VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2050 (2006)

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

---Ss.59, 59A & 62---Income Tax Ordinance (XLIX of 2001), S.221---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.32---C.B.R. Circular No. 4 of 2001 dated 18-6-2001, Para 9(a)(ii)---Self Assessment---Selection of case for total audit---Complaint against---Assessment was framed under S.62 of the Income Tax Ordinance, 1979 during pendency of complaint---Appeal was filed against such assessment---During pendency of appeal, Federal Tax Ombudsman directed to exclude the case from list of cases selected for total audit and to accept the return under Self-Assessment Scheme---In consequence of directions of Federal Tax Ombudsman another assessment under S.59A of the Income Tax Ordinance, 1979 was passed accepting the declared income---Appeal filed by the assessee against original assessment framed under S.62 of the Income Tax Ordinance, 1979 was dismissed being infructuous in view of order passed under S.59A of the Income Tax Ordinance, 1979---Validity---Original order passed under S.62 of the Income Tax Ordinance, 1979 having not been cancelled, set aside or annulled in the due course of law, another order under S.59A of the Income Tax Ordinance, 1979 was legally not a valid order---Assessment framed by the Assessing Officer was not automatically cancelled or modified with the directions of the order of Federal Tax Ombudsman---For compliance of direction of Federal Tax Ombudsman the income tax authorities were required to proceed in accordance with the provisions of Income Tax Ordinance, 1979---Original order passed under S.62 of the Income Tax Ordinance; 1979 being an order validly passed held the field and the subsequent order passed under S.59A of the Income Tax Ordinance, 1979 in presence of such order was not a valid order---Appellate Tribunal held that original order of assessment passed under S.62 of the Income Tax Ordinance, 1979 held the field being a valid order; that Appellate order of First Appellate Authority to dismiss the assessee's appeal filed against the order under S.62 of the Income Tax Ordinance, 1979 declaring the same as infructuous was not maintainable and the same was vacated; that as a result of vacation of appellate order, the first appeal of the assessee against the original order under S.62 of the Income Tax Ordinance, 1979 stood restored and that both the subsequent orders passed in consequence of the invalid order passed under S.59A of the Income Tax Ordinance, 1979 i.e. the order of First Appellate Authority as well as the order passed by the Assessing Officer under S.221 of the of the Income Tax Ordinance, 2001 were null and void and stood vacated.

(b) Income Tax---

----Assessment---No order of assessment of income could be passed in presence of a valid assessment already having been framed in respect of the said income.

A.A. Sheikh, D.R. for Appellant.

Zahid Hussain ACMA for Respondent.

ORDER

The above titled departmental appeals pertaining to assessment year, 2001-2002 are directed against the two separate orders both dated 25-6-2005 of CIT(A), Zone-II, Islamabad.

2. Mr. A.A. Sheikh, the learned DR. appeared, on behalf of the Revenue and Mr. Zahid Hussain, ACMA the learned A.R appeared on behalf of the assessee-respondent.

3. The assessee, an AOP, derives income from running restaurant. The facts mentioned as hereunder:

(i)Return for the assessment year 2001-2002 was filed declaring net income of Rs.11,40,542 under SAS. The case was selected for total audit under Para 9(a)(ii) of C.B.R's Circular No.4 of 2001 by the RCIT Northern Region, Islamabad and the assessee was informed accordingly vide letter dated 10-5-2002.

(ii)A complaint was lodged by the assessee before the Federal Tax Ombudsman against the selection of case for total audit by the RCIT.

(iii)Assessment was framed at total net income of Rs.56,97,250 vide order dated 22-1-2004 passed under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance).

(iv)The assessment framed was also challenged by the assessee by filing appeal before the first appellate authority.

(v)During pendency of above appeal, the complaint of the assessee was disposed of by the FTO vide order dated 22-1-2003 with the directions to exclude the case of the assessee-respondent from the list of the cases selected for total audit by the RCIT and to accept the return under SAS.

(vi)In consequence of the above directions of the FTO another assessment under section 59A of the Repealed Ordinance was passed accepting the declared income.

(vii)In the meantime the representation was made by the department before the President of Pakistan in terms of section 32 Federal Tax Ombudsman Ordinance, 2000 against the recommendation to exclude the case from the list of cases selected for total audit as per above mentioned order dated 22-1-2003. Statedly the above mentioned order of FTO had been subsequently set aside by the President of Pakistan.

(viii)Proceedings for amendment of the assessment order were initiated by the Assessing Officer through show-cause notice issued to the assessee under section 221 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) whereby the assessee was confronted on the issue that the order under section 59(A) could not be passed since the assessments already stood completed on 22-10-2002 of the Repealed Ordinance and further the direction of F.T.O also having been challenged before the President of Pakistan by the Department hence the passing of order under section 59A was a mistake rectifiable under section 221 of the Ordinance, 2001.

(ix)Although the copy of the order of the President of Pakistan has not been produced before the Tribunal however as mentioned in the Order No.3218 dated 25-6-2005 of CIT(A), "the President set aside the order of FTO on technical grounds".

(x)On 26-6-2003 an order was passed by the Assessing Officer under section 221 of the Ordinance whereby the original assessment framed was restored and the net income for the assessment year 2001-2002 was assessed at Rs.56,97,250 as originally adopted under section 62 of the Repealed Ordinance.

(xi)The order passed under section 221 of the Ordinance was challenged by the assessee through the appeal filed on 15-7-2003 before the first appellate authority. In the meantime another complaint was lodged by the assessee before the FTO against the order passed by the Assessing Officer under section 221 who vide order dated 4-9-2004 held the action taken under section 221 to be illegal.

(xii)The CIT(A) in view of the above mentioned observations of the FTO accepted the appeal of the assessee and restored the assessment framed under section 59(A) to assess the net income of Rs.11,40,542 vide Order No. 3218 dated 25-6-2005 which is assailed by the Department on the following grounds:-

(1)That the order of the CIT(A) is against facts and circumstances of the case.

(2)That the CIT(A) was not justified to cancel the order passed under section 221 considering the same as illegal.

(3)That against the order passed under section 62, the assessee filed complaint before the FTO and the FTO while disposing of the complaint had recommended to accept at the return under section 59 of the Ordinance.

(4)That against the order of the FTO the Department filed representation before the honourable President of Islamic Republic of Pakistan who set aside the FTO's Order.

(5)That meanwhile under the compliance of FTO's order return was accepted under section 59 and when representation filed before the honourable President of Pakistan action under section 221 was taken and income was assessed as per original order under section 62.

(6)That as the President of Pakistan has set aside the FTO's order the assessment made originally under section 62 or amended under section 221 held the ground and therefore, the CIT(A) was not justified to cancel the order under section 221 of the Ordinance.

(7)That the assessment under section 221 was made for the reason that compliance of FTO's order was made which in fact in the presence of representation before the honourable President was not be made.

(xiii) The appeal filed by the assessee against the original assessment framed under section 62 of the Repealed Ordinance was dismissed as being infructuous in view of the order passed under I section 59(A) by the CIT(A) vide his Order No. 3217 dated 25-6-2005 which order is also challenged by the Department on the following grounds:--

(1)That the order of the CIT(A) is against facts and circumstances of the case.

(2)That the CIT(A) was not justified to dismiss the order passed under section 62 dated 22-10-2002 and restore the order under section 59(1) without any cogent reason.

(3)That the President of Islamic Republic of Pakistan set aside the FTO's order. Meanwhile assessment was finalized under section 221 by repeating at the original assessed income at Rs.5,697,250 As the honourable President set aside FTO's order, who had directed to accept the case as declared the learned CIT(A) was not justified in directing that income should be accepted as declared under section 59(A) and by cancelling the order passed under section 62.

(4)That the assessee did not contest exclusion of the case from total audit on the grounds. Hence CIT(A) was not justified for giving directions to accept the case under SAS.

4. Learned DR, in his arguments, contended that the CIT(A) was not justified to dismiss the appeals of the assessee filed against the original assessment framed under section 62 of the Repealed Ordinance by declaring it as being infructuous. According to learned DR, the assessments framed under section 62 of the Repealed Ordinance vide assessment order passed on 22-10-2002 was legal because the order of the FTO to accept the return under section 59A had been set aside by the President of Pakistan as a result of which the original assessments, framed under section 62 stood restored. According to learned DR, the CIT(A) was not justified to cancel the order passed under section 221 of the Ordinance, 2001. It was the contention of learned DR that original assessment framed under section 62 was rightly restored by the Assessing Officer through modification of the subsequent order which was passed by mistake under section 59A on the directions of FTO before whom the facts were not fully disclosed by the assessee. Learned AR also submitted that the said directions of FTO had already been set aside by the President of Pakistan on the representation made by the Department. Learned AR in his arguments, defended both the impugned orders on the same grounds as taken before the First Appellate Authority. It was the contention of learned AR that no rectification of any order passed tinder the provisions of Repealed Ordinance before 1-7-2003 could be made under the provisions of Ordinance, 2001. Learned AR further contended that even otherwise an order passed under section 59A could not be replaced by an assessment framed under section 62 of the Repealed, Ordinance through an order of rectification. It was also the contention of learned AR that since the order passed under section 62 stood replaced by the subsequent order passed under section 59A of the Repealed Ordinance the appeal of the assessee against the order under section 62 was rightly dismissed by the CIT(A) declaring it as infructuous.

5. Arguments of learned representatives of both the parties have been heard and the facts of the case on the orders of the authorities below have been taken into consideration as well as relevant provisions of law have been perused. The Assessing Officer passed the order of amendment under section 221 of the Ordinance for the reason that the assessment order wider section 59A was passed by mistake because according to him the fact regarding the completion of assessment for the year under consideration having' already been made under section 62 of the Repealed Ordinance was not brought in the knowledge of the FTO by the assessee who had directed to accept the return under section 59A of the Repealed Ordinance. A representation was made by the Department before the President of Pakistan against the order of the FTO on which as informed by learned DR the order of the FTO had been set aside. It is the case of the department that passing of the order under section 59A in presence of and during the pendency of representation made by the Department before the President of Pakistan was due to mistake. The perusal of the impugned order in case of the appeal filed by the assessee against the order passed under section 221 of the Ordinance, 2001 reveals that the assessment under section 59A for the year under consideration was maintained by the CIT(A) mainly for the reason that no representation was made by the Department against the selection of cases for total audit under para 9(a)(ii). In our opinion the relief allowed by the CIT(A) on the basis of above observation, not being the subject-matter of appeal filed by the assessee against the order of amendment passed under section 221 of the Ordinance, 2001, is not maintainable. Even otherwise no order of assessment of income could be passed in presence of a valid assessment already having been framed in respect of the said income. In the present case the original order passed under section 62 having not been cancelled, set aside or annulled in the due course of law, another order under section 59A of the Repealed Ordinance is legally not a valid order. An assessment framed by the Assessing Officer is not automatically cancelled or modified with the directions of the order of the FTO. For the compliance of the direction of FTO the Income Tax Authorities are required to proceed in accordance with the provisions of Income Tax Ordinance. Thus, in our considered opinion, the original order passed under section 62 of the Repealed Ordinance being an order validly passed still holds the field. The subsequent order passed under section 59A in presence of the said order is not a valid order. The result of the above discussions is summarized as hereunder:---

(i)The original order of assessment passed under section 62 of the Repealed Ordinance on 22-10-2002 still holds the field being a valid order.

(ii)The appellate Order of CIT(A) in Appeal No. 10946 vide order No. 3217 to dismiss the assessee's appeal filed against the above mentioned order under section 62 declaring the same as infructuous is not maintainable therefore vacated.

(iii)As a result of the vacation of the Order No. 3217 of CIT(A) dated 25-6-2005 in Appeal No. 10946 the first appeal of the assessee against the original order under section 62 stand restored.

(iv)Both the subsequent orders passed in consequence of the invalid order passed under section 59A i.e. the Order No. 3218 dated 25-6-2005 of CIT(A) passed in Appeal No. 12488 as well as the order passed by the Assessing Officer under section 221 of the Ordinance, 2001 dated 26-6-2003 are declared null and void hence stand vacated.

6. As a result, both the departmental appeals stand disposed of in the manner as indicated above.

C.M.A./108/Tax (Trib.)Order accordingly.