MR. JAVID IQBAL, JUDICIAL MEMBER.-(1). This order will dispose of the above captioned appeal instituted on behalf of department against the order passed by CIR (A) in appeal No. 3 dated 19.02.2010.
2. Precisely facts emanating from the impugned order are that the respondent filed return with the following declaration:- Agricultural Income (exempt) Rs.
1,800,000/- Income from other sources Rs. 15,000/- Income from A.O.P.(for late purposes)Rs. 34,241/- Total Income Rs. 1,849,241/- Taxable Income Rs. 49,241/-
3. The return so filed is deemed assessment order under the term of section 120(l)(b) of the Income Tax Ordinance, 2001 (herein after called Federal Ordinance, 2001). Agricultural income has been claimed exempt u/s 41 of Federal Ordinance, 2001. Amount of Rs. 49,241/- is income from the ground rent and from AOP for rate purposes.
4. The taxation officer sought information from District Officer Revenue and Estate (DOR & E).
Mardan about the agricultural income. The DOR Mardan submitted information vide letters No. 1238-39/AIT/Fin/DO (R&E) and No. 1275-76/AIT/Fin/ DO (R&E) dated August 2008. On the basis of- the information given by the DOR vide aforementioned letter on comparison with the declared results, it was found by the taxation officer that agricultural income has been inflated. After completing the formalities to amend the order under the provision of 122(5) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance, 2001). The inflated amount of difference of agricultural income as assessed under the Provincial Agricultural Income Tax & Land Ordinance, 2000 and Federal Income Tax Ordinance, 2001 was added towards net income of the taxpayer.
Feeling aggrieved taxpayer filed before the CIR (A-II), whereby vide the combined order in appeals No. 1132 to 1136 dated 21.03.2009, action of taxation officer was upheld. Felt aggrieved with the aforementioned order of CIR (A-II) taxpayer/respondent filed further appeals before the Tribunal, on conclusion by it case was remitted back vide its order in ITA Nos. 260 to 264 (PB) of 2009 dated 19.08.2009. On remand the L/CIR (A) decided the appeals vide the impugned order which is subject of instant appeal by the department before this forum on the grounds which are reproduced as under:-
1. The CIR (A) was not justified to annul the amended order passed under section 122(1) of the Income Tax Ordinance, 2001 on the following grounds:-
(a) No proper opportunity of being heard provided It is incorrect to say that no proper opportunity was provided and assessm ent was framed in haste, hence distorted, misconceived and premature. The observations of the CIR (A) are incorrect on the basis that after obtaining information from the revenue department, the taxpayer was duly confronted with the same that income not derived from agricultural, rather from other source, was declared as agricultural income on estimate basis. Proper opportunity was provided but the taxpayer could not substantiate his stance by documentary evidence. Further more, the assessment process was completed within the period of two months and sufficient opportunity was provided to the taxpayer. Thus the assessm ent was neither distorted nor misconceived or premature.
(b) Definite information The CIR (A) was not justified to observe that the taxation officer has no definite information whereas the information received. From Revenue Officer about agricultural tax paid on the income of agricultural is definite as it did not tally with the declared version of the taxpayer. Further more, the taxation officer has not exercised the powers of the Provincial Government. Rather, he utilized the assessment of tax figures received from the Revenue Department properly. The taxation officer has not assessed agricultural income for imposing agricultural tax. The observations of the CIR (A) are not based on proper proposition of the case.
(c) Exempt income It is incorrect to say that the taxation officer has taxed the exempt income of the taxpayer. The difference between the agricultural income declared by the taxpayer and agricultural income assessed by the revenue department was properly attributed towards "income from other source". The case cited by the taxpayer is distinguishable and wrongly been relied upon by the CIR (A).
(d) On facts and history of the case.
As information was received for the period under review therefore properly utilized by the taxation officer. Reference to the history or the case is not a valid ground as no information was obtained to annul the assessm ent on this point as well. The principle of res-judicata does not apply to Income Tax proceeding.
5. The L/DR reiterated his contention as per grounds of appeal and contended that the taxation officer after comprehensive discussion touching each and every point raised by the respondent had amended the order in accordance with law and facts. L/AR of the taxpayer while supporting the impugned order repeated arguments as have been tendered before the lst appellate authority and recorded in the impugned order as under:- ASSESMMENT IN HASTE.
That the Deputy Commissioner of Income Tax issued notices to the assessee in extreme haste and without allowing proper opportunity of being heard. The same being conscious of the mistake endeavored to justify his act in different ways in the text of amended assessment order. However, as per amended assessm ent order, extremely, short adjournments on weekly basis were allowed to the assessee. The fact cannot be ignored that on the one hand the DCIT was raising queries about the details of agricultural income of 4 assessee for 5 tax years (i.e. 20 assessments), however was not allowing proper time to produce record proof of agricultural income in respect of each assessm ent year. This was the apex of injustification not warranted under the law of the land.
REASSESSMENT MISCONCEIVED.
In response to notice u/s 122(9) issued by the DCIT, the assessee raised some legal objections, whereby inter alia, jurisdiction of the DCIT was challenged. The assessee was expecting to receive reply to the legal objections raised by him, however, was astonished to note that the DCIT not only rejected the legal objections raised by the assessee, but also amended the assessment as per his fervent desire.
As a matter of procedure the DCIR was bound to decide the legal objections raised by the appellant first and thereafter in case he was not in consensus with the assessee's version, the assessee should have been allowed opportunity to produce proof of the agricultural income.
However, nothing so was done in this legal way, which was totally against the law.
NO DEFINITE INFORAMTION.
As per notice issued u/s 122(9) of the Income Tax Ordinance, 2001 by the DCIT to the assessee, the only information with which the assessee was confronted was the agricultural tax paid in the year 2003 (relevant year), however, in the amended assessment order, the DCIT claimed that "information was acquired from the DOR & E, District Mardan, which depicted that the taxpayer has agricultural income of Rs. 405,000/- whereon the agricultural income tax payable of Rs. 34,250/-.
As the above said information ("information was acquired from the DOR & E, District Mardan, which depicted that the taxpayer has agricultural income of Rs. 405,000/- whereon the agricultural income tax payable of Rs. 34,250/-") never exited hence the whole proceedings initiated by the DCIT u/s 122(5) is of no legal effect. The same must be struck down on this score alone.
Moreover, even if in case any such information existed, the DCIT, never confronted the assessee with that information.
As far as the piece of information, i.e. Challan of agricultural tax payment is concerned, the same can never be construed as definite information. As it is highly incorrect to estimate the income of any person on the basis of a challan of tax. The assessee or any person is never under obligation to deposit the whole agricultural tax (or any tax) for any year in lump sum and through one challan.
For the year it was alleged that the assessee paid agricultural tax of Rs. 34,250/- only, however, the assessing officer failed to comprehend and realize that, payment of tax cannot be conclusive proof of agricultural income of the assessee for the whole year. But it was the DCIT, personal presumption, suspicion, doubt and estimation on the basis of which the same calculated the agricultural income of the assessee on the basis of payment of agricultural tax made by him.
The superior courts while interpreting definite information repeatedly and expressly excluded the term "estimate" from the definition of "Definite information" and always deprecated the practice of estimation on the basis of any information. It has also been held time and again that any estimate, gossip, personal whims or surmises could not be termed as the definite information, prefix or definite with suffix of information made the terms more strong - Any information which creates doubts or provides reason to suspect that the income has been concealed does not form a part of the term definite information, however, the DCIT while ignoring all such interpretations has considered the information possessed by him as definite information.
As the assessee has agricultural land in different parts of the NWFP as well as even in Punjab of which certain lands are totally exempt from payment of agricultural tax. Hence relying upon a single payment of agricultural tax and then inversing the same into income and then transferring a part of agricultural income to other income is surely not warranted under the law.
The DCIT on one hand was never in possession of any information that the assessee agricultural income for years in question was Rs. 405,000/- but he presumed and calculated in his own way that if the agricultural tax paid by the assessee is Rs. 34,250/-, the income comes to Rs. 405,000/-.
Holding a payment of agricultural tax and considering it definite information is blatant violation of law, which the superior courts have never supported, however, the DCIT presumed the said income on the basis of his own frame of mind, which is totally incorrect. Reliance is placed upon:- 2003 PTD (Drib.) 2287 2000 PTD (Trib.) 2905 2000 PTD (Trib.) 2531 2004 PTD (Trib.) 983 1993 68 Tax 86 S.C Pak JURISDICTION The DCIT, in the instant case repeatedly admitted that "agricultural income is a provincial subject, therefore, it is subjected to agricultural income tax by the provincial Government and for this reason it falls outside the ambit of the ordinance which provides for taxation of income as a Federal subject", however, on the basis of whim of mind moved in a totally incorrect manner, assumed jurisdiction of Collector of District under NWFP land and Agricultural Income Tax Ordinance, 2000 and estimated the agricultural income of the assessee. It is pertinent to mention here that under the above said Ordinance a full fledged procedure has been provided for assessm ent of agricultural income and the jurisdiction to the assessee, the agricultural income vests Collector of the District appointed under section 2(h) of the above mentioned Ordinance, 2000.
Needless to mention that the term assess means evaluate and estimate. The estimation can be on the higher side or lower. In the instant case the DCIT, without any jurisdiction estimated the agricultural income of the assessee on the lower side. Under the NWFP Land and Agricultural Income Tax Ordinance, 2000, the collector of District has been given the exclusive authority to assess the agricultural income.
The reason of exemption of agricultural income from Federal Taxation is that the Constitution of Pakistan gives exclusive power to the provinces to levy taxes on agricultural income. However, the DCIT by reducing the agricultural income of the assessee has abandoned the provincial Govt, from agricultural tax.
In case a person has not paid full income tax for any year or declared incorrect taxable income for any year, then any agency who get the information about the incorrect version of assessee can only transfer information to the concerned DCIT, but cannot start estimating the taxable income by him self instead of DCIT.
The DCIT assumed the jurisdiction of Collector of the district as well as DCIT simultaneously and estimated the agricultural income of the assessee, which was not warranted under the law. In fact the DCIT violently acceded his jurisdiction and passed an order without jurisdiction. Absence of jurisdiction renders the entire proceedings null and void and impugned proceedings u/s 122(5) of the Income Tax Ordinance, 2001 and order made by the DCIT were arbitrary, illegal and without jurisdiction.
EXEMPT INCOME CANNO T BE ASSESSED.
By virtue of Section 41 of the Income Tax Ordinance, 2001 "Agricultural income derived by a person shall be exempt from tax under this Ordinance." Hence in no way the same cannot be assessed/disturbed by the DCIT.
The DCIT has no jurisdiction to examine the quantum of exempt income in any case, reliance is placed on:- 2007 95 Tax 53 HC Lah.
2008 81 Tax 317 HC Kar.
2007 PTD (Trib.) 954 2005 PTD (Trib.) 2229 On the other hand, it is pertinent to mention here that Section 39 of the Income Tax Ordinance, 2001 (new Ord.) specifically excludes the exempt income from the Other Income and further .Augments the proposition, the same mentioned that "income from other sources means, income of every kind received by a person in a tax year, [if it is not included in any other head] other than income exempt from tax under this Ordinance". An exempt income can neither be taxed nor the quantum of exempt income can be estimated.
Hence under Ordinance 2000, the agricultural income or any person cannot be assessed/estimated/calculated by the DCIT and on the other hand the agricultural income cannot be considered as other income, however, the DCIT in order to circumvent both the laws, on one hand estimated agricultural income and on the other hand included it in the other income.
In the instant proceedings, the sanctity of the unequivocal provisions of Income Tax Ordinance, 2001 as well as NWFP Land & Agricultural Income Tax Ordinance, 2000 has been tarnished which is not warranted under any law.
6. After having heard the arguments of the rival parties and from perusal of the relevant record, it is seen that the taxpayer filed return of total income with the declaration of income under the heads share income of AOP, from other source and agricultural income. Exemption about the agricultural income was claimed u/s 41 of Income Tax Ordinance, 2001. The return so filed was termed deemed assessm ent order under the garb of section 120(l)(b) of the Ordinance 2001. As per this order agricultural income was assessed at Rs. 1,800,000/-, income from other source at Rs. 15,000/- and share income from AOP at Rs. 49,241/-. Subsequently taxation officer sought verification of agricultural income from DOR, Mardan. The information submitted when compared with the declared agricultural income under the Ordinance 2Q01 it was found inflated, taxpayer paid the agricultural income tax amounting to Rs. 10,800/- against which the computable agricultural income comes to Rs. 223,000/- as per rates of agricultural income tax as provided in the Second Schedule to NWFP Land Tax & Agricultural Income Tax Ordinance, 2000 and are reproduced as under:- "The rates of tax on total agricultural taxable income shall be as under:- 1.Where the total taxable income does not exceed Rs. 100,000,005% of the total income 2.Where the total taxable income exceeds Rs.
100,000,00 but does not exceed Rs. 200,000,00Rs. 5000,00 plus 7.5% of the amount exceeding Rs.
100,000,00 3.Where the total taxable income exceeds Rs.
200,000,00 but does not exceed Rs. 300,000,00Rs. 12,500,00 plus 10% of the amount exceeding Rs. 200, 000,00 4.Where the total taxable income exceed Rs.
300,000,00Rs. 22,500,00 plus 15% of the amount exceeding Rs.
300,000,00 Provided that no tax shall be payable on the first 80,000 rupees of the aforementioned income."
7. Thus their differences were observed between agricultural income as per the above slab meant for land tax and agricultural income tax and the income declared as per the income tax return filed u/s 114 of Income Tax Ordinance, 2001. Taxation officer issued show cause notice to obtain the explanation of the taxpayer the contents of which notice are as under:--
1. Whereas I consider necessary that the assessment order treated as issued under 120 needs alteration by amending it under section 122 for imposition of the correct amount of tax for the Tax Year 2004, as in my opinion the returned version is incorrect on the basis of definite information in the possession of this office, therefore, you are hereby provided an opportunity to support your declared version so that correct income may be determined and proper tax be imposed.
2. Examination of your case record reveals that from Tax Year 2004 you have filed your return of income wherein you have declared total income of Rs. 1,849,241/-. Breakup of this income, as declared by you, is follows:-- Agricultural income (exempt)Rs. 1,800,000/- Ground rent/business incomeRs.15,000/- Income from AOP (for rate)Rs. 34,241/- Balance Income Rs. 1,849,241/- Taxable Income Rs. 49,241/-
3. This office is in possession of information acquired from the concerned competent revenue authority regarding your agricultural income. As agricultural income is taxable under the NWFP Land Tax and Agricultural Income Tax Ordinance, 2000 (Agricultural Ordinance, 2000), therefore, your agricultural income is subject to agricultural income tax. Your agricultural income tax record shows that you have paid agricultural income tax on your agricultural income. This means that you are aware of your legal responsibility as regards your agricultural income. On the other hand, filing of return of income under section 114 of the Ordinance and claiming exemption on agricultural income depicts that you are also aware of your legal responsibility under the Income Tax Ordinance, 2001.
4. Information regarding your agricultural income reveals that you have paid agricultural income tax of Rs. 10,800/-, vide challan No. 2102 dated 21.09.2004, for the income period 01.07.2003 to 30.06.2004 corresponding to tax year 2004. Working back of this tax results in agricultural income of Rs. 223,000/-. In other words, it means that agricultural income tax of Rs. 10,800/- is payable as per rates provided in Part-1 of the Second Schedule to the Agricultural Ordinance, 2000 on agricultural income of Rs. 223,000/-. The DOR & E has confirmed this amount as your agricultural income. As per your own version, your income for the tax year 2004 is Rs. 1,849,241/-. You have declared this amount in your return of income which stands assessed under section 120(1) of the Ordinance. However, instead of claiming Rs. 223,000/-, which is the correct amount, you have claimed Rs. 1,800,000/- as agricultural income exempt from tax under the Ordinance. By doing so, you have avoided income of Rs. 1,577,000/- from offering it to tax. This means that your taxable income under the Ordinance is Rs. 1,626,241/- (including share income from AOP) and not Rs.
49,241/-. Despite being aware of the provisions of both the aforestated tax statutes, you have declared different amounts of agricultural income under each for the same period. Thus, you have furnished inaccurate particulars of your income because of which your total income has been under-assessed and your income chargeable to tax has escaped assessment under the provisions of the Ordinance.
5. Consequently, your assessm ent under section 120 warrants amendment under section 122(1) read with section 122(5) of the Ordinance. The correct working of your taxable income and the tax payable thereon is as follows:-- Agricultural income (whereon agricultural income tax paid)Rs.
223,000/- Share from AOP (for rate purposes only) Rs. 34,241/- Ground rent/business income Rs. 15,000/- Other income Rs.
1,277.000/- Balance Income Rs.
1,849,241/- Less: Income exempt (Agricultural income) Rs.
223.000/- Taxable Income (including share from AOP) Rs.
1,626,241/- Tax on the above income (as per cl (2) Div-I, Part-01, First Schedule)Rs. 449,184/- Less: Rebate on AOP share income Rs. 9,458/- Less: Tax already paid Rs. 1,125/- Balance Tax Payable Rs. 438,601/- = The aforementioned notice was replied by the taxpayer as follows:- "...... The above said notices on the one hand are totally misconceived and on the other not as per provisions of the Income Tax Ordinance, 2001. The same needs to be struck down on the following amongst other reasons:-
1. Firstly, your office does not have any definite information on the basis of which powers u/s 122 can be exercised. This office is following on the basis of presumptions and conjectures, which are not permissible under the law. There are long line of judgments of the superior courts, wherein definite information has been explained and in the light of same, the information being used by this office cannot he called "DEFINITE INFORMATION" in any way.
2. Secondly, this office has no jurisdiction to question the non payment of any agricultural tax by the assessee. In case the assessee has not paid any agricultural income tax over any agricultural income, the same has to be dealt and questioned under No. IV of 2000 and not under Income Tax Ordinance, 2001. In the same way it does not give any jurisdiction to this office to estimate/curtail or assess the agricultural income of an assessee on the basis of Agri Tax paid.
3. Thirdly, under Section 41 of the Income Tax Ordinance, 2001, the agricultural income is totally exempt from income tax, the same cannot be taxed, enhanced or decreased in any way.
4. Fourthly, the assessee is the owner of different agricultural lands, of different measurements, situated in different areas of Pakistan, inside NWFP as well as outside NWFP. The assessee is accruing agricultural income form such agricultural lands since long.
5. Fifthly, there are certain assets of the assessee which are situated outside NWFP over which agricultural tax is not payable in NWFP. There are also agricultural lands of the assessee in NWFP, which are totally exempt from payment of agricultural income tax.
6. Sixthly, the assessee has long history of agricultural income declared in the preceding years and the agricultural income for the year 2003 is also in line of this.
In view of the above submissions, it is requested that the proceeding in the matter may kindly be dropped in the best interest of justice..................................."
8. Afterward finding the reply of taxpayer being unsatisfactory, taxation officer amended the assessm ent under the provision 122(1) of the Income Tax Ordinance, 2001. As for completion of assessm ent is concerned reasonable opportunities were provided to the taxpayer as per the following details:- S. No.Opportunity Compliance Remarks
1. Notice u/s 122(9) issued on 29.08.08 for 09.09.08Requested for adjournment No. Expltn. Details filedAdjourned and re- fixed on 16.09.08
2. Hearing on 16.09.08 on adjournmentAttended by AR requested adjument. No. Expltn. Details filedAdjourned and re- fixed on 24.09.08
3. Hearing on 24.09.08 on adjournmentAttended by AR requested for adjument. No. Expltn. Details filedAdjourned and re- fixed on 06.10.08
4. Hearing on 06.10.08 on adjournmentAttended by AR requested for adjument. No. Expltn. Details filedAdjourned and re- fixed on 16.10.08
5. Hearing on 16.10.08 on adjournment was attended 17.10.08Attended by AR. Reply filed without any evidence or proof or detailsCase finalized as no request for further time was made.
The above reproduction proves that sufficient opportunities were provided to the taxpayer, but instead he failed to rebut the contents of show cause notice. Further even at the time of hearing before me not any evidence was produced showing that assessee has earned such agricultural income which he had claimed. The information obtained from the DOR Mardan about the payment of agricultural income tax is definite. Taxpayer could not blow hot and cold at same breath. As per the provincial legislation about the Agricultural Income Tax Ordinance, 2000 where the taxpayer is under obligation to declare agricultural income and to pay the agricultural income tax, under the same obligation taxpayer has paid the tax of Rs. 10,800/- against which imputable agricultural income comes to Rs. 223,000/-. On the other hand, as per Income Tax Ordinance, 2001, agricultural income is exempt from taxation u/s 41 of the Ordinance, 2001, whereas it has been declared at Rs.
1,800,000/- which suggest the avoidance of taxation under the Income Tax Ordinance, 2001.
Considering the above impact of the matter, it stood proved that taxation officer has taken the action and has amended the order on basis of definite information and for the reason of under assessm ent, which could not be disproved.
9. Regarding the objection about the jurisdiction of taxation officer, no doubt, the actual agricultural income is exempt from federal taxation under the section 41 of the Income Tax Ordinance, 2001, but it does not mean that the taxpayer is scott free to declare such income at his sweet will. Taxation officer is vested with the jurisdiction to check the veracity and quantum of correct income as exemption from income tax is provided only on true and correct agricultural income. Further the taxation officer for this purpose can lend support from the provincial statute of Land Tax & Agricultural Income Tax Ordinance, 2000. Any income which does not come from the provincial statute of agricultural income taxation could not be considered or accepted as agricultural income under any other law. The computation and payment of Govt, taxes under the two statutes and Govt, agencies could not be at variance with each other. In this respect Income Tax Ordinance, 2001, which is federal subject of taxation is dependent upon the provincial legislation for assessm ent of true and correct amount of agricultural income which suffers the agricultural income tax. For purpose of federal taxation one could not be allowed to misclassify his taxable income of federal legislation as being exempt from taxation under the garb of agricultural income thereby to avoid payment of lawful tax. If it is proven fact that the income declared is not the agricultural income then such income is taxable under the provision of Income Tax Ordinance, 2001. Declaring agricultural income different under one legislation then another legislation is against the ethics and is violation of income tax law as embodied in federal Income Tax Ordinance, 2001. If the income declared is found under assessed or it is such inflated and the element of avoidance is involved then the taxation officer is well within the authorization to add such income towards the taxable income of the taxpayer.
10. Regarding the declaration of agricultural income per history, the objection do not carry weight, firstly because in history there was no Provincial Agricultural and Land Income Tax Ordinance, 2000 in field, first time it has been promulgated in the year 2000, while each tax year is independent year and it should be dealt with in accordance to its own fact and law. If in history something has been overlooked, it should be cured in future because as stated supra, if it is overlooked it would amount the grant of amnesty for wrong doing, one could not be left at his sweet will to misclassify, or to make mis-declaration, which is not the mandate of law, whereas the mandate of law is that the Income Tax Ordinance, 2001 gives the jurisdiction and authority to the taxation officer to investigate and probe the correct income. In the case as per the rate of the Provincial Agricultural Income and Land Tax Ordinance, 2000, taxpayer has paid the agricultural income tax at Rs. 10,800/- against which computable income comes to Rs. 223,000/-. The taxpayer can get the credit of the same under the federal Income Tax Ordinance, 2001. The declaration of agricultural income over and above Rs. 223, 000/- is inflated and is liable to addition toward the income of the taxpayer, which has rightly been subjected to addition by the taxation officer. Thus, there exists no iota or any doubt that L/COR (A) has committed a grave mistake by vacation the order of the taxation officer, being sot the imugned order is set-aside, which results in restoration of the amended order passed by the taxation officer.