2010 P T D (Trib.) 494
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Chairman and Istataat Ali, Accountant Member
I.T.As. Nos.26/IB and 27/IB of 2008, decided on 19/02/2009.
Income Tax Ordinance (XLIX of 2001)---
----Ss.131, 138 & 210---Assessment of income tax---Making additions on account of unexplained cash---Setting aside of order of making additions---Delegation of powers---Appeal to Appellate Tribunal---Original assessment framed by making additions under Ss.13 (1)(d) & 13(1)(aa) of (repealed) Income Tax Ordinance, 1979, were contested by the assessee in appeal and Commissioner Income Tax (Appeals) having set aside said additions, department had filed appeal against order of Commissioner Income Tax (Appeals)---Tribunal in its earlier decisions had decided that under the provisions of (repealed) Income Tax Ordinance, 1979, the powers of assessment and powers of approval were vested in two different authorities i.e. Deputy Commissioner of Income Tax and Inspecting Additional Commissioner of Income Tax respectively---In-built mechanism of approval being available under repealed Ordinance, approval of addition granted by the Inspecting' Additional Commissioner was according to the said mechanism---Under Income Tax Ordinance, 2001 a complete switch over had been made about the mechanism of assessment---Under said new law there was no concept of approval by any higher authority---Commissioner himself was the authority who could delegate his power for exercise of his functions by the subordinate officer---Under the new Ordinance, 2001 it was the Commissioner who could make assessment; he could not at the same time be an authority for assessment and also for approval---Under subsections (1) & (2) of S.239 of Income Tax Ordinance, 2001 it was provided that in case of assessment in respect of any income year ending on or before 30-6-2002 the provisions of repealed Ordinance, 1979 would apply for the purpose of computation of income and tax payable thereon, however, such assessments would be made by the Income Tax Authority who was competent to make assessment under new Income Tax Ordinance, 2001---Since there was no concept of granting any kind of approval in the new law, no authority appointed under said new Ordinance had any such powers of making approval---Approval from IAC for the assessment under appeal was not according to the provisions of law---Keeping in view all the facts and circumstances of the case and the ratio already settled by the Tribunal, orders passed by the Commissioner Income Tax were upheld and appeals of the department were rejected for being without any merit.
(1985) Tax 521; 2004 PTD 1173; 2005 PTD (Trib.) 720 and 1993 PTD (Trib.) 1172 ref.
Muhammad Asif, D.R. for Appellant.
Ch. Naeem-ul-Haq for Respondent.
ORDER
ISTATAAT ALI (ACCOUNTANT MEMBER).---These appeals have been filed by the Department in respect of order dated 31-8-2007 passed by CIT (A), Islamabad. Brief facts leading to these appeals are that original assessments framed by, making additions under section 13(1)(d) for the year1998-99 and under section 13(1)(aa) for the years 1998-99 and 2000 were contested in. appeal and the learned CIT(A) set aside the assessments on these issues with directions. During the re-assessment proceedings the assessee was confronted with related issues through notices under sections 63/13 of repealed Ordinance. Explanation furnished on behalf of the assessee was considered unsatisfactory. For the reasons recorded in the impugned order additions under section 13(1)(aa) were made on account of unexplained cash and deemed income for assessment years 1998-99 and 1999-2000 respectively. Addition under section 13(1)(d) was made in assessment year 1998-99 with reference to cost of shares paid by the appellant. Net income was assessed as before respectively at Rs.1,37,95,102 and Rs.94,82,527 for both the years. The impugned orders were contested in first appeal and legality of addition of Rs.6192500 under section 13(1)(d) of Rs.7500150 under section 13(1)(aa) for assessment years 1998-99 and Rs.9180010 under section 13(i)(aa) for assessment year 1999-2000 was challenged. Legality of demand notice issued under section 138 for both the years was also contested.
2. Learned CIT(A) relying on the ratio settled in Tribunal's judgments in I.T.As. Nos.86-91/(PB) of 2005 and ITAs. Nos.1902, 1903 and 1910-1913(IB) of 2005 deleted the additions under section 13(1)(aa) and 13(1)(d) for both the years holding that there is no concept of approval by any authority under the new Income Tax Ordinance, 2001. Under these new provisions, all the powers vest with Commissioner. He delegates these powers to his subordinate authorities to perform certain functions. He holds powers of making assessment. In this manner he acts as an Assessing Authority. Powers of assessment and powers of approval cannot be exercised by the same Authority. Therefore, approval granted by IAC (if any) is contrary to law.
3. The Department has filed second appeals against this order on the following grounds (reproduced verbatim):---
Assessment years 1998-99
(i) That the learned CIT (A) was not justified to delete addition of Rs.7,500,150 as the same was rightly made as per provision of section 13(1)(aa) of the repealed Ordinance read with section 239 of the Income Tax Ordinance, 2001.
(ii) That the learned CIT (A) was not justified to delete addition of Rs.6,192,500 as the same was rightly made as per provision of section 13(1)(d) of the repealed Ordinance read with section 239 of the Income Tax Ordinance, 2001.
(iii) That the learned CIT (A) was not justified to delete additions made under section 13(1)(aa) and under section 13(1)(d) of the repealed Ordinance as the same was made after obtaining approval from the IAC designated by the RCIT vide order No.SO-1-30 (81)/2006/7305 dated 4-5-2006 for granting approval as required under the law.
Assessment year 1999-2000
(i) That the learned CIT(A) was not justified to delete addition of Rs. 9,180,010 was rightly made as per provision of section 13(1)(aa) of the repealed Ordinance read with section 239 of the Income Tax Ordinance, 2001.
(ii) That the learned CIT (A) was not justified to delete addition under section 13(1)(aa) as the same was made after obtaining approval from the IAC designated by the RCIT vide order No.SO-1-30 (81)/2006/7305, dated 4-5-2006 for granting of approval as required under the law.
4. Learned D.R. stated that the CIT (A) was not justified in deleting the addition specially when proper opportunity was not provided by him to the department to substantiate its action. The Assessing Officer was not summoned and legal position of the Department was not taken into account. The appeal order is silent on these points, therefore, it is clear that no notice was given to the Department on the due date of hearing and no opportunity was provided. The appeal order is, therefore, not maintainable in the light of ratio settled in a case reported as (1985) Tax 521 (H.C. Kar.). He stated that in another judgment reported as 2004 PTD 1173, it has been held that matter pending at the commencement of Income Tax Ordinance, 2001 will be decided according to the provisions of repealed Income Tax Ordinance, 1979 and non-delegation of Commissioner's powers to IAC could not be objected as the same was within discretion of the Commissioner. He stated that in the same judgment it was held that scheme of law has to be examined in its totality in order to arrive at correct conclusion. No provision of law is to be considered in isolation. Head notes of this judgment are as follows:--
(a) Interpretation of Statutes---
---Scheme of law has to be examined in its totality in order to arrive at correct conclusion---No provision of law is to be considered in isolation.
(b) Income Tax Ordinance (XLIX of 2001)---
---Ss. 2(13), 210 & 239---Income Tax Ordinance (XXXI of 1979), S.66-A---Matter pending at the time of commencement of Income Tax Ordinance, 2001---Decision of such matter by Commissioner of Income Tax---Validity---Such matter would bedecided in accordance with substantive law contained in repealed Income Tax Ordinance, 1979, but by Authority competent under Income Tax Ordinance, Z001---Authority competent under Income Tax Ordinance, 2001, to exercise power of Inspecting Additional Commissioner (IAC) was Commissioner of Income Tax also having power to delegate his power to IAC---Non delegation of such power to IAC could not be objected to as the same was within discretion of the Commissioner of Income Tax---Exercise of discretion in law by competent authority would not to be open to any exception.
(c) Discretion---
----When discretion in law was exercised by competent Authority, then the same would not be open to any exception.
5. Learned D.R. contended that it has been provided in section 239(1) that in making any assessment in respect of any income year ending on or before 30-6-2002, the provisions of the repealed Ordinance insofar as these relate to computation of total income and tax payable thereon shall apply as if this Ordinance had not come into force. He stated that section 239(2) envisages that assessment relating to any income year ending on or before 30-6-2002 shall be made by an Income Tax Authority which is competent under the new Ordinance to make an assessment after 30-6-2002 in accordance with the procedure specified in sections 59, 59A, 61, 62 or 63 of the repealed Ordinance. He contended that the assessment in question was made in a rightful manner because procedure prescribed under the old Ordinance was followed in accordance with law. He stated that when the procedure for assessment as per repealed Ordinance has to be followed, the substantive as well as procedural law contained in the repealed Ordinance shall apply in this case. Although jurisdiction has to be exercised by an Income Tax Authority which is competent under the new Ordinance but procedure laid down in the repealed Ordinance had to be followed. Since the relevant provisions were strictly followed by the Assessing Officer, the CIT(A) was not justified to reverse his findings.
6. Learned D.R. stated that in respect of assessments pending under the old Ordinance the procedure as prescribed under it shall be followed by the authorities appointed under the new Ordinance of 2001. He contended that since there is no change in procedure, therefore, the approval was rightly obtained from the IAC. He stated that if it is presumed that the approval was not required under the new Ordinance then the approval obtained by the Taxation Officer from an IAC becomes irrelevant and it will be deemed that no such approval was obtained. If the element of approval is excluded it will mean that the assessment was framed by the Taxation Officer who is a competent authority under the new Ordinance to make an order. His order is based on correct lines and there is no lacuna or infirmity in it. In D.R's opinion proper procedure was followed for making assessment in this case and the order of the taxation officer is legally correct.
7. Learned A.R. stated that under the repealed Income Tax Ordinance various Income Tax Authorities were empowered to exercise independent jurisdiction. However, under the scheme of things contained in the Income Tax Ordinance, 2001 the income tax laws are now executed through Commissioner who, holds pivotal position and all the powers are now vested with him. The Commissioner may exercise all or any of the powers as Commissioner or as Taxation Officer which includes Inspecting Additional Commissioner or he may delegate all or any of his powers to the Taxation Officer under section 210, Any Taxation Officer including an IAC cannot exercise independent jurisdiction. The definition of Commissioner has been provided in section 2(13) and that of Taxation Officer in section 2(65).
8. Learned AR further stated that procedure of making addition under the repealed Ordinance has been laid in section 13 which provides that approval of IAC is mandatory. He contended that Commissioner has to delegate his powers under section 210 to the IAC who is required to grant approval under the repealed Ordinance. But delegation of such powers is open to question and. contrary to law. He contended that the Tribunal in its decision in I.T.As. Nos.86-91(PB) of 2005 (assessment years 1994-95 to 2001-2002) dated 20-5-2006 confirmed the findings of CIT(A) that concept of approval has been dispensed with under the Income Tax Ordinance, 2001. He further stated that in another order of the Tribunal in I.T.As. Nos.1902, 1903 and 1910-1913(IB) of 2005 (assessment years 2000-2001 and 2001-2002). Similar decision was given about the concept of the approval under the new Ordinance.
9. Learned AR stated that it was in the mind of the Taxation Officer that approval was required from the IAC. That is why he sought approval. He contended that the approval of IAC obtained by the Taxation Officer was contrary to the provisions of law and addition under section 13 made by him with such approval was illegal. On this point learned D.R. stated that the approval was taken as abundant precaution. It had no material effect on the assessment. It will not have any negative effect on the assessment because the assessment was made by the Taxation Officer who is competent authority under the law. Learned AR stated that the department did not file any appeal against aforesaid orders of the Tribunal, dated 20-5-2006 and 29-7-2006. The same, therefore, attained finality. Learned DR responded and stated that there is no estoppel against law. The Tribunal's decision can therefore, be reconsidered and a decision can/should be made according to the relevant provisions of law.
10. Learned AR stated that there is no concept of approval under the new Ordinance. He stated that mandatory requirement of section 13 regarding approval of IAC was still in exercise but .no mechanism of approval was provided under the new Ordinance of 2001. He further stated that sections 13(1), 65 and 66A were not saved under the new Ordinance and this lacuna in saving exists even today.
11. Learned AR insisted that aforesaid orders of Tribunal dated 20-5-2006 and 29-7-2006 given by the Division Bench are binding for all other D.Bs. The impugned assessment order was therefore, without jurisdiction, hence void. He contended that issues relating to sections 2(13), 2(65), 210, 239(1) and 239 (2) have already been resolved in a judgment reported as 2005 PTD (Trib.) 720. In head notes of this decision the provisions of Income Tax Ordinance have been explained as under:---
"----Ss. 210, 239(1), 239(2), 2(13) & 2(65)---Delegation---Under the Income Tax Ordinance, 2001, the power of Inspecting Additional Commissioner in terms of the Income Tax Ordinance, 1979 lies with the Commissioner of Income Tax who may specifically delegate this power to the Additional Commissioner under S.210 of the Income Tax Ordinance, 2001 or exercise the same himself.
12. In the operative part of the aforesaid judgment of the Tribunal the legal position of approval has been dealt with in the following manner: --
"It is an admitted position in this case that the approval in terms of section 29 of the repealed Ordinance was given by the Additional Commissioner of Income Tax Range-II, Companies Zone-II, Lahore without any delegation of this specific power under section 210.
In view of the above discussion and argument put forth by the learned counsel and case-laws cited (supra), we have no hesitation in holding that the fair market value of the shares has been determined without the mandatory approval by the Inspecting Additional Commissioner, which renders the estimation without jurisdiction and unlawful. Accordingly, the addition under section 12(12) made by the Assessing Officer is hereby deleted."
13. Learned AR contended that pending assessments under the repealed Ordinance have to be made in the manner as if the new Ordinance had not come into force and procedure laid down in the repealed Ordinance had to be followed by the authorities appointed under the new Ordinance. He stated that under the repealed Ordinance procedure for assessment was laid down in sections 59, 59A, 62, 63 and 65. For making an addition on account of unexplained items of income and expenditure and comprehensive procedure was laid in section 13 which provided that approval from IAC is essential for making any addition under the said section. He stated that deletion of addition ordered by CIT(A) is not on the basis of service of notice. It is rather based on a legal lacuna and CIT(A) followed the decision of the Tribunal on similar issue which was binding for him. Learned AR vehemently pressed that impugned assessment is contrary to the provisions of law and the order of CIT(A) is based on correct appreciation of relevant legal provisions.
14. We have considered arguments of both the sides in the light of relevant material. The system, of approval by IAC in respect of any addition under section 13 of the repealed Income Tax Ordinance, 1979 was explained by the Tribunal in its orders dated 20-5-2006 in ITAs. Nos.86-91(PB) of 2005 in the following words:---
"Learned DR was also unable to displace the findings of CIT(A) whereby the additions under section 13(1)(a) for the assessment years 1994-95 to 1998-99 were deleted with the observations that the approval granted by the IAC without their being any delegation of such powers was not the mandatory approval as per section 13 of the repealed Ordinance. It is pointed out here that under the new law there is no concept of granting of any approval. The Commissioner has no powers to grant approval under the Income Tax .Ordinance, 2001 which were formerly available with the IAC under the provisions of section 13 of the repealed Ordinance. Therefore, in our opinion the Commissioner cannot delegate any powers i.e. of approval which are not available with him. The decision of Karachi High Court reported as (2004) 90 Tax 24 (H.C. Kar.)=2004 PTD 1173 is distinguishable because of the different issue involved therein from that of the case in hand. In the referred case it was held by the Honourable Karachi High Court that the Commissioner could exercise the powers under section 66A of the repealed Ordinance because the IAC was deemed to be included in the Commissioner under the new Ordinance, 2001. However, in the present case two powers by different authorities are required to be exercised simultaneously i.e. one being the determination of income including the deemed income by an Assessing Authority and the other is granting of the approval by a higher authority other than the Assessing Authority which in our opinion could not be exercised by the same person i.e. Commissioner who is the Assessing Authority having the original powers of assessment under the Ordinance, 2001 which powers under the repealed Ordinance were vested with the DCIT."
15. Similar ratio was settled by the Tribunal in another judgment dated 29-7-2006 in I.T.As. Nos.1902, 1903, 1910-1913(IB) of 2005 in the following words:---
"It was the contention of learned AR that the additions made were without mandatory approval of Inspecting Additional Commissioner of Income Tax because according to him the Additional Commissioner appointed under the Income Tax Ordinance, 2001 (hereinafter called the new Ordinance) was not an authority competent to grant approval for the purposes of section 13(1) of repealed Ordinance hence the approval granted by him was without any jurisdiction. Learned AR contended that although the assessment for the period ending on or before 30-6-2002 could not be framed by the authority competent to make an assessment under the new law i.e. Ordinance, 2001, however, according to him under, the Ordinance, 2001 there was no authority competent to grant any approval for the obvious reason that there was no concept of any kind of approval in the new law. To support his view point learned AR produced photo copy of the decision of Tribunal, dated 20-5-2006 in I.T.As. Nos.86-91/IB of 2005. Learned AR of the assessee also quoted the decision of Tribunal reported as 1993 PTD (Trib.) 1172 whereby it was held that the addition made under section 13(1)(aa) without mandatory approval of IAC was not sustainable in law and was liable to be deleted. Learned AR also produced the copy of jurisdiction order, dated 8-5-2005 issued by the RCIT, Northern Region, Islamabad the jurisdiction under section 5(1)(a) of the repealed Ordinance read with section 6 of the General Clauses Act was granted to the Additional Commissioner of Income Tax (Audit MTU Rawalpindi) for the purposes of sections 13, 65, 66A, 108(2), 112 and 114 of the repealed Ordinance. Learned AR also affirmed on the affidavit that according to information obtained by him from the RCIT's office, no such order of jurisdiction was ever issued prior to the issue of abovesaid jurisdiction order of RCIT dated 8-5-2005."
16. In Tribunal's decision in I.T.As. Nos.1902, 1903, 1910-1913(IB) of 2005 (for assessment years 2000-2001 and 2001-2002) dated 29-7-2006 it was decided that under the provision of Income Tax Ordinance, 1979 (repealed) the powers of assessment and powers of approval were vested in two different authorities i.e. Deputy Commissioner of Income Tax and Inspecting Additional Commissioner of Income Tax respectively. An in-built mechanism of approval was available under the Income Tax Ordinance, 1979 (repealed). Therefore, approval of additions under section 13 granted by the Inspecting Commissioner was according to the said in-built mechanism. However after the repeal of Income Tax Ordinance, 1979, the new Income Tax Ordinance, 2001 was promulgated. Under the new Income Tax Ordinance a complete switch over has been made about the mechanism of assessment. Under the new law there is no concept of approval by any higher authority. In fact the Commissioner himself is the authority who delegates his powers for exercise of his functions by the subordinate officers. Under the new Ordinance it is the Commissioner who makes assessment. Therefore, he cannot at the same time be an authority for assessment and also for approval. Similar viewpoint was taken by the Tribunal in its decision dated 20-5-2006 in I.T.As. Nos.86-91(IB) of 2005. In our opinion under the provisions of clauses (aa) (ii)(e) of subsection (1) of section 13 of the repealed Income Tax Ordinance, 1979 no addition could be made without the approval of IAC and any addition made without such approval was legally incorrect. Under Subsection (1) and (2) of section 239 of the Income Tax Ordinance, 2001 it is provided that in case of assessment in respect of any income year ending on or before 30-6-2002 the provision of repealed Ordinance shall apply for the purpose of computation of income and tax payable thereon. However, such assessments shall be made by an Income Tax Authority who is competent to make assessment under the new Income Tax Ordinance, 2001. Since there is no concept of granting any kind of approval in the new law, no authority appointed under the Ordinance, 2001 has any such powers of making approval. Therefore, the approval from IAC for the assessment under appeal was not according to the provisions of law.
We are inclined to agree with the findings of learned CIT(A) in the light of ratio settled by the Tribunal in its orders, dated 20-5-2006 in I.T.As. Nos.86-91(PB) of 2005 and dated 29-7-2006 in I.T.As. Nos.1902, 1903, 1910-1913(IB) of 2005. It has been settled by the Tribunal that the powers of assessment as well as approval cannot vest in one authority i.e. the Commissioner. Therefore, the approval of assessment by the same authority is not legally correct. In these decisions of the Tribunal distinction was created in respect of judgment reported as 2004 PTD 1173 relied upon by the learned DR and it was held that it does not apply to the matter of approval under the new Income Tax Ordinance, 2001. These decisions of the Tribunal are on all fours with the instant case. We could not find any warrant to hold a different view. Keeping in view all the facts and circumstances of the case, and the ratio already settled by the Tribunal we hereby uphold the orders of learned CIT(A) and reject the departmental appeals for both the years for being without any merit.
H. B. T./137/Tax(Trib.)Appeal dismissed.