BISMA TEXTILE MILLS LTD., LAHORE VS FEDERATION OF PAKISTAN through Secretary Revenue Division Chairman, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 1790 (2015)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 221---Rectification, powers of---Scope---Assessee assailed notices on the ground that income tax officer had no powers to rectify assessment order in original---Objection raised by authorities was that the petition under Art. 199 of the Constitution was not maintainable---Validity---Rectification jurisdiction was a very limited jurisdiction which could only be exercised for rectifying mistake apparent on the record or which was floating on the surface of the record---Such jurisdiction could not be assumed to set aside a well-reasoned order which was passed after due deliberation, application of mind and due consideration of relevant provisions of law and the applicable case-law---Notices in question were not legally justified therefore, objection of maintainability of Constitutional petition was overruled and Constitutional petition was held to be maintainable---High Court set aside notices in question as the same were illegal and without lawful authority---Constitutional petition was allowed accordingly.

Commissioner of Income-Tax, East Pakistan v. Fazlur Rahman PLD 1964 SC 410; Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills Ltd., Karachi through Director 2008 PTD 253; Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories 1992 SCMR 687; Arshad Hussain v. Collector of Customs and others 2010 PTD 104; Zarai Taraqtati Bank Limited and others v. Mushtaq Ahmed Korai 2007 SCMR 1698; Noor Muhammad and others v. Ghulam Rasul and others 1999 SCMR 705; Mughal-e-Azam Banquet Complex v. Federation of Pakistan and others 2011 PTD 2260 and Northern Power Generation Company Ltd. v. Federation of Pakistan and others 2015 PTD 2052 ref.

(b) Constitution of Pakistan---

----Art.199---Constitutional petition---Maintainability---Notices issued to the petitioner were not legally justified, constitutional petition in the matter was maintainable.

Sajid Ijaz Hotiana for Petitioner.

Ch. Muhammad Yasin Zahid, for Respondents.

Date of hearing: 20th November, 2015.

JUDGMENT

MUHAMMAD SAJID MEHMOOD SETHI, J.---Brief facts, as stated in the instant writ petition, are that the petitioner company set up a new industry unit/Textile Mill with effect from 1.04.1994. The petitioner was granted exemption from Income Tax under clause 118-D of Second Schedule to the Income Tax Ordinance, 1979 (the repealed Ordinance), for a period of 5 years up to 01.03.1999. Its first assessment was made for the assessment year 1995-96 at nil taxable income and identical treatment was followed in assessments for the subsequent assessment years 1996-97 and 1997-98. For all the three years Income Tax Return accompanied by audited accounts were filed declaring losses (including depreciation loss) of Rs.18,936,270/-, Rs.76,328,025/- and Rs.110,704,425/- respectively, which was accepted as declared. The assessments for the years 1998-99 and 1999-2000 were again made as nil taxable income, however, tax under section 80-D of the repealed Ordinance was charged on exempt income under clause 118-D. The petitioner company challenged the order for the assessment years 1998-99 and 1999-2000, before the learned Commissioner of Income Tax (Appeals), Lahore [hereinafter "Commissioner (Appeals)"], who, vide appellate order dated 19.09.2000, deleted the charge of tax under clause 118-D, and on the issue of determination of income/loss, remanded the case to the Assessing Officer for determination after proper examination of books of accounts. Consequently, fresh assessments were made for the said period at loss of Rs.25,197,134 and Rs.23,162,875/- respectively. Depreciation relating to the said two years was also allowed, however, the unabsorbed depreciation relating to the preceding assessment years 1995-96, 1996-97 and 1997-98 was omitted to be added to the depreciation for the assessment year 1998-99 and 1999- 2000 for the purpose of carry forward. The petitioner company filed fresh appeals before Commissioner (Appeals), against the fresh assessment orders, who, on the issue of unabsorbed depreciation, again remanded the case to the Assessing Officer for re-examination. The petitioner company challenged the remand order on the issue of unabsorbed depreciation, before the learned Income Tax Appellate Tribunal (hereinafter "Appellate Tribunal"), however, during the proceedings, the petitioner company did not press this issue and consequently the remand order of the Commissioner (Appeals) remained intact. Assessing Officer concluded the re-assessment order dated 30.06.2006 with the following observations:--

"It is found from the perusal of records that the determined losses including unabsorbed depreciation in respect of the assessment years 1998-00 and 1999-2000 were duly carried forward to the subsequent year. Assessment of 2000-2001 also resulted into loss after set off of losses of the said preceding two years. Therefore, there is still no room for the set-off of losses of the earlier years 1995-96 to 1997-98. Since the unabsorbed depreciation does not expire and the set off of the same has to be taken account last under the provisions of section 38(7) of the repealed Ordinance and corresponding section 57(5) of the Income Tax Ordinance, 2001, the set off of the unabsorbed depreciation in respect of the assessment years 1995-96 to 1997-98 falls for consideration in the years under consideration. Hence, no change is required in the assessments of 1998-99 and 1999-2000 and assessment in the circumstances is made by repeating the loss assessed at Rs. (25,197,134) and Rs. (23,162,875) respectively."

Despite giving the above clear cut findings, the Assessing Officer repeated the losses of Rs.25,197,134/- and Rs.23,162875/- for the assessment years 1998-99 and 1999- 2000, and the unabsorbed depreciation aggregating to Rs.61,479,955/- for the assessment years 1995-96 to 1997-98 was omitted to be clubbed with the losses for the preceding two years, allegedly in violation of the provisions of sections 35 and 38 (6) of the repealed Ordinance and Sub-rule (3A) Rule 1 of the Third Schedule thereto and para 22 of the Federal Board of Revenue Circular No.7 of 2003. Considering it a mistake apparent from the record, the petitioner company moved an application under subsection (1A) of section 221 of the Income Tax Ordinance, 2001 (the new Ordinance), for rectification of the above referred mistake of not carrying forward the loss of unabsorbed depreciation for the assessment years 1995-96 to 1997-98. This application was allowed by the Taxation Officer after due deliberation and consideration, vide order dated 14.09.2006, under section 221 of the new Ordinance. On 19.01.2009, the petitioner company received the impugned notice No.136/Audit-13 dated 16.01.2009 under section 221 of the new Ordinance, showing intention to cancel the previous order dated 14.09.2006 in purported exercise of jurisdiction under section 221. This jurisdiction is sought to be exercised on the basis of the order under section 122 dated 30.07.2005 for the tax year 2004 passed by the Taxation Officer in the case of petitioner, which has already been annulled vide order dated 13.12.2006 passed by the Commissioner (Appeals). Although the petitioner company replied to the said notice yet another notice No.241/Audit-13 dated 19.03.2009 was received from the respondents, which is just a repetition of the earlier notice. Through the instant petition, the aforesaid notices have been assailed before this Court by making the following prayer:--

"Under the circumstances it is respectfully prayed:-

a)that this Hon'ble Court may be pleased to declare the impugned notices No. 136/Audit-13 and No. 241/Audit-13 dated 16.01.2009 and 19.03.2009 respectively as illegal and without lawful authority;

b)that the respondent No.2 may be directed to give effect to the consolidated rectification application of the petitioner dated 15.02.2006 for the Assessment years 1995-96, 1996-97 and 1997-98 which are deemed to be accepted under section 122(3) of the new Ordinance;

c)that the respondent No.2 may also be directed to provide to the petitioner company certified copies of the audit paras/ observations through which he is being asked to rectify the alleged mistake;

d)that during the pendency of this writ petition the operation of the impugned notices may graciously be suspended;

e)any other relief which this Hon'ble Court may consider appropriate in law, justice and equity; and

f)Cost of the petition."

2.Learned counsel for petitioner submits that the impugned notices were issued on the sole ground of another order dated 30.07.2005 under section 221, which was annulled by the learned first appellate forum and the respondent department did not challenge the said annulment order before the Appellate Tribunal, therefore, the said order has attained finality, and the same cannot be reopened. He adds that the impugned proceedings are absolutely illegal and without lawful authority.

3.On the other hand, learned counsel for respondents submits that the impugned proceedings can be taken up at any time within the statutory time limit as provided in the new Ordinance, thus, contention of the petitioner is not tenable. He adds that the earlier proceedings under section 221, which were cancelled by the Commissioner (Appeals), have no bearing on the present action under section 221 of the Income Tax Ordinance, 2001. He further submits that mistake apparent from the record can be rectified by the Commissioner (Appeals) as well as Appellate Tribunal under the law. In the end, he contends that writ petition is not maintainable against the impugned notices.

4.Arguments heard. Record perused.

5.Perusal of the record shows that the impugned notices have been issued on the basis of order dated 30.07.2005, passed by the Taxation Officer under section 221 of the new Ordinance, for the Tax Year 2004. This order was annulled by Commissioner (Appeals) vide Order No.8 dated 13.12.2006, thus, jurisdiction in this case is sought to be assumed under section 221 on the sole ground of another order under section 221, which was annulled by the learned first appellate forum, and respondent department did not challenge the annulment before learned Appellate Tribunal.

6.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. This proposition of law is supported by the case reported as Commissioner of Income-Tax, East Pakistan v. Fazlur Rahman (PLD 1964 Supreme Court 410), Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills Ltd., Karachi through Director (2008 PTD 253) and Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 SCMR 687). The operative part of the case of Messrs National Food Laboratories supra is reproduced hereunder:--

"Section 35 of the repealed Income Tax Act, 1922, hereinafter referred to as 'The Act' confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised Suo Motu or if it is brought to the notice by an assessee. Therefore, essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy, investigates into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to 'rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35. In this regard reference can be made to Shaikh Muhammad Iftikharul Haq v. Income-tax Officer, Bahawalpur PLD 1966 SC 524 and Pakistan River Steamer Limited v. Commissioner of Income-tax 1971 PTD 204. In the present case the mistake pointed out by the petitioner was not of a nature to attract section 35 and, therefore, the High Court has correctly answered the first question in the negative."

7.Admittedly, the respondent-department has not assailed the aforesaid order dated 13.12.2006, passed by respondent No.2/ Commissioner (Appeals), which has attained finality and now the respondents cannot deviate from the aforesaid order. Reference in this regard can be made to Arshad Hussain v. Collector of Customs and others (PTD 2010 Karachi 104). In that case, Appellate Tribunal dismissed the appeal for non-prosecution and the order of the Tribunal was not challenged before the High Court, therefore, the learned Division Bench of the Hon'ble Sindh High Court observed as under:--

"9. Without going into the legality or otherwise of the order of the Tribunal dismissing the appeal for non-prosecution and the Order-in-Original as the same have not been challenged before us, we may observe that under the theory of merger the Order-in-Original had merged in the order of the Tribunal and has become a past and closed transaction."

In presence of aforesaid order passed by respondent No. 2, the respondent No. 3 was not justified to issue impugned notices. The tenor of the notices itself shows that they have been issued in violation of the order of Commissioner (Appeals), which has already set the controversy between the parties at naught and the order has, admittedly, remained unchallenged till to date. Respondents, for all intents and purposes, have accepted and acknowledged the finality of order dated 13.12.2006 passed by the Commissioner (Appeals) in favour of petitioner. No legal and moral justification exists to reopen the issue which has attained finality and is a past and closed transaction for all purposes. In this regard, reliance can also be placed on Zarai Taraqtati Bank Limited and others v. Mushtaq Ahmed Korai (2007 SCMR 1698) and Noor Muhammad and others v. Ghulam Rasul and others (1999 SCMR 705).

8.The argument of learned counsel for the respondents is that writ is not maintainable against impugned notices which are assailable before higher adjudicating authorities. This argument also is not of much substance for the reason that once a controversy is finally and conclusively settled by a forum of competent jurisdiction, the same cannot be restarted or reactivated on its own. Superior Courts of the country have already held that if the notice is palpably unlawful, ultra vires, without jurisdiction or with mala fide intent, such action is to be nipped in the bud. Reference, in this regard, can be made to Mughal-e-Azam Banquet Complex v. Federation of Pakistan and others (2011 PTD 2260) and Northern Power Generation Company Ltd. v. Federation of Pakistan etc. (2015 PTD 2052). Since, the impugned notices are not legally justified, therefore, the objection of maintainability of petition raised by learned counsel for the respondents is overruled and the constitutional petition is held to be maintainable.

9.In view of the above discussion, impugned notices are held to be illegal and without lawful authority. The writ petition is allowed in the above terms.

MH/B-4/LPetition allowed.