The department through this appeal has objected against the impugned order of the learned CIR(A) dated 27-6-2011 on the following grounds:-- "(2) That the learned CIR(A) was not justified to annul the order under sections 122(1)/177 of the Income Tax Ordinance, 2001 as the said sections clearly speaks that Commissioner has powers to amend the already completed assessment. The relevant section is reproduced hereunder: Section 122(1) Amendment of assessment. "Subject to this section, the Commissioner may amend an assessm ent order treated as issued under section 120 of issued under section 121 [or issued under sections 59, 59A, 62, 63 or 65 of the repealed Ordinance] by making such alterations or additions as the Commissioner considers necessary.
Whereas CIR, can selected a person for an audit of the person's income tax affairs (section 177(4) of Income Tax Ordinance, 2001)
(3) That the intimation letter passed is quite as per provisions of section 177 of Income Tax Ordinance, 2001. The CIR has selected the case for audit under section 177(2) as per criteria of the FBR which is confidential under section 177(3) of the Income Tax Ordinance, 2001."
2. We have heard the learned representatives from both the sides and have also perused the impugned order and the order passed by the taxation officer under section 122(1) read with section 177 of the Ordinance, 2001. Brief facts of the case are that the taxpayer in this case is an AOP deriving income from running a CNG Station. Return for the year under review was filed declaring income at Rs.300,000 which is deemed to have been assessed under section 120(1)(b) of the Ordinance. Subsequently, the case of the taxpayer was selected for audit under section 177 of the Ordinance. During the proceedings, the taxpayer was attended through his representative but the books of accounts and other supporting documents as per taxation officer were not provided except filing certain documents. So the penalty under section 182 of the Ordinance was imposed.
Subsequently, after issuance of notice under section 122(9), the taxation officer obtaining authority under section 175 of the Ordinance for local as well as spot enquiries which was made through the Inspector. As per the Taxation Officer the taxpayer was confronted regarding the enquiry report who filed his explanation but the taxation officer being dis-satisfied with those explanation amended the deemed order, creating tax liability at Rs.11,463,513. The taxpayer being aggrieved filed first appeal before the learned CIR(A) who has annulled the order. Hence this appeal by the Department.
3. The learned DR representing the department has contended that there was no justification for annulling the order as all the proceedings by the taxation officer are in accordance with law and after affording reasonable opportunity of being heard and confronting on each issue in detail. He has contended that the taxation officer was fully justified to amend the order and the case of the taxpayer was rightly selected for audit under section 177(4) of the Ordinance. The case has been selected for audit under section 177(2) as per criteria of F.B.R. Which is confidential under section 177(3) of the Ordinance but the learned CIR(A) without considering these legal provisions has annulled the order.
4. On the other hand, the learned counsel representing the taxpayer is supporting the impugned order of the learned CIR(A). He has contended that the DCIR has amended the deemed assessm ent under section 122(1) overlooking the provisions of subsection (5) of section 122 of the Ordinance which shows that the assessment can be amended under section 122(1) and further amended under section 122(4) of the Ordinance only, where the condition provided under subsection (5) of section 122 are fulfilled. The first condition in this regard is the definite information acquired through audit or otherwise which must lead to the three situations provided in clauses I to III of subsection (5) of section 122 of the Ordinance, 2001 which are:--
(i) that the income chargeable to tax has escaped assessment; or
(ii) total income, has been under assessed or assessed at too law rate or has been subject to excessive relief or refund ; or (i.e) any amount under a head of income has been misclassified.
The learned counsel has contended that the definition of definite information has been provided under subsection (8) according to which the 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 4o 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. He has contended that a perusal of the impugned order shows that in this case the taxation officer has not amended the deemed assessment on the basis of any definite information as required by the law. Rather he has made an open ended assessment which is not permissible under the scheme of Ordinance, 2001. Learned counsel has contended that the universal self assessm ent scheme which has been provided in the Ordinance was designed with a view to have full backing of a Data Bank and availability of third party information which unfortunately has not happened as neither there is any Data Bank nor third party information are available. According to the learned counsel due to unavailability of the Data Bank the assessing authorities are groping/probing in the dark and finding nothing against the taxpayers from external sources and therefore make open ended assessments by estimating sales, application of GP/NP and disallowance of deductions on lump sum basis which is not permissible under the scheme of present law. He has contended that such type of open ended assessment has never been approved by the appellate forums. He has further proposed that the FBR should strengthen its Data Bank and enforce documentation, otherwise whole scheme of USAS is crumbling under its on weight. He has submitted that if such state of affairs is allowed to continue the department official will loose their initiative and the F.B.R. Can never create much needed deterrence. On the facts of the case, it is contended that the taxation officer has relied on the conversion rate provided by the OGRA from MMBTU to kilograms and has determined sales of gas made by the taxpayer during the relevant period. He has contended that quantity of gas MMBTU was already available on record and being erroneous by not properly converting from MMBTU to kilograms which might have caused prejudice to the interest of revenue and such like situation may be taken care of by invoking of section 122(5A) and not section 122(1) or 122(4) of the Ordinance as the case may be.
The reliance in this regard has been placed on the judgment of the Hon'able High Court Islamabad reported as 2010 PTD 1506 which has been followed by this Tribunal vide order dated 14-3-2011 in I.T.A. No.222/LB of 2011. He has contended that the F.B.R. Through C.No.7(5)S.Asstt/2008 dated 16-8-2008 has directed the field formation officers to tax CNG station @4% of the raw-material. But the taxation officer has not followed the directions of the F.B.R. Which are binding upon the tax authorities. The learned counsel has, therefore, contended that as the taxation officer has not amended the deemed assessment in accordance with law, the learned CIR(A) has, therefore, rightly annulled the order.
5. We have considered the arguments from both the sides and have also perused the available relevant record of the case and the case-law referred. We have found that in this case the order has been.Passed under section 122(1) without mentioning relevant subsection. We are of the view that if the amended order passed by the taxation officer is treated to be under section 122(5) then the above referred condition of definite information is to be fulfilled which in the present case is lacking. We also appreciate the proposal of the learned counsel of the taxpayer that the Revenue department should have to strengthen its Data Bank and should enforce documentation, as without the proper documentation of the economy, the tax collection cannot be properly streamed line. We have further noted that the F.B.R. Through the above referred C.No.7(5)S.Asstt/2008 dated 16-8-2008 has specifically directed to tax CNG station at the rate of 4% of the raw material. Which circular has been issued after agreement finalized by Director General, Regional Tax Office, Rawalpindi in pending cases...As the instructions of the F.B.R. Are binding on the tax authorities as has already been held by this Tribunal as well as by the higher courts, there was no justification to by pass those instructions. The reliance in this regard may be placed on the decision of the Hon'able High Court reported as 1995 PTD 749 and 2002 PTD 63. The above circular was applicable to the taxpayer's case which was pending at that time. We have further noted that the taxation officer made the additions regarding CNG conversion kits, tyre shop and tuck shop without considering the fact that no such facility was available at the material time and the additions had been made on the basis of presumptions without bringing on record any basis or material evidence of corroborative nature. Similar is the position from the income of cold storage. On behalf of the taxpayer, it has been contended that the enquiry through inspector was on a very belated stage and is not relevant to the period under consideration and has therefore, rightly been held to be not reliable by the learned CIR(A), placing reliance on the decisions of the Tribunal reported as 2001 PTD (Trib) 3369, 2002. PTD (Trib) 1009, 2007 PTD (Trib) 2069 and,2003 PTD (Trib) 2157. After considering all these facts and the legal positions we are of the view that the taxation officer in this case has misdirected himself by making an open ended assessment through estimation of receipts/income and lump sum additions by invoking the section 122(1) of the Ordinance without having any definite information in terms of subsection (8) of section 122 and, therefore, the order passed under section 122(1) has rightly been annulled by the learned CIR(A) which require no interference. The appeal filed by the department is, therefore, dismissed.