APPELLATE TRIBUNAL
INLAND REVENUE, SINGLE BENCH,
ITA No.565-A/IB/2015
Tax Year 2011
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Commissioner
Inland Revenue (Legal Division), LTU, Islamabad |
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Appellant |
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Vs |
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M/s
OPI Gas Private Limited, Plot No.18A-19, PETEL House, G-10/4, Islamabad |
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Respondent |
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Appellant
By |
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Mr. Asad Bilal, DR |
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Respondent
By |
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Mr.
Muhammad Waheed Iqbal, FCA |
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Date
of Hearing |
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17.02.2020 |
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Date
of Order |
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17.02.2020 |
ORDER
M.
M. AKRAM (Judicial Member): The titled appeal has been filed by
the appellant/department against an Order No.777/2015 dated 17.03.2015 passed
by the learned Commissioner Inland Revenue (Appeals-I), Islamabad for the Tax
Year, 2012 on the grounds as set forth in the memo of appeal.
2. Brief
stated, the relevant facts for disposal of appeal are that the appellant
taxpayer is a Private Limited Company and is subsidiary of its parent Company
M/s Zaver Petroleum Corporation Limited. The appellant has been granted Liquid
Petroleum Gas (LPG) marketing
license by Oil and Gas Regulatory Authority (OGRA) and derives income from storing, filling and marketing of
LPG throughout Pakistan. The appellant filed its income tax return under the
Income Tax Ordinance, 2001 (“the
Ordinance”) by declaring loss of (Rs.55,221,584). The return so filed by
the appellant was treated to be an assessment order under section 120(1)(b) of
the Ordinance. Subsequently, during course of inspection of record it was
noticed that receipts under the head other income at Rs.26,580,540/- were
omitted from the figure of gross turnover resulting in short payment of minimum
tax under section 113 of the Ordinance on said receipts. The appellant was
confronted through show cause notice and the assessing officer passed the order
dated 16.09.2014 under section 221 of the Ordinance. Being aggrieved the respondent
taxpayer filed an appeal before the learned Commissioner Inland Revenue
(Appeals-I) Islamabad who decided the same vide Order No.777/2015 dated 17.03.2015.
Aggrieved with this order, the department has preferred appeal before this tribunal
and assailed the impugned appellate order on a number of grounds.
3. The case was heard on 17.02.2020. Learned DR reiterated the
contentions already submitted in the grounds of appeal as set forth in the memo
of appeal. The learned AR of the respondent contends that the original order
passed by the assessing officer under section 221 of the Ordinance is illegal
and void ab-initio as the provisions of section 221 of the Ordinance could not
be invoked against the deemed order. In alternative, he contends that the order
passed by the learned CIR(A) is a speaking order and there is no infirmity in
the impugned order. He, therefore, prays for rejection of appeal.
4. I
have heard both the parties and perused the relevant record as well keeping in
view the facts of the case and the law relevant thereto. The following questions
emerge from the record which is to be decided by this Tribunal:-
i. Whether the provisions of section 221 of
the Ordinance could be invoked against an order deemed to have been passed by
fiction of law under section 120(1)(b) of the Ordinance?
ii. Whether under the facts and in the
circumstances of the case the deemed order passed under section 120(1)(b) of
the Ordinance could only be amended under section 122 of the Ordinance?
In order to answer the first question,
it would be expedient to first reproduce hereunder the relevant provisions of
law which are sections 120(1), 122 and 221 of the Ordinance:-
“120. Assessments:- (1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,-
(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and
(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.
(1A) ……………………………………
(2) ……………………………………
…………………………………………..
122. Amendment of assessments.- (1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121, by making such alterations or additions as the Commissioner considers necessary.
(2) …………………………………
(3) …………………………………
221. Rectification of mistakes.- (1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner.
(1A) The Commissioner may, by an order in writing, amend any order passed under the repealed ordinance by the Deputy Commissioner, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance to rectify any mistake apparent from the record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of sub-section (2), sub-section (3) and sub-section (4) shall apply in like manner as these apply to an order under sub-section (1).
(2) No order under sub-section (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.
(3) Where a mistake apparent on the record is brought to the notice of the Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under sub-section (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly.
(4) No order under sub-section (1) may be made after five years from the date of the order sought to be rectified.” (Emphasis supplied)
As per scheme of the Ordinance,
section 120 mandates that where a taxpayer has furnished a complete return of
total income, the return so filed shall be taken for all the purposes of the
Ordinance deemed to be an assessment order issued to the taxpayer by the
Commissioner on the day the return was furnished. It follows from section 120
that, in fact, the Commissioner does not pass a formal order and there is no
application of mind on the part of the Commissioner and by fiction of law, the
return filed by the taxpayer is deemed to be an assessment order by all intend
and purposes to have been treated/ issued by the Commissioner. According to
section 122(1) of the Ordinance, if the Commissioner deems fit and necessary
for any reason permissible under the law, an amendment of assessment may be
made by the Commissioner by making such alterations or additions as the
Commissioner considers necessary. The assessing officer has no authority under
the law to give his own version of artificiality. The word “deemed” wherever creates artificiality or
fiction of law has to be restricted in meaning to that extent alone and must
not be construed to travel beyond that. The fiction so created does not give a
free hand to extend its use beyond the factum of deemed assessment and suggest
application of the fiction of law in other eventualities where reality
prevails. In other words, the law of section 120(1) creates fiction of deemed
assessment but does not create the fiction of deemed mistake contagiously to
resort to section 221. The word “mistake” is peculiar to human actions taken
with application of mind and must not be given extended scope in the situations
where an act is performed in a mechanical manner or is deemed to have been
performed under any fiction of law which is the case here. The Supreme
Court of Pakistan in PLD 1970 SC 29
observed that while interpreting a deeming clause in a statute, the Courts are
bound to ascertain for what purpose and object that provision has been enacted.
A deeming clause being necessarily a fiction of law cannot be taken to be a
part of another provision, unless same is expressly so provided. The
legislature by employing legal fiction can deem a thing to be in existence,
although same does not actually so exists. That fiction, however, cannot be
transposed or read into another provision, unless such transposition is
expressly so provided in the main provision. Reliance may be placed on CIT,
Zone-C, Lahore Vs Haroon Medical Store, Sheikhupura (2003 PTD 1530).
5. It can be seen from the combined
reading of sections 120, 122 and 221 of the Ordinance reproduced above, it
becomes very clear that the powers under these provisions are not overlapping
rather independently clearly intended to operate within their respective
compass. Section 221 of the Ordinance relates to the rectification of mistakes
which are apparent from the face of record. The words used in the said
provisions are very specific and purposeful “any order passed by him”. This clearly does not include an order
which is deemed to have been issued by the Commissioner by fiction of law which
is the case for assessment orders under section 120 of the Ordinance. The words “an assessment order treated as issued under section 120” used in
section 122(1) of the Ordinance are clearly distinguishable from the words used
in section 221 of the Ordinance which says “any
order passed by him”. The act of passing of formal order by any Officer of
Inland Revenue presupposes an application of mind and in most cases adjudication
on merits after hearing the parties. Thus, there is a marked distinction
between the deemed order and the order passed by the authority after fully
applying his mind and giving proper opportunity of being heard to the person.
The principle of interpretation of statute that every word used in a statute
has to be given effect to and no word or provisions of a statute is to be
treated as surplusage and redundant. The case of East and West Steambship Co vs
Queensland Insurance Co Ltd reported as PLD 1963 SC 395 can
be cited in this regard. A similar observation was made by the Supreme Court in
the case of Jalal Muhammad Shah vs Federation of Pakistan reported in PLD 1999
SC 395. By applying the aforesaid principle of interpretation, the
words “any order passed by him” used in section 221 of the Ordinance expressly
and deliberately provides that the authority can rectify such order which is
passed by him. If the order is not passed by the Commissioner, no question of
rectification of mistake committed by him arises which can only be the case if
there is an order passed by an officer after conscious application of mind and
in which a mistake has crept which is sought to be rectified at a later stage. The rectification is permissible only to "amend any
order passed by him”. It is not mentioned in section 221 of the Ordinance that
the order treated to have been issued under section 120 of the Ordinance
because the deemed order did not amount to an order passed by the authority.
Had it been the intention of the legislature, it become necessary to introduce
the specific provisions or amendment with certain words to cater the
eventuality of deemed order in section 221 that a deemed order
under section 120 can be amended in case of a mistake apparent from record.
6. The
plain reading of section 122(1) of the Ordinance clearly provides that an
assessment order treated to have been issued under section 120(1) of the
Ordinance can only be amended under section 122. The expression “subject to this section” used in sub-section
(1) of section 122 ibid further restrict that the deemed order treated to have
been issued under section 120 can only be amended under the said section. It
would not be out of place to observe here, while interpreting the aforesaid
provisions of fiscal statute, the literal meanings used therein, would prevail.
Letter of law has to be interpreted in the sense it has been used and expressed
and the words used are to be construed in their ordinary and natural sense. We
have to only look fairly at the language used. It is settled by now that where
a provision in a taxing statute can be reasonably interpreted in two ways, that
interpretation which is favourable to the assesse has to be accepted. CIT
Vs Naga Hills Tea Co Ltd (AIR 1973 SC 2524). Also if two views are possible, the one favourable to the assesse
has to be accepted. Sun Export Corporation vs Collector of Customs (1997) 6 SCC 564.
It is pertinent to mention here that the Hon’ble Lahore High Court has decided
almost a similar question in the case titled as M/s Ibrahim Fibers Limited Vs
Federation of Pakistan & others, W.P No.13284 of 2012 vide
order dated 19.09.2017 wherein it was held that:-
“…… thus the powers under section 221
cannot be exercised in respect of an assessment order issued under section 120
of the Ordinance. If at all the Commissioner deems it necessary to make an
alteration or addition to the assessment order, this may be done by the
exercise of powers under Section 122 and the invoking of the powers under
Section 122 for the purpose are out with the authority of the Commissioner and
are not sustainable.”
7. Now I come to the second question, I
have observed that in the instant case, the question of changeability of
minimum tax under the provisions of section 113 of the Ordinance is involved.
It is a debatable point that the appellant whether comes within the ambit of section
113 and is liable to pay minimum tax. The perusal of the orders of the
Assessing Officer and the Commissioner Inland Revenue (Appeals) would make it
clear that exercise undertaken by the Assessing Officer under section 221 of
the Ordinance was not simply in respect of a mistake apparent on the face of
the record within the contemplation of section 221 ibid rather it was
re-assessment of the tax liability of the appellant on the basis of the
provisions of law. The expression “mistake apparent on record” means the error
or mistake so manifest and clear which, if is permitted to remain on record,
may have material effect on the case. But an error of fact or law, which having
direct nexus with the question of determination of rights of parties affecting
their substantial rights, or causing prejudice to their interest, is not a
mistake apparent on the record to be rectified under section 221 ibid. The
mistake must be of the nature, which is floating on the surface of record and
must not involve, an elaborate discussion or detailed probe or process of
determination. The scope of rectification application is very limited keeping
in view the law laid down by the Apex Court of Pakistan in the judgments
reported as PLD 1964 SC 410
and CIT
Karachi Vs Shadman Cotton Mills Ltd, Karachi (2008 PTD 253) and CIT
Vs National Foods Laboratories (1992 SCMR 687) wherein it was held
as under:
“It is well settled law that
rectification jurisdiction is a very limited jurisdiction, which can only be
exercised for rectifying the mistake, which is apparent on record or which is
floating on the surface of record. This jurisdiction cannot be assumed to set
aside a well-reasoned order, which is passed after due deliberation,
application of mind and due consideration of relevant provisions of law and the
applicable case law.”
The
Hon'ble Supreme Court of Pakistan, in the case of M/s National Foods v. CIT
cited supra while defining the scope of rectification, has held that a mistake
should be apparent from record, floating on surface and may not require any
investigation or further evidence. It has been further held that a mistake
which is sought to be rectified must be so obvious and apparent from record
that it may immediately strike on the face of it. It may not be something which
may be established by a long drawn process of reasoning on issues on which
there could be conceivably two views or opinions. It may further observe that
the scope of rectification is limited to the extent of rectification of
an" error apparent from record" hence the said provision cannot be
invoked as an alternate or substitute of an appeal, revision or review. In the
case titled as CIT Karachi Vs Shadman Cotton Mills Ltd, Karachi (2008
PTD 253) it has been held that the question as to whether certain expenses can
or cannot be deducted for the purposes of assessment is material question which
cannot be brought within the ambit of rectification.
From
the various judgments of the Supreme Court above referred to and other High
Courts, it is clear that the power under section 221 of the Ordinance is
not to review its earlier order but only to amend it with a view to rectify any
mistake apparent from the record. What can be termed as "mistake
apparent"? "Mistake" in general means to take or understand
wrongly or inaccurately, to make an error in interpreting, it is an error, a
fault, a misunderstanding, a misconception. Mistake in taxation laws has a
special significance. It is mostly subjective and the dividing line is thin and
indiscernible. "Apparent" means visible, capable of being seen,
easily seen, obvious plain, open to view, evident, appears, appearing as real
and true, conspicuous, manifest, seeming. The plan meaning of the word
"apparent" is that it must be something which appears to be ex facie
and incapable of argument and debate. If such a "mistake apparent on the
face of record" is brought to the notice, section 221 empowers the
Authorities and Tribunal to amend the order passed under section 221. Amendment
of an order does not mean obliteration of the order originally passed and its
substitution by a new order.
What
is mistake apparent on the face of the record or where does a mistake cease to
be mere mistake, and become mistake apparent on the face of the record is
rather difficult to define precisely, scientifically and with certainty. An
element of indefiniteness inherent in its very nature and it must be
discernible from the facts of each case by judiciously trained mind. Mere
existence of a mistake or error would not per se render the order amenable for
rectification, but such a mistake must be one which must be manifest on the
face of the record. The
assessing officer has unlawfully enlarged the scope of section 221 to the
extent of erroneousness and prejudicial to the interest of revenue as provided
in section 122 of the Ordinance.
8. For the foregoing reasons, I will hold that the provisions of
section 221 of the Ordinance cannot be invoked in respect of an assessment
order treated to have been issued under section 120(1)(b) of the Ordinance. If
at all the Commissioner deems it necessary to make an amendment in the deemed
order passed under section 120(1)(b) ibid, this can only be done by invoking
the provisions of section 122 of the Ordinance.
9. For what has been
stated above, the orders passed by both the lower authorities are annulled. This
order consists of (09) pages and each page bears my signature.
(M.M. AKRAM)
JUDICIAL MEMBER
(Empowered u/s 130 (8AA)
of the Income Tax Ordinance, 2001 to exercise powers and functions of the
Appellate Tribunal sitting singly).
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