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Petitioner: Messrs IMRAN PIPE MILLS (PVT.) LIMITED, LAHORE VS Respondent: C.I.R., ZONE-IV, R.T.O.
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Ahmad, Ch. Shahid Iqbal Dhillon Title: Messrs IMRAN PIPE MILLS (PVT.) LIMITED, LAHORE vs C.I.R., ZONE-IV, R.T.O. Case No.: I.T.A. No,1563/LB of 2014 Date of Judgment:2017-12-18 Reported As: 2019 PTD (Trib.) 4 Result: Appeal accepted
Judgment ORDER CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).--- This single appeal filed at the instance of appellant/taxpayer, against the findings recorded by the learned CIR [Appeals-II]. Lahore "CIR(A)" passed on 11.06.2014 vide Order No, 5 pertaining to Tax Year 2012 Appellant's earlier appeal was disposed of by the ATIR on 10.12.2014 vide I.T.A No, 1563/LB/2014 in the following manners:-- "In view of these facts as well as legal position the impugned order of the Commissioner Inland Revenue Appeals-II Lahore is vacated and the order passed by the Inland Revenue Officer is cancelled. The appeal filed by the Taxpayer is allowed". 2. Being aggrieved, the revenue/department filed a Reference Application under Section 133 of the Income Tax Ordinance, 2001 "Ordinance" vide I.T.R. No, 134-2015 before the Honorable Lahore High Court. The Honorable High Court has disposed of the said reference application of the department in the following verdict:-- "In our opinion, decision through a non-speaking order is mis-exercise of jurisdiction, therefore, our answer to the proposed question is in affirmative i,e,, in favour of the applicant department. Impugned order is set aside. Matter is remanded to the Appellate Tribunal where appeal filed by the taxpayer shall be deemed pending. Appellate Tribunal is directed to decide the matter afresh after providing opportunity of being heard to the taxpayer." 3. In view of the above directions of the Hon'ble Lahore High Court, Lahore the present appeal is taken up for hearing and is being disposed of through this order. 4. Brief facts of the case are that the appellant is a Private Limited Company declared income of Rs,5,232,355/- from manufacturing of steel pipes and tubes. The case of the Appellant was selected for audit under section 214(c) of the Income Tax Ordinance, 2001 by the FBR through
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computer random ballot. Audit proceedings were conducted by the Inland Revenue Officer "IRO" and after examining the detail filed by the Appellant the income was amended at Rs,105,412,924/- against the declared income of Rs,5,232,355/. The Appellant filed the appeal before the CIR(A) who confirmed the additions made under the head of Suppression of Sales v. Bank Deposits and the Profit and loss expenses, however, remanded the additions made under the head Suppression of Local Purchase and Import Purchase, hence, the Appellant has preferred further appeal before this Tribunal against the orders passed by both authorities below. 5. Right at the very outset, learned AR argued that the treatment meted out by the IRO and subsequently novel verdict by the learned CIR (A) is contrary to the facts of the case and principles of norms of justice. AR stated that in response to IRO's observation a detailed write up by filing requisite information, supporting documents were submitted but unfortunately relevant law on the issue and factual position has not been considered judicially by the IRO as well as by the learned CIR(A). At the same time the AR also argued that the appellant has already faced the cumbersome round of assessm ent at the first stance therefore, another round would have meant that the appellant would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna. The Learned AR has also referred the reported verdicts of binding nature 1997 SCMR 524, 1997 SCMR 1849 and 2002 PTD 407 (High Court). 6. On factual grounds AR stated that though in the body of the assessment order a mentioning has been made to say that appellant provided general ledger bank statements, debtors reports, salary sheets, withholding statements, detail of profit and loss expenses, copies of utilities and other bills, purchases, bills of entries, bank reconciliation statements, local purchases, chart of imports, GDs, markup etc. but unfortunately learned both authorities below acted illegally and arbitrarily to create and partly confirm the huge patently illegal tax demand. During the course of hearing before this court, the learned AR also presented cumbersome data/record/documents which directly relates to various additions made by the IRO. It includes copies of ledger accounts, bank statements, debtors reports, salary sheets, withholding tax statements, detail and evidence of profit/loss account expenses, copies of utilities and other bills, local purchases, bills of entries, copies of cheques received from directors and Messrs Jillani Enterprises, bank statements along with reconciliation statements elaborating direct sales, bank to bank transfers, contra entries, deposits by directors and advances from customers, imported purchases, chart of imports, copies of GDs. markup, LG margin and receipts from Pakistan Steel Mills etc. 7. On legal plane learned AR strongly argued that as per law, tax is chargeable on actual supplies/sales of taxable product/goods by a taxpayer even under the provisions of Sales Tax Act, 1990. The IRO without any corroborative evidence concluded that credit entries/receipts/deposits in bank accounts of the appellant were routed through taxable sales made in Pakistan and treated portion of deposits as suppressed sales. There is no iota of evidence to prove that the receipts of money into the bank accounts of the appellant were on account of taxable supplies of goods as envisaged under the fiscal laws rather factual position of the case clearly negate the flimsy stance of the IRO but unfortunately direct documentary evidence has been rejected arbitrarily and without adhering to any statutory provisions of law, flimsy demand of tax has been raised against the appellant. Same is the case with imported purchases and local purchases wherein huge amount, which is otherwise fully verifiable from corroborative documentary evidence, has illegally and arbitrarily been added into taxable income but learned CIR(A) instead of giving clear judgment intentionally remanded the matter to IRO to avoid justice. In case of ad-hoc additions in profit/loss account expenses, all additions have been made without confronting the appellant and without specifying any defects in the presented record/data during assessment stage. 8. The learned AR drew our attention to the contents of show-cause notice and various parts of the
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assessm ent order passed by the IRO. Bank deposits at Rs,347,127,716/- have been confronted by the IRO while the appellant itself disclosed total bank deposits at Rs,437,053,503/-. This state of affair reflects the seriousness of the IRO to examine the books of accounts and conduct audit. Quite amazingly certain figures such as Rs,1,594,245/- Rs,124,626,144/- and Rs,111,801,828/- have been confronted in the notice while additions made into taxable income at Rs,1,004,193/-, Rs,1,600,000/-, Rs,19,000,000/- and Rs,5,750,000/- were never confronted by the IRO in show-cause notice. The learned counsel by placing reliance on the judgment of Hon'ble Supreme Court of Pakistan reported as Commissioner of Income Tax v. Pakistan Industrial Engineering Agencies Limited (1992 PTD 954), argued that the department cannot dictate the taxpayer how to do business or how to utilize its funds. If the taxpayer enters in certain transactions for business purposes by adopting legal modes and one of the main purpose of entering into such transactions is not avoidance or reduction of tax liability, Hon'ble Supreme Court of Pakistan has very aptly and categorically laid down this principle in the aforesaid judgment in the following words: "An assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provisions of law cannot be challenged on the ground of prudence, advisability or business practice". 9. Learned A.R further vociferously contended that the show-cause notice and impugned assessm ent order passed by the IRO contrary to the scheme of the law and without observing the principles of natural justice. If doing of a thing is made lawful in a particular manner then doing of that thing is conflict with the manner prescribed will be unlawful. Reliance is placed on 2006 SCMR 129. The things which cannot be done directly are not capable to be done indirectly 1993 PLD SC 473, Mian Muhammad Nawaz Sharif v. President of Pakistan and others. Where the original action is void then the subsequent actions and proceedings there from would also be vitiated PLD 1958 SC 104. When exercise of jurisdiction is subject to mandatory conditions, then the exercise of jurisdiction disregard to those conditions render the exercise of jurisdiction void and following and flowing actions and proceedings are null and void and non-fulfillment of mandatory conditions is incurable jurisdiction defect. 1971 SCMR 681 and PLD 1972 SC 271. 10. The learned DR, on the other hand, strongly supported the orders of the authorities below and vehemently argued in the favour of orders passed by IRO and learned CIR(A) with the prayer that present appeal may be dismissed as remand order is causing no prejudice to the appellant, who can re-argue its case before the assessing officer afresh. 11. The learned AR vehemently concluded his arguments and submitted that independent judicious view would automatically unmask the picture that orders passed by authorities below are perverse, fanciful. Erroneous, factually incorrect and has resulted in great miscarriage of justice. The learned AR submitted that the issues involved in the present appeal require consideration of these principles, in support of his contentions various judgments of higher as well as superior fora were also referred. Present appeal is taken up and decided in terms of following observations. 12. We have heard the arguments and perused the relevant record presented. Action of IRO to make certain credit transactions in the banks as suppressed/concealed receipts/sales and by treating imported/local purchases fully verifiable and properly reconciled, on presumptive basis without any independent corroborative documentary evidence has no legs to stands the test of appeal. It is not the case in which there is any of transaction exceeding the available resources duly established by the appellant through strong documentary evidence. In case of suppressed/concealed receipts/sales, heavy burden lie upon the department to point out specific facts of transaction i,e, from whom and in what connection it was received, whether it was a sale proceed or mere credit, has been ignored by the IRO. He miserably failed to prove any nexus whatever between the amount lying in Bank through credit entries from fully known and verifiable sources and concealed/ undisclosed/suppressed receipts/sales. In this case IRO confronted
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various changed figures under section 122 of the Ordinance. All of these queries were well responded by the appellant with corroborative strong documentary evidence and successfully explained the factual position. IRO kept on going for inquiries. This blunt factual flaw in the impugned order cannot be brushed aside, the appellant has successfully explained all the deposits and the so-called discrepancies in its bank deposits to the satisfaction of the law, against which no mentionable arguments has been advanced by the IRO. 13. It is equally established that one cannot be permitted to first create an ambiguity in the law and facts and then to proceed to employ niceties of the interpretation to resolve it. However, where the provision of law is apparently uncertain or ambiguous and admits of more than one equally possible interpretation it is only there that in fiscal statutes an interpretation favorable to a taxpayer can be made. This principle was explained in PLD 1961 SC 375 and followed in PLD 1962 (WP) 809. The rule of beneficial interpretation of a provision is always subject to the condition that two equally reasonable meaning of the provision are possible. However, as mentioned earlier where language of statutory provision is clear, effect must be given to it as found by the Supreme Court in 1992 SCMR 663. In fiscal laws an equitable interpretation is not possible as found in PLD 1977 Lah. 292 and approved in 1993 SCMR 274. It is also observed with grave concern that additions under Section 111 have been made without issuing specific and separate notice under Section 111 which is sine qua non and no addition under section 111 can be made without specific notice under section 111 with specification of relevant clauses and subsection of section 111 of the Ordinance, therefore, the additions made under section 111 also merits deletion on legal plane too. In such an eventuality, mere fact that there is denial of allegation of mala fide or oblique motive or of its having taken into consideration improper or irrelevant matter does not preclude the court from enquiring into the truth of allegations levelled against the authority and granting appropriate relief to the aggrieved party. If the power has been exercised on a non-consideration or non-application of mind to relevant factors, the exercise of power will be regarded as manifestly erroneous. If a power whether judicial, quasi judicial or administrative is exercised on the basis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated. The IRO is not clear in his mind, where and what is violation of law in this case except having clarity on one thing to create a huge demand of tax by treating certain credit entries in the bank accounts as concealed income. Looking at the matter in its entirety the factual position obtaining and the ambient circumstances strongly suggest that the disposal of orders by the IRO is mere a shot in the dark without consulting the record and submissions made by the Appellant and also without perusing applicable law. In our opinion, the IRO had travelled beyond his lawful jurisdiction, probably with predetermined mind to make the huge additions in income. He overlooked the legal as well as factual blunt position altogether. The IRO, in an over ambitious pursuit, not only over stepped his jurisdiction under the law, but had lost sight of the issues confronted in the show- cause notice. Needless to say that an action under the law can be taken only in a way authorized by law. The action of IRO by overstepping the provisions of law certainly was coram-non-judice and patently illegal. 14. From the perusal of the order of the learned CIR(A), it is clear that he has recorded his findings in slipshod manner. The order of the learned CIR(A) is running into 18 pages and his whole order is consisted of mere quoting/reproduction of arguments of the counsel verbatim then he simply reproduced the order/finding of IRO and penned down his findings in slipshod manner to confirm the addition on account of bank despots suppressed sales and profit/loss additions, while other major portion of the order passed by the IRO on account of imported/local purchases has been remanded back to IRO. However, he even did not bother to record the arguments of the learned counsel in his own words. No reasons have been recorded by him. No process of application of conscious and judicious mind by CIR(A). There can be no order passed by the learned CIR (A) in
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the instant case, within the parameters set up by the higher appellate fora. The impugned order appears, is not a decision but simply a disposal. If the decision is given without any reasons then one of the two most essential ingredients will be missed. It is on the basis of the reasons which support order that the same can be challenged in an appeal. The said order of CIR(A) is cryptic and devoid of reasons. No reason whatsoever has been assigned by the CIR(A) as to how and why he has arrived at a finding. An order ought to contain the point or points for determination, the decision thereon and the reasons for the decision is totally violated in the instant case. Obviously when no logical legal reasons are given, the order of learned CIR(A) is vitiated as being violative of rules of Natural Justice. As mentioned supra, the learned CIR(A) has not applied his independent judicious and conscious mind honestly and fairly, he only reproduced the arguments of the learned counsel and simply reproduction of extract from IRO's amended order dated 13.05.2014. Reasons were held to be the heartbeat of every conclusion, apart from being an essential feature of the principles of natural justice that ensure transparency and fairness, in the decision-making process. Giving of satisfactory reasons is the basic requirement arising out of an ordinary man's sense of justice and a healthy discipline for all those who exercise power over others. Failure to give reasons amounts to denial of justice. Reasons are live links between the mindset of the authority who takes decision taken to the controversy in question and the decision or conclusion arrived at. Recording of reasons in cases where the order is subject to further appeal is very important from yet another angle. An Appellate Court or the authority ought to have the advantage of examining the reasons that prevailed with the Court or the authority making the order of that advantage and cases an onerous responsibility upon it to examine and determine. In the instant case, evidently the learned CIR(A) without appreciating the facts of the case and without applying his own mind simply confirmed the treatment meted out by the IRO in few words, in our view had not discharged his duty cast upon him and therefore, the order of CIR(A) is totally unsatisfactory and is liable to be quashed. We have no hesitation in holding that action of the IRO is not sustainable in the eyes of law, hence, mode and method of assessment is disapproved. The IRO intervention is fatally flawed and riddled with grave, multiple defects from a legal standpoint. The assessment framed lacks the required nexus with the lawful proceedings under the law because suppressed sales could not be assessed solely on the basis of bank statement of the taxpayer without any evidence of corresponding taxable supply made in the course of taxable activity in Pakistan. It is also observed that the order passed by IRO is bereft of proper objective basis necessary to sustain the action taken and is based on presumption and hearsay cast in the garb of proceedings under the tax audit selected by the Board, hence, patently illegal. However the grave defects in the assessment have made no impression on the learned CIR (A), rather, he has gone a step further and has mobilized available evidence against the appellant and partly remanded the matter to IRO and certain addition were confirmed. We must add here that IRO went beyond the scope of the show- cause notice as much as it he did not restrict to the specific allegation stated in the show-cause notice rather took a new stand which was not incorporated in show-cause notice which is not lawful, in this context, reliance is placed on the ratio settled in 1987 SCMR 1840. However, we are of the opinion that it is not necessary to determine this question of law in the fact of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show-cause notice, the order was palpably illegal and void on the face of it. We have carefully examined the show-cause notice and find no reference whatsoever or necessary facts relating to the ground that the alleged contraband goods were imported into Pakistan from an unauthorized route. In view of this palpable legal infirmity, we do not consider it necessary to examine the other contentions raised by the learned counsel". 15. For the reasons recorded supra, we have no hesitation in holding the CIR(A) action to be
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squarely in conflict with statutory stipulation and applicable case laws. It must therefore be struck down decisively, with the sole reasons that this type of dispensation of justice is unwarranted. Upshot of the discussion made above is obvious. The impugned orders of both authorities below are found to be suffering from legal as well as factual infirmities. These merit cancellation. It is ordered accordingly. 16.Before parting with this judgment, we strongly feel that the factual issues, duly argued by the AR with the support of record/data/ documents presented, must also be discussed and decided to end the controversy between rival parties. The factual position as elaborated earlier is not disputed by the department. The settled principles regarding administration of justice are that the appellate authorities / judicial and quasi judicial authorities including officials / Administrative or taxing authorities while dispensing justice and exercising judicial or quasi powers are supposed to apply their own mind to the cases and to determine after evaluating those to give their own verdict justified by reasons. We shall also place reliance on the judgment reported as Engro Chemicals Pakistan Limited v. Additional Collector (2003 PTD 777) wherein the Hon'ble High Court has elaborate the matter that the Tribunal is always required to dilate upon all the questions of facts and law agitated before it so that the High Court is not handicapped in deciding the questions of law and if the Tribunal fails to proper pass judicial order by considering all the facts and points of law raised, it would amount to a negation of justice. The Tribunal was also directed that in future no appeal should be disposed of by the Tribunal without giving due consideration to each and every point of fact and law in terms of a speaking Order. If the learned Tribunal fails to pass proper judicial order by considering all the facts and points of law raised before it, it amounts to negation of justice. Every judicial order should be a speaking order and particularly in tax matters, where the scope of appeal/ reference before the High Court is very limited. Reliance is further placed on the landmark verdict issued by the Hon'ble Lahore High Court, Lahore in CIR v. Mehran Traders (2015 PTD 1330) wherein their lordships unequivocally held that Appellate Tribunal is the last fact finding forum in hierarchy of Taxation Laws, therefore, it is bound to discharge its functions diligently. Any, opinion, on law, by Appellate Tribunal would lose credence for consideration by High Court in advisory jurisdiction, if findings of fact arrived at by it are not trustworthy. In case true facts are not ascertainable from available record; the Appellate Tribunal is vested with vast powers under subsection (1) of Section 132 of the Income Tax Ordinance, 2001 to call for any particulars relating to appeal or cause further enquiry to be made by the Commissioner during the appeal proceedings. The rationale behind more than one Appellate Forums under Taxation Laws is to cross check - the exercise of powers by the authorities and ensure proper taxation under the statute. SUPPRESSION OF SALES VIZ A VIZ BANK DEPOSITS: 17. A sum of Rs,27,354,193/- was added by the IRO in terms of Section 111(1)(d)(i) of the Ordinance, which includes addition of Rs,1,004,193/- (UBL entries), Rs,1,600,000/- (Bank Alfalah entries), Rs,19,000,000/- on account of advances in Bank Alfalah Limited account and Rs,5,750,000/- on account of deposits by directors of the appellant company. Following details with supporting documents have been presented by the appellant before us to substantiate his stance: Name of Bank Total DepositBank to BankContra From DirectorsAdvance (Customer) Bankal Al- Falah 102423120,641,614 6,650,000 4,032,05013,200,000 19,000,000 United Bank 670-2 85,950,486 7,713,428 3,785,6607,500,000 0 United Bank 67000065104,365,43445,162,000 3,905,7848,700,000 0 Habib Metro 10321-0 123,203,96932,163,500 4,364,5208,450,000 0
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Askari Bank 2516-8 2,892,000 1,000,000 0 0 0 Total 437,053,50392,688,928 16,088,01437,850,000 19,000,000 Name of Bank Markup L/C Margin PSM Net Sales Al-Falah 102423 - - - 77,799,564 UBL 670-2 - 55,056,51 139,56061,133,825 UBL 67000065 14,222,81- - 45,363,202 Habib Metro 103210 - - - 64,008,149 Askari Bank 2516-8 - - - 1,892,000 Total 1,422,281 55,056,51 139,560250,196,740 18. The above tabulated data speaks b untly that the appellant itself shown more bank deposits than the figures confronted by the IRO in the bank accounts stated in the show-cause notice. This is ample evidence that while…
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