APPELLATE TRIBUNAL INLAND REVENUE, BENCH-VII,
LAHORE
ITA No.253/LB/2014
(Tax Year 2007)
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Commissioner
Inland Revenue, Zone-II, Large Taxpayer Unit (LTU), Lahore. |
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Appellant |
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Vs |
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M/s Pepsi Cola
International (Pvt) Ltd; 37-C-I, Gulberg-III, Lahore. |
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Respondent |
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Appellant By |
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None |
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Respondent By |
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Mr. Maqsood Ahmed, FCA Mr. Arshad Javed, FCA |
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Date of Hearing |
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30.06.2020 |
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Date of Order |
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30.06.2020 |
O R D E R
M. M. AKRAM (Judicial Member):
The titled appeal has been filed by the
appellant Department against an Order No.04 dated 02.12.2013 passed by the
learned Commissioner Inland Revenue Appeals(“CIR(A)”),
Zone-I, Lahore for the Tax Year 2007 on the grounds as set forth in the memo of
appeal.
2. The facts in brief leading to the present appeal are that the respondent taxpayer, a private limited company, is engaged in the business of manufacturing and making of soft drink concentrates of Pepsi Cola Products and manufacturing and sale of Frito-Lays Inc, products. The respondent taxpayer filed its income tax return for the tax year 2007 on 30.09.2007, declaring an income of Rs.418,550,351/-(before charging WWF and brought forward losses). The return so filed by the respondent was deemed to be an assessment order by the fiction of law under section 120(1)(b) of the Income Tax Ordinance (“the Ordinance”). However, the said assessment order was subsequently considered erroneous as well as prejudicial to the interest of revenue in terms of section 122(5A) of the Ordinance on the grounds enumerated in the amended assessment order dated 30.06.2013 passed by the Additional Commissioner Inland Revenue (ACIR) Audit, Zone-II, LTU, Lahore.
3. The
Respondent-company thereafter preferred an appeal before the Commissioner Inland
Revenue Appeals, Zone-I, Lahore against the said order of the ACIR. The learned
CIR(A) however by its order dated 02.12.2013, accepted the appeal on merits and
deleted the addition made by the ACIR on account of “Amortization of marketing
expenses” by observing as follows:
“I have considered the rival arguments, facts available on record, and case laws cited supra. The arguments of the AR carry force. The findings of the Appellate Tribunal in the above-referred judgments are clear and relevant to the present matter. The additional CIR’s treatment of amortizing the production cost of ads as intangibles was without fully appreciating the facts of the case as well as the applicable law. No instance was brought on record by the learned Additional CIR that any of the subject ads was aired for more than a period of one year. Further, in the own case of the appellant for the tax year 2012, on a similar issue, the matter has been decided by this office in favour of the appellant through order No.16 dated 16.09.2013. Accordingly, following the rule of consistency the Additional CIR’s action cannot be sustained and the disallowance is deleted. The ground succeeds.”
However, the learned CIR(A) while deciding the appeal
rejected the legal ground of the Respondent-company that whether the amended
order passed under section 122(5A) of the Ordinance is time-barred or not in
terms of section 122(2) of the Ordinance.
4. Felt
aggrieved of the said order passed by the learned CIR(A), the Department has
now come up before this tribunal and has assailed the impugned order on the
following sole ground:-
“That the learned CIR(A) was not justified to delete the addition made under the head “amortization of marketing expenses” of Rs.29,213,854/-. Out of the total expenses of Rs.2.288 billion claimed under the said head, only expenses of Rs.61.8 million was amortized over a period of two years as it involved the expenditure of enduring nature incurred on the production of Ad films/movies, which is duly covered under the definition of “intangibles” as envisaged under section 24(11) being “motion picture film”. These constitute assets which are in permanent possession of the company and can be run again and again. Remaining expenditure which was of revenue nature relating to one year was fully allowed.”
5. This case came up for hearing before this Bench on 30.06.2020. At the very outset, the learned AR appeared on behalf of the Respondent-company apprised this tribunal that undisputedly the income tax return for the tax year 2007 was filed by the company on 30.09.2007 which was deemed to be an assessment order by the fiction of law in terms of section 120(1)(b) of the Ordinance and the limitation to amend the deemed order was to be expired on 30.09.2012 in terms of section 122(2) of the Ordinance whereas the amended order under section 122(5A) was passed on 30.06.2013 which is time-barred. Hence, the amended order passed by the ACIR is void ab-initio, illegal, and without jurisdiction. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan titled as Additional Commissioner Inland Revenue, Audit Range, Zone-I and others Vs M/s Eden Builders Limited and others (2018 PTD 1474). Further contends that the learned CIR(A) has rejected the aforesaid contention while deciding the appeal and though the respondent-company has not filed an appeal before this tribunal against the rejection of the jurisdictional question, even then it is open to it to raise this jurisdictional objection in the present appeal filed by the department. Even apart, the learned AR argues that since the question relates to the jurisdiction, it goes to the root of the matter and it can be raised for the first time before the tribunal provided the factual matrix is available on record. To substantiate his contention the learned AR relies on the judgment of the High Court of Kerala titled as Commissioner of Income Tax Vs Cochin Refineries Ltd,(1996) ITR 220 ITR 398. On merits, the learned AR of the respondent contends that the learned CIR(A) has deleted the addition under the head “Amortization of marketing expenses” on the basis of the own history of the Respondent for the tax year 2012 as well as the judgments of this tribunal. He also placed on a record number of orders passed by the department itself on a similar issue in favour of the taxpayers. He further submits that the impugned order passed by the learned CIR(A) is a speaking order and there is no infirmity in the impugned order. He, therefore, prays for the rejection of the appeal of the Department.
6. On the other hand, no one appeared on behalf of the department despite proper intimation to them. Since the matter is being old, therefore, the appeal of the Department is decided ex-parte on the basis of the record available to this tribunal.
7. Arguments of
the learned AR of the Respondent-company heard and record perused. The
submissions made on behalf of the respondent have substance. The learned CIR(A)
by order dated 02.12.2013, came to the conclusion that the ACIR
was not justified in disallowing the amortization of marketing expenses as
claimed by the respondent and deleted the addition on the basis of the
judgments of this tribunal and the own history of the respondent for the tax
year 2012. The CIR(A) took note of the contentions/submissions raised before
the ACIR and also the submission in support thereof made before him. Inter alia considering the
judgments of this tribunal on the issue, the learned CIR(A) observed that the
findings of the tribunal are clear and relevant to the present matter. It was
observed that the Additional CIR’s treatment of amortizing the production cost
of ads as intangibles was without fully appreciating the facts of the case as
well as the applicable law. No instance was brought on record by the learned
Additional CIR that any of the subject ads was aired for more than a period of
one year. Further, in the own case of
the respondent for the tax year 2012, on a similar issue, the matter has been
decided by this office in favour of the appellant through order No.16 dated
16.09.2013. The CIR(A) by relying on the decisions cited on behalf of the
Respondent-company held that it was entitled to such allowance and deleted the
addition made by the ACIR. We have also noted that the department itself in a number
of cases allowed relief to the taxpayers on similar expenses therefore, the
respondent cannot be treated discriminately.
Further, we have noted that for assuming the jurisdiction under section 122(5A) of the Ordinance, it is incumbent upon the taxing authority to prove the existence of erroneousness of the assessment to be amended in so far it is prejudicial to the interest of revenue and these two conditions must co-exist. In the instant case, the ACIR has picked an expenditure namely “Amortization of marketing expenses” and has held that the same should have been amortized. In doing so, the assessing officer has tacitly conceded to the admissibility of the expense. Had any part of the expense been amortized and allowed in the next year or years, it would have increased the revenue of the Department in the first year of the claim and equally decreased the revenue in the subsequent year; in nutshell, there would hardly be any loss of revenue. Therefore, we are of the view that the condition prejudicial to the interest of revenue attached with section 122(5A) ibid is of wide import for the reason that amortization is merely an arrangement of allowing the total expenses in more than one year. We are of the view that the words “prejudicial to the interest of revenue” need to be interpreted and understood as an irreparable loss to the revenue and not a momentary and temporary loss which is equally recouped or compensated in the subsequent years when the amortized expense is allowed. Amortization is only a deferment of part of the expense to the next year and is purely an accounting treatment. Secondly, the expense of “advertisement” is not inadmissible in its nature and the assessing officer has erred in holding that the deemed assessment was erroneous in so far as it is prejudicial to the interest of revenue. There was nothing available on record to support such adverse findings. It is not open for a tax authority to pick any item of expense from the return of the taxpayer on the basis of guesswork, seek an explanation from the taxpayer or call records and then frame an opinion to amend an assessment under section 122(5A) of the Ordinance. The factum of erroneousness and loss of revenue must be afloat from records beyond any shadow of doubt or ambiguity in order to make a resort to section 122(5A). Therefore, on facts too, we hold that assumption of jurisdiction by the assessing officer was incorrect for the reasons discussed supra.
8. With regard to the preliminary legal objection of the Respondent-company that the amended order passed by the ACIR under section 122(5A) of the Ordinance is void ab-initio, illegal, and without jurisdiction being time-barred in terms of section 122(2) of the Ordinance. To answer this jurisdictional objection, the following question may arise:-
Whether in the absence of an appeal by
the Respondent-company, can it take the question of jurisdiction which goes to
the root of the case, requiring no further additional evidence for its
adjudication and which is also not a subject matter of
appeal?
A somewhat similar question was posed before the High Court
of Kerala in the case titled as Commissioner of Income Tax Vs Cochin
Refineries Ltd (1996) 220 ITR 398 wherein it was held that;-
“14……………… It is
well-known that a successful party can support the conclusion of the
subordinate Tribunal in an appeal filed against such a decision on other
grounds, even decided against him.
15. Here, in
the instant case, the assessee had succeeded before the first appellate
authority and, therefore, when the Department took up the matter in appeal
before the Tribunal, though the assessee has not filed any cross-appeal against
the non-consideration of the contention regarding the jurisdiction, it is open
to him to support the order on the question of jurisdiction also. Even apart,
since the question relates to the jurisdiction, it goes to the root of the
matter and it can be raised for the first time before the Tribunal provided the
factual matrix is available on records.”
At this place, we are required to consider the scope of the
appellate powers of the Tribunal. The power conferred on the Tribunal under
section 132 of the Ordinance does not debar or disentitle a party not filing an
appeal to raise a point or aground on the basis of which he could support the
judgment. It may be true that by permitting a party not to file an appeal, the
Tribunal cannot enhance the tax. But, where such a party wants to take a ground
which may be different from the one on which the judgment is given in his
favour, there is no restraint on the power of the Tribunal by which it would
refuse such a party to raise the ground. In New India Life Assurance Co. Ltd. v. CIT, (1957) 31 ITR 844, the Bombay
High Court had occasion to deal with the scope of section 33(4) of the Indian I.T Act,
1922. Dealing with this, Chagla C.J observed (p. 855):
“The position with regard to the respondent is different. It is not open to him to urge before the court of appeal and get a relief which would adversely affect the appellant. If the respondent wanted to challenge the decision of the trial court, it was open to him to file a cross-appeal or cross-objections. But the very fact that he had not done so shows that he is quite content with the decision given by the trial court. Therefore, under these circumstances, his only right is to support the decision of the trial court. It is true that he may support the decision of the trial court, not only on the grounds contained in the judgment of the trial court but on any other ground. In appreciating the question that arises before us, one must clearly bear in mind the fundamental difference in the positions of the appellant and the respondent. The appellant is the party who is dissatisfied with the judgment; the respondent is the party who is satisfied with the judgment. Now what we have just said is nothing more than really a summary of the provisions with regard to appeals and cross-objections contained in Order XLI of the Civil Procedure Code; and as we shall presently point out, the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and the powers of the Tribunal are identical with the powers enjoyed by an appellate court under the Code.”
In the present case, the subject matter of the appeal
before the Tribunal is the question as to whether the deleting of addition made
under the head “Amortization of marketing expenses” was justified by the
CIR(A). It is certainly open to the respondent-company, in the appeal, to
justify the order passed by the CIR(A) on the ground that the addition was
deleted on the basis of the judgments of this tribunal and own history of the
respondent, the impugned order of the CIR(A) cannot be interfered with. According
to our opinion, the question of jurisdiction of the ACIR to pass the amended
order after the expiry of five years prescribed in section 122(2) of the
Ordinance is also a fundamental legal question which cannot be ignored for the
reason that it is settled law that if the order is void ab-initio the supper
structure built thereon automatically falls to the ground. Reliance may be
placed on the judgment titled as Moulana Atta Ur RehmanVs Al-Hajj Sardar Umer
Farooq and others (PLD 2008 SC 663) wherein it was held that:-
“In the same string are the cases reported as Rehmatullah
and others v. Saleh Khan and others (2007 SCMR 729), Punjab Workers' Welfare
Board Government of Punjab and Human Resources Department, Lahore v. Mehr Din
(2007 SCMR 13), Muhammad Tariq Khan v Khawaja Muhammad JawadAsami (2007 SCMR
818) and All Pakistan Newspapers Society v. Federation of Pakistan and others
(PLD 2004 SC 600). The learned High Court has not appreciated the law laid down
in the above-reported cases. It is
well settled that when the basic order is without lawful authority and void ab
initio, then the entire superstructure raised thereon falls to the ground
automatically as held in Yousaf Ali v. Muhammad Aslam Zia (PLD 1958 SC 104)”.
(Emphasis supplied)
Hence, the two matters were inseparably connected. This is the settled position of the law that the power conferred by Order XLI Rule 33, C.P.C, can be exercised by a court where a portion of the decree appealed against is so inseparably connected with the portion not appealed against that justice cannot be done unless the latter portion is also interfered with. As held by the Supreme Court in Nirmala Bala Ghosh v. Balai Chand Ghosh, AIR 1965 SC 1874, 1884:
“Order 41, rule 33, is primarily intended to confer power upon the appellate court to do justice by granting relief to a party who has not appealed, when refusing to do so would result in making inconsistent, contradictory or unworkable order.”
9. In the case
titled CIT v. Mahalakshmi Textile Mills Ltd, (1967) 66 ITR 710
(SC), the question regarding the jurisdiction
of the Tribunal to
allow a plea inconsistent with the plea raised before the Departmental
authorities were canvassed. Interpreting section 33(4) of the Indian Income-tax Act, 1922, the
apex court observed that there was nothing in the Act which restricted
the Tribunal to the
determination of questions raised before the Departmental authorities. It
further observed that all questions whether of law or of fact which related to
the assessment of the taxpayer may be raised before the Tribunal. The apex court further
observed that if for reasons recorded by the Departmental authorities in
rejecting the contention raised by the taxpayer, grant of relief to him on
another ground is justified, it would be open to the Departmental Authorities
and the Tribunal and
indeed it would be their duty to grant that relief and that the right of the
taxpayer to relief could not be restricted to the plea raised by him.
10. In the decision reported in National Thermal Power Co. Ltd. v. Commissioner Of Income Tax, (1998) 229 ITR 383 (SC), It has been observed that the power of the Tribunal in dealing with the appeals is expressed in widest possible terms and in the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. It further observed that the purpose of the assessment proceeding before the taxing authorities is to assess correctly the tax liability of a taxpayer in accordance with law and so long as the relevant facts are on record in respect of that item, and if as a result of a judicial decision given when the appeal is pending before the Tribunal, a non-taxable item is taxed or a permissible deduction is denied, there is no reason why a taxpayer should be prevented from raising that question before the Tribunal for the first time.
It need not be over-emphasized that the Appellate Tribunal Inland Revenue Rules, 2010 framed by
the Tribunal in the exercise of
its power under section 130(12) of the Ordinance are wholly for the purpose of
regulating its own procedure and the procedure of the Benches of the Tribunal. The rules, therefore, embody the
principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions.
The scheme of the Rules read as a whole does not suggest that the Rules in any
way have the effect of curtailing or circumscribing the power, authority, and
jurisdiction of the Tribunal in
dealing with matters at its disposal. We have not been able to read any
prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned
in the memorandum of appeal filed by
a party, whether the taxpayer or the Department, in the absence of
an appeal by the other side
projecting the new ground. It is a settled principle of law that procedural law
is the handmaid of justice and has to be so interpreted to advance the cause of
justice and not to thwart it.
11. We have also taken note that the purpose of the assessment proceeding before the taxing authority is to assess correctly the tax liability of a taxpayer in accordance with law. We consider it to be a solemn duty of the taxing authorities to correctly assess the tax liability of a taxpayer by duly following the relevant provision of law and therefore, do not countenance an inflexible and mechanical adherence to the law of procedure and in the process deny a taxpayer a benefit to which it is otherwise entitled in law. In our considered opinion, that there cannot be any estoppel against law. In this regard, we are reinforced by the observations of the apex court in Sang-ram Singh v. Election Tribunal, AIR 1955 SC 425, with reference to the Code of Civil Procedure as under (page 429):
“Now a code of procedure must be regarded
as such. It is “procedure” something designed to facilitate justice and further
its ends: not a penal enactment for punishment and penalties; not a thing
designed to trip people up. Too technical a construction of sections that
leaves no room for reasonable elasticity of interpretation should therefore be
guarded against (provided
always that justice is done to ‘both’ sides) lest the very means designed for
the furtherance of justice be used to frustrate it.”
The above principle of
interpretation of statutes was followed and further developed by the Hon’ble
Supreme Court of Pakistan. Reliance may be placed on the judgment titled Pir
Sabir Shah v. Shah Muhammad Khan(PLD 1995 SC 66) and CIT
v. Ghazi Brotha Construction ( 2004 PTD 1994).
12. It
has also been held in the case of M/s Squib Pakistan (Pvt) Ltd Vs.
Commissioner of Income Tax and other (2017) PTD 1303) that a
question of law arising out of the Tribunal’s order, on the basis of which
advisory jurisdiction of High Court under Section 133 may be invoked, includes
a question, which has neither been argued nor raised by either party in nor
decided by, the Tribunal. Now following the true import of this dictum, may
assail the order of this Tribunal on a question of law without raising or
arguing before this Tribunal in the first instance, then it would be unfair and
as such against the mandate of Article 10-A of the Constitution of Pakistan,
1973 to disallow a party to bank its case on that premises before this Tribunal
at or prior to date of hearing.
13. We are, therefore, not in favour of granting such primacy to the rules of procedure so as to wipe off a substantial right otherwise available to the Respondent-company in law. We find this view of ours also reinforced by the language of rule 14 of the Appellate Tribunal Inland Revenue Rules, 2010 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. We are therefore of the view that it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it. We must however hasten to add that in order to enable either the taxpayer or the Department to urge a ground in the appeal filed by the other side, the relevant facts on which such ground is to be founded should be available on record. In the absence of such primary facts, in our opinion, neither the taxpayer nor the Department can be permitted to urge any ground other than those which are incorporated in the memorandum of appeal filed by the other party. In other words, if the taxpayer or the Department, without filing any appeal seeks to urge a ground other than the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary facts in support of new ground must be available on record. Notwithstanding the aforesaid, it is settled law that it is the duty of the Court to apply the correct law. Reliance in this regard may be placed on the judgment titled as Chairman, Nab Vs Muhammad Usman and others (PLD 2018 SC 28) wherein it was held that:-
“……………..however, one cannot ignore the fundamental principle relating to the administration of justice that law is written on the sleeves of the Judges and it is the primary duty of a Judge to apply the correct law to a case before it and even the party is not bound to engage a counsel for telling the Court how a particular law is to be applied and how the jurisdiction is to be exercised thus, the impugned judgment being not sustainable in law, is set at naught.”
It is also an immutable
principle of law that the purely legal question going to the root of the case
and requiring no further additional evidence for its adjudication may be raised
at any stage of the proceedings. Reliance may be placed on the judgment of the
Hon’ble Supreme Court of Pakistan titled as Caltex Oil (Pakistan) Ltd Vs Collector, Central Excise and Sales Tax
and Others, (2005 PTD 480)
wherein it has been held that;
“6. This is settled principle of lave that a question of law arising out of the facts of the case relating to the fundamental issues involved therein, even if was not raised before the lower forum can be allowed to be taken before the higher forum and this Court for doing complete justice may, if the facts and circumstances of a case so demand, allow to raise a question of law which was not as such taken before the High Court. This is the duty of the Court seized of the matter, to apply the correct law to meet the ends of justice and this Court in. Gatron (Industries) Ltd. v. Government of Pakistan (1999 SCMR 1072) held that "even when leave is not granted on a point, the same can be allowed to be canvassed in appeal if it is necessary for doing complete justice in a cafe or a matter pending before the Court as contemplated by sub‑article (1) of Article 187 of the Constitution."
14. We are, therefore, of the view that it is
permissible on the part of the Tribunal to entertain a ground on an established
point of law going to the root of the jurisdiction of the authority passing the
impugned order. We, therefore, answer the question referred to above, in the
affirmative. It is the duty of the Authorities under the Ordinance to correctly
assess and realize the tax payable in accordance with law and therefore
assuming that as a result of some lapse, negligence, or ignorance there is any
omission on the part of the taxpayer, the same should not be exploited to the
advantage of the Revenue by side-lining the relevant provisions of law. If
technical considerations are pitted against substantial
justice, the latter should prevail.
15. Now we dilate
upon the jurisdictional legal objection of the learned AR that appeared on
behalf of the Respondent-company. We find that the issue of time limits
provided under sub-sections (2) & (4) of Section 122 of the Income Tax
Ordinance, has already been decided by the Hon’ble Supreme Court of Pakistan in
the case titled Additional Commissioner Inland Revenue, Audit Range, Zone-I and
others Vs M/s Eden Builders Limited and others (2018 PTD 1474) and para No 7 of this judgment reads as
under: -
“7. Because the terminal date of limitation is not changing through the amendment brought about through the Finance Act, 2009 and because the period of limitation is not being extended per se therefore the authorities cited by the learned counsel for the appellants are of no avail and are distinguishable. In this view of the matter, hold that the various respondents, who filed their tax returns before section 122(2) of ITO 2001 was amended through the Finance Act, 2009 will be governed by Section 122(2) ibid as it stood before the amendment brought about in the said section through Finance Act, 2009 dated 30.06.2009 will not be attracted to their cases.”
16. Admittedly in the instant case, the taxpayer has furnished its return of income for the tax year 2007 on 30.09.2007 i.e. prior to the amendment made in section 122(2) vide Finance Act, 2009 through which limitation to complete assessment was extended from five years to six years. In view of the judgments of the Hon’ble Apex Court, the deemed assessment was required to be amended up to 10.09.2012, whereas in the instant case the assessment was amended on 30.06.2013 which is clearly barred by time limitation as provided under the law. We, therefore, are inclined to hold that the amended order passed on 30.06.2013 is not sustainable in the eye of law being barred by time. Consequently, the order passed by the assessing authority is hereby annulled and that of the learned CIR(A) is vacated.
17. For what has been discussed above, the appeal of the appellant department is disposed of in the above terms.
18. This
order consists of (13) pages and each page bears my signature.
Sd/
(M.M. AKRAM)
Judicial Member
Sd/
(WAJID AKRAM)
Accountant Member
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