APPELLATE TRIBUNAL
INLAND REVENUE, DIVISIONAL BENCH,
ISLAMABAD
ITA No.700/IB/2017
(Tax Year 2014)
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Dr. Ahsan Aurangzeb Khan, House No.2 Police
Housing Society Sector No.2 Mirpur, Abbottabad |
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Appellant |
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Vs |
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Commissioner IR, Zone-I, RTO, Abbottabad |
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Respondent |
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Appellant by |
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Mr. Mudassir Malik, Advocate |
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Respondent by |
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Mr. Rashid Mahmood Bhutani, DR |
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Date of hearing |
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17.09.2019 |
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Date of order |
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17.09.2019 |
O R D E R
M. M. AKRAM (Judicial
Member): The
titled appeal has been filed by the appellant/taxpayer against an order No.511
dated 21.03.2017 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar
for the Tax Year 2014 on the grounds as set forth in the memo of appeal.
2. Briefly stated, the relevant facts for the disposal of
appeal are that the appellant is an individual and Doctor by profession,
deriving income from salary as well as medical practice, filed his income tax
return for the Tax Year 2014 declaring net income at Rs.1,301,826/-. The return
so filed by the appellant by the fiction of law was treated to be an assessment
order under section 120(1)(b) of the Income Tax Ordinance, 2001 (“the Ordinance”).
The case of the appellant was selected for audit under section 214C of the
Ordinance by the Federal Board of Revenue. In consequence thereof, the audit
proceedings were initiated by the concerned Assessing Officer and reminders
notices were also issued from time to time but the appellant allegedly did not
provide the books of accounts. The spot inquiry was also conducted and after
confronting the appellant on the same, the assessing officer rejected the
declared version and determined the income at Rs.24,789,684/- under section
121(1)(d) of the Ordinance vide his order dated 06.06.2016. The appellant preferred
an appeal against the aforesaid order before the learned CIR(A), Peshawar who
vide his order dated 22.08.2016 annulled the assessment with the following
observations: -
“Perusal of the
record shows that the order of the taxation officer is legally not
maintainable. A bare reading of the caption show cause notice
No.100000011251327 dated 26.04.2016 is reproduced as under:-
“Notice u/s 122(9) for amendment of assessment u/s
121(1)(d) read with section 111 of the Income Tax Ordinance, 2001-Tax Year 2014.”
As apparent from
above, show cause notice was issued u/s 122(9) whereas the order passed u/s
121(1)(d), which clearly points to the fact the taxation officer was totally
unaware of the legal procedure and requisite course of action. This is in fact
gross irregularity not maintainable under the law. Show cause notice u/s 122(9)
is for “amendment of assessment” u/s 122 whereas section 121(1)(d) is for “best
judgment assessment”.
In view of the
above position of the case, the order of the taxation officer suffers from
infirmities and is annulled accordingly.”
After the annulment of the order by the learned CIR(A), fresh
proceedings were initiated under section 214C read with section 177 of the
Ordinance by the assessing officer, and the appellant was asked to produce
books of accounts and vouchers required to be maintained under section 174 of
the Ordinance vide notice dated 14.10.2016. In response to the notice, the
appellant inter alia reiterated that the books of accounts are already in
possession of this office. The assessing officer denied the stance of the
appellant vides letter dated 26.10.2016. Subsequently, the appellant was issued
numerous notices and his replies obtained, however, according to the assessing
officer, the appellant did not produce the requisite record and resultantly,
again an ex-parte order under section 121(1)(d) was made by repeating the
originally assessed figure vide order dated 08.12.2016. Felt aggrieved, the
appellant preferred an appeal before the learned CIR(A) who vide order dated
21.03.2017 certain relief was granted to the appellant. Still feeling
aggrieved, the appellant has assailed the impugned appellate order before this
Tribunal on a number of grounds.
3. The learned AR of the
appellant assailed the orders of the authorities below as contrary to law and
facts of the case by relying upon the contentions already submitted in the
grounds of appeal. The learned AR of the appellant has mainly focused on the
point that the order passed by the assessing officer under section 121(1)(d) of
the Ordinance is illegal, void ab-initio, and without jurisdiction on the
ground that the appellant during audit proceedings duly submitted the books of
accounts along with related documents vide order sheet entry dated 21.03.2016
and 10.05.2016. To substantiate the aforesaid submissions, he placed on record
the certified copy of the order sheet along with copies of letters. He contends
that after producing the books of account and requisite documents, the order
should have been passed under section 122(1) read with section 122(5) of the
Ordinance after completion of the audit report as required under section 177(6)
of the Ordinance. He, therefore, explains that the basic order passed by the
assessing officer under section 121(1)(d) is void ab-initio, the supper
structure-based thereon in the shape of the passing of an impugned appellate
order automatically falls to the ground. To sum up, his arguments on this
issue, the learned AR argued that in terms of section 177(10) read with section
121(1)(d), if the taxpayer fails to produce any accounts, documents, and
records, required to be maintained under section 174 or any other relevant
documents for the purpose of audit or determination of income tax and tax due
thereon, then the Commissioner has the power to proceed and make best judgment
assessment under section 121 of the Ordinance and the assessment treated to
have been made on the basis of return or revised return filed by the taxpayer
shall be of no legal effect. He once again reiterated that all the documents
required by the assessing officer were furnished and available on record. He,
therefore, stressed upon that in the presence of the deemed order under section
120, the order passed under section 121(1)(d) by the assessing officer is
unsustainable in law.
4. On the contrary, the
learned DR on behalf of the Revenue supported the orders passed by the
authorities below and submitted before us that the appellant did not provide
any record at the assessment stage therefore, the order passed under section
121(1)(d) and the additions made by the learned DCIR and confirmed by the
learned CIR (A) are in accordance with law. He, therefore, prays for the rejection
of the appeal.
5. We have heard the arguments put forth by
the learned representative of both sides and have carefully gone through the
available record. After due consideration, we find that the submissions made by
the learned AR carry substantial weight. The epitome of the controversy,
involved in the instant appeal revolved around the interpretation of sections
177 and 121(1)(d) of the Ordinance that whether after production of books of
accounts and related documents, the order under section 121(1)(d) could be passed?
Before answer this question, it is necessary to first resolve the dispute between
the parties that whether the appellant produced the books of accounts and
requisite documents during audit/assessment proceedings before the assessing
officer. To determine this fact, the assessment record was specifically called
for and the assessing officer was also directed to submit the para-wise
comments on the memos of appeal filed by the appellant vide order of this
tribunal dated 20.08.2019. Today, the 17th September, 2019, the
learned DR appeared on behalf of the department along with the assessment
record but he did not file para-wise comments as directed vide order dated
20.08.2019. The perusal of the assessment record with the assistance of the
learned DR reveals that vide order sheet entry dated 21.03.2016 the following
documents were submitted by the appellant: -
“AR of Ahsan Aurangzeb Khan appeared before the
undersigned today and submitted the following documents;
1)
Computation
chart.
2)
Wealth
statement.
3)
Wealth
reconciliation statement.
4)
IPP
certificate.
5)
Salary statement
for the tax year 2014.
6)
Tax paid
challan Rs.20,000/-.
7)
Copy of
registration motor vehicle.
8)
Lease
document of Mezaan Bank.
9)
Bank
statement- Alfalah Banks.
10) Bank a/c statement of MCB.
11) Copies of utility bills.
12) Sales receipt of motor vehicles.
13) Prize money Bonds- 17,96,000/-.
-Sd-
Aisha Asad
21/03/2016”
Similarly
vide order sheet entry dated 10.05.2016 shows that the AR, appellant himself
along with his father appeared before the assessing officer and submitted the
following documents:-
“AR of the taxpayer appeared before the
undersigned along with Mr. Ahsan Aurangzeb himself and submitted following
documents;
1)
Flowchart.
2)
Manual w/s
along with reconciliation however added to file online w/s and a wealth
reconciliation statement, w/s of the tax year 2015.
3)
Bank account
statement from MCB, Alfalh bank, and UBL.
4)
Rent
agreement.
5)
Detail of prize
money bonds.
6)
Certificate
from IPP, salary certificate, deduction from Mobi links & other cell(mobile
cell ….)
7)
Certificate
from Meezan Bank related to vehicles.
8)
Affidavit
from Dr. Ahsan Aurangzeb regarding the detail of construction of a house
regarding.
9)
Wealth
statement of Mr. Aurangzeb Khan for the tax year 2015, wealth reconciliation
statement.
10) Valuation certificate, along with bank a/c
statements of foreign remittance.
11) Cheque paid to Mrs.Razia.
12) Book of Accounts. Original. 2 Register.
Statement of Mr. Aurangzeb Khan:-
Construction of the house
was supervised by myself and no contractor was engaged as I myself was engaged
in the construction of the house since early 70 & supervised a lot of
projects inside and outside Pakistan. The cost of construction having range
about 780 per sqft totaling 48,50,000/-. Further, I contributed 3mn directly
towards the construction. Affidavit attached along with supporting documents.
-Sd- -Sd-
-Sd- -Sd-
Dr. Ahsan Aurangzeb Aurangzeb Khan AR Aisha Asad”
It indicates that the appellant submitted the books of accounts and related documents as and when required by the assessing officer. The assessing officer has ignored the record and therefore, has wrongly observed that the appellant did not produce the books of accounts while making an ex-parte order under section 121(1)(d) of the Ordinance. The above order sheet entries were confronted to the learned DR during the hearing of appeal but he was unable to dislodge the submission of the appellant and the order sheet entries. Resultantly, both the authorities below misrepresented the facts and this amounts to a miscarriage of justice. It needs serious consideration of the Federal Board of Revenue (FBR). Taxpayers should be treated fairly and justly. In this case, the assessing officer is portrayed as a non-complaint taxpayer whereas the truth is otherwise. It is for the FBR to take notice of this lapse and take appropriate action so that in future taxpayer is not wrongly blamed for non-compliance. For us it is suffice to hold that order under section 121(1)(d) is not maintainable as compliance of notices within the four corners of the provisions of the Ordinance were made by the appellant.
6. Now we turn to the main controversy as to
whether after providing the books of accounts by the appellant, the assessment
order could have been passed under section 121(1)(d) of the Ordinance? To
answer this question, it would be advantageous to reproduce hereunder the relevant provisions
of law which are relevant and applicable: -
177. Audit:- (1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person: -
Provided that--
(a) the Commissioner may, after recording
reasons in writing call for record or documents including books of accounts of
the taxpayer; and
(b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer:
Provided
further that the Commissioner shall not call for record or documents of the
taxpayer after expiry of six years from the end of the tax year to which they
relate.
(2) After obtaining the record of a person under sub-section(1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.
(3) Omitted.
(4) Omitted.
(5) Omitted.
(6) After completion of the audit the Commissioner shall, after obtaining taxpayer's explanation on all the issues raised in the audit, issue an audit report containing audit observations and findings.
(6A) After issuing the audit report, the Commissioner may, if considered necessary, amend the assessment under subsection (1) or sub-section (4) of section 122, as the case may be, after providing an opportunity of being heard to the taxpayer under sub-section (9) of section 122.
(7) …………………………….
(8) …………………………….
(9) ………………………………
(10) Notwithstanding anything contained in sub-section (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under sub-section (8) to conduct an audit, any accounts, documents and records, required to be maintained under section174 or any other relevant document, electronically kept a record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.
(11)
……………………………
(12) ……………………………
(13) …………………………..
(14) …….............................
(15) ………………………….
(16) ………………………….
(17) ………………………….
Section 121. Best judgment assessment:- (1) Where
a person fails to-
(a) Omitted.
(aa) furnish a statement as required by a notice
under sub-section (5) of section 115; or
(ab) furnish return of income in response to
notice under sub-section (3) or sub-section (4) of section 114; or
(b) furnish a return as required under section
143 or section 144; or
(c) furnish the statement as required under
section 116; or
(d) produce before the Commissioner, a special audit panel appointed under sub-section (11) of section 177or any person employed by a firm of chartered accountants or a firm of cost and management accountants under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant documents or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon, the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income or income of the person and the tax due thereon and the assessment, if any, treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.
(2) ……………………..
(3) ……………………..
Section 114. Return of income.- (1) Subject
to this Ordinance, the following persons are required to furnish a return of
income for a tax year, namely: -
……………..……………
(1A) …………………………..
(2) …………………………..
(2A) …………………………..
(3) …………………………..
(4) …………………………..
(5) …………………………..
(6) …………………………..
(6A) If a taxpayer files a revised return voluntarily along with deposit of the amount of tax short paid or amount of tax sought to be evaded along with the default surcharge, whenever it comes to his notice, before receipt of notice under sections 177 or sub-section (9) of 122, no penalty shall be recovered from him:
Provided that in case the taxpayer deposits the amount of tax as pointed out by the Commissioner during the audit or before the issuance of notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, the default surcharge and twenty-five percent of the penalties leviable under the Ordinance along with the revised return:
Provided further that in case the taxpayer revises the return after the issuance of a show-cause notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, default surcharge, and fifty percent of the leviable penalties under the Ordinance along with the revised return and thereafter, the show cause notice shall stand abated.
(7) ……………………………”(Emphasis supplied)
It
can be seen from the combined reading of the above provisions of law that after
selection of the case for audit under sections 177 or 214C by the Commissioner
Inland Revenue or by the Federal Board of Revenue respectively, the audit shall
be conducted as per procedure given in section 177 of the Ordinance except for
the first proviso to sub-section (1) of section 177 if the selection is made by
the FBR under section 214C and all the provisions of the Ordinance shall apply
accordingly. Under sub-section (1) of section 177, the Commissioner shall call
for records or documents including books of accounts maintained under the
Ordinance or any other law for the time being in force for conducting an audit
of income tax affairs of the taxpayer. After obtaining the record of a taxpayer
under sub-section (1) of section 177, the Commissioner shall conduct an audit
of the income tax affairs of the taxpayer. After completion of the audit, the
Commissioner shall after obtaining taxpayer’s explanation on all the issues
raised in the audit, issue an audit report. After issuance of the audit report,
the Commissioner may proceed if he considered necessary to amend the assessment
order under section 122 of the Ordinance. However, sub-section (10) of section
177 having overriding effect provides that if the taxpayer fails to produce the
record as required to be maintained under the Ordinance inter alia before the
Commissioner for the purpose of conducting an audit or determination of income
or tax due thereon, the Commissioner may proceed to make best judgment
assessment under section 121(1)(d) of the Ordinance and the assessment treated
to have been issued under sections 120(1)(b) or 122(3)(b) on the basis of
return or revised return respectively filed by the taxpayer shall be of no
legal effect. Similarly, the first proviso to sub-section (6A) of section 114
of the Ordinance gives safeguard, privilege, and the waiver of penalty to the
extent of 75% to the taxpayer if he deposits the amount of tax as pointed out by
the Commissioner during the audit proceedings or before the issuance of notice
under sub-section (9) of section 122 along with default surcharge and
twenty-five percent of the penalties leviable under the Ordinance along with
the revised return. If such an opportunity during the audit proceedings or
before issuance of notice under section 122(9) of the Ordinance is not given to
the taxpayer, it would be seriously deprived of its statutory right enshrined
in the said proviso which is not permissible under any canon of interpretation.
Keeping in view the aforesaid provisions of the Ordinance and scheme of law, the Hon’ble Lahore High Court in the case titled M/s
Nestle Pakistan Ltd Vs Federal Board of Revenue (2017 PTD 786) was held
that after providing the books of accounts and related documents by the
taxpayer, it is a mandatory requirement under sub-section (6) of section 177 that
after completion of the audit, the Commissioner shall after obtaining
taxpayer’s explanation on all the issues raised in the audit, issue an audit
report. After issuance of the audit report, the Commissioner may proceed if he
considered necessary to amend the assessment order under section 122 of the
Ordinance. The said judgment was subsequently upheld by the Supreme Court in
the case titled CIR Vs Allah Din Steel & Re-rolling Mills (2018 PTD
1444) wherein it has been held that: -
“16. A perusal of the statutory landscape makes it clear that the provisions of sections 177 and 214C of the Ordinance; section 25 of the Act, 1990, and section 46 of the Act, 2005 provide a mechanism and roadmap which is required to be followed by the Taxation Officer/Auditor. In terms of section 177 of the Ordinance, the Commissioner can call for the record or documents for conducting the audit of the tax affairs of a person, provided he furnishes reasons to do so. Such reasons must be communicated to the Taxpayer. He can also seek explanations from the Taxpayer on issues raised during the audit in terms of section 177 of the Ordinance. It is only if he is convinced that the explanation furnished by the Taxpayers is not satisfactory, he may proceed to amend the assessment under section 122 of the Ordinance, after giving the Taxpayer an opportunity to defend him. We are therefore of the view that the statutory framework together with the overarching umbrella of constitutional guarantees furnish adequate and sufficient safeguards to the Taxpayer where there is a possibility of overstepping by the Tax authorities.”
After
the judgment of the Hon’ble Supreme Court cited above, the provision of sub-section
(6) was amended and new sub-section (6A) of section 177 inserted through
Finance Act, 2019 which expressly mandate that after completion of the audit,
the Commissioner shall after obtaining taxpayer’s explanation on all the issues
raised in the audit, issue an audit report. After issuance of the audit report,
the Commissioner may proceed if he considered necessary to amend the assessment
order under section 122 of the Ordinance. Simultaneously, the taxpayer who
intends to take benefit in terms of the first proviso to sub-section (6A) of
section 114 of the Ordinance may also avail an opportunity to file a revised
return before issuance of notice under section 122(9) of the Ordinance. If the
Commissioner does not provide such an opportunity to the taxpayer then the
right, privilege, safeguard given by the statute under the aforesaid proviso
shall be infringed which is not permissible under the law for the reason that
it is settled principle of interpretation of the
statutes that each and every word appearing in a section is to be given effect
to and no word is to be rendered as redundant or surplus. So was held by the
Apex Court in the cases of (i) In the matter of Reference by the President of
Pakistan under Article 162 of the Constitution of Islamic Republic of Pakistan PLD 1957 SC (Pak.) 219,(ii) Muhammadi
Steamship Company Ltd Vs CIT, (Central) Karachi (PLD 1966 SC 828),
(iii) M/s V. N. Lakhani and Company Vs M. V. Lakatoi Express and 2 others
(PLD 1994 SC 894) and (iv) Director
General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746).
7. As observed in para-5 above, the
appellant submitted the books of accounts and related documents as and when
required by the assessing officer, therefore, the provisions of sub-section
(10) of section 177 read with section 121(1)(d) cannot be pressed into service.
Section 177(10) specifically and expressly mandate the Commissioner that if the
taxpayer fails to produce inter alia the books of accounts or any other
relevant material, documents, evidence, etc for the purpose of audit or
determination of income or tax due thereon, then he may proceed to make best
judgment assessment under section 121(1)(d) of the Ordinance and the assessment
treated to have been issued under sections 120(1)(b) or 122(3)(b) on the basis
of return or revised return respectively filed by the taxpayer shall be of no
legal effect. Whereas in the instant case, the assessment record shows that the
appellant did not violate any of the provisions of section 177 of the Ordinance
therefore, the deemed order treated to have been issued under section 120(1)(b)
is very much in the field and in the presence of the deemed order, the
provisions of section 121(1)(d) could not be invoked for making the second
assessment order. In a peculiar circumstance of the instant case, the only
recourse available to the assessing officer was to proceed under section 122 of
the Ordinance. It is settled law that in order to arrive at the correct
conclusion a scheme of law is to be examined in its totality. Reference may be
made on the judgment titled as M/s Bilz (Pvt.) Ltd Vs DCIR, Multan, and
another 2002 PTD 1(SC). It is also well-settled law that when the law
requires an act to be done in a particular manner, it had to be done in that
manner alone. Reliance is placed on 2002 PTD 877(SC).
8. For the foregoing
reasons, both the orders passed by the lower authorities are annulled being
void ab-initio and without jurisdiction. It is an immutable principle of law that defective assumption/
exercise of jurisdiction by the authorities are incurable. Reliance may be placed
on Director
General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director
General Intelligence and Investigation and others Vs M/s AL-Faiz Industries
(Pvt.) Limited and others PTCL
2008 CL 337(S.C) and Collector, Sahiwal and 2 others Vs Muhammad Akhtar (1971 SCMR 681). In all these judgments it
was held by the Hon’ble Supreme court of Pakistan that:-
i) Where
essential feature of assumption of jurisdiction is contravened or forum
exercises power not vested in it, or exceed authority beyond the limit
prescribed by law the judgment is rendered Coram non-judice and inoperative
(2002 SCMR 122 ).
ii) If a mandatory condition for the exercise of jurisdiction before the Court, Tribunal, or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffer from illegality and are without jurisdiction (2008 SCMR 240)”
Since we have decided the appeal on a legal issue, therefore, there is no need to dilate upon the other grounds of appeal which relate to the merits of the case.
9. The appeal of the
appellant is accepted in the manner stated above. This order consists of (12)
pages and each page bears my signature.
Sd/-
(M.
M. AKRAM)
JUDICIAL MEMBER
Sd/-
(NADIR MUMTAZ WARRAICH)
ACCOUNTANT MEMBER
ADDITIONAL NOTE IN ITA NO.700(IB) 2017
(TAX YEAR-2014), DR. AHSAN AURANGZEB KHAN
10. I concur with the
findings of my learned brother in para 8 above and agree on different grounds
that the orders passed by both the lower authorities be annulled.
Sd/-
(M.
M. AKRAM)
JUDICIAL MEMBER
Sd/-
(NADIR MUMTAZ WARRAICH)
ACCOUNTANT MEMBER
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