M/s Cenna School, G.T. Road, Pabbi.

APPELLATE TRIBUNAL INLAND REVENUE, DIVISIONAL BENCH-1,

ISLAMABAD

ITA No.262/PB/2018

(Tax Year 2014)

********

M/s Cenna School, G.T. Road, Pabbi.		Appellant
	VS
Commissioner Inland Revenue, RTO, Peshawar		Respondent
Appellant by		Mr. Fazal Akbar Khattak, ITP
Respondent by		None
Date of hearing		07.01.2020
Date of order		07.01.2020

O R D E R

M. M. AKRAM (Judicial Member):        The titled appeal has been filed by the appellant/taxpayer against an Appeal Order No.509 dated 11.06.2018 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.       Brief facts giving rise to the appeal are that the appellant is an individual, deriving income from running a Private Educational Institution. The return for the tax year 2014 was filed by declaring net income at Rs.397,030/- against gross receipts of Rs.3,221,550/-. The return so filed by the appellant was treated to be an assessment order under section 120(1)(b) of the Income Tax Ordinance, 2001 (‘the Ordinance”). Subsequently, with the prior permission of the Commissioner Inland Revenue, the Assessing Officer obtained information under section 176 of the Ordinance from the Chairman, Board of Intermediate and Secondary Education (BISE), Mardan. The said authority reported a total number of students studying in the appellant’s school were 1800, admission fee per student (Minimum = 1,000/- and Maximum = 8,000/-), monthly fee per student (Minimum = 600/- and Maximum = 2,500/-). Based on this information, the Assessing Officer computed the appellant’s gross receipt for the tax year under consideration at Rs.41,580,000/- as against declared at Rs.3,221,550/-. The difference/suppressed receipts amounting to Rs.38,358,450/- was treated by the Assessing Officer as un-explained income of the appellant/taxpayer under section 111(1)(d) of the Ordinance and added to the declared net income at Rs.397,030/-. The appellant was provided ample opportunities by issuing show-cause notices to attend the proceedings and explain his viewpoint and furnish supporting documents in respect of his plea, if any, regarding the information obtained from BISE, Merdan. However, the appellant despite proper service of notices did not respond to the statutory notices. Ultimately the Assessing Officer passed an amended assessment order dated 29.09.2017 against the appellant in accordance with information received from BISE. The appellant felt aggrieved, filed an appeal before the learned CIR (Appeals), Peshawar who decided the appeal ex-parte vide order dated 11.06.2018 and confirmed the treatment accorded by the Assessing Officer. The appellant has now come up before this forum and has assailed the impugned appellate order on a number of grounds. 

3.       This case came up for hearing on 07.01.2020. Learned AR of the appellant reiterated the contentions already submitted in the grounds of appeal. However, the learned AR apprised this tribunal that the appellant filed the civil suit before the Civil Court, Nowshera against the Chairman, BISE, Merdan, and others by incorporating in their record the wrong and incorrect entries of the school record with regard to the number of students and other information relating to the school and subsequently providing such wrong and incorrect information to the Assessing Officer. The said suit was decided and decreed in favour of the appellant vide order dated 16.10.2019 wherein the Chairman, BISE, Merdan was directed to do the correction of the record to the extent of its strength, number of classrooms, bathrooms, admission fee, and monthly fees. The AR placed on file the copy of the said order. On the strength of the said order, the AR contends that the proceedings in the instant case had wrongly been initiated against the appellant. He submits that the Assessing Officer had not independently verified the alleged information obtained from Chairman, BISE on the basis whereof the alleged tax liability was determined under section 122(1) of the Ordinance. He, therefore, prays that the case be decided in accordance with the order dated 16.10.2019 passed by the learned Civil Judge, Nowshera. On the other hand, no one appeared on behalf of the department despite proper service of notice.

4.       The arguments heard and record perused. The submissions made by the learned AR have substance. The proceedings admittedly in the instant case were initiated on the basis of alleged information obtained from Chairman, BISE, Merdan, and the Assessing Officer after giving proper opportunity of being heard to the appellant passed the amended order without independently verifying such information through local inquiry. This fact is confirmed by Mr. Bakht Sher Gul, Inspector Inland Revenue, Unit-35, Nowshera while giving his statement on oath on 04.07.2018 before the learned Civil Judge during suit proceedings where he appeared as DW-2. The relevant extract of the statement is reproduced hereunder:-

مدعی سال1995-96 سے ٹیکس ریٹرن (گوشوارے) جمع کرتے ہیں۔ دستاویزات مظہر مذکورہ بالا (اسسمینٹ آرڈر) ہم نے مدعا علیہ نمبر۱ کی طرف سے ارسال شدہ رپورٹ کی بنیاد پرتیار کیا ہے۔ مدعا علیہ نمبر ۱ کی طرف سے ارسال شدہ رپورٹ جسمیں طلباٗ کی تعداد 1800 اور دیگر تفصیل دیا گیا ہے جسکا نقل پہلے سے مظہر شدہ  EXPW1/2 ہے کی نسبت ہم نے خود کوئی انکوائری نہ کی ہے اور نہ ہی کوئی بابت انسپکشن کوئی ٹیم مدعی کے سکول ارسال کی ہے بلکہ یہ تھرڈ پارٹی انفارمیشن تھی جسکی بنیاد پر ہم نے حسب قانون اسسمینٹ رپورٹ تیار کی ہے۔ 

It appears that the total liability has been created against the appellant on the basis of the alleged information obtained under section 176 of the Ordinance from Chairman, BISE, Merdan which has now been discarded by the learned Civil Judge vide order dated 16.10.2019. The Inspector Inland Revenue himself admitted that he had neither visited and inspected the school nor made any inquiry regarding the strength of students and other details of the school before passing the amended order. To our minds, such an exercise does not amount to a receipt of “definite information” within the meaning of section 122(8) of the Ordinance. Thus, the alleged information was not definite at the time of initiation of proceedings under section 122(5) of the Ordinance. The provision of section 122(5) of the Ordinance provides for amendment of assessment by the tax authorities after acquiring definite information from an audit or otherwise, which is obligatory/mandatory under the mandate of law. The amendment under section 122 ibid can only be lawfully undertaken if the information is definite and conclusive thereby not involving any suppositions, guesswork, estimation, etc. In the context of the above, the treatment is undertaken by the learned DCIR on the basis of issues confronted in the show cause notice if analyzed clearly transpires that addition made under section 111(1)(d) of the Ordinance has not been made on the basis of acquisition of any “definite information” rather it has been made in an arbitrary manner without independently verifying the same. It is now well settled that without possession of any definite information, the proceedings under section 122(5) of the Ordinance are a nullity in the eyes of law. Reliance may be placed on a judgment of the Hon’ble High Court titled as CIR Vs Khan CNG and Filling Station etc( 2013 PTD 884), relevant extract of which is reproduced below:- 

“12.    The term “definite information” in section 122(5) of the Ordinance is not just any information but definite enough to satisfy the concerned learned ACIR that income chargeable to tax of an assessee has escaped assessment or the total income of an assessee has been under-assessed, etc. “Definite”, means indisputable, known for certain, explicitly precise, clearly defined, leaving nothing to implication, established beyond doubt, and cut and dried. Definite information is, therefore, that select information which falls within the restrictive meaning of the word “definite” explained above. The law also provides that definite information must be acquired from audit or otherwise. Applying the interpretative tool/doctrine of ejusdem generis which literally mean “of the same kind or class” and the doctrine provides that where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned the word “otherwise” appearing next to the word “audit” in section 122(5) of the Ordinance on the basis of the above doctrine means a methodology akin or similar to audit where some determined, final, certain, indisputable, calculated information is picked up from any available record of the assessee. “Otherwise,” therefore, does not mean putting information through further process of calculation by the department. The word “acquired” used in section 122(5) of the Ordinance which literally means to “gain possession of” in the present context connotes that the information already exists and has to be picked up from the records or documents. This acquisition provides no margin for incomplete, imprecise, and inexact information to be completed through further calculation or processing as that would not be acquiring information but analyzing it.

13.     Reading of section 122(5) of the Ordinance, therefore, shows that information in a definite, final, and conclusive form must already exist in some document or record at the time of acquisition. Any information which is incomplete or requires further processing falls outside the domain of definite information and can best pass for a departmental opinion, judgment, guesstimate, approximation or estimate…” (Emphasis is provided) 

The Hon'ble Supreme Court of Pakistan in the case titled ITO and another Vs Chappal Builders (1993 PTD 1108), has interpreted the term "definite information" in the following manner:-

"The expression definite information and similar expression used in the above noticed provision or other related provisions certainly meant much more than mere material so as to cause a reasonable belief of even such evidence which might had to a definite belief. Unless there is direct information and there is no further need to put the said definite information to trial by putting in further supporting material the process of self-assessment could not be reopened". (Emphasis is ours)” 

Reliance may further be placed on Central Insurance Co Vs Central Board of Revenue (1993 SCMR 1232), Inspecting Assistant Commissioner Vs Pakistan Herald Ltd (1997 SCMR 1256). The above reproduced findings of the Hon’ble Courts do not leave any iota of doubt that action under section 122(5) of the Ordinance, otherwise than on the basis of “definite information” (as is the instant case of the appellant) is not permissible under the law and therefore void ab initio. Any addition made on a similar basis would definitely constitute a nullity in the eyes of law. The BISE is not a department authorized under any law to record the revenue of any educational institution; at the most, its report could be held an opinion which does not find any sanctity under the law relating to amendment under section 122(1) of the Ordinance on the test of “definite information” or a substitute thereof. It was the duty of the Assessing Officer to make independent verification and gather information in support of his estimate of receipts relied upon for making addition under section 111(1)(d) of the Ordinance.  

5.       For the foregoing reasons, the appeal of the appellant is accepted and the orders passed by the lower authorities are annulled. Since the matter has been decided purely on a legal basis, therefore, there is no need to dilate upon other grounds taken by the learned AR. 

6.       This order consists of (06) pages and each page bears my signature.

 

	Sd/- (M.M. AKRAM) JUDICIAL MEMBER
Sd/-  (NADIR MUMTAZ WARRAICH) ACCOUNTANT MEMBER