Through this order we will dispose of appeal filed by the Department against the decision of learned Commissioner Inland Revenue (Appeals-III), Karachi @ Hyderabad passed vide his order No.33 dated 26-7-2010 for tax year 2008. The grounds of appeals filed by the department are reproduced below:-- "(1) Order passed by learned CIR(Appeals), Hyderabad is bad in law and against facts of the case.
(2) That, the order passed by learned CIR(A) is legally void.
(3) That, decision on appeal was clearly barred by limitation, in view of first proviso of section 129(4) of Income Tax Ordinance, 2001.
(4) That, learned CIR (Appeal), even failed to take cognizance of the explicit provisions of section 129(4) of Income. Tax Ordinance, 2001.
(5) That, learned CIR(A), was not justified to hold selection for audit, as "without jurisdiction and illegal", on the basis of administrative decision of the board.
(6) That, the person was selected for audit on a date, preceding the date on which administrative instructions were conveyed.
(7) That, even in the light of said instructions, there being gross irregularities in the return of Income, person was rightly selected for audit.
(8) Appellant craves to and, alter, amend or withdraw any ground before or at the time of hearing."
2. On the date of hearing the department was represented by Dr. Naveedul Masan as D.R. While the taxpayer was represented by Mr. Habibuddin Ahmed, Advocate.
3. Brief facts of the case as transpired from the record are that the taxpayer being a Private Limited Company is engaged in the business of manufacturing/assembling and sales of Auto Rickshaws and Motor Cycles. The taxpayer filed return of income at Rs.100,32,196 under Universal Self- Assessm ent Scheme. Later on the taxpayer was selected for audit under section 177(4)(a) and (d) of the Income Tax Ordinance, 2001 by the Commissioner of Income Tax (Audit) Regional Tax Office, Hyderabad vide Letter No.558 dated 29-1-2009. The audit proceedings were initiated by the Deputy Commissioner and finally making various disallowances of expenses, amended the order under section 122(1)(5) read with section 177 of the Income Tax Ordinance, 2001 vide DC No.1/151 on 28-7- 2009.
4. Being dissatisfied with the order passed under section 122(1)(5) read with section 177 of the Income Tax Ordinance, 2001, the taxpayer filed appeal before the Learned CIR(A) who decided the issue in his impugned order with the following observations:-- "The arguments advanced by the A/R of the appellant are considered. From perusal of record it transpires that the return was selected for Audit by the Commissioner of Income Tax (Audit) RTO, Hyderabad under section 177(4) (a) and (d) of the Income Tax Ordinance, 2001 vide Letter No.559 dated 29-1-2009 and case was assigned to Deputy Commissioner, Audit-I, RTO, Hyderabad and the amended order as per Audit report finalized on 28-7-2009.
According to the A/R of the appellant regarding selection of case by the Commissioner of Income Tax (Audit) RTO, Hyderabad is totally unlawful and unwarranted as the power of select the case for the tax year, 2008 vested with the Federal Board of Revenue, through random as per Circular No.4(7S)ITP/2009 dated 9-1-2010 and the contents of the Circular read as follows:-- "SUBJECT: AUDIT PROCEEDING FOR THE TAX 2008 Please refer to the proceedings of the meeting held by the Chairman F.B.R. With' the minutes of Income Tax Bar Association, Karachi, on 9th January 2010 at F.B.R. Camp Office, Income Tax House, Karachi.
(2) As already decided in the Third Chief Commissioner's conference held on 19-12-2009 at "P" Block Auditorium, Pakistan Secretariat and as conveyed through the minutes of this meeting dated 11-1- 2010, since random audit selection of cases for Tax Year 2008 has been held for Audit of Corporate cases and cases of AOPs, the cases of audit on any other basis for Tax Year 2008 may be closed. However, the cases with proof or evidence of gross irregularities may be intimated to the Board for guidelines as to further necessary action.
(3) These instruction may also be brought to the knowledge of all concerned."
5. During proceedings before this Court, the learned D.R contented that the taxpayer was selected for audit on a date preceding the date on which administrative instructions were received from the Board and therefore, Commissioner Audit RTO, Hyderabad was vested rightly with jurisdiction to select the case for audit under provisions of section 177(4)(1) and (d) of the Income Tax Ordinance, 2001. The Learned D.R. Also contended that the order of learned CIR(A) is barred by limitation under section 129(4) of the Income Tax Ordinance, 2001. The Learned D.R. Therefore, argued that the order of the Learned CIR(A) is an invalid order and not sustainable.
6. The learned counsel for the taxpayer however, argued that Board has assumed the jurisdiction for selection of the case for audit under provisions of section 177 for tax year 2008 and the cases were selected through random ballot and the field formations were required vide Board Circular No.4(7S)ITP/2009 dated 9-1-2010 to close the audit proceedings in audit cases otherwise selected by field formations. It was therefore, argued that the department conducted illegal proceedings under provisions of section 177 of the Income Tax Ordinance, 2001 in the case of the taxpayer and therefore, the learned CIR(A) has rightly annulled the same.
7. We have heard to the arguments of both the parties, have perused the available case record.
Our findings are as under.
8. First we take up legal objection raised by the department that impugned order of learned CIR(A) is hit by limitation as provided under section 129(4) of the Income Tax Ordinance, 2001.
9. As transpired from the record in this case appeal was filed before the learned CIR(A) on 15-8- 2009 and the learned CIR(A) decided the appeal on 21-6-2010 which was beyond the limitation period E prescribed under section 129(4) of the Income Tax Ordinance, 2001.
10. As provisions of section 129 of the Income Tax Ordinance, 2001 are involved in this case, for facilitation, this Section is reproduced "129. Decision in appeal.---(1) In disposing of an appeal lodged under section 127, the Commissioner (Appeals) may---
(a) Make an order to confirm, modify or annul the assessment order, after examining such evidence as required by him respecting the matters arising in appeal or causing such further enquiries to be made as he deems fit; or
(b) In any other case, make such order as the Commissioner (Appeals) thinks fit.
(2) The Commissioner (Appeals) shall not increase the amount of any assessment order or decrease the amount of any refund unless the appellant has been given a reasonable opportunity of showing cause against such increase or decrease, as the case may be.
(3) Where, as the result of an appeal, any change is made in the assessment of an association of persons or a new assessm ent of an association of persons is ordered to be made, the Commissioner (Appeals) may authorize the Commissioner to amend accordingly any assessment order made on a member of the association and the time limit in subsection (2) of section 122 shall not apply to the making such amended assessment.
(4) As soon as practicable after deciding an appeal, the Commissioner (Appeals) shall serve his order on the appellant and the Commissioner: Provided that such order shall be passed not later than one hundred and twenty days from the date of filing of appeal or within an extended period of sixty days, for reasons to be recorded in writing by the Commissioner (Appeals): Provided further that any period during which the hearing of an appeal is adjourned at the request of the appellant or is postponed due to any appeal or proceedings or stay order, remand or alternative dispute resolution proceedings or for any other reason, shall be excluded in the computation of the aforementioned periods.
(5) Where the Commissioner (Appeals) has not made an Order on an appeal before the expiration of four months from the end of the month in which the appeal was lodged, the relief sought by the appellant in the appeal shall be treated as having been given and all the provisions of this Ordinance shall have effect accordingly.
(6) For the purposes of subsection (5), any period during which the hearing of an appeal is adjourned on the request of the appellant shall be excluded in the computation of the period of four months referred to in that subsection.
(7) The provisions of subsection (5) shall not apply unless a notice by the appellant stating that no order under subsection (1) has been made is personally served by the appellant on the Commissioner (Appeals) not less than thirty days before the expiration of the period of four months."
11. Perusal of provisions of law stipulates that the Commissioner Appeal shall decide the appeal and pass order not later than 120 days from the date of filing of appeal or within extended period of 60 days for reasons to be recorded in writing by him. We do not find any such reasons recorded by the learned CIR(A) in his Appellate Order for the extended period of 60 days whereas the order has been passed late by more than 300 days.
12. Subsection (5) to section 129 of the Income Tax Ordinance, 2001 provides that if the Commissioner Appeal fails to make the order before the expiration of 4 months from the end of the month for which the Appeal was lodged, the relief sought by the appellant in the appeal shall be treated as having been given. The provisions of subsection (7) of Section 129 stipulates that the provision of subsection (5) shall not apply unless a notice by the appellant stating that no order under subsection (1) has been made is personally served by the appellant on the Commissioner Appeals not less than 30 days before the expiration of period of four months. We do not find any mentioning of such notices served by the appellant on the Commissioner Appeals in the order of the learned CIR(A) and therefore, the relief as provided under subsection (5) of section 129 was not available to the appellant.
13. We do not agree with the contention of the learned D.R. That under the provisions of section 129(4) if the order is not passed by the learned CIR(A) within 120 days from filing of appeal or within extended period of 60 days for reasons to be recorded in writing by him, the order of Learned CIR(Appeal) would become time-barred on the grounds being discussed in the succeeding paragraphs.
14. The legislature has not prescribed consequences if order is not passed by the learned CIR(A) within the time prescribed in section 129(4) of the Income Tax Ordinance, 2001. Had it been the intention of the legislature to prescribe limitation period for decision of the learned CIR(A) beyond which his order would be barred by time, it would have done so by the express provision of law. The legislature has not prescribed any consequence if the order is not passed by the learned CIR(A) within the prescribed period of the filing of appeal except for provisions contained in subsection (5) read with subsection (7) of section 129 of the Income Tax Ordinance, 2001. Provisions of subsection
(5) of section 129 of the Income Tax Ordinance, 2001 are not applicable in this case as has been discussed in the proceeding paragraph.
15. Wherever the legislature has wanted to prescribe time-barring limitation period for any action under the provision of Income Tax Ordinance, 2001, pit has done so by incorporating specific provisions. Example can be given of provisions of subsection (3) of section 221 which are reproduced as under:- "Section 221. Rectification of mistakes.---(1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order Passed by him to rectify any mistake apparent from the record on his or its on motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner." f3) Where a mistake apparent on the record is brought to the notice of the Commissioner or Commissioner (Appeals), as the case may be, and no order has been made under subsection (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly."
16. Perusal of the above provisions of law would reveal that the law made it binding on the Commissioner or Commissioner (Appeals) to pass an order on a rectification application filed under the provisions of section 221 of the Income Tax Ordinance, 2001 before the expiration of the financial year next following the date on which the mistake was brought to their notice failing which the mistake shall be treated as rectified. But while Appellate Tribunal was authorized to rectify its order in subsection (1) of section 221, it was specifically excluded from operation of time- barring limitation period prescribed in subsection (3) of section 221 of the Income Tax Ordinance, 2001.
17. Since legislature has not set-forth any consequences of failure to comply with provision of section 129(4) of the Income Tax Ordinance, 2001, in our considered opinion therefore the provisions of section 129(4) of the Income Tax Ordinance, 2001 are not mandatory but directory in nature. Our view finds strength from the judgment of High Court of A&K cited as 2000 PTD 2872 wherein their Lordships observed as under:- - "No universal rule or absolute test existed for determining whether a provision of law was mandatory or directory and it was to be determined according to the intention of the Legislature and the language which had been used in the provision. Ordinarily, where consequences of failure to comply with certain provisions were not stated those were to be deemed to be directory, and where the consequences were specifically mentioned, the provision was mandatory. Statute, as a general rule was understood to be directory when it contains matter merely of directions but it was construed as mandatory when those directions were followed up by an express provision that in default of following them, he had to face the consequences, provision was mandatory if its disobedience entailed a serious legal consequence."
18. We would also refer to the judgment of the honourable Lahore High Court cited as 2008 PTD 60, wherein their lordships have elucidated the difference between the directory and mandatory provisions of law very clearly with the following observations:-- "Where inaction on the part of a public functionary within the prescribed time is like to affect the rights of a citizen, the prescription of time is deemed directory. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory."
19. In our opinion the answer to the legal objection regarding provisions of section 129(4) cannot be given in more clearer words than given by their Lordships in above two judgments.
20. Looking into the context of interpretation of statutes as given by their Lordships in above cited cases, provisions of section 129(4) in our considered opinion squarely falls within definition of directory provision.
21. A situation may arise that the department creates a tax demand against a taxpayer. The Taxpayer agitates the said tax demand in appeal before the Learned CIR(A) contending that the tax demand is against the law. The taxpayer for some reasons do not avail the benefit available in section 129(5) read with subsection (7) of the said section of Income Tax Ordinance, 2001, will failure of the learned CIR(A) to pass order on such appeal within the prescribed time limit under section 129(4) of the Income Tax Ordinance, 2001 result in the time-barring of appeal? If for argument sake we accept that the appeal will become time-barred, this will result in confirmation of tax demand against the taxpayer. We are of the opinion it will not be an acceptable situation for the taxpayer against whom a tax demand which he has contested in appeal before Learned CIR(A) will automatically stand confirmed. This will be a startling result and this kind of interpretation of statute has not been approved by the honourable Higher Judicial Fora. The honourable High Court of Lahore in its judgment reported as 1976 PTD 321 has observed as under:-- . "It is well settled that courts should follow the interpretation of law which does not lead to startling re sults or destructive ends."
22. It may further be pointed out that the Superior Courts have held that the principle of strict construction of fiscal statutes is applicable to charging provisions and does not apply to machinery provisions. Reliance is placed on reported judgment of Honourable High Court of Karachi cited as 2002 PTD 441 in the case of Deans Associates (Pvt.) Ltd. v. IAC of Income Tax wherein their Lordships observed as under:-- "Principle of strict construction of fiscal statute is applicable only to taxing provisions such as charging provisions and not to those parts of statute which contain machinery provisions as pe) principle laid down in 1980 Tax LR 185."
23. In our opinion the provisions of section 129(4) which are machinery provision in nature are squarely covered also by the judgment of the honourable High Court Karachi quoted supra and therefore to say that order not passed by the learned CIT(A) within stipulated period of the filing of appeal would become time-barred, would be against the principle of interpretation of statutes as laid down by the Superior Courts.
24. We may further mention here that in the absence of any specific provisions of law for consequences if order is not be passed .By the learned CIR(A) within the prescribed time under section 129(4) of the Income Tax Ordinance, 2001, it cannot be deemed that his order has L become time-barred as effect and deeming provision is restricted. To the section to which it is attached and therefore deeming provision cannot be interpreted or enlarged to other provisions of the statute. The honourable High Court Lahore in a reported judgment cited as 2002 PTD 2112 observed that it is a settled law that deeming provision in a statute cannot spill over to other provisions in a statute and are to be construed strictly within the' four corners of their objects.
25. Since there are no deeming provisions in section 129(4) for deeming time-barring of his order in case of failure of the learned CIR(A) to pass orders within time limit prescribed in section 129(4) of IN the Income Tax Ordinance, 2001, therefore, deeming time-barring of his order will not be sustainable in law.
26. We may mention here that in an identical situation, the learned Tribunal has held that legislature has not prescribed express limitation period for decision of ATIR under provisions of section 132(2A) of the Income Tax Ordinance, 2001. The Head Note of the relevant judgment of the Learned Tribunal cited as 2010 PTD (Trib.) 1127 is reproduced as under:-- "S.132(2A)---Dispal of appeals by Appellate Tribunal-- Limitation---Non-passing of order within six months---Effect--- Legislature had not prescribed limitation period for the decision of Appellate Tribunal and it could not be said that provisions of S.132(2A) of the Income Tax Ordinance, 2001 contained express limitation period for decision of Appellate Tribunal---Had it been the intention of legislature to prescribe limitation period for decision of Appellate Tribunal, it would have done so by the express provision---Legislature had not prescribed any consequence if the order is not passed by the Appellate Tribunal within six months of the filing of appeal. [P.1138] A"
27. We may also mention that the Learned Tribunal in the above cited decision has also observed that direction contained in section 132(2A) are not mandatory but directory in nature. The relevant Head Note of the above decision is reproduced as under:-- "S.132(2A)----Disposal of appeal by Appellate Tribunal---Nature of the relevant provisions whether mandatory or directory-- Legislature had not set forth any consequences of failure to comply with provision of S.132(2A) of the Income Tax Ordinance, 2001, therefore, the provision of S.132(2A) were not mandatory but directory in nature. [P.11291 D"
28. Keeping in view all the above discussion and various case-laws of the honourable Superior Courts, the legal plea taken by the Learned D.R. For the time-barring of appeal beyond the limitation period prescribed under section 129(4) of the Income Tax Ordinance, 2001 is 0 misdirected and not sustainable in law and therefore, is hereby rejected.
29. All said and done, before parting with the orders on the issue with regard to provisions of section 129(4) of the Income Tax Ordinance, 2001, we must mention here that the provisions of section 129(4), in our considered opinion have been incorporated in the Income Tax Ordinance, 2001 for expeditious disposal of appeals filed by the taxpayer before learned CIRs(A) and therefore, negligence in this regard would be negation of the, spirit of law as discussed above. The law provides that the learned Commissioner (Appeals) shall pass the appellate order not later than 120 day's from the date of filing of appeals or within extended period of 60 days, for reasons to be recorded in writing by the Commissioner (Appeals) (under-lined for emphasis). The Learned CIR(A) has been made liable to record reasons in writing if he fails to pass his appellate order within the above prescribed time-limit.
3Q. Now we take up the issue of selection of the case for audit by the learned CIR(A) Hyderabad and its finalization by the department. Perusal of the record reveals that the case of the taxpayer was selected for audit by the learned CIR, Audit, RIO, Hyderabad under section 177(4)(and) of the Income Tax Ordinance, 2001 vide letter No.558 dated 29-1-2009. The case was assigned to the Deputy Commissioner Audit-I, RTO, Hyderabad who finalized the case on 28-7-2009.
31. The Federal Board of Revenue through Circular No.4(7S)ITP/2009 dated 9-1-2010 directed the field formation that as conveyed through the minutes of meeting dated 11-1-2010, random audit selection of cases for tax year 2008 has been held for Audit of Corporate cases and cases of AOPs, the cases of audit on any other basis for tax year 2008 may be closed. However, the cases with proof or evidence of gross irregularities may be intimated to the Board for guidelines as to further necessary action.
32. Perusal of the above discussion would reveal that the instant case was selected for audit on 29- 1-2009 and proceedings were finalized on 28-7-2009, much before the Board Circular dated 9-1- 2010 through which instructions to the field formation were conveyed that cases of Corporate cases and cases of AOPs have been selected through random ballot for tax year 2008 for audit and therefore, the cases of audit on any other basis for tax year 2008 may be closed.
33. Thus the Board instructions would apply to cases of audit selected on any basis other than random ballot for tax year 2008 in which proceedings were pending on the date instruction was received from Board. It is obvious that proceedings in such cases could be closed where proceedings were pending on the date, Board Circular was received but it was not the situation in the present case because the taxation officer had already finalized the proceedings on 28-7-2009 before Board instructions were communicated on 9-1-2010. No provision of law authorizes the taxation officer to close proceedings in a case that has already been finalized. Since the taxation officer had already conducted legal proceedings in the case, the Board is precluded specifically from giving any orders, instructions or directions so as to interfere with quasi- judicial functions of the assessing officer. Reliance is placed on the decision of the Learned Tribunal reported as 1996 PTD (Trib) 388.
34. This discussion brings us to the conclusion that the contention of the learned CIR(A) that selection of the cases by the learned Commissioner of Income Tax, Audit, RTO, Hyderabad on the given date was without jurisdiction as the jurisdiction was lying with Federal Board of Revenue is not factually correct because on the date of the selection of the case for audit and its finalization there existed no instructions from Board and also on the basis of decision of the Learned Tribunal quoted above therefore, the impugned order of the learned CIR(A) annulling the order being not sustainable in law is hereby set aside.
35. Since the learned CIR(A) had annulled the order on legal plain and has not adjudicated upon other issues involved in case put-forth by the taxpayer in his grounds of appeal before him, the cases is remanded back to him for adjudication on the same after affording reasonable opportunity to the taxpayer and the department.
36. The appeal is disposed of as indicated above. .