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Petitioner: C.I.R., R.T.O. HYDERABAD VS Respondent: Dr. MUHAMMAD AZEEM ALMANI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Faheem-ul-Haq Khan Title: C.I.R., R.T.O. HYDERABAD vs Dr. MUHAMMAD AZEEM ALMANI Case No.: I.T.As. Nos.538/KB and 539/KB of 2010 Date of Judgment:2013-10-31 Reported As: 2015 PTD (Trib.) 1242 Result: Appeals dismissed
Judgment ORDER MUHAMMAD JAWED ZAKARIA (JUDICIAL MEMBER).---Above captioned Departmental appeals are directed on the ground as set forth in the memo. Of appeals against the consolidated order Nos.3 and 4 dated 28-6-2010 relating to the tax years 2008 and 2009 passed by the learned Commissioner Inland Revenue (Appeals), Karachi @ Hyderabad. Since the facts and issues involve in the two appeals are common, therefore, we intend to dispose of the above appeals through this common, consolidated and single order. 2. Mr.- Tariq Mustafa Khan, DR appeared for department/ appellant and Mr. M. Jawaid Khurram Advocate, represented the Tax Payer/respondent. 3. Brief facts of the case are that the Tax Payer/Respondent is a practicing Doctor maintaining Clinics at Saddar Hyderabad and Ankal Saria Hospital Karachi. Besides medical profession the Tax Payer/ respondent is also enjoying income from agricultural land at Tandu Allah Yar and Tandu Muhammad Khan and from the said land he earns agricultural income. The respondent for the Tax Year 2008 declared income from medical profession Rs,616,500 and agricultural income Rs,1,000,000 the respondent in the Wealth Statement filed along with the Tax return declared net Wealth of Rs,7,379,863 as on 30-6-2008 inclusive of agricultural land 220 Acres at Sandi Tandu Allah Yar and 40 Acres in Tandu Muhammad Khan. Similarly, for the Tax Year 2009 declared income from medical profession Rs,626,000 and agriculture income Rs,1,000,000, the Tax payer also filed wealth statement wherein the above mentioned agricultural land duly declared. The case of the Tax Payer/Respondent for the Tax Year 2008 selected for total audit under section 177(4) for the Income Tax Ordinance, 2001, the respondent duly complied all the notices issued by the Assessing Officer and placed before him all the relevant details, documents and information called for. After
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protracted proceedings the DCIR/OIR, Audit Unit-X, RTO, Hyderabad issued notice under section 122(9) dated 21-7-2010 whereby besides other issues he confronted to disallow the 10% out of salaries and entire claim of expenses such as stationary printing, fuel, expense and maintenance, misc. Expenses, under section 174(2) of the Income Tax Ordinance, 2001 without making any reference to sections 122(5)(i), 122(5)(ii) and 122(5)(iii) of the Income Tax Ordinance, 2001 and finally disallowed 10% of Salaries 50% of Stationery Printing, Fuel expenses and maintenance and misc expenses. While passing the amended assessment order for the Tax Year 2008 the assessing officer at page(s) 7 and 8 of the amended order under section 122(1)/(5) of the Income Tax Ordinance, 2001 dated 30-1-2010 categorically stated that in view of section 111(2) of the Income Tax Ordinance, 2001 the unexplained credit entries in banks during the accounting year 1-7-2007 to 30- 6-2008 i,e,, Rs,75,95,825 (Closing balance as on 30-6-2008) and Rs,580,000 being the travelling expenses discoursed during the Tax Year 2010 therefore such amounts would be taxed in the Tax Year 2009. After passing the amended order for the Tax Year 2008 dated 30-1-2010 the assessing officer issued notice under section 122(9) dated 17-3-2010 for the Tax Year 2009, thereafter, passed amended order under sections 122(1)/ 122(5) dated 15-4-2010 for the Tax Year 2009 and made additions enumerated below:-- Tax Year 2008 Tax year 2009 Taxable income declaredRs, 616,500Taxable income declaredRs. 626,000 Additions:
(i) Salaries (10%) Rs. 23,160 (ii) Stationery/Printing (50%) Rs.7,660 (iii) Fuel Expenses (50%) Rs. 25,397 (iv) Maintenance/ Misc. expenses (50%) Rs. 10,885 Rs, 67,102Additions:
Under section 111(1)(b) of Income Tax Ordinance, 2001 Rs. 7,595,826
Under section 111(1) (c) of Income Tax Ordinance, 2001 Rs. 580,000Rs. 8,175,826 Amended taxable income,Rs. 683,602Amended taxable income,Rs. 8,801,826 4. Learned Departmental Representative argued that the learned CIR(A) was not justified to cancel selection of the case for audit which was legally amended under section 122(1) read with section 122(5) after fulfilling all legal requirement. According to the learned Departmental Representative, the learned CIR(A) failed to consider ti at there was no condition for issuance of a pre-show-cause notice, as held by Hon'ble Supreme Court of Pakistan. He concluded his arguments by contending that the Learned CIR(A) was not justified to delete the additions, which were made towards expenses claimed in profit and loss account, for want of evidence for the tax year, 2008 and he supported the additions made under sections 111(1)(b) and 111(1)(c) for the tax year 2009, Accordingly, he prayed that the order of the learned CIR(A) may be vacated and that of the order of Deputy Commissioner Inland Revenue, passed under section 122(1),(5) may, be restored. 5. On the other hand, learned Authorized Representative of the taxpayer/respondent vehemently opposed the contentions made by the learned Departmental Representative. 6. Mr. M. Jawaid Khurram Advocate the learned counsel of the Tax Payer/respondent defended the orders passed by the CIR(A) dated 28-6-2010. The learned A.R of the taxpayer succinctly advanced
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his points as respondent before this court which are appended below:-- The impugned case wrongly selected for Audit by CIR. No Audit Report/Audit objection/charge sheet/observations/findings confronted under section 177(6) before invoking section 122. The mandatory requirement of section 177 has not been fulfilled. 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, 122 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 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. 7. While elaborating point of view of taxpayer. Mr. M. Jawaid Khurram, Advocate the learned counsel of the Tax Payer/respondent at the outset very ably defended and opposed the selection of audit under section 177 and amended order under sections 122(1), 122(5), he also vociferously objected to against additions/disallowances made out of expenses in the Tax Year 2008 and additions made under sections 111(1)(b) and 111(1)(c) read with section 111(2) of the Income Tax Ordinance, 2001 in the Tax Year 2009. He further argued that the DCIR/OIR has not given mandatory notice(s) under sections 122(5)(i), 122(5) (ii) and 122(5) (iii) read with sections 122(5) and 122(8) of the Income Tax Ordinance, 2001 and as such not confronted the Tax Payer/respondent about the acquisition of "definite information." According to him, in view of the amended order made through under sections 122(1), 122(5) and addition made under section 111(2) of the Income Tax Ordinance, 2001 he contended that vide Finance Act, 2010 no addition under sections 111(1) (b) and 111(1)(c) of the Income Tax Ordinance, 2001 with reference to any alleged concealment discovered during Tax Year 2010 in respect of accounting period 1-7-2007 to 30-6-2008 can be made in the Tax Year 2009 and DCIR have had not issued any separate, independent, specific and valid notice under section 111 for making any addition under section 111 and furthermore, there is no un-explained income/investment or expenditure, hence, additions under section 111 liable to be deleted. 8. Mr. M. Jawaid Khurram Advocate the learned counsel of the Tax Payer/respondent in respect of passing order under sections 122(1)/ 122(5) of the Income Tax Ordinance, 2001 and disallowances of expenses with reference to section 174(2) of the Income Tax Ordinance, 2001 drawn our attention to section 122(5) of the Income Tax Ordinance 2001. Section 122(5) "(5) An assessm ent order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that--- (i) any income chargeable to tax has escaped assessment; or (ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or (iii) any amount under a head of income has been misclassified. (emphasises supplied) 9. The learned counsel of the Tax Payer/respondent emphasized 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 section 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 or otherwise. In the instant case no such definite information was acquired by the DCIR/OIR. Add backs/disallowances out of profit and loss account expenses which stand declared in the return and accounts filed with the return do not constitute "definite
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information" within the meaning of section 122(8) and the case-law on the subject. Reliance was placed on the decision of this Tribunal in the case reported as 2007 PTD 2601, wherein it has been held that "any information which creates doubts or provides reasons to suspect that the income has been concealed does not from a part of term "definite information" According to the [ATIR] tangible information and such proof that leads to the reason to believe, could only be considered as "definite information." It has further been held in the same decision that any estimate, gossip, personal whims or surmises could not be termed as "definite information." The learned counsel further contended that after filing of return by the taxpayer, the deemed assessment under section 120 of the Income Tax Ordinance, 2001 was deemed to be passed and until and unless the deemed assessm ent under section 120 is cancelled there cannot be another assessment in the presence thereof. He argued that deemed assessment has attained finality having the sanction of law, he went to say that. The audit proceedings are a process to reach to a conclusion from where the jurisdiction under sections 122(1) and 122(5) and then an assessment within the said provision can be altered/modified. All the assessm ent have to be under section 122 and before embarking upon such proceedings, the requirements of section 122(5) are to be fulfilled in letter and spirit. The selection of the audit in itself does not mean an assessment or modification of assessment. Audit proceedings may be dropped if department could not find any justifiable material evidence based on "definite information". 10. The learned AR of the Tax Payer/respondent vehemently argued that a plain reading of reasons assigned for various additions/ disallowances in the orders for the tax years 2008 and 2009 clearly perceived that the same constitute difference of opinion but not the definite information as defined in section 122(8) and held by the superior courts in various judgments. Reliance in this regard had been placed on the judgment Hon'ble Supreme Court of Pakistan reported as 2009 PTD 1392 [CIT v. Eli Lilly Pakistan (Pvt.) Limited]. According to the learned AR the Hon'ble apex Court had been pleased to held as under: "Under subsection (5) an assessment shall only be amended or an amended assessment shall only be further amended on the basis of definite information acquired from an audit or otherwise, where Commissioner is satisfied that any income chargeable to tax has escaped assessment or total income has been under assessed or assessed at too low a rate or has been the subject matter of excessive relief or refund or any amount under a head of income had been misclassifia So, there has to be a definite information with the Commissioner e.g. Information on sale and purchase of any goods made by taxpayer, receipts of taxpayer form services rendered or any other receipts that may be chargeable to tax under the Ordinance and on the acquisition, possession or disposal of any money, assets, valuable article or investment made or expenditure incurred by the taxpayer. Such information must have been received from a certain source. Such information must stipulate a case of escaped assessment, under assessment, assessment at too low a rate, excessive relief or refund, misclassification of a head of income." 11. The learned A.R. Of the Tax Payer submitted that the learned Tribunal in the case reported as 2011 PTD (Trib.) 321 has also emphasized of the fulfillment of the three conciliates referred in section 122(5) of the Income Tax Ordinance, 2001 in addition to "definite information" and held that:-- "The Assessing Officer has amended the deemed assessment on the basis of material already available on record and no fresh information/documents and come into possession of the Department. We are, therefore, of the view that there was no justification to amend the already completed assessment under section 122 of the Income Tax Ordinance, 2001. Reliance in this respect is on this Tribunal's judgment reported as 2003 PTD 1093. The provision of subsection (5) of section 122 of the Income Tax Ordinance, 2001 stipulate three conditions for issuance of said notice i,e, (1) any income chargeable to tax has escaped assessment, or (2) total income has been has been under assessed, or assessed at too low a rate, or has been subject of excessive relief or
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refund, or (3) any amount under a head of income has been misclassified. We have further noted that in this case the notice sent by the Taxation Officer under section 122 of the Ordinance, 2001 dated 30-12-2006 as this does not fulfill the requisite preconditions as mentioned above which render the entire proceedings as illegal and void ab initio. The reliance in the regard has been placed on the decision of the Hon'ble High Court reported as 1997 PTD 47." 12. Similarly, it has been maintained that Hon'ble Islamabad High Court in judgment reported as 2010 PTD 1506 in Writ Petitions Nos.517-518 of 2009 (Pakistan Mobile Communications Ltd., v. Commissioner of Income Tax Audit Division and 5 others) and Writ Petition No, 653 of 2009 Messrs SME Bank Ltd. v. Additional Commissioner of Income Tax Audit and others, while giving its findings on definite information and the applicability of the provisions of section 122(1) and (4) & (5) of the Ordinance has been pleased to hold as under:-- "Comparing the powers possessed by the Commissioner under subsection (5A) or (5B) with the powers conferred on the Commission under subsections (1) and (4) of section 122, I have come to the conclusion that the powers under subsection (5A) or (5B) are exercisable on the basis of data already available in shape of return and other documents annexed with the return. The jurisdiction can be exercised by the Commissioner, if Commissioner, on the basis of available data considers that the assessm ent order is erroneous and is prejudicial to the interest of the revenue. The assessm ent order means order treated as issued or order passed under section 121. However, if the Commissioner acquires come additional information from audit or through any other source (additional means additional to data already available) and the information is definite.... He can exercise powers under subsection (1) to amend assessment order treated as issued under section 120 order passed under section 120. Since the power under subsection (5A) is exercisable on the basis of the material already available, if the order passed is appealed against and the appellate order comes in to field the doctrine of merger would be applicable. Appellate order cannot be amended. However, powers under subsections (1) and (4) are altogether different. Even in the presence of appellate order, if the Commissioner acquires definite information through audit or otherwise he can proceed under the law to amend or further amend the assessment order. The reason is that the appellate order has been passed in the absence of information subsequently acquired by the Commissioner" 13. The learned counsel submitted that in other words, the Hon'ble superior Courts have been pleased to prescribe following criteria for invoking the provisions of subsections (1) and (4) to fulfill the requirements of subsection (5) of section 122:-- (i) The definite information must have been received from a source, (ii) The definite information must be in addition to the data that is already available on record. 14. The learned A.R. Of the Tax Payer/respondent vociferously submitted that a plain reading of the above judgments of the Hon'ble Supreme Court, the High Court and the Tribunal together with facts and circumstances of the case makes it clear that in the instant case the add backs and disallowances have been misconstrued by the DCIR/OIR as "definite information" as the same is neither received from any source nor is in addition to the data that was already available on record. Besides, additions have been made by the assessing officer on estimate, assumption, surmise and conjecture which could no be termed as "definite information" by any stretch of imagination. He contended that Hon'ble Supreme Court, on the contrary, by using the word "must" in its above cited judgment has made it mandatory that such information must been received from a source. The DCIR/OIR admittedly did not receive any information nor have any source of information other than record of the taxpayer. Similarly, as envisaged by the Hon'ble Islamabad High Court, there is no additional information acquired from audit or through any other source to fulfill the requirements of subsection (5) read with subsections (1) and (4) of section 122. It has been unambiguously stated by the Hon'ble. Islamabad High Court that the additional information
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means information in addition to the data that is already available on record' and it should be definite too. He urged that the add backs and disallowances out of profit and loss account expenses made in the instant case do not constitute such additional information i,e, the information was part of data already available in the shape of Income Tax return and other documents available with the return and cannot be termed as (definite) additional information, as envisaged by the Hon'ble Islamabad High Court. 15. The learned counsel for the taxpayer has also placed reliance on the ratio of learned ATIR order. This Tribunal reported as 2007 PTD 2319. In this case completed proceedings under section 111 but did not mention as to what clause of subsection (1) of section 111 was being applied. The Tribunal held that taxpayer was deprived of his legal right. All actions taken by the assessing authority and the consequential order passed by them were declared legally not maintainable. Orders of Additional Commissioner and that of CIT(A) were vacated being defective. It has been contended that this judgment is squarely applicable in the respondent's case appeal. As in this case the taxpayer has been deprived of his right to know under which provisions of law huge disallowances and add-backs have been made by the assessing office. Reliance is further placed on the ratio of judgment of Sales Tax Tribunal in the case reported as 2006 GST 255/404/KB of 2001 dated 14-6- 2006. According to the learned AR the Tribunal has been pleased to hold as under:-- "13. On the failure of the department to specifically mention in the show-cause notice the specific subsection of section 36 of the 1990 Act, the learned departmental representative has no answer. It is true that allegations of tax evasion have been made but the same are once again vague and defective in material particulars. What the Apex Court in the case of Assistant Collector v. Khyber Electric Lamp 2001 SCMR 838 (and the other authorities on Central Excise and Sale Tax cited by the learned counsel supra) has held is that the show-cause notice should specifically state the subsection of section 32 of the Customs Act, 1969 (pari-materia to section 36 of 1990 Act) and in doing so it must be specifically stated as to whether the action in being taken for collusion deliberate act, inadvertence error or misconstruction. We are afraid that none of these particulars have been spelt out in the show-cause notice. Merely alleging "tax evasion" or" Willful attempt to defeat or circumvent the tax" is hardly sufficient. 14. This, in respect of the second question framed by Hon'ble Supreme Court, it is held that the show-cause notice, not being in consonance with the law laid by the apex Court in Assistant Collector v. Khyber Electric Lamp is completely unlawful, illegal and without jurisdiction and accordingly the show-cause notice and all subsequent proceedings were ab-initio not warranted by law". 16. Mr. Jawed Khurram, the learned Advocate for the taxpayer pointed out and supported that in the instant case the DCIR/OIR was required to confront the appellant as to whether add backs/disallowances made by him comes under the provisions of sections 122(5)(i)/122(5)(ii) and 122(5)(iii) and also meet the requirement "definite information" under subsection (5) of section 122 read with section 122(8) of the Income Tax Ordinance, 2001. He further placed reliance on cases as Messrs Central Insurance Co. And others v. The Central Board of Revenue, Islamabad and others (1993 PTD 756) [Supreme Court of Pakistan], Income Tax Officer and others v. Chappal Builders (1993) 86 Tax 1 (S.C.Pak) and Messrs Pakistan Educational Society v. The Government of Pakistan through Chairman and Secretary Revenue Division, Islamabad and 2 others 1993 PTD 804 [Karachi High Court]. This should have been specifically confronted to the respondent enabling him to come-up with a proper reply. Thus the principle of fair trail, natural justice and opportunity of being heard have also been denied in due process of law and gross violation to Articles 4 and 10A of the Constitution. 17. The learned counsel of the Tax Payer/respondent submitted in respect of application of section 111(2) of the Income Tax Ordinance 2001 and additions made in Tax Year 2009. He contended that
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the amended/assessm ent under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 stand finalized on 15-4-2010 wherein the additions of Rs,7,595,826 and Rs,580,000 have been made with reference to sections 111(1)(b) and 111(1)(c) read with section 111(2) of the income Tax Ordinance, 2001 in the declared Income of the Tax Payer, the learned counsel of the Tax Payer/respondent vehemently submitted that in order to amend the assessment under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 the basic condition of availability of "definite information" and in addition to above issuance of notice under sections 122(5)(1), 122(5)(ii) and 122(5) (iii) of the Income Tax Ordinance, 2001 with reference to that any income chargeable to tax has escaped assessm ent or total income has been under assessed or assessed at too low a rate or has been the subject matter of excessive relief or refund or any amount under a head of income had been misclassified as narrated in the cases discussed in preceding paragraphs is condition precedent which is sine qua non. 18. Mr. M. Jawaid Khurram Advocate the learned counsel for the Tax Payer/respondent vehemently, once, again pointed out that vide Finance Act, 2010 subsection (2) of section 111 of the Income Tax Ordinance, 2001 amended according to which the words "immediately preceding the financial year in which it was discovered by the Commissioner" have been substituted by inserting the words "to which such amount relates" and therefore in view of such amendment no addition under sections 111(1)(b)/111(1)(c) read with section 111(2) warranted in the Tax Year, 2009. 19. In respect of application of the above narrated amended provision of law the learned A.R. Of the taxpayer had placed reliance to the following judgment of the superior judicial forums:-- (1) Commissioner of Income Tax v. Shahnawaz Ltd. 1993 SCMR 73 (2) Commissioner Income Tax v. Eliy Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279= 2009 PTD 1392 (3) Koh-i-Noor Textile Mills Ltd. v. Commissioner of Income Tax PLD 1974 SC 284 = 1974 PTD 239 (4) Zeal Pak Industries…
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