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Petitioner: Reliance Petrochem Industries (Pvt.) Ltd VS Respondent: Federation of Pakistan
Court Name: Sindh High Court Judge(s): Irfan Saadat Khan, Zulfiqar Ahmad Khan Title: Reliance Petrochem Industries (Pvt.) Ltd vs Federation of Pakistan Case No.: CP No.D-6084 of 2017 Date of Judgment:2022-09-30 Reported As: 2022 SHC 416 Result: Order accordingly
Judgment JUDGEMENT Irfan Saadat Khan, J. This petition has been filed with the prayer that the show cause dated 7.9.2017 issued to the petitioner may be declared illegal, malafide and void abinitio. 2. Briefly stated the facts of the case are that the petitioner is a company incorporated under the Companies Ordinance, 1984 and is engaged in Bulk Packaging Solutions, manufacture of PP Woven Bags, PE Liners and Woven Fabrics, base oil and lubricants and is being regularly assessed in the income tax. It is the claim of the petitioner that since the petitioner company was incorporated in the year 2013, therefore, they were entitled for the Tax credit benefit, as provided under Section 65D of the Income Tax Ordinance, 2001 (hereinafter referred to as "the Ordinance"). The petitioner filed its return of total income for the tax year 2014 by declaring total income at Rs.20,028,091/-, which was treated as deemed assessm ent under Section 120 of the Ordinance. Thereafter the department issued a show cause notice under Section 122(5A) of the Ordinance requiring certain details from the petitioner. The petitioner vide letter dated 27.6.2016 replied to those queries, raised in the said show cause. Thereafter an order under Section 122(5A) of the Ordinance dated 28.06.2016 was passed by accepting the stance of the petitioner and a refund of Rs.12,625,338/- was created in its favour. Thereafter a notice dated 12.7.2017 was issued to the petitioner informing that its case has been selected for audit under Section 177 of the Ordinance, and was required to produce complete record etc. The petitioner through its letter dated 31.7.2017 replied that since assessm ent under Section 122(5A) of the Ordinance has already been made by the Department therefore, it cannot be selected for audit, as that would amount to reopening of an already completed assessm ent and requested for dropping the proceedings. The Department disagreeing with the contention of the petitioner, issued a notice dated 07.9.2017 to the petitioner calling upon
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the petitioner to furnish reply in respect of the queries raised in the said notice issued under Section 122(9) of the Ordinance. It is against this show cause notice that the present petition has been filed. 3. Mr. Ovais Ali Shah, Advocate has appeared on behalf of the petitioner and stated that the show cause notice issued under Section 122(9) of the Ordinance, seeking to further amend the assessm ent previously made under Section 122 (5A) of the Ordinance on similar grounds, is illegal. He stated that an assessm ent cannot be amended on the basis of same set of facts, which were previously considered, as the same would amount to "change of opinion". He stated that he is mindful of the fact that in a latest decision given by the Hon'ble Supreme Court of Pakistan reported as Commissioner Inland Revenue and others ..Vs.. Jahangir Khan Tareen and others (2022 SCMR 92), wherein the Hon'ble Supreme Court of Pakistan has held that "a show cause notice cannot be challenged in a writ petition even if it suffers from jurisdictional defect or otherwise and only in the cases when the show cause notice is time barred then it could be challenged in the High Court in writ petition". He however, stated that in the instant matter since the impugned show cause notice was an abuse of process of the law; hence according to him the instant petition is maintainable. He stated that the issue of maintainability, since is the preliminary issue, going to the roots of the matter, hence in the cases where the Courts come to the conclusion that the show cause notice issued to a person is concerning his fiscal rights, the same could be challenged through a writ petition. The learned counsel stated that in the instant matter the Department, since has already amended an assessment under Section 122(5A) of the Ordinance, hence the selection of the case of the petitioner for audit, under Section 177 of the Ordinance and thereafter issuing notice under Section 122(9) of the Ordinance, is illegal and therefore, the petition is maintainable. 4. Mr. Shah stated that the Hon ble Supreme Court of Pakistan in a number of decisions has held that where the impugned action is without jurisdiction and mala fide, writ is amenable before the High Court. In support of his above contention the learned counsel has placed reliance on the following decisions. i. Usmania Glass Sheet Factory..Vs.. Sales Tax Officer, Chittagong (PLD 1971 SC 205) ii. Burma Oil Company (Pakistan Trading)., ..Vs.. The Trustees of the Port of Chittagong (PLD 1962 SC 113) iii. Commissioner of Income Tax..Vs..Hamdard Dawakhana (QAQF), Karachi (PLD 1992 SC 847) iv. Murree Brewery Co. Ltd.,..Vs.. Pakistan through the Secretary to Government, of Pakistan, Works Division (PLD 1972 SC 279) v. ICI Pakistan Limited ..Vs.. Federation of Pakistan (Civil Appeal No.36 of 2006) vi. Julian Hoshang Dinshaw Trust)., ..Vs.. Income Tax Officer (1992 SCMR 250) vii. Al Ahram Builders..Vs.. Income Tax Appellate Tribunal (1993 SCMR 29) 5. Mr. Shah next contended that apart from above submission, in his view the present action of the Department squarely falls under the ambit of "change of opinion". According to him previously the Department dilated upon Section 65D of the Ordinance and has passed a detailed order under Section 122(5A) of the Ordinance on the said issue therefore, according to him amending or reopening the matter on the issue of exemption claimed by the petitioner under Section 65D of the Ordinance is nothing but a change of opinion, which cannot be made and therefore the action of the department is illegal. In support of his contention, the learned counsel has placed reliance on the following decisions. i. Edulji Dinshaw Limited ..Vs.. Income Tax Officer (PLD 1990 SC 399) ii. Messrs S.N.H Industries Pvt. Ltd., ..Vs.. Income Tax Department and another (2004 PTD 330) iii. Pakistan Herald Limited..Vs..Inspecting Assistant Commissioner and Chairman, Panel-02, Companies-III, Karachi and another (1996 PTD 186) iv. Commissioner of Income Tax, Companies-II, Karachi..Vs..Syed Khalid Jamal (2003 PTD 1093)
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v. Dewan Khalid Textile Mills Ltd.,..Vs.. Commissioner of Income Tax (Legal Division), Large Taxpayers Unit, Karachi (2019 SCMR 158) vi. Decision given in CP No.D-8028 of 2019 and CP No.D-8029 of 2019. 6. Mr. Muhammad Aqeel Qureshi, Advocate appeared on behalf of the Department and, at the very outset, stated that the instant petition is not maintainable as the petitioner has challenged a show cause notice whereto the petitioner should have filed a proper reply and gotten its matter resolved with the tax authorities. The learned counsel placed reliance on the latest decision given by the Hon ble Supreme Court in the case of Jahangir Tareen (mentioned supra). The learned counsel readout paragraphs No.11 to 15 of the said judgment and pointed out that only in two conditions a show cause notice could be held to be illegal, one when it is barred by law, and secondly when it is an abuse of process of the law. He stated that none of these conditions are prevalent in the matter as it is not the case of the petitioner that the show cause notice was issued to it after the limitation period as the same has been issued within the limitation period, provided under Section 122 of the Ordinance. 7. Mr. Qureshi, next stated that the show cause notice is also not the result of any abuse of process of law as the Assessing Officer while examining the matter of the assessee was of the view that certain conditions for claiming exemption under Section 65D of the Ordinance were not fulfilled or met by the petitioner and thereafter required it to explain these points. According to Mr. Qureshi, it was incumbent upon the petitioner to reply to those queries in accordance with law and in his view this process could not be termed an abuse of process of the law as it is the duty of the tax officials to call from the taxpayer, falling within their jurisdiction, details in respect of the matters which required explanation or further deliberations as he can further amend an assessment. 8. Mr. Qureshi, stated that if the process of challenging show cause notice is not curbed, the Income Tax Department would never be able to finalize any assessment either upon receiving certain information or in respect of the matters requiring explanation from the taxpayer. He stated that if the facts of the present matter are examined, it would be noted that when the case of the taxpayer was selected under Section 177 for audit, the taxpayer was duly informed. He stated that no objection with regard to the said selection for audit was raised by the taxpayer, however when the Department issued a notice under Section 122(9) of the Ordinance, read with Section 174(2) and 177(10) of the Ordinance, to the taxpayer calling for certain details and documents and that in case of non-production of these details to reduce the claim of deduction and to disallow certain expenses by adding the same to the income of the petitioner, instead of filing a proper reply and giving details, the present petition has been filed, which according to him is not maintainable being abuse of the process of law. 9. Mr. Qureshi, stated that perusal of the notice dated 12.7.2017, would clearly reveal that the grounds for selecting the case for audit were duly intimated to the petitioner, who requested for grant of some time, as the data asked for was voluminous in nature. According to the learned counsel, the petitioner then sought a number of extensions for furnishing details and on each occasion the department graciously granted time, however instead of filing those details and documents, the petitioner disguised the department and filed the instant petition. He then read out the contents of the show cause notice to supplement his arguments. He stated that the reason for selecting the case for audit and inquiring about the tax credit, being claimed by the petitioner under Section 65D of the Ordinance are duly mentioned in the two notices, which are totally different from the reasons on which the previous proceedings under Section 122(5A) of the Ordinance were initiated and later on dropped by the department. According to the learned counsel, the petitioner should have responded to the show cause notice by giving appropriate replies, instead he filed the instant petition. He stated that no doubt vide order dated 28.6.2016 under Section 122(5A) of the Ordinance, the exemption claimed under Section 65D on the basis of
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certain queries raised by the department, which were later on replied by the petitioner, and then the proceedings were dropped, but perusal of the impugned show cause notice shows that the basis of present action of further amending the assessment is based on altogether different footing, which do not fall within the ambit of change of opinion, as these were never probed, enquired or replied by the petitioner. Thus in his view the petitioner was obliged to furnish demanded details and documents, hence this is not a case of change of opinion. He stated that under the provisions of Section 122(5) and 122(5A), Commissioner is fully empowered to amend or further amend the assessm ent order if the situation so warrants, as enumerated in these sub- sections. 10. Mr. Qureshi, stated that the decisions relied upon by the learned counsel for the petitioner, with regard to maintainability of the petition, are of no help to him as these are quite distinguishable from the facts obtaining in the instant matter. Moreover according to him in view of the guidelines given by the Hon'ble Supreme Court in Jahangir Khan Tareen's case (supra) vide para-15 of the said decision, the petitioner should file its reply before the Tax Authorities in respect of the objections with regard to the jurisdiction or on the factual aspects, as the case may be, raised in the impugned show cause notice. He stated that in view of the above facts, firstly this petition is not maintainable i.e., is liable to be dismissed, and if for the argument's sake, it is assumed that it is maintainable, even then the petitioner has no case since this is not a case of change of opinion rather a case of further amendment on the basis of queries raised in the impugned notice and being confronted to the petitioner, for giving a plausible reply. 11. The learned counsel stated that if the petitioner is so adamant that there is nothing wrong with the claim of exemption made by them under Section 65D of the Ordinance and the petitioner fulfills requisite criteria of claiming exemption, as provided under the said section, then why it is avoiding to furnish required details to the Department. He stated that if upon examination of those details and documents etc. the petitioner satisfactorily explains its position and satisfies the Department that the relief claimed was as per the situations mentioned under Section 65D of the Ordinance, the present proceedings could be dropped, which according to him has specifically been mentioned in the show cause notice. Mr. Qureshi in the end submitted that this petition may therefore be dismissed by directing the petitioner to give a proper reply of the impugned notice alongwith all the relevant details and documents etc. so that the matter could be finalized at the earliest. 12. Mr. G. M. Bhutto, learned Assistant Attorney General has adopted the arguments as advanced by Mr. Qureshi. 13. We have heard all the learned counsel at some length and have also perused the record and the decisions relied upon by them. 14. Before proceeding further, we deem it appropriate to reproduce herein below the relevant provisions, for the sake of brevity:- 122. Amendment of assessments. 1) ........ (2) ....... (3) ....... (4) ....... (4A) ...... (5) An assessment order in respect of a tax year, or an assessment year, shall only be amended under sub-section (1) and an amended assessment for that year shall only be further amended under sub-section (4) where, on the basis of [audit or on the basis of definite information] the Commissioner is satisfied that-- (i) any income chargeable to tax has escaped assessment; or
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(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 mis-classified.] (5A) Subject to sub-section (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue. (5AA) ....... (5B) ........ (6) ......... (7) ......... (8) ......... (9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard. "65D. Tax credit for newly established industrial undertakings. -- (1) Where a taxpayer being a company formed for establishing and operating a new industrial undertaking [including corporate dairy farming] sets up a new industrial undertaking [including a corporate dairy farm], it shall be given a tax credit equal to "[an amount as computed in sub-section (1A)] of the tax payable [including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance] on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later. "(1A) The amount of a person's tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:-- A x (B/C) where-- A is the amount of tax assessed to the person for the tax year before allowance of any tax credit for the tax year; B is the equity raised through issuance of new shares for cash consideration; and C is the total amount invested in setting up the new industrial undertaking. (2) Tax credit under this section shall be admissible where-- (a) the company is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30th day of June, 2021; (b) industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan; (c) the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan at any time before 1st July 2011; and (d) the industrial undertaking is set up with [at least seventy per cent] equity [raised through issuance of new shares for cash consideration: Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section. (3) ....... (4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that [the business has been discontinued in the subsequent five years after the credit has been allowed or] any of the [conditions] specified in this section [were] not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may,
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notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.] [(5) For the purposes of this section and sections 65B and 65E, an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production.] The arguments of Mr. Shah are two fold, firstly; that the show cause notice is barred by law being abuse of process of law, and secondly result of change of opinion, hence the same is illegal and may therefore, be declared void ab-initio and of no legal effect. 15. Perusal of the record reveals that the petitioner filed its return of total income for the tax year 2014 by declaring an income of Rs.20,028,091/-, which was treated as an assessment under Section 120 of the Ordinance. Subsequently the Department initiated proceedings under Section 122(5A) of the Ordinance on the following grounds:- i). That you have claimed the credit under Section 65D but column of new addition shows "nil" addition. You have obtained long-term loan which attracts provision of Section 39(3) of the Ordinance. ii). Though purchases have been shown but no sales were made in the said year. It is noted that a comprehensive reply was furnished by the petitioner in respect of the above referred queries made by the Department and thereafter proceedings under Section 122(5A) of the Ordinance were dropped, by incorporating the replies of the petitioner, in the order dated 28.6.2016. Thereafter, vide order dated 29.6.2016, under Section 170(4) of the Ordinance, a refund of Rs.12,625,338/- was created in favour of the petitioner. No documents are attached alongwith the petition to show that whether any appeal against the above referred order was preferred by the petitioner or not. 16. Subsequently vide notice under Section 177(1) of the Ordinance dated 12.7.2017 the petitioner was informed that its case has been selected for audit and detailed description for selecting the case for audit was given in the said notice. The petitioner then sought a number of extensions of time for furnishing details and documents etc., as the same were claimed to be voluminous in nature. It may be noted that at each time the department granted extension of time to the petitioner. Record also reveals that after selection of the case under Section 177(1) of the Ordinance for audit, the Department required the petitioner to give certain details in respect of the exemption claimed by it, under Section 65D of the Ordinance by issuing a notice under Section 122(9) of the Ordinance to amend the assessm ent. However, subsequently the petitioner instead of giving details and documents etc., filed the instant petition and got the interim orders in its favour from this Court, vide order dated 13.9.2017 that "no adverse order will be passed against them till the next date of hearing". 17. It is worthwhile to note that the provisions of Section 122 of the Ordinance authorizes the Department to amend and / or to further amend an assessment either on the basis of the audit or on the basis of some definite information or in the case where the assessment is found to be erroneous in so far as prejudicial to the interest of revenue. It may be noted that the case of the petitioner was selected for audit on the basis of certain observations, which needed to be thrashed out and clarified by the petitioner in accordance with law. It is a settled proposition of law that department is saddled with the responsibility that in case it comes across any information or needs any information from the petitioner, it could ask the taxpayer to clarify those aspects; whether during the course of the assessment or after completion of the assessment as the case may be subject to the fulfillment of the conditions as prescribed under Section 122 of the Ordinance.
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18. Now if the facts of the present case are examined, it would be noted that the basis of conducting the audit and to examine admissibility of the exemption, as claimed under Section 65D of the Ordinance by the petitioner, in the notices issued under Section 177(1) and 122(9) of the Ordinance, some new and different queries, which were neither part nor were the subject of the previous proceedings, have been raised by the department. It may further be noted that the reasons for making further amendment in the assessment were duly intimated to the petitioner, which on examination are found to be different from the reasons, upon satisfaction of which the previous proceedings were dropped. For the sake of brevity the reasons contained in the present show cause notice to enquire about the exemption claimed by the petitioner under Section 65D of the Ordinance are summarized below, which in our view appears to be new queries requiring explanation or clarification and submission of details and documents etc., i. The accounts reflect capital work in progress of Rs.108.659 million as on 30.6.2013 which was transferred to assets within two months from the commencement of production this raises doubts about its allowability as per clause 'C' of subsection 2 of Section 65D of the Ordinance. ii. The Long term loans received from the Directors to the tune of Rs.232.570 million in the year 2014 did not find any mention in the wealth statements of the shareholders. iii. The first proviso to Section 65D of the Ordinance allows short term loan and finances obtained from banking and non-banking financial institutions for the purposes of meeting capital requirements. You have declared long term loan of Rs.253.790 million, hence you are not entitled for tax credit under Section 65D of the Ordinance as you have failed to meet conditions of the said section hence please explain, as to why the said facility of the tax credit may not be disallowed under Section 65D(4) of the Ordinance and the tax payable may not be recomputed. iv. You have claimed cost of sales / service to the tune of Rs.242,937,534/- and Management, Administrative, Selling and Financial expenses at Rs.20,435,346/- but no evidence and record in support of the claim was provided. 19. It was also pointed out in the notice that if the above required details are not furnished, then action under Section 174(2) of the Ordinance, for disallowing the claim or deduction would be taken and action under Section 177(10) would also be initiated. Perusal of the above summarized queries raised by the Department clearly envisages that these queries were not raised in the past as these are new queries, and on the basis of these queries the Department has sought to further amend the assessm ent, as per the provisions of Section 122(5) of the Ordinance. 20. Now coming back to the stance taken by Mr. Shah that show cause notice is barred by law, abuse of process of law and change of opinion; suffice to state the department is fully authorized through Section 122 of the Ordinance to amend or further amend an assessment, subject to fulfilling applicable legal…
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