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Petitioner: DEWAN TEXTILE MILLS LTD., KARACHI VS Respondent: The ACIR-B, AUDIT-D-I, LTU, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Sikandar Aslam Title: DEWAN TEXTILE MILLS LTD., KARACHI vs The ACIR-B, AUDIT-D-I, LTU, KARACHI Case No.: I.7'.As. Nos.415/KB and 416/KB of 2012 Date of Judgment:2014-05-30 Reported As: 2017 PTD (Trib.) 1663 Result: Case remanded
Judgment ORDER MUHAMMAD JAWED ZAKARIA (JUDICIAL MEMBER).--- Through these appeals the taxpayer has challenged the consolidated order dated 30-12-2011 passed by the Commissioner Inland Revenue (Appeals-I, Karachi whereby he remanded back the case to the DCIR. Both the appeals are being disposed vide this consolidated order as the grounds of both the appeals are common and identical in nature except the amount as under: - "1) That the order passed by the Commissioner Inland Revenue (Appeals-I) is not only bad in law but also on facts as the order passed under section 122(5A) being illegal and without jurisdiction should have been cancelled and annulled. 2) That the Commissioner Inland Revenue (Appeals) was not justified in confirming the order passed under Section 122(5A) of Income Tax Ordinance, 2001 in the case of the appellant, although it is now settled law that neither fishing inquiries are permissible, nor the order "merged" with Commissioner Inland Revenue (Appeals) can be amended, nor there is any violation of specified conditions of Section 122(5A). The order passed on 24-03-2010 is not only illegal but also time barred and without jurisdiction, hence liable to be cancelled and annulled. That the Commissioner Inland Revenue (Appeals) has not only acted illegally but also on misception and incorrect appraisal of law and as well as misconstruction and misinterpretation of law as the deemed order amended under section 221 does not exist and had "merged" with the order passed under section 129 by Commissioner Inland Revenue (Appeals) which was beyond the jurisdiction and authority vested with Additional Commissioner Inland Revenue under section 122(5A) and incorrectly confirmed by Commissioner Inland Revenue (Appeals), both. being illegal, without jurisdiction and in clear violation of settled law are liable to be cancelled and annulled.
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4) That without prejudice to above, both the required conditions have not been fulfilled, the tax liability being the same as per Income Tax Return and amended order, the Commissioner Inland Revenue (Appeals) has erred in confirming the illegal and without jurisdiction order passed under section 122(5A) in violation and ignoring the settled law as interpreted in various decisions relied upon on the issue of erroneous and prejudice to revenue and also on merger of order with appellate decision, by recording incorrect insinuations, the order confirmed in appeal is liable to be cancelled and annulled 5) That the Commissioner Inland Revenue (Appeals) has not only acted illegally but also in clear violation of settled law that issues on certain facts and law once settled and decided in appeal, can not be reopened again and again on the same facts and law without disclosing fresh and new information available and in clear violation of an earlier decision on the same issues. The order passed by Commissioner Inland Revenue (Appeals) wherein he has confirmed the illegal and without jurisdiction order passed under section 122(5A) is liable to be cancelled and annulled 6) That the appellant had de-leased the machinery in Tax Year 2003 and thereafter depreciation had been claimed on "residual value" and "NOT" on acted cost, the Additional Commissioner and Commissioner Inland Revenue (Appeals) had verified the facts from record and depreciation schedule which was also evident from earlier order passed under sections 122 and 129, the Commissioner Inland Revenue (Appeals) has acted illegally by confirming the order and issuing adverse directions instead of cancelling the order passed under section 122(5A). The order passed by Commissioner Inland Revenue (Appeals) is liable to be cancelled and annulled. 7) That the Commissioner Inland Revenue (Appeals) has erred in setting aside the dis allowance of depreciation on de-leased assets amounting to Rs.1,544,484/- instead of deleting the same, inspite of the fact that complete details and evidence have been filed and are not only available on record and were also produced before Commissioner Inland Revenue (Appeals) during the appellate proceedings. The dis allowance of depreciation on de-leased assets amounting to Rs.1,544,484/- having been made on totally false and incorrect allegations are not sustainable in law and on facts and should have been deleted 8) That the Commissioner Inland Revenue (Appeals) has erred in set-aside the order on turnover for the purpose of levy of tax under section 113 amounting to Rs.6,875,773/- instead of deleting the same." 2. Brief facts of the cage as narrated from the available record are that the taxpayer is a Public Limited Company, engaged in spinning of Yarn. Return of income for the tax year 2005 filed for the period from 01.10.2004 to 30.06.2005 declaring loss at (Rs.238, 966, 180/-) under normal law with receipts cover under FTR at Rs.621,033,865/- and final tax liability thereon at Rs.7,773,600/-, and for the period from 01.10.2003 to 30.09.2004 declaring loss at (Rs.205, 958, 414/-) under normal law with receipts cover under FTR at Rs.1,010,285,795/- and final tax liability thereon at Rs.12,776,793/-, which were treated as an assessm ent orders deemed to have been issued in terms of section 120 of the Income Tax Ordinance, 2001. The deemed orders under section 120 were subsequently rectified under section 221 vide D.C. No.14/08 dated 19.06.2006 and D.C. No.13/08 dated 19.06.2006 respectively on the issue of incorrect claim of depreciation on leased Plant and Machinery transferred to own assets. The taxpayer being aggrieved with the said treatment, filed appeals before the learned CIR(A) [The then CIT(A)], who vide consolidated order for the tax years 2004, 2005 and 2005 A (Transitional period) bearing Nos.13 to 15 dated 31.08.2006 annulled the order passed under section 221 of the Income Tax Ordinance, 2001. The deemed orders under section 120 were considered erroneous as well as prejudicial to the interest of revenue requiring further amendment under section 122(5A) of the Income Tax Ordinance, 2001. Accordingly, a notice under section 122(9) along with statutory notice dated 12.01.2010 under Rule 68 of the Income Tax Rules, 2002 was issued. Taxpayer filed reply, which was found unsatisfactory. Resultantly, the ACIR
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amended the order. Taxpayer being aggrieved with the said order filed appeals before the learned CIR(A), who vide his impugned order dated 30.12.2011 remanded back the case to the OIR/ACIR. Taxpayer again being aggrieved with the treatment meted out by the learned CIR(A), preferred the present appeal before this Tribunal. 3. On the date of hearing, Mr. Salman Pasha, Advocate, appeared as counsel of the taxpayer/appellant while Mr. Rafiq-ur-Rehman, learned DR from LTU represented the respondent/Department. 4. During the Court proceedings, Mr. Salman Pasha, Advocate, learned counsel for the appellant contended that the order passed by the Commissioner Inland Revenue (Appeals-I) is not only bad in law but also on facts as the order passed under section 122(5A) being illegal and without jurisdiction, therefore, he prayed that these orders should have been cancelled and annulled. He further contended that the Commissioner Inland Revenue (Appeals) was not justified in confirming the order passed under Section 122(5A) of Income Tax Ordinance, 2001 in the case of the appellant, and continued to argue that it is now settled law that neither fishing inquiries are permissible, nor the order "merged" with Commissioner Inland Revenue (Appeals) can be amended, and there is violation of specified conditions of Section 122(5A). The order passed on 24-03-2010 is not only illegal but also time barred and without jurisdiction, hence liable to be cancelled and annulled. It was also contended by the learned AR that the Commissioner Inland Revenue (Appeals) has not only acted illegally but also on misception and incorrect appraisal of law and as well as misconstruction and misinterpretation of law as the deemed order amended under section 221 does not exist and had "merged" with the order passed under section 129 by Commissioner Inland Revenue (Appeals) which was beyond the jurisdiction and authority vested with Additional Commissioner Inland Revenue under section 122(5A) and incorrectly confirmed by Commissioner Inland Revenue (Appeals), both being illegal, without jurisdiction and in clear violation of settled law are liable to be cancelled and annulled. The learned counsel for the appellant further agitated that both the required conditions of the provisions to Section 122(5A) of Income Tax Ordinance, 2001 have not been fulfilled, the tax liability being the same as per Income Tax Return and amended order, the Commissioner Inland Revenue (Appeals) has erred in confirming the illegal and without jurisdiction order passed under section 122(5A) in violation and ignoring the settled law as interpreted in various decisions relied upon on the issue of erroneous and prejudice to revenue and also on merger of order with appellate decision, by recording incorrect insinuations, the order confirmed in appeal is liable to be cancelled and annulled. He further agitated that the Commissioner Inland Revenue (Appeals) has not only acted illegally but also in clear violation of settled law that issues on certain facts and law once settled and decided in appeal, cannot be reopened again and again on the same set of facts and law without disclosing fresh and new information available and in clear violation of an earlier decision on the same issues. It was also agitated by learned AR that the appellant had de-leased the machinery in Tax Year 2003 and thereafter depreciation had been claimed on "residual value" and "NOT" on acted cost, the Additional Commissioner and Commissioner Inland Revenue (Appeals) had verified the facts from record and depreciation schedule which was also evident from earlier order passed under sections 122 and 129, the Commissioner Inland Revenue (Appeals) has acted illegally by confirming the order and while remanding issued adverse directions instead of canceling the order passed under section 122(5A). The order passed by Commissioner Inland Revenue (Appeals) is liable to be cancelled and annulled. The learned counsel for the taxpayer urged that the Commissioner Inland Revenue (Appeals) has erred in remanding back the dis allowance of depreciation on de-leased assets amounting to Rs.1,544,484/- instead of deleting the same, inspite of the fact that complete details and evidence have been filed and are not only available on record and were also produced before Commissioner Inland Revenue (Appeals) during the appellate proceedings. The dis
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allowance of depreciation on de-leased assets amounting to Rs.1,544,484/- having been made on totally false and incorrect allegations are not sustainable in law and on facts and should have been deleted. While concluding his arguments, learned AR once again submitted that the Commissioner Inland Revenue (Appeals) has grossly erred in remanding back the order on turnover for the purpose of levy of tax under section 113 amounting to Rs.6,875,773/- instead of deleting the same. Accordingly he prayed that the order passed by Commissioner Inland Revenue (Appeals) wherein he has confirmed the illegal and without jurisdiction order passed under section 122(5A) is liable to be cancelled and annulled. , 5. During the course of hearing, learned AR of the taxpayer submitted copies of following documents:-- Order passed in C.As. Nos.1350-1352 of 2001 dated 26-07-2006. Reported judgment of Hon'ble Lahore High Court reported as 2001 PTD 1467. Reported judgment of the ATIR's Lahore Bench reported as (1969) 20 Tax 51 (Trib.). Consolidated Order of the ATIR's Karachi Bench in I.T.A. No.834/KB of 2010, I.T.A. No.618/KB of 2008, I.T.A. No.52/KB of 2009 and I.T.A. No.835/KB of 2010 dated 20.11.2013. Order of the ATIR's Lahore Bench in I.T.As. Nos.1688-1689/ LB/2012 dated 08.02.2013. Order of the ATIR's Karachi Bench in I.T.As. Nos.61-62/KB/ 2009 dated 17.05.2011. Order of CIR(A-I), Karachi dated 21-08-2006. S. Depreciation Schedule and Annual Report for 2004-05. 6. After concluding his arguments, the learned AR of the taxpayer submitted written summarized synopsis, which are as under:-- "1)(1) Appellant is a Textile Mill and has continued manufacturing of Yarn. Appellant being a Textile Mill, Special Year Ending on 30th September was assigned as per section 74 of Income Tax Ordinance, 2001. However, as per Finance Act, 2004, subsection (2A) was added to Section 74, whereby special year was converted to normal Tax year ending 30th June. Hence, for Tax year 2005, appellant had filed 2 separate Income Tax Returns along with audited accounts, computation of Income, depreciation schedule etc as under. (i)Tax year 2005. Tax year 01-10-2003 to 30-09-2004. First period. (ii)Tax year 2005. Tax year 01-10-2004 to 30-06-2005. Second period. I) (ii) As Income Tax Returns for both the period were complete in all respect, assessment for Tax year 2005 was deemed under section 120(1). Thereafter, Taxation Officer-01, Audit Division, Large Taxpayers Unit, Karachi had issued a notice under section 221(2) dated 21-05-2006 for tax year 2004 and also for both the periods of Tax year 2005 with the intention to rectify the deemed orders. According to the Assessing Officer, depreciation claimed on de-leased assessed transferred from Tax year 2003 is not an admissible deduction. Re-pies dated 7-06-2006 and 9- 062006 filed for both the years with TFD, LTU, Karachi, were summarily rejected. Deemed orders for Tax years 2004, 2005 and 2005 were rectified under section 221 on 19-06-2006 whereby, depreciation claimed on de-leased assets transferred from Tax year 2003 were disallowed. 1)(iii) The Commissioner of Income Tax (Appeals-I) Karachi, as per appellate orders Nos.13 to 15 (Appeals No's 38, 39 and 40) dated 21-08-2006 had annulled all the three orders passed under section 221. But, an alternative direction to invoke Section 122(5A) was accorded. Thus, as the orders passed under section 221 for Tax years 2004, 2005 and 2005 were cancelled in appeal decided under section 129 as per order dated 21-08-2006, the orders passed under section 120(1) read with section 221 were merged with the appellate order passed under section 129, hence, the deemed order under section 120(1) does not exist and has been merged with appellate order passed under section 129 of Income Tax Ordinance, 2001 by Commissioner of Income Tax (Appeals-I), Karachi. 2)(i) Subsequently, the Additional Commissioner Inland Revenue-B, Audit Division-I, Large
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Taxpayer Unit, Karachi, had initiated fresh proceedings under section 122(5A) as per notice issued under section 122(9) on 12-01-2010 for both the periods for Tax year 2005 only, with the intention to disallow depreciation as per and on the basis of orders passed under section 221 by his predecessor. However, no notice under sections 122(5A)/122(9) was issued for tax year 2004. 2)(ii) Reply dated 01-02-2010 was dully filed wherein, we had not only contested proceedings under section 122(5A) but also jurisdiction of Additional Commissioner to initiate proceedings against order passed under section 129 for both the periods of Tax year 2005. We had also contested that the previous orders passed under sections 120(1) and 221 does not exist as the same had been merged with appellate orders passed under section 129 on 21-08-2006 by Commissioner Income Tax (Appeal-I), Karachi. Our submissions were that, after decision of Appeal by CIT (Appeals-I) Karachi, whereby, the orders passed under section 221 had been annulled and not set-aside, the Additional Commissioner cannot initiate proceedings under section 122(5A) against orders passed under section 129 which is beyond the jurisdiction and authority of Additional Commissioner to further amend the orders passed in appeal under section 129. Moreover, the order passed under section 129 was not contested in appeal before the Tribunal, hence, the said order was neither erroneous, nor prejudicial to the interest of revenue. On legal objection, we had requested to withdraw the note issued under sections 122(5A)/122(9) and drop the proceedings for tax year 2005. 2)(iii) On merits of the case, we had also explained that depreciation as per audited accounts have been added back in both the periods for Tax year 2005 and as plant and machinery had been de-leased in Tax years 2003 and 2004, thereafter, appellant had adopted the residual value of plant and machinery only for the purpose of depreciation in accordance to 3rd Schedule of Income Tax Ordinance, 2001. Although, depreciation schedule as per Third Schedule, computation of income and audited accounts were available on record for tax years 2004 and 2005, but in order to justify our contention, we had again filed copies of relevant page of audited accounts, computation of income and as well as depreciation schedule, wherein depreciation on de-leased assets was claimed and was restricted to residual value and not at the written down value as per audited accounts. 2)(iv) As per order passed under section 122(5A) on 24-03-2010 for both the periods for tax year 2005, the Additional Commissioner had disallowed depreciation of Rs. 1,544,484/-for the period 30-09-2004 and depreciation of Rs.1,517,590/- for the period ending 30-06-2005, without appreciating that the assets had been de-leased in tax years 2003 and 2004 and not in tax year 2005. Depreciation on residual value as claimed in tax years 2003 and 2004 had been allowed and depreciation during both the periods for tax year 2005 was claimed on written down value on the basis of residual value carried forward from tax years 2003 and 2004. Neither tax year 2003, nor tax year 2004 were amended, hence, entire working and observations of Additional Commissioner are incorrect and baseless. 2)(v) Without prejudice to above, we may further clarify that, the issue regarding claim of lease rental was intentionally created by the Additional Commissioner in order to confuse the issue, although, no lease rental was claimed on de-leased assets, but lease rental relates to other assets which are still under Lease Agreement. Hence, observation regarding lease rental are totally incorrect, frivolous and not relevant for the purpose of depreciation claimed on written down value on the basis of residual value carried forward from preceding years. 3)(i) Appellant being aggrieved with the order passed under section 122(5A) had filed appeal before the Commissioner Inland Revenue (Appeals-I) Karachi on 28-04-2010 which was registered as Appeals Nos. 444 and 445 for tax year 2005. This appeal was heard on 11-05-2011 and was decided as per order dated 30-12-2011. The CIR (A) had set-aside the order with the following observation and finding without considering the submissions of the appellant and the illegalities
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committed by the Additional Commissioner. The observations and finding of CIR (Appeals) as recorded in the last two pages are reproduced here under:- "Now, on merits, AR has contended that the appellant had not de-leased any asset in tax year 2005 as these assets (machinery and generator) were de-leased in the tax year 2003 and depreciation of which was correctly claimed and allowed on residual value in tax year 2004. The AR further contended that as admitted by the ACIR in the impugned order that there was no mistake in allowing depreciation on de-leased assets in tax year 2004, the subsequent action initiated under section 122(5A) for the year 2005 is totally incorrect. The AR continued that the action of the ACIR invoking section 122(5A) is beyond the jurisdiction for the reason that he had recalculated depreciation for tax year 2004 in the impugned order for tax year 2005 without reopening or canceling the order for tax year 2004. The powers and authority to amend the order is restricted to the tax year 2005 for which proceedings under Section 122(5A) were initiated and not for any other .tax year, thus, he had no vested authority or power to amend the order of preceding year in the garb of Section 122(5A) without initiating proceedings under Section 122(5A) for which no notice was issued. The above arguments of the learned AR are convincing, the DCIR in my opinion could not calculate the depreciation on the assets for tax year 2004 in the order wherein the proceedings uncle, Section 122(5A) was initiated for tax year 2005. If he considered that the amendment on the issue is necessary then he was required to initiate these proceedings in preceding years and without doing this the correct amount of depreciation which is calculated on the WDV can not be ascertained. In these circumstances the DCIR is directed to consider the appellant's submission that the assets were de-leased in tax year 2003 and verify the record that the same has been taken at correct residual value. And if he is not satisfied with the contention of the learned AR then he may recalculate the depreciation on these assets from the year when these were de-leased and taken in to the assets of the company accordingly." 3)(ii) That the CIR (Appeals) was not justified in setting aside/ remanding the order on flimsy grounds which has neither been appreciated, nor approved, rather deprecated by higher forum. Reliance is placed on the following decisions: 1996 SCMR 230 (SC Pak), in, Chairman WAPDA, Lahore and others v. Gulbat Khan 1991 PTD 463 (KHC) in, Shahab Industry Ltd. v. Commissioner of Income Tax, Karachi. 2002 PTD 407 (KHC) in, AYENBEE (Pvt.) Limited v. Income Tax Appellate Tribunal, Headquarter, Karachi 1988 PTD 1014 (LHC) in, Ch. Muhammad Sadiq v. Income Tax Officer With due respect, it is respectfully submitted that although the learned CIR (Appeals) had admitted that the Additional Commissioner had patently committed an illegality and had no jurisdiction to re-compute depreciation although assets had been de-leased in tax years 2003 and 2004 and this fact had not been disputed even by Additional Commissioner Inland Revenue. Moreover, as per tax depreciation schedule computed as per Third Schedule to Income Tax Ordinance, 2001, depreciation for both the periods for tax year 2005 had been computed by adopting the residual value in the year of de-leased and thereafter written down value of de- leased assets had been carried forward in tax year 2005. As this fact have not been disputed, the CIR (Appeals) was not justified in setting aside the amended order passed under section 122(5A), instead of canceling the impugned order. 3)(iii) Without prejudice, we may further state that as per Clause (a) of Subsection (1) of Section 129, the CIR (Appeals) was not justified in setting aside the impugned order passed under section 122(5A) instead of canceling and annulling the order. Due to above illegalities, the appellant was
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fully justified in filing and contesting the appeal before the Appellate Tribunal Inland Revenue, Karachi. 4)Grounds Nos.1 to 5: Order passed under section 122(5A). on 24-03-2010 for fax year 2005 is an illegal order and beyond the jurisdiction under section 122(5A) for following reasons:- (1) As per facts discussed above, the deemed and rectified order have been merged with the order passed undei section 129 by CIR (Appeals), hence, the Additional Commissioner had no jurisdiction to initiate proceedings under section 122(5A) nor can amend the order passed by CIR (A). (ii) At this stage, we may recall the facts that, order passed under section 221 for tax years 2004 to 2005 had been annulled by CIR (Appeals) as per orders Nos.13 to 15 dated 21-08-2006. Against this order, the Commissioner, LTU, did not file any appeal before the Appellate Tribunal contesting the annulling of orders, hence, the order of CIR (Appeals) dated 21-08-2006 had attained finality and was a past and closed transaction and the original orders had merged with the order passed Under section 129 of Ordinance, 2001. (iii) With the above facts in mind, we are relying on the ratio dividend of decision of Lahore High Court reported as 2001 PTD 1467 (LHC) in the case of Sandal Engineering (Pvt.) Limited, Faisalabad v. the Inspecting Additional Commissioner of Income Tax, Faisalabad. This decision" ,has also been confirmed by Supreme Court of Pakistan in 'Civil Appeals Nos. 1350, 1351 and 1352 of 2001 dated 27- 04-2006 as Civil Appeal was not pressed and had been withdrawn. Facts of the case decided by Lahore High Court are that, the original order for the years 1994-95 to 1996-97 were passed by the IAC as Chairman of Panel on the…
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