APPELATE TRIBUNAL INLAND REVENUE,
LAHORE BENCH-VII, LAHORE
ITA
No.230/LB/2014
(Tax Year
2012)
M/s
Global Pacific (Pvt) Limited;
Opp:
Faisal Garden, Faisalabad. …
Appellant
Versus
CIR,
Zone-I, RTO, Faisalabad. …Respondent
Appellant by: Mr. Aqeel Abbas, Adv.
Respondent by: Mr. Hussain Ahmed Hali, DR
Date of hearing: 14-07-2020
Date of order: 14-07-2020
O R D E R
M. M. AKRAM
(Judicial Member):The taxpayer through the
titled appeal pertaining to tax year 2012 has assailed the appellate order
No.5505, dated 08.11.2013, passed by the learned CIR(A), RTO, Faisalabad on the
grounds as set forth in the memos of appeal.
2. Briefly stated, the relevant facts are that the appellant
taxpayer filed a statement under section 115(4) of the Income Tax Ordinance,
2001 (“the Ordinance”) for the tax
year 2012 which is now a subject matter in appeal. A short document notice
dated 14.03.2013 was issued by the assessing officer under section 120(3) of
the Ordinance to the appellant requiring them to furnish certain documents and
details as enumerated in the said notice. The said notice was not complied with
and in consequence thereof, the assessing officer vide order dated 18.07.2013
treated the return as invalid in terms of section 120(4) of the Ordinance and
issued the notices to the appellant under sections 114(4) and 182 of the
Ordinance. Being aggrieved, the appellant preferred an appeal before the
learned CIR(A)under section 127 of the Ordinance who dismissed the appeal in
limine on the sole ground that appeal does not lie before him under section 127
of the Ordinance against the impugned order passed under section 120(4) of the
Ordinance. Still feeling aggrieved, the appellant has now assailed the impugned
appellate order dated 08.11.2013 before this Tribunal on a number of grounds.
3. At the very outset, the learned AR of the appellant challenged
the legality of the proceedings initiated under section 120(3) of the Ordinance
and contended that the appellant filed the statement under section 115(4) of
the Ordinance and it was not obliged to file the return under section 114 of
the Ordinance. The audited accounts/annexures are not required to be filed
along with statement under section 115(4) in lieu of return. Rule 34 of the
Income Tax Rules, 2002 prescribes the documents to be filed with the return
which includes the audited accounts whereas no such requirement is given in
Rule 39 of the Income Tax Rules, 2002. He therefore, explains that the
proceedings initiated by the assessing officer under section 120(3) of the
Ordinance are illegal, void ab-initio and without jurisdiction. He further
contends that filing of return under section 114 and a statement under section
115(4) are entirely two different incidents. The law clearly makes a
distinction in respect of the taxpayers who ought to file a return and the ones
who merely are required to file statement in certain matters. In the instant
case admittedly, the appellant filed the statement under section 115(4) and was
not obliged to file the return. The appellant derives its entire income from
supplies of goods and the tax deducted in respect of those supplies is final
tax under the presumptive tax regime in terms of sub-section (3) of section 153
of the Ordinance. To substantiate his submissions, the learned AR placed on
record the copy of the statement filed under section 115(4) of the Ordinance
and copy of the judgment of the Hon’ble High Court in the case titled as M/s
Arshad Corporation (Pvt) Ltd Vs The Federal Board of Revenue, Islamabad and
others, (2016 PTD 1168).
4. On contrary, the learned DR has supported the orders passed by
both the lower authorities and contended that there is no infirmity in the
impugned appellate order. The appeal of the appellant does not lie before the
CIR(A) against the order passed under section 120(4) of the Ordinance and
therefore, the appeal was rightly dismissed by the learned CIR(A) in limine. He
therefore, prays for rejection of the appellant’s appeal.
5. We have heard the
arguments put-forth by both the parties and have carefully gone through the
available record. After due consideration, we find that two questions,
therefore, boil down to for determination;
i. Whether the appeal lies under section 127 of the Ordinance
against an order passed by the Officer of Inland Revenue under section 120(4)
of the Ordinance?
ii. Whether the proceedings could be initiated under section
120(3) of the Ordinance against the taxpayer who had filed the statement under
section 115(4) of the Ordinance and was not obliged to file the return under
section 114 of the Ordinance?
Undisputedly, the appellant filed the statement under section
115(4) of the Ordinance for the tax year under consideration and claimed
therein a refund of excess amount of income tax paid/deducted amounting to
Rs.182,033/-. It is also undisputed that the appellant was also not obliged to
file a return under section 114 of the Ordinance. The assessing officer
initiated the proceedings under section 120(3) of the Ordinance requiring the
appellant to file inter alia audited accounts within thirty days from the date
of receipt of the said notice. The appellant did not comply with the said
notice and the assessing officer accordingly declared the alleged return/statement
invalid in terms of section 120(4) of the Ordinance. Resultantly, the claim of
excess amount of income tax paid/deducted in the statement filed under section
115(4) of the Ordinance by the appellant was practically vanished when the
statement was declared invalid by the assessing officer in terms of section
120(4) ibid.
Keeping in view the aforesaid admitted facts, we take up the
question of availability of remedy of appeal under sub-section (1) of section
127 of Ordinance, 2001, against the orders impugned. It is expedient to
reproduce hereunder the sub-section (1) of section 127 of the Ordinance, for
facility, which reads as;
“127. Appeal to the
Commissioner (Appeals).— (1) Any person dissatisfied with any order passed
by a Commissioner or an Officer of Inland Revenue under section 121,122, 143,
144, 162, 170, 182, or 205, or an order under sub-section (1) of section 161
holding a person to be personally liable to pay an amount of tax, or an order
under clause (f) of sub-section (3) of section 172 declaring a person to be the
representative of a non-resident person or an order giving effect to any
finding or directions in any order made under this Part by the Commissioner
(Appeals), Appellate Tribunal, High Court or Supreme Court, or an order under
section 221 refusing to rectify the mistake, either in full or in part, as
claimed by the taxpayer or an order
having the effect of enhancing the assessment or reducing a refund or otherwise
increasing the liability of the person may prefer an appeal to the
Commissioner (Appeals) against the order”. [Emphasis
supplied]
6. The appellant filed
the appeal under section 127 ibid against the impugned order passed under
section 120(4) of the Ordinance wherein the alleged return/statement of the
appellant was declared invalid and in consequence thereof the claim of refund
of the appellant was indirectly turned down. We are of the considered opinion
that the said order is appealable under section 127 of the Ordinance, 2001. The
words “or an order having the effect of enhancing the assessment or reducing
a refund or otherwise increasing the liability of the person” are
meaningful and cannot be ignored. Therefore, we hold that the appeal lies under
section 127 ibid against the order passed under section 120(4) of the Ordinance
and the learned CIR(A) has erred in law in dismissing the appeal on the ground
that the tax liability is not enhanced whereas by declaring the statement
invalid under section 120(4) ibid, the assessing officer has indirectly turned
down the claim of refund. Therefore, the case of the appellant squarely covers
in the expression “reducing a refund”
used in sub-section (1) of section 127 ibid. It is settled law that the provision
for appeal should be liberally construed and should be read in a reasonable and
practical manner. Reliance is placed on CIT Vs Ashoka Engg (194 ITR
645 (SC), it is always desirable not to place a restricted meaning to such a
provision and take away the right of appeal provided to a party DCIT
Vs Shantharam (260 ITR 156). While construing a provision that
creates a right, the Court must always lean in favour of a construction that
saves the right rather than the one which defeats it CWT Vs Jagdish (211 ITR 472).Hence, the answer to the question No (i) is in the
affirmative.
7. Now, we come to the
second question, it is an admitted fact that the appellant has, in fact, filed
a statement in terms of section 115(4) of the Ordinance. This has been done on
the terms that the appellant is not liable to furnish a return in terms of
section 114 of the Ordinance and on the basis that all the income derived by
the appellant in a tax year is subject to final taxation. A reference to rule
34 and rule 39 of the Income Tax Rules, 2002 (Rules, 2002) will also be in
order and will lend credence to the submissions made by the learned counsel for
the appellant. These rules merely spell out the different forms in which the
return of income and the statement in lieu of return of income have to be filed
respectively. Once again, rule 39 of the Rules, 2002 refers to the statement to
be filed by a person where tax deduction is to be taken as a final discharge of
tax liability under section 169.The filing of a return of income and of a
statement are two different regimes and run parallel to each other and in case
a person is obliged to file a statement merely in terms of section 115(4) of
the Ordinance, he stands discharged with regard to his tax liability.
A somewhat similar question came before the Hon’ble High Court in
the case titled as M/s Arshad Corporation (Pvt) Ltd Vs The Federal Board of Revenue,
Islamabad and others, (2016 PTD 1168) wherein it has been
held that;
“14. The impugned order under section 120(4) is an embodiment of
uncertainty and a misapprehension of facts and law permeates the impugned
order. It mentions that the tax payer (petitioner-company) derives its income
from manufacturing of blankets including travel rugs. It also mentions that the
statement under section 115(4) for the tax year 2012, was e-filed on
31.12.2012. However, the Assistant Commissioner Inland Revenue issuing the
impugned order presupposes in the same vein that the petitioner company was
required to submit the audited accounts along with statement of final taxation.
It goes on to say that “but the taxpayer has not fulfilled the requirement of
return.” It can be seen that the impugned order is a contradiction in its own
terms. It is not clear from the impugned order as to whether the Assistant
Commissioner Inland Revenue considers that a return of income ought have been
filed by the petitioner company or that the petitioner-company was obliged to
file the audited accounts irrespective whether a return of income was filed or
not. The contradiction is irreconcilable and is tendentious to say the least.
In conclusion, the return/statement filed by the petitioner company for the tax
year 2012 has been declined as invalid. Reliance in this regard has been placed
on provisions of section 120(4) or the Ordinance. Section 120(4) of the
Ordinance, 2001 reads as follows:
“120(4) Where a taxpayer failed to fully comply, by the due date,
with the requirements of the notice under sub-section (3), the return furnished
shall be treated as an invalid return as if it had not been furnished.”
15. It can be seen from a reading of the provision reproduced
above that section 120 has its genesis in and relates to the filing or failure
thereof, of a return of income. It merely gives the Commissioner the power to issue
notice to the taxpayer in case the return of income furnished is not complete.
Obviously, it presupposes that a person is, in law, required to file a return
of income in terms of section 114. Section
120 relates to the filing of return under section 114 and the consequences
flowing therefrom. The provisions of section 120 are not relatable to the
filing of the statement under section 115(4) of the Ordinance and thus the
invocation of the provisions of section 120 by the Assistant Commissioner
Inland Revenue was erroneous and ultra vires. It may be pointed out
that section 114 of the Ordinance obliges certain persons to furnish a return
of income for a tax year. The petitioners admittedly are not classified as the
persons included in the ambit of section 114. Therefore, the provisions of
section 120 cannot be called in aid by the respondents to declare the statement
filed by the petitioners as invalid. Section 120(4) of the Ordinance does not
have any nexus with the provisions of section 115(4) and it was otiose and
unlawful for the Assistant Commissioner Inland Revenue to rely upon it in order
to base the impugned order. Likewise, the notice under sub-section (4) of
section 114 of the Ordinance is also ultra vires the powers of the Assistant
Commissioner in the case of the petitioners since that provision vests the
Commissioner with the power to issue notice to require any person to file a
return of income and who has failed to do so to furnish a return of income for
that year. The least that was required of the respondent-department to issue an
order under section 120 as also to issue a notice in terms of section 114(4) of
the Ordinance was to determine as a fact that the liability of the petitioners
was not the final liability and the deduction so made from the proceeds of
export was not the final tax in terms of section 115(4) of the Ordinance. The
impugned orders, the impugned notices issued to the petitioners are without
lawful authority and of no legal effect.” (Emphasis supplied)
By following the judgment of the Hon’ble High Court cited supra,
it clearly establishes that the assessing officer has erred in law in
initiating the proceedings under section 120(3) of the Ordinance and thereafter
passing the order under section 120(4) ibid.
8. Sub-section (2) of
section 120 of the Ordinance provides that a return shall be taken to be
complete if it is in accordance with the provisions of sub-section (2) of
section 114. Clause (a) of sub-section (2) of section 114 provides that a
return of income shall be in the prescribed form and shall be accompanied by
such annexures, statements or documents as may be prescribed. Sub Rule (4) of
Rule 34 of the Income Tax Rules, 2002 prescribes the documents which should be
accompanied by the return of income. The said documents are applicable
documents, statements, certificates, annexes and in case of companies, the audited accounts and reconciliation of
profits as per accounts and taxable income as declared in the return. A notice
under sub-section (3) can only be issued if the return is incomplete and lacks
or is not accompanied by the above mentioned prescribed documents. In the
instant case, the appellant has neither filed the return nor is so obliged
under the relevant provisions of law but has filed a statement under
sub-section (4) of section 115 in lieu of return. Therefore, issuance of notice
under sub-section (3) in this case is totally illegal as the same is peculiar
to the return of income only.
9. Therefore, for what
has been discussed above, the answer to the question no (ii) is in the
negative. Further, since the proceedings are void ab-initio, the super
structure based thereupon in the shape of passing the impugned appellate order
automatically falls to ground. It is settled law that if the order is void
ab-initio the supper structure built thereon automatically falls to ground.
Reliance may be placed on the judgment titled as Moulana Atta Ur Rehman Vs
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 Jawad Asami (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)
10. Resultantly, the
appellant’s appeal is accepted and disposed of in the manner as stated above.
This order consists of (07) pages and each page bears my signature.
(M.M.
AKRAM)
Judicial Member
(WAJID AKRAM)
Accountant Member
