' These appeals have been filed by the Department as well as Taxpayer against separate orders passed by the learned CIT(A) for the assessment years 1992-93, 1996-97 to 2002-2003 and for Tax years 2003 to 2007 on the following grounds:-- Departmental Grounds S No. Assessment/Tax YearsGrounds Description Under Sections
1. 1992-93 1. Re-computation of Income 62/132
2. 1999-2000 1. Depletion allowance. 32/132
3. 2000-2001 1. Depletion allowance. 62/132
4. 2001-2002 1. Depletion allowance. 62/132
5. 2002-2003 1. Annulment of assessm ent by the CIT62/132
6. 2003 1. Jurisdiction.
2. Depletion allowance.
3. De-commissioning cost.
4. Amortization of de- commissioning cost.129/122(5A)
7. 2004 1. Allowance of de-commissioning cost.122(5A)
Taxpayer's Grounds S No. Assessment/Tax YearsGrounds Description Under Sections
1. 1996-97 122
2. 1997-98 122
3. 1998-99 122
4. 1999-2000 62
5. 2000-01 62
6. 2001-02 62
7. 2002-03 62
8. 2003 122
9. 2003 129/122(5A)
10. 2004 129/122(5A)
11. 2004 122(5A)
12. 2005 122(5A)
13. 2006 122(5A)
14. 2007 122(5A)
Appellant Company's Appeals ITA No. 203/IB/2004 (A/Y - 1999-2000), ITA No.204/IB/2004 (A/Y - 2000-2001), ITA No.205/IB/2004 (A/Y - 2001-2002), ITA No.1074/IB/2004 (A/Y - 2002-2003), ITA No.1075/IB/2004,(Tax year - 2003), ITA No.251/IB/2004 (Tax year - 2003), ITA No.171/IB/2004 (Tax year - 2004), ITA No.389/IB/2004 (Tax year - 2005), ITA No.390/IB/2004 (Tax year - 2006) and ITA No.391/IB/2004 (Tax year - 2007)
Departmental Appeals ITA No. 307/IB/2004 (A/Y - 1999-2000), ITA No.308/IB/2004 (A/Y - 2000-2001), ITA No.309/IB/2004 (A/Y - 2001-2002) and ITA No 209/IB/2004 (Tax year - 2003)
11 The issue relating to the computation of depletion allowance under Rule 3 of Part I of the Fifth Schedule to the Repealed Ordinance/ Ordinance has been decided by the larger bench of the Honourable Appellate Tribunal Inland Revenue (Tribunal), Islamabad Bench, Islamabad in I.T.As.
Nos. 433 to 436/IB of 2008 and others dated June 13, 2011 as under:- "The nut shell of above discussion is that the royalty being the share of GOP in the mineral resources and levy just like sales tax and excise duty with only difference that sales tax and excise duty are recoverable from the end user and the royalty is recoverable at the time of production from the oil/gas producer. The exclusion of sales tax, excise duty from the gross receipts representing the well head value for the purpose of depletion allowance has not been disputed by the E&P Companies. The royalty being share of GOP in minerals and also a Govt. Levy for the purpose depletion allowance is liable to deduction from the gross receipts representing the well head value. Further the royalty paid to the government is an adjustable payment towards the income tax liability so opposing its deduction would be availing double benefit, something which is not provided in law. The concept of depletion allowance is unique as it is percentage of gross income. The true concept and proper comprehension of the situation demands that to .Allow the depletion allowance of such gross receipts, which have been arrived at after the legally prescribed deduction."
1.2 Although depletion allowance is provided in Rule 3 of Part 1 of Fifth Schedule yet we find hard to understand the rationale of giving depletion allowance to persons who don't own the asset, i,e, oil or gas reserves which are the property of the state. The appellant's assets comprise fixed assets, machinery and equipment's respect of which they are validly entitled to depreciation. However, in addition to the depreciation allowance for their depreciated assets, they have been further prized with entitlement to depletion allowance for the asset which only belongs to the state or people of Pakistan. If appellant's gross A receipts go down due to depletion of gas or oil reserves, their taxable income also goes down. By depletion of oil or gas reserves, the appellant does not suffer any loss of their any of asset. Thus, depletion allowance seems to be questionable as it represents undue enrichment of the appellant's at the cost of public money. Of course vires of this subordinate legislation are to be seen by the Honourable High Court. In view of above, since the matter has been decided by the larger bench of this Tribunal in favour of the department in I.T.As. Nos. 433- 436/IB of 2008 dated 13-6-2011, therefore the treatment given by the Department on this point is uphold.
(2) DECOMMISSIONING COST Appellant Company's Appeals Appellant Company's Appeals ITA No.1074/IB/2004 (A/Y - 2002-2003), ITA No.1075/IB/2004, (Tax year - 2003), ITA No.251/IB/2004 (Tax year - 2003), ITA No.252/IB/2004 (Tax year - 2004) and ITA No.171/IB/2004 (Tax year - 2004)
Departmental Appeals ITA No 209/IB/2004 (Tax year - 2003) and ITA No 210/1B/2004 (Tax year - 2004)
2.1 The issue under consideration has already been decided by the Tribunal in case of Messrs Pirkoh Gas Company Limited vide their judgment contained in I.T.A. No, 238/IB of 2007 dated 25-10-2008 whereby the Tribunal upheld the departmental stance regarding the non- admissibility of decommissioning cost. The relevant extract of the decision of the Tribunal is reproduced below:--
11. We have heard both the parties and the available record. It is simply a liability which has been ( recited in the books by charging the same 10 the income where the nature of payment, the person to whom it to be paid and when to be paid are not clear which are the necessary ingredients for claiming any expenditure. Neither the details before the assessing office nor before us have been filed so as to specify the nature and type of incurrence of expenditure and to whom it to be paid.
The payment of such expenditure manifestly would be depending upon happening of the events in the future about which nothing could be specific in the impugned year. So we uphold the addition made under this Head and vacate the order of the learned first appellate authority on this issue.
12. In view of the discussions made above on the issues of depletion allowance and decommissioning cost, the assessee's contention being devoid of merit is turned down and that of the department being forceful and legally valid is upheld.
2.2 In view of the above mentioned judgment of the Tribunal, the action of Assessing Officer in disallowing decommissioning cost is upheld.
3. SETTING ASIDE THE ADDITION ON ACCOUNT OF MEDICAL COSTS Appellant Company's Appeals ITA No. 203A/IB/2004 (A/Y - 1999-2000), ITA No.204/IB/2004 (A/Y - 2000-2001), ITA No.205/IB/2004 (A/Y - 2001-2002) and ITA No.1074/IB/2004 (A/Y - 2002-2003)
' This case was set aside and remanded with the direction to determine that expenses were employee's specific or not. In reassessment Taxpayer has been given relief. The AR submits that the addition on account of medical cost for these assessment years have been deleted by the Department vide order of Deputy Commissioner dated 17-4-2003 and dated 30-12-2005 passed under sections 62/132 of the Repealed Ordinance. Accordingly, since the relief sought has already been allowed to the Appellant Company, these grounds are not adjudicated as subsequently settled between the Company and the Department after remand.
' SETTING ASIDE THE ADDITION ON ACCOUNT OF REALIZED EXCHANGE LOSS ' Appellant Company's Appeals ' ITA No, 1349/IB/2004 (A/Y - 1997-1998)
' This case was set aside and remanded with the direction to verity actual realized exchange loss.
The AR submits that the addition on account of realized exchange loss for the assessment years 1997-1998 has been deleted by the Department vide orders of Deputy Commissioner dated 30-6- 2005 passed under sections 62/132 of the Repealed Ordinance. Accordingly, since the relief sought has been allowed to the Appellant Company, this ground is not adjudicated as subsequently settled between the Company and the Department.
5. RE-COMPUTATION OF INCOME Departmental Appeal ' ITA No, 306/IB/2004 (Assessm ent year - 1992-1993)
5.1 The Department filed appeal against the Orders Nos. 1 to 9 of 2007 dated 17-2-2007 of the learned Commissioner of Income Tax/Wealth Tax (Appeals), Islamabad [CIT (Appeals)] on the following ground; "That the learned CIT(A) was not justified in directing to recomputed income for the year under appeal as the same was computed in accordance with the directions of CIT(A)'s order dated 27- 12-2003"
5.2 The relevant extract of the decision of the learned CIT (Appeals) is reproduced below for ease of reference:- "Perusal of assessment record reveal that appeal against original order was decided vide A. Os.
Nos.7038 to 7046 dated 17-12-2003 with the following observation:- "The AR contended that while giving appeal effects under section 135 for the years under appeal besides credit of tax already allowed in order under section 132 the credit of tax paid/suffered at source under section 50 and other payments for 1992-1993 and payment on account of WPPF and others for 1993-1994 were not allowed; that such payments are verifiable and proof with regard to the payment of tax paid under section 50 and payment on account of WPPF and others were also filed but credit of same was not allowed. In view of the foregoing the Assessing Officer is directed to allow credit of tax , paid for both the years after due verification."
' It is observed that higher income has been recomputed without any justification or following the due process of law. It is, therefore, directed that income should be adopted as before and credit for taxes paid be allowed as per directions of learned CIT(A), as reproduced above."
5.3 It was submitted by the AR that the Assessing Officer ignored the directions of the learned CIT (Appeals) vide A.O. Nos.7038 to 7046 dated 17-12-2003 and instead of giving credit for taxes already paid, has - assessed higher income which is not sustainable under the law.
5.4 The contention of the AR of the. Taxpayer has been considered and record perused. The Assessing Officer is directed to compute income in accordance with the findings of the learned CIR(A) contained in his order dated 17-12-2003. He is also directed to allow credit of tax paid/suffered at source after due verification as per law.
6. ANNU LMENT OF ASSESSMENT Departmental appeal ' ITA No, 574/IB/2006 (Assessm ent year - 2002-2003)
6.1 The Department assailed the Order No, 9405 of 2006 dated 21-2-2006 of the learned Commissioner of Income Tax/Wealth Tax (Appeals), Islamabad [CIT (Appeals)] on the following ground:-- "That the learned CIT(A) Zone-1, Islamabad was not justified to annul the re-assessment order of the Assessing Officer as the original order was set aside for passing order after consideration."
6.2 The relevant extract of the decision of the learned C1T (Appeals) is reproduced below for ease of reference:- "I have considered the arguments, perused the order and note that learned CIT(A)'s directions were not complied with for;
(i) want for clarification from CBR;
(ii) not acceptance of arbitration order and filing of ADR by the appellant; and
(iii) lack of legal force for ordering arbitration has been taken to have rendered the order not implementable in the opinion of the Assessing Officer; the above three basis fall clearly outside the jurisdiction of the assessing officer for non-compliance of the appellate directions and contentedly legal course available under the law was not followed. In view of the foregoing, facts and circumstances of the case and for the reasons that the basis for non-implementing the appellate order is beyond jurisdiction, without legal force of law and against the normal practice therefore the order under appeal is not maintainable and is "annulled". The Assessing Officer is further directed to follow the appellate directions contained in order dated 23-7-2004 in the light of the replies filed by the appellant and modify the ."
6.3 It was submitted by the AR that the learned CIT vide appellate Orders Nos. 6758 and 7626 of 2004 dated 23-7-2004 directed the Assessing Officer to follow thc arbitration order. The said order was not implemented by the Assessing Officer and the Assessing Officer proceeded to compute income as per the original order. The learned CIT (Appeals) held that non-compliance by the Assessing Officer is beyond his jurisdiction particularly on the basis of his opinion.
6.4 Perusal of the record transpires that the learned CIT (Appeals) E vide Nos. 6758 and 7626 of 2004 dated 23-7-2004 gave instructions to the Assessing Officer to follow the arbitration order.
However, it is imperative to look at this juncture as to whether the arbitration order was made under any provision of the Income Tax Ordinance, 1979 and had any legal sanctity and was worth implementable. The record shows that the arbitration order was not implemented by the Assessing Officer for there being no provision available in the Income Tax Ordinance for surely implementation. Under the circumstances, it would be fair to allow the department to give similar treatment on the issues decided in our judgment in other years.
7. ASSESSMENT ORDER BARRED BY TIME Appellant Company's Appeals Appellant Company's Appeals ITA No. 1348/IB/2004 (A/Y - 1996-1997), ITA No.1349/IB/2004 (Assessm ent year - 1997-1998) and ITA No. 1350/IB/2004 (Assessm ent year - 1998-1999)
7.1 The Appellant Company assailed the consolidated Orders Nos. 7918, 7919 and 7920 of 2004 dated 30-9-2004 of the learned Commissioner of Income Tax/Wealth Tax (Appeals), Islamabad [CIT (Appeals)] for the assessm ent years 1996-1997, 1997-1998 and 19981999 on the following ground:- "(2) That the learned CIT(A) misdirected himself in rejecting the ground of your appellant that order of the DCIT is barred by time without appreciating the facts and circumstances of the case as is apparent from the following; 2.1 That the original order under section 62 was passed on May 30, 1998 and the said order was liable to be reopened at maximum within five years from date of the original order i,e, May 30, 2003.
2.2 That proceedings under section 122 of the Ordinance and reassessment proceedings under sections 62/135 of the 1979 Ordinance were initiated simultaneously by issuing notices dated April 30, 2003 and desired details in both the proceedings were provided to DCIT on June 7, 2003 and duly acknowledged.
2.2 1 That details and reply regarding traveling/transportation expenses and medical cost in relation to proceedings under sections 62/135 of the 1979 Ordinance were provided to DCIT on June 7, 2003 and the said details also formed part of the order under section 122 of the Ordinance.
2.3 That the order under section 122 of the Ordinance is hit by the limitation finds support from the DCR No, allotted to the said order which is not in sequence either with the another order for assessm ent year 2002-2003 under section 62 of the 1979 Ordinance passed on the same date or other orders passed during the year besides from various letters of the department on account of demand of tax up to close of financial year 2003-2004 wherein no demand/(refund)of the said year was mentioned.
2.4 That even otherwise the re-opening proceeding of the case is time barred under the provisions of 1979 Ordinance."
7.2 The AR submitted that the AR contended that notice under section 122 was issued on 30-4-2003 and reply was submitted on 12-5-2003 on legal points only; that the details mentioned as the basis of order in paras 3 and 4 of page 2 regarding tax rate and exchange gain were the figures provided through letter dated 7-6-2003; that the said information was received by the then AR from the appellant Messrs Oil and Gas Development Corporation Limited on different dates and submitted through letter on 7-6-2003; that also for similar proceedings with regard to assessment years 1994-1995 to 1998-1999 taken separately, a reply vide T-7458 in response to the notice was also submitted on 7-6-2003 wherein figures of traveling and transportation were provided which were mentioned in the order under appeal; that the; order passed on 26-5-2003 therefore was pre dated; on query whether the information considered in the order is the same which was provided by the appellant's AR on 7-6-2003 and was correct as taken in order the AR confirmed it to be so.
7.3 The AR further contended that the orders are also hit by limitation on the basis of following working:-- ' Assessm ent years Date of order Date up to which action under section 122 could be taken 1996 199730 5 199830 5 2003 1997 199830 5 199830 5 2003 1998 199918 5 1999.18 5 2004 that from above it is clear that the order passed after considering the information and reply filed on 7-6-2003, was passed after 7-6-2003 when the limitation had already expired on 30-5-2003 in respect of assessm ent years 1996-1997 and 1997-1998 under section 122; that for 1998-1999 the order was also passed beyond 18-5-2004 as is evident from the recovery notices dated 25-6-2003 of CIT, Companies and dated 6-4-2004 and 24-5-2004 of Taxation Officer respectively where the outstanding tax demands for the years under appeal were not mentioned; therefore no such tax demands were outstanding per record on those dates as not communicated; thus the order was not passed till 24.05.2004; on further query the AR confirmed that no outstanding tax demand was payable for any year other than intimated through the referred letters per AR's record; that also assessm ent for the year 2002-2003 was completed on the same date i,e, 26r5-2003 vide DCR No 46/05 whereas the order under appeal of the same date i,e, 26-5-2003 carried DCR No, 01, 02, 03/45 which are not in sequence which shows that orders were passed and entered thereafter and thus hit by time limitation.
7.4 Before going into the facts of the case as narrated by the AR of the Taxpayer's Company, the issue of invoking of provision of section 122 or 66A to the assessments finalized before 30-6-2002 has already been decided by the honourable Supreme Court of Pakistan in the case Messrs Elli Lilly (Pvt.) Ltd. 2009 PTD 1392. Respectfully following the ratio of this judgment, the orders passed under section 122 of the Income Tax Ordinance, 2001 for the assessment years 1996-1997 to 1998-1999 is annulled. Since the impugned assessment orders have been annulled, there is no need to adjudicate the cases on merit. Resultantly, the appeals filed by the taxpayer on this score are accepted.
8. JURISDICTION OF THE ASSESSING OFFICER TO INVOKE PROVISIONS OF SECTION 122 OF THE ORDINANCE Appellant Company's Appeals ITA No.1075/IB/2004 (Tax year - 2003), ITA No.251/IB/2004 (Tax year - 2003), ITA No.252/IB/2004 (Tax year - 2004), ITA No.171/IB/2004 (Tax year - 2004), ITA No.389/IB/2004 (Tax year - 2005), ITA No.390/IB/2004 (Tax year - 2006) and ITA No.391/IB/2004 (Tax year - 2007)
The appellant had claimed that procedurally the impugned order was lacking jurisdiction on the ground that the Additional Commissioner had assumed jurisdiction in the case directly whereas, under the law the requirement was that the learned Commissioner Inland Revenue should have initiated the proceedings, and for finalization of the amendment the Additional Commissioner should have come into the picture after delegation of power to him by the Commissioner Inland Revenue, as this was not followed therefore, the proceedings became illegal. Both the authorities below however, did not accept this plea and quoted case-laws in their favour whereby holding that invocation of section 122(5A) was legal. We have examined the matter it has been decided by the Honourable Sindh High Court Karachi in CPD No, 3048 of 2010 dated 7-5-2012 that Additional Commissioner can reopen the case in case of deemed assessment made in the name of Commissioner, resultantly following the above judgments we hereby decide this issue in favour of the department.
9. The appeals are disposed of to the extent indicated as above.