2010 P T D (Trib.) 1692
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Chairperson and Istataat Ali, Accountant Member
I.T.As. Nos. 285/IB to 289/IB of 2008, decided on 25/10/2008.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss. 122(5)---Rectification of mistake---Appeal---Assessee moved application for rectification before First Appellate Authority stating that notice of hearing of appeal issued under the ordinary post was delivered by the postal authority after expiry of date fixed for hearing of appeal; appeal be recalled and restored and be decided after affording a reasonable opportunity of hearing---Order was recalled by the First Appellate Authority with the observation that call notice was not properly served---Department contended that if appeal of a taxpayer was rejected by the First Appellate Authority then he had to file second appeal before the Appellate Tribunal and the First Appellate Authority was not legally empowered to recall its order through rectification and pass a new order in such a manner that a previous judgment was totally reversed---Assessee contended that although there was no express provision empowering the First Appellate Authority to recall his own order but First Appellate Authority being an appellate authority had inherent powers to recall its own order; and the order passed by the First Appellate Authority could not be challenged because of having merged with subsequent order of First Appellate Authority---Validity---First Appellate Authority could not recall its order for rectification, which had very limited scope---Error could be rectified only when it was apparent on the face of record and if the issue required reconsideration/review then the appellate authorities should refrain from making rectification---Appellate authority could not sit as a judge . on its own order---Neither any attempt could be made to circumvent the law---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 Income Tax Ordinance, 2001 to recall any order passed by it---Proper course of action was that the taxpayer should have agitated the matter in appeal before the Appellate Tribunal, who was competent to take into account all the relevant facts to arrive at a judicious conclusion---If appeal of a taxpayer was rejected, then he had to file second appeal and First Appellate Authority was not legally empowered to recall its order for rectifying it in such a manner that a previous judgment was totally reversed---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 his own order by way of sitting as a judge on its own findings.
2003 PTD (Trib.) 1941 and 2007 PTD (Trib.) 2566 distinguished.
1992 PTD 932 (S.C. Pak.); 2008 PTD 216 (Trib.); 2008 PTD 475 (Trib.) and 2004 PTD 832 (Trib.) not relevant.
Civil Petitions Nos. 752, 753 and 754 of 2008; 2007 PTD 967; 1992 SCMR 687; 2003 SCMR 1401 and 2000 PTD 306 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----S.221---Rectification of mistake---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 a situation no attempt can be made to circumvent the law.
Civil Petitions Nos. 752, 753 and 754 of 2008 rel.
(c) Income Tax---
----Doctrine of merger---Illegal order passed without jurisdiction---Doctrine of merger is not applicable in the case of illegal order passed without jurisdiction---Null and void order is considered to be an order which did not exist, therefore, no question of its merger with any order passed in consequence thereof arises---All the subsequent order passed in consequence thereof will also be rendered as illegal and void.
(d) Income Tax Ordinance (XLIX of 2001)---
----S.184(1)---Penalty for concealment of income---Order of First Appellate Authority on the basis of which penalty was deleted had been vacated---Order of First Appellate Authority in respect of penalty imposed under S.184 of the Income Tax Ordinance, 2001 was also liable to be vacated which was ordered accordingly---Since, other grounds of assessee's first appeal challenging the imposition of penalty were not adjudicated, the case was remanded by the Tribunal to First Appellate Authority for decision on the remaining grounds of assessee's appeal.
Sardar Taj, D.R. for Appellant.
Ch. Naeem-ul-Haq for Respondent.
ORDER
KHALID WAHEED AHMED, (CHAIRPERSON).---The above titled departmental appeals are directed against the three separate orders dated 26-1-2008 and 31-1-2008 of CIT(A), Islamabad.
2. The assessee-respondent is an individual deriving income from salary. Originally the appeals against the order passed under section 122(5) of the Income `Tax Ordinance, 2001 (hereinafter called the Ordinance) for the tax years 2004 and 2005 were decided by the CIT(A) vide his Order ,Nos.326 and 327/2007 dated 31-8-2007. However, the assessee moved application for rectification stating that notice of hearing of appeal issued under the ordinary post was delivered by the postal authority after 7-9-2007 i.e. after the expiry of date fixed for hearing of appeal. It was requested through the rectification application that the appeals of the assessee be recalled and the same be restored and thereafter be decided after affording a reasonable opportunity of hearing. The CIT(A) with the observations that call notice was not properly served recalled his earlier order dated 31-8-2007 vide his appellate Order Nos.519 and 520 dated 26-1-2008. The appeals of the assessee pertaining to tax years 2004 and 2005 recalled by the CIT(A) through the above mentioned order dated 26-1-2008 were later on refixed and disposed of through a subsequent order passed on 31-1-2008. The plea of the assessee as per grounds of appeals for both the years under consideration was accepted by the CIT(A) with the observations that it has not been established that appellant is engaged in the business of sale and purchase of plots through any reliable documentary evidence. The penalty imposed for the tax year 2005 under section 184 of the Ordinance was also deleted through a separate Order-in-Appeal No.490 dated 31-1-2008 for the reason that assessee's stance in the appeal against the main order, to the fact that sale of property was not adventure in the nature of trade stands accepted. Against the orders of the CIT(A) in all the above-mentioned five appeals, the department filed these appeals before the Tribunal. The common grounds of appeals .for both the years under consideration against the combined order dated 26-1-2008 passed on rectification application is reproduced as hereunder: --
(i) That the order of the CIT(A) is bad in law and against the facts of the case.
(ii) That the CIT(A) was not justified in directing to recall the order whereas the appeal was earlier decided on merit. The CIT(A) has no power to recall the order passed except to the extent that any mistake apparent, on the face of the order which needs rectification.
The common grounds of appeals for both the years under consideration against the above mentioned combined order of CIT(A) dated 31-1-2008 are reproduced as hereunder:---
(i) That the order of the CIT(A) is bad in law and against the facts of the case.
(ii) That the CIT(A) was not justified to recall the order and decide the appeal afresh beyond the powers, as such the decision is without any legal sanctity.
(iii) That the CIT(A) was not justified to delete the income assessed on account of sales and purchase of property with the observation that it has not been established that it was an adventure in the nature of trade, as the CIT(A) directions are totally contrary with the findings passed in Appeal Order No.326 dated 31-8-2008 in the same case and for the same year.
The department is also in appeal against the deletion of penalty imposed under section 184 of the Ordinance for the tax year 2008 by the CIT(A) on the following, grounds:--
(i) That the order of the CIT(A) is bad in law and against the facts of the case.
(ii) That the CIT(A) was not justified to delete the penalty levied under section 184 on the strength of the Appeal Order No.520 dated 31-1-2008. In fact the said appeal order as referred was passed by recalling the CIT(A) Order No.327 dated 31-8-2007.
3. Mr. Sardar Taj, the learned DR appeared on behalf of the revenue and Ch. Naeem-ul-Haq, Advocate the learned AR appeared on behalf of the assessee-respondent who have been heard.
4. It was stated by learned DR that CIT(A) was not justified to recall his previous order dated 21-8-2007 through which assessee's appeal had already been rejected. He stated that, the assesses 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 DR contended that impugned appellate orders passed by the CIT(A) under section 221(1) dated 26-1-2008 as well as his subsequent order dated 31-1-2008 are contrary to the law because under the said provisions of law the mistake, if any, apparent from record in his previous, order dated 31-08-2007 could only be rectified whereas the appellate order could not be reversed. According to learned DR, the impugned order of CIT(A) dated 26-1-2008 passed under section 221 is not only illegal but also in violation of judicial discipline. He pressed that if any order passed 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 through rectification and pass a new order in such a manner that a previous judgment is totally reversed. Learned DR further added that subsequent order dated 31-1-2008 of CIT(A) through which learned CIT(A) has reversed his own order by way of sitting as a Judge on his own findings is also legally not maintainable. Learned DR 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.
5. 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. Learned AR contended that learned CIT(A) was justified to recall his order which was passed without providing the opportunity of being heard by the appellant. According to learned AR although there was no express provision empowering the CIT(A) to recall his own order however according to him the CIT(A) being an appellate authorities has inherent powers to recall its own order. In this regard learned AR of the assessee cited the following case law:---
2003 PTD (Trib.) 1941 and 2007 PTD (Trib.) 2566.
Learned AR also contended that the combined order dated 26-1-2008 to recall the earlier order dated 31-8-2007 passed by learned C1T(A) could not be challenged because of having merged with the subsequent order of learned CIT(A) dated 31-1-2008 whereby the appeals of the assessee have been finally disposed of. In this context the following case-law quoted by learned AR of the assessee:---
1992 PTD 932 (SC Pak.), 2008 PTD 216 (Trib.), 2008 PTD 275 (Trib.) and 2004 PTD 837 (Trib.).
6. We have taken into account arguments of both the rival parties. About the scope of rectification Hon'ble 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 Hon'ble 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. HC) 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.
7. In our opinion, under the law i.e., Income Tax Ordinance, 2001 the CIT(A) did not have powers to recall any order passed by him. 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. So far as the plea of the assessee regarding inherent power of CIT(A) to recall his order is concerned, it will be beneficial to reproduce here the relevant part of the judgment of the Tribunal relied upon by the AR of the assessee reported as 2003 PTD (trib.) 1941:---
"The Tribunal do have inherent power to grant stay of demand or of proceedings. It is a trite law that one who have the power to give a decision can also grant temporary injunction. It is for the same reason that the legislature has not provided any specific provision to that respect. It has in respect only created an embargo on the power of stay of demand by restricting it to six months in aggregate. The Income Tax Appellate Tribunal, therefore, cannot extend its arms so as to include what is not intended by the legislation. So a combined reading of the two subsection of section 134 leads to the conclusion that an order passed consequent to the order under section 66A unless reaches ITAT by itself cannot be considered as contiguous or ancillary or auxiliary to an order under section 66A so as to invoke the power of granting stay by the Tribunal."
As is obvious the issue before the Tribunal in the above quoted judgment was the grant of stay by the Tribunal in the matter of appeal pending before it and thus is distinguishable from the question before us that whether the CIT(A) is empowered to recall the order passed by it on the appeal of the assessee through any rectification application and decide the matter afresh. The observation of the Tribunal in the above quoted judgment pertains to the exercise of grant of an interim relied and not recall of any older passed by him. It is also important to point out here that under the provisions of subsection (6) of section 134 of the repealed Wealth Tax Act, 1963 the legislation has laid down a restriction of maximum of 6 months for grant of stay which impliedly empowers the Tribunal to grant the stay. It is a matter of common sense that no restriction or limitation can be laid down on any action of an authority of which the said authority is not empowered to exercise. In the case quoted as 2007 PTD (Trib.) 2566 the issue involved was entirely of different nature. It was the miscellaneous application for recall of the order filed by the assessee which was disposed of by the Tribunal by treating it as a rectification application. It was held by the Tribunal that a miscellaneous application filed by the assessee for recall of the ex parte order cannot be treated as a miscellaneous application for rectification filed under section 156 of the repealed Ordinance, 1979. Regarding the issue pertaining to merger of the order the contention of the assessee is totally irrelevant. The doctrine of merger is not applicable in the case of illegal order passed without jurisdiction. A null and void order is considered to be an order did not exist therefore no question of its merger with any order passed in consequence thereof arises. Therefore all the subsequent order passed in consequence thereof will also be rendered as illegal and void. As discussed above the case law relied upon by the AR of the assessee instead of being of any help to him goes against him.
8. 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 26-1-2008 and the order dated 31-1-2008 passed in consequence thereof passed by CIT(A) are 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 26-1-2008 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 a 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 26-1-2008 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.
9. In the light of these observations, we hereby vacate both the combined orders dated 26-1-2008 as well as order dated 31-1-2008 passed by CIT(A) and restore his appellate order dated 31-8-2007.
Appeal under section 184(1) of the Ordinance
10. Through an order passed under section 184(1) of the Ordinance penalty for concealment of income in terms of the provisions of section 184(4) amounting to Rs.14,00,000 was also imposed by the assessing officer. The order of penalty was challenged by the assessee before the first appellate authority as per grounds reproduced in the impugned order dated 31-1-2008. The CIT(A) deleted the penalty in view of his decision dated 31-1-2008 in appeal filed against the main order whereby stance of the assessee to the fact that sale of property was not adventure in the 'nature of trade stood accepted. However, now the above mentioned order dated 31-1-2008 of CIT(A) on the basis of which the penalty was deleted has already been vacated the impugned order of the CIT(A) in respect of penalty imposed under section 184 is also liable to be vacated which is ordered accordingly. However since the other grounds of assessee's first appeal challenging the imposition of penalty were not adjudicated, the case is remanded back to the first appellate authority for decision on the remaining grounds of assessee's appeal.
11. As a result, all the five departmental appeals stand disposed of in the manner as indicated above.
C.M.A./61/Tax (Trib.)Appeal accepted.