1. ' JAVED IQBAL (JUDICIAL MEMBER).---This order will dispose of the above captioned appeals against the impugned orders passed by L/CIR(A) vide appellate orders No,208 dated 27-4-2011 and No,271 dated 8-3-2011.
2. ' Grounds agitated vide ITA No,208 are as under:--
(1) The CIR(A) was not justified to reject Miscellaneous Application filed by the department under section 221 of the Income Tax Ordinance, 2001 as the Learned CIR (A) while deciding appeal of the assessee vide P-8485 dated 10-2-2009 had ignored the actual facts regarding non-filing of second appeal on the issue of unabsorbed depreciation. Therefore, since mistake was apparent from the order of L/CIR(A), hence the department has rightly invoked the provisions of section 221 of the Income Tax Ordinance, 2001.
(2) That the L/CIR(A) was not justified to reject Miscellaneous Application filed by the department under section 221 of the Income Tax Ordinance, 2001 as the taxation officer had rightly, implemented the directions of the L/CIR(A) strictly in terms of 3rd schedule to the repealed Income Tax Ordinance, 1979 in view of the fact that after setting off depreciation remained to be carried forward to post exemption period. This fact necessitated rectification of order of the CIR(A) under section 221 of the Income Tax Ordinance, 2001.
3. ' Grounds of Appeal in ITA No,241 are as under:--
(1) The L/CIR (A) failed to consider the provision of Rule 1(3A) of Second Schedule to Income Tax Ordinance, 1979 (Repealed) wherein it has been provided that depreciation relating to exemption period shall be deemed to have been allowed in those respective years to which they relate.
(2) The L/CIR(A) was not justified to ignore the fact that the taxpayer had itself charged normal depreciation in the accounts for Tax Holiday period.
(3) The L/CIR (A) failed to consider the working at para-1 page 5 of appeal effect order under section 124 wherein after detailed working it has been established that no depreciation allowance was available to be carry forward (C/F) to taxable period.
(4) The L/CIR(A) was not justified to annul the order on the basis of not quoting relevant appeal effect section of repealed Ordinance. In the case of Messrs Abdul Ghani v. CIT. It has been upheld by Supreme Court of Pakistan that quoting a wrong section of law or not quoting the same at all will not vitiate any action of the assessing officer if he was, empowered to take that action under the law.
(5) The L/CIR(A) did not take notice of section 38(8) of repealed Income Tax Ordinance, 1979 which states that no loss which has not been determined in pursuance of an assessment order be carried forward. How can the department carry forward loss which the taxpayer is objecting to be determined during the exempt period.
4. ' Precisely facts of the case leading to these appeals as per record are that taxpayer/appellant is a Private Limited Company deriving its income from manufacturing and sale of cotton yarn. Original assessm ent in the case completed vide order dated 7-6-2002, which on appeal against it before the 1st appellate authority was remanded back to the assessing officer. After remand assessment was reformed which again was subjected to 1st appellate authority, and remanded back, in this way process of reassessm ent and appeal to 1st appellate authority remained continued for a number of rounds, however on 2nd appeal before the Tribunal matter was adjudicated by it vide its Order in ITA No,18 (PB) `dated 23-11-2006, hereto matter was remanded back with directions' to the taxation officer. In its consequences taxation officer framed the reassessment where directions of tribunal were not followed, hence after appeal effect order 1st appellate authority once again was approached, this time too reassessment and on appeals before the 1st appellate, authority, the process of remind back to taxation officer was carried out Lastly vide appellate Order No,P-8485 dated 14-1-2009 by L/CIT(A-II), Islamabad it was directed that the order passed by the taxation officer is not a correct order the conclusion and directions of L/(CIT)(A) has not been followed strictly, and she has shown his disagreement which the taxation officer was not supposed to do if there was any doubt or misunderstanding or there was illegality in the Order No, 137 of L/CIT(A) dated 4-2-2008 then the appellate forum might have been contacted. After this order instead filing of any appeal before the tribunal taxation officer passed the order vide dated 16-5-2011 repeating the original order as framed under section 62 and the order passed in consequence of order of L/CIT(A) in Appeal No,
137. Being not satisfied from this order too respondent filed appeal before the L/CIR(A), who vide the impugned treatment has annulled the assessment and also gave directions that unabsorbed depreciation of tax holiday period be adjusted against the income/profits and gains of post-holiday period. It is this treatment against which the appeal having ITA No,241 (PB) of 2011 have been filed before this Tribunal by the department. While appeal filed by the department having ITA No,208 (PB) of 2011 arises from the order of L/CIR(A) also bearing the identical Order No,208 dated 27-4-2011. The aforementioned order is relevant to rejection of rectification application filed by the department dated 3-3-2011 seeking rectification of mistake in the order passed by L/CIR(A) in Appeal No,8485/dated 14-1-2009 served on Commissioner before the end of the financial year ended on 30-6-2009. The above application was decided on 27-4-2011. Against this order no 2nd appeal was instituted by the department. The rectification asked by department was refused; hence against this order too appeal has been filed before this forum which has been allotted ITA No,208 (PB)/2011. The L/DR argued that the impugned finding is not in accordance with law and facts. Taxation office has strictly followed the directions of the Tribunal as given by it vide its order in ITA No,I8 (PB) of 2006 dated 23-11-2006 to work out the depreciation as per rules and Law. Depreciation for the same purpose for each year of exempted period has been worked out and adjusted against the available profit and gains of the undertaking through a proper manner. It was also argued that in case of exemption to industrial takings under various clauses to the 2nd schedule to the repealed Ordinance, the profits and gains are chargeable to tax but exempted from taxation as concession and for the incentive and for betterment of economic activity of the country thus there arises no question to keep in abeyance the depreciation till the post holiday period. The L/DR tried to distinguish the case of Attock Cement from the instant case viz in that case the amendment was not effective retrospectively and years involved were prior to assessm ent year 1-7-1992, when there sub-Rule (3A) of rule 1 of 3rd schedule was not inserted.
5. ' On behalf of taxpayer/respondent, it was pleaded by his L/AR that profit and gains of the units were not chargeable to tax in the tax holiday period at all, the return showing nil income were filed, no proper assessm ent has been made in each of year of exemption rather nil income was assessed, depreciation was held in abeyance till the expiry of tax holiday period and have been claimed in the post lax holiday period as unabsorbed depreciation, which is as per rules and in accordance to law, because at that time no such sub-rule (3A) was on statute book, unabsorbed depreciation is to be carry forward accordingly and be adjusted against the taxable profits and gains of the post-tax holiday period. Further it was pleaded that order passed under section 124 of Ordinance, 2001 is illegal, while supporting the impugned order it was contended that the order passed by taxation officer dated 21-5-2011 is hit by limitation. Arguments of both the sides have carefully been considered, the relevant orders and the law on the subject perused.
6. ' As regards the taxability and chargeability of income is concerned, sections 2(44), 9 and 49 of the repealed Ordinance are unambiguous as per these provision it is the total income which is chargeable to tax irrespective of the fact whether it escape the taxation due exemption under 2nd schedule to repealed Income Tax Ordinance, 1979 or any other provision of law, while reading along with section 49 of ,repealed Ordinance, it leave no doubt that an income exempt from taxation is to he included in total income. Section 14 of the Ordinance, 1979 states that income or classes of income or person or classes of person enumerated there in shall be exempt subject to condition and to the extent specified there in or shall be liable to tax at such rate which is less then the rate, of tax specified generally. Our above view lent support from the judgment of High Court cited as 94 Tax 65.
7. ' Department has filed two appeals arising out of the appellate orders Nos.208 dated 27-4-2011 and 271 dated 8-3-2011; both the appeals actually originate from the appellate Order No, P-8485 dated 10-2-2009 passed by the L/CIR(A)( wrongly mentioned as 14-1-2009 in the fresh assessment order and 10-1-2009. In the impugned order). Against the orders passed by the L/CIR(A) in s Nos. 208 dated 27-4-2011 and No,271 dated 8-3-2011 before the Tribunal bears the I.T.As. Nos.241 (PB)/2011 and 208 (PB)/2011, the issue and grounds agitated in both the I.T.As. Is one and the same. So far the issue of exempt income and chargeability of tax is concerned the law on this point is unambiguous.
8. ' Taxation officer for his action has relied upon the rule 1(3A) of 3rd schedule to the repealed Ordinance, inserted vide circular No,14 dated 1-7-1992 and No, 23 dated 8-11-1988 the working carried out of depreciation and its adjustment by taxation officer is as under:-- Additions (excluding leased assets) N. Depreciation (excluding depreciation on leased assets) DisposalsTotal ID WDV 105252939 21259543 205000 126307482 5314885 651075 120341522 120341522 121478648 149880 241670290 3036966225112525 186188103 186188103 229650444 2190078 413648466957412611 41280888 314954970 314954970 13693558 419120 328229408 3423390 38718390 286087628 28608762897284592 565990 382806365 24321149 44547812 313937274 313937274 8164714 246875 321855113 2041179 43236610 276577324 276577324134997666 2210195 409358795 33747917 48810024 326800854 326800854618321100 2650000 942471954 154580275116675435 671216244 671216244 355578790 12017009 1014778025 88894698141490010 784393317 784393317 6642836 1169640 789866513 1660709 127878351660327453 Additions (excluding leased assets) N. Depreciations (excluding depreciation on leased assets)
9. 660327453 160706589621823787 401766475628401120 Taxation officer adjusted the depreciation against the corresponding available profits of holiday period as under:-- Asstt: Year/Tax YearInitial depreciationNormal Depreciation (excluding depreciation on leased assets)Total depreciation to be absorbed by holiday profitsAvailable profits as per record to absorb the depreciationSurplus profits Holiday B C b + c D d - (b + c)
10. 92-93 5314885 651075 5965960 62575110 56609150 93-94 30369662 25112525 554182187 111972553 56490366 94-95 57412611 41280888 98693499 111569328 12875829 95-96 3423390 38718390 42141700 119569328 77427548 96-97 24321149 44547812 68868961 182827021 114958060 97-98 2041179 43236610 45277789 202077144 156799355 98-99 33747917 48810024 82557941 20502640 62055301 99-00 154580275 11675435 271255710 13434103 257821607 00-01 88894698 141490010 230384708 175216906 55167802 01-02 1660709 127878351 129539060 507061938 377522878 2003 ' It would be pertinent to mention here that the above working is the same exercise as has been conducted earlier vide order passed by the taxation officer after the remand by the tribunal which on appeal before the L/CIT(A) was again set aside and remanded back to taxation officer vide its Order-in-Appeal No,137 dated 4-2-2008 afterward in consequence of appellate Order. No, 137 this time too order passed by the taxation was set aside with clear wording that directions of the 1st appellate authority be followed; this finding was given vide appellate Order No,P-8485 dated 10-2- 2009. It is also worth mentioning that initially the original assessment order framed under section 62 of the repealed Ordinance, 1979 whereby alike treatment given by the Assessing Officer, was set side by the 1st appellate authority was confirmed and matter was remanded back to the taxation officer. The orders passed in Appeals No,137 and No,P-8485 are as under:- Appeal No,137 of 2008 dated 4-2-2008:- "It was submitted by learned AR that learned ITAT, Peshawar ' Bench, Peshawar while deciding the appeal filed by the' assessee vide ITA No,33(PB) of 2005 dated November 23, 2006 inter alia, on the issues of "Exemption Period" and "unabsorbed depreciation during tax holiday period" gave clear cut directions to the T.O. The relevant paragraphs are reproduced below for ready reference:-- "While regarding the claim of deprecation the L/CIT(A) has not given any finding on this issue the L/AR argued that as per sections 38(6) and 38(7) of the Income Tax Ordinance, 1979, the tax deprecations deemed to have keep allowed under rule 3(A) of 3rd Schedule remained unabsorbed during the tax holiday period be set of and carry forwarded in succeeding assessment year. To support his contention he also referred the judgment of tribunal in I.T.As.
11. Nos.1643, 1448, 3095, 7152, 3096, 2022 KB dated 20-8-1997 for the sake of convince relevant portion is reproduced as under:-- Para-7.
12. ' We have considered the submissions made by both the representative of the parties and perused the case-law relied upon by the L/AR. We agree with the L/AR that subsection (3A) i.; applicable with retrospective effect. We are of the opinion that the sub-rule became immediately effective for and form assessm ent year in which it was in brought on the statue. We therefore hold that the said sub-rule (3A) will become effective from assessment year 1992-1993. Accounting period ending on 31-12-1991 as a consequence will be allowed on the original cost of the assets.
13. ' In the assessm ent year 1992 for the assets acquired prior to, assessment year 1992-1993. In respect of assets acquired thereafter and WDV brought forward, all depreciation allowance namely normal, initial and triple shift would be admissible under the law. The unabsorbed depreciation after the tax holiday period shall be curried forward and whole be allowed as deemed depreciation for the said assessm ent year under subsection (6) of section 38 of the Income Tax Ordinance."
14. "Taken into account the above quotation and keeping in view the relevant provisions as contained in subsections (6) and (7) of section 38 the contention of L/AR is of worth consideration, the unabsorbed deprecations, is to be carried forward against the chargeable profit after tax holiday period. We are of the view that in the instant matter, neither the assessing officer has properly appreciated the facts of the case, nor the L/CIT(A) has given its finding on this issue, therefore, in such like situation we deem it proper to set aside the orders of the officers below and to direct the assessing officer to deal the issue in the light of below and to direct the Assessing Officer to deal the issue in the light above observation strictly in the light of afore quoted judgment of ITAT. "
15. ' It was vehemently argued that taxation officer, has not fully implemented the direction of learned ITAT in spite of the fact that complete details, as requisitioned by him, were duly furnished.
16. ' In view of the foregoing, it is directed that the amount of unabsorbed tax depreciation of the tax holiday period be worked out under the provisions of the Third Schedule to the Income Tax Ordinance, 1979 and it should be set off against the chargeable profit of post holiday tax period.
17. ' Appeal No,P-8485 dated 10-2-2009:-- ' The main issue before me in the appeal is while giving appeal effect to the order of the L/CIT(A) the directions of the CIT(A) have been followed or otherwise. I have gone through the order of CIT(A) whereby two directions have been given:-
(1) Amount of unabsorbed tax deprecation of tax holiday period to be worked out under the provisions of the Third Schedule to the Income Tax Ordinance, 1979 (repealed).
(2) and it should be set off against the chargeable profit of the post holiday profit.
18. ' The examination of the order under section 12(1) reveals that the Assessing Officer has followed the directions regarding the working out of unabsorbed tax depreciation of the tax holiday period, however, she has shown her disagreement to the directions of the CIT(A) regarding setting off the worked out depreciation against the profit of post-tax holiday period. She has shown a disagreement to the direction with her own findings as per the provisions of law/circulars etc. ' In my opinion the assessing officer cannot differ with the findings of the appellate forum in this manner. The only remedy available, in such kind of a situation is to refer/agitate the matter at the higher appellate forum rather taking the decision on her own. Accordingly, I give my findings that the appeal effect that be given as per the directions of CIT(A), however, if there is a disagreement which is observed from the appeal effect order in that case the matter to be agitated at the level of the L/ITAT. The assessment record reveals that the department is already in second appeal before the L/ITAT on the issue."
19. The working carried out by the taxation officer is not correct, it is only the normal depreciation which is to be accounted for. Prior to insertion of Rule 1(3A) the normal depreciation was deducible from the original cost of the assets in the post tax holiday period. After, the amendment in rule it is the WDV is to be carried forward to the post tax holiday period and normal depreciation is deemed to have been allowed in the exempt period. While it only the business income against which depreciation is to be adjusted and not against any other source of income. In case of exempt income assessm ent is to be framed in proper manner as contained in sections 22 to 25 of Ordinance, 1979; such exercise has not been carried out in the case. Either the nil income has been assessed or the declared version has been accepted without any probe of income in the entire years of exemption.
20. ' The Rule 1(3A) of 3rd Schedule to 1979 Ordinance and circular mentioned above is as under:-- "Rule 1(3A) of the Third schedule to the Ordinance has been amended to stipulate that the normal allowance for depreciation on building, furniture and machinery or plant used for the purposes of business by a tax-holiday unit will be deemed to have been allowed during the exemption period.
21. Tax depreciation immediately after the expiry of the tax holiday period will then be calculated on the original cost of such assets as reduced by the normal depreciation allowance so deemed to have been allowed. Circular No, 23 of 1988 is as under "Reference has been received in the Board seeking clarification as to the treatment of depreciation allowance and brought forward losses during and after the tax holiday period.
(3) The undersigned is directed to clarify the various issues raised in this behalf as under:--
(i) Various clauses of Part-I .Of the Second Schedule exempt income of certain industrial undertakings. Such income can be exempted after it is computed. Sections 22 to 25 of the Income Tax Ordinance, 1979 lay the method of computation of income under the head 'Income from business or profession' after making certain allowance and deductions including the depreciation allowance. Unlike the provisions of section 15BB(4A)(C) of the repealed Income Tax Act, 1922 which did not allow the deduction of initial depreciation allowance from income during the tax holiday period, the Income Tax Ordinance, 1979 does not make any exception. A strict interpretation of law would, therefore, require deduction of all depreciation allowances (initial and normal) from the written down value, yet such a treatment would defect the very purposes of tax holiday. However, normal depreciation allowance represents the wear and tear of an asset during the year while the initial and extra shift depreciation allowances have been allowed as fiscal incentives. It has, therefore, been decided that only normal depreciation allowance will be deducted while computing income during the tax holiday period. As a result written down value of an asset at the commencement of the post-taxholiday period would be its original cost minus normal depreciation allowable from year to year during the tax holiday period.
(ii) To be adjusted against, the profits of the post-tax-holiday period.
(iii) On the same principle, the accumulated business loss would also not be carried-forward and adjusted against the profits of the post-tax-holiday period."
22. ' The above Paras-II and III of above circular have been declared ultra-vires by the ITAT in its full bench judgment cited as (1999) 79 taxation 115 at Para 49 of the judgment at (P-133) where in case of exemption nil income was assessed and on the issue of depreciation it was not calculated in accordance with to proper manner, the matter was remanded back to assessing authority, to reframe and recomputed the assessment in the proper manner as envisaged in 22 to 25 of the repealed Ordinance. In instant matter in hand in the tax holiday no proper assessment has been framed, either the nil has been assessed or declared version has not been probed, while it could not be so remanded back to assessing authority because of the fact that the years involved 1992- 93 to 2000-2001 neither are the subject of appeals nor could be probed due to bar of limitation while for the tax year under appeal the orders of the tribunal vide ITA No, 18 (PB) 2006 dated 2-11- 2006 the orders passed by the officer below were set aside with certain directions, in its consequence the orders passed by the taxation officer were set-aside by the L/CIR(A) vide Appeal No,137 and again vide No P-8485.
23. ' On account of ITA No, 208(PB) department filed rectification application asking the rectification on the identical grounds which have also been agitated in appeal having I.T.A. No,241(PB) of 2011.
24. Rectification asked is of such a nature which could be termed the review or revision of the order.
25. The said rectification has been rejected vide appellate Order No,208 by the L/CIR(A), for the reasons recorded as under:-- "After hearing the DC and examination of the impugned order the following decision is given in the instant Miscellaneous Application; That the 'CIT(A) had directed for set off unabsorbed' tax depreciation of tax holiday period against the chargeable profits of the post-holiday profit. Whereas, the taxation office did not comply with these instructions and did not set off unabsorbed tax depreciation of tax holiday period and raising tax demand. If, there is disagreement with CIR(A), remedy is to file second appeal before the ITAT, but apparently, the matter was delayed, no second appeal was filed and to cover this delay, the department has restored to the filing a Miscellaneous application before this forum, so that onus is shifted to this forum and after the order of miscellaneous application, the 2nd appeal can be filed.
26. The matter has been considered and it is stated that Income Tax Department cannot use this forum for covering up of filing the 2nd appeal, if it is time barred. The responsibility of this lies with Income Tax Department.
27. Miscellaneous application is rejected being misconceived as explained above."
28. The order passed by the L/CIR(A) refusing the rectification is quite justified because the relief asked is of such nature which falls outside the mandate of section 156 of repealed Ordinance which fact is also evident from identical grounds in both the departmental appeals, which alone is sufficient for rejection of appeal. On such like grounds it is the mandate of the appellate authority to adjudge the matter, passing of any rectified order by the same authority who has passed the order sought to be rectified would amount an appellate order, while one cannot sit as a judge to give the adjudication as an appellate authority against its own order. Thus we see no mistake or any illegality or infirmity and see no reason to disapprove, the impugned conclusion, it being in accordance with law, hence it is confirmed and departmental appeal bearing I.T.A. No,208 being infructuous and also devoid of merits stands rejected.
29. ' As I.T.A. No,241 (PB) of 2011 concluded as under:-- ' On account of passing of order under section 124 of the Ordinance, 2001 the L/CIR (A) has termed it illegal. This provision of law stipulates the appeal effect order in consequence of the direction of appellate authority. Section 124 of Income Tax Ordinance, 2001 is paramateria to section 66(1) of the repealed Ordinance, 1979, this is procedural and makes no difference, if the orders would have been passed under sections 62/132 of the repealed Ordinance or it has been passed under section 124 of the Ordinance, 2001; it causes no prejudice, the authority of passing/reframing or giving appeal effect is, the same. Under the old. Ordinance the authorities were designated A.C. DC, IAC, Special Officer whereas under the provisions of section 2(65) of the Ordinance, 2001 the above are called as taxation officer. However it is period of limitation which is to be accounted for, while the period of limitation as provided under section 124(4), is relevant to the appeal effect, if any relief has been provided by any of the appellate forum, then such relief should be effected through an order within the period of two months of receipt of such order. In the present case no such relief has been allowed, the case was remanded back to Assessing Officer. For such purpose the period of limitation of one year after, the end of the financial year in which the appellate order served on the commissioner has been prescribed in the repealed Ordinance, also as per section 124 of 2001 Ordinance same period of limitation has been prescribed in case of remand to reframe the assessm ent. Taxation officer in this case has passed the order on 16-5-2011, whereas the appellate Order No,P-8485 has been served on department as on 10-2-2009. As per the section 66(1) of repealed Ordinance the period of limitation expired on 30-6-2010, while the order by the taxation officer has been passed on 21-5-2011, which is barred by limitation. It is not only to further the appellate order No,P-8485 dated 10-1-2009, served as on 10-2-2009, no appeal has been filed by the department before the Tribunal, thus this order attained the finality so in the circumstances where the order passed by the taxation officer dated 16-5-2011 is barred by limitation, while no appeal has been filed by the department in such like situation what has been declared by the assessee is to be accepted which has been directed vide Orders-in-Appeals Nos. 137 and 241 by the L/Commissioners (Appeal), in this scenario of the case we have no alternative except to confirm the impugned order but for the reasons discussed supra. Resultantly the departmental appeal bearing ITA No,241(PB) fails and stands rejected.
30. Appeal rejected.