COMMISSIONER INLAND REVENUE VS SIKA PAINT INDUSTRIES, 2018 PTD-LAHORE-HIGH-COURT-LAHORE 749 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss.122(4)(5) & 133(1)---Definite information---Amendment of assessment---Scope---Assessing officer amended assessment on the basis of material recovered as a result of raid conducted on the premises of assessee---Appellate Tribunal Inland Revenue set aside the order passed by authorities on the ground that there was no definite information available with authorities for making amendment of Assessment order under S. 122(4)(5) of Income Tax Ordinance, 2001---Validity---Entire information on which authorities relied upon was contained in the record seized from assessee---Vouchers, sale invoices, cheque books and Bank statements were loudly telling that assessee s income chargeable to tax had escaped assessment---Assessing officer had given gist of information gleaned from such records in order-in-original; there could not be a better example of definite information than the one in the present case---High Court answered question framed, in the negative.

Income Tax Officer and another v. Messrs Chappal Builders 1993 SCMR 1108; and Commissioner Inland Revenue v. Messrs Khan CNG and Filling Station and others 2013 PTD 884 rel.

Inspecting Assistant Commissioner and another v. Pakistan Herald Ltd. through Director Finance and Corporate Affairs 1997 PTD 1485; Messrs E.F.U General Insurance Co. Limited v. The Federation of Pakistan and others PLD 1997 SC 700; Commissioner of Income Tax Companies Zone-II, Karachi v. Messrs Sindh Engineering (Pvt.) Limited, Karachi 2002 PTD 419 and Commissioner of Income Tax v. Messrs Bashir Brothers 2014 PTD 1377 ref.

Akhtar Ali Monga and Shahid Sarwar Chahil for Applicants.

Waseem Ahmad Malik for Respondent.

Date of hearing: 18th April, 2017.

JUDGMENT

TARIQ SALEEM SHEIKH, J.---By this judgment we shall decide ITR No.63/2016, ITR No.64/2016, ITR No.65/2016 and ITR No.66/2016 as they all arise from a common order dated 9-11-2015 passed by the Appellate Tribunal Inland Revenue (the "Appellate Tribunal").

2.The Respondent is a private company incorporated under the Companies Ordinance, 1984. It is engaged in manufacturing of paints, varnishes and allied products. It filed its income tax return for the Tax Years 2009 and 2011 to 2013. During an investigation under the Sales Tax Act, 1990 (the "Act") the Deputy Director Intelligence and Investigation Inland Revenue (the "I&I") conducted a raid at the business premises of the Petitioner after obtaining search warrants from the Magistrate First Class, Model Town, Lahore, on 19-11-2013. In this raid the I&I seized documents and computer-stored information/records which were subsequently examined and it was found that the Respondent had grossly suppressed it sales. Accordingly, the Department issued Show-Cause Notice under Section 11(2) of the Act to the Respondent. These proceedings culminated in Sales Tax Order-in-Original No.24/2014 dated 17-9-2014 whereby a huge demand of Rs.429,154,990/- and penalty equal to 100% of the sales tax involved was imposed on the Respondent in terms of sections 33(13) and 33(11)(c) of the Act along with default surcharge under Section 34. The parties are in litigation on this matter at different forums.

3.It is noteworthy that the Respondent assailed vires of the Magistrate's Order dated 19-11-2013 in Writ Petition No.30347/2013 before this Court. This petition was dismissed vide order dated 2-12-2013 and it was held that the search warrant was lawfully issued and that the raid was conducted after complying with the prescribed procedure. The Respondent has filed C.P.L.A. No.1788-L/2013 before the Hon'ble Supreme Court of Pakistan which is stated to be pending. Be that as it may, this Court's order dated 2-2-2013 still holds the field.

4.The Department treated the information retrieved from the data acquired during the aforementioned raid as "definite information" and initiated proceedings under Section 122(4)/(5) of the Income Tax Ordinance, 2001 (the "Ordinance") for amendment of assessments for Tax Years 2009, 2011 to 2013. Separate show-cause notice for every tax year were issued. The Respondent submitted its replies thereto but the same were found unsatisfactory. Eventually, the Assessing Officer made orders for amendment of the assessments through separate orders passed for every Tax Year. The Respondent assailed these orders before the CIR (Appeals) who upheld the action of the Assessing Officer vide consolidated Appellate Order Nos.50 to 53 dated 29-4-2015. The Respondent then sought its further remedy before the Appellate Tribunal which vacated the orders of the authorities below. These reference applications by the Department are directed against consolidated order dated 9-11-2015 passed by the Appellate Tribunal.

5.The Petitioner has raised as many as eight questions for determination of this Court. We have, however, found that either they do not arise from the Appellate Tribunal s order or are argumentative. We have observed that in Paragraph-7 of its order the Tribunal noted that the main controversy between the parties was whether the Assessing Officer had lawfully invoked Section 122(4)/(5) of the Ordinance to amend the assessment of the Respondent on the basis of the sales tax contravention report and the material seized by the intelligence authorities in the raid that they conducted on 19-11-2013. In this view of the matter, we hold that only the following question proposed by the Petitioner is relevant for the present:

Whether on the facts and circumstances of the case, the learned ATIR was justified in adjudicating that there was no definite information available with the Department for making amendment of the Assessment under Section 122(4)(5) of the Income Tax Ordinance, 2001?

6.The aforementioned question brings subsections (1), (4), (5) & (8) of Section 122 of the Ordinance into focus which are reproduced hereunder for ready reference:

122. Amendment of assessments---

(1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121 [, or issued under section 122C] [, or [***],] by making such alterations or additions as the Commissioner considers necessary [***].

(2)

(3)

(4) Where an assessment order (hereinafter referred to as the "original assessment") has been amended under subsection (1)[,](3) [or (5A)], the Commissioner may further amend [,as many times as may be necessary,] the original assessment within the later of--

(4A)

(5) An assessment order in respect of a tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, 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 misclassified.]

(5A)

(5AA)

(5B)

(6)

(7)

(8) For the purposes of this section, "definite information" includes information on sales or purchases of any goods made by the taxpayer, [receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,] and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.

(9)

7.The question as to what constitutes a "definite information" is probably one of the most debated issues not only under Income Tax Ordinance, 2001, but also under the Repealed Income Tax Ordinance, 1979, as the latter also contained a similar concept. This is for the reason, that this term has not been defined in the statute. Some of the most illuminating judgments which explain this concept include: "Income Tax Officer and another v. Messrs Chappal Builders" (1993 SCMR 1108), "Inspecting Assistant Commissioner and another v. Pakistan Herald Ltd. through Director Finance and Corporate Affairs" (1997 PTD 1485 (SC)), "Messrs E.F.U General Insurance Co. Limited v. The Federation of Pakistan and others" ( PLD 1997 SC 700), "Commissioner of Income Tax Companies Zone-II, Karachi v. Messrs Sindh Engineering (Pvt.) Limited, Karachi" (2002 PTD 419), "Commissioner Inland Revenue v. Messrs Khan CNG and Filling Station and others" (2013 PTD 884), "Commissioner of Income Tax v. Messrs Bashir Brothers" (2014 PTD 1377). Following principles (which are expressed mostly in the language of the Court) may be deduced from these cases:--

(i) An assessment cannot be reopened or amended on the basis of every information for the reason that every information is not a "definite information".

(ii) "Definite information" cannot be given a universal meaning. It has to be construed in each case.

(iii) The expression "definite information" means more than mere material which may cause a reasonable belief. There must be definite and direct information without there being any further need to acquire further material to support it. Where the Department has to rely upon further reasoning or inquiry to clothe their information with credibility, it is not definite information.

(iv) Where a taxpayer has disclosed all the material facts without any concealment, in the absence of discovery of any new facts which can be treated as "definite information", the assessment cannot be amended.

(v) The expression "definite information" includes factual information as well as information about the existence of a binding judgment of a competent court of law or forum. However, this does not cover a case where after framing assessment consciously, the Assessing Authorities realize that any provision of law has been ignored or not applied or misapplied.

(vi) Any interpretation of a provision of law by a functionary which is not charged with the duty/function to interpret such provision judicially is not "definite information". Thus, a circular issued by the Board of Revenue whereby it interprets any legal provision cannot be terms as "definite information".

(vii) A different interpretation of a legal provision or deriving a different conclusion from a given set of facts cannot be reckoned as "definite information". It is merely a change of opinion.

8.In the instant case, the Petitioner contends that the Respondent had maintained complete record of the financial transactions in its computers which were seized along with the relevant record from its office on 19-11-2013. They contained soft as well as hard copies of vouchers, sale invoices (including names and addresses of the buyers), cheque books and bank statements. There documents also revealed that the Respondent was maintaining and operating undeclared bank accounts in its own name as well as in the names of its directors and some benami businesses through which it was receiving business proceeds. The Assessing Officer confronted the Respondent with all this information in detail in the show notice under Section 122(9) of the Ordinance read with Section 122(4)/(5). Therefore, the Petitioner contends that all this information was "definite information" and, in the circumstances, amendment of the Respondent s assessment was justified.

9.On the other hand, the Respondent vehemently controverts the Petitioner s stance. According to it, the aforementioned information was not "definite information" for two reasons: first, the information in question was secured through unlawful means and was a consequence of an unlawful raid and seizure. It could not be used against the Respondent and no proceedings could be undertaken against it on its basis. Secondly, the information relied upon by the Petitioners was incohate and required further processing/inquiry and could not thus be reckoned as "definite information" in the sense known to law. In order to substantiate this second argument, the Respondent relies on the following statement in the case reported as "Commissioner Inland Revenue v. Messrs Khan CNG and Filling Station and others" (2013 PTD 884):--

"The term 'definite information' in section 122(5) of the Ordinance is not just any information but definite enough to satisfy the concerned officer that income chargeable to tax of an assessee has escaped assessment or total income of an assessee has been under-assessed, etc. "Definite" means indisputable, known for certain, explicitly precise, clearly defined, leaving nothing to implication, established beyond doubt and cut and dried. Definite information is therefore, that select information which falls within the restrictive meaning of the word definite explained above. The word acquired used in section 122(5) of the Ordinance which literally means to gain possession of in the present context connotes that the information already exists and has to be picked up from the records or documents. This acquisition provides no margin for incomplete, imprecise and inexact information to be completed through further calculation or processing as that would not be acquiring information but analyzing it." [emphasis added]

10.The first contention of the Respondent should get a short shrift because this Court has already held in Writ Petition No.30347/2013 that the raid conducted by the Department was lawful. The said order of this Court still holds the field. As such, any objection to the use of record seized by the Department in that raid is misplaced.

11. As regards the second contention, we observe that it is based on misconception of law and misconstruction of the statement made by this Court in Khan CNG case. There is no cavil with the proposition that an information in order to qualify for "definite information" must be explicit and precise. The highlighted portion of the judgment in Khan CNG case reproduced hereinabove on which the Respondent has placed reliance simply re-emphasizes this point. What the law excludes from the domain of "definite information" is incomplete information that requires further inquiry into the affairs of the taxpayer before the Department can reach a conclusion. Such a roving inquiry is neither appreciated nor permitted. It is noteworthy that this judgment particularly states that the information that already exists in some document or record at the time of acquisition would fall within the ambit of "definite information". This view is also in consonance with the law laid down by the Hon ble Supreme Court in "Income-Tax Officer and another v. Messrs Chappal Builders" (1993 SCMR 1108).

12.In the present case, the entire information on which the Petitioner Department has relied upon was contained in the records seized from the Respondent. Vouchers, sale invoices, cheque books and bank statements were loudly telling that the Respondent s income chargeable to tax had escaped assessment. We have observed that the Assessing Officer has given a gist of the information gleaned from these records in his Order-in-Original. In our opinion, there can hardly be a better example of "definite information" than the one in hand.

13.For the above reasons, we answer the above-mentioned in the "negative", i.e. against the Respondent and allow these reference applications.

14.Office shall send a copy of this judgment under the Seal of Court to the Appellate Tribunal as per Section 133(5) of the Ordinance.

MH/C-1/L Reference allowed.