APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.1725/IB/2022
MA (Stay) No.1501/IB/2022
(Tax
Year 2015)
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Mr. Muhammad Sajid
Manzoor, Khushab. |
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Appellant |
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Vs |
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Commissioner Inland
Revenue RTO, Sargodha. |
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Respondent |
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Appellant By: |
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Mr. Muhammad Nasir Nawaz Mufti, Advocate |
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Respondent By: |
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Mr. Usman Asghar, DR |
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Date of Hearing: |
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01.09.2022 |
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Date of Order: |
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01.09.2022 |
O R D E R
M. M. AKRAM (Judicial Member): The titled appeal along
with the miscellaneous application for stay has been filed by the
appellant/taxpayer against an Order No.402 dated 08.12.2021 passed by the
learned Commissioner Inland Revenue (Appeals), Sargodha for the Tax Year 2015
on the grounds as set forth in the memo of appeal.
2. Brief facts culled out from the record are
that the appellant
is an individual who derives income as a Sugar Dealer. He filed his return for the
tax year 2015 by declaring property income at Rs.629,800/- and income from
business at Rs.803,125/- which constitutes deemed order under section 120(1)(b)
of the Income Tax Ordinance, 2001 (“the Ordinance”). Subsequently, the
deemed order under section 120(1)(b) of the Ordinance was found erroneous in so
far as prejudicial to the interest of revenue. Therefore, the taxpayer was
accordingly informed about the intention regarding amendment of deemed order under
section 122(5A) through show cause notice under section 122(9) of the Ordinance
on 09.11.2020. On the due date, the AR of the taxpayer appeared and asked for an
adjournment. The case was fixed again at the request of the appellant but he
failed to defend his case despite proper service of notices. Therefore, the
assessing officer passed an order under section 122(5A) of the Ordinance in the
following manner:-
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Description |
Amount (Rs.) |
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Income
declared from business as per return. |
803,125/- |
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Additions
u/s 111(1)(d) of the Ordinance |
211,026,853/- |
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Total
amended income |
211,829,978/- |
Being aggrieved, the appellant filed
an appeal before the learned Commissioner Inland Revenue (Appeals), Sargodha
who decided the appeal of the taxpayer vide Order No.402 dated 08.12.2021 with
the observation that the impugned order was passed without confronting the
discrepancies properly and remanded the case to the assessing officer with the
direction to pass a speaking order after examining the documents. Aggrieved
with this remand order, the appellant taxpayer has preferred an appeal before
this forum and assailed the impugned order on a number of grounds.
3. The case came up for hearing on 01.09.2022. The Learned AR at
the very outset contended that the amended order passed by the assessing
officer under section 122(5A) of the Ordinance suffered from serious legal and
jurisdictional infirmities/flaws that go to the root of the case and must be
considered and settled first. He submits
that the order under section 122 of the Ordinance could have only been passed
within the stipulated time prescribed under section 122(2) of the Ordinance
which had expired after expiry on 30.06.2021. However, he contended that after
the expiry of the statutory period i.e 30.06.2021, the proceedings concluded by
amending the deemed order on 08.07.2021 are void ab-initio, illegal, and
without jurisdiction. Therefore, it has been contended that the basic order
passed by the assessing officer is illegal and without jurisdiction, the
superstructure built thereon automatically falls to the ground.
4. On the other hand, learned DR opposed the contentions of the AR
and supported the impugned order passed by the learned CIR(A). He argued that
the learned CIR(A) passed the impugned order after considering the record and
has rightly observed that the amended order was passed on 15.06.2021 as per the
Demand Collection Register (DCR). It has been explained that the DCR is
the most authentic and reliable reference for finding the date of order.
Therefore, the learned DR contended that the amended order was passed well
within the stipulated time and prayed for the rejection of the appeal.
5. We have heard both the parties and perused the record available
before us. At the heart of the controversy is to:
Whether the Demand Collection Register (DCR) entry dated 15.06.2021 amount to an “amended assessment order” passed under Section 122(1) of the Income Tax Ordinance, 2001?
In this respect, before
going any further, we consider it appropriate to reproduce below the relevant
provision of section 122(2) of the Ordinance which read as under: -
“122.
Amendment of assessments.— (1) ……………………………
(2) No order under sub-section (1) shall be amended
by the Commissioner after the expiry of five years from the end of the
financial year in which the Commissioner has issued or treated to have
issued the assessment order to the taxpayer.”
It
can be seen from the bare perusal of the above provision of law that the
legislative text is couched in negative language. It, therefore, implies that
the provision of law is to be interpreted restrictively. In essence, Section
122(2) puts a restriction upon the authority of the Respondent department to
pass an order after the crucial date. Thus, in the present scenario the only
interpretation that is possible and follows the rule of common sense, is that
this Tribunal too has no jurisdiction to extend the time prescribed under
Sections 122(2) or 122(4) of the Ordinance. As a result, there is no purpose
left behind remanding the matter back to the authority, because, the Respondent
cannot pass any order any further due to the bar of limitation under Section
122(2) of the Ordinance. We are mindful that any taxpayer may benefit from
delay or time spent in assessment or appeal proceedings, however, it is the public
law duty of the Respondent to pass an order in the first place which is lawful
and in accordance with the facts of a case. Should it fail, it is not without
consequences as is in this case. The Respondent has regretfully lost its ground
in its entirety, nevertheless, this is the law and has to be followed at all
costs. This case is about the proper interpretation to be put on these words by
this Tribunal. It was said by Hon’ble Chief Justice Muhammad Munir in PLD
1957 SC (Pak) 219 at 233 that:
“Ever since man learnt to express his feelings and the thoughts in words,
the function of the person to whom the words are addressed, a function of which
he is scarcely conscious, has been to understand what is intended to be
conveyed by the speaker; but ever since the law began to be written the duty of
those to whom it is addressed or who are called upon to expound it has been to
discover the intention of the lawgiver”.
The
first principle that comes to mind while placing a construction on the above
reproduce provision of law is a well-worn rule that redundancy cannot be
attached to any words used by the legislature in a statute. It is a settled canon of construction that “a
textually permissible interpretation that furthers rather than obstructs the
document’s purpose should be favoured”. Reading
Law, The Interpretation of Legal Texts by Antonin Scalia and Bryan A.
Garner elaborates the canon thus: ―
“This canon follows inevitable from the facts that (1) interpretation always depends on context, (2) context always includes evident purpose, and (3) evident purpose always includes effectiveness.”
The
same treatise refers to another rule of interpretation vouched by superior
Courts and which, more than any other, compels this tribunal to hold that the
word “Order” used in sub-section (2) of section 122 of the Ordinance has a
consequence and cannot be ignored. It is known as the Surplusage Canon and has been described as follows:-
“If possible, every
word and every provision is to be given effect (verba cum effectu sunt
accipienda). None should be ignored. None should needlessly be given an
interpretation that causes it to duplicate another provision or to have no
consequence.
The surplusage canon
holds that it is no more the court’s function to revise by subtraction than by
addition. A provision that seems to the court unjust or unfortunate (creating
the so-called ca-sus made inclusus) must nonetheless be given effect. As Chief
Justice John Marshal explained: “It would be dangerous in the extreme, to infer
from extrinsic circumstances, that a case for which the words of an instrument
expressly provide, shall be exempted from its operation”. Or in the words of
Thomas M. Cooley: “The courts must…lean in favor of a construction which will
render every word operative, rather than one which may make some idle and
nugatory.” This is true not just of legal texts but of all sensible writing:
Whenever a reading arbitrarily ignores linguistic components or inadequately
account for them, the reading may be presumed improbable.”
Lawyers rarely argue
that an entire provision should be ignored—but it does happen. For example, in
Fortec Constructors v. United States, the quality-control paragraph of a
construction contract with the Army read as follows:
“All work shall be
subject to inspection and test by the Government at all reasonable times and at
all places prior to acceptance. Any such inspection and test is for the sole
benefit of the Government and shall not relieve the Contractor of the responsibility
of providing quality control measures to assure that the work strictly complies
with the contract requirements. No inspection or test by the Government shall
be construed as constituting or implying acceptance.
When the Army demanded that the contractor
demolish and reconstruct noncompliant work, the contractor protested that the
on-site Army Inspector had failed to notify Fortec of the defects and that this
silence constituted an acceptance of the original work. The court correctly
rejected this argument:
“To
agree with Fortec's contention would render clause 10 meaningless. This court
must be guided by the well-accepted and basic principle that an interpretation
that gives a reasonable meaning to all parts of the contract will be preferred
to one that leaves portions of the contract meaningless. Therefore, Fortec's
contention is rejected for being inconsistent with contract clause 10. The
Corps quality assurance inspections did not constitute an acceptance of the
work.
It
was held in United States v.
Butler, 297 US 1, 65 (1936)
(per Roberts, J) that;-
“These words cannot be meaningless, else they would not have been used”.
The
observations reproduced above convey in the most basic sense the rule that
every word has to be given effect and the Courts or Tribunals cannot subtract
or add any word in a statute. There is a chronology of events which clearly
depicts a conscious attempt on the part of the legislature to use the word
“Order” in the scheme and structure of the Ordinance. For instance, without
passing the order in writing the tax demand cannot be created and an aggrieved
person can’t file an appeal before the competent authority. Thus, it is the
mandatory requirement that the assessing officer has to pass an order in
writing within the prescribed period stating therein
the amended taxable income of the taxpayer, the amended amount of tax due, the
amount of tax paid, if any, and the time, place and manner of appealing the
amended assessment. It cannot be urged by the respondent department that
this was without any purpose or done thoughtlessly by the legislature. Thus,
there is no doubt that the word “Order” used in sub-section (2) of section 122
of the Ordinance has been purposely and deliberately used. The entire Income
Tax Ordinance does not refer to or recognize the Demand Collection Register
(DCR).
6. Now
we turn to the main controversy, the brief facts of the case are reproduced in
para 2 above. However, for the sake of brevity, it would not be out of place to
elicit a chronology of events at this juncture.
a. Date
of filing of return of Income Tax by the Appellant
for the tax year 2015. 31.03.2016
b. Deemed
Order of assessment (the Original Assessment
Order). 31.03.2016
c. End
of the financial year following the filing of return
of
income tax. 30.06.2016
d. Expiry
of limitation to amend the Original Assessment
Order
as per section 122(2) of the Ordinance. 30.06.2021
e. Impugned
amended order passed. 08.07.2021
The Respondent department in this
matter has raised an interesting argument and has contended that the entry in
the DCR register amounts to an assessment under Section 122(1) of the Ordinance
and therefore, is within the time limit prescribed in Section 122(2) of the Ordinance.
On the other hand, the Appellant disagrees with this argument and contends that
the decision in writing passed and issued by the Commissioner on 08.07.2021 is
the decision under 122(1) of the Ordinance and as such, is unlawful for being
passed outside the prescribed period of limitation. In a nutshell, as stated
above, the issue, in this case, is whether the DCR
entry dated 15-06-2016 amounts to an “amended assessment order” passed under
Section 122(1) of the Ordinance. Our answer to this question is an absolute
“Not” and we set out the reasons for the same in the following paras.
7. We
have very keenly heard the arguments of both parties and perused the record;
however, we did not have the benefit of perusing the departmental manual or
instructions to the case works or officers of the department listing the
different registers and the method of entry to the same. However, based on
common sense, we can safely presume that at the first stage a decision of
assessment, commonly known as assessment order, should have been made in
writing and a notice of the decision in the form of a demand notice should be
prepared and signed by the assessing authority; and following this further the
information from the demand notice must have been transmitted in the Demand
Collection Register (DCR). However, in this case, quite astonishingly, this
natural order is revered, and the Respondent department has tried to put a Cart
before the horse. We find that this reverse engineering methodology is not
without a purpose behind it. The Respondent has failed to rely on any
departmental instructions or manual to support his contention of unnatural
methodology; nor did he present any evidence in any form to prove that this is
a normal approved practice in the Respondent department. However, we do take
judicial notice of the fact that 30th June of every year is the close of the fiscal
year and there is always pressure on the department to meet the targets of the
fiscal year and this is considered a high time in the tax office to prove
performance by the tax officials. Nevertheless, as this issue is not before us,
therefore, we abstain from giving any finding on this issue in particular.
However, we do find that this practice of reverse methodology, if prevails
would amount to an abuse of the process of law and would indeed shatter the
confidence of the public in the administration of a system of governance in the
tax department. It is the public law duty of the Government Departments to
adopt and follow the principle of procedural fairness, we, therefore, find that
by following an unnatural practice of creating a tax demand against a taxpayer,
the Respondent has not acted fairly in this matter; and an argument that
amended assessment order was passed on 15.06.2021 is rejected.
8. We
further reject the argument of treating the DCR as an assessment order for the
reason that it is not the entry in the register which gives a right to appeal
and is impugned before the Appellant Authority. Rather, it is the decision
dated 08.07.2021 which is appealed against under section 127 of the Ordinance within
a prescribed period of limitation after service of the Impugned Order. It is
not the copy of DCR which is served on the appellant taxpayer; in this case
scenario, it is the amended assessment order which is issued under subsection (6)
of Section 122 of the Ordinance and includes contents specified in the same
provision, which of course the DCR does not have. For the sake of brevity, it
is pertinent to point out that an amended assessment order under Section 122(1)
of the Ordinance must have specified content as enunciated in Section 122(6) of
the Ordinance, and the same is quoted as under:-
“(6) As soon as
possible after making an amended assessment under sub-section
(1), sub-section (4) of sub-section 5A, the Commissioner shall issue an
amended assessment order to the taxpayer stating –
a. The
amended taxable income;
b. The
amended amount of tax due;
c. The amount of tax paid, if any; and
d. The
time, place, and manner of appealing the amended assessment.” (Emphasis supplied)
Thus, the DCR cannot be termed as an
assessment order as argued by the respondent department.
9. We
understand that on the basis of the above-quoted provision of subsection (6) of
section 122, one may well argue that it is only as soon as possible “after
making an amended assessment” that the Commissioner shall “issue
an amended assessment order” (in writing); the limitation in 122(2)
applies to making of an amended assessment and not to the issuance of the
amended assessment order; and the fact that the Commissioner has entered the
demand in DCR on 15-06-2021, evidence that the amended assessment had been made
on or before 15.06.2021, and it was the issuance of the order in writing, which
was done on 08.07.2021, and that is also “as soon as possible”,
after making the amended assessment. However, though this argument has not been
advanced before me, yet, had it been so advanced, we would have rejected the
same for the following reasons.
i. The word “making” used in this subsection is
not limited to “making up a mind” in relation to assessment order in writing
and evidencing the same by registering the demand in DCR. Rather, it includes transcribing
the same in writing and where the law specifies a particular manner of writing,
as is in Section 122(6), then it must be so transcribed.
ii. The words “as soon as possible” do not signify
to draft the assessment order as soon as possible after “making up the mind”,
rather it relates to the issuance of the order “as soon as possible” it is
made. The purpose of including this legislative text was to avoid the
application of an established principle of law that a decision of an
administrative authority does not take effect unless it is deemed to have been
served upon the affected party. In this respect, we place our reliance on
paragraph 30 of the speech by Lord Bingham in R. (Anufrijeva) v
Secretary of State of Home Department, (2003 UKUL 36) in
which it has been held that:
“30. Until the decision
in Salem, it had never been suggested that an uncommunicated
administrative decision can bind an individual. It is an astonishingly unjust
proposition. In our system of law, the surprise is regarded as the enemy of
justice. Fairness is the guiding principle of our public law. In R v
Commission for Racial Equality, Ex p Hillingdon London Borough Council [1982]
AC 779, 787, Lord Diplock explained the position:
"Where
an Act of Parliament confers upon an administrative body function which involves
its making decisions which affect to their detriment the rights of other
persons or curtail their liberty to do as they please, there is a presumption
that Parliament intended that the administrative body should act fairly towards
those persons who will be affected by their decision."
Where
decisions are published or notified to those concerned accountability of public
authorities is achieved. Elementary fairness, therefore, supports a principle
that a decision takes effect only upon communication.”
10. If this principle is applied, then the service or issuance of an
amended assessment order after the cut-off date would have rendered the
assessment order to be unlawful. However, the drafter did know this principle
of interpretation, but he or she, following the legislative instructions,
drafted it in a manner that the application of this principle is excluded by
express legislative text. This provision of Section 122(6) has no other purpose
(except of course that it specifies the contents of the decision). We,
therefore, reject the argument that the Respondent department has a relaxation
to draft the amended assessment order after the cut-off date. Based on the above
reasoning find that this relaxation is limited to the extent that the decision
can be issued and served as soon as possible after the cut-off date.
11. On
the basis of the above findings, we reject the argument of the learned DR that the
DCR can substitute an assessment order or that the fact of entry in DCR
evidences an amended assessment order; an amended assessment order remains an
assessment order regardless of a fact that a demand is created (with an entry
in DCR) or a refund is calculated (without any entry in DCR), as a result of the
amended assessment order. We find that any contrary finding would undermine the
purpose of the limitation prescribed by Section 122(2) of the Ordinance.
12. For what has been discussed above, in our
humble view, there was no purpose in sending the matter back to the Respondent
department by the learned CIR(A) when, due to the expiry of the time limitation
of 5 years under subsection (2) of Section 122 of Ordinance, the latter has no
more jurisdiction to pass an amended assessment order under Section 122 (1) of
the Ordinance. We find that this Tribunal or any other authority has no
jurisdiction under the law or a residuary power to extend the statutory
limitation enunciated by the Parliament in Section 122 of the Ordinance.
Reliance may be placed on the judgment of the Hon’ble
Supreme Court titled Assistant Collector Customs and others Vs
M/s Khyber Electric Lamps and three others, (2001 SCMR 838) wherein it was held
that:
“5. It was urged
by the appellants that the learned High Court after finding the notices to be
defective and not in accordance with law should have remanded the cases to the
Customs Authorities for proceeding in accordance with law, but we do not find
any substance in this contention as the period prescribed by law for service of
notices has already expired and it would be a futile exercise in remanding the
cases to the Customs Authorities. In case of Federation of Pakistan v. Messrs
Ibrahim Textile Mills (1992 SCMR 1898), it has been ruled that in case of
short-levied duties on account of inadvertence, error, or misconstruction,
section 32(3) of the Act provides that for recovery notice shall be served
within six months, if that is not done, like a suit for recovery of money after
lapse of time prescribed by law of limitation, the recovery becomes
unenforceable.”
As a result, the appeal is allowed and the orders
passed by the lower authorities are annulled as unlawful because it was passed
after the prescribed period of limitation contemplated in Section 122(2) of the
Ordinance. Since the main appeal of the appellant has been decided, therefore,
the miscellaneous application for interim relief has become infructuous.
13.
Let this order be sent to the learned Chairman, Member (Legal), and Member
(Operation) Inland Revenue, Federal Board of Revenue, Islamabad for the
purposes of issuing instructions to all officers invoking the provisions of
section 122 of the Ordinance to comply with the said provision of law and its
mandatory nature. They should also be made aware of serious consequences in
case the said provisions are not strictly adhered to. In the instant case, we
have observed that due to non-adherence to the statutory provisions of law highlighted
above by the lower authorities, the Government Exchequer has suffered a loss of
Rs.73,445,983/-.
14. This order consists of (13) pages and each page bear
my signature.
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(M. M. AKRAM) JUDICIAL
MEMBER |
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-SD- (MUHAMMAD
IMTIAZ) ACCOUNTANT
MEMBER |
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