ENGLISH SHOES (PVT.) LTD. VS The COMMISSIONER OF INCOME TAX/WEALTH TAX, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2422 (2015)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 62(1) & 136---Reference---Declared income, rejection of---Non-issuance of notice---Income Tax officer rejected declared income by taxpayer and estimated higher income without issuing notice under S.62 of Income Tax Ordinance, 1979---Validity---Mandatory notice under proviso to S.62(1) of Income Tax Ordinance, 1979 was not issued therefore, entire subsequent proceedings and orders had become illegal and wholly void---Appellate authority and Income Tax Appellate Tribunal were required to accept declared version of taxpayer instead of remanding case to assessing officer to fill in defects and lacuna in assessment order---High Court accepted declared version of taxpayer regarding assessment years in question---Reference was allowed in circumstances.

Mughal Technical Industries (Pvt.) Limited v. CIT Central Zone, Lahore 1996 PTD 263; Collector, Sahiwal and 2 others v. Muhammad Akhtar 1971 SCMR 681 and Mst. Maryam Yunus v. Director of Education, Cantonment and 2 others PLD 1990 SC 666 ref.

Commissioner Income Tax v. Messrs Ayesha Woolen Mills (Pvt.) Limited 2014 PTD 215 fol.

Shoaib Ahmed Sheikh for Applicant.

Muhammad Ashif Hashmi and Raja Sikandar Khan for Respodnent.

Date of hearing: 23rd January, 2015.

JUDGMENT

ABID AZIZ SHEIKH, J.---This judgment will also decide PTR No.167/2003 as common questions of law and facts are involved in these reference applications against the same impugned order and between the same parties.

2.Following common questions of law have been raised for expression of opinion by this Court:--

i)"Whether on the facts and in the circumstances of the case the learned Appellate Tribunal was justified to set aside the case for issuance of notice under section 62 of the Income Tax Ordinance, 1979 whereas the same was not served with the assessee at assessment stage as admitted in the order itself"?

ii)"Whether on the facts and in the circumstances of the case the learned Tribunal was justified in setting aside the case for issuance of notice under section 62 of the Income Tax Ordinance, 1979 which is mandatory as per proviso to section 62 of the Income Tax Ordinance, 1979 merely for fill up the lacuna"?

3.Brief facts are that applicant filed return declaring net income for assessment years 1999-2000 and 2000-2001. In pursuance to notice under Section 61 of the Income Tax Ordinance, 1979 (Repealed Ordinance), all documents including books of accounts were produced by taxpayer. The assessing officer without notice under proviso to Section 62 of the Repealed Ordinance, rejected the declared version of the applicant and estimated higher income for both assessment years. In appeal by taxpayer, the Commissioner Income Tax Appeal (CIT(A) set aside the assessing officer's order and remanded the case to assessing officer with direction to confront taxpayer in terms of Section 62 of the Repealed Ordinance. In further appeal, by the taxpayer, learned Tribunal confirmed the CIT(A) order with direction to give hearing to taxpayer. The applicant taxpayer being aggrieved has filed these reference applications.

4.Learned counsel for the applicant argued that requirement of notice under proviso to Section 62 of the Repealed Ordinance being mandatory, once the notice under Section 62 was not issued and the taxpayer was also not confronted with any defect in the books of account, the assessment order being illegal was liable to be annulled and the matter could not be remanded back to the assessing officer for filling up the lacunas in the assessment order.

5.Conversely, learned counsel for the respondents argued that though notice under proviso to Section 62 of the Repealed Ordinance was not issued, however, Commissioner Appeal as well as learned Tribunal after setting aside the assessment order remanded the matter back to the assessing officer for compliance of Section 62 of the Repealed Ordinance and also give hearing to the taxpayer, therefore, taxpayer has no grievance left. Adds that requirement of Section 62 of the Repealed Ordinance being procedural could be cured by assessing officer.

6.We have heard the arguments of learned counsel for the parties and perused the record.

7.It is admitted position between the parties that no notice under proviso to Section 62(1) of the Repealed Ordinance was issued by the assessing officer. It is also not disputed that taxpayer was not confronted with any defect in the books of account before rejecting the declared version of the taxpayer. The requirement of notice under proviso to Section 62(1) of the Repealed Ordinance is a mandatory statutory requirement as already held by Division Bench of this Court in case Mughal Technical Industries (Pvt.) Limited v. CIT Central Zone, Lahore (1996 PTD 263). Once mandatory requirement of notice under proviso to Section 62(1) of the Repealed Ordinance was not fulfilled and taxpayer was also not confronted with any defect in the books of account, it was not merely a procedural irregularity or a curable defect but entire proceeding which follows become illegal.

8.The august Supreme Court in Collector, Sahiwal and 2 others v. Muhammad Akhtar (1971 SCMR 681) and Mst. Maryam Yunus v. Director of Education, Cantonment and 2 others (PLD 1990 SC 666) held that where requirement of notice is not provided in the statute but read as principle of natural justice, the defect of not issuing notice is curable but when the requirement of notice and rule of natural justice is mandatory and provided by the statute itself, its violation is not curable but fatal to the proceedings. The relevant extract from the case of Collector of Sahiwal supra is reproduced as under:--

"The Courts in Pakistan have, however, taken the view that where the giving of a notice is provided for by the statute itself, then the failure to give such a notice is fatal and cannot be cured. But where there is no specific statutory provision and reliance is only placed on the principles of natural justice and audi alteram partem, there if at some stage or other the person aggrieved has been given a fair opportunity of representing his point of view then the defect, if any, in the initial order may be deemed to have been cured Thus, in the case of Muhammad Ishaq v. Dr. Saiduddin Swaleh PLD 1959 Kar. 669, it was pointed out that each case will have to be determined on its own facts. If the statutory provision for notice be of a mandatory nature, then an order without any notice would be wholly void; but if there be no such provision or if the provision be merely of a directory nature, then wherever a violation of this principle of natural justice is alleged, the Court may call upon the party alleging the same to prove prejudice before it sets aside the order. Such prejudice would obviously not be there if it is found that the party had been actually given a full hearing by the appellate or revisional authority and afforded every opportunity of showing cause against the allegations made. To the same effect is the view of the Peshawar High Court in the case of Charsadda Sugar Mills Ltd v. Government of Pakistan PLD 1971 Peshawar 2010. This Court, too, has consistently taken the same view vide; The Commissioner of Income Tax East Pakistan v. Fazlur Rahman PLD 1964 SC 410, Abdul Latif Niazi v. Government of West Pakistan PLD 1967 SC 62 and Mansab Ali v. Amir PLD 1971 SC 124. This Court has gone to the extent of pointing out that the mere absence of a provision in a statute as to notice cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without any opportunity of hearing and also held that where the giving of a notice is a necessary condition for the proper exercise of jurisdiction then failure to comply with this requirement renders the order void and the entire proceedings which follow also become illegal".

9.As mandatory notice under proviso to Section 62(1) of the Repealed Ordinance was not issued, the entire subsequent proceedings and orders become illegal and wholly void. In the given circumstances, the learned CIT(A) and learned Tribunal were required to accept the declared version of the taxpayer instead of remanded the case back to the assessing officer to fill in the defects and lacuna in the assessment order. In similar situation, the august Supreme Court in case Commissioner of Income Tax v. Messrs Ayesha Woolen Mills (Pvt.) Limited (2014 PTD 215) accepted the declared version of the taxpayer on the ground that no notice under proviso to Section 62(1) of the Repealed Ordinance was issued and assessing officer without pointing out any defect in the books of account rejected the same.

10.In view of the above discussion and law laid down by august Supreme Court as well as by this Court, the questions raised above are answered in negative. Resultantly, the declared version for both assessment years of the taxpayer shall be accepted. These reference applications are allowed in favour of applicant taxpayer in the terms stipulated above.

11.Office shall send copy of this judgment under the seal of the Court to the learned Appellate Tribunal Inland Revenue as per Section 133(5) of the Ordinance, 2001.

MH/E-2/LReference allowed.