M. M. AKRAM (Judicial
Member): The
titled appeal has been filed by the appellant/taxpayer against an order No.1336/2018
dated 19.04.2018 passed by the learned Commissioner Inland Revenue (Appeals-III),
Rawalpindi 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 derives income from the sale
of petroleum products under the name and style of M/s Mirjal Petroleum, Attock.
The appellant filed his income tax return declaring incomes under three heads
i.e business income at Rs.212,772/-, property income at Rs.158,840/- and
agricultural income at Rs.180,000/-. The return so filed by the appellant by the
fiction of law is deemed to be considered as an assessment order under section
120 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 did not comply with these notices.
Accordingly, there was no option with the Assessing Officer to issue a show-cause
notice under section 121(1)(d) of the Ordinance whereby the appellant was
confronted with the intention to disallow the purchases under section 174(2) of
the Ordinance to the tune of Rs.5,262,126/- against declared at Rs.26,321,628/-
and with total disallowances under profit and loss expenses amounting to
Rs.222,259/-. On the due date, the taxpayer himself attended the office and
contended that during the year under consideration the company blocked his
supply due to low sales as such the petroleum products were purchased from
various petrol pumps. He was asked to produce proof of purchases and on his
request, the case was adjourned to 26-02-2018. On the due date, neither the
taxpayer appeared, nor filed any application for adjournment. Since the
taxpayer has failed to file any documents in support of his version, the
Assessing Officer ultimately framed the best judgment assessment in the light of
the provisions of section 121(1)(d) read
with section 177(10) of the Ordinance vide order dated 28.02.2018. The
appellant being aggrieved, preferred an appeal before the learned CIR(A) who
vide order No.1336/2018 dated 19.04.2018 partially accepted the appeal of the
appellant by reducing the purchases up to 10% of the claim and confirmed the
add-backs under the head P & L expenses. Now the appellant has assailed the
said order before this Tribunal on a number of grounds.
3. The learned AR on
behalf of the taxpayer assailed the orders of the authorities below as contrary
to law and facts of the case. The learned AR vehemently contended that no doubt,
non-production of books of accounts empowers the Assessing Officer to proceed
for making best judgment assessment on the basis of available information or
material. He stressed upon that the expression “based on any available information or material” used in
section 121(1)(d) of the Ordinance has been momentous as no such restriction
existed or was imposed upon the Assessing Officer under section 63 of the
repealed Income Tax Ordinance, 1979. He submits that the Assessing Officer
while making the best judgment assessment has failed to establish or bring any
available information or material on the record made a lump-sum addition
amounting to Rs.52,62,126/- and Rs.222,259/- under the head purchases and P
& L expenses respectively. Therefore, both the additions are arbitrary and
not sustainable under the law. He further contended that even otherwise the
addition made on account of purchases is neither deduction nor expenditure and
as such does not come within the ambit of section 174(2) of the Ordinance. He
pointed out that purchases were made for the purpose of business activity and
as such do not fall within the ambit of expression “Deduction” or
“Expenditure”. He explained that under the provisions of section 35 of the
Ordinance as well as the general principle of accountancy, purchases are part
of “Stock in Trade” which cannot be termed as “Deduction” or “Expenditure” by
any stretch of law and practice. The expression “Stock in Trade” has been
defined in section 35 and inter alia the purchases are the part thereof. To sum
up, his arguments on this issue, the learned AR argued that purchases are by no
means a part of deduction or expenditure and therefore, cannot be disallowed
under section 174(2) of the Ordinance. To substantiate his version, the learned
AR placed reliance on the judgments reported as 2016 SLD 141, ITA NO.1951/LB/2014,
and ITA NO.468/KB/2010.
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 additions made by the
learned DCIR and confirmed by the learned CIR (A) are in accordance with law
and prays for rejection of the appeal of the appellant.
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 perusal of an ex-parte
assessment order clearly suggests that the same has been passed in a slip-shod
manner. The Assessing Officer has not made any proper base for assessment as
required under the provisions of section 121(1)(d). The Assessing Officer is
required to base the order on available information or material evidence which
prima facie is missing while passing the order of exorbitant tax demand. This
is a clear violation of Article 10A of the Constitution of the Islamic Republic
of Pakistan, 1973. After insertion of Article 10A in the Constitution of
Pakistan 1973, “fair trial” and “due process” are fundamental rights of every
citizen for determination of his civil rights and obligations. Before passing
the best judgment assessment, it is a condition precedent to confront the
taxpayer with the available information or material evidence and be given an
opportunity of being heard. Reliance may be placed in a recent judgment Sarfraz
Saleem vs. Federation of Pakistan and others (PLD 2014 SC 232) wherein it has been held that: -
"4……every person, for determination of his civil rights and obligations or in any criminal charge against him shall be entitled to a fair trial and due process."
In another case Babar Hussain Shah and another
vs. Mujeeb Ahmed Khan and another(2012 SCMR 1235), the
Hon'ble Court has highlighted the import of Article 10A in the words;
"11... concept of fair trial and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become more important that due process should be adopted for conducting a fair trial and order passed in violation of due process might be considered to be void.."
The
Assessing Officer under section 121(1)(d) did possess discretion of passing of
an ex-parte order with his best judgment assessment on the basis of available
information or material. The Hon'ble Supreme Court graciously laid down
principles governing the exercise of the discretion in many cases like Amanullah
Khan and others Versus The Federal Government of Pakistan through Secretary
Ministry of Finance, Islamabad and others (PLD) 1990 SC 1092), Government
of NWFP through Secretary and 3 others Versus Mejee Flour and General Mills
(Pvt.) LTD. Mardan and others (1996 SCMR 1804) and Director
Food NWFP v. Madina Flour and General Mills (PLD 2001 SC1) by
holding that discretionary decision has to be made according to rational
reasons which mean findings of primary facts, based on good evidence and that
wherever wide-worded powers conferring the discretion exists, there remains
always the need to structure the discretion which means regularizing of the so
created discretion by organizing it, requiring the exercising authority to give
reasons, so that decision may achieve the high quality of justice. The seven
principles laid down by those judgments, for structuring discretion are, open
plans, open policy statements, open rules, open findings, open reasons, open precedents,
and fair informal procedure. The order impugned it tested on the touchstone
given by the Hon'ble Supreme Court, it falls to the ground, as none of those
has been followed by the Assessing Officer. The ex-parte order clearly shows
that the Assessing Officer has made addition on account of purchases without
considering the fact that in the sale of petroleum products the margin of
commission is ranging between 2% to 3% whereas after making bald addition on
account of purchases, the said margin of profit is enhanced to 23% which by any
stretch of the imagination is impossible in this line of business. This clearly
shows that the Assessing Officer has made the addition without considering the
facts of the case. The impugned appellate order, as well as assessment order, are
totally without any base and material and against the provisions of Section 121(1)(d)
of the Ordinance and the law laid down by the Apex Court, are set aside and the
matter is remanded back to the Assessing Officer for de-novo consideration with
the directions to provide the proper opportunity of being heard to the
appellant and to pass a proper and speaking order after conducting proper inquiries
and to bring solid material evidence and information on record.
6. The appeal of the
appellant is allowed in the manner as stated above.
7. This order consists of (05) pages and each page bears my signature.
Sd/-
(M. M.
AKRAM)
JUDICIAL
MEMBER
Sd/-
(NADIR MUMTAZ WARRAICH)
ACCOUNTANT MEMBER
CERTIFICATE U/S 5 OF THE LAW REPORT ACT
This
case is fit for reporting as it settles the principles highlighted above.
(M. M. AKRAM)
JUDICIAL
MEMBER
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