ORDER Titled two appeals pertaining to the tax years 2007 and 2008 have been directed against the combined impugned order dated 23-06-2009, passed by the learned CIT(Appeals-ll), RTO., Lahore. A number of objections have been raised through grounds of appeal for both the years under consideration. However, the main thrust of the assessee is that the order passed under Section 122(1) read with Section 122(5) of the Income Tax Ordinance, 2001 and confirmed by the learned CIT(A) is unlawful, unjustified and against the facts of the case and cannot be termed as a speaking order by any legal definition.
2. Brief facts giving rise to the present appeals are that Return for the Tax Years 2006, 2007 and 2008 were filed under USAS, which were to be an assessment order in terms of Section 120(1) of the Income Tax Ordinance, 2001. Subsequently the case was selected for audit under Section 177 of the Income Tax Ordinance, 2001 by the Commissioner of Audit Division, RTO, Lahore for all three tax years i.e. 2006, 2007 and 2008. Audit proceedings were initiated and amendment of assessments were finalized u/S. 122(1 )/122(5) of the Income Tax Ordinance, 2001 at net loss of Rs. (59857986/-) for the Tax Year 2006, Rs. 160,222,970/- for the Tax Year 2007 and Rs. 309,885,027/- for the Tax Year 2008.
3. The Appellant being aggrieved by these assessments made by the Assessing Officer filed appeals before the learned CIT(A). Who confirmed the order of Taxation Officer, hence the instant appeals by the assessee.
4. The appellant has assailed the impugned order passed under Section 122(1)/122(5) of the Income Tax Ordinance, 2001 on the point of law and facts as evident from the grounds taken by the assessee which are as follows:- The order passed under Section 122(1) read with Section 122(5) of the Income Tax Ordinance, 2001 and confirmed by the Commissioner of Income Tax (Appeals-ll), Lahore is unlawful, unjustified and against the facts of the case and cannot be termed as a speaking order by any legal definition.
That the selection, of case for Total Audit under Section 177(4) of the Income Tax Ordinance, 2001 and upheld by the Commissioner of Income Tax (Appeals-ll), Lahore is unlawful and unjustified.
That the formula adopted for calculation of sale price per kanal on the basis of average is against the specific provisions of Section 36 of the Ordinance hence illegal and without any lawful authority.
That non-acceptability of doctrine of mutuality by the Assessing Officer in a Company operating on the concept of cooperative basis is uncalled for.
5. The counsel of the appellant has presented the judgment of the Tribunal reported as (2000) 81 TAX 78 (Trib), wherein the learned Division Bench of this Tribunal has decided that income of Cooperative Societies, membership fee, nature of receipts and its taxability, business of cooperative society to sell plots to its members only and membership fee received from members by the Cooperative Societies as a capital receipt which could not be taxed as the purpose of Society was not distribution of profit in any manner.
6. The AR presented another judgment of Lahore High Court reported as (1977) 35 TAX 165 (LHC) wherein the Hon'able High Court observed that the effect of the status of mutual insurance association is that as Members deal with themselves as a class, the. Surplus is not a profit to the Company but only meant to either deal with an unforeseen situation or an eventuality concerning themselves or to divide the same between themselves at the time of winding up".
7. The AR further argued that the doctrine of mutuality is applicable in the case of Housing Society specifically created for the members as per cooperative laws. The Society is formed with the intention to provide benefits to its members without personal advantage to the Members. The profit earned and used for running of the Society and for the general welfare of its Members. The Cooperative is an Association wherein members deal with themselves as a Class, no profit making motives arise in any shape and no one can be called as beneficiaries and does not fall an the definition of a commercial organization and the cooperative societies are already paying tax on the income received from Transfer Fee Other Charges.
8. The learned AR, Mr. Zia Haider Rizvi, Advocate argued on the point of law that the assessing officer has failed to follow the latest instructions issued by the. Hon'able High Court in the W.P. No. 11166/09 regarding the reopening of cases u/s. 177 of the Ordinance. The relevant portion of the order as given in Para 31 is reproduced as under:- "The Petitioners would be at liberty to respond thereto and raise any and all objections including but not limited to the absence of jurisdiction by filing their replies. Such objections would require to.
Be adjudicated upon through a speaking order after providing fair opportunity of hearing to the petitioners, and such adjudication must precede the audit".
9. The learned DR supports the assessment made by the assessing officer on the ground that the income from cooperative society is taxable and all profits earned from the operation are taxable.
10. We have heard the learned counsel for both the parties and have also gone through the relevant orders, in our opinion the arguments advanced by the learned A.R. Carry weight and stands substantiated by case-law cited at the bar. Therefore, the combined impugned order is vacated and case is remanded to the assessing officer with the directions as held by the High Court in W.P No. 11166/2009, dated 07-12-2009 that the Assessing Officer is to pass lawful and speaking order on various legal grounds taken by the A R. And after giving an opportunity of being heard to the assessee.
11. It is ordered accordingly.