Titled appeals have been arisen out of the consolidated impugned order dated 2-6-2010, passed by the learned Commissioner of Inland Revenue (Appeals-II), Regional Tax Office, Lahore whereby he, relying on the judgment of this Tribunal in I.T.As. Nos.420 and 421/LB/2009 dated 1-12-2009, remanded the case back to the Assessing Officer for afresh assessment. The appellant has contested that the learned CIR (Appeals) lacked jurisdiction to remand the case and even otherwise the remand was unlawful as it was the case warranting annulment of assessment order.
2. The brief facts of the case are: the appellant, an AOP, derives income from dealing in real estate, as commission agent and from construction of buildings. The appellant filed the returns of income for Tax Years 2004 and 2008 declaring income at Rs.695,108 and Rs.454,166 respectively. The returns of the AOP were treated as assessment orders in terms of section 120 of the Income Tax Ordinance, 2001 (the Ordinance). The case for both the years was selected for audit under section 177(4) of the Ordinance. The learned Assessing Officer obtained bank statements of the appellant from its bankers and summed up the totals of the deposits in the bank statements and issued show cause notice to the appellant requiring it to explain why the totals of the deposit entries in the bank statements should not be treated as unexplained income of the appellant in terms of sections 111(1)(a)&(b) of the Ordinance. The notice was issued on 16-4-2009 for compliance on 22- 4-2009. The Authorized Representative of the appellant sought adjournment on the ground that more time was required as the record pertaining to five years could not be reconciled within four days. The Assessing Officer, however, declined the request for adjournment and made additions of the totals of the credit entries in the income of the appellant under the aforesaid provisions of the Ordinance. Before the learned Commissioner Inland Revenue (Appeals), the appellant contested the treatment of the Assessing Officer. The learned Appellate Authority, however, accepted the plea that reasonable opportunity had not been granted by the Assessing Officer to the appellant; hence, remanded the case for fresh, adjudication. The other jurisdictional objection regarding the foundational illegality of the impugned assessment orders, however, was neither considered nor disposed of.
3. The AR of the appellant has vehemently contended that the learned First Appellate Authority lacked jurisdiction to remand the case. It was argued, at length that even otherwise remand order was legally unsustainable as the impugned orders were void ab initio and liable to be annulled.
Regarding the lack of jurisdiction of the Commissioner (Appeals) to remand the case, it was pointed out that the Finance Act, 2005, brought about amendment in section 129 of the Ordinance and the provision empowering the First Appellate Authority to set aside the assessment order with the directions to make new assessment order had been deleted. Besides, the amendment conferred extensive powers to the Commissioner (Appeals) to examine evidence and to undertake further enquiries to decide the case instead of remanding it for de novo assessment proceedings.
The judgment of the Hon'ble Supreme Court of Pakistan cited as 1992 SCMR 710 in the Federation of Pakistan............. v........... Messrs Noorani Trading Corporation (Pvt.) Ltd. And others was referred to support the submission:- "Indeed, the mere fact that the legislature enacts amendment is of itself an indication of an intention, as a general rule, to alter the pre existing law....... ".
4. Our attention was also invited to the Circular No.1 of 2005 (Income Tax) dated July 5, 2005 to fortify his point that even F.B.R. (then C.B.R.) itself circulated directions to the effect that the Commissioner (Appeals) had been divested of the option to set aside the assessment. The AR of the appellant further pointed out that the judgment of this Tribunal, relied upon by the learned commissioner (Appeals) in support of remand order, was inconsistent with the law laid down by the Hon'ble Supreme Court of Pakistan in the judgment cited as PLD 1975 SC 32 in the case of Sindh Employees Social Security Institution and another v. Adamjee Cotton Mills Ltd. As the presumption of the learned Tribunal in the referred judgment was that the Appellate Authority had inherent jurisdiction to remand the case, while the law enunciated by the Hon'ble Supreme Court is:-- "It is, however, important to point out that the power to grant interim relief, in this case is "ancillary or incidental" to the main appellate jurisdiction expressly conferred by the statute. This should not be confused with what is sometimes, claimed as the "inherent" jurisdiction of a Court, a claim which is no longer tenable in view of clause (2) of Article 175 of the Constitution. What is "inherent" is an inseparable incident of a thing or an institution in which it inheres. In the instant case, on the other hand, the power to grant interim relief is exercisable by the Social Security Court, not because of the inherent character or the attribute of the Court itself, but only to enable it to exercise its' appellate jurisdiction expressly conferred upon it more effectively and in accordance with what indisputably are requirements of justice and reason."
5. It was further explained that this Tribunal was oblivious of the language of the amendment and even the pre-amended concept of setting aside of assessment under the Income Tax Law. The relevant provisions were referred to point out that under the Income Tax Law setting aside of assessm ent presupposed remand for fresh assessment.
6. The gist of arguments of on behalf of the appellant that even otherwise the impugned Show- Cause Notices under section 111 of the Ordinance were misconceived and void ab initio; hence, remand order was unsustainable as no fresh superstructure of assessment could be built on the void foundation is as under:--
7. That the learned Taxation Officer acted illegally in invoking sections 111(1,)(a) and 111(1)(b) of the Income Tax Ordinance, 2001 (the Ordinance) for making impugned additions in the impugned Amendment Order under sections 122(1)/122(5) of the Ordinance:-- For Tax Year, 2004, the learned Taxation Officer misread the bank statements which pertained to loan accounts. The copies of the bank certificates, detailed below, were also produced which confirm the running finance facility availed by the appellant as under:- Bank Account Period Limit of Running Finance Facility 2399-02 Soneri Bank Ltd. Defence Branch, DHA, Lahore.1-7-2002 to 30-6-2003 Rs.4.3 million Ditto 1-7-2002 to 30-6-2004 Rs.20.00 million The learned Taxation Officer proceeded in undue haste and jumped at incorrect conclusions. Debit entries in the bank statements showed loan received by the appellant/taxpayer from the banks while credit entries in the bank statements represented the repayment of the same loan amounts.
For instance, in Soneri Bank account No.002399-02, on 1-7-2003, Rs.4,105,500 was brought forward loan from 30-6-2003 (Tax Year 2003). Out of this loan, taxpayer paid back Rs.4,100,000 on 10-7- 2003, which was denoted as credit entry in accounting terminology. But the learned Taxation Officer took Rs.4,100,000 as the unexplained income of the taxpayer purportedly under sections 111(1)(a) and 111(b) of the Ordinance. The treatment is not only glaringly unlawful but, patently absurd. The entire impugned demand is based on that misperception.
The impugned amendment could not be made without the availability of definite information in terms of section 122(5) of the Ordinance to the effect that any income chargeable to tax had escaped assessm ent or resulted in other eventualities mentioned in the said subsection. Not to speak of availability of such definite information, the D learned Taxation Officer proceeded on misconceived premises. The provisions of sections 111(1)(a) and 111(1)(b) were evidently misapplied.
The source of the amounts alleged to be unexplained income was the bank and the nature of these amounts was loan; hence, the question of invocation of the said provisions did not arise.
Section 111(1)(a)/(b) could not be invoked as the amounts in question were the repayment of bank loans and the taxpayer was evidently not the owner of the money or any valuable articles..
8. The Hon'ble Supreme Court of Pakistan approved the principle of law that an amount can be income on its first receipt, later on it moves as money (not as income) in the judgment cited as 1992 PTD 576 in the case of Pakistan Industrial Development Corporation................ v......... Pakistan. Thus, according to indisputable point of law only first receipt could be considered which were loan amounts while repeated withdrawals and deposits of the same amount could not be treated as income. The learned Taxation Officer, however, proceeded in complete disregard of the legal provisions and the aforesaid principle of law lay . Down by the Hon'ble Court. Without making any effort to investigate or arrive at a definite information in terms of section 122(5) of the Ordinance or any definite conclusion about the nature and reality of the entries in the bank statements, the learned Taxation Officer created unlawful, demand of Rs.28,379,092. The impugned amendment order is, therefore, liable to be annulled,
9. The impugned proceedings and orders were evidently violative of the principles of natural justice. Audit proceedings were initiated on a different pretext. Then the focus shifted to credit entries in the bank statements. The impugned show cause notice was issued on 16-4-2009 for compliance on 22-4-2009. Excluding the time taken for service of the notices, only 4 days were left to dig out and explain the bank statements spanning five years which was next to impossible. The request for adjournment was declined for no valid reason. The violation of the principles of natural justice is flowing on the face of the record. The Hon'ble Supreme Court of Pakistan held, in the judgment cited as 1994 SCMR 2232 that violation of the principles of natural justices amounts to the violation of law; hence, the impugned orders are violation of law.
10. No tangible material was available with the Assessing Officer to amend the claims in the profit and loss account as well. Reliance is placed on the judgment of this Tribunal in the judgment cited as 2008 PTD (Trib.) 383.
11. Regarding the Tax Year 2008, it was further pointed out that in addition to the foregoing identical points of law and facts, the learned Taxation Officer proceeded mechanically and summed all the credit entries-even including the transactions which represented bank transfers from one account of the appellant to another account for instance:--[TABLE] Date Amount 12-11-2007 Inter Company Transfer from 0022- 0081- 002739-01-0 to 0022-0081-003355- 01-8853,000 22-2-2008 Inter Company Transfer from 0022- 0081- 003355-01-8 to 0022-0081-002739- 01-01,300,000
12. Besides, the amounts already available in the record and brought forward from the previous years could not be considered to be new amounts discovered in the later years. For instance, the Taxation Officer found that Rs.524,218,750 were allegedly available with the appellant/taxpayer in Tax Year 2007, the question of the availability of lesser amount of Rs.462,611,063 in Tax Year 2008, therefore, could not arise. The Taxation Officer, however, imposed multiple taxations repeatedly on the amounts which had been considered in the preceding years. The treatment is contrary to law.
13. Moreover, the Taxation Officer was not legally justified to rope in additions under section 111 pertaining to Tax Years 2005 to 2007 as neither these years were subject of audit nor the accounts pertaining to these years could be considered in the assessment for Tax Year 2008.
14. Finally it was pointed out that for Tax Year 2008, the Hon'ble Supreme Court of Pakistan had set aside the audit proceedings under section 177(4) in terms of C.B.R. Circular Letter No.C.No.4(78)/ITP/ 2009/7321-R dated July 14, 2010 and the Revenue was directed to follow the policy given in the said letter in letter and spirit. The AR of the appellant explained that the case of appellant AOP squarely falls in the aforesaid policy letter; hence, the audit proceedings stood vacated and the superstructure built on the unlawful audit proceedings have abated. The copy of the judgment of the Hon'ble Supreme Court of Pakistan 'dated 24-2-2011 in C.A. No.1306 of 2009 in the case of Chairman F.B.R. And others............... v..................... Messrs Idrees Traders and identical cases was produced for our perusal.
15. The DR supported the assessm ent order as well as the remand order. He argued that the appellant had ample amount of capital and also availed running finance facilities from the banks.
According to him, the income declared is not commensurate with the finances available with the appellant. It was alleged that the appellant had come to this Tribunal with unclean hands; hence, it was not entitled to any relief. Besides, it was pointed out that the appellant had not complied with the requirements of the show-cause notice, it was not entitled to question the legality of the assessm ent orders based on the said notices.
16. We have considered the rival arguments and perused the record. We agree that the learned Commissioner Inland Revenue (Appeals) was divested of his powers to remand the case for de novo proceedings. The language of the amendment brought about by the Finance Act, 2005, is unambiguous. Even F.B.R. (then C.B.R.) issued the following directions in the Circular No.1 of 2005 (Income Tax) to the same effect: "Setting Aside of assessment order by commissioner ((Appeals).
(Section 129(1)(a)):-- Clause (a) of subsection (1) of section 129 has been substituted and Commissioner (Appeals) has been divested of the option to set aside an assessment. After amendment Commissioner (Appeals) would be able only to modify, confirm or annul the assessment after making (or getting conducted) enquiries or examining the books of accounts etc. As he deems fit. This will bring relief to the taxpayers and also stop unnecessary deferment of revenue. The provision of said clause will be applicable in case of appeals filed on July 1, 2005 and onwards."
17. The language of the amended provision clearly empowers the Appellate Authority to undertake 'further enquiries and examine the record for deciding the case by the Authority itself without sending the case back to the Assessing Officer. The opinion expressed in the judgment of this Tribunal, relied upon by the CIR (Appeals), that the Appellate Authority had inherent jurisdiction to set aside the case, was rendered in oblivion of the language of the. Amendment and the unambiguous law regarding the concept of set aside of assessment for de novo proceedings under the Income Tax Law and the judgment of the Hon'ble Supreme Court of Pakistan in the case of Sindh Employees Social Security supra. We, therefore, follow the legal provisions and the law laid down by the Hon'ble Supreme Court of Pakistan in holding that the Commissioner Inland Revenue (Appeals) lacked jurisdiction to remand the case to the Assessing Officer for new assessment order.
18. We agree with the submissions made by the AR of the appellant that the Assessing Officer misconstrued the scope of section 111 of the Ordinance. The said provision may be invoked in cases of unexplained income if the taxpayer is unable to explain the nature and source of the amounts in question. The appellant's case it is manifest from the very bank statements that the amounts represented bank loans; hence, not owned by the appellant. Thus the nature and source of the amounts were evident on the face of the documents which were made basis for action under section 111 of the Ordinance. We have also perused the bank certificates in support of the bank loans. As the amounts in question were loans, not the amounts owned by it, the invocation of section 111 of Ordinance was without application of mind; hence, the proceedings were initiated on erroneous assumptions of law and facts, instead of meeting the preconditions for action under the said provisions of law. The Assessing Officer also failed to apply the law laid down by the Hon'ble Supreme Court of Pakistan in the judgment cited as 1992 PTD 576 in the case of Pakistan Industrial Development Corporation to the effect that income after the first receipt moves as money. The Assessing Officer failed to apply mind that the brought forward amounts repeatedly withdrawn and deposited in the bank do not become income on every repeated deposit. Besides, it is established law that tax and equity are strangers. The impugned orders are, therefore, annulled.
19. The appeals succeed accordingly.