Through these four miscellaneous applications, the applicant has objected the consolidated impugned order of the learned CIR(A) dated 22-11-2010 for the tax years 2004 to 2007. The following grounds are common for all the four years under review:-- "(2) That the learned CIR(A) was not justified to uphold the amended order passed under section 122(5A).
(3) That the learned CIR(A) was not justified to uphold the additions made under section 39 of the Income Tax Ordinance, 2001."
For the tax years 2004 and 2005 in addition to above common ground the following common ground has been framed. This common ground has also been framed for the tax year 2006 through above titled miscellaneous application for additional ground:- "(4) That the learned CIR(A) had erred in not allowing the set of of brought forward loss in terms of section 57 of the Income Tax Ordinance, 2001."
While for the tax year 2005 the following ground has been framed in addition to above common grounds:-- "(5) That the learned CIR(A) had erred in not allowing the bad debts claimed under section 29 of the Income Tax Ordinance, 2001."
"(4) That the learned CIR(A) had erred in upholding the addition of accrued liabilities under section 34(5) of the Income Tax Ordinance, 2001."
And for the tax year 2007 in addition to the above referred grounds the following grounds have also been framed by the appellant:-- That That the learned CIR(A) has erred in upholding the disallowance of bonus and incentive paid to the staff.
(6) That the learned CIR(A) has erred in upholding the addition made under section 21(c) of the Ord. Which was claimed by the appellant on account of expenses with regard to Lease Data Circuit."
Through above titled miscellaneous applications for the tax years 2006 and 2007 the additional ground mentioned above which is also the ground of appeal for the tax years 2004 and 2005 as Ground No. 4 regarding set of of brought forward loss has been requested to be allowed as ground while for the tax year 2007 the following ground has also been requested to be allowed:--- "(1) That the amount of Rs.44,130,481 included in the "liability no more payable" and offered for tax (Rs.65,899,778) [being loan by Maymar Housing Services (Private) Limited] has wrongly been offered for tax because the department has already disallowed the bad debts claimed by the creditor company and confirmed by the Tribunal vide order dated 15-6-2010. The addition tentamounts to double taxation and needs to be deleted by the Tribunal."
2. Regarding the above two miscellaneous applications for acceptance of additional grounds the learned counsel representing the taxpayer has contended that at the time of filling the appeal the issue of non-allowance of set-of of brought forward business loss against income for the year 2006 had escaped due to oversight, therefore, this legal ground had been requested to be added in the grounds already taken. However, rest of the arguments on the issue of disallowance of set-of of brought forward business losses, as taken for the other three years under appeal, remained the same.
Regarding the additional ground for the Tax Year 2007, the learned AR argued that the appellant had taken loan amounting to Rs.65,899,778 during different Tax Years. However, due to weak financial position the debt remained unpaid. The sister/creditor company, not seeing any hope of getting back the money, had Written it of in their books of accounts. Therefore, in order to account for, this loan, in accordance with law, the appellant company added that sum in its income for the tax year 2007 under the head "liability no more payable". Later on, out of the total amount, the department disallowed the claim of bad debts to the tune of Rs.44,130,481, in case of (the creditor company) Messrs Maymar Housing Services (Private) Limited as depicted below:-- Tax Year 2003: Rs.15,288,420 Tax Year 2004: Rs.26,673,979 Tax Year 2006: Rs.735,000 Tax Year 2007: RS.1,395,481 Total: Rs.44,130,481 Tax Year 2007: Rs. 1,395,481 Total: Rs. 44,130,481 The learned AR has contended that since this Tribunal has confirmed the departmental action vide consolidated judgment dated 15-6-2010 in I.
T,As. Nos. 222, 223, 595 and 596/KB/2009, therefore, consequential effect to that judgment required deletion of the said amount from the appellant's declared receipts, otherwise the same amount would be taxed twice both in the hands of the creditor as well as in the case of the appellant. The learned counsel contended that such double taxation was not in accordance with law. If consequential relief was not allowed in the appellant's case, it would tantamount to double taxation therefore, the learned AR has requested that the Tribunal may pass an appropriate finding in this regard.
After hearing the learned counsel, we are of the view that as the above referred grounds framed through these applications are arising from the proceedings of the case, therefore, both the above miscellaneous applications are allowed and the grounds framed in this respect are deemed to be the grounds of the appeals titled above filed by the appellant.
3. The learned Counsel representing the appellant has placed before this bench the facts of the case in the shape of chart, which is reproduced below:-- 1 2 3 4 5 6 7 8 Tax yearIncome declared after set-of of B/F LossesTax paid under section 113Deemed Asstt.
Order under sectionFinancial Assistance (Qarz-e- Hasna) declared as Business Income but treated by the deptt., As 'income from other sourcesSet-off against B/F Business losses claimed but disallowed by deptt.B/F depreciation loss included in the business loss as per column No,6Income assessed as per order under section 122(5A)
2004 NIL 157,430 120(1)(B)38,011,256 (72,510,087)16,712,960 22,307,074 2005 NIL 84,875 -do- 23,685,036(50,203,013)1,008,778 8,122,220 2006 NIL 41,007 -do- (7,396894)(42,080,793)2,338,441 (7,396,894)
2007 NIL 5,438 -do- 7,912,640 (34,683,899) 59,448,514
4. Facts of the case, in brief, are that the taxpayer/appellant, a limited company, had filed tax return for and from the tax years 2004 to 2007, declaring NIL income, after adjustment of brought forward business losses. Such returns were taken as deemed assessment orders under section 120(1)(b) of the Income Tax Ordinance, 2001. Later on, the Taxation Officer examined statements of accounts and considered that the deemed assessments for all the four tax years were "erroneous" as well as "prejudicial" to the interest of revenue and, therefore, attracted the mischief of the provisions of section 122(5A) of the Ordinance, 2001. After confronting the taxpayer with various points and not finding the explanation offered, as satisfactory, the Taxation Officer went on to pass the amended orders for all the tour years. The Taxpayer's appeals at the first appellate forum did not find favour with the learned CIR(A), hence, the taxpayer has come up before this Tribunal. All the four appeals are disposed of through this combined order as below:--
5. On behalf of the appellant, the learned counsel stated that the grounds pertaining to the legality of amendment of orders under section 122(5A); additions under section 39 and denial of set of of brought forward business/depreciation losses were common in all the four appeals. He vehemently agitated against the assumption of jurisdiction under section 122(5A) by the department. He contended that for taking action under the provisions of section 122(5A), the two basic ingredients must be present in an already completed assessment, i.e. Such assessment must be erroneous as well as prejudicial to the interest of revenue. However, in this case, only deemed assessm ents existed which were taken to be so without application of mind. The Taxation Officer did not find fault with the deemed orders, instead, he started inquiring about ,various entries in the statements of accounts and sought clarifications from the taxpayer after which he made up his mind for amendment of the deemed orders.
6. The learned counsel stressed that the departmental action under section 122(5A) was legally flawed. He stated that for initiation of action for amendment of an already existing assessment order must be adjudged as erroneous as well as prejudicial to the interest of revenue. Once the.
Taxation Officer considers and forms an opinion that the existing assessment order contains these two essential prerequisites on the basis of certain facts, then he should not waver and should stick to those reasons and carry out the intended action accordingly. But, in this case, the learned counsel pointed out that the Taxation Officer hoped from one reason to Le other and engaged in a fishy exercise in order to find the basis on which mischief of the section 122(5A) could be attracted.
Since, the show-cause notice under section 122(9) was first initiated for tax year 2007 in the descending order, therefore he pointed out flaws in the notice(s) under section 122 in the reverse order, i.e. From tax year 2007 down to the tax year 2004. The learned counsel placed before us copies of various notices under section 122 issued by the Taxation Officer for all the years under appeal. He asserted that such notices contain contradictory opinion and flaws, which do not conform to the relevant provisions of law. He pinpointed the inconsistencies in the show cause notices and read out relevant excerpts.
7. For the Tax Year 2007, it was stated at bar, that the Taxation Officer issued five notices, dated 25- 6-2008, 14-7-2008, 15-7-2008 and finally 27-5-2009. Initially, the department was of the view that on the one hand accumulated loss had resulted in the reduction of capital, and on the other hand, due to acceptance of the declared figures of loss (instead of income), the deemed assessment had been rendered erroneous as well as prejudicial to the interest of revenue. In the 2nd notice dated 14-7-2008, the Taxation Officer called the taxpayer for furnishing the working of brought forward losses, computation of declared income and capital. He also required the appellant to produce books of account and record maintained in support of the declared version, failing which he would tax the net profit as per the return, disallowing the set of of losses. In the 3rd notice dated 15-7-2008, the Taxation officer again changed his opinion and informed the appellant that he wanted to amend the deemed orders under section 122(5A) because as per prescribed return they had not mentioned any accounting depreciation but in the columns for adjustment they had claimed tax depreciation as admissible expenses. Secondly, in Column No.65 net profit was shown at Rs.54,000,047 but while adjusting in-admissible expenses in Columns Nos.66 to 77 a misleading calculation was given in order to avoid proper taxation. In the 4th notice dated 30-8-2008 the Officer took another U-turn and informed the taxpayer that from the explanations, clarifications as well as perusal of origin and revised returns it was gathered that "Liability No More Payable"
Rs.65,786,975 as written back was actually written of being the long term loan of holding company, Maymar Housing Co-operative Society Corporation. The loan and it's written of, on the one hand was "non-recurring, casual and financial" and "on the other hand it was capital in nature". Hence, brought forward losses as claimed, the "genuineness of such losses was also questionable, needing verification at later stage", cannot be adjusted against any income which is not from the similar head of "Income from business". The learned counsel further pointed out that in the final notice dated 27th May 2009, the department pointed out that income declared from, 'liability no more payable' (Rs.65,786,975); 'financial assistance' (Rs.7,912,640), 'gain on disposal of fixed assets'
(Rs.755,762), 'sale of scrap' (Rs.177,620), 'profit on short term investment' (Rs.1,350,000), 'exchange gain' (Rs.728), and 'prior year's liability written back' (Rs.249) was not adjustable against the brought forward business losses because these amounts constituted 'income from other sources'.
8. For the Tax Year 2006, the learned counsel stated that the department intended to amend the deemed order taken as such on the basis of a revised return in which the declared income of Rs.5,838,241 had been set-of against the similar amount of brought forward losses, hence, resulting in Nil income for the year. However, while amending the order under section 122(5A) the Taxation Officer had totally ignored the revised return/deemed order and assessed the loss declared at Rs.7,396,894 as per the original return, thus negating his on view on the basis of which he had considered that the deemed order was erroneous as well as prejudicial to the interests of revenue.
9. The learned counsel further pointed out that for the Tax year 2005 the Taxation Officer had issued two notices under section 122(9), first on 1-4-2009, and the second one on 23-5-2009. In the first notice the Taxation Officer informed that in the statement of accounts net profit for the year was shown at Rs.6,144,343 and after setting of the brought forward business loss for the previous years, against "financial assistance from the Pakistanis living abroad" at Rs.2,366,038 sale of scrap at Rs.1,365 exchange gain of Rs.2,433 prior year's liability written back at Rs.14,361 and profit on short term investment Rs.600,000 the net income has been declared at Nil. The officer was of the opinion that the receipts from these sources were non-recurring and casual in nature and did not have any relation with the regular business of running an educational institution. The income from such sources was assessable under section 39 of the Income Tax Ordinance, 2001 as 'income from other sources', which had rightly been categorized as other income/ financial assistance in the statement of accounts. The officer further observed that, since, the principle business activity was running an educational institute in the field of computer and informational technology, the brought forward business losses for the previous Years cannot be adjusted against the income from other sources for the year in view of provisions of section 57(1) of the Income Tax Ordinance, 2001 which says that the business losses shall only be adjustable against the income from business. The appellate was called upon to explain their position supported by relevant provision of law. It was further observed by the Taxation Officer that the claimed bad debts amounting to Rs.145,930 including in the operating expenses, also needed explanation with reference to the provisions of section 29 of the Income Tax Ordinance, 2001. Therefore, Taxation Officer disclosed his intention to take cognizance of above referred scenario by way of recourse of section 122(5A) of the Income Tax Ordinance, 2001 since these discrepancies had rendered the assessment finalized under section 120 erroneous in so far as it was prejudicial to the interest of revenue. An explanation was submitted by the appellant on 20-4-2009, which was not accepted. In the 2nd notice dated 23-5- 2009, the Taxation Officer informed that he was not satisfied with such explanation because it was devoid of details, mode of receipt, term and conditions of "Qarz-eHasna," sale of waste items like cartons, deduction under section 29, prior year's liability written back at Rs.14,361. Furthermore the Taxation Officer required the appellant to substantiate their contention with documentary evidence(s).
10. The learned counsel contended that for the Tax year 2004, the Taxation Officer informed the appellant that from the computation and the statement of account, it was evident that brought forward business losses relating to previous years had been set of against the income earned from extra-ordinary financial assistance from the Pakistanis living abroad at Rs.38,011,056, sale of scrap of at Rs.18,539, exchange gain of Rs.2,709, prior year liability written back Rs.238,889. The receipts from such sources were non-recurring and casual in nature and did not have any relation with the regular business of running an educational institution. The income from such sources was assessable under section 39 of the Income Tax Ordinance, 2001 as 'income from other sources', which has rightly been categorized as 'other revenues' in the return of income and the statement of accounts filed. Since, the principle business activity was running an educational institute in the field of computer and information technology, the brought forward business losses for the previous years could not be adjusted against income from other sources for the year in view of the provisions of section 57(1) of the Income Tax Ordinance, 2001 which says that the business losses shall only be adjustable against the income from business. The taxpayer was required to explain his position supported by relevant provisions of law. The department also pointed out that in the annexure-X filed with the return, tax deduction of Rs.81,555 had been claimed against profit on debt, however, no such profit was declared in the return for the year 2004.
Therefore necessary explanation along with evidence was required before he could draw any inference in this regard. It was further elaborated by the Taxation Officer that, it was his intention to take cognizance of above referred scenario by way of resource of section 122(5A) of the Income Tax Ordinance, 2001 since these discrepancies have rendered the assessment finalized under section 120 erroneous in so far as it was prejudicial to the interest of revenue.
11. The learned counsel vehemently questioned the legality of assumption of jurisdiction by the Taxation Officer. It was contended at bar that each and every query raised by the Taxation Officer was duly explained. Firstly, the appellant deemed assessments did not attract the mischief of section 122(5A). There was no regular assessment on record, which needed amendment. The learned AR contended that the officer has pointed out certain deficiencies in the tax return.
According to him seeking information, explanation and raising apprehensions did not mean that the deemed assessm ent was erroneous in law and prejudicial to the interest of revenue. The learned AR of the appellant contended that issuance of repeated notices on different grounds, for assumption of jurisdiction under section 122(5A), tantamount to indulging in fishy inquiries and such type of inquiries shows lack of clarity in the Taxation Officer's mind. He further asserted that for assuming jurisdiction under section 122(5A) it was necessary that some definite material must exist on record from which it could be deduced that the already completed assessment was erroneous as well prejudicial to the interest of revenue. The learned counsel insisted that assumption of jurisdiction merely on the basis of suspicion had been de-tested by higher appellate authorities. In this regard he cited case-law reported as 2010 PTD 111 and 2009 PTD 121 in support of his arguments.
12. The learned AR also questioned the decision of both the authorities below for treating the receipts/income/financial assistance as 'income from other sources' under section 39 of Income Tax Ordinance, 2001, and denial of set-of of brought forward business losses. He placed before us a copy of 'Memorandum and Articles of Association' in order to dislodge the first appellate authority's decision of confirming the amended order on the issue. He pointed out that both "setting up of computer education institutes", as well as raising of funds through various sources including "Qarze Hasna" has been provided in Articles 1 and 15, respectively of the Memorandum and Articles of Association of the appellant Company. Receipts from both the sources were of recurring in nature as could be seen from the statements of account for Tax Years 2003 to 2008. According to him, the Taxation Officer's observation that receipts from "financial assistance from Pakistanis abroad/Qarze Hasna" were 'casual and non-recurring in nature' was contrary to facts of the case.
The learned counsel vehemently contended that income from "Qarze Hasna" was also part of business income. To support his arguments, he referred to case-law cited as 1967 PTD 242 and 1967 PTD 286, wherein the Hon'ble High Court had clearly laid down that if the income declared is as per the objectives as provided in the Memorandum and Articles of Association of a company, then the transaction from that source would be income from business and cannot be treated as 'income from other sources'. The learned counsel has therefore, contended that receipts from overseas Pakistanis/Qarze Hasna, were nothing but income from business, hence brought forward business loss could be set-of against such income.
13. Notwithstanding to the forgoing arguments with regard to set-of of brought forward business losses, the learned counsel further pleaded that the losses of earlier years also included unabsorbed depreciation claims as depicted in the chart/facts sheet, in paragraph No. 1, above. He placed before us, case-law reported (i) 2003 PTD (Trib.) 1464, (ii) 1996 PTD (Trib.) 292, (i.e) 2006 PTD
(Trib) 1248 (iv) 2008 PTD (Trib.) 1040 and (v) (1964) 51 ITR 693 wherein it had been held that brought forward unabsorbed depreciation losses could be set-of even against income from other source in the subsequent years.
14. On the issue of disallowance of bad debts under section 29 for the Tax Year 2005, disallowance of accrued liabilities under section 34(5), for 2006 additions/disallowances under section 21(c)/disallowance of bonus and incentive paid to the staff for the tax year 2007, the learned counsel pleaded that since these additions had been made without issuing specific/mandatory notice to the appellant as provided in law, therefore, the principle of 'audi altrum parten' had been violated. He vehemently contested such additions/disallowances on the basis of various decisions of the higher judiciary wherein it has been laid down that if books of accounts are produced no additions could be made without pointing out defects therein and issuance of specific notice as to why such additions were called for is the mandatory requirement. To support his contention the learned counsel stated that plethora of case-law existed on this issue and quoted some of the reported decisions: 1999 PTD (Trib.) 3892, 2003 PTD (Trib.) 2668, 2007 PTD 1483 and 2007 PTD 345 to support his arguments.
15. The learned DR on the other hand supported the impugned orders of the officer below for the reasons contained in their respective orders. He has contended that action under section 122(5A) was justified as the income declared on account of financial assistance/Qarze Hasna cannot be treated as business income by any stretch of imagination. He further stressed that such income was thus rightly treated as income from other sources. Resultantly, according to the learned DR the set-of of brought forward business loss was rightly disallowed against 'income from other sources' by amending the deemed orders. The learned DR prayed for confirmation of the impugned consolidated orders for all the four-tax years under review.
16. We have heard the learned representative from both the sides and have also perused the consolidated impugned order of the learned CIR(A), the orders passed by the Taxation Officer for the years under appeals, the case-law referred and other available record of the case. The Taxation Officer has given the reasons in second paragraph of his amended orders for all the four years as to why he had made up his mind for taking action under section 122(5A) phraseology of that [second paragraph of amended orders passed for all the four tax years] is the same, which is worth reproducing:- "Tax return filed was examined wherefrom it has been deduced that in the return the taxpayer has computed total income for the year at Rs.---- which includes the income earned from the sources which are not related to regular business of running an educational institute carried on by the taxpayer. However, the taxpayer has set of entire income against brought forward business losses for previous year which are inadmissible under section 57(1) of the Income Tax Ordinance, 2001 thus the assessm ent order deemed to have been finalized under sections 120(1)(b)/122(3) of the Income Tax Ordinance, 2001 is erroneous in so far as it is prejudicial to the interest of revenue."
However while perusal of various show-cause notices under section 122(9), repeatedly issued by the Taxation Officer, as pointed out at bar, we have found that initially, the notices were issued based on suspicion, seeking information, examination of books of accounts, wavering/dithering from one point of view to the other. For example for the tax year 2007 the suspicion started from difference in the figures of capital, unreliability of the figures of brought forward losses and nonpayment/short payment of tax. For the tax year 2006, in the opening paragraph of the show- cause notice, the officer has mentioned that the taxpayer had filed original return showing loss of Rs.7,396,894 on 26-12-2006 with tax payable at Rs.41007 under section 113, but afterwards a revised return was filed on 20-11-2007 declaring an income of Rs.5,838,241 and after setting of brought losses has declared taxable income at NIL however, the amended order under section 122(5A), has been passed taking the figures of loss of Rs.7,396,894 as per the original return. Similarly, for tax year 2005 the two letters issued were investigative in nature seeking information on various points.
For example in his letter dated 1-4-2009, the officer said that the sources of income from: (i)
Financial Assistance from the Pakistani living abroad at Rs.23,66,038 (ii) Sale of scrap at Rs.1,365 (i.e) Exchange gain of Rs.2,433 (iv) Prior year liability written back Rs.14,361 & (v) Profit on short term investment. Rs.600,000 were, non-recurring and casual in nature and did not have any relation with the regular business of running an educational institution. The income from such sources was assessable under section 39 of the Income Tax Ordinance, 2001 as 'income from other sources'. But, when counsel of the taxpayer submitted reply to his letter on 20-4-2009, another notice under 'section 122(9) was issued on 23-5-2009, seeking further information/detail/supporting evidence regarding mode of receipt, terms and conditions of Qarz-e-Hasna, evidence of scrap sales of Rs.1,365. Regarding claim of bad debts the taxpayer was asked by the Taxation Officer to provide, necessary evidence to the effect that the conditions as laid down in section 29 have been fulfilled before writing of the amount. The taxpayer was also asked to state the nature of prior year's liability written back at Rs.14,361 along with documentary evidence. Here we can discern that the nature of the notices as investigative, seeking detail/documents from the taxpayer.. Finally, for the tax year 2004, notice dated 31-3-2009, was issued seeking clarifications regarding the nature of the receipts declared from financial assistance (Rs.38,011,056), sale of Scrap at Rs.18,539. Exchange gain of Rs.2,709 and prior year's liability written back Rs.238,889. It was also stated by the Taxation Officer that the receipts from these sources were non-recurring and casual in nature having no relation with regular business of running an educational institution. The income from such sources according to him was assessable under section 39 of the Income Tax Ordinance, 2001 as 'income from other sources', since, the principle business activity was running an educational institute in the field of computer and information technology, the brought forward business for the previous years could not be adjusted against the income from other sources for the year in view of the provisions of section 57(1) of the Income Tax Ordinance, 2001 which says that the business losses shall only be adjustable against the income from business. Thus the taxpayer was called upon to explain their position in this regard, quoting relevant provisions of law. Besides, it was also observed that in annexure-X filed with the return, tax deduction was claimed at Rs.81,555 against profit on debt, however, no such profit A had been declared in the return for the year 2004. Necessary explanation along with evidence was also called for by the Taxation Officer before he could draw any inference.
For these reasons, the Taxation Officer observed that, he was of the opinion that the discrepancies in the tax returns called for taking cognizance of the scenario by way of resources to section 122(5A) of the Income Tax Ordinance, 2001. He had considered that since these discrepancies had rendered the assessm ents finalized under section 120 erroneous in so far as they were prejudicial to the interest of revenue therefore, he had intended to amend the orders. All these notice(s)/letter(s) were clearly of investigative nature calling taxpayers explanation based on supporting evidence. This type of investigation tantamount to conjectures and surmises, and was clearly against the law for amending an order under section 122(5A).
17. We have noted that the case-law cited at bar, reported as 2009 PTD 121 (Trib.) and 2010 PTD 111 (Trib.) were also referred before the learned CIR(A), but he had brushed aside the taxpayers contention by saying that these were not applicable in the appellant's, case because in this case the action under section 122(5A) was not taken on the basis of surmises and presumptions but on the basis of clear findings that brought forward business losses cannot be set of against 'income from other sources'.
18. Perusal of the above referred decision reported as 2009 PTD 121 (Trib.) shows that through this order it has been held that issuance of show-cause notice on presumption by taking the Income Tax returns/statements documents as erroneous as well as prejudicial to the interest of revenue and confronting issues needing further investigation was against the law on the subject.
Additionally, scope of an order being erroneous and prejudicial to interest of revenue was also determined by the Tribunal. The relevant excerpt from the judgment reads as under:- `... The Revising Authority issued show-cause notice wherein at the very outset has out-rightly taken the Income Tax returns/ statements documents as erroneous as well as prejudicial to the interest of revenue, therefore, confronted the issues needing further investigation so the issuance of notice was on presumption. It is established law that taking, as being erroneous and prejudicial to revenue should not be based on surmises and unsupported assertions. Such show-cause notice is even nullity in the eye of law. Here we would not be reluctant to hold that the contents of the provisions of section 122(5A) of the Income Tax Ordinance, 2001 do not empower the holding of inquiries, which is unlike the provisions of section 66A of the repealed Income Tax Ordinance, 1979.
So the initiating and concluding of the proceedings on this score cannot be law full. The show- cause notice was evidently issued without proper inquiry in material facts and ultimately by inquiry for the scheme of events surfaced, the proceedings were to be under the relevant provisions and not under section 122(5A) ibid... "
19. We have also given our anxious consideration to the other case-law viz. 2010 PTD 111 as cited by the learned counsel of the appellant. In this case the Tribunal had annulled the amended order passed under section 122(5A) because the Taxation officer had issued repeated notices under section 122(9) whereby the reasons for taking action under section 122(5A) stated in the earlier notice(s)/letter(s) had been totally negated in the subsequent notice(s)/letter(s). Such type of fishy inquiries were not approved to make basis for invocation of section. 122(5A), as such approach, if allowed, would result in gross misuse of provisions of law and that mere suspicion could not be .a basis to invoke section 122(5A) of the Income Tax Ordinance, 2001. This Tribunal has already observed in the above referred decision that issuance of notices which merely pointed out certain deficiencies in the return while seeking information, explanations and evidence raising apprehensions are invalid and subsequent proceedings/orders/and the superstructures built thereon will become void and order passed by the Taxation Officer was held to be not sustainable in the eyes of law, therefore, annulled. We are of the opinion that principles laid down in this reported judgment are on all fours to the facts of the present case, therefore, we hold that the first appellate authority had erred in confirming the legally flawed amended orders of the Taxation Officer.
20. We have noted that the Taxation Officer, after examining the statements of accounts filed with the return, had entered into a futile exercise based on whims and wishful thinking, without studying the legal basis of his actions. He had resorted to action under section 122(5A) on the basis of contentious points. He wanted to fish out (evolve) some basis to justify his intended action. In the process he had failed to take guidance from various judgments of the higher judiciary. We have further noted that the first appellate authority also failed to thoroughly go through the facts of the case and the case-law brought to his notice by the taxpayer and has passed a stereotyped order based on the wisdom of the Taxation Officer. Our opinion is specially fortified by the fact that for the tax year 2006 the taxpayer had filed a revised return showing income of Rs.5,838,241. Although the Taxation Officer had mentioned this fact in his notice under section 122(9) as well as in the opening paragraph of the amended order, yet he finalized the order determining loss of Rs.7,396,894 as declared by the taxpayer in his original return, and the Commissioner Appeals had graciously affixed stamp of his approval to such a factually mistaken order seen from whatever angle, neither the receipts categorized 'as "financial assistance" or `Qarze Hasna' constituted income from other sources nor the taxpayer could be denied the benefit of set of of brought forward business loss against such income. Therefore, neither the amended order nor the impugned order of the learned CIR(A) could be approved.
21. Based on the facts and circumstances of the case and keeping in view above discussion, we hold that the notices for initiation of proceedings under section 122(5A) for all the four years under appeal were void ab-initio and of no legal effect. The proceedings initiated on the basis of illegal notices and the superstructure raised thereon is nullity in law. Therefore, the impugned combined judgment of the learned CIR(A) for all the four years under appeals is vacated. The amended orders passed by the Taxation Officer for the tax years 2004, 2005 and 2007 are annulled. Since, for the tax year 2006, no prejudice has been caused to the Taxpayer and the department has not filed any objection to such amended order, therefore, no findings are being given by us for the tax year 2006.
22. In view of our decision as per paragraph 20 above, the - additional -ground- for the tax year 2006, taken by the appellant has become infructuous. For the tax year 2007, the additional ground is valid. As the department had disallowed the claim of bad and doubtful debts for the tax years 2003, 2004, 2006 and 2007 in the case of Creditor v. Messrs Maymar Housing Services (Pvt.) Ltd., Karachi which was subsequently, confirmed by this Tribunal vide combined judgment Nos. 222, 223, 595 and 596/KB/2009 dated 15-6-2010. Since, the appellant had offered for tax the written back in their account the loans taken from Messrs Maymar Housing Services (Pvt.) Ltd., Karachi, therefore, consequential relief is admissible to the appellant. For this purpose we would direct that the Taxation officer should allow the relief due after verification.
23. Since we have vacated the combined impugned order and annulled the amended orders under section 122(5A) for the tax years 2004, 2005 and 2007, therefore, with regard to the other grounds like disallowance of various expenses, for these tax years, (although we are convinced by the arguments taken at bar that no additions could be made without specifically confronting the taxpayer), yet we would refrain to go further on these issue.
24. All, the four appeals and two miscellaneous applications filed by the Taxpayer are allowed to the extent and in the manner referred above. .