1. ' Through these two cross appeals both the parties have objected against the impugned order of the learned CIR(A) dated 19-11-2012 for the tax year 2009. The taxpayer in his appeal has objected against the impugned order on the following grounds:-- "(2) That, the Commissioner has erred by holding that powers of selection of case for audit under section 214C of the Ordinance lies with the FBR from tax year 2010 onwards and not applicable to the appellant case as it relates to tax year 2009. Whereas section 214C of the Ordinance empowering FBR to select case for audit was inserted vide Finance Act, 2010 with effect from June 5, 2010 and was applicable for all cases selected after that date irrespective of tax year.
(3) That, totally illegally the impugned amendment in assessment has been made to the assessm ent, which was not in the field at the time of making amendment in assessment and therefore the impugned assessm ent was liable to be struck off.
(4) That, the Commissioner has wrongly concluded that the revised income tax return dated February 13, 2012 of the appellant being latest in field assessment was made invalid by the Officer through impugned amended assessment order. The Commissioner has not appreciated that the Officer was legally bound and responsible issue a notice under section 120(3) for want of information if validity of the return was to be questioned. The revised return filed cannot be considered invalid automatically.
(5) That, the revised return was filed properly in accordance with the law, after obtaining due permission for such revision, which was duly authorized on 31-1-2012 and was filed along with the audited accounts containing re-stated figures for the tax year 2009.
(6) That, the Commissioner and the Officer both failed to understand the charging of Rs,1,212,615,963to cost of land revenue for Phase-II Extension, which is in accordance with the provisions of sections 32 and 35 of the Ordinance.
(7) That, due to misconception of the. Commissioner as to tax law provisions and accounting rules and standards, he has erred by confirming the treatment of maintenance expense incurred on re- engineering of Phase-I as an intangible asset and disallowance of amount Rs, 1,068,417,000 as envisaged by the Officer. Whereas, all the Re-engineering works undertaken by the appellant are of amenity nature from which no future economic benefit accrues or seems probable. Hence, rightly treated as expenditure for the year under the provisions of the Ordinance and recognition criteria of the international Accounting Standards. ,
(8) That, the commissioner is not justified to direct the department for re-examining the issue of development expenditure of Rs,94,637,000 and marketing expenses of Rs,18,026,000 whether they are payable by the appellant, if so same may be allowed as deductions, The Commissioner has no power to remand the case back to the officer when it is very clear that the expenses in the accounts are either paid or payable, The stance of the officer is very clear that the expenses are not paid and are payable, hence not incurred. Wham; under the accrual basis of accounting an expense is bunked when it is incurred either paid Of libi;
(9) That, the Commissioner is not justified to remand the matter back to the department for scrutinizing the expenditures/ payments of Rs,17,902,024 made under the head of account maintenance and horticulture added back by the Officer under section 174(2) for want of record.
2. Whereas, complete ledger containing detail of transaction including name of the time of audit proceedings. Hence, no question of remanding back the matter to the department arises.
(10) That, the Commissioner is not justified to remand back the issue of levy of Workers' Welfare Fund on the appellant as the Commissioner was the right authority to decide the issue."
2. While the department has objected against the impugned order on the following grounds:- "(2) That the Commissioner Inland Revenue (Appeals) was not justified to delete the addition of Rs,2,376,374,532 made under section 111(1) read with section 39 of the Income Tax Ordinance, 2001 being difference of purchase price and sales price of land.
(3) That the Commissioner Inland Revenue (Appeals) was not justified to delete the addition of Rs,2,558,847,799 made under sections 111(1) (a) and 111(2) on account of development revenue in respect of Phases-I & II.
(4) That the Commissioner Inland Revenue (Appeals) was also not justified to delete various additions/add back."
3. The taxpayer in this case is a development authority and derives income from sale/purchase, procure, hold and disposed of the landed properties. The return for the year under review was filed on 25-1-2010 declaring loss. Later on same was revised on 11-8-2010 by increasing the loss. As per the amended order under section 122(1) read with sections 122(4), 122(5) and 111(1)(a) of the Income Tax Ordinance, 2001. The case was selected for audit under section 177 of the ordinance by the Commissioner Inland Revenue audit vide his letter No,238 dated 12-10-2012. The amended order was agitated before the learned CIR(A) who has allowed partial relief on some issues, has upheld the treatment of the Taxation Officer regarding some of issues and has remanded back the matter to the Taxation Officer regarding some of the issues. Therefore, both the parties the taxpayer and the department are in appeal before the Tribunal against the impugned order of the learned CIR(A).
4. Learned counsel representing the taxpayer, in addition to his arguments on factual grounds, has also raised legal issue. His first legal argument is that the amended order in this case has been passed without lawful jurisdiction as according to him the selection of the case for audit was jurisdiction/power of the FBR under section 214C from July 1, 2010. In. This regard he has contended that the case of the taxpayer has been selected for audit for the first time in history of the taxpayer.
3. Prior to tax year under review the taxpayer claimed exemption under section 49 of the Ordinance being a regulatory authority and has not paid tax to Government Exchequer. It is contended that the FBR is only empowered to select a case for audit under section 214C of the Ordinance by disclosing grounds/reasons/criteria. He has in this regard placed reliance on the judgment of the Honourable Lahore High Court in the case of Messrs Chen One Stores Ltd v. FBR. It is contended that the jurisdiction for the selection of case for audit was vested to FBR through amendment brought vide Finance Act, 2010 and any selection and execution of audit under section 177 directly by the Commissioner or his delegated staff after July 01, 2010 was without jurisdiction and lawful authority.
4. The second legal objection raised by the learned counsel of the taxpayer is that in this case the revised return has not been accepted by the tax department for the reason that the same has not been filed along with accounts. But the contention of the learned counsel is that the accounts were filed with the revised return. It is contended that the Taxation Officer was legally bound and responsible to issue a notice under section 120(3) for want of information if validity of the return was to be questioned. He has contended that the revised return filed by the taxpayer cannot be considered invalid automatically. According to him the revised return was filed properly in accordance with law after obtaining due permission for such revision which was duly allowed on 31-1-2012 and after the permission of the competent authority the revised return was filed along with the audited accounts containing the figures for the tax year 2009.
5. ' On the facts of the case regarding the addition made under section 111(1)(a), learned counsel has contended that both the officers has failed to understand the charging of Rs,1,212,615,963 to cost of land revenue for phase-H Extension. He has contended that in fact it is in accordance with the provisions of section 32 has been through and 35 of the Ordinance, 2001. According to him the Income Tax Law allows the taxpayer to report the closing stock at lower of cost or net realizable value and charge the write off of stock as a profit and loss expense. Any adjustment (net realizable value) to the inventory/ stock which in the present case is the land has through inventory of DHA-I which is charged to profit and loss account as per section 35 of the Ordinance. He has contended that due to change in utilization ratio the adjustment is allowable expense under section 35 of the Ordinance.
6. ' Regarding the issue of re-engineering of Phase-I Main Link Road and Flyover amounting to Rs,1,068, 417,000, learned counsel has contended that this amount expended on the flyover has wrongly been treated as intangible asset to be amortized over 10 years instead of allowing it as cost. It is contended that due to misconception both the officers have erred to disallow the maintenance expense incurred on re-engineering as an intangible asset whereas all the re- engineering works undertaken by the taxpayer are of amenity nature from which no future economic benefit accrues or seems probable. According to learned counsel the taxpayer has rightly treated it as expenditure for the year under the provision of the Ordinance, 2001 and the recognition criteria of the International Accounting Standards. But the Taxation officer without any justification has held that the construction of flyover related to future economic benefit of the organization as due to this flyover value of the residential/commercial plots will be increased without considering the fact that taxpayer will not be benefited by this project but this will be benefited by the public at large. Learned counsel has contended that the learned CIR(A) has upheld the treatment of the Taxation officer regarding amortization of this expense to 10 years and has upheld the addition without any justification.
7. ' Regarding the addition on account of development and marketing expenses, learned counsel has contended that this issue has been remanded back by the learned CIR(A) with the direction to re- examine the issue and if it is found that these expenses are payable the same may be allowed as deductions. According to the learned counsel there was no justification for remanding back the matter. The stance of the Taxation officer on this issue is clearly illegal that the expenses are not paid and are payable hence not incurred. He has contended that under the accrual basis of accounting an expense is booked when it is incurred either paid or not and therefore learned CIR(A) should have to allow the expenses in this regard.
8. ' Regarding the add backs of legal and professional charges, learned Counsel has contended that the claim in this regard has been disallowed under section 21(c) without any justification. He has contended that the tax has been deducted properly from the vendors but could not be deposited due to practical issues of none availability of NTN and CPR cannot be generated online without NTN.
9. He has contended that the add backs of total expense is unjustified and the taxpayer should have been asked to deposit the tax under section 161 instead of making the addition under section 21(c).
10. Of the Ordinance, 2001.
11. ' Regarding add back of advertisement expenses, he has contended that the tax has been deducted properly from the vendors but could not be deposited for almost the same reasons of non-availability of NTN. In this regard he has repeated the same arguments.
12. ' Regarding the addition on account of P&L expenses and maintenance and horticulture expenses, learned counsel has contended that the matter has been remanded back by the learned CIR(A) to the department for scrutinizing the expenses from the payment under section 174(2) for want of record. He has contended that the complete ledger containing details of transactions including name of the parties, mode of payments, withholding tax deduction and all details were provided to the officer at the time of audit proceedings but the Taxation officer disallowed the claim without any justification and the learned CIR(A) has remanded back the matter without any justification. It is contended that the learned CIR(A) should have to allow the expense in this regard as the evidence in this regard was also produced before him.
13. ' Regarding the issue of charging the WWF, learned counsel has contended that the WWF can only be charged on Industrial Establishment as defined in the Worker Welfare Fund Ordinance, 1971. He has contended that the taxpayer does not qualify as the Industrial Establishment under the definition provided by the Ordinance. Hence no WWF is payable under the law. He has therefore requested that the levy charge under WWF may please be deleted.
5. On the other hand, learned DR is supporting the impugned orders of the officers below.
14. Regarding the legal issues it is contended that the Taxation officer in this case has valid jurisdiction to proceed in the matter and the case of the taxpayer has rightly been selected for audit under section 177 of the Ordinance. He has contended the case referred by the learned AR is regarding tax year 2010 and is not applicable for the tax year 2009. He has contended that legality of the selection of the case for audit under section 177 has been upheld by the Honourable Islamabad High Court in the case of Wi Tribe Ltd. v. FBR in ICA 1/ 2012 vide order dated 23-5-2012. Regarding the non-acceptance of revised return the learned DR has contended that the case of the taxpayer was selected for audit on the basis of original and revised return. He has contended that the return filed after selection of case for audit on 9-2-2012 increasing the loss stands invalid as the taxpayer has not filed any revised audited accounts along with the revised return rather the taxpayer has filed the accounts for the tax year 2010 instead of tax year 2009 as per requirement of subsection (6) of section 114. Regarding computation of cost of land revenue, learned DR has contended that the Taxation officer has calculated cost of land by adopting sold area of 1666 kanals. He has contended that the learned CIR(A) has taken cognizance of the fact and has observed that the revenue claimed in the prior year is not admissible to be allowed against the income earned for the current year and has restricted the addition whose corresponding income was declared/recognized in the previous year. Regarding the amortization of the amount of flyover over 10 years instead of allowing it as a cost as the taxpayer against this head of account has a useful life of more than one year and is covered in the definition of intangible. Learned DR has contended that the taxpayer has made huge expense for the benefit of the resident which as the same time has increased the value of the plots which would accrue benefit of the taxpayer for more than one year. Regarding addition on account of development and marketing expenses the learned DR has contended that this issue has already been set aside for re-examining and the taxpayer may explain his position before the Taxation officer. Regarding the add backs, learned DR has contended that the add backs were rightly made and regarding the WWF it has been contended by learned DR that the appellant taxpayer in this case has himself acknowledge the fact that they fall within the ambit of Industrial undertaking in terms of section 2(f)(i) of the WWF Ordinance, 1971 and therefore he cannot agitate this point at this stage. Learned DR keeping in view all these submissions has requested to uphold the orders of the offices below to the extent of the above referred grounds.
6. We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIR(A) and the order paised by the Taxation officer under section 121 of the Ordinance, 2001.
15. We have found that in this case admittedly the original returns were filed on 25-1-2010 declaring loss of Rs,465,560,000 later on the returns were revised on 11-8-2010 by increasing the loss to Rs,716,134,000. We have further noted that the case of the taxpayer was selected for audit under section 177 of the Ordinance, 2001 by the Commissioner on 12-10-2012 on the basis of revised return dated 11-8-2010. The appellant filed the application seeking permission for again revising the return which was allowed on 31-1-2012 and the applicant again revised the return in view of the above said approval on 13-2-2012 wherein the loss was declared at Rs,1,318,354,650. The Taxation officer issued show cause notice under section 122(9) read with section 111(1)(a)(e) and section 18(1)(d) on the basis of the return filed on 11-8-2012. Subsequently on 19-4-2012 a letter was issued by the Taxation officer disregarding the duly approval and filed revised return dated 13-2-2012 and treating it invalid without fulfilling the requirement of section 120(3) of the Ordinance and finally the amended order under dispute was issued on 30-5-2012 on the basis of return filed on 11-8-2012 which was not in the field due to the revised return filed by the appellant. It has been held by the Honourable Superior Court that authority of selection of case for audit rest with the FBR under section 214C and that too through a parametric balloting. Selection of cases directly by the Commissioner in the presence of provision of section 2140 tantamount discrimination and any action taken without lawful authority and super structure built on the basis of fake selection is illegal as has been held by the honourable High Court in the case of Messrs Chen One Stores Ltd. v.
16. FBR. Vide order dated 10-5-2012 in Writ Petition No,393 of 2011 deciding many other writ petitions wherein the 1st proviso to section 177(1) has been struck down and the 2nd proviso has been declared partially redundant and ineffective. The honourable Supreme Court of Pakistan in the case reported as 2012 SCM R 597 = 2012 PTD 693 has also been referred, which has been followed by this Tribunal in the case of Messrs' Farooq Saeed Khan v. CIR(A) vide order dated 25-9-2012 in I.T.A. No,993/LB of 2011 (Tax year 2009). We have noted that the case of the appellant was selected for audit in October, 2010 and at that time the law had already been amended by including section 214C through Finance Act, 2010 effective from June 5, 2010, therefore, the selection of the case for audit invoking the provisions of section 177 was totally illegal and without lawful authority. We have also noted that the Taxation officer has disregarded the revised return filed on 13-2-2012 which by fiction of law has been treated and amended assessment order under section 122(3) of the Ordinance. This is the settled law that any intended amendment under section 122 shall be made in the latest assessm ent order in the field. In this case the revision of return has been duly approved by the concerned authorities before filing the revised e-filing of return. And while approving the return for revision the department was well aware that an order under section 177 is underway for last 1 and 1/2 year and allowing any such revision would culminate the audit proceedings.
17. Therefore, allowing the revision by the department and ultimate filing of revised return on 13-2-2012 there were a new amended assessme nt order under section 122(3) of the Ordinance. The relevant provisions of section 122(3) is reproduced hereunder:- "122. Amendment of Assessm ent.- (1) .................
18. ' Where a taxpayer furnishes a revised return under subsection (6) or (6A) of section 114..
(a) the Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and
(b) the taxpayer's revised return shall be taken for all purposes of this Ordinance to be an amended assessm ent order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished."
19. (under line is for emphasis)
20. We are further of the view that no provision of section 114 restrict the taxpayer for filing a revised return during the audit proceedings and if any revised return is found incomplete that does not become invalid automatically as has already been held by this Tribunal in a case reported as 2010 PTD 2602 wherein while deciding the issue that whether in the case of return filed and qualified to be accepted under subsection (1) of section 120 including a revised return filed and treated to be an assessm ent order under subsection (3) of section 122 the assessing officer could only pass an order of amendment under the relevant provision of section 122 of the Ordinance. It has been categorically held that for passing of an order to frame the assessment of income on the basis of result of audit the official of the department have to keep in mind the concept and procedure of assessm ent provided under the new law that is Income Tax Ordinance, 2001. Under the new scheme of assessm ent a valid return of income in all the cases of taxpayer is deemed to be an assessm ent order under the provision of subsection (1) of section 120 on the day it is furnished without there being any exception. Similarly in case of a revised return filed under subsection (6) of section 114 it is treated to be an amended assessment order under the provision of subsection (3) of section 122 of the Ordinance. This Tribunal in a case reported as 2011 PTD 2389 has held that the revised return filed by the taxpayer for all purposes are the assessment order which includes the audit proceedings under section 177, amendment under section 122 etc. And has finally been held that making an assessm ent in ignorance to the amendment assessment order/revised return by implication of the provisions of section 122(3)(b) an amended order on the basis of earlier assessm ent order cannot stay in the field. Keeping in view all these facts and the legal position we are of the view that there was no justification for amending the assessment without considering the revised return filed by the taxpayer. We, therefore, without going into the merits of the case allow the appeal on the legal ground that the assessment in this case is made by ignoring amended assessm ent in the shape of revised return which has been filed after the prior approval of the department official in accordance with law. Consequently, the impugned order of the learned CIR(A) is vacated and the order passed by the Taxation officer is annulled.
21. ' As a result, the appeal filed by the taxpayer is allowed while the cross appeal filed by the department is dismissed.