M. M. AKRAM (Judicial Member): The titled appeal has been filed by the taxpayer against
order No.232/2017 dated 30.11.2017 passed by the learned Commissioner Inland
Revenue (Appeals-II), Islamabad for the Tax Year 2015 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 a private
limited company, declaring income of Rs.8,540,984/- in respect of the tax year
2015. The case of the appellant was selected for audit under section 214C of
the Income Tax Ordinance, 2001, hereinafter referred to as (“the Ordinance”) by the FBR. In consequence
thereof, the proceedings were initiated by the Assessing Officer under section 177
read with section 122 of the Ordinance who after giving the proper opportunity
of being heard to the appellant passed the order dated 04-05-2017, creating
thereby a tax demand of Rs.1,639, 598/- by making additions under different
heads. Being aggrieved, the appellant/taxpayer went in appeal before the
learned CIR (A) and assailed the order only to the extent of addition made u/s
34(5) of the Ordinance under the head “Loan from Directors”. The learned CIR(A)
confirmed this addition by passing the impugned order dated 30-11-2017 which
has now been assailed by the appellant through the instant appeal.
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. It is
submitted by the learned AR that no loan from Directors was taken by the
appellant during the tax year under consideration. In fact, the appellant
received the loan from its Directors in the preceding tax years 2009 and 2010
through normal banking channels by complying with the requirements as
contemplated in the provisions of section 39(3) of the Ordinance. Further
submits that the amount of Rs.9,987,301/- appearing in the balance sheet as of
30-06-2015 relates to the opening balance. The same balance is appearing in the
previous year's balance sheet as of 30-06-2014. To substantiate the aforesaid submissions,
he placed on record the copy of the reply to show cause notice, detail of
loans, balance sheet, and copies of bank statements. He further submits that even
otherwise the addition made under section 34(5) is unsustainable in law as in
the show cause notice issued u/s 122(9) of the Ordinance, the appellant has
confronted the addition under sections 111(1)(a) and 39(3) of the Ordinance and
on a detailed reply from the appellant, the Assessing Officer changed his mind
and made addition under section 34(5) of the Ordinance without any
confrontation which is in violation of the law laid down by the Apex Court and
Article 10A of the Constitution of Islamic Republic of Pakistan, 1973 which
provides due process of 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 addition made u/s 34(5) of the Ordinance by the learned DCIR and
confirmed by the learned CIR (A) is 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 documents provided by the learned AR clearly show that the appellant took the loan from the Directors in the tax years 2009 and 2010 by duly complying with the requirements contemplated in section 39(3) of the Ordinance. When confronted with the documents provided by the AR during the hearing of the case, the learned DR could not offer any explanation on the contrary. Further, it has been observed that while issuing the show cause notice the intention has been shown by the Assessing Officer that if the appellant failed to submit any documentary evidence with respect to the liability under consideration, the liability would be added in the income of the appellant under section 111(1)(a) and 39(3) of the Ordinance. However, while passing the order, the addition has been made under section 34(5) of the Ordinance which is beyond the show cause notice and the law enunciated by the Apex Court. Reliance is placed on the judgment reported as 1987 SCMR 1840. 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 creating the liability under section 34(5) of the Ordinance, the appellant should have been confronted and be given an opportunity to defend it. The Apex Court in a recent judgment Sarfraz Saleem vs. Federation of Pakistan and others (PLD 2014 S.C. 232) has 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 Supreme 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…"
6. Admittedly in the instant case the appellant was not confronted with the provisions of section 34(5) of the Ordinance. Therefore, the addition made under the said provision is unsustainable in law. Further, we have noticed that the provision of section 34(5) could only be pressed into service where any deduction is claimed for any expenditure and the liability against the said expenditure is not paid within the three years of the end of the tax year in which the deduction was allowed, whereas in the instant case no deduction for any expenditure was claimed by the appellant in any of the preceding years against a loan from Directors. We, therefore, direct the deletion of the addition made under section 34(5) of the Income Tax Ordinance, 2001. For the sake of reference section 34(5) is reproduced hereunder: -
"34(5):- Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head "Income from Business" and the person has not paid the liability or apart of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Business” in the first tax year following the end of the three years."
7. In view of what
has been stated above, the appeal of the appellant is allowed, the impugned
order of CIR (A) is set aside and the addition of Rs.9,987,301/- made under
section 34(5) of the Ordinance is deleted.
8. This order consists of (04) pages and each page
bears my signature.
|
Sd/- |
Sd/- (M.M.
AKRAM) JUDICIAL
MEMBER |
|
(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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