COMMISSIONER INLAND REVENUE, ZONE-I, RTO, HYDERABAD VS Dr. NAZIR ASHRAF LAGHARI, 2018 PTD-KARACHI-HIGH-COURT-SINDH 453 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 122(5)(9) & 133(1)---Reference---Re-opening of case---Past and closed transactions---Authorities were aggrieved of the order passed by Appellate Tribunal Inland Revenue annulling order under S.122(1) of Income Tax Ordinance, 2001---Validity---Officer of Inland Revenue while reopening case of taxpayer for tax year 2009, did not give any reason, nor could point out any deficiency in accounts of taxpayer, for tax year 2009, which could possibly be considered as basis of reopening the case of taxpayer for the purposes of making assessment under S.122(5) & (9) of Income Tax Ordinance, 2001---Authorities had made reference to Audit proceedings for tax year 2005, which were already finalized with the approval of Additional Commissioner as explanation offered by taxpayer in respect of disputed credit entries and revised return submitted by taxpayer for tax year 2005 was accepted and proceedings were dropped---Proceedings which already stood finalized in respect of the same subject receipts, could not have been reopened by the same officer---High Court declined to interfere in concurrent findings of facts recorded by two forums below---Reference was dismissed in circumstances.

Rahim Lakho for Applicant.

Ms. Lubna Parvez for Respondent.

Date of hearing: 29th November, 2017.

ORDER

AQEEL AHMED ABBASI, J.---Through instant Reference Application, the applicant department has proposed following questions, which according to learned counsel for the applicant are questions of law arising from the impugned order dated 20.03.2017, passed by the Appellate Tribunal Inland Revenue of Pakistan, Karachi, in I.T.A. No.353-KB-2011, (Tax Year 2009) under Section 122(1) of the Income Tax Ordinance, 2001 viz.

1. "Whether on the facts and circumstances of the case, the Hon'ble Appellate Tribunal Inland Revenue was justified in annulling the order under section 122(1)/(5) of Income Tax Ordinance, 2001, on the ground that after filing of revised return the matter attained finality in tax year 2005 and no addition can be made under section 111(1)(b)/111(2) of Income Tax Ordinance, 2001, in the year of discovery i.e. 2009."

2. "Whether on the fact and circumstances of the case, the Hon'ble Appellate Tribunal Inland Revenue was justified in annulling the order passed under section 122(1)/(5) of Income Tax Ordinance, 2001, whereby additions under sections 111(1)(b)/ 111(2) of Income Tax Ordinance, 2001, were made in the year of discovery i.e. Tax Year, 2009, after completion of audit under section 177 of Income Tax Ordinance, 2001, for Tax Year, 2005.

2.Learned counsel for the Applicant submits that the Appellate Tribunal Inland Revenue, Karachi, was not justified to confirm the order passed by the Commissioner Appeals, Inland Revenue, Hyderabad, and to delete the additions under Section 111 subsection (2) of the Income Tax Ordinance, 2001, as according to learned counsel unexplained credit entries in the bank account of the Respondent were rightly added to the income in terms of section 111(1)(a) of the Income Tax Ordinance, 2001, pertaining to tax year 2005, however, in the year of discovery i.e. tax year 2009. It has been prayed that the impugned order passed by the Appellate Tribunal Inland Revenue, Karachi, may be set aside and the proposed questions of law may be answered in Negative in favour of the applicant and against the respondent.

3.Conversely, learned counsel for the Respondent has vehemently opposed the contention of the learned counsel for the Applicant and submits that no question of law arise out from the order passed by the Appellate Tribunal in the instant case as according to learned counsel, the decision of the Appellate Tribunal as well as the order passed by the Commissioner Appeals in the instant case are based on concurrent findings of fact, which otherwise, depicts correct legal position, hence does not require any interference by this Court while exercising its reference jurisdiction in terms of Section 133 of the Income Tax Ordinance, 2001. It has been further contended by learned counsel for the Respondent that the case of the Respondent pertains to the tax year 2005 selected for audit under Section 177(4) (a) & (d) while issuing show-cause notice dated 01.02.2010 under Section 122(9) of the Income Tax Ordinance, 2001, wherein the receipts from Professional Practice in the bank statement of the Respondent amounting to Rs.61,99,722/- were confronted by the Applicant / Department to the Respondent who filed detailed explanation with regard to the aforesaid receipts, and also filed revised return. Thereafter the audit proceedings for the tax year 2005 were finalized while accepting the explanation offered by respondent / tax payer, with the approval of the Additional Commissioner, Audit Division-I, RTO, Hyderabad, vide letter No.978 dated 29.4.2010, whereas, letter of conclusion of audit proceedings (tax year 2005) dated 30.04.2010 was also issued by Assistant Commissioner Inland Revenue, Audit-II, RTO, Hyderabad to this effect. However, according to learned counsel for the Respondent, the Applicant / Department initiated the proceedings under section 122(9) of the Income Tax Ordinance, 2001, for the tax year 2009 while issuing a show-cause notice dated 14.05.2010 wherein the Respondent was once again confronted with the same set of allegations i.e. the Professional Receipts amounting to Rs.61,99,722/-. Whereas there was no other ground raised in such show-cause notice, which could justify the re-opening of the case of the Respondent for the tax year 2009, which already stood finalized in terms of Section 122(1)(b) of the Income Tax Ordinance, 2001 with the approval of Additional Commissioner. Per learned counsel, in the absence of any valid legal ground for seeking amendment of assessment for the tax year 2009, the very show-cause notice and the assessment order passed by the same authority, in the facts and circumstances of the instant case, was patently illegal and without the lawful authority, therefore, the Commissioner (Appeals) as well as the Appellate Tribunal, Inland Revenue have been pleased to set aside the order passed by the Assistant Commissioner and to delete the additions made under Section 111 of the Income Tax Ordinance, 2001. Per learned counsel, the impugned order passed by the Appellate Tribunal does not suffer from any factual or legal error, whereas, no question of law arises from the impugned order passed by the Appellate Tribunal, Inland Revenue, Karachi, therefore, instant Reference Application is liable to be dismissed.

4.We have heard learned counsel for the applicant, perused the record and the impugned orders passed by the Appellate Tribunal, Inland Revenue, Karachi and the Commissioner (Appeals), Hyderabad, in the instant case. We have also examined the Show-Cause Notice dated 1.10.2010, issued under Section 122(9) of the Income Tax Ordinance, 2001, for the tax year 2005 as well as the subsequent Show-Cause Notice seeking amendment of assessment under Section 122(9) of the Income Tax Ordinance, 2001, for the tax year 2009, which have been placed on record by learned counsel for the Respondent during the course of hearing, and have also examined the relevant provisions of law and the facts relating to chronology of the events, which have not been disputed by the parties.

5.From the perusal of the subsequent Show-Cause Notice issued by the applicant/department, it has emerged that the basis for reopening the case and making amendment of assessment for the tax year 2009, is the same i.e. "credit entries in the bank account of the respondent" from which the Respondent was already confronted during Audit proceedings for the tax year 2005. Whereas, after considering the explanation offered by the Respondents in this regard and submitting the revised return, such audit proceedings were finalized by the Assistant Commissioner with the approval of the Additional Commissioner, Inland Revenue, Audit Division-I, RTO, Hyderabad and resultantly, the proposed additions in this regard was withdrawn. It is pertinent to observe that in terms of Section 122 Subsection (5) read with Section (9) of the Income Tax Ordinance, 2001, Commissioner has the authority to amend an assessment order within 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 tax payer, on the basis of definite information acquired from the audit or otherwise; provided the Commissioner is satisfied that:--

(i)any income chargeable to tax has escaped assessment; or

(ii)total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii)any amount under a head of income has been miss-classified.

6.The record of the instant case shows that the officer of Inland Revenue, while reopening the case of the respondent for the tax year 2009, has not given any reasons whatsoever, nor could point out any deficiency in the accounts of the Respondent for the tax year 2009, which could possibly be considered as basis of reopening the case of the Respondent for the purpose of making assessment under Section 122(5) and (9) of the Income Tax Ordinance, 2001. On the contrary, the Reference has been made to the Audit proceedings for the tax year 2005, which were already finalized with the approval of the Additional Commissioner as the explanation offered by the respondent in respect of credit entries and the revised return submitted by the respondent for the tax year 2005 was accepted and proceedings were dropped. We are of the considered opinion that the proceedings, which already stood finalized for the tax year 2005 in respect of the same subject receipts from professional practice, could not have been re-opened by the same officer, while treating the same as definite information, particular when such information was already available with the concerned officer at the time of Audit proceedings for the tax year 2005, which were duly finalized with the approval of the Additional Commissioner in the instant case as would amount to change of opinion and cannot be the basis of amendment of assessment under Section 122(5) of the Income Tax Ordinance, 2001. This aspect of the matter has been thoroughly examined in detail by the Commissioner (Appeals) as well as by the Appellate Tribunal in their respective orders. It will be advantageous to reproduce the finding of the Appellate Tribunal as contained in para-3 of the impugned order, which reads as follows:--

"3. Arguments have been heard and case record examined. Our findings on the issues outlined by the appellant are as under:--

(i) The time limit of 120 days provided in the law is directory in nature and not mandatory, hence an order cannot be termed as illegal on this basis.

(ii) As regards the next issue, the findings of the CIR in this regard are as under:--

"I am afraid to see another show-cause notice issued under section 122 vide # 234 dated 14.5.2010 and the same additions were again confronted to the appellant / tax payer. In spite of the explanation the learned ACIR, has added the impugned additions in the tax year 2009 which is rather uncalled for additions as the above letter of audit proceedings dated 30.04.2010 holds the field. I am of the considered opinion that the subsequent proceedings after finalization of audit proceedings is beyond the jurisdiction and squarely against the very spirit of the law and procedure of Section 122(5) read with Section 177 of the Income Tax Ordinance, 2001. It is well settled norms that the learned Assistant Commissioner Inland Revenue, felt that there have been some unexplained income which he discovered in the tax year 2005 then he should have passed an speaking order after giving reasonable opportunity of hearing to the appellant for the tax year 2005. If there has been any merit warranted then he has jurisdiction to add unexplained investment as per subsection (2) of Section 111 of the Income Tax Ordinance, 2001. In the case in hand a blatant mistake has been committed by the learned Assistant Commissioner Inland Revenue that after receiving explanation and second revised return which he has accepted by issuing a letter for finalization of proceedings of audit (as mentioned supra), then case has attended finality. Thus subsequent proceedings initiated on the basis of second show cause on the same issue is uncalled for as he had no jurisdiction in absence of any order passed for the tax year 2005.

I am of the conclusive opinion that prima facie it is a clear, cut case of annulment of the impugned order passed for tax year 2009 and, therefore, it is annulled which is patently illegal and without jurisdiction."

7.Learned counsel for the applicant, while confronted with hereinabove factual and legal position as emerged in the instant case, could not assist the court as to merits of reference and the questions proposed hereinabove. Consequently, we do not find any error in the concurrent findings as recorded by the two appellate Forums below in the instant case, which is primarily based on concurrent findings of facts, which otherwise depicts the correct legal position. Accordingly, instant Reference Application being devoid of any merit is hereby dismissed and the questions proposed hereinabove, are answered in affirmative against the applicant and in favour of the respondent.

MH/C-19/Sindh Reference dismissed.