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Petitioner: The Commissioner Inland Revenue, Zone-I, RTO-II, Karachi VS Respondent: Messrs A.O. Clinic, Karachi
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria Title:The Commissioner Inland Revenue, Zone-I, RTO-II, Karachi vs Messrs A.O.
Clinic, Karachi Case No.: I.T.A. No.867/KB/2017 Date of Judgment:2018-09-18 Reported As: 2022 PTD (Trib.) 1895 Result: Appeal dismissed. Judgment ORDER MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER. By this order, we intend to dispose of above titled appeal filed by the appellant/department against the impugned Order No.06 dated 17-07-2017. The department agitated the following grounds: 1. "That the learned CIR (Appeals-IV), Karachi was not justified to delete the additions made on account of salaries as the taxpayer has failed to furnish evidence in support of salaries paid under the provisions of section 21(m) read with section 174(2) of Income Tax Ordinance, 2004. 2. That the learned CIR (Appeals-IV) Karachi was not justified to restrict the additions made under section 21(c) read with section 174(2) of Income Tax Ordinance, 2001 since the taxpayer failed to furnish in support of expenses during the course of audit proceedings which were produced at the time of appeal which is not plausible under the provisions of section 128(5) of the Income Tax Ordinance, 2001. 3. That the learned CIR(A) Karachi was not justified to delete the additions made under section 111(1)(a) on the grounds that no separate notice under section 111 of Income Tax Ordinance, 2001 was issued and served upon taxpayer. The Supreme Court of Pakistan in the case reported vide CLPAs Nos.147 to 149 K all of 2014 pronounced that the notice under section 122(9) is sufficient to amend the assessment under section 122(5). 4. That the learned CIR(A) Karachi has erred in deleting the additions made on account of expenses claimed under vehicle maintenance, the taxpayer is an AOP and only balance sheet was filed no any statement of fixed assets was filed during the course of audit proceedings, hence the deletion is a violation of section 128(5) of Income Tax Ordinance, 2001."
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FACTS 2. Brief facts of the case as gathered from the record are that the taxpayer is an AOP engaged in the business of running hospital. The return of income were filed declaring income at Rs.69,12,104/- which was selected for audit under section 214C of the Income Tax Ordinance, 2001 by the FBR. Audit proceedings were initiated and an IDR under section 176 was issued. In response to which adjournment was sought and extension of time was granted. A show-cause notice under section 122(9) was issued against the taxpayer filed the explanation though his counsel and found not plausible by the DCIR and the proceedings were culminated in passing the order under section 122(9)1(5) of the Income Tax. Ordinance, 2001. 3. Being aggrieved and dissatisfied with the treatment meted out by the DCIR, the taxpayer preferred appeal before the learned CIR(A) who vide his impugned order mentioned supra, held that the DCIR had not followed the audit proceedings / procedures as laid down by the Hon'ble Lahore High Court in its judgment reported as (2017) 115 Tax 84 and also on merit deleted the addition under section 174(2) made on account of salaries, additions made under section 21(c) read with section 174(2) on account of expenses and addition made under section 111(1)(a) of the Income Tax Ordinance, 2001. 4. Feeling aggrieved and dissatisfied with the impugned order passed by the learned CIR(A) now the department has come up in appeal before this Tribunal. 5. On due date of hearing, Mr. Azhar Erum Memon appeared on behalf of the appellant/department as D.R while Syed Muhammad Faraz Zaidi, 1TP appeared on behalf of the Respondent/taxpayer. ARGUMENTS/SUBMISSIONS Departmental Arguments: 6. During proceedings before this Court, learned D.R. has contended that the Commissioner Inland Revenue (Appeals) was not justified in deleting the additions made under section 174(2) on account of salaries as the taxpayer has failed to furnish evidence in support of salaries paid under the provision of section 21(m) read with section 174(2) and further not justified in restricting the additions made under section 21(c) read with section 174(2) as the taxpayer had failed to furnish evidence in support of expenses during the course of audit proceedings and the learned CIR(A) was not justified to accept the evidence which was not produced before the DCIR. He further argued that the learned CIR(A) was not justified in deleting the addition made under section 111 on the ground that no separate notice under section 111 was issued. He submitted that the taxpayer had not disclosed the vehicle in the Balance Sheet and no fixed asset was filed. Finally, he has prayed that impugned order passed by the learned CIR(A) may kindly be vacated and that of the DCIR may be restored. LEARNED A.R'S ARGUMENTS 7. The learned counsel for the Respondent/taxpayer has strongly supported the order of the learned CIR(A). 8. The learned counsel while rebutting the arguments of the learned D.R. objected that: No definite information, neither furnished nor proved and no addition is based on definite information. Mandatory requirement of sections 177 and 122(5) not fulfilled. Mandatory requirement of section 122(5) and Clauses (i), (ii) and (iii) of section 122(5) failed to fulfill. Before modification under section 122(5) the finalized deemed assessment/amended deemed order must be cancelled for the purpose of modification. If deemed order existing in the field and not cancelled before invoking section 122, the alteration and modification is illegal. Before embarking upon proceedings under section 122, the requirements of section 122(5) are to be fulfilled in letter and spirit. The selection of the audit and conducting audit in itself does not mean an assessment or modification of assessment.
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That the DCIR/OIR has not given mandatory notice(s) under sections I22(5)(i), 122(5)(ii) and 122(5) (iii) read with sections 122(5) and 122(8) of the Income Tax Ordinance, 2001. That on plain reading of section 122(5) for passing order under sections 122(1) and 122(5) the availability of the "definite information" is the precondition and submitted that subsection 122(5) provides that an assessment order shall only be amended under sections 122(1) and 122(5) read with section 177, where "definite information" has been acquired through audit under section 177. In the instant case no such definite information was acquired by the DCIR/OIR. Without prejudice to above the deemed order under section 122(1) can be amended either under subsections (4), (5) read with under section 177 of the Income Tax Ordinance, 2001 subject to definite information. That impugned assessment having been framed under section 122(1) without fulfilling the requirement and without invoking the provision of section 122(5). That no assessment could be made under section 122(1) alone without invoking subsections (4), (5) or (5A) of the Income Tax Ordinance, 2001. The Audit Policy has not been followed and mandatory requirement of section 177 has not been fulfilled. After selection of the case for audit under section 214C audit is conducted under section 177 and then Audit-Report under section 177(6) is to.be confronted to the taxpayer and if the reply is satisfactory then the audit proceedings may be dropped. However, after perusal of the reply, if the Commissioner considers that the deemed assessment needs some modification then he proceeded to amend the assessme nt under section 122(1) subject to section 122(5) (definite information) of the Income Tax Ordinance, 2001. As steps wise procedure for selection of the case for audit was not followed and no opportunity provided for rebuttal of so-called audit report/Observations. Hence entire proceedings / exercise is void ab-initio. No definite information, neither furnished nor proved and no addition is based on definite information. Mandatory requirement of sections 177 and 122 not fulfilled. That the mandatory independent separate notice under section 111 had not been issued to the taxpayer, therefore, the action of the DCIR is not within the parameters set by the superior courts. In this regard he placed reliance on the judgment of the Honourable High Court of Sindh in the case reported as 2017 PTD 1839 (H.C. Sindh). In support of his contentions he placed reliance on the judgments bearing ITA No. 51/KB/2014 dated 3.10.2014 CIR v. Dewan Steel Mills Karachi, ITA No. 2505/LB/2015 dated 28.4.2016 and ITA No. 373/KB- 2012 dated 5.4.2017, Dr. Azeeem Alamani reported as 2015 PTD 1242 and ITA No. 64/KB/2015 dated 6.6.2018 in the case of CIR v. Jawed Metal. 9. On factual plane, he vehemently contended that the grounds of appeal submitted by the department are vague and not specific. He referred to ground of Appeal No.2 whereby the deletion of addition on account of salaries had been made without specifying what was actual amount claimed and disallowed. Similarly, in the ground 'No. 3, the addition was made under section 21(c) without mentioning the amount to be restricted. He vehemently contended that in the ground it was alleged that the taxpayer had failed to furnish the details, in fact the details were submitted before the DCIR vide letter dated 28.11.2016. He urged that no specific separate notice under section 111 describing eventualities of clauses of section. 111 not issued. Regarding ground No. 5, it was alleged by the department that the taxpayer had not declared the vehicle in the balance sheet, therefore, the DCIR had made the addition. The learned counsel pointed out that the vehicle was duly declared in the Balance Sheet in Note 4 under the head Non-current Asset. He, therefore, submitted that the order of the learned CIR (A) is factually and legally on sound footings, therefore, the order of the learned CIR(A) may be upheld. OPINION OF THE COURT
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11. We have heard both the learned representatives and have also gone through orders of the authorities below and perused. the records of the case. 12. At the very outset we have observed that the learned CIR(A) has rightly observed that the amended order was framed on mere resumption and assumption without adhering to audit procedure laid down by the Hon'ble Lahore High Court in its judgment reported as 2017 PTD 686. 13. Further perusal and examination of the amended order passed under sections 122(1) and 122(5) of the Income Tax Ordinance, 2001 reveal that the DCIR while passing the order had not adhered to the, requirements of law. In this regard we may refer to subsection (6) of section 177 of the Income Tax Ordinance, 2001 which is reproduced hereunder:- "177. Audit (6) After completion of the audit the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessm ent under subsection (1) or subsection (4) of section 122, as the case may be." (underling for emphasis) 13(sic) A bare reading of the above subsection (6) quoted supra, clearly lays down firstly, that it is obligatory upon the CIR/DCIR/OIR that after formulation of the audit report / audit observation/objections/charge sheet, he ought to first confront the same to the taxpayers the contents of the Report on all the issues. Secondly, after considering the explanation of the taxpayer, if he consider necessary that the same is required to be amended on the basis of definite information then he may invoke subsection (1) of Section 122 for B acquiring jurisdiction to amend the order under subsection (4) read with subsection (5) as the case may be. However, the DCIR has not followed the requirement of law in letter and spirit and passed the order under sections 122(1), 122(5) of the Income Tax Ordinance, 2001 without confronting the Taxpayer the contents of the audit report/charge sheet / audit objections before invoking the amending assessment order under section 122(1) read with subsections (4), (5) and clauses (i), (ii) and (iii) C of Section 122(5) of Income Tax Ordinance, 2001 or even before the issuance of notice under section 122(9) of the Income Tax Ordinance, 2001. Therefore, the CIR (A) rightly observed that: "i)...A perusal of the orders that was framed on mere presumptions and assumption without assigning any definite information" ii) The assessing officer has also rot followed the Audit procedure laid down by the honourable Lahore High Court in its judgment reported as 2017 PTD 686 Hence, the amended assessm ent in this case has been framed in total ignorance of the law and in violation of the prescribed procedure and legal and mandatory requirements. The CIR/DCIR/OIR, in total oblivion of the mandatory requirement / condition precedent has been set out for the amended assessm ent under the provisions of section 122(1) in continuation to the proceedings of audit under section 177 without acquiring proper jurisdiction as prescribed in sections 177(6), 122(1) and 122(5). In our opinion the fact that the order has been amended under section 122 should be the point of favour of selecting a case for audit instead of being treated as an obstacle in the path of selection of case for audit because on the basis of amendment of an order it can be safely assumed that the return which has been converted into assessment order cannot be relied upon. 15. The audit proceeding under section 177 is only a procedure / mode and method to find out some defects in the accounts and to obtain information to further enter into the jurisdiction under section 122(1) for making an amended assessment after acquiring authority under section 122(5)' on the basis of "definite information". We may further observe that for all practical purposes section 177 of the Income Tax Ordinance 2001 was a just process / mode and method and prescribed path to reach to conclusion as to from where the CIRIOIR/DCIR/assessing officer could further modify an already assessed income for which law had very clearly provided the provision in terms of Section 122(5) of the Income Tax Ordinance, 2001.
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16. We are of the considered opinion that section 177 does not in itself provide any power or absolute empowerment to modify, assessment or re-determine the income of taxpayer. In this regard the key point which is to be kept in mind is that it is not a return of income which is beak processed' by the CIR/DCIR/OIR, selecting and thereafter conducting /doing audit. He is dealing with a 'assessm ent order' which by process of law has acquired a sanctity. The finalized assessm ent, therefore, cannot just be Modified or disturbed in continuation of the proceedings of audit under section 177. 17. The selection of audit or even conducting / doing of audit does not mean or include an assessm ent or amended assessm ent/alteration or modification of assessment. The. 'selection of audit and thereafter conducting of audit proceeding is just process and audit authority before invoking provision of section 122 for amendment have to, frame charge sheet/ audit observation/audit qualification/audit report and the same ought to be 'communicated to the taxpayer for rebuttal and the explanation/reply/assertion/contention/objections. of taxpayer must be obtained and considered before proceeding for invoking Section 122. Then after acquiring jurisdiction, and fulfilling all tine requirements of subsections (1) and (5) of section 122. Only thereafter assessm ent may be amended under section 122. The mere (firstly) issuance of notice under section 122(9) read with under section 122(1) after selection but before conducting audit IA the taxpayer is not complete requirement of law. Department first has to reject the objection/rebuttal of taxpayer on audit report then require to acquire jurisdiction under sections 122(1) and then 122(5). However, this Having not been done so. We may conclude this issue that the CIR/OIR after selection and conducting audit ought in every case to be able to give the taxpayer all the charges/objection/issues raised in audit against taxpayer, such as to enable him to answer/explain them before invoking provisions of section 122 and after ,obtaining and considering explanation of taxpayer on audit objections, only thereafter, if the CIR/OIR may consider necessary. The CIR/DCIR/OIR, may amend the assessment under section 122(1), (4)/(5) after fulfilling all requirement of law subject to definite information and fulfillment of further condition of clause (i), (ii) or (iii) of subsection (5) of Section 122. 18. Adverting to the other aspect of the impugned order passed by the officers below 'that no definite information was found to have been available with the DCIR within the meaning of section 122(5) read with section 122(8) of the Income Tax Ordinance, 2001. The Hon' able Lahore High Court in its recent decision (2013) 107 Tax 41 2013 PTD 884 (H.C. Lhr) on the subject of "definite information" with reference to section 122(5) of the Income Tax Ordinance, 2001 has held as under:- "The term "definite information" in section 122(5) of the Ordinance is not just any information but definite enough to satisfy the concerned officer that income chargeable to tax of an assessee has escaped assessment or total income of an assessee has been under-assessed, etc. 'definite' means indisputable, known for certain, explicitly precise, clearly defined, leaving nothing to implication, established beyond doubt and cut and dried. Definite information is, therefore, That select information which falls within the restrictive meaning of the word "definite" explained above. The law also provides that definite information must be acquired from audit or otherwise. Applying the interpretative tool doctrine of ejusdem generis which literally means "of the same kind or class" and the doctrine provides that where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned the word "otherwise" appearing next to the word "audit" in section 122(5) of the Ordinance on the basis of the above doctrine means a methodology akin or similar to audit where some determined final, certain, indisputable, calculated information is picked up from any available record of the assessee. "Otherwise," therefore, does not mean putting information through further process of calculation by the department. The word "acquired" used in section 122(5) of the Ordinance which literally means to "gain possession of" in the present context
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connotes that the information already exits and has to be picked up from the records or documents. This acquisition provides no margin for incomplete, imprecise and inexact information to be completed through further calculation or processing as that would not be acquiring information but analyzing it. Reading of Section 122(5) of the Ordinance, therefore, shows that information in a definite, final and, conclusive form must already exist in some document or record at the time of acquisition. Any information which is incomplete or requires further processing falls outside the domain of definite information and can best pass for a departmental opinion, judgment, guesstimate, approximation or estimate." 19. We may also rely on the judgment reported as 2007 PTD (Trib.) 2601. The relevant extract of which is reproduced as under: "15. In most of the cases the Courts try to implement the provisions of law and avoid declaring it as redundant. It is obWously under the spirit that laws are always made for implementation and not to just remain as part of the statue without being of any benefit to the public at large. However, this Tribunal has in many cases not allowed issuance of notices in slipshod manner without indicating the actual reason of issuance thereof. The Hon'ble Lahore High Court has even gone to hold that issuance of a notice under section 65 without indicating the reason of issuance of notice in terms of subsection (1), (2) or (3) or (a), (b) or (c) of the said section to be as illegal. In this case notice under section 62 is statedly issued which provisions does not exist in the scheme of new law. There is a provision under the title "amendment of assessment" and the same is 122(1) and all other provisions are subject to the said section 122. In the earlier part of our discussion we have already held that section 122(1) is the mother provisions while all other subsections are helping and the same determine the fitness of the amendment of the assessment to be made under section 122(1). The Assessing Officer in this case has not even bothered to mention the subsection in its notice. Hence even if one is confident that section 122 could be enough for acquiring jurisdiction, non-mentioning of the other provision in terms of subsection (5) of subsection (5A) is fatal as the parameters for each of the said provisions are entirely different from the other. Besides, erroneousness of the assessment for determining prejudice to the interest of revenue in a deemed assessment order shall also need a good deal of dilation and discussion. There are certain more questions which would require answer in a case like this. The Assessing Officer has proceeded to make the assessment under section 120. The provision of section 122 which has been titled as assessments and as a sub title as an amendment of assessment, provides full authority for mating an assessment. These provisions in fact are para meteria to the assessments under section 62 as well as 63 in addition to 65 and 66(A) etc. Section 120 does not come into picture for amendment of an assessment. It supplication is only up to the deemed assessment order and has no extension beyond the said language. 16. The upshot of the above discussion therefore is obvious. The jurisdiction in this case could only be acquired by the Taxation Officer after receiving of an information from the audit department by issuance of an notice under section 122(5). Since said notice have not properly been issued for acquiring jurisdiction over this case, one cannot agree with the department that the subsequent proceedings are justified". 20. We may further seek support from the judgment of Appellate Tribunal vide order 2013 PTD 1083, (2013) = 107 Tax 389 (Trib.) in the light of various cases decided by the Hon'ble Supreme Court on the subject of "Definite Information has held as under :- "We are persuaded to agree with the arguments of learned AR that pre-requisite for invoking section 122(5) of the Ordinance was definite information with regard to escapement or under assessment of income or assessment at too low a rate or subjection of excessive relief or refund. Further, the definite information must have come in the possession of Department after completion of assessment this dictum is elaborated in detail by the honourable Supreme Court in
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CIT v. Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. and others v. CBR, Islamabad and others 1993 SCMR 1232 = 1993 PTD 766. We are also in agreement with the arguments of learned AR that in the presence of favorable judgments of higher courts on the issue the department could not invoke section 122(5) as mere disagreement with the decisions of higher courts did not constitute definite information. The honourable Lahore High Court in Saitax Spinning Mills Ltd v. Commissioner of Income Tax 2003 PTD 808 disapproved reopening of a completed assessment for want of definite information. Moreover, mere disagreement over legal interpretation of section 67 and estimation of life of computer software was not definite information as wrongly assumed by the Department. We therefore decide the appeal for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful" 21. We, therefore, hereby hold that it is a trite law that the provisions of subsection (5) of section 122 of the Income Tax Ordinance, 2001 allows amendment of any assessment only when the department is in possession of. definite information and not otherwise, and in this context the DCIR was under legal obligation to specifically identify the nature of suppressed income and issue notice in terms of clauses (i), (ii) and (iii) of subsection (5) of section 122 of the Income Tax Ordinance, 2001 highlighting the fact under which category appellant's case falls. None issuance of such notice clearly meant that while passing the amend, assessment order DCIR' was not in possession of definite information and the reason assigned for additions/ disallowances while passing the amended assessm ent order, cannot be termed as. definite information. Thus, the law has rendered the entire proceedings void ab initio, and illegal. Even otherwise the Simple issuance of notice under section 122(9) even in this particular case before conducting audit of the taxpayer and what to speak of prior to confrontation audit…
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