proper opportunity was not provided to explain the case before the Assessing Officer or CIT(A). It was pressed by learned AR that imposition of penalty in this case was absolutely unjustified and CIT(A) has rightly deleted it.

12. We have considered arguments of both the parties in the light of available record and we are of the opinion that in the light of ratio settled in reported cases relied upon by learned CIT(A), deletion of penalties was fully justified. The impugned penalties were imposed without establishing wilful concealment of income or intentional default of statutory notices. Although, we have reversed the orders of CIT(A) regarding assessment of income on technical grounds but we are convinced that penalties were not imposed according to law. We, therefore, uphold the orders of CIT(A) on deletion of penalties and reject the departmental appeals.

13. Ordered accordingly.

C.M.A./30/Tax (Trib.) Appeals rejected.