This titled appeal has been filed at the instance of the department against the impugned order dated 28-05-2009 passed by learned CIT(A), RTO, Lahore on the ground of annulment of order passed u/S. 122(5A).
2. Mr. Ali Mansopr, D.R. is present on behalf of the department while Mr. M. Shahid, Advocate is present on behalf of the taxpayer.
3. Brief facts of the case are that the taxpayer is, an individual, deriving income from manufacturing of tower coated steel items. Return for the tax year under consideration was filed under USAS declaring net income of Rs. 355,400/-. The assessment was completed u/S. 120 of the Income Tax Ordinance, 2001. Later on, after scrutiny of record that the taxpayer being manufacturer had been filing statement u/S. 115(4) of the Income Tax Ordinance, 2001 till tax year 2004 by opting for Presumptive Tax Regime (PTR). For the tax year 2005 the taxpayer had filed return under Normal Tax Regime under Section 114, whereas he was under legal obligation to follow the option for succeeding three years. He was required to file statement u/S. 115(4) for the year in question on account of supplies made to different parties instead of filing of return under normal law. Therefore, the Taxation Officer observed that the taxpayer had failed to fulfill the requirements of law and the completed assessm ent u/S. 120(1) of the Income Tax Ordinance, 2001 had found to be erroneous insofar as prejudicial to the interest of revenue which warranted action u/S. 122(5A) of the Ordinance. Statutory notice u/S. 122(5A) of the Income Tax Orinance, 2001 was issued. In pursuance of this notice, the AR appeared on behalf of the appellant and filed reply. The same was considered and found unsatisfactory by the Taxation Officer. The Taxation Officer relied upon the various reported and unreported judgments of the apex forums. In view of the facts narrated above, the Taxation Officer, already completed assessment u/S. 120 of the Income Tax Ordinance, 2001 for the year under consideration. Later on, he amended the assessment u/S. 122(5A) dated 06-12-2008 in the following manner:-- {{TABLE}} Sales assessed under PTR 38,630,857 Tax on assessed sales/supplies @ 3.5% 1,352,080 {{TABLE}}
3. Being aggrieved by the treatment of the Taxation Officer, the taxpayer came in appeal before the first appellate authority. The CIT(A) held, relying upon the facts of the case, that the action of the Taxation officer invoking the provisions of Section 122(5A) of the Ordinance for the year under re view was declared to be illegal and unwarranted. Being dissatisfied by annulment of assessment by the learned CIT(A) the department has preferred an appeal before this Tribunal.
4. The D.R. appearing on behalf of the Revenue has contended that the order passed by the Taxation Officer is in accordance with the prevailing law and facts of the case. The D.R. has contended that the learned CIT(A) was not justified to annul the order passed by the Taxation Officer u/S. 122(5A) of the Income Tax Ordinance, 2001. The D.R. has further urged that under the provisions of Clause (40) of Part IV of the Second Schedule of the Income Tax Ordinance, 2001, the taxpayer, being manufacturer, was under legal obligation to file statement u/S. 115(4) for the succeeding three years under Presumptive Tax Regime on account of supplies made to different parties instead of filing of return under Normal Tax Regime but he could not fulfill the requirements under law. He has stressed that the order already completed u/S. 120 of the Ordinance was found to be erroneous insofar as prejudicial to the interest of revenue, so the order was amended u/S. 122(5A) by the adjudicating officer. He has prayed that the order of the learned CIT(A) may kindly be vacated and that of the assessing officer be restored. On the other hand, the learned AR appearing on behalf of the appellant contended that the provisions of Section 239(8) of the Income Tax Ordinance, 2001 have not properly been appreciated while concluding the proceedings. Learned AR stresses that the co-relation of clause 9(IV) second Schedute to the repealed Ordinance, 1979 with Clause 40 of Part-IV to the Income Tax Ordinance, 2001 has not been considered. Learned AR submits that the proceedings were finalized by crushing the facts as well as provisions of law which is against the norms and justice.
5. We have heard the arguments of both the rival parties, perused the relevant record available on file and considered the legal as well as factual position of the case. We are of the view that the arguments of the learned D.R. carry substantial weight. We have noted that under the provisions of Clause (40) of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001, the taxpayer, being manufacturer, is under legal obligation to follow the option upto subsequent three years and is also required to file statement u/S. 115(4) of the Ordinance under the Presumptive Tax Regime for the tax year 2005 on account of supplies made to different parties instead of filing of return under Normal Tax Regime. We have further noted that taxpayer filed return for the tax year 2003 under the new clause for the first time and was bound to file the statement for the next two years. As regards the reference to Section 239(8) of the Income Tax Ordinance, 2001, it is there to ensure that options elected before operation of new law/ordinance from tax year remain intact e.g. a person who opted for filing of statement for the first time in assessment year 2002-2003 continues to file statements for the next two years and does not stop doing so on the pre-text that his electiorr/choice was made under the old law and he is not bound by it under the new law. The SRO No. 1130(1)/2005 dated 14-11-2005 mentioned in the CIT(A)'s order is not applicable to this case. The relevant portion of the Clause (40) is reproduced hereunder for sake of reference: "(40) The provisions of [sub-section (6) of Section 153] insofar as they relate to payments on account of supply of goods [from] which tax is deductible under the said Section shall not apply in respect of any person being a manufacturer of such goods, unless he opts for the presumptive tax regime: Provided that a declaration of option is furnished in writing within three months of the commencement of the [tax] year and such declaration shall be irrevocable and shall remain in force for three years: Provided further nothing contained in this clause shall apply to any manufacturer of goods for which special rates of deduction of tax are specified under the [repealed] Ordinance."
To strengthen his point of view, we would also like to refer the precedent in the case Bearing ITA No. 885/LB/09 (Tax Year 2005) titled as CIR, Legal Division, RTO, Lahore Versus M/s. Millennium Cable Industries Ltd, Lahore wherein following findings were given by the Tribunal: "The taxpayer was obliged to file statement under Section 115(4) and has been so doing for the preceding years. Despite clarity of provisions of Clause 40 and 40-A referred, the taxpayer did not file statement under Section 115(4). We are of the opinion that taxpayer with full knowledge of his acts avoided filing statement under Section 115(4) in order to take undue advantage which was an error manifest from record. The Additional Commissioner therefore justified in taking action under Section 122(5A)".
We have found that the taxpayer has not fulfilled the requirements of law, therefore, assessment completed under deeming provisions u/S. 120 of the Income Tax Ordinance, 2001 is erroneous as well as prejudicial to the interest of revenue. The Taxation Officer has rightly modified the assessm ent u/S. 122(5A) for the year in question and treated the tax deduction u/S. 153 on supplies as final discharge of tax liabilities. The order of the Taxation Officer is on sound footings, justified and in accordance with law. We are of the considered view that the order passed by the learned first appellate authority is illegal and without lawful authority. Therefore, we vacate the order passed by the learned CIT(A) and that of the assessing officer is restored.
6. This departmental appeal succeeds accordingly.