SYED MANSOOR ALI SHAH, J.---This judgment will decide the instant reference, as well as, the references mentioned in Schedule 'A' to this judgment as all of them entail common question of law and facts.
2. The question of law that arises in this reference is:-- "Whether assessm ent under section 121(1) (d) of the income Tax Ordinance, 2001 ("Ordinance") can be made in cases where deemed assessment order has already been made under Section 120 of the Ordinance".
3. Learned counsel for the petitioner submitted that section 121(1)(d) of the Ordinance empowers the Commissioner to make an independent assessment of taxable income of the assessee if the assessee fails to produce before the Commissioner accounts, documents and records required to be maintained under Section 174 or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon.
Learned counsel for the petitioner submitted that the word "assessment" used in the subsection as per definition of the word "assessm ent" given in section 2(5) includes reassessment and amended assessm ents and therefore, an assessment order under section 121(1)(d) automatically annuls the deemed assessm ent order.
4. Learned counsel for respondent No,3, on the other hand, vehemently submitted that once the deemed assessm ent is made under section 120, the assessee cannot be assessed again under section 121(1)(d) as it will lead to two different assessments of the assessee. Learned counsel submitted that section 121(1)(d) does not provide that deemed assessment order under section 120 stands nullified or cancelled by virtue of making a fresh assessment of the taxable income of the assessee under section 121(1)(d). He argued that the only manner in which a deemed assessment order can be amended is provided in section 122 but no proceedings have been initiated under the said section. He referred to section 177(6) to submit that if after completion of audit the department is of the view that the assessm ent order ought to be amended, recourse is made to section 122 of the Ordinance. He contended that this issue came up for discussion before the Full Bench of the Income Tax Appellate Tribunal reported as Department v. Assessee 2010 PTD (Trib.) 2602 which after elaborate discussion held that fresh assessment cannot be made under section 121(1)(d) in cases where assessm ent order has already deemed to have been passed under section 120 of the Ordinance. He submitted that on the basis of the said judgment of the learned Tribunal, amendment was brought about in section 177(10) of the Ordinance through Finance Act, 2010 which provides that once the assessm ent is made under section 121, the assessment under section 120 made on the basis of the return shall have no legal effect. He submitted that the legislative amendment inserted in the year 2010 shows that then-was a glaring lacuna/gap in the un- amended section 121(1)(d) and, therefore, second assessment was not possible under the said provision prior to the above amendment. He further submitted that the deemed assessment order under section 120 passes the test of section 120(3) wherein the Commissioner has the opportunity to detect any deficiencies in the return and once this exercise is completed only then does the return convert into an assessm ent order. He pointed out that no notice or action has been taken under section 120(3) in these cases.
5. Arguments heard. Record perused.
6. Brief facts of the case leading to the question of law raised in this reference are that the respondent assessee filed return of total income under section 120 of the Ordinance and thereafter the case of the assessee was selected for audit in terms of section 177(4) by the Commissioner Audit on 1-12-2007 and an assessm ent order under section 121 was passed on 30-6-2008. It is also pointed out for record that the assessment order reflects that it has been passed under sections 122(5)/121 of the Ordinance. Perusal of the order reveals the no reference has been made to any "definite information" in the order as required under section 122(5), therefore, the said order is taken to have been passed under section 121 of the Ordinance.
7. The order of the Deputy Commissioner, Income Tax/Taxation Officer was set aside in an appeal filed by the respondent assessee before the Commissioner of Income Tax/Wealth Tax (Appeals-II), Islamabad vide order dated 24-10-2008. Thereafter, the department approached the learned Income Tax Appellate Tribunal and vide order dated 25-4-2009 the appeal to the extent of question of law raised in this reference was decided against the department.
8. The question of law raised in this reference pertains to income years 2004 to 2006, therefore, the legislative scheme of the Ordinance prevalent at that time has been considered for the purposes of answering the said question of law.
9. Section 120 of the Ordinance provides that where a taxpayer has furnished a complete return of income, the Commissioner shall be taken to have made an assessment of taxable income for that tax year and the return shall be taken for all purposes to be an assessment order issued to the taxpayer by the Commissioner on the day the return is furnished. Section 120(3) qualifies the above provision and provides that where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies and directing him to provide such information, particulars, statement or documents by such date specified in the notice and in case the taxpayer fails to comply with the above, the return furnished shall be treated as an invalid return as if it had not been furnished.
10. Section 121 deals with best judgment assessment and provides for a situation where the taxpayer has failed to furnish his return. While subsections (1)(d) of section 121 provides that if an assessee has been selected for audit under section 177(4) of the Ordinance and fails to produce before the . Commissioner any accounts or documents and records required to be maintained under section 174, the Commissioner may make, on any available information or material and to the best of his judgment, an assessm ent of the taxable income. Both the provisions, as they then stood, envisaged a situation where return of total income had not been filed.
11. On the contrary, the only provision that deals with amendment of an assessment order is section 122 which states that the Commissioner may amend an assessment order, therefore, assuming that an assessm ent order exists, while section 121 envisages situations where no return has been filed, therefore, there being no assessment order, assessment order under section 121 can be passed. This appears to be the position prior to the amendment brought about in sections 121 and 177(10) of the Ordinance.
12. The amendment brought about in sections 121(1) and 177(10) change the scheme discussed above. According to the new legislative scheme, the provision of section 121(1)(d) has been made applicable to cases where return has been filed and a deemed assessment order has been issued under section 120 of the Ordinance. Relevant portions are reproduced for ready reference:-- ' Section 121 " the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income or income of the person and the tax due thereon and the assessm ent if any treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect." (emphasis supplied)
' Section 177(10) "Notwithstanding anything contained in subsections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under subsection (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect." (emphasis supplied)
13. For the tax period under discussion i,e, 2004 to 2006 the legislative scheme does not provide for cancellation or annulment or amendment of the deemed assessment order passed under section 120 by an assessm ent order under section 121(1)(d). The amendments brought about in sections 121 and 177(10) of the Ordinance, whereby deemed assessment is declared to have no legal effect if an assessm ent order under section 121 is passed, establish that the un-amended version of these sections did not provide for cancellation or amendment of the deemed assessment order thereby identifying the lacuna in the law prior to the amendment. Reliance is placed on Glaxo Laboratories Ltd. v. Inspecting Assistant Commissioner of Income Tax and others (1992 SCC 910).
14. For the above reasons, we are of the view that prior to the amendment brought about in sections 121 and 177(10) through Finance Act, 2010, section 121(1)(d) did not apply to cases where return of total. Income had been filed and did not envisage a second assessment order.
15. Therefore, the question of law raised in these references is decided in the "negative" and in favour of the assessee and the instant references are disposed of accordingly.
16. Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal Inland Revenue as per section 133(5) of the Income Tax Ordinance, 2001.
SCHEDULE "A"
Sr. No, Case Number
1. ITR No,4/2011
2. ITR No,9/2011
3. ITR No,13/2011
4. ITR No,44/2011
5. ITR No,46/2011
6. ITR No,84/2011
7. ITR No,88/2011
8. ITR No,89/2011
9. ITR No,92/2011
10. ITR No,95/2011
11. ITR No,96/2011
12. ITR No,97/2011
13. ITR No,100/2012
14. ITR No,108/2012
15. ITR No,39/2012
16. ITR No,45/2012
17. ITR No,58/2012
18. ITR No,67/2012
19. ITR No,47/2012