COMMISSIONER INLAND REVENUE, ZONE-II, L.T.U., KARACHI VS INDEPENDENT NEWSPAPER CORP. (PVT.) LTD., KARACHI
2019 P T D 447
[Sindh High Court]
Before Aqeel Ahmed Abbasi and Nazar Akbar, JJ
COMMISSIONER INLAND REVENUE, ZONE-II, L.T.U., KARACHI
Versus
Messrs INDEPENDENT NEWSPAPER CORP. (PVT.) LTD., KARACHI
I.T.R.A. No.140 of 2012, decided on 06/11/2017.
Income Tax Ordinance (XLIX of 2001)---
----Ss. 119, 133(1), 182 & 194---Reference---Penalty, imposition of---Fault of officials---Effect---Department was aggrieved of order passed by Appellate Tribunal Inland Revenue whereby application for extension of time for filing return by taxpayer was accepted and taxpayer was declared to be not liable to make payment towards penalty in terms of S. 182 of Income Tax Ordinance, 2001---Validity---When taxpayer sought further time, while filing application in writing under S. 119 of Income Tax Ordinance, 2001, on the same grounds, which were earlier found to be reasonable, the Taxation Officer failed to exercise authority vested in him in terms of Ss. 119(3) & (4) of Income Tax Ordinance, 2001, either to accept such request of taxpayer or to decline the same in writing---If such request of taxpayer seeking extension of time for filing return was declined by concerned Taxation Officer, the taxpayer would be entitled to approach Chief Commissioner Inland Revenue for seeking extension of time in terms of S. 119(4) of Income Tax Ordinance, 2001---Taxpayer was prevented from seeking statutory remedy on account of inaction on the part of concerned Taxation Officer---High Court declined to give the department benefit and advantage of their own wrong i.e. non-compliance of legal obligation---Taxpayer could not be held responsible or penalized for such default by Taxation Officer---Department could not impose penalty under S. 182 of Income Tax Ordinance, 2001, for the extended period---High Court declined to interfere in order passed by the Appellate Tribunal Inland Revenue as the same did not suffer from any factual or legal error---Reference was dismissed in circumstances.
S. Asif Ali for Applicant.
S. Riazuddin for Respondent.
Date of hearing: 6th November, 2017.
JUDGMENT
AQEEL AHMED ABBASI, J.---Through instant reference application, the applicant department has proposed following questions, which according to learned counsel for the applicant, are questions of law arising from the impugned order dated 13.06.2012 passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi, in I.T.A. No. 640/KB of 2011 (Tax Year 2005), for the opinion of this Court:--
"i. Whether on the facts and circumstances of the case and on law, the learned Appellate Tribunal Inland Revenue was justified in accepting the extension application filed by the taxpayer equivalent to an order in writing by the Commissioner (IR).
ii. Whether on the facts and circumstances of the case and on law, the learned Appellate Tribunal Inland Revenue was justified to accept the application of the taxpayer as no order was passed by the Commissioner (IR) under section 119(3) and (4) of the Income Tax Ordinance, 2001.
iii. Whether on the facts and circumstances of the case and on law, the learned Appellate Tribunal Inland Revenue was justified in accepting that non completion of audit even after lapse of (07) months was an exceptional circumstances within the meaning and scope of Section 119(1) of the Income Tax Ordinance, 2001."
2.Learned counsel for the applicant submits that the Appellate Tribunal Inland Revenue was not justified to hold that the respondent was not liable to make payment towards penalty in terms of Section 182 of the Income Tax Ordinance, 2001 for the defaulted period of 138 days as according to learned counsel for the applicant, the respondent admittedly filed the return of income for the Tax Year 2005 on 18.05.2006, instead of 31.12.2005, which was the due date for filing the tax return. It has been prayed that the impugned order may be set-aside and the questions proposed through instant Reference Application may be answered in favour of the applicant and against the respondent.
3.Conversely, learned counsel for the respondent has controverted the submissions made by the learned counsel for the applicant and submits that the questions proposed through instant Reference Application are neither the questions of law, nor the same arise arising from the impugned order passed by the Appellate Tribunal in the instant case, as according to learned counsel, the only controversy involved in the instant matter relates to examine the effect and implication of not deciding of the application filed by the taxpayer seeking extension of time for filing return of income, while disclosing reasonable grounds. It has been contended by the learned counsel for the respondent that admittedly, one month's time was extended by the concerned Taxation Officer on 31.01.2006 on the written request of the taxpayer in terms Section 119 of the Income Tax Ordinance, 2001. However, in view of circumstances beyond the control of taxpayer i.e. non-completion of audit of accounts of the respondent, the respondent filed another application, seeking further extension of time for filing return of income up to 01.03.2006, however, the Taxation Officer neither declined such application, nor passed any adverse order in terms of Section 119(3) of the Income Tax Ordinance, 2001, therefore, the respondent was justified to presume that extension of time for filing return has been granted. According to learned counsel for the respondent, since the audit could not be completed within the extended period, the return for the Tax Year 2005 was eventually filed on 18.05.2006, whereafter, respondent has paid penalty for the defaulting period of 78 days i.e. 30 days of March and April each, and 18 days of May (i.e. 30+30+18=78 days). Learned counsel for the respondent has referred to the provisions of Section 119(3) and (4) of the Income Tax Ordinance, 2001 and has also placed reliance on an unreported decision in the case of Commissioner (Legal) Inland Revenue, LTU v. Messrs Habib Metropolitan Bank Ltd. decided by a Divisional Bench of this Court vide its order dated 02.12.2012 in I.T.R.A.No.654 of 2010.Copy of the order has been placed on record and also supplied to learned counsel for the applicant. It has been contended by the learned counsel for the respondent that instant Reference Application is misconceived, and the same may be dismissed in limini.
4.We have heard the learned counsel for the parties, perused the record and the impugned order passed by the Appellate Tribunal in the instant case, and have also examined the relevant provision of Section 119 of the Income Tax Ordinance, 2001 as well as, the order passed by this Court in the aforesaid Reference Application. Brief facts for the purpose of disposal of instant Reference Application are that Income Tax Return for the Tax Year 2005 was due on 31.12.2005, however, in view of circumstances explained by the respondent i.e. non-completion of audit of accounts, the respondent sought extension of time for filing return in terms of Section 119 of the Income Tax Ordinance, 2001, which 31.01.2006. since the audit of accounts could not be completed by the Auditors within the extended period of filing return, the respondent filed another application for seeking extension of time for filing return up to 01.03.2006 in writing, however, the Taxation Officer neither turned down the request for extension, nor any adverse order was passed on such application. The respondent eventually filed the return of income on 18.05.2006 and made payment of amount of penalty for late filing of return for a period of 78 days, on the presumption that the Taxation Officer has accepted the request of the respondent seeking extension of time for another period of 30 days i.e. 01.02.2006 till 01.03.2006. Such presumption seems to be well founded in view of express provisions of Section 119(3) and (4) of the Income Tax Ordinance, 2001, which provides that a Taxation Officer is under legal obligation to pass an order in writing on the application filed by the respondent in this behalf. However, in the instant matter, after having received the application under Section 119 of the Income Tax Ordinance, 2001, instead of passing an appropriate order in writing either accepting or rejecting such request of extension, the Taxation Officer has considered the entire period of 138 days w.e.f. 01.01.2006 till 18.05.2006 as the defaulting period and imposed the penalty for the entire period of delay, while including the period of extension, which was granted by the Taxation Officer in this regard. From perusal of the provision of Section 119(3) of the Income Tax Ordinance, 2001, it transpires that if a taxpayer is not in a position to submit return of income within due date, then the taxpayer can seek extension of time for filing return up to 15 days unless there are exceptional circumstances to seek longer period of extension of time, whereas, the concerned Taxation officer is under legal obligation to consider such request of a taxpayer and to pass appropriate order in writing on such application. In the instant matter, first request of the taxpayer was accepted by the Taxation Officer to be reasonable and an order in writing was passed while granting extension up to 31.01.2006. However, when the respondent sought further time, while filing application in writing under Section 119 of the Income Tax Ordinance, 2001 on the same grounds, which were earlier found to be reasonable, the Taxation Officer failed to exercise the authority vested in him in terms of Section 119(3) and (4) of the Income Tax Ordinance, 2001 either to accept such request of the respondent, or to decline the same in writing. We may observe that if such request of the respondent, seeking extension of time for filing return would have been declined by the concerned Taxation Officer, the respondent would be entitled to approach to the Chief Commissioner Inland Revenue, for seeking extension of time in terms of Section 119(4) of the Income Tax Ordinance, 2001, hence, respondent was prevented from seeking the statutory remedy on account of inaction on the part of the concerned Taxation Officer. In such circumstances, the Tax Authorities cannot be allowed to take benefit and advantage of their own wrong i.e. non-compliance of legal obligation, nor a taxpayer can be held responsible or allowed to be penalized for such default by the Taxation Officer. Similar controversy came up before a bench of this Court in I.T.R.A. No.654/2010, wherein, it has been held as under:--
"7. We are of the considered view that once the assessee had applied for extension of time under Section 119 of the Income Tax Ordinance, 2001, it was the duty of the concerned Commissioner to pass appropriate order on such application. Admittedly, no order of rejection for grant of extension of time was passed by the Commissioner. Under the circumstances, it cannot be presumed that the request for extension of time to file return of income, made by the taxpayer under the law stood declined by the Commissioner. No one can be allowed to take advantage of own default, omission and non-compliance of statutory provisions. Admittedly, assesse has paid all taxes due under the Income Tax Ordinance and no default in this regard has been pointed out by the Taxation Officer, whereas in addition to filing application seeking extension of time, reasonable explanation has also been given by the taxpayer for such request. There is nothing on record which could establish the mensrea or wilful default on the part of the Taxation Officer in submitting return within due date or the extended date.
8. In view of hereinabove, we are of the opinion that the imposition of penalty in a mechanical manner by Taxation Officer was not justified. We are persuaded to agree with the concurrent finding of the commissioner (Appeals) and Appellate Tribunal Inland Revenue (Pakistan) Karachi on the subject which depicts correct position of law, hence does not require any interference by this Court in its reference jurisdiction."
5.In view of hereinabove facts and circumstances of the instant case, and the legal position, which has emerged from perusal of the provision of Section 119(3) and (4) of the Income Tax Ordinance, 2001, as well as the decision of this Court in the aforesaid Income Tax Reference Application, we are of the considered opinion that the respondent cannot be held liable to imposition of penalty under Section 182 of the Income Tax Ordinance, 2001 for the extended period upto 01.03.2006, therefore, the order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi in this regard, does not suffer from any factual or legal error, and does not require any interference by this Court in the instant Reference Application.
6.While confronted with hereinabove factual and legal position, learned counsel for the applicant could not controvert the same and candidly submitted that legal issue involved in the instant case is fully covered with the decision of a Divisional Bench of this Court in I.T.R.A. No.654/2010. Accordingly, instant Reference Application being devoid of any merits, is hereby dismissed. Since the "Questions Nos. I & ii" proposed hereinabove do not arise from the impugned order passed by the Appellate Tribunal, we need not record any finding on such questions. However, while reformulating the "Question No. iii" in the following terms, we would record our finding on the reformulated question to settle the legal issue in the instant case:-
"Whether the Appellate Tribunal Inland Revenue was justified to delete the amount of penalty under Section 182 of the Income Tax Ordinance, 2001 for the period of extension allowed by the Taxation Officer and further period for which, the Taxation Officer made an application in writing in terms of Section 119(3) of the Income Tax Ordinance, 2001, however, no order was passed by the Taxation Officer?"
For the reasons disclosed hereinabove and by respectfully following the decision of a Divisional Bench of this Court as referred to hereinabove, the aforesaid reformulated question is answered in affirmative in favour of the respondent.
Instant Reference Application stands disposed of in the above terms.
MH/C-1/Sindh Reference dismissed.