2010 P T D (Trib.) 708
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Abdul Rauf, Accountant Member
I.T.As. Nos. 881/LB and 882/LB of 2008, decided on 14/10/2009.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.156, 135(4), 62, 80C & 80CC---Income Tax Ordinance (XLIX of 2001), Preamble---Rectification of mistake---Scope---Remand proceedings---Scope of rectification---Determination of---Rejection of rectification application---Assessee contended that it was patently illegal that the Taxation Officer, in the remand proceedings had entered into a debate :.:ether the matter fell within the purview of rectification or not; that scope of rectification proceedings had been clearly explained by the First Appellate Authority, which had attained finality once the departmental appeal threreagainst had been rejected by the Appellate Tribunal; that Taxation Officer was duty bound to proceed strictly in line with and within the parameters laid down by the First Appellate Authority; that Taxation Officer transgressed his mandate when he entered into discussion to determine the scope of rectification from the scratch which was not permissible because both the assessee and the department had accepted the order of Appellate Tribunal recorded in the first round of litigation and that Taxation Officer in remand proceedings, was duty bound to proceed only and only within the framework laid down by the appellate authorities---Validity---Taxation Officer grossly erred in re-determination of the scope of rectification once the framework of the re-assessment proceedings had been clearly and specifically restricted and determined by the First Appellate Authority in the first round of litigation, which was also endorsed by the Appellate Tribunal---In the re-assessment proceedings the Taxation Officer had no mandate to disregard the instructions of the appellate authorities, which had remanded the case to him with specific observations and directions---Upholding of reassessment orders by the First Appellate Authority was not in consonance with law---Orders of both the authorities below were vacated by the Appellate Tribunal and it was directed that the Taxation Officer should carry out the rectification strictly adhering to observations of the First Appellate Authority contained in his order in the first round of litigation.
I.T.A; No.452/LB of 2005 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.156---Rectification of mistake---Scope of "remand proceedings".
I.T.A. No. 452/LB of 2005 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.156---Rectification of mistake---Loss on account of provision of technical services---Action of not determining the loss on account of provision of technical services was a glaring mistake apparent from the audited accounts especially when the department itself, in the subsequent years, had been consistently according the same treatment to such receipts and expenses as requested by the appellant.
(d) Income Tax---
----Administration of justice---When something is due to a taxpayer under the law, it has to be granted, regardless of the fact whether it has been claimed or not by the taxpayer, because even if a taxpayer has, either due to ignorance of law or otherwise failed to claim a relief which is lawfully due to him, it is the duty of the person entrusted with the administration of law, to apply law in a correct manner so that a taxpayer is not burdened with the tax which is not lawfully due.
(e) Income Tax---
----Administration of justice---Technical subtleties could not be allowed to strangulate justice.
(f) Income Tax---
----Prayer of appeal/grounds of appeal---It hardly matters whether a prayer had been distinctly mentioned in the memo. of appeal or not when the grounds of appeal categorically challenge an order on specific grounds which were fully suggestive of the relief sought by the appellant.
Asim Zulfiqar, F.C.A. for Appellant.
Muhammad Asif, D.R. for Respondent.
ORDER
These two appeals have been preferred by an unlisted public limited company, engaged in the business of manufacturing and sale (including exports) of laminated aluminum foil backed printed material for packaging of liquid food items and providing technical services to its customers. It has assailed the appellate orders dated 27-2-2008 issued separately for assessment years 1996-97 and 1997-98 by the First Appellate Authority under section 129 of the Income tax Ordinance, 2001. Since identical issues are involved in both the years, the present appeals are being disposed of through this consolidated order.
2. Facts relevant for disposal of these appeals, are that the original assessments in the case of appellant for the assessment years 1996-97 and 1997-98 were completed under sections 62/80C/80CC of the repealed Income Tax Ordinance, 1979 (hereinafter referred to as the `repealed Ordinance') for which relevant assessment orders were passed on 29-6-1999 and' 15-6-2000, respectively by the Deputy Commissioner/ Special Officer of Income Tax, Circle-11, Companies Zone-II, Lahore. After completion of assessments, the appellant through letter bearing No.T 827 dated 25-7-2001 filed a rectification application under section 156 of the repealed Ordinance requesting the assessment to be rectified on the following points:---
(i) "Determination and adjustment of loss suffered on account of rendering of `technical services' against `other income' charged to tax under section 30 of the repealed Ordinance of 1979 (both the years);
(ii) Taxation of income relating to rental of filling machines under section 80C of the repealed Ordinance instead of inclusion thereof in `other income' charged to tax under section 30 of the repealed Ordinance (assessment year 1996-97 only);
(iii) Allowance of loss on disposal of fixed assets (assessment year 1996-97 only);
(iv) Addition on account of write-off of `goods purchased for resale' as same was relatable to income chargeable to tax under the presumptive tax regime (assessment year 1996-97 only); and
(v) Chargeability of Workers' Welfare Fund (WWF) in respect ' of income chargeable to tax under the PTR in terms of sections 80C and 8000 of the repealed Ordinance (both the years).
3. The Deputy Commissioner/Special Officer of Income Tax, Circle-11, Companies Zone-II, however, declined to rectify the mistakes pointed out by the learned AR and disposed of the matter through consolidated order dated 31-10-2001 holding that the issues raised in the letter dated 25-7-2001 did not fall within the scope of `rectification' as provided in section 156 of the repealed Ordinance.
4. The appellant, feeling aggrieved by the aforesaid order of the assessing officer, filed appeals before the Commissioner of Income Tax (Appeals) Zone-II, Lahore who through consolidated order, dated 18-12-2002, categorically held that the matter of chargeability of WWF required rectification; however, on the rest of the issues, particularly the matter of revenues/expenses regarding provision of technical services, the order was remanded to the assessing authority with the following observations:
"(A) From the cited case laws, it is clear that powers to rectify a mistake are not discretionary. Such powers are to be exercised mandatorily where a mistake is brought to the notice of an assessing officer. In the present case, keeping in view the ratio settled by the High Court, it transpires that order was to be rectified where following conditions are fulfilled:
(i) Any relief must be admissible to an assessee;
(ii) Such relief had not been claimed by the assessee at the time of filing of return; and
(iii) His entitlement is apparent/obvious from the material available on record i.e. total assessment proceedings.
(B) The rectification application supported by the audited financial statements has been considered in the light of the case laws quoted by the learned AR, it is obvious from the rulings that relief was to be granted if above mentioned conditions are appropriately met. The Assessing Officer has not at all considered the rectification application and the findings of the appellate Courts on the issue under consideration with specific reference to above mentioned conditions. Instead he proceeded to reject the rectification application without assigning any reason whatsoever. The impugned order cannot be regarded, by any means a speaking order. Keeping in view this position, the matter is remanded back to the Assessing Officer with directions that case laws be considered in the light of material on record and if the provisions of sections 30 and 31 of the Income Tax Ordinance, 1979 are attracted to amounts under consideration the rectification application be disposed of after giving proper opportunity of hearing to the appellant. The Assessing Officer must pass a speaking order and state in his order that whether or not the conditions set out above are met in the case of the appellant.
5. Aggrieved by the decision of the first appellate authority, the department preferred appeal before the Income Tax Appellate Tribunal (ITAT) which, through consolidated order dated 6-10-2005, dismissed the departmental appeal and upheld the order of the C.I.T.(A). It was observed by the I.T.A.T. that there was no infirmity in the order of the First Appellate Authority and as such no interference was warranted. For the sake of reference relevant part of the order of the ITAT is reproduced hereunder:---
"3. We have heard both the sides and' perused the orders of the authorities below. We are in agreement with the observations of the learned CIT(A) Zone II, Lahore for the assessment years 1996-97 and 1997-98 wherein tie has observed that the Assessing Officer has not at all considered the rectification application and the findings of the appellate Courts on the issues under consideration with specific reference to the laid down conditions. We have also observed that learned CIT(A) has rightly mentioned that the Assessing Officer rejected the assessee's request without assigning any reasons whatsoever. The learned AR showed us the request for rectification which comprises of full four pages containing the details and reasons for seeking rectification. On the other hand, we have observed that in response to this application the Assessing Officer has rejected the same without discussing any of the issues raised in the rectification request. We, therefore, hold that there is nothing wrong with the order of the learned First Appellate Authority wherein it has been observed that the Assessing Officer must pass a speaking order and considering each and every contention of the assessee.
The departmental appeals in view of the situation in the foregoing paras being devoid of any merits stand rejected".
6. It is a fact on record that both the appellant and the department were satisfied with the aforesaid decision of the I.T.A.T as no further reference/appeal was preferred by either of the parties before the High Court. Consequently in pursuance of the order of the I.T.A.T, the taxation officer initiated the re-assessment proceedings which again culminated into rejection of rectification application to the extent of matter pertaining to revenues/expenses relating to provision of technical services and rentals of filling machines. In the re-assessment orders dated 30-6-2007, the Taxation Officer observed that the matter did not fall within the scope of rectification proceedings because of the reason that the, Assessing Officer (his predecessor) while finalizing the original assessments had consciously applied his mind to the facts of the case and the appellant itself had not claimed such a treatment, as was requested in the rectification application. The First Appellate Authority also confirmed the action of the Assessing Officer through orders now impugned before us.
7. The learned AR vehemently challenged the findings of the authorities below and contended that these orders being patently illegal and void ab initio may kindly be annulled. The learned AR submitted that it was patently illegal that 'the Taxation Officer, in the remand proceedings had entered into a debate whether the matter fell within the purview of rectification or not. He explained that in the circumstances of the case, the scope of rectification proceedings had been clearly explained by the First Appellate Authority, which had attained finality once the departmental appeal there against had been rejected by the Tribunal. Under these circumstances, the learned AR pleaded that the Taxation Officer was duty bound to proceed strictly in line with and within the parameters laid down by the First Appellate Authority. He further contended that the Taxation Officer transgressed his mandate when he entered into discussion to determine the scope of the rectification from the scratch which was not permissible because both the assessee and the department had accepted the order of this Tribunal recorded in the first round of litigation. To reinforce his proposition that in the remand proceedings the Taxation Officer was duty bound to proceed only and only within the framework laid down by the Appellate Authorities. To further fortify his argument, the learned AR relied upon the decision of this Tribunal in I.T.A. No.452/LB of 2005 etc. wherein the Tribunal clarified the 'scope of "Remand Proceedings" as under:
"20. After considering the aforesaid decisions we will readily agree with the submissions of the learned AR that once a matter is remanded by an appellate authority with specific directions and it is not agitated any further then the scope of re-assessment proceedings has to be kept within the four corners of such directions. Any attempt to ignore, cross, exceed, or reduce the directions will be illegal, unauthorized and beyond his jurisdiction. There does (sic) remain any mandate thereafter to go beyond the scope restricted in such directions. We are constrained to observe that learned DR is not right in challenging the findings of the First Appellate Authority, recorded in the first appellate order, at this belated stage. The findings and the observations of the First Appellate Authority, recorded in the impugned order, to this extent are held to be proper."
8. The learned AR further contended that the mala fide of the taxation officer, for not carrying out the rectification, particularly for the reasons stated in his order and referred to supra, is obvious from various angles. Firstly, even a cursory look at the assessment orders makes it abundantly clear from the said order that the Assessing Officer did not proceed with reference to the categorical and clear parameters/ instructions contained in the remand order of the First Appellate Authority which was upheld by the Tribunal in the earlier round of litigation. Secondly, the order of the First Appellate Authority issued in the first round, was challenged by the department before this Tribunal. This clearly shows that the departmental officials were fully conscious of the fact that if the directions of the First Appellate Authority were complied with in letter and spirit they would have to carry out the rectification because had not this been the case the department would not have challenged the said appellate order before the I.T.A.T as the departmental officers would still have been at liberty to determine the very scope of rectification.
9. On the basis of above arguments and averments, the learned AR argued that not only the re-assessment orders are contrary to the well-settled principles and norms of justice but their confirmation by the first appellate authority is also not maintainable in the eyes of law. The learned AR accordingly requested that the said orders be vacated and directions be issued to the taxation officer to carry out rectification as the mistakes were floating on the surface of the record and could be ascertained just on the basis of examination of the audited accounts, return of income and assessment orders. The learned AR further pointed out that in the subsequent years the department has been consistently according the treatment to the receipts disclosed under the head "Technical Services" and expenses relating thereto which the appellant had requested to be accorded through, the rectification application.
10. The learned DR. on his turn, though did not dispute the facts, particularly the sequence in which they had occurred. He vehemently countered the conclusions drawn by the AR from these facts. The DR maintained that the determination of the scope remained fully open to the assessing officer during the re-assessment proceedings and as such the taxation officer had rightly proceeded as per law. It was the contention of the DR that mere filing of appeal against the order of the First Appellate Authority in the first round of litigation did not debar the Taxation Officer from determining the scope of rectification. He also challenged the very maintainability of the present appeals on certain technical grounds. In this context, he pointed out that it was not clear from the documentation of the appellant whether the appeals had been filed under the repealed Ordinance 1979 or the new Ordinance 2001. He further argued that the provisions of section 135(4) of the repealed Ordinance 1979 do not permit this Tribunal to entertain appeals in the circumstances of the case. Elaborating his contention he emphasized that under section 135(4) of the late Ordinance of 1979, the Tribunal could entertain appeals only against assessment orders and not against rectification or against orders declining rectification. He further argued that since the memo/grounds do not make any categorical prayer regarding the relief sought for, the appeals are liable to be rejected.
11. We have heard both the parties, perused the available record, given earnest consideration to the rival arguments and have also taken into account the decisions relied upon by both the representatives of the appellant and the department and feel inclined to agree with the contention of the learned AR that in this case the Taxation Officer grossly erred in re-determination of the scope of rectification once the framework of the re-assessment proceedings had been clearly and specifically restricted and determined by the First Appellate Authority in the first round of litigation, which was also endorsed by this Tribunal. The Taxation Officer, under these circumstances was left with no option except to proceed in compliance with the directions and observations of the First Appellate Authority and to restrict and confine himself within the framework of the said observations. In this case, we have not been able to ascertain and identify the reasons because of which the taxation officer deemed it appropriate not to adhere to the said framework and concluded the proceedings disregarding the direction and observations of the learned CIT(Appeals) and I.T.A.T. In the re assessment proceeding the Taxation Officer had no mandate to disregard the instructions of the Appellate Authorities, which had remanded the case to him with specific observations and directions. In this background upholding of the re-assessment orders by the First Appellate Authority was not in consonance with law.
12. We have also perused the available record in the background of the sequence of events as well as the parameters laid down by the CIT(Appeals) in the earlier round of litigation. We do not hesitate to hold that the action of not determining the loss on account of provision of technical services was a glaring mistake apparent from the audited accounts especially when the department itself, in the subsequent years, has been consistently according the same treatment to these receipts and expenses as requested by the appellant in the years under consideration. In our opinion there is no confusion on the proposition that it is immaterial whether a claim was made by the assessee in that respect or not. When something is due to a taxpayer under the law, it has to be granted, regardless of the fact whether it has been claimed or not by the taxpayer, because' it is also a settled proposition that even if a taxpayer has, either due to ignorance of law or otherwise failed to claim a relief which is lawfully due to him, it is the duty of the person entrusted with the administration of law, to apply law in a correct manner so that a taxpayer is not burdened with the tax which is not lawfully due.
13. We also do not agree with the contention of the DR that determination of the scope of rectification proceedings in the reassessment proceedings was well within the domain of the taxation officer. In this respect, the ratio of the decision relied upon by the AR vis-a-vis the scope and extent of reassessment proceedings, particularly when a matter is remanded with specific directions, is very relevant and pertinent. Likewise, we do not see any merit in the technical objections raised by the learned DR as technical subtleties cannot be allowed to strangulate justice. It hardly matters whether a prayer has been distinctly mentioned in the memo. of appeal or not when the grounds of appeal categorically challenge an order on specific grounds Which are fully suggestive of the relief sought by the appellant. Contention of the learned DR that the present appeal, for not being an appeal against an order of assessment, falls outside the purview of section 135(4) of the late Ordinance of 1979 is misplaced firstly because proceedings relating to rectification of an assessment order are 'essentially extension of and are also inextricably linked with the proceedings in consequence of which order of assessment was issued and secondly because, technical reasons, as discussed above cannot be allowed to stand in the way of dispensation of justice.
14. In view of the above discussion we vacate the orders of both the authorities below and direct the Taxation Officer to carry out the rectification strictly adhering to observations of the CIT(Appeals) contained in his order dated 26-12-2007.
C. M.A./167/Tax(Trib.)Appeal accepted.