COMMISSIONER (LEGAL DIVISION), LARGE TAXPAYERS UNIT, KARACHI VS PARACHA TEXTILE MILLS LTD., KARACHI
2010 P T D 1016
[Karachi High Court]
Before Gulzar Ahmad and Irfan Saadat Khan, LI
COMMISSIONER (LEGAL DIVISION), LARGE TAXPAYERS UNIT, KARACHI
Versus
PARACHA TEXTILE MILLS LTD., KARACHI
I.T.R.A. No.181 of 2007, decided on 02/02/2010.
Income Tax Ordinance (XXXI of 1979)---
----Ss.60, 80-C & 156---Rectification of mistake---Income Tax Appellate Tribunal, jurisdiction of---Scope---Income Tax Appellate Tribunal earlier allowed appeal filed by income tax authorities but subsequently recalled its order and reversed its findings---Plea raised by authorities was that Income Tax Appellate Tribunal had no authority to review or recall its earlier order---Validity---Income Tax Appellate Tribunal previously allowed the appeal of department by recording some incorrect facts which did not pertain to the appeal of parties and the same were apparent and patent on record---When application for rectification was filed, Income Tax Appellate Tribunal recalled its order and replaced one paragraph of its previous order with fresh paragraph in subsequent order---Income Tax Appellate Tribunal though had no power to review its own order, however, it was fully empowered to rectify any mistake in its order provided the mistake was apparent and patent on the record---Mistake might not have been arithmetic or clerical mistake but it could be substantive or procedural mistake---Earlier mistake committed by Income Tax Appellate Tribunal caused prejudice to assessee as in the earlier order passed by it, it had recoded totally incorrect fact which was subsequently rectified and corrected by it---Income Tax Appellate Tribunal was fully authorized under S.156 of Income Tax Ordinance, 1979 to rectify its mistake apparent and patent on the record subject to the condition that a notice of hearing in that regard should be provided to both sides---As Income Tax Appellate Tribunal recalled its order only after reaching to the conclusion that in its previous order they had recorded an incorrect finding of fact which was apparent and floating on the surface of record, therefore, High Court declined to interfere in subsequent judgment passed by Income Tax Appellate Tribunal---Reference application was dismissed in circumstances.
Commissioner of Income Tax v. Mr. Abdul Ghani PLD 2007 SC 308 = 2007 PTD 967; Commodity and Equipment Int'1 (Pvt.) Ltd. v. Commissioner of Income Tax 2005 PTD 2534; Commissioner of Income Tax, Compromise-III, Karachi v. Krudd Sons Ltd. (1993) 68 Tax 41; Black's Law Dictionary VIth Edition; Judicial Dictionary by K.J. AIYAR 13th Edition, Concise Oxford Dictionary; Black's Law Dictionary VIth Edition Judicial Dictionary by K.J. AIYAR 13th Edition; Concise Oxford Dictionary; Champa Lal Chopra v. State of Rajhistan-257 ITR 74; Deeksha Suri and 3 others v. Income Tax Appellate Tribunal 2000 PTD 905; H.H. Maharaja Martant Singh Ju Deo v. Commission of Income Tax 171 ITR 586; Commissioner of Income Tax v. Mithalal Ashoke Kumar 158 ITR 755 and Pakistan through Ministry of Finance Economic Affairs and another v. Fecto Blarus Tractors Limited PLD 2002 SC 208 ref.
Javed Farooqui for Appellant.
Iqbal Salman Pasha for Respondent.
ORDER
IRFAN SAADAT KHAN, J.---By this Income Tax Reference Application filed against the order of the learned Income Tax Appellate Tribunal (ITAT) dated 27-2-2007 in I.T.A. No.1173/KB of 2004, the following questions said to be arising from the order, have been proposed for the opinion of this Court:-
(1) "Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to reject the departmental appeal and to confirm the decision of Commissioner of Income Tax (Appeals) to accept the declared trading results when the same were not acceptable in view of section 32 of the Income Tax Ordinance, 1979?"
(2) "Whether on the facts, in the circumstances of the case and on law, the learned Income Tax Appellate Tribunal was justified to recall its earlier decision which was made on the basis of conscious application of mind and to reverse the decision?"
(3) "Whether under the relevant provisions of law, the ITAT can review its own order by re-calling the order passed after due deliberation when the law only provides for rectification of mistakes apparent on the record?"
2. Mr. Javed Farooqui, learned counsel appearing on behalf of the department vehemently contended that the ITAT was not justified in recalling its order on the same set of facts on which it had previously allowed the appeal filed by the department. He further submitted that the ITAT has no authority under the law to review its own order. In support of his contention he relied upon the decision in the case of Commissioner of Income Tax v. Mr. Abdul Ghani (PLD 2007 SC 308 = 2007 PTD 967). Learned counsel further submitted that there was ample justification available with the T.O. to reject the trading version of the respondent company under the provisions of section 32 of the Ordinance and the ITAT was not justified in brushing aside all those irregularities by observing that the T.O. had failed to bring any material on record to justify his rejection of the trading version and making the addition in the total income of the respondent company.
3. Mr. Iqbal Salman Pasha, learned counsel appeared on behalf of the respondent and submitted that the department cannot reject the trading version of an assessee without finding that the accounts of a person have not been properly maintained or it is not possible for the Assessing Officer to deduce correct income out of those accounts. The learned counsel thereafter submitted that the ITAT has, vide para.6 of its order, categorically observed that the Taxation Officer has not brought any material evidence to justify the rejection of the trading version. In support of his contention he relied upon Commodity and Equipment Int'l (Pvt.) Ltd. v. Commissioner of Income Tax (2005 PTD 2534) and Commissioner of Income Tax, Companies-III, Karachi v. Krudd Sons Ltd. (1993) 68 Tax 41 (S.C. Pak.). The learned counsel thereafter submitted that the question No.1 raised being a pure and simple question of fact cannot be raised under the provisions of Section 133 of the Income Tax Ordinance, 2001.
4. The learned counsel further submitted that the ITAT while hearing the appeal in I.T.A. No.1173/KB-2004 on 30-8-2005 incorrectly observed that in the previous years on the issue of rejection of trading version the assessee had not preferred any appeal against the order passed by the Assessing Officer whereas not only the appeals have been preferred in the previous years but the same have been allowed in favour of the respondent company by the appellate authorities. He further submitted that it was only after realizing the mistake apparent on the record that the ITAT recalled its order and heard the appeal afresh. According to the learned counsel no illegality has been committed by the ITAT in this regard. The learned counsel invited our attention to the provisions of section 156 of the Ordinance and submitted that this section authorizes the ITAT to rectify any mistake in respect of any error apparent on the record, hence, according to him the ITAT was fully justified in recalling its order by rectification and thereby passing a fresh order on the merits of the case. The learned counsel further submitted that this recalling of the order passed by the ITAT did not amount to review rather the same squarely falls under the ambit of rectification of mistake apparent on the record. He further submitted that the questions Nos.2 and 3 raised by the department are misconceived and do not arise out of the order passed by the ITAT.
5. We have heard both the learned counsel at length and have also gone through the impugned order passed by the ITAT.
6. Briefly stated the respondent is an unquoted public limited company engaged in the business of manufacturing and sale of Vegetable Ghee and Cooking Oil. During the course of the "assessment proceedings the Taxation Officer (T.O.) found some alleged discrepancies in the trading account of the respondent, he thereafter vide his order dated 25-5-2004 passed under section 62/80C of the Income Tax Ordinance, 1979 (the Ordinance) estimated the sales of the respondent company from Rs.1126001023 declared to Rs.1175000000 and applied a gross profit rate of 10% on the estimated sales as against the gross profit rate of 5.3% .declared by the respondent. An appeal thereafter was filed by the respondent before the Commissioner of Income Tax (Appeals) [(CITA)] who vide his order dated 16-6-2004 directed to accept the declared trading results. The department/appellant thereafter filed an appeal before the ITAT who vide its order dated 30-8-2005 in ITA No.1173/KB/2005, allowed the appeal filed by the department by observing as per para 12 of its order as under:
"12. So far as G.P rate is concerned the Assessing Officer applied G.P. rate at 10% as against declared G.P. rate of 5.3%. The order passed by the learned CIT(A) shows that in the year 2000-2001, G.P. at 10% as against 3% has been applied and in the year 2001-2002 same G.P. has been applied as against 4.2% declared whereas, in the year 2000-2001 G.P. at 10% is accepted as no appeal has been preferred by the assessee in this context. In the circumstances we find sufficient reasons to maintain the application of GP at 10%. Consequently order of Assessing Officer maintained as such order CIT (A) in this respect stands vacated.
As against the above findings given by the learned ITAT the respondent moved a rectification application, and the learned ITAT vide its order No. MA(Rect) No. 515/KB of 2005 dated 14-6-2006 observed as under;
"We have considered the facts of the case afresh for assessment year 2000-2001, the record of the case, including Tribunal's order dated 12-4-2005 as well as order of the CIT (A) dated 19-8-2003 for assessment year 2000-2001. The appellate orders for assessment year 2000-2001 clearly indicates that both the parties had contested the issue of acceptance/rejection of trading results before the appellate authorities for assessment year 2000-2001 and orders of both the appellate authorities for 2000-2001 are in favour of the assessee. Thus the findings of the Tribunal given at para.12 of its order dated 30-8-2005 (as reproduced above) which have been made basis to vacate the order of the CIT (A) and to restore the order of the Assessing Officer were misconceived.
Accordingly we order the recalling of our order dated 30-8-2005 in I.T.A. No.1173/KB of 2004 for assessment year 2002-2003 on the said issue and direct the Assistant Registrar Roster to fix the re-hearing of the same."
7. The ITAT then reheard the appeal by allowing opportunity of hearing to both the sides and thereafter specifically observed vide para.6 of its order that all the defects pointed out by the T.O. while passing the assessment order and applying GP rate of 10% were baseless and the T.O. had made the addition in the trading version without bringing on record any material irregularity. It was further observed by the learned ITAT with regard to the acceptance of the trading results declared by the respondent that the assessee has a long history of acceptance of declared GP and even the GP declared in the current year is higher than the preceding year which facts has been admitted by the departmental authorities. The learned ITAT has further observed that the department could not establish that the sale rates charges by the assessee are lower than the open market rates. It is only on the basis of these facts and other facts that the learned ITAT came to the conclusion that the GP rate declared by the assessee was reasonable and does not require any interference in this regard. Hence on the basis of the facts available on the record the objections raised by the department that the trading results declared by the respondent were not acceptable under the provisions of section 32 of the Income Ordinance, 1979 were found to be baseless by the learned ITAT.
8. We have also considered the decision relied upon by the learned counsel for the respondent. In the first decision namely 2005 PTD 2534 this Court has categorically observed as under:
"Resort to the provisions contained in section 32(3) of Income Tax Ordinance, 1979 cannot be made until and unless the conditions precedent specified in the provision itself are fulfilled. In the present case the Assessing Officer has nowhere given any finding that the accounts have not been properly maintained or it has been maintained in such a manner that it is not possible to deduce the correct income, profits and gains."
In the other decision given by the honourable apex Court it has been held as under:--
"It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of account from which income, profits and gains can properly be deduced. In this case the Assessing Officer did not proceed in the indicated manner although from the accounts laid and on its examination true income and profit could be deduced."
9. Perusal of the above referred uncontroverted facts and the decisions quoted supra would reveal that it was incumbent upon the Assessing Officer while making any addition in the trading version to substantiate his addition with cogent material and if he fails to bring on record any material evidence to justify his addition, then the method of accounting employed by the assessee has to be accepted. In the present case also as the Assessing Officer has failed to bring on record any material evidence to substantiate the rejection of trading version, the ITAT was fully justified in directing to accept the trading result. We therefore answer the question No.1 raised by the department in affirmative.
10. Before dilating upon the issue that whether the learned ITAT was justified in recalling its earlier order and whether the said recalling fall under the ambit of review or not, it would be pertinent if a distinction is drawn between these two terminologies.
As per Black's Law Dictionary Vlth Edition `review', means; `to re-examine judicially or administratively, a reconsideration, second view or examination, revision, consideration for purposes of correction. Used specially of the examination of a decision'.
As per Judicial Dictionary by K.J. AIYAR 13th Edition, `review' means; `reconsideration.'
As per Concise Oxford Dictionary, `review' means; `a formal assessment of something with the intention of instituting change if necessary, reconsideration of a judgment or sentence by a Court or authority.'
As per Black's Law Dictionary VI Edition `rectification' means; 'to correct or define something which is erroneous or doubtful.'
As per Judicial Dictionary by K.J. AIYAR 13th Edition, `rectification' means; `the correction made in an instrument so as to make it readable and to express the true intention of the parties to it.'
As per Concise Oxford Dictionary, `rectification' means; `to put right correct'.
11. Perusal of the record reveals that the learned ITAT previously vide its order dated 30-8-2005 allowed the appeal of the department by recording some incorrect facts which do not pertain to the said appeal and which were apparent and patent from the records. However, when an application for rectification was filed the learned ITAT recalled its order and repealed the para.12 of its previous order with a fresh para in its order dated 27-2-2007.
12. Though the tribunal has no power to review its own order, however, it is fully empowered to rectify any mistake in its order provided the mistake is apparent and patent on the record. The mistake need not be arithmetic or clerical mistake but it could be substantive or a procedural mistake. The earlier mistake committed by the tribunal was causing prejudice to the respondent as in the earlier order passed by it, it has recorded a totally incorrect fact which was subsequently rectified and correct by it. Section 156 of the Income Tax Ordinance, 1979 fully authorizes the tribunal to rectify its make' apparent and patent from the record subject to the condition that a notice of hearing in this regard should be provided to both the sides. There are plethora of judgments in this regard wherein the learned ITAT is fully authorized to correct the errors in its earlier order by ways of recalling the same. Reference in this regard may be made to:
(i) Champa Lal Chopra v. State of Rajhistan 257 ITR 74
"Where the factual mistake is so apparent that it become necessary to correct the same, the tribunal would be justified in not only correct the said mistake by way of rectification but if the judgment has proceeded on the basis of that fact, it would be justified in recalling that order."
(ii) Deeksha Suri and 3 others v. Income Tax Appellate Tribunal-2000 PTD 905:
"Tribunal can rectify mistakes in its order which are patent and obvious"
(iii) H.H. Maharaja Martant Singh Ju-Deo v. Commission of Income Tax 171 ITRS 586:
"Therefore the tribunal had committed a mistake which was apparent on the record in recording its findings in its order dated .December 8,1981, which were subsequently deleted and substituted by different findings. The mistake was brought to the notice of the Tribunal within four years from the date of order by the assessee and was rectified by the Tribunal by making amendments in its earlier to an order. Therefore, the decision by the tribunal amounted to an order of rectification as contemplated by section 254 (2) and was not a review of its earlier order."
(iv) Commissioner of Income Tax v. Mithalal Ashoke Kumar 158 ITR 755:
"Though the Appellate tribunal has no power to review its own order, yet it can certainly correct its mistakes by rectifying the same in case it is brought to its notice that the material which was already on record before deciding the appeal on merits was not considered by it. Therefore, what would be the effect of rectifying a mistake and thereby amending its original order would always depend on the facts of each case.
(v) Pakistan through Ministry of Finance Economic Affairs and another v. Fecto Blarus Tractors Ltd. PLD 2002 SC 208:
"Where Court had overlooked some material question of fact or of law which would have a bearing on the decision or there was some mistake or error apparent on the face of the record, the power of review could be exercised."
13. We have further observed that it is only after recording the fault that in the previous order passed by the ITAT on 30-8-2005 some incorrect facts were recorded by it, that the ITAT recalled its order and reheard the appeal, which action in our opinion squarely falls under the ambit or rectification of mistake apparent on the record. Hence in our view the ITAT has not reviewed its order, as submitted by the learned counsel for the department. The decision relied upon by Mr. Javed SBLR 2007 SC 61 in fact supports the contention of the respondent as in this decision it has specifically been observed by the honourable apex Court as under:--
"Whether Tribunal can sit on its own judgment/order unless an error is apparent or floating on the record, held, No."
14. In this judgment the honourable apex Court has specifically observed that the Tribunal cannot sit on its own judgment unless an error is apparent or floating on the record, which in our opinion, in the present reference application was very much there. The ITAT recalled its order only after reaching to the conclusion that in their previous order they had recorded an incorrect finding of fact, which is apparent and floating on the surface of the record. We therefore in the light of the above findings and the decisions given by the superior Courts are of the view that ques tions Nos.2 and 3 also do not arise out of the order passed by the ITAT.
15. As a result of the findings made supra, this reference application is misconceived and is hereby dismissed in limine.
16. Let a copy of this order be sent to the Registrar Tribunal.
M.H./C-1/KReference dismissed.