Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: COMMISSIONER INLAND REVENUE, ZONE-I, REGIONAL TAX OFFICE VS Respondent: Messrs MEDIMAKERS PHARMACEUTICAL (AOP), HYDERABAD
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Seema Imran, Faheem-ul-Haq Khan Title:COMMISSIONER INLAND REVENUE, ZONE-I, REGIONAL TAX OFFICE vs Messrs
MEDIMAKERS PHARMACEUTICAL (AOP), HYDERABAD Case No.: I.T.A. No,1128/KB of 2011 Date of Judgment:2017-04-03 Reported As: 2018 PTD (Trib.) 1533 Result: Case remanded Judgment ORDER MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.---In the present case, a Full Bench was constituted by the Honourable Chairman on an application dated 20.2.2013 made by the Departmental Representative which application was referred to the honourable Chairman and he was pleased to constituted the Full Bench vide order dated 26-08-2016. It will be appropriate to reproduce the contents of the application to understand the Constitution of this Full Bench. 13.05.2013 In this case, learned CIR(A) has relied upon the judgment of Appellate Tribunal Inland Revenue reported as 2008-98-85 (Trib.) while the department has submitted application, the contents of which are reproduced as under: "To The Honourable Members, Inland Revenue Appellate Tribunal, Special Bench-II, Karachi. Subject: REQUEST FOR TRANSFERING THE CASE TO FULL BENCH IN RESPECT OF I.T.A. NO.1128/KB/2011 RTO HYDERABAD V/S MEDIAMAKER PHARMACEUTICAL HYDERABAD TAX YEAR 2010. Kindly refer to the subject cited above and attendance of the undersigned before your honour in your court today. During the proceedings of this case, it transpired that the issue of action taken under sections 161/205 of the Income Tax Ordinance, 2001 which is an independent action as per law, has been attempted to mess with proceedings under section 122 of the Income Tax Ordinance, 2001 by the taxpayer/its AR. It is worth mentioning here that sections 120, 122 and 161/205 are distinct sections of the law and have their application and repercussions in their own right. The return filed under
---
## Page 2
section 114 of the Income Tax Ordinance, 2001 is a privilege and responsibility of the taxpayer simultaneously. Therefore, any interpretation on this behalf that the return is filed by Commissioner Inland Revenue is only a fiction of law. Thus to say that only recourse left with the department to take action under section 122 of the Income Tax Ordinance, 2001 after a return is filed is against the spirit of law. Sections 161/205 is invoked where taxpayer has failed to full fill its responsibility of withholding of due taxes and this action has an independent application than assessment/re- assessm ent of income of the taxpayer. It is true that for non deduction of taxes the law provides other measures too. But sections 161/205 are relatively less punitive in nature than application of section 21 of Income . Tax Ordinance, 2001 if the same action is taken under section 122 of Income Tux Ordinance, 2001, since the matter is under discussion with the Honourable Court in many cases therefore, due to its similarity and involvement of a large number of cases, the Honourable Court desires to refer the case to Full Bench in endorsed. It is, therefore, kindly requested to send the case for its proceedings in the Full Bench of Honourable Inland Revenue Tribunal. Sd/- (Muhammad Saeed Nashir) Departmental Representative For Bench-II, IRAT, FEB, 2013" During the course of hearing, the arguments of the learned DR were found convincing, for which purpose the constitution of Full Bench in our view seems to be justified. Hence it is requested accordingly. (Javid. lqbal) Judicial Member. 2. The Hon'ble Chairman, ATIR was pleased to pass the following order for reconstitution of Full bench: The full bench is reconstituted with the following members. 1. Faheemul Haq Khan, A.M 2. Muhammad Jawed Zakaria, A.M 3. Mrs. Seema Imran, J.M 3. Before this Full Bench, in response to the notice Mr. Ashok Kumar, DR appeared on behalf of the Department, whereas Mr. Abdul Rahim Lakhani and Vishwa Kumar, learned A.R appeared on behalf of the Respondent Taxpayer. Mr. Arshad Siraj, Senior Advocate was appointed as 'Amicus Curie' to assist the Full bench on all the issues involved in this case. 4. Brief facts of the case as gleaned from the record are that an order under Section 161 read with section 205 was passed. Perusal of order passed under section 161 read with section 205, shows that purported action was taken after examination of return of income in which the ACIR observed that taxpayer has made purchases for the period from July 2009 to June 2010 at Rs, 114,968,668/-. He has mentioned in the order that on such purchases the taxpayer was liable to deduct tax and has failed to deduct the same, which prompted him to issue a show-cause notice dated 14.4.2011. 5. In reply to such show-cause notice, a legal objection was taken while filing the explanation along with evidences. The said legal objection is reproduced below for ready reference. "Those the proceedings initiated under sections 161/205 of the Income Tax Ordinance, 2001 are ab initio illegal, after filing of return of income, which is a deemed order under section 120 of the Income Tax Ordinance, 2001. The law does not permit to make such action after filing of return. It is requested that the proceedings initiated may kindly be dropped." 6. The ACIR after examination of the explanation filed by the taxpayer/Respondent, rejected such legal objection. However, on merits a liability was created by passing order under section 161. Being not satisfied with the explanation of the taxpayer, the Inland Revenue Officer concerned treating the taxpayer in default by passing order bearing No,36/172 under sections 161/205 dated: Nil of the Income Tax Ordinance, 2001 in the following words:
---
## Page 3
"The abovementioned explanation of the taxpayer has thoroughly been examined in the light of details furnished by the AR of the taxpayer which reveals as under: I. That the contention of the AR of the taxpayer that, the proceeding under sections 161/205 are ab intio illegal, after filing of return, which is deemed order under section 120 of the Income Tax Ordinance, 2001 and the law does not permit to take such action after filing of return. The contention is without any supporting legal evidence even any provision of existing law. That, the breakup/reconciliation of purchases filed with evidences from perusal of which it has been noted that, the purchases declared in the return included import of .Rs, 102,270,048/- and not liable for tax deduction under section 153(1)(a) of the Income Tax Ordinance, 2001. Oh examination of challans for import it has been noted that the taxpayer the amount claimed by the taxpayer under the head of import purchase does not match with his deduction of tax at the rate of 3% Rs,21,48,488/-, on which the worked back value of imports comes as under: S. No,Value of imports Tax deducted under section 148 01. 71,616,266 21,48,48,488 In view of above it transpires that the taxpayer declared value of imports on higher side to reduce the liability of tax deduction under section 153 of the Income Tax Ordinance, 2001 in his reconciliation filed. As result of above evidence the local Purchase of the tax payer liable for deduction of tax under section 153 comes as under: S. No,Value of imports' Tax deducted under section 148 Local purchase 33,117, 845 Packing Material 10,234, 557 Total local purchases43,352,402 The contention of the AR of the taxpayer that the payments are below the threshold of taxable limit found unsatisfactory due to lack of evidence. The party wise details filed by the taxpayer reflects that there is no any party who supplied the material on below taxable limit. In view of above the taxpayer is treated as taxpayer in default under section 161 of the Income Tax Ordinance, 2001 and tax along with additional tax under section 205 is hereby charged as per following manners: S. No,Amount liable for tax deductionIncome Tax liable to be deductedTax charged under section 161Default surcharge under section 205Total tax charged 01 42,352,4021.517,3341,517,334329,2401,846,574 7. Against such order the taxpayer/respondent preferred an appeal under section 127 of the Income Tax Ordinance, 2001 where similar plea was taken. The learned CIR(A), who decided the appeal of the taxpayer in his favour by annulling the order of the OIR vide Order No,395 dated 27.09.2011 with the following observations:- "The arguments advanced by the learned AR of the appellant are considered. Impugned order is perused. The contention of the learned AR of the appellant seems correct that as the return of income for the tax year 2010 was filed on 13.11.2010 and the assessment stands completed under section 120(1) (b) of the Income Tax Ordinance, 2001 on filing of return and therefore, the Officer Inland Revenue was not justified to pass the order under sections 161/205 on/after 29.04.2011 i,e, after the deemed order passed under section 120(1) of the Income Tax Ordinance, 2001, the order
---
## Page 4
under sections 161/205 is illegal and against the spirit of provisions of section 122 of the Income Tax Ordinance, 2001. This view further fortifies with the observation of the Officer Inland Revenue embodied at page 1 para 1 of the impugned order, which reads as under:- "... The return of income for the Tax Year 2010 filed by the tax payer reflects that he has made purchases for the period from July 2009 to June 2010 at Rs,114,968,668/- therefore, he was liable to deduct tax @ 3.5% at Rs,40,23,903/- at the time of making payments on account of purchases, but the taxpayer failed to deduct tax under section 153 of the Income Tax Ordinance, 2001..." Therefore, this establishes the contention of the AR of the appellant is valid, that Officer Inland Revenue resorted to action under sections 161/205 on assumptions and surmises after filing of return of income under section 114(4) of the Income Tax Ordinance, 2001, which is a deemed assessm ent order in terms of section 120 of the Income Tax Ordinance, 2001. The only recourse available under the law is to amend the deemed order under section 122 of the Income Tax Ordinance, 2001. Consequent upon the return of income filed for the tax year under appeal, these findings of the Officer Inland Revenue tantamount to amendment of the deemed order under section 120 of the Income Tax Ordinance, 2001. Since the power to amend an assessment order rests in the section 122 of the Income Tax Ordinance, 2001, therefore no amendment of income and tax liability of a taxpayer could be made by invoking sections 161/205 of the Income Tax Ordinance, 2001, when the return of income is filed which becomes a deemed assessment order to have been passed under section 120(1) of the Income Tax Ordinance, 2001. It is established that deemed assessment to have been made under section 120 of the Income Tax Ordinance, 2001 holds the field and it can only be amended by order passed under section 122 of Income Tax Ordinance, 2001. It is a settled principal of law that things should be done as required under the law and as the Officer Inland Revenue (Audit) has power under section 122 to amend the assessm ent as many times as may be necessary. Admittedly the deemed assessment order stood finalized before the appellant has been declared as taxpayer in default on 29.04.2011. Therefore, the order passed under sections 161/205 of the Income Tax Ordinance, 2001, instead of 122 of the Income Tax Ordinance, 2001, in the presence of deemed order in field, is illegal. This view finds support from the decision of the learned ITAT (ATIR) reported as (2008) 98 Tax 85 (Trib.), wherein it was held as under: - "...On the other hand, Mr. Dawood Iqbal, ITP has appeared on behalf of the assessee/respondent and is supporting the impugned order of the leaned CIT (A). He is of the view that the learned CIT(A) has rightly cancelled the order passed by the Taxation Officer, as the order passed under sections 161/205 of the Income Tax Ordinance, 2001 was bad in law and contrary to the facts and record. He is of the view that the Taxation Officer was unjustified to invoke proceedings under section 161, as transactions are not covered under section 153, he has argued that Taxation Officer was unjustified to declare the assessee company as assessee in default on the transaction that already has been taxed in the hands of the recipient. He has contended that Taxation Officer was unjustified to make assessm ent under sections 161/205 on 10-01-2007 after the completion of assessm ent under section 120(1) on 20-06- 2006. After considering all the above factual as well as legal position, I am of the view that the learned CIT(A) has rightly cancelled the assessment order, therefore, I find no warrant for interference in the impugned order of the learned CIT(A), which is upheld and the appeal filed by the department is dismissed " Besides this, the Officer Inland Revenue while resorting to action has treated that the appellant failed to deduct withholding tax on entire payments against purchases @3.5% without citing any specific instances of payments made which exceeded the threshold limit. Such a hypothetical
---
## Page 5
approach cannot be endorsed. Hence the action of the Officer Inland Revenue is not tenable and treating the appellant "taxpayer in default" is not sustainable in the eyes of law. The facts of the appellant 's case are identical and the judgment, quoted supra, is squarely applicable. Respectfully following the dictum laid down by the learned ITAT(ATIR) in above referred judgment and in view of the observations embodied above, I hold that the Officer Inland Revenue was not justified to pass order under sections 161/205 of the Income Tax Ordinance, 2001. It is hereby annulled.' 8. It appears that learned CIR(A) has upheld the contention and it was held that order under section 161 is illegal in presence of deemed order under section 120 in the field. References, has been made by the learned CIR(A) to a decision of a learned single Bench of this learned Tribunal reported in 2008 PTD (Trib.) 1683. 9. As noted above, the department through learned departmental representative made an application for transferring of the case on such point which application has been granted by the then learned judicial member vide order/noting dated 13.5.2013. 10.Mr. Ashok Kumar, the learned D.R vehemently argued that the learned CIR(A) has fallen in error in granting relief on the ground that that the assessment under Section 120 is in the field, when the ACIR had rightly pointed out and established that the Respondent Taxpayer has failed to establish that it has deducted tax under section 153, therefore, according to the learned D.R, ACIR was fully justified to pass an order under Section 161 read with Section 205. It was contended that the existence of order under Section 120 does not preclude the ACIR in passing the order under section 161 read with 205. He therefore, urged before us that order passed by the ACIR was valid whereas the order of CIR(A) is not sustainable in law. 11. Mr. Abdul Rahim Lakhani and Mr. Vishwa Mittar, learned A.R. for the Respondent, opposed the above arguments of the learned D.R. The learned counsel informed that there are certain imports on which tax had been collected at the rate of 1% of the assessed value. A list/reconciliation is annexed herewith with the bifurcation of imported goods that are levied at 1%, 2% and 3% along with challan, bills of entries for your examination and verification of imported raw material to Rs,102,270,048/-. RAW MATERIAL PURCHASE - LOCAL: 12. The payments made under this head represent local purchase of raw material from various parties. A complete summary of party wise purchase also submitted before Inland Revenue Officer. He further informed that there are certain payments that do not attract withholding tax deduction for being below threshold limit of Rs,25,000 or are brought under subsection (5)(a)(i) of section 153 of the Income Tax Ordinance, 2001. PACKING MATERIAL PURCHASE - LOCAL: 13. The learned counsel stated that the payments made under this head represent local purchase of packing material from various parties. He said there are certain payments that do not attract withholding tax deduction due to below threshold limit of Rs,25,000, or for your information and record all the relevant documents are attached herewith. He stated that he already submitted before Inland Revenue Officer evidence in support of each and every payment/purchases and taxpayer has discharged his legal obligation and the order passed under sections 161/205 suffer some serious fatal errors and liable to be quashed. The Officer of Inland Revenue did not pay any heed to the detail and evidences furnished to him and the tax demand created is uncalled and unwarranted. 14.The learned counsel for the taxpayer lastly argued with vehemence that once order under Section 120 is in the field, the powers - exercised by the ACIR in nullity in law. He submitted that view taken by this Tribunal in the case reported as (2008) 98 Tax 85 (Trib.) is a correct view and the action of ACIR is against 'the spirit of provision of section 122. He further submitted that no
---
## Page 6
amendment of income and tax liability could be made by invoking sections 161/205. He further submitted that ACIR while resorting to action has treated the Respondent having failed to deduct tax on entire payments against purchases without citing any specific instances of payments made which exceeded the threshold, which fact has been correctly appreciated by the learned CIR(A). Therefore, the CIR(A) has correctly annulled the order. He supported the order of CIR(A) with a prayer that instant appeal of the Department deserves to be dismissed and order of CIR(A) needs no interference and he prayed for upholding the order of the learned CIR (A). 15. Mr. Arshad Siraj, Amicus Curie, while submitting his arguments drew our attention to the nature of the provisions of sections 120, 122, 161 and 205 and submitted that in a fiscal statute lime are there are three D distinct types of provisions generally in every fiscal enactment, namely Charging provisions, Assessm ent provisions and Collection provisions Elaborating his paint he submitted that the Charging provisions, are such provisions which relate to the levy or charge of the tax, which usually state that tax is to be levied on what matter, or goods or income and in which manner and at what rate and matters relevant thereto. Assessment provisions which deal with the assessm ent. calculation or quantification of the tax for the purposes of determining the amount of tax due and payable or which has escaped collection or has been under assessed or assessed at a lower rate or on which excessive relief or refund has been allowed. In such provisions an element of addition of liability is woven into and such provisions are impregnated with the potential of adding to the liability of the Taxpayer. therefore same are not mere matter of procedure but have substantive provision as well. In respect of Collection provisions it has been argued that such provisions which relates to the mode and manner of Mr 'leery or collection/recovery of the tax. Reliance has been place on the judgment of Hon'ble Lahore High Court in the case of Friends Sons v. Deputy Collector Central Excise and Sales Tax, Lahore reported in PLD 1989 Lah. 337. Further Reliance has been placed on the judgment of Hon'ble Supreme Court of Pakistan in the case of Noon Sugar Mills Ltd. v. Commissioner of Income Tax, Rawalpindi reported in PLD 1990 SC 1156 = 1990 PTD 768 = 1990 MLD 1977. He therefore submitted that under the Income Tax Ordinance, 2001, one finds all the three distinct types of provisions. He referred to the provisions of sections 4, 5, 6, 7 and 8, 113 which are charging Sections. Whereas the provisions of sections 120, 121, 122, 122C, 123, 125 and 221 are in nature of second type i,e, Assessments. He highlighted that 137, 138, 138A to 145 and 161 are of collection or Recovery in nature. He is therefore of the view that in so far as present case is concerned, the provisions of Section 120 or 122 are distinct and separate from the recovery provisions of sections 161 and 162 respectively. He submitted that legislature has categorized the provisions of section 161 as a recovery provisions as it is amply established from the language of the said provision. 16.He further submitted that in his view in Section 161 there are two words used by legislature which are of prime importance. The First one is "fails" and the other one is ."liable". He submitted connotation of word failure on the strength of the judgments reported as (1956) 30 ITR 57 and (1961) 41 ITR 76 SC India. He also relied on the judgment of Hon'ble Supreme Court of Pakistan in the case reported as PLD 1991 SC 308. Pointing out the significance of word liable, he relied upon the judgment of Hon'ble Supreme Court of Pakistan reported as PLD 1990 SC 1156 = 1990 PTD 768 = 1990 MLD 1977. 17.It has been submitted that subsection (1) of section 161 can only be invoked when a failure to collect or deduct tax is established, Since the responsibility to collect or deduct tax is in respect of a transaction of payment, each transactional failure has to be determined which is a condition precedent for initiation and conclusion of the proceedings under section 161. Any order which lacks determination of a transactional failure of collection or deduction of tax as required by law, shall not be sustainable in law. 18.It has been further submitted that existence of failure is of paramount importance. He
---
## Page 7
submitted that there should be a determination of transaction failure of non-withholding of tax or collection of tax. In some cases if in the assessment of income nature of certain transaction has not been ascertained, therefore in the proceeding under section 161 the nature of transaction cannot be adjudication for the reason that provision of section 161 are recovery in nature and exercised to recover the tax only arises, when there is an obligation to deduct and collect tax. The act of failure would not be attracted when there is difference of opinion on the interpretation of certain statutory provisions and nature of transaction unless same has been determined in an assessm ent of income. 19.While referring to the decision cited by the learned CIR(A), it has been opined by Mr. Arshad Siraj that cited case reported as 2008 PTD (Trib.) 1683 with greatest respect is a decision which is per in-curium. The decision is per in-curium for the reason that firstly in the said decision reference has been made to certain decisions namely 2003 PTD (Trib.) 1167 and 2005 PTD 1303 which related to the provisions of repealed Income Tax Ordinance, 1979 which has no relevance with the issue of order of assessm ent of income under section 122 of the Income Tax Ordinance, 2001. In the said judgments, discussion was in respect of action to be taken under section 52 read with the provisions to call for the books of accounts under section 61 of the repealed Income Tax Ordinance, 1979 and cases were examined with the point of view of the time limit to call for the books of accounts. The learned Amicus Curie argued and submitted that as to whether question of limitation applies in respect of the provisions for calling the books of account under section 174 in respect of action under section 161 is concerned, very recently Hon'ble High Court of Sindh in the case of Habib Bank Limited v. Federation of Pakistan reported as 2013 PTD 1659 has elaborated in detail with reference section 174 of the Income Tax Ordinance, 2001. He therefore concluded his arguments by submitting that the proceedings under section 161 are distinct in character from the proceedings under section 120 or 122 and, therefore it can be invoked separately despite the fact that the deemed assessm ent under section 120 or an amended assessment under section 122 has been made and are in the field. 20. The arguments of the learned counsel have been considered and available record as has been perused. The facts as gathered from the record are that ACIR issued a show-cause notice under section 161 read with 205 alleging that the Respondent was required to deduct tax on purchases made during the year. In response to the show-cause notice, the taxpayer Respondent submitted a reply that the proceedings initiated under sections 161/205 of the Income Tax Ordinance, 2001 are ab initio illegal, after filing of return of income, which is a deemed order under section 120 of the Income Tax Ordinance, 2001. It was also contended that the law does not permit to make such action after filing of return, therefore, a request was made to drop the proceedings. The taxpayer Respondent however, submitted details of purchases. An order under sections 161/205 was passed, in which the ACIR held that taxpayer has not been able to establish tax deduction on…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.