AYESHA LASANI MODEL SCHOOL, RAWALPINDI VS C.I.T., RAWALPINDI, 2015 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 408 (2009)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 39, 111(2), 120 & 122(5)---Amendment of assessment---Un-explained income---Addition of un-explained income in income chargeable to tax---Un-explained income, had to be included in the income of assessee chargeable to tax in the tax year immediately preceding financial year in which it was discovered---Assessing Officer, in the present case, did not make the addition in immediately preceding year; but made the addition in the year of accretion in assets---Action of the Assessing Officer being totally against the law contained in S.111(2) of Income Tax Ordinance, 2001, was not maintainable, and was deleted.

(b) Income Tax Ordinance (XLIX of 2001)---

----S. 120---Assessment order passed on holiday---Maintainability---Assessment order, passed on a closed holiday, was not lawful order and being not maintainable, was annulled.

(c) Income Tax Ordinance (XLIX of 2001)---

----Ss. 111 & 116---Un-explained income---Chargeable to tax---Revision of wealth statement---Scope---Assessing Officer made addition in the income of assessee under S.111 of Income Tax Ordinance, 2001 which was challenged---Assessee was in possession of documentary evidence to establish that assets in question were acquired by him through bank loans---Said loans were supported by certificate from the concerned banks---Other documentary evidence about sources of acquisition of assets, was also produced by assessee; but Assessing Officer rejected plea of assessee on simple ground that in his opinion revision of wealth statement could not be allowed---Validity---Addition under S.111, could only be made, if assessee did not possess sufficient evidence to justify and explain the source of acquisition of assets---Whether or not the assets were disclosed in the wealth statement was not material---Assessee, who brought on record sufficient documentary evidence to explain his wealth statement, was legally entitled to revise his wealth statement for reflection of correct picture---Assessing Officer, in circumstances, was not justified to reject the revised wealth statement---Orders of Authorities were vacated and impugned addition was deleted.

2006 PTD 2662 (Trib.); 2008 PTD (Trib.) 1007; Mohsin Raza v. Chairman FBR, and others 2005 PTD 152; 2005 PTD 1974; 2009 SCMR 339; 2009 PTD 377 (Trib.); 2008 PTD (Trib.) 1007 and 99 Tax 350 (Trib.) (sic) ref.

Rizwan Yaqoob and Atif Wahed for Appellants.

Sardar Taj Muhammad Khan DR for Respondent.

Date of hearing: 18th July, 2009.

ORDER

ISTATAAT ALI, ACCOUNTANT MEMBER.---This appeal has been filed by the assessee against order dated 15-12-2008 passed by CIT(A-II) Islamabad. The taxpayer derives income from running a private school. Return for tax year 2006 was filed declaring net income of Rs.4,22,015. The case was selected for audit under section 177(4) regarding which the taxpayer was duly informed. The assessee was confronted with related issues. Explanation furnished by him was considered unsatisfactory. For the reasons recorded in the order assessment was completed under section 122(5) by making addition under section 39(1) read with section 111 to the tune of Rs.1,64,65,304. Net income was assessed at Rs.1,80,14,609.

2.The assessee filed appeal against this assessment which was rejected by CIT(A) vide his impugned order. Now the assessee filed second appeal before this forum on the following grounds:--

(a)That the respected Commissioner of Income Tax (Appeals-II) Islamabad has erred in maintaining the additions made under section 39(a) read with section 111 amounting to Rs.17,592,594 by the Taxation Officer, Audit-VII, RTO Rawalpindi as the difference was noted in cash reconciliation and was removed through revision of wealth statement which is a basic right of the Tax Payer.

(b)That the respected Commissioner of Income Tax (Appeals-II) Islamabad has erred in maintaining the add backs in the following expenses at the straight rate of 30% to 100% made by the Taxation Officer, Audit-VII, RTO Rawalpindi even after receiving the clear proof of these expenses in shape of rent agreements, receipts, and expense vouchers etc.:---

(c)The learned Commissioner of Income Tax (A-II) has erred in not stopping proceedings initiated by the Taxation Officer under section 190 for imposition of penalty for concealment of income as provided under section 184(2)(c) as the Tax Payer has made no concealment of income at any stage.

3.During the pendency of appeal the assessee filed following additional grounds:--

(a)That the selection of case for audit under section 177 by the Commissioner is against the provisions of section 177 of the Income Tax Ordinance, 2001, hence not tenable in the eye of law.

(b)That the addition made under section 111 read with section 39(1) of the Income Tax Ordinance, is liable to be deleted since the said addition is against the provisions section 111(2) since it was not made in the tax year immediately preceding financial year in which it was discovered by the Commissioner.

[Also Held in 2006 PTD 2662 (Trib.)]

(c)That the addition made under section 111 of the Income Tax Ordinance, by Taxation Officer and confirmation of the same by CIT(A) without accepting the revised Wealth Statement filed under section 16(3) by the taxpayer is liable to be deleted being against the law and norms of justice.

[Also Laid Down in I.T.A. No.230/IB/200 dated 21-1-2009]

(d)That the assessment order passed by the Taxation Officer is liable to be declared illegal and without lawful authority since no order can be passed on a public holiday and the courts cease to conduct judicial proceedings on Sunday.

(e)[Also Held in 2008 PTD (Trib.) 1007] That without prejudice to above, the order passed by the Taxation Officer on 29-6-2008 (Sunday) is not valid since the instructions of CBR vide letter dated 27-6-2008 to keep the offices open on Sunday for the receiving of CPRs and collection of taxes.

[Also Held in 2008 PTD (Trib.) 1007].

(f)That the add backs made are liable to be deleted and taxation officer fails to point out specific defect in the vouchers filed during audit proceedings.

4.The grounds of appeal raised in the miscellaneous application involve legal points. The same are therefore, admitted for consideration.

5.Learned DR stated that in the light of ratio settled in cases W.P No.4630 of 2009 by Lahore High Court in Mohsin Raza v. Chairman FBR, and others and reported as 2005 PTD 152 and 2005 PTD 1974 the selection of case for audit by the Commissioner is against the provisions of section 177 as well against the norms of justice because he failed to issue any show-cause notice prior to selection and also without mentioning any specific reason in the context of clauses (a) to (d) of section 177(4) of the Ordinance. He further stated that it is a well settled law that where initial action by an authority is illegal, the subsequent substructure built on the basis of such action/selection cannot be maintained legally. [2009 SCMR 339 and 2009 PTD 377 (Trib.)]. Learned DR stated that issue contested in the case inter alia; is that the case was selection for audit under section 177 without issuance a show-cause notice. The taxpayer in this case has relied upon a recent judgment of Lahore High Court in a number of Writ Petition No.4630 etc. in which it has been held that selection of case for audit without issuance of show-cause notice is un-lawful. On the contrary it has been held in Writ Petition No.960/09 by Islamabad High Court that Commissioner of Income Tax is not bound to issue show-cause notice before selection of case for audit. This judgment has binding effect.

6.Relevant Year for addition:---Learned AR stated that the assessee is existing on tax rolls and regularly filing his return of income. In the light of provisions contained in section 111(2) the un-explained amount, if any had to be included in his income chargeable to tax in the tax year immediately preceding financial year in which it was discovered. The Assessing Officer did not make the addition in immediately preceding year. He made the addition on in the year of accretion in assets. Learned AR vehemently pressed that action of the assessing officer is totally against the law contained in section 111(2). The addition in question is therefore, totally illegal.

7.Learned AR contended that the addition made under section 111 the taxation officer is liable to be deleted because he failed to consider the provisions of subsection (2) of section 111 of the Income Tax Ordinance, 2001 according to which the addition under section 111(1) can only be made in the tax year immediately preceding the financial year in which it was discovered by the Commissioner. In the instant case, notice under section 111 was issued by the Taxation Officer on 21-6-2008 and as per section 111(2) of the Ordinance, the addition can be only made in the tax year 2007. Therefore, illegal addition made by the Taxation Officer in the year under appeal i.e. tax year 2006 is liable to be deleted. This viewpoint gets support from a judgment exported as 2006 PTD (Trib.) 2662. Learned DR stated that the assessing officer followed a correct procedure and made the addition accordingly after fulfillment of all legal requirements. He contended that the addition in question was rightly made after taking into account the explanation tendered by the taxpayer and it was established on record that he did not possess explainable sources of income in order to justify the accretion in assets.

8.We have taken into account arguments of bath rival parties. We have noted that the law on this point is very clear. Section 111(2) of the Income Tax Ordinance, 2001 provides that if any person does not possess any satisfactory evidence/explanation about the nature and sources of the amount invested by him, such amount shall be included in his income chargeable to tax in the taxpayer's income of immediately preceding financial year in which discovery is made. Instead of making the addition in tax year 2007 he made it in tax year 2006. The contention of the learned AR on this legal point is correct. The impugned order under section 111 was not made in accordance with the relevant legal provisions. It is therefore, not maintainable and is hereby ordered to be deleted.

9.Order Passed on Public holiday.---Learned AR contended that in the light of principles settled in the judgment reported as 2008 PTD (Trib.) 1007 the impugned assessment order is illegal and without lawful authority because it was passed on a public holiday. He stated that impugned assessment order was passed on 29-6-2008 which was Sunday (closed holiday). He emphasized that any order passed on closed holiday is not a validly legal order. The assessing officer had ceased to perform judicial functions on closed holiday and in this background the impugned order is without any lawful authority.

10.Learned AR argued further that in the light of decision reported as 2008 PTD (Trib.) 1007 the order passed by the Taxation Officer on a public holiday i.e. Sunday (29-6-2008) is liable to be declared void and without lawful authority because the courts cease to conduct judicial proceedings on a public holiday. Even otherwise the purpose of instructions of CBR vide letter dated 27-6-2008 to keep the offices open on Sunday (29-6-2008) was to facilitate the taxpayers in collection of taxes only as is evident from the contents of the said letter.

11.Learned DR stated that the offices were kept open on 29-6-2008 under the instructions of Federal Board of Revenue. Therefore, the order in question was legally correct. At this point learned AR responded and stated that offices were kept open only for collection of revenue. The holidays are notified by the Interior Ministry who is the competent authority to declare holidays. If FBR decided to keep its offices open on any closed holiday, it was done so in order to facilitate the taxpayer and that too for the purpose of tax collection only. No hearing of any case could be fixed nor any order prejudicial to the interests of a taxpayer, could be passed on such closed holiday.

12.Learned AR further stated that under the Rules of Business notified by the government no judicial work can be performed on a closed holiday and in the light of aforesaid judgment of the Tribunal the order passed on a closed holiday is unlawful. At this point learned DR stated that the Tribunal's judgment as referred to by the taxpayer is in different context and is distinguishable because it settled the question of limitation whereas in this case the limitation for assessment was available even after the date on which the impugned order was passed. The question of limitation is not materially involved in this case. Therefore, principles in Tribunal's Judgment being relied upon by the taxpayer, are not applicable in this case.

13.We have considered arguments of both the sides and we are of the opinion that principles of passing of judicial orders have been settled in the aforesaid judgment of the Tribunal. Learned DR was specifically asked to provided copies of rules, if any, to justify that judicial orders can be passed on a closed holidays. He could not do it. In our opinion the order passed on a closed holiday is not a lawful order and it is not maintainable. It is not understood as to what was the hurry which forced the taxation officer to pass an order on a closed holiday. In fact he did not take due care and caution while making the assessment. In the light of foregoing discussion we hereby hold that the impugned assessment order passed on close holiday was not lawful order and the same is hereby annulled.

14.Revised Wealth Statement.---The Assessing Officer made huge addition of Rs.16465304 under section 111 for the reason that the assessee had been changing his stance and he revised his wealth statement (s) in order to cover up the deficiencies in his explanation about sources of acquisition of assets. Details of these assets are recorded in the impugned assessment order. Learned AR stated that the assessee was in possession of documentary evidence to establish that the assets in question were acquired through bank loans. These loans were supported by certificates from concerned banks. Other documentary evidence about sources of acquisition of assets was also produced. But the assessing officer rejected the taxpayer's plea on the simple ground that in his opinion revision of wealth statement could not be made. He contended that "business assets" and "personal assets" were kept separate by the taxpayer because of separate maintenance of information and record in respect of "personal assets" and "business assets" a confusion arose in the mind of taxation officer. If he had given dispassionate and realistic thinking to the business affairs of the taxpayer, everything would have crystallized.

15.Learned DR stated that since he failed to consider the reply as well as the revised wealth statement filed by the taxpayer under section 116(3) of the Ordinance. Addition of Rs.16465304 made under section 111(1) of the Income Tax Ordinance, 2001 by the taxation officer and confirmation of same by CIT(A) is against the facts and circumstances of the case. Even otherwise the taxpayer had valid explanation to offer in the form of verified bank loans against the increased amount of wealth, details of which are itself reproduced by the taxation officer at page 2 of the assessment order. He stated that the addition made under section 111(1) of the Ordinance is liable to be deleted. The taxation officer refused to accept the revised wealth statement furnished before him during audit proceedings as according to him the wealth statement cannot be revised after confrontation for making addition under section 111 and also after discovery of omission or wrong statement by the Department. Such contention of the taxation officer and CIT(A) is against the provisions of section 116(3) of the Ordinance whereby it has been clearly provided that where a person discovers any omission or wrong statement, he may furnish a revised wealth statement at any time before the assessment under section 122 is made. The view point gets strength from a judgment reported as 99 Tax 350 (Trib.)(sic).

16.Learned DR stated that the assessee had been frequently changing his stance. Originally the assets were not disclosed. When the deficiency was pointed out to him, he revised the wealth statement and changed his version about the sources of acquisition of assets. Every time when he was caught by the taxation officer and concealment of income was found in his case, he changed his version and came up with a new story. He kept on changing his story without any reasonable cause. The assessing officer was therefore, fully justified to make the impugned above which was rightly confirmed by the CIT(A).

17.We have considered arguments of both the sides in the light of relevant material and we are convinced that a totally confusing situation emerged in this case due to separate disclosure of "personal" and "business" assets of the taxpayer. He was factually in possession of sufficient documentary evidence to establish that all the assets in question were acquired from bank loans. Simple non-disclosure of an asset is not a sufficient reason for making any addition under section 111. It can only be made if the taxpayer does not possess sufficient evidence to justify and explain the source of acquisition of the asset (s). Therefore, it is not very material as to whether or not the assets were disclosed in the wealth statement (original or revised). It has to the seen as to whether the taxpayer could prove the sources of acquisition of assets or net. This taxpayer successfully brought on record sufficient documentary in the shape of bank loans to explain the sources of accretion of assets. He was also legally entitled to revise his wealth statement (s) for reflection of correct picture. The assessing officer was therefore, not justified to reject the revised wealth statement. He was also not justified to reject documentary evidence produced by the taxpayer. In the light of facts and circumstances of the case we hereby hold that the assessee acquired assets from verifiable sources in the shape of bank loans and the impugned addition was made without any justification. Learned CIT(A) also failed to appreciate these facts in a judicious manner. Therefore, orders of both the authorities below are vacated and the impugned addition is deleted.

18.Other grounds of appeal.---The assessee has raised certain other grounds of appeal, as recorded supra. Since relief has already been provided to him on certain grounds, therefore, these other grounds are not being taken up for adjudication.

19.Taxpayer's appeal succeeds in the manner and to the extent as indicated above.

HBT/150/Tax(Trib.)Appeal allowed.