COMMISSIONER INLAND REVENUE VS BANK OF PUNJAB, 2019 PTD-LAHORE-HIGH-COURT-LAHORE 1022 (2018)

Income Tax Ordinance (XLIX of 2001)---

----Ss.121(1)(d) & 177 (10) [as prior to amendment vide. Finance Act, (XVI of 2010] & 133---High Court Reference---Best judgment assessment under S. 121 read with S. 177(10) of the Income Tax Ordinance, 2001---Scope---Question before High Court was whether during audit proceedings, an order for "best judgment assessment" could have been passed under S. 121(1)(d) of the Income Tax Ordinance, 2001 prior to the amendment of S. 177(10) of the Income Tax vide Finance Act, 2010---Held, that prior to the amendment brought about in Ss. 121 & 177(10) through Finance Act, 2010; S. 121(1)(d) did not apply to cases where return of total income had already been filed and the same did not envisage a second assessment order to be passed in such circumstances---Reference was answered accordingly.

Commissioner Inland Revenue (Legal) v. Commissioner Inland Revenue (Appeals) and others 2013 PTD 837; The Commissioner of Income Tax v. Messrs Doaba Plastics Industries (Pvt.) Limited 2015 PTD 681 and Glaxo Laboratories Ltd., v. Inspecting Assistant Commissioner of Income Tax and others 1992 SCC 910 rel.

Raja Sikandar Khan for Applicant.

Dr. Ikram ul Haq for Respondent.

Date of hearing: 27th November, 2018.

JUDGMENT

ASIM HAFEEZ, J.---In this Tax Reference, inter-alia, following question is pressed and argued before us which is asserted to have arisen out of order dated 19.12.2011 passed by Appellate Tribunal Inland Revenue, Lahore Bench, Lahore, ("Appellate Tribunal").

(i) "Whether on the facts and in the circumstances of the case, the ATIR was justified to declare the order passed under section 121 read with section 177(10) not maintainable without considering the fact that the taxpayer failed to provide any record/document required to verify that the declared version is in conformity with the provisions of Seventh Schedule to the I.T.O., 2001 or not?"

2.Question proposed is regarding jurisdiction of taxation officer to pass order under Section 121 of the Income Tax Ordinance, 2001 ("Ordinance of 2001") during audit proceedings. Admittedly, the impugned order under section 121(1)(d) was passed on 18.03.2010 and subsection (10) of Section 177 of the Ordinance of 2001 was inserted in the Statute Book w.e.f. 1st July, 2010 vide Finance Act, 2010. Learned counsel for the respondent has apprised that this Court has already answered this proposition in judgment by this Court in Commissioner Inland Revenue (Legal) v. Commissioner Inland Revenue (Appeals) and others (2013 PTD 837), which was upheld by the Hon'ble Supreme Court of Pakistan vide judgment dated 09.05.2013 passed in Civil Petitions Nos. 526 (and others) of 2013. The decision was followed in case The Commissioner Income Tax v. Messrs Doaba Plastics Industries (Pvt.) Limited (2015 PTD 681), relevant part of which is reproduced hereunder:--

"7. We have re-examined the judgment, supra, by learned Division Bench of this Court, wherein effect of subsequent amendments in Section 121(1)(d) and insertion of subsection (10) in Section 177 were discussed explicitly by highlighting scheme of the Ordinance. It would be advantageous to reproduce the relevant excerpt from the judgment.

"13. For the tax period under discussion i.e., 2004 to 2006 the legislative scheme does not provide for cancellation or annulment or amendment of the deemed assessment order passed under Section 120 by an assessment order under Sections 121 and 177 (10) of the Ordinance, whereby deemed assessment is declared to have no legal effect if an assessment order under Section 121 is passed, establish that the un-amended version of these sections did not provide for cancellation or amendment of the deemed assessment order thereby identifying the lacuna in the law prior to the amendment. Reliance is placed on Glaxo Laboratories Ltd. v. Inspector Assistant Commissioner of Income Tax and others (1992 SCC 910).

14. For the above reasons, we are of the view that prior to the amendment brought about in Sections 121 and 177 (10) through Finance Act, 2010, Section 121(1)(d) did not apply to cases where return of total income had been filed and did not envisage a second assessment order.

The Hon'bie Supreme Court of Pakistan upheld this ratio in following words:-

"3. ...The question as framed was answered in accordance with the position of the law as it existed in 2004 and 2006. Subsequently certain amendments were made in view of the Judgment of the Income Tax Tribunal. These amendments do not take effect retrospectively. The Judgment of the learned High Court seems to be justified which needs no interference. For the foregoing reasons, these petitions are dismissed and leave refused."

3.Learned counsel for applicant department could not deny that very action under Section 121 of the Ordinance of 2001 has been held without lawful authority and that the above said decisions are applicable to the facts of this case.

4.In view of the dictum laid down, on the proposition of law, in the above said judgments, the question proposed is answered accordingly.

5.Reference Application is decided against the applicant department.

6.Office shall send a copy of this order under seal of the Court to the Appellate Tribunal Inland Revenue as per Section 133(5) of the Income Tax Ordinance, 2001.

KMZ/C-2/LOrder accordingly.