COMMISSIONER INLAND REVENUE, ZONE-I, REGIONAL TAX OFFICE, SUKKUR VS RANIPUR CNG STATION, RANIPUR, 2017 PTD-KARACHI-HIGH-COURT-SINDH 1839 (2017)

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

----Ss. 111, 120 & 133---Constitution of Pakistan, Art. 10A---General Clauses Act (X of 1897), S. 24-A---Unexplained income or assets---Addition to income/assessment of taxpayer under S. 111 of the Income Tax Ordinance, 2001---Show-cause notice to taxpayer for such addition was mandatory---Scope---Question before the High Court was whether for invocation of an addition to income of the taxpayer to be made under S. 111 of the Income Tax Ordinance, 2001, show-cause notice needed to be issued---Validity---Section 111 of the Income Tax Ordinance, 2001 made it clear that addition to income under S. 111 of the Income Tax Ordinance, 2001 could be made only if an opportunity was provided to the taxpayer through specific notice whereby the taxpayer was confronted with any of the eventualities visualized in the said section, and if the taxpayer failed to offer any explanation about the nature and source of the amount credited or investment made, or about money or valuable articles or funds from which expenditure was made, only then such addition could be made in the income of the taxpayer---High Court observed that in view of Art. 10A of the Constitution and S. 24-A of the General Clauses Act, 1897, every public functionary, including taxation authorities were required to provide fair opportunity of being heard to any person before taking adverse action or passing any order of assessment or creating additional liability of tax, by confronting such a person with the proposed action in writing, as fair trial and right of hearing were regarded as cardinal principles of natural justice, which had to be read into every statute, even if the same had not been provided specifically therein---Reference was answered, accordingly.

(b) Natural justice, principles of---

----Scope---Right to fair trial and right/opportunity of hearing, were cardinal principles of natural justice which had to be read into every statute even if the same were not specifically provided therein.

Amjad Jawaid Hashmi for Applicant.

ORDER

Through instant reference application, the applicant/department has initially proposed three questions, however, after arguing the matter at some length, learned counsel for the applicant submits that applicant will only press following question No.3, which according to the learned counsel for the applicant, is a question of law arising from the impugned order dated 21.3.2016 passed by Appellate Tribunal Inland Revenue (Pakistan) at Karachi, in I.T.A. No.901/KB of 2012, (tax years 2007):--

Whether on the facts and circumstances of the case the learned ATIR was justified in adjudicating that for invocation of addition under Section 111 of Income Tax Ordinance, 2001 show-cause notice under section 111 needs to be issued whereas section 111 of Income Tax Ordinance, 2001 does not require issuance of any notice?

2.Learned counsel for the applicant after having read out the impugned order passed by the Appellate Tribunal as well as order of the two forums below submits that the Commissioner (Appeals) Inland Revenue and the Appellate Tribunal was not justified to delete addition made under Section 111 of the Income Tax Ordinance, 2001, as the tax payer could not explain investments made during financial year. It has been prayed that the question proposed through instant reference application may be answered in negative in favour of the applicant and against the respondent.

3.We have heard the learned counsel for the applicant and perused the record as well as impugned order passed by the Appellate Tribunal, which reflects that the Appellate Tribunal has concurred with the findings passed by the Commissioner (Appeals) Inland Revenue on the issue relating to addition in terms of Section 111 of the Income Tax Ordinance, 2001 by holding that since no notice under Section 111 of the Income Tax Ordinance, 2001, was issued by the applicant to the respondent, therefore, the addition made in this account has been deleted, it will be advantageous to reproduce provisions of Section 111 of the Income Tax Ordinance, 2001, which reads as follow:--

111. Unexplained income or assets.--(1) Where--

(a)any amount is credited in a person's books of account;

(b)a person has made any investment or is the owner of any money or valuable articles;

(c)a person has incurred any expenditure;

(d)any person has concealed income or furnished inaccurate particulars of income including--

(i)the suppression of any production, sales or any amount chargeable to tax; or

(ii)the suppression of any item of receipt liable to tax in whole or in part,

and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made [suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax] or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited value of the investment, money, value of the article, or amount of expenditure [suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax] shall be included in the person's income chargeable to tax under head "Income from [Other Sources]" to the extend it is not adequately explained.

4.From bare perusal of the above statutory provisions, it is clear that the addition under section 111 of the Income Tax Ordinance, 2001, can be made, only if an opportunity is provided to the taxpayer through specific Notice, whereby, the taxpayer is confronted with any of the aforesaid eventuality as visualized under section 111 of the Income Tax Ordinance, 2001, whereas, if the taxpayer fails to offer any explanation about nature and source of the amount credited or the investment made, money or valuable articles, or funds from which the expenditure was made; only then, such addition can be made in the income of the taxpayer. In the instant case, it appears that no Notice under section 111 of the Income Tax Ordinance, 2001 was issued to the taxpayer, nor the taxpayer was specifically confronted with such proposed addition by the taxation officer so that the taxpayer could have offered some explanation in this regard. In view of above undisputed facts, the addition made by the taxation officer under section 111 in the instant matter appears to be without any lawful authority. While confronted with above factual and legal position as emerged in the instant case, learned counsel for the applicant could not controvert the same nor could point out any error or illegality in the order passed by Appellate Tribunal. Whereas, the Appellate Tribunal in the instant case, after having taken cognizance of the above factual as well as the legal provisions as contained in Section 111 of the Income Tax Ordinance, 2001, relating to providing an opportunity to the taxpayer to explain the unexplained income or assets, has been pleased to hold as under:--

"We have heard both the learned representatives and have gone through the record of the case. On perusal of the impugned order it transpires that the CIR(A) has discussed the issues in detail. Before making addition under section 111(1) of the Income Tax Ordinance, 2001, the ACIR had not adhered to condition as laid down by the law. No specific notice under section 111 of the Ordinance, 2001 was issued by the ACIR, hence, the learned CIR(A) was justified in deleting the addition made under section 111(1) of the Ordinance, 2001. In view of the above facts and circumstances the impugned order passed by the learned CIR(A) is legal, lawful and in accordance with law, therefore, no interference is required in the impugned order of the learned CIR(A) which is hereby upheld."

5.It may be further observed that in view of Article 10A of the Constitution and Section 24-A of the General Clauses Act, every public functionary, including the Taxation Authorities, are required to provide fair opportunity of being heard to any person before taking an adverse action against him, or passing any order of assessment or creating any additional liability of tax, by confronting such person with the proposed action in writing. The fair trial and right of hearing is regarded as a cordinal principle of Natural justice, which has to be read into every Statute, even if it may not be specifically provided therein.

6.In view of hereinabove facts and circumstances of this case, we are of the opinion that impugned order passed by the Appellate Tribunal Inland Revenue, in the instant case, does not suffer from any error and illegality, which otherwise depicts correct legal position. Accordingly, instant reference application being devoid of any merits is hereby dismissed, and the question of law as proposed hereinabove is answered in affirmative against the applicant and in favour of the respondent.

KMZ/C-12/Sindh Order accordingly.