2010 P T D (Trib.) 819
[Income-tax Appellate Tribunal Pakistan]
Before Munsif Khan Minhas, Judicial Member and Istataat Ali, Accountant Member
I.T.A. No.452/IB of 2009, decided on 10/10/2009.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss.122 & 121---Amendment of assessment---Section 122 and S.121 ofthe Income Tax Ordinance, 2001 were separate and independent; both the sections were to be applied in two different situations and could not be simultaneously applied---Section 121(1) of the Income Tax Ordinance, 2001 dealt with best judgment assessment while S.122 could be applied for reopening the assessment only where a definite information was available or the order was erroneous and prejudicial to the interest of the Revenue---Parameters of both the sections were entirely separate.
(b) Income Tax Ordinance (XLIX of 2001)---
---Ss.122 & 121---Amendment of assessment---Simultaneous issuance of notice under Ss. 177 and 122 or 121(1)(d) of the Income Tax Ordinance, 2001---Effect.
Following questions were framed for the purpose of disposal of the matter of simultaneous issuance of notice under sections 177, 122 or 121 of the Income Tax Ordinance 2001:---
(i) Whether any order under clause (d) of subsection (1) of section 12 of the Ordinance could be passed in presence of an order already deemed to have been made by the Commissioner under the provisions of subsection (1) of section 120 of the Ordinance?
(ii) Whether the provisions of sections 122(1)(5) and 121(1)(d) of
the Ordinance could be invoked and applied simultaneously?
The conclusion drawn was as follows:
(i) The initiation of assessment proceedings through simultaneous issuance of notice under sections 177 and 122 or 121(1)(d) is legally not justified and order is passed in consequence thereof being unlawful were not sustainable and ab initio void. Unless any definite information came in the hands of the assessing officer as a result of Audit carried out by him no proceedings for amendment of order under section 122 could be initiated. Similarly until the taxpayer had committed default in producing the accounts, record and other documents etc. required by the assessing officer for the purpose of assessment the provisions of clause (d) of subsection (1) of section 121 were not attracted.
(ii) The provisions of section 121(1)(d) and those subsections (1) and (5) of section 122 were different in nature dealing with entirely different situations therefore could neither be simultaneously applied while passing an order in the case of taxpayer nor the application of one could be replaced by the other.
(iii) Provisions of clause (d) of subsection (1) of section 121 of the Ordinance were attracted only in the case of absence of a valid return i.e. either the return furnished by the taxpayer had been declared invalid under the provisions of subsection (4) read with subsections (3) and (6) of section 120 of the Ordinance or no return was, filed in compliance of notice issue under sub-section (3) or (4) of section 114 of the Ordinance.
(iv) An order amendment under section 122 of the Ordinance could be passed by the assessing officer even if no compliance of all or any statutory notices issued under section 177 or 122(9) was made by the taxpayer and/or no accounts record or evidence etc. required by the assessing officer was produced by him.
(c) Income Tax Ordinance (XLIX of 2001)---
----Ss.122 & 121---Amendment of assessment---Initiation of simultaneous proceedings under Ss.122 and 121 of the Income Tax Ordinance, 2001---Validity---Proceedings simultaneously conducted were unlawful---Issue of simultaneous notice and assessment to the application of S.121(1) as well as 5.122(5) of the Income Tax Ordinance, 2001 was legally not sustainable---Such assessment was annulled by the Appellate Tribunal as the proceedings conducted were legally defective and the same were untenable in the eyes of law---First Appellate Authority was not justified to confirm illegal action of the Taxation Officers---Assessment order was cancelled by the Appellate Tribunal.
Mohsin Raza v. Chairman, F.B.R. 2009 PTD 1507 and I.T.A. No.30/IB of 2009 rel.
2008 PTD 1440 and 2008 PTD 1517 ref.
Hafiz Muhammad Idris for Appellant.
Ziaullah Khan, D.R. for Respondent.
ORDER
The assessee filed this appeal against the order dated 9-4-2009 passed by CIT(A-II) Islamabad for the tax year 2005 on the following grounds: -
(i) That both the orders of the learned CIT(A-II), Islamabad as well as the Taxation Officer (Audit-I), RTO, Rawalpindi are bad in law and contrary to the facts and circumstances of the case.
(ii) That the said CIT(A) was not at all justified in confirming the order of Taxation Officer which is illegal and un justified.
(iii) That the order under section 122(1) is illegal and un justified.
(iv) That the selection of case for audit under section 177(4) is illegal and baseless. Same is without lawful authority.
(v) That no notice was served upon the tax payer as such the order under section 121 is illegal.
(vi) That as per law no assessment can be made in the presence of deemed assessment under section 120 as such the order is illegal and duplicate one.
(vii) That disallowance of expenses is illegal. All the expenses claimed relates to business activities as such are fully allowable under section 20, so the disallowance is baseless and is against the provisions of the Ordinance.
(viii) That the appellant is full time teacher/researcher of AFIC as such had claimed the rebate which was not allowed by the Taxation Officer, so the order is illegal and un warranted.
(ix) That the said CIT(A) was not justified in confirming the order under section 121(1)(d) passed by the Taxation Officer which is illegal and without having any legal authority.
(x) That mentioning of multiple sections of the assessment order is also illegal.
2. Brief facts leading to the appeal are that the assessee an individual derives income from salary, private medicate practice and property. Returns for tax year 2005 was filed declaring net income of Rs.7,84,721 which was deemed to be assessment under section 120. The case was selected for audit under section 177(4) regarding which the taxpayer was duly intimated. The assessee was confronted with related issues asking for various details/documents. Explanation furnished by the AR was considered unsatisfactory. For the reasons recorded in the order net income was assessed at Rs.23,89,002 for the year under appeal. Against this treatment the assessee preferred appeal before the learned CIT(A). After examination of the assessment record the learned First Appellate Authority rejected the claim of wrong selection of case for audit by CIT(Audit). The observation made by the Commissioner Appeals is reproduced as under:-
"The plea of the appellant has been examined and in this regard reliance is placed on the decision of the High Court 2008 PTD 1440 where finding have been given that section 122 gives powers to the Commissioner to amend the order and the insertion of subsection (1-A), the legislature gave a power in addition to the powers under section 122 already possessed by the Commissioner. The relevant portion of the decision is reproduced as under:
"Subsection (122) of the Ordinance empowers the Commissioner to amend the assessment. Subsection (1-A) was inserted in section 120 by Finance Act, 2005. By insertion of sub-section 1-A, the legislature conferred a power in addition to the powers under section 122 already possessed by the Commissioner."
In this regard I would also like to draw the analogy from the insertion of section 122(5A). This section was never part of the Ordinance, 2001 whereby it was held that the legislature had not empowered the Commissioner to amend the order under section 122(5A) after the insertion of this section through S.R.O., the higher Courts held that assessment prior to 2003 could not be amended under section 122(5A)."
Regarding the disallowance of P&L expenses the learned CIT(A) confirmed the order of the Taxation Officer with the observation that the assessee failed to furnish any proof or bifurcation of expenses in support of huge expenses claimed nor did he comply to the notices of the assessing officer. The learned CIT(A) also asked the assessee to file the bifurcation of expenses claimed and file proof but the AR of the assessee contested the selection of the case on legal ground. So the learned Commissioner appeals confirmed his action in this regard. Being dissatisfied with the treatment accorded by the learned CIT(A) the assessee has come up in appeal before the Tribunal on the grounds raised in para. 1.
3. We have heard the respective submission of both parties, perused the relevant record. The arguments put forth in support of the above points have already been duly considered and disposed of by the Honourable Lahore Court in the judgment reported as 2009 PTD 1507. In the said judgment the Honourable High Court has ultimately held that the selection under the provisions of section 177(4) is illegal for various reasons. The reasons inter alia include that neither a notice has been served prior to the selection of the case for audit nor a criteria was fixed by the F.B.R. to enable to the Commissioner to select the case in addition to the said criteria. The other argument that section 177(4) having been added by the Finance Act, 2004 subsequent to 30-6-2004 is applicable prospectively and not for the tax year 2005 is supported by case reported as 2009 PTD 1507 re: Mohsin Raza v. Chairman, F.B.R. as well as 2008 PTD 1517. The other argument of the learned AR is in respect of simultaneous application of sections 121(1) and section 122(5A) etc., it is claimed that Courts have not supported such practice. The reliance has also been placed on Tribunal order dated 25-4-2009 in I.T.A. No.30/IB of 2009. This judgment is of a Full Bench of this Tribunal. The Bench after detailed discussion has come to the conclusion that two sections are separate and independent; both are to be applied in two different situations and cannot be simultaneously applied. Section 121(1) deals within best judgment assessment while section 122 can be applied for reopening only where a definite information is available or the order is erroneous and prejudicial to the interest of the Revenue. The parameters are entirely separate in fact the Full Bench judgment has clearly dilated upon in detail on this issue and has drawn a conclusion in favour of the taxpayer. Two following questions are framed for the purpose of disposal of this issue:--
(i) Whether any order under clause (d) of subsection (1) of section 12 of the Ordinance can be passed in presence of an order already deemed to have been made by the Commissioner under the provisions of subsection (1) of section 120 of the Ordinance?
(ii) Whether the provisions of section 122(1)(5) and 121(1)(d) of the Ordinance can be invoked and applied simultaneously?
Answering these questions the conclusion drawn by the Bench is as follows:
(i) The initiation of assessment proceedings through simultaneous issuance of notice under sections 177 and 122 or 121(1)(d) is legally not justified and order is passed in consequence thereof being unlawful are not sustainable and ab initio void. Unless any definite' information comes in the hands of the Assessing Officer as a result of Audit carried out by him no proceedings for .amendment of order under section 122 could be initiated. Similarly until the taxpayer has committed default in producing the accounts, record and other documents etc. required by the Assessing Officer for the purpose of assessment the provisions of clause (d) of subsection (1) of section 121 are not attracted.
(ii) The provisions of section 121(1)(d) and those subsections (1) and (5) of section 122 are different in nature dealing with entirely different situations therefore could neither be simultaneously applied while passing an order in the case of taxpayer nor the application of one could be replaced by the other.
(iii) Provisions of clause (d) of subsection (1) of section 121 of the B Ordinance are attracted only in the case of absence of a valid return i.e. either the return furnished by the taxpayer has been declared invalid under the provisions of subsection (4) read with subsections (3) and (6) of section 120 of the Ordinance or no return in filed in compliance of notice issue under subsection (3) or (4) of section 114 of the Ordinance.
(iv) An order of amendment under section 122 of the Ordinance could be passed by the Assessing Officer even if no compliance of all or any statutory notices issued under section 177 or 122(9) is made by the taxpayer and/or no accounts record or evidence etc. required by the Assessing Officer is produced by him.
4. It is our considered opinion that the proceedings simultaneously conducted under sections 121(1), 122(1) and 122(5) are unlawful in the light of ratio settled by this forum in the aforesaid judgment. The judgment referred by the learned counsel in ITA No.30/IB/2009 for the tax year 2004 dated 25-4-2009 applies in all four to the facts and circumstances of the case. The issue of simultaneous notice and assessment to the present application of section 121(1) as well as 122(5) therefore is legally not sustainable hence the assessment is hereby annulled in terms of judgment of Honourable Lahore High Court re: Mohsin Raza v. Chairman, F.B.R. as well as ITA No.30/IB/2009 dated 25-4-2009. Following the ratio as already settled in the matter we do not feel any hesitation to hold that proceedings conducted in this case were legally defective. The same are therefore, untenable in the eyes of law. The learned CIT(A) was not justified to confirm illegal action of the Taxation Officer. Following the ratio settled by these forums vide aforesaid judgments, the impugned assessment order is hereby cancelled.
5. As the assessment made by the Taxation Officer has been cancelled, therefore the issue regarding expenses under the P&L account need not to be discussed further.
6. As a result the assessee's appeal under consideration succeeds accordingly.
C.M.A./191/Tax (Trib.)Appeal accepted.