VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1743 (2010)

(a) Income Tax Ordinance (XXX of 1979)---

---Ss.60-A, 52, 50(4), 24(c) & 62---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Additions---Issuance of show-cause notice on the grounds that amount due from associated undertakings exceeded the amount of loan payable to banks, the assessee was not entitled to claim deduction on account of mark-up because the entire amount of loan obtained from banks had been passed into associated undertakings, that assessee had not deducted tax on various expenses and Assessing Officer failed to add them to income of assessee under S.24(c) of the Income Tax Ordinance, 1979; that fine and penalties being inadmissible deduction was to be added to income of the assessee and that amount of tax had been retained out of total deductions---Validity---Additional Commissioner of Income Tax had sufficient reasons to believe that assessments finalized under Ss.62 & 52 of the Income Tax Ordinance, 1979 were erroneous and prejudicial to the interest of Revenue because the facts and figures confronted through show-cause notices did establish that Deputy Commissioner of Income Tax had not exercised due care at the time of passing orders under Ss.52 & 62 of the Income Tax Ordinance, 1979 and resultantly State exchequer was deprived of its lawful share---Appeal filed by the assessee against both the orders of Additional Commissioner passed under S.66-A of the Income Tax Ordinance, 1979 were dismissed whereas the appeals filed against the orders passed under Ss.66-A/62 & 66-A/52 of the Income Tax Ordinance, 1979 also failed because they were not competent as they were to be filed with the First Appellate Authority rather than before Appellate Tribunal.

1996 PTD (Trib.) 492 and 1998 PTD (Trib.) 2538 ref.

Edulgee Dinshaw Limited v. Income Tax Officer 1990 PTD 155 and 1997 PTD (Trib.) 1265 rel.

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

----S.66-A---Powers of Inspecting Additional Commissioner to revise the Deputy Commissioner's order---Scope---Conditions---Powers under S.66-A of the Income Tax Ordinance, 1979 could be exercised only if two conditions precedent namely erroneousness or assessment due to misapplication of law or otherwise and prejudicial to the interests of Revenue as a result thereof were fulfilled simultaneously; in other words the Additional Commissioner, before exercising reversionary jurisdiction under S.66-A of the Income Tax Ordinance, 1979 had to establish beyond any shadow of doubt that the assessment made by the Assessing Officer suffered from an error of law or fact as a result of which the tax liability of the assessee had been determined at a figure lower than what was due under the law.

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

----Ss.66-A, 52 & 62---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Appeal to First Appellate Authority---Merger of order---Additional Commissioner passed orders under S.66-A of the Income Tax Ordinance, 1979 much before the decision in appeal and in view of S.66(1A) of the Income Tax Ordinance, 1979, both the orders passed under Ss.52 & 62 of the Income Tax Ordinance, 1979 were very much in field and had not merged into the orders of First Appellate Authority when the Additional Commissioner passed orders under S.66-A of the Income Tax Ordinance, 1979---Mere filing of appeal, the orders of Assessing Officer did not merge into the orders of First Appellate Authority.

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

----Ss. 65, 66-A & 62----Additional assessment---Application of provisions of Ss. 65, 66-A & 62 of Income Tax Ordinance, 1979--Scope-Provisions of Ss.65 and 66-A of the Income Tax Ordinance, 1979 could be invoked to retrieve the loss of revenue but in different situations and by different authorities, for instance, an assessment finalized under S.62 of the Income Tax Ordinance, 1979 could be reopened under S.65 of the Income Tax Ordinance, 1979 by the Assessing Officer on the basis of some definite information which could conclusively establish that the income of an assessee had either escaped assessment or under-assessed or assessed at too low a rate or was the subject-mater of excessive relief---Such information was, required to be about material facts which had not been considered by the Assessing Authority while framing the assessment under S.62 of the Income Tax Ordinance, 1979, however, if those facts were found to have been disclosed faithfully by an assessee and also considered by the Assessing Officer, the assessment could not be reopened on the same set of facts under S.65 of the Income Tax Ordinance, 1979 because an authority was not vested with the jurisdiction to change opinion about facts which had already been adjudicated upon by it.

Edulgee Dinshaw Limited v. Income Tax Officer 1990 PTD 155 rel.

(e) Income Tax Ordinance (XXX of 1979)---

----S.65---Additional assessment---Scope---Assessing Officer was not empowered to invoke the provisions of S.65 of the Income Tax Ordinance, 1979 on the basis of facts which were disclosed by an assessee and considered by him in the course of making assessment.

(f) Income Tax Ordinance (XXX of 1979)---

----Ss.66-A & 65---Powers of Inspecting Additional Commissioner to revise the Deputy Commissioner's order---Change of opinion---Contrary to S.65 of the Income Tax Ordinance, 1979, S.66-A of the Income Tax Ordinance, 1979 contained altogether a different mechanism to plug loss and leakage of revenue by providing vast power of superintendence to Additional Commissioner---Said provision of law could be invoked when an officer, subordinate to the Additional Commissioner was not found to have appraised the facts and drawn conclusions therefrom in accordance with law, and as a result thereof an assessee was not charged with the amount of tax due from him under the law; there may also be cases where an Assessing Authority, in collusion with a taxpayer or through sheer inadvertence may make an assessment in contravention of the relevant provisions of law thus inflicting loss upon the State exchequer---In such situations the Additional Commissioner was vested with the power to substitute the lawful treatment in place of the treatment accorded by Assessing Officer subordinate to him---Reappraisal will essentially entail change of opinion by the revising authority for the simple reason that the opinion formed by an Assessing Officer subordinate to the Additional Commissioner and the conclusion drawn by him were found to be erroneous; in other words, exercise of jurisdiction under S.66-A of the Income Tax Ordinance, 1979 hinged upon change of opinion because the revisionary powers under S.66-A of the Income Tax Ordinance, 1979 could trot be exercised unless and until the Additional Commissioner proved beyond any shadow of doubt that the treatment accorded by the Assessing Officer was erroneous either under the law or fact or on both counts as a result of which the, State exchequer had been deprived of its lawful share.

1997 PTD (Trib.) 1265 rel.

Shoaib Ahmad, C.A. for Appellants.

Dr. Ishiaq Ahmad, D.R. (L.T.U.) for Respondent.

ORDER

These four appeals have been directed against the four orders---two by the Additional Commissioner passed under section 66-A of the late Ordinance of 1979 and the remaining two by the DCIT in pursuance of the orders under section 66-A of the late Ordinance of 1979.

2. The facts relevant for the disposal of the first appeal against order under section 66-A of the late Ordinance of 1979 are that the assessment in the case of the appellant-company was finalized under section 62 of the late Ordinance of 1979 on 15-3-1999 determining its income at Rs.1,55,13,462 against the declared loss of Rs.6,66.,06,045. Subsequently, on examination of the record of the assessee-company, the Additional Commissioner Income Tax Range-III, Company Zone-II, Lahore found the assessment made under section 62 of the late Ordinance of 1979 to be erroneous and prejudicial to the interests of Revenue for the following reasons:-

(a) The assessee-company had disclosed bank loans of Rs.28,41,19,639 in its balance-sheet for the year ended on 30-6-1998 against which it had advanced loans of Rs.55,50,86,418 to its associated undertakings. In the statement of final accounts it had claimed deduction of mark-up of Rs. 10,51,24,230 against which it disclosed interest income of Rs. 4,39,80,419 from its associated undertakings which was set off against mark-up incurred by it and the balance amount of Rs.6,11,43,811 was charged to the revenue of the company. While making assessment under section 62 of the late Ordinance of 1979 the Deputy Commissioner of Income Tax disallowed a 'sum of Rs.50, 00,000 out of claimed financial expenses and added it to the income of the appellant-company. The Inspecting Additional Commissioner was of the opinion that in view of the fact that the amount due from the associated undertakings exceeded the amount of loan payable to the banks, the appellant company was not entitled to claim deduction on account of mark up because the entire amount of loan obtained from the banks had been passed onto the associated undertakings.

(b) The assessee had claimed deduction of Rs.4,65,338 under the head "Office Rent" but deducted tax under section 50(7b) on the amount of Rs.140,303 only. The balance amount of Rs.325,095 was not an admissible deduction which the assessing officer failed to add to the income of the company under section 24(c) of the late Ordinance of 1979. Similarly, expenses claimed under the heads rebate to customers (Rs.82,36,389), legal and professional charges, Rs.871,461, Service Charges, Rs.77,00,000 and Advertisement Rs.57,506 were liable to deduction of tax under section 50(4) of the late Ordinance of 1979 but the assessee failed to deduct tax from the above amounts and deposit the same into the State Treasury. As such the expenses claimed by the assessee were not admissible deductions. However, the assessing officer failed to add them to the income of the assessee under section 24(c) of the late Ordinance of 1979.

(c) The assessee claimed deduction of Rs.458, 356 under the head Fine and Penalties which being an inadmissible deduction was to be added to the income of the appellant-company. The assessing officer, however, failed to add the same to the income of the company.

The above facts were confronted to the assessee by the Additional Commissioner through a show-cause notice under section 66-A of the late Ordinance of 1979 dated 9-6-2000. The assessee, however, failed to submit reply/explanation on the due date and resultantly the Additional Commissioner cancelled the assessment finalized under section 62 of the late Ordinance of 1979 holding it to be erroneous and prejudicial to the interests of Revenue for reasons incorporated in the show-cause notice. Being aggrieved by the order passed under section 66-A of the late Ordinance of 1979 the assessee has come up in appeal before us.

4. Facts with regard to the appeal against the second order passed under section 66-A of the late Ordinance of 1979 by the Additional Commissioner are that on examination of the order passed by the DCIT under section 52 of the late Ordinance of 1979 by the Deputy Commissioner the Additional Commissioner also found the said order to be erroneous insofar as it was prejudicial to the interests of revenue for the following reasons:-

(a) The company while making payments on account of various transactions deducted tax of Rs.69,66,303 out of which an amount of Rs.33,30,992 was deposited in the State treasury whereas the balance amount of Rs.36,35,311 had been retained by it and not deposited into the State Treasury.

(b) The company was found not to have complied with the I provisions of section 50(4) of the late Ordinance 1979 and failed to deduct tax on payments of Rs.23,522,026 made on-account of various transactions.

(c) The company had failed to deduct tax on various expenses claimed in the P&L account expenses as listed below:-

5. The above facts were also confronted to the assessee-company through notice under section 66-A of the late Ordinance 1979 dated 15-5-2001 to which assessee replied vide his AR's letter dated 19-5-2001. The assessee's reply was, however, not found to be satisfactory for reasons discussed in the body of order under section 66-A of the late Ordinance of 1979. Consequently, the order passed under section 52 of the late Ordinance of 1979 was also cancelled by the learned I.A.C. vide his order dated 23-5-2001 and the D.C.I.T. was directed to examine the case afresh and pass the order under section 52 of the late Ordinance of 1979 in strict compliance with the relevant legal provisions after careful examination of the pertinent record. Being aggrieved, the assessee has come up in appeal before us contesting the order on almost similar grounds as taken in the case of order passed by the I.A.C. under section 66-A of the late Ordinance of 1979 in respect of the order of the D.C.I.T passed under section 62 of the late Ordinance of 1979.

6. Initiating the arguments on behalf of the assessee-company the learned AR stated that the order passed under section 62 of the late Ordinance of 1979 by the D.C.I.T. on 15-3-1999 was subject-matter of further appeal before the C.I.T. (Appeals) and the Tribunal and the C.I.T. (Appeals) disposed of the assessee's appeal by his order dated 13-12-2000 against which both the assessee and the department filed appeals before the I.T.A.T on 15-3-2001 and 26-3-2001, respectively. The learned AR contended that the order under section 62 of the late Ordinance of 1979 merged into order of the C.I.T. (Appeals) and as such the Additional Commissioner had no authority to invoke the provisions of section 66-A of the late Ordinance 1979 in respect of the said order because it had lost its existence. Reliance in this context was placed on the judgments of the I.T.A.T. reported as 1996 PTD (Trib.) 492 and 1998 PTD (Trib.) 2538. It was further pleaded by the learned AR of the company that all the pertinent facts had been faithfully disclosed and assessment under section 62 of the late Ordinance of 1979 was made through conscious application of mind. The Additional Commissioner was not vested wit the powers to invoke the provisions of section 66-A of the late Ordinance of 1979 merely on change of opinion.

7. Regarding the other order passed by the Additional Commissioner under section 66-A of the late Ordinance of 1979, the learned AR of the company argued that the action of the Additional Commissioner under section 66A was illegal and amounted to mere change of opinion which was not permissible under the law. He submitted that all the facts were placed before the D.C.I.T who passed the order under section 52 of the late Ordinance of 1979 on 1-4-2000 after conscious application of mind to the disclosed facts. Reconsideration and reappraisal of the same facts according to the learned AR amounted to change of opinion and was not within the lawful jurisdiction of the learned IAC.

8. The A.R. submitted that the appellant company filed appeal against the order under section 52 of the late Ordinance of 1979 before the C.I.T. (Appeals) who disposed it of by his order dated 13-5-2002. The AR argued that in this case as well, the Additional Commissioner had no jurisdiction to invoke the provisions of section 66-A of the late Ordinance of 1979 because of the principle of merger.

9. The learned D.R., on the other hand, supported the orders of the Additional Commissioner contending that the Additional Commissioner had spelled out strong reasons in the show-cause notice to hold that the assessment finalized under section 62 of the late Ordinance of 1979 was erroneous insofar as it was prejudicial to the interests of Revenue. The assessee's failure to come up with any explanation in spite of adequate opportunity allowed to it was due to the fact that it had no defence to offer. Similarly, failure on the part of the assessing officer to take appropriate action against the assessee on account of its failure to company with the provisions of section 50 of the late Ordinance of 1979 in letter and spirit had rendered the assessment order passed under section 52 of the late Ordinance of 1979 erroenious in so far as it was prejudicial to the interests of revenue. It was further argued by the D.R. that the order of the D.C.S.I.T. had not merged into the order of the C.I.T. (Appeals), because the Additional Commissioner had finalized proceedings under section 66-A in respect of both the orders on 20-6-2000 (under sections 62) and 23-5-2001 (under section 52) respectively whereas the orders in appeal were passed on 13-12-2000 and 13-5-2002 respectively. There was thus no legal infirmity in both the orders passed by the Additional Commissioner in view of the provisions of section 66(1A) which provide that:

"(1A) The provisions of subsection (1) shall, in like manner, apply,--

(a) Where an appeal has been filed under sections 129, 134 and 137, or [an appeal has been filed] under section 136, against an order passed by the [Deputy Commissioner]; and

(b) Where an appeal referred to in clause (a) has been decided, in respect of any point or issue which was not the subject-mater or such appeal.

10. We have given due consideration to the arguments of both the sides and also perused the relevant record which includes orders of the D.C.I.T. and C.I.T. (Appeals) and the Additional Commissioner of Income tax. We have also gone through the case law relied upon by the learned AR of the .appellant-company and depose of both the appeals in the manner discussed hereunder:-

11. There is no rebuttal to the fact that the power of supervision vested with the Additional Commissioner of Income Tax under section 66-A of the late Ordinance of 1979 are very vast in nature and are meant to effectively plug the leakage of revenue caused either by inadvertence on the part of assessing officer or through collusion with an assessee. These powers, can, however, be exercised only if two precedent conditions namely erroneousness of assessment due to misapplication of law or otherwise and prejudice to the interests of Revenue as a result thereof are fulfilled simultaneously. In other words the Additional Commissioner, before exercising reversionary jurisdiction under section 66-A of the late Ordinance of 1979 has to establish beyond t any shadow of doubt that the assessment made by the D.C.I.T. suffers from an error of law or fact as a result of which the tax liability of the assessee has been determined at a figure lower than what is due under the law. Evaluating the observations of the learned Additional Commissioner contained in both the show-cause notices dated 9-6-2000 and 15-5-2001 against the touchstone of these two precedent conditions, we are of the view that the Additional Commissioner of Income Tax had sufficient reasons to believe that the assessments finalized under sections 62 and 52 of the late Ordinance of 1979 were erroneous and prejudicial to the interests of Revenue because the facts and figures confronted through show-cause notices did establish that the D.C.S.I.T. had not exercised due care at the time of passing orders under sections 52 and 62 of the late Ordinance of 1979 and resultantly state exchequer was deprived of its lawful share.

12. As regards the plea regarding merger of the assessment orders of the D.C.I.T. passed under sections 52 and 62 the late Ordinance of 1979 into the orders of the First Appellate. Authority, it does not carry weight because the Additional Commissioner passed the orders under section 66-A of the late Ordinance of 1979 much before the decision in appeal and in view of section 66(1A) quoted supra, Both the orders passed under sections 52 & 62 of the late Ordinance of 1979 were very much the field and had not merged into the orders of the First Appellate Authority when the Additional Commissioner passed orders under section 66-A of the late Ordinance of 1979. We, therefore, do not subscribe to the view of the learned A.R. that on mere filing of appeals the orders of the D.C.S.I.T. merged into the orders of the C.I.T. (Appeals).

13. As regards the contention of the learned AR with regard to the change of opinion we deem it appropriate to clarify that the enacted provisions of sections 65 and 66-A of the late Ordinance of 1979 could be invoked to retrieve the loss of revenue but in different situations and by different authorities. For instance an assessment finalized under section 62 of the late Ordinance of 1979 could be reopened under section 65 of the late Ordinance of 1979 by the D.C.I.T. on the basis of some definite information which could conclusively establish that the income of an assessee had either escaped assessment or under assessed or assessed at too low a rate or was the subject matter of excessive relief. The said information was, required to be about material facts which had not been considered by the assessing authority while framing the assessment under section 62 of the late Ordinance of 1979. However, if those facts were found to have been disclosed faithfully by an assessee and also considered by the assessing officer, the assessment could not be reopened on the same set of facts under section 65 of the late Ordinance of 1979, because an authority is not vested with the jurisdiction to change opinion about facts which have already been adjudicated upon by it. The golden principle regarding the basis of action under section 65 of the late Ordinance of 1979 has been spelled out by the Supreme Court of Pakistan in the case of Edulgee Dinshaw Limited v. Income Tax Officer reported as 1990 PTD 155 which reads as under:-

"Once all the facts have been fully disclosed by the assessee and considered by the Income-tax Authorities and the assessments have been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of S.65 on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under-assessed, etc., in the meaning of S.65(1)(a)(b) of the' Ordinance."

On the basis of above discussion it is abundantly clear that an assessing officer is not empowered to invoke the provisions of section 65 of the late Ordinance of 1979 on the basis of facts which were disclosed by an assessee and considered by him in the course of making assessment.

14. Section 66-A of the late Ordinance of 1979, on the contrary, contains altogether a different mechanism to plug loss and leakage of revenue by providing vast powers of superintendence to the Additional Commissioner. This provision of law can be invoked when an officer, subordinate to the Additional Commissioner is not found to have appraised the facts and drawn conclusions therefrom in accordance with law, and as a result thereof an assessee is not charged with the amount of tax due from him under the law. There may also be cases where an assessing authority, in collusion with a taxpayer or through sheer inadvertence may make an assessment in contravention of the relevant provisions of law thus inflicting loss upon the State exchequer. In such situations the Additional Commissioner is vested with the power to substitute the lawful treatment in place of the treatment accorded by assessing officer subordinate to him. This reappraisal will essentially entail change of opinion by the revising authority for the simple reason that the opinion formed by an assessing officer subordinate to the Additional Commissioner and the conclusion drawn by him are found to be erroneous. In other words exercise of jurisdiction under section 66-A of the late Ordinance of 1979 hinges upon change of opinion because the reversionary powers under section 66-A of the late Ordinance of 1979 cannot be exercised unless and until the Additional Commissioner proves beyond any shadow of doubt that the treatment accorded by the assessing officer is erroneous either under the law or fact or on both counts as a result of which the State Exchequer has been deprived of its lawful share. For holding so we place reliance on the well-known judgment of the I.T.A.T. reported as 1997 PTD (Trib.) 1265 relevant extract whereof is being quoted hereunder for the sake of reference:-

"To sum up the impugned order of the revising authority does not suffer from any alleged infirmities. The powers of a revising authority as conferred under section 66-A are fairly wide and we do not find therein any restrictions which the learned counsel for the assessee is attempting to bring home. The alleged rule of change of opinion attributed is not attracted where an order is made by two different authorities. It applies only where one and the same authority changes the conclusion already drawn and expressed on certain facts. A difference of opinion on the other hand is crux of the matter when an authority exercising supervisory jurisdiction examines an order made by a subordinate authority. To accept that exercise of revisional jurisdiction on the basis of difference of opinion is illegal will mean to reduce whole of the provisions providing for such power to be a nullity."

15. For reasons discussed above appeals filed by the appellant-company against both the orders of the Additional Commissioner passed under section 66-A are dismissed whereas the appeals filed against the orders passed under sections 66-A/62 and 66-A/52 of the late Ordinance of 1979 also fail because they are not competent as they were to be filed with the CIT(Appeals) rather than this forum.

C.M.A./85/Tax(Trib.)Appeal dismissed.