2010 P T D (Trib.) 1709
[Income Tax Appellate Tribunal of Pakistan]
Before Khawaja Farooq Saeed, Chairperson
I.T.A. No. 346/LB of 2010, decided on 20/04/2010.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss.177, 176, 122(1) & 122(5)---Audit ---Finalization of assessment under S.122(1) of the Income Tax Ordinance, 2001 in continuation to the proceedings of audit without acquiring proper jurisdiction under S.122(5) of the Income Tax Ordinance, 2001---Validity---Audit proceedings under S.177 of the Income Tax Ordinance, 2001 was only a procedure to find out some defects in the accounts and to obtain information to further enter into the jurisdiction of making an assessment after acquiring authority under S.122(5) of the Income Tax Ordinance, 2001---Section 177 of the Income Tax Ordinance, 2001 did not in itself provide any power to modify assessment or re-determine the income of an assessee; it was not a return of income which was being processed by the officer doing audit, he was dealing with a "deemed assessment" which by process of law had acquired a sanctity---Finalized assessment, could not just be modified or disturbed in continuation of the proceedings of audit under S.177 of the Income Tax Ordinance, 2001---In the present case not only that no notice was issued before selecting the case for audit under S.177 of the Income Tax Ordinance, 2001 but even otherwise before modifying or making a re-assessment in continuation of the audit proceedings jurisdiction had not been exercised properly under the provisions of S.122(5) of the Income Tax Ordinance, 2001---Notice before selection was absent and the assessment of the taxpayer had been made ignoring the legal requirements provided under S.122(5) of the Income Tax Ordinance, 2001---Appeal of the department was dismissed by the Appellate Tribunal.
Mohsin Raza v. Chairman, C.B.R. W.P. No.4630 of 2009 dated 14-7-2009 and C.I:T. and others v. Fatima Sharif Textile Kasur 2009 SCMR 344 = 2009 PTD 37 objected.
Fauji Oil Terminal and Distribution Co. Ltd. Karachi v. Additional Commissioner/Taxation Officer-A, Audit Division Karachi and 2 others 2006 PTD 734 rel.
(b) Income Tax Ordinance (XLIX of 2001)----
----Ss.177 & 122(5)---Audit---For all practical purposes S.177 of the Income Tax Ordinance, 2001 was a just process to reach to a conclusion as to from where the assessing officer could further modify an already assessed income for which law had very clearly provided the provision in terms of S.I22(5) of the Income Tax Ordinance, 2001.
Fauji Oil Terminal and Distribution Co. Ltd. Karachi v. Additional Commissioner/Taxation Officer-A, Audit Division Karachi and 2 others 2006 PTD 734 rel.
(c) Income Tax---
----Modification of assessment---Recovery of tax---Unless a case for which a legal method had been provided for modification of the assessment was not strictly observed, the recovery of tax shall remain a dream.
Dr. Javed Shehryar, D.R. for Appellant.
M. Iqbal Hashmi for Respondent.
ORDER
KHAWAJA FAROOQ SAEED, CHAIRPERSON.---In this case the appellant is the revenue department. The appeal is against the Order No.36 dated 15-9-2009 decided by the CIT (Appeals-II) RTO, Lahore.
The grievance of the department is that the annulment of the assessment is not justified. The reliance of the CIT (A) on the judgment of the honourable Lahore High Court, Lahore in the case of Mohsin Raza v. Chairman, C.B.R. as well as various other judgments on the subject including the judgment of the honourable Supreme Court of Pakistan reported as 2009 SCMR 344=2009 PTD 37 re: CIT and others v. Fatima Sharif Textile Kasur and others is statedly not relevant to the facts of the case.
The brief facts of the case are that the taxpayer filed its return declaring income from medical profession at Rs.10,30,336. The case was selected for audit under section 177. The audit proceedings continued for which as per assessment record certain notices were issued. The last notice in the row was under section 176 through which certain informations were called for. This has been so mentioned in the order. However, the assessment in this case has been finalized on 30-5-2009.
As already mentioned the taxpayer is an individual. She derives income from salary and private practice. The major portion of the income is, however, from salary. While the departmental objection basically is that while annulling the order of assessment the CIT (A) has mainly placed reliance upon the judgment of the honourable Lahore High Court, Lahore in the famous case of Mohsin Raza decided in Writ Petition No.4630/2009 dated 14-7-2009 which judgment has subsequently not been followed by various other Benches of Lahore High Court,' Lahore, Lahore High Court, Rawalpindi Bench as well as Islamabad High Court (as the then it was). The main thrust is that in its judgments the Honourable High Courts has not agreed on the definition of the phrase `in addition to the selection referred in section 177 2(2)". Further the selection under section 177 his ultimately been held to be as legal and valid and the taxpayer have been directed to approach the Appellate Authorities in the judicial hierarchy. However, the issues which have authoritatively been decided and are in field on the basis of the various judgments are:-
(i) That the issuance of prior notice before selection is a legal requirement of law re: C.I.T. and others v. Fatima Sharif Textile Kasur (Supra).
(ii) That the selection by the learned CIT(A) on the basis of parameters provided in section 177(a)(b)(c) and (d) being vague and unclear is not valid.
In view of above parameters since in the present case there is no prior notice besides there is no specific finding in terms of `definite information' as well as `error' in the assessment the annulment appears to be as justified.
It also needs to be looked into that the assessment has been made on 30th of May, 2009 for which there is neither any notice no other information with respect thereto.
In this regard it is intimated that the assessee was issued a notice for 31st May, 2009 which falls Sunday and the assessee on the next working day made an application for adjournment which was subsequently supplemented with another on 6-6-2009. However, there was no reply. Later, when the assessee received the assessment order the assessing officer after duly accepting that 31-5-2009 was holiday made the assessment one day before the same for which there was no notice. However, it was claimed that a corrigendum was issued with respect thereto. The assessee claim remains that no such corrigendum was received by him.
The assessment in this case has been framed in total ignorance of the law and the prescribed procedure. The assessing officer in total oblivion of the procedure has made the assessment under the provisions of section 122(1) in continuation to the proceedings of audit without acquiring proper jurisdiction as prescribed in section 122(5). The audit proceeding under section 177 is only a procedure to find out some defects in the accounts and to obtain information to further enter into the jurisdiction of making an assessment after acquiring authority under section 122(5). Section 177 does not in itself provide any power to modify assessment or re-determine the income of an assessee. In this regard the key point which is to be kept in mind is that it is not a return of income which is being processed by the officer doing audit. He is dealing with a `deemed assessment' which by process of law has acquired a sanctity. The finalized assessment, therefore, cannot just be' modified or disturbed in continuation of the proceedings of audit under section 177.
As already mentioned for all practical purposes section 177 is just a process to reach to a conclusion from where the assessing officer can further modify an already assessed income for which law has very clearly provided the provision in terms of section 122(5) which is as under:-
Section 122.
(5) "an assessment order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that:-
(i) any income chargeable to tax has escaped assessment; or
(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject to excessive relief or refund, or
(iii) any amount under a head of income has been misclassified."
In fact, this angle of the procedure has already been elaborated in the judgment reported as 2006 PTD 34 Fauji Oil Terminal & Distribution Co. Ltd. Karachi v. Additional Commissioner/Taxation Officer-A, Audit Division Karachi and 2 others. The relevant para. of the same is as follows:---
"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 fulfillment of conditions specified therein, and on no other ground. Such assessment orders 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."
The departmental claim remains that the assessee's attitude at all stages has remained non-cooperative. Various notices issued have remained uncomplied. The net income for the assessee is far less than the gross; hence the case should not be decided just on technicalities and the well deserved revenue of the department should be allowed to be recovered. This court appreciates the effort of the learned D.R. and his concern about the revenue but unless a case for which a legal method has been provided for modification of the assessment is not strictly observed obviously the recovery of tax shall remain a dream. However, in this case not only that no notice was issued before selecting the audit under section 177 which has been directed by the honourable Supreme Court of Pakistan re: Fatima Sharif (supra) case but even otherwise before modifying or making a re-assessment in continuation of the audit proceedings jurisdiction has not been exercised properly under the provisions of section 122(5). Now even if this court ignores the referred case of Mohsin Raza for the reason of many other judgments in the field by the Honourable High Courts with a different view, there shall not be any reason for approval of the appeal of the department. The notice before selection is absent and the assessment of the taxpayer has been made ignoring the legal requirements provided under section 122(5).
Dismissed.
C.M.A./88/Tax (Trib.)Appeal dismissed.