C.I.T./W.T., GUJRANWALA ZONE, GUJRANWALA VS Dr. AKMAL HUSSAIN
2011 P T D (Trib.) 321
[Income Tax Appellate Tribunal of Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Abdul Rauf, Accountant Member
C.I.T./W.T., GUJRANWALA ZONE, GUJRANWALA
Versus
Dr. AKMAL HUSSAIN
I.T.A. sNos.1197/LB, to 1199/LB of 2007, decided on 03/10/2009.
(a) Income Tax Ordinance (XLIX of 2001)---
----S. 122---Income Tax Rules, 2002, First Sched., Part-II---Amendment of assessment---Non-issuance of notice---Effect---First Appellate Authority vacated the order passed by the Taxation Officer as the Taxation Officer had not issued prescribed notice under S.122 of the Income Tax Ordinance, 2001---Non-issuance of notice rendered the proceedings initiated on the basis thereof as illegal and not sustainable under the law.
2001 PTD 1633 and 2006 PTD (Trib.) 429 rel.
(b) Income Tax Ordinance (XLIX of 2001)---
----S.122---Amendment of assessment---Amendment of assessment without approval from Commissioner of Income Tax---Validity---Taxation Officer had amended the assessment under S.122(1) of the Income Tax Ordinance, 2001 without obtaining necessary approval from the concerned Commissioner of Income Tax---Neither such fact had been mentioned anywhere in the body of amended assessment order nor had been described in the assessment record or the order sheet entries or anywhere in the order itself---Taxation Officer, in circumstances, had assumed jurisdiction under S.122 (1) of the Income Tax Ordinance, 2001 without lawful authority.
2006 PTD 2607 (Trib.) rel.
(c) Income Tax Ordinance (XLIX of 2001)---
---S.122---Amendment of assessment---Amendment of assessment on the basis of material already available on record---Validity---Assessing Officer had amended the deemed assessment on the basis of material already available on record and no fresh information/documents had come into the possession of the department---No justification was available to amend the already completed assessment under S.122 of the Income Tax Ordinance, 2001.
2003 PTD 1093 rel.
(d) Income Tax Ordinance (XLIX of 2001)---
----S. 122--Amendment of assessment---Conditions for---Provision of subsection (5) of S.122 of the Income Tax Ordinance, 2001 stipulate three conditions for issuance of notice i.e. if any income chargeable to tax had escaped assessment, or total income had been under-assessed, or assessed at too low a rate or had been subject of excessive relief or refund, or any amount under a head of income had been misclassified.
(e) Income Tax Ordinance (XLIX of 2001)---
----S.122---Amendment of assessment---Issuance of notice not fulfilling the requisite preconditions---Effect---Notice sent by the Taxation Officer under S.122 of the Income Tax Ordinance, 2001 did not fulfil the requisite preconditions as mentioned in S.122(5) of the Income Tax Ordinance, 2001, which rendered the entire proceedings as illegal and void ab initio.
1997 PTD 47 rel.
(f) Income Tax Ordinance (XLIX of 2001)---
----Ss.176 & 122(9)---Notice to obtain information or evidence---Amendment of assessment---Combined notice under S.122(9) of the Income Tax Ordinance, 2001 and no notice had been sent under S.176 of the Income Tax Ordinance, 2001 which was an essential pre-requisite for proceedings under S.122 of the Income Tax Ordinance, 2001---Taxation Officer had amended the assessment by issuing combined notice under S.122(9) of the Income Tax Ordinance, 2001---Assessment framed in pursuance of a combined notice under S.122 of the Income Tax Ordinance, 2001 suffered front legal infirmity and was not sustainable in the eyes of law.
1987 PTD (Trib.) 1914; 1998 PTD (Trib.) 973 and I.T.A. Nos.1690 and 1691 vide order, dated 15-12-2003 rel.
(g) Income Tax Ordinance (XLIX of 2001)---
----S. 111(1)(b)---Unexplained income or assets---Year of discovery---Notice under S.111(1)(b) of the Income Tax Ordinance, 2001 was dated 17-5-2007 seeking its compliance by 26-5-2007---Amount was discovered in the year 2007 and immediately preceding financial year was 2006, so the addition, if any, could only legally be made in the year 2006 instead of relevant tax year as was required under S.111(2) of the Income Tax Ordinance, 2001---Taxation Officer was legally obliged if so required to take cognizance of the matter in the year 2006 and not for the year in which he had made the addition.
(h) Income Tax Ordinance (XLIX of 2001)---
----Ss.111 (1)(b) & 122---Unexplained income or assets---Taxation Officer had amended the assessment on the basis of material already available on record, without issuing statutory notice in accordance with law under 5.122 of the Income Tax Ordinance, 2001 and additions made under S.111(1)((b) of the Income Tax Ordinance, 2001 without confronting the taxpayer---First Appellate Authority rightly vacated the amended assessment order of the Taxation Officer---Order of First Appellate Authority was upheld by the Appellate Tribunal.
(i) Income Tax Ordinance (XLIX of 2001)---
----Ss.111 (1)(b) & 122--Unexplained income or assets---Addition---Accretion in wealth--- Opportunity of being heard---Addition on account of unexplained income under S.111(1)(b) of the Income Tax Ordinance, 2001 was correctly made in the tax year, 2006 which was the immediate preceding financial year in which unexplained income was discovered---Addition was made in pursuance of notice issued under S.111(1)(b) of the Income Tax Ordinance, 2001 as recorded in the amended assessment order passed under S.122(1) of the Income Tax Ordinance, 2001---Taxation Officer fully complied with the requirements of natural justice by affording the taxpayer adequate opportunity to submit explanation with regard to the sources of accretion in wealth---Where the taxpayer failed to respond, Taxation Officer was fully justified to make addition and there was no legal infirmity vis-a-vis the addition under S.111(1)(b) of the Income Tax Ordinance, 2001.
(j) Income Tax Ordinance (XLIX of 2001)---
----Ss.111 (1)(b) & 176---Unexplained income or assets---Addition---Accretion in wealth---Accretion not commensurate with income declared from year to year---Notice under S.176 of the Income Tax Ordinance, 2001 was to be issued to call for information, evidence record etc. relevant to the tax leviable under the Income Tax Ordinance, 2001----In the present case, no information or record was required to be called---Taxpayer owed an explanation with reference to the accretion in wealth because the said accretion did not find support from his record in the sense that accretion was not commensurate with the income declared from year to year---Taxpayer was asked to explain the sources of accretion in wealth but he did not come up with any explanation---Taxation Officer made the addition under S.111(1)(b) of the Income Tax Ordinance, 2001, which appeared to be more than justified, in circumstances.
(k) Income Tax Ordinance (XLIX of 2001)---
---Ss. 122 & 111(1)(b)---Amendment of assessment---Definite information---Accretion in wealth---Nothing on record to substantiate the accretion in wealth constituted 'definite information'---Accretion in wealth was not supported by record of the taxpayer i.e. income declared from year to year which by itself was a `definite information' warranting action under S.122(1) of the Income Tax Ordinance, 2001---Order passed by the Taxation Officer under S.122(1) of the Income Tax Ordinance, 2001 was based upon sound legal footing in terms of availability of `definite information'---Scrutiny of wealth statements warranted amendment of assessment under S.122 of the Income Tax Ordinance, 2001 because, prima facie, there was nothing on record to substantiate the accretion in wealth---Taxation Officer was fully justified to amend the assessment under S.122(1) of the Income Tax Ordinance, 2001 to the extent of Tax Year 2006 as 'definite information' in terms of S.122(5) of the Income Tax Ordinance, 2001 was available---Order of Taxation Officer passed under S.122(1)(b) of the Income Tax Ordinance, 2001 did not suffer from any legal infirmity, which was restored by the Appellate Tribunal---Order of First Appellate Authority pertaining to tax year, 2006 was vacated.
(l) Income Tax Ordinance (XLIV of 2001)---
----Ss.210 & 122---Delegation---Further approval from Commissioner---Scope---Taxation Officer having discharged his duty under the authority delegated to him by the Commissioner under S.210 of the Income Tax Ordinance, 2001, there was no need to seek further approval from Commissioner for proceeding to amend the assessment under S.122(1) of the Income Tax Ordinance, 2001.
Mrs. Sabiha Mujahid, D.R. for Appellant.
Kh. Khalid Feroze, FCA for Respondent.
ORDER
The department through these three appeals has objected to the consolidated impugned order of the learned CIT/WT, Appeals Zone, Gujranwala dated 28-6-2007 for the tax years 2004 to 2006 on the following common grounds:
(1)"That the order under section 122 was framed under fully authorization by the competent authority.
(2)That the material already available on record is not bar to invoke section 122.
(3)That the notice duly complied with cannot be challenged at the appellate stage.
(4)That the notice under section 176 is not the pre-requisite for action under section 122.
(5)That the addition in question was made in the relevant period as section of the assessment i.e. 122(1) permits to do so.
(6)That the proposed treatment was duly confronted to the taxpayer."
2. We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A), the consolidated assessment orders passed by the Taxation Officer under section 122 of the Income Tax Ordinance, 2001 and other relevant record of the case.
3. We have found that the learned CIT(A) has vacated the order passed by the Taxation Officer as the Taxation Officer has not issued prescribed notice under section 122 as laid down in Part-II of First Schedule of the Income Tax Rules, 2002. Non-issuance of said notice renders the proceedings initiated on the basis thereof as illegal and not sustainable under the law as has already been held by the Hon'ble High Court in a decision reported as 2001 PTD 1633 and the decision of this Tribunal reported as 2006 PTD (Trib.) 429. The Taxation Officer has amended the assessment under section 122(1) of the Ordinance, 2001 without obtaining necessary approval from the concerned Commissioner of Income Tax, neither this fact has been mentioned anywhere in the body of amended assessment order and has not been described in the assessment record and the order sheet entries even anywhere in order. It has been mentioned that the Taxation Officer was delegated with such authority or the Taxation Officer has obtained requisite approval/ authorization from the Commissioner of Income Tax which clearly indicates that the Taxation Officer has assumed jurisdiction under section 122(1) of the Income Tax Ordinance, 2001 without lawful authority. Reliance in this regard has been placed on the judgment of this Tribunal reported as (2006) PTD 2607 (Trib.). The Assessing Officer has amended the deemed assessment on the basis of material already available on record and no fresh information/documents had come into the possession of the Department. We are, therefore, of the view that there was no justification to amend the already completed assessment under section 122 of the Income Tax Ordinance, 2001. Reliance in this respect is on this Tribunal's judgment reported as 2003 PTD 1093. The provision of subsection 5 of section 122 of the Income Tax Ordinance, 2001 stipulate three conditions for issuance of said notice i.e. (1) any income chargeable to tax has escaped assessment, or (2) total income has been has been under assessed, or assessed at too low a rate, or has been subject of excessive relief or refund, or (3) any amount under a head of income has been misclassified. We have further noted that in this case the notice sent by the Taxation Officer under section 122 of the Ordinance, 2001 dated 30-12-2006 as this does not fulfil the requisite preconditions as mentioned above which render the entire proceedings as illegal and void ab initio. The reliance in this regard has been placed on the decision of the Hon'ble High Court reported as 1997 PTD 47. We have further noted that in this case no notice has been sent under section 176 of the Income Tax Ordinance, 2001 which is an essential prerequisite for proceedings under section 122 of the Income Tax Ordinance, 2001 and, therefore, the assessment on this score is also not sustainable. In this case, the Taxation Officer has amended the assessment by issuing combined notice under section 122(9) of the Income Tax Ordinance, 2001 vide order, dated 17-5-2006. The assessment framed in pursuance of a combined notice under section 122 of the Ordinance, 2001 suffers from legal infirmity and is not sustainable in the eyes of law as has been held by this Tribunal in the cases reported as (1987) PTD 1914 (Trib.), 1998 PTD 973 (Trib.) and unreported judgment of this Tribunal in I.T.As. Nos.1690 and 1691 vide order, dated 15-12-2003. In the instant case the notice under section 111(l)(b) of the Income Tax Ordinance, 2001 is dated 17-5-2007 seeking its compliance by 26-5-2007. In this way, the amount was discovered in the year, 2007 and immediately preceding financial year is 2006, so the addition if any regarding amount in question could only legally be made in the year, 2006 instead of relevant tax years as is required under section 111(2) of the Income Tax Ordinance, 2001. The Taxation Officer was legally obliged if so required to take cognizance of the matter in the year, 2006 and not for the years in which he has made the addition. As we have already held supra that the additions made in the two years i.e. 2004 and 2005 under review under section 111(1)(b) of the Ordinance, 2001 are legally not sustainable. The learned counsel for the assessee has pointed out that the taxpayer has never been confronted regarding the treatment meted out by the Taxation Officer under section 111(1)(b). On the facts of the case, the learned representative of the appellant has pointed out that the household expenses/taxes claimed by the taxpayer has been estimated without any basis.
4. In view of these discrepancies we are of the view that the Taxation Officer has amended the assessment for the years 2004 and 2005 under review on the basis of material already available on record, without issuing statutory notices in accordance with law under section 122 of the Ordinance, 2001 and the additions made under section 111(1)(b) without confronting the Taxpayer. The learned CIT(A) has, therefore, rightly vacated the amended assessment orders of the Taxation Officer for the tax years, 2004 and 2005 the order of the learned CIT(A) is, therefore, upheld for the tax years 2004 and 2005.
5. Insofar as the tax year, 2006 is concerned, it is found that the impugned addition on account of unexplained income under section 111(1)(b) of the Income Tax Ordinance, 2001 amounting to Rs.1,20,09,914 was correctly made in the tax year, 2006 which was the immediate preceding financial year in which unexplained income discovered. The Taxation Officer had made the addition to the income of the taxpayer for the tax year, 2006 in pursuance of the notice issued under section 111(1)(b) of the Income Tax ordinance, 2001. From the sequence of events culminating into the addition under section 111(1)(b) of the Income Tax Ordinance, 2001 as recorded in the amended assessment order passed under section 122(1) of the Income Tax Ordinance, 2001, we are convinced that the Taxation Officer fully complied with the requirements of natural justice by affording the taxpayer adequate opportunity to submit explanation with regard to the sources of accretion in wealth. Since the taxpayer failed to respond, the Taxation Officer was fully justified to make the addition. We, therefore, find no legal infirmity vis-a-vis the addition under section 111(1)(b) of the Income Tax Ordinance, 2001.
6. As regards the notice under section 176 of the Income Tax Ordinance, 2001, we are of the view that the notice is to be issued to call for information, evidence record etc. relevant to the tax leviable under the Income Tax Ordinance, 2001. In this case, no information or record was required to be called. Instead the taxpayer owed an explanation with reference to the accretion in wealth because the said accretion did not find support from his record in the sense that accretion was not commensurate with the income declared from year to year. The taxpayer was accordingly asked to explain the sources of accretion in wealth but he did not come up with any explanation. Accordingly, the Taxation Officer made the addition under section 111(1)(b) of the Income Tax Ordinance, 2001, which appears to be more than justified in the circumstances of the case.
7. Accretion in wealth was not supported by the record of the taxpayer i.e. income declared from year to year which by itself was a definite information warranting action under section 122(1) of the Income Tax Ordinance 2001. The order passed by the Taxation Officer under section 122(1) of the Income Tax Ordinance, 2001 was, therefore, based upon sound legal footing in terms of availability of definite information. Scrutiny of the wealth statements warranted amendment of assessments under section 122 of the Income Tax Ordinance, 2001 because, prima facie, there was nothing on record to substantiate the accretion in wealth. Under these circumstances, the Taxation Officer was fully justified to amend the assessment under section 122(1) of the Income Tax Ordinance, 2001 to the extent of Tax year, 2006 as definite information in terms of section 122(5) of the Income Tax Ordinance, 2001 was available. Since the Taxation Officer discharged his duty under the authority delegated to him by the Commissioner under section 210 of the Income Tax Ordinance, 2001, there was no need to seek further approval from the commissioner for proceeding to amend the assessment under section 122(1) of the Income Tax Ordinance, 2001.
8. In view of the foregoing discussion, as far as the tax year, 2006 is concerned, the order of the Taxation Officer passed under section 122(1)(b) does not suffer from any legal infirmity. We, therefore, restore the same and vacate the impugned order of the learned CIT(A) pertaining to the tax year, 2006.
9. In the result, the departmental appeals for the tax years, 2004 and 2005 fail whereas the appeal for the tax year, 2006 succeeds in the above discussed manner.
C.M.A./198/Tax (Trib.)Order accordingly.