VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1473 (2010)

Income Tax Ordinance (XLIX of 2001)---

----Ss.121, 114, 115, 120, 122(5) & 177---Best judgment assessment---Assessee contended that provisions of S.121 of the Income Tax Ordinance, 2001 were not warranted for the reason that best judgment assessment could only be made where any taxpayer failed to file return or statement under S.114 or S.115 of the Income Tax Ordinance, 2001, while in the present case the return was duly filed and as such provisions of S.121 of the Income Tax Ordinance, 2001 could not be invoked---Validity---Held, there was no other provision in law which permitted the Assessing Officer to modify or re-assess the already assessed return of income before justifiably establishing that income was either under-assessed or assessed at too low a rate as provided under S.122(5) of the Income Tax Ordinance, 2001---Assessing Officer should not have directly proceeded under S.121 of the Income Tax Ordinance, 2001 before crossing the barrier and fulfilling the requirements for cancelling the deemed assessment under S.120 of the Income Tax Ordinance, 2001 in terms of S.122 of the Income Tax Ordinance, 2001---Assessing Officer instead of resorting to S.121 of the Income Tax Ordinance, 2001 was required to first determine through audit that the deemed assessment was under-assessed or otherwise erroneous and prejudicial to the interest of Revenue as provided under S.122(5A) of the Income Tax Ordinance, 2001---No other method was available to modify or reassess a deemed assessment under the provisions of S.122 of the Income Tax Ordinance, 1979 before exercising jurisdiction provided under S.122(5) of the Income Tax Ordinance, 2001---Such legal flaw in the finalization of assessment was in addition to the findings in the order of First Appellate Authority Taxation Officer's action being not in strict compliance of the provisions and the procedure provided in law, was not endorsed by the Appellate Tribunal---Appeal of the department being without any merit was dismissed.

2006 PTD 734 rel.

2003 PTD (Trib.) 260; 2006 PTD (Trib.) 386; (1983) 48 Tax 56; 1985 SCMR 786, 1968 PTD 573, 1975 PTD 88 and 1976 PTD 347 ref.

Ghulam Murtaza and Muhammad Ajmal Khan for Appellants.

Muhammad Jamil Bhatti, D.R. for Respondent.

ORDER

In the instant case appeal has been preferred against the order passed by learned CIT(A) on 29-12-2008. The following grounds have been taken:--

(1) That the order of the learned Commissioner of Income Tax (Appeals) is contrary to law and against the facts of the case.

(2) That the learned CIT(A) was not justified to annul the order passed under section 121 of the Ordinance whereas the assessment for the tax year 2003 was finalized according to the provisions of law and as per facts of the case.

(3) That the appellant craves his right to alter, amend, modify or submit further grounds of appeal before the disposal of the present appeal.

2. Brief facts of the case are that taxpayer's case was selected for audit under section 177 of the Income Tax Ordinance, 2001 on the basis of certain specific reasons which were duly communicated. For factum of non-compliance and non-finishing of required details the assessment proceedings were culminated in ex parte assessment/best judgment assessment under section 121(1)(d) of the Income Tax Ordinance, 2001.

3. Mr. Ghulam Murtaza appeared on behalf of the appellant while department was represented by Mr. Muhammad Jamil Bhatti, who were heard.

4. The learned AR's main plea before the first appellate forum was that provisions of section 121 of the Income Tax Ordinance, 2001 were not warranted in this case for the very reason that `best judgment assessment' could only be made where any taxpayer failed to file return or statement under section 114 or 115, while in their case the return was duly filed and as such provisions of section 121 could not be invoked. The learned CIT(A) agreeing with the assertion of learned AR and cases relied upon by him annulled the order to observe as under:-

"I have considered the rival arguments and am of the view that submissions made at the bar considerable force. Moreover, during the course of appellate proceedings the AR has referred to a reported case-law cited as 2006 PTD 734 (High Court Karachi) which pertains to jurisdiction of section 121 of the Ordinance. In para 38 of the case-law, the honourable High Court Karachi observed as under:--

"In case of failure of a person to furnish return of income after being required by a notice under subsection (3) or subsection (4) of section 114, the Commissioner may make a best judgment assessment under section 121 and after doing so shall issue the assessment order to the taxpayer. However, if no return has been filed under section 114 and no notice under subsections (3) or (4) of section 114, has been issued no assessment order shall be made, or issued or taken to have been issued."

Perusal of the abovementioned para indicates that the provisions of section 121 could only be invoked in case of a non-filer of income tax return whereas the appellant had duly filed his return for the year under review. Ratio of the above cited case law consequently squarely applies in the appellant's case. It is significant to mention here that the above mentioned decision is binding upon this court as held by the higher Courts in numerous cases cited as 2003 PTD (Trib) 260, 2006 PTD (Trib) 386, 1983 PTD 246, PLD 1968 SC (sic).

Taking all the foregoing facts and circumstances of the case into consideration, the action of the Taxation Officer in amending the assessment under section -121 of the Ordinance is held to be injudicious and legally untenable. The same is thus ordered to be annulled."

5. The learned DR while arguing the case strongly contested the finding of learned CIT(A) and submitted that she has grossly erred in annulling the order without appreciating the facts narrated by the Taxation Officer in his order. It is clearly manifest from the order that several opportunities were granted to the taxpayer, instead of filing details and documents, the taxpayer chose to remain non-compliant for the reason best known to him. In the circumstances there was no alternative except to proceed against the assessee ex parte. In support to this action the learned DR placed reliance on the cases reported as:

1985 SCMR 786, 1968 PTD 573, 1975 PTD 88 and 1976 PTD 347.

6. According to him by virtue of these judgments the ex parte action has been endorsed in case no compliance is made.

7. The learned AR however supported the order of learned CIT(A) and also cited various case-laws which in fact were also placed before CIT (A) during the appellate proceedings and have been relied upon by her.

8. We have noted that the learned CIT(A) has annulled the order, considering that section 121 of the Income Tax Ordinance, 2001 could not be invoked on the basis of obtaining facts. But interestingly the entire discussion of learned AR before us was that since the assessment already stood completed under the deeming provision of section 120, no other assessment could be made without assuming jurisdiction under section 122 of the Income Tax Ordinance, 2001, as a deemed assessment is already in field. Although this ground has not been dilated by the learned CIT(A), yet we find it appropriate to entertain because legal ground can be raised at any stage of proceedings, as held by the higher appellate forums.

9. In our view there is no other provision in law which permits the assessing officer to modify or re-assess the already assessed return of income before justifiably establishing that his income is either under assessed or assessed at too low a rate as is provided under section 122(5). The Assessing Officer should not have directly proceeded under section 121 before crossing the barrier and fulfilling the requirements for cancelling the deemed assessment under section 120 in terms of section 122. In our view the assessing officer instead of resorting to section 121 was required to first determine through audit that the deemed assessment is under assessed or otherwise erroneous and prejudicial to the interest of Revenue as provided under section 122(5A). In our opinion there is no other method to modify or re-assess a deemed assessment under the provisions of section 122 before exercising jurisdiction provided under section 122(5). This matter has already been discussed in number of cases including one reported as 2006 PTD 734 KHC (Fouji Oil Terminal and others v. Additional Commissioner Audit Division Karachi) the relevant extract reads as under:

"Thus an assessment order or revised assessment order issued or taken/treated as issued can be amended by invoking original jurisdiction under subsection (5) of section 122, on fulfilment of conditions specified therein, and oil no other ground. Such assessment order can be revised by invoking original jurisdiction under section 122(5A). There is no other ground or method for amendment of an assessment order issued."

10. On the basis of aforementioned facts we feel that this legal flaw in the finalization of assessment is in addition to the findings in the order of CIT(A). The Taxation Officer's action being not in strict compliance of the provisions and the procedure provided in law is therefore not endorsed. The departmental appeal is therefore considered without any merit and is accordingly dismissed.

C.M.A./92/Tax (Trib.)Appeal dismissed.