1. ' Out of these six cross appeals for the tax years 2006 to 2008, three have been filed by the Tax Payer and the remaining three by the Department against the consolidated impugned order of the learned CIR(A) dated 27-9-2012.
2. The taxpayer appeals are contested on the following common grounds:- "(2) That jurisdiction of the case of the appellant had wrongly been transferred to Zone-VIII, Regional Tax Office-II, and Lahore by the Federal Board of Revenue on 7-5-2012.
(3) That order under section 122(5A) is without jurisdiction, the Commissioner Inland Revenue Appeals is not justified to hold that objection to assumption of jurisdiction by the Additional Commissioner Inland Revenue is not valid.
(4) That order under section 122(5A) is liable to be cancelled as the Additional Commissioner was not in possession of assessm ent order sought to be amended. As inspite of repeated requests copy was not provided to the appellant, which establishes that he was not in possession of assessm ent order / return and without examining the same no conclusion could be drawn as to the erroneousness of the order or prejudice caused to the interest of revenue.
(5) That proceedings under section 122(5A) of Income Tax Ordinance, 2001 have wrongly been initiated hence order is liable to be cancelled.
(6) That without prejudice to above grounds the Assessing Officer should have completed assessm ent under section 113-B of the Income Tax Ordinance, 2001,"
2. In addition to the above common grounds for the three years under review for the Tax Years 2006 and 2007 following grounds have also been agitated:- "(7) That additions under section 111(1)(b) of Income Tax Ordinance, 2001 amounting to Rs,11,271,704 for the tax year 2006 and Rs,27957751 for the tax year 2007 has wrongly been made and wrongly confirmed by CIR(A) which are liable to be deleted.
(8) That additions under section 111(1)(h) of Income Tax Ordinance, 2001 amounting to Rs,11,271,704 for the Tax Year 2006 Rs,27957751 for the tax year 2007 are also liable to be deleted as the same have been made without any proper basis/ material."
3. The Income Tax Department through cross appeals for the three years under review has contested as per common grounds of appeal for the three years mentioned below:-- "(1) That the order of the Learned Commissioner Inland Revenue (Appeals-IV) Lahore No, 14 dated 27-9-2012 is against the law and contrary to the facts of the case.
(2) That the taxpayer is engaged in the business of sale of fabrics etc. And for the tax year 2006 it has declared income at Rs,803,783, which was arrived at in the following manner:- Sales 215,010,210 Cost of Sales 185,983,832 Gross Profit 29,026,378 G.P Rate 13.5% Profit and loss Expenses 28,946,000 Net Profit 80,378
(1) That as per information gathered from audit conducted in its associate's case namely Messrs Sefam (Pvt.) Limited that whole of the sales were credited into following bank accounts jointly maintained by the members of the AOP.
(2) That the said bank accounts were not found declared in the wealth statements, filed by the members of the AOP. Besides, the capital investment has also not been found declared in the wealth statement.
3. S. No.Title of Account Account No. BankBranch 1 Hamid Zaman and Seema Aziz7405-204633- 001SCB Shadman Branch, Lahore 2 -Do- 01010694 Bank Al FalahShadman Branch, Lahore
(3) That statement of these bank accounts do not reflect debit of any amount through clearing except the withdrawal of amounts in cash, as reproduced at pages 2 to 4 of the amendment of assessm ent order passed in terms of section 122(5A) of the Income Tax Ordinance, 2001 for the tax year under consideration.
(4) That as per section 21(1) of the Income Tax Ordinance, 2001 as deduction can only be allowed if payment exceeding threshold of Rs,50,000 as provided under the provisions supra, for an expenses is made through crossed cheque.
(4) That from the details, as reproduced in the body of order and from statement of these bank accounts, it was established that by virtue of heavy cash withdrawals the provisions of section 21(1) of the Income Tax Ordinance, 2001 were not adhered to by the taxpayer.
(6) That the learned CIR (Appeals) was not justified to allow relief on the basis of concocted stores put-forth before him by the taxpayer. The CIR (Appeals) has not appreciated the facts and grounds retaliates that the taxpayer obtained NTN of the AOP after the issuance of show cause notice in the case of Messrs Sefam (Pvt.) Limited wherein during the course of audit the maintenance of the accounts, never disclosed to the department by the appellant was discovered.
4. In this way the umbrella of USAS has been mis-utilized.
(7) That during the proceedings the taxpayer was specifically required to substantiate the heavy cash withdrawal and also requested to substantiate the claim of heavy expenses with evidence as required in terms of section; 174(2) of the Income Tax Ordinance, 2001 but no compliance to the requests was made rather the reply of the taxpayer was evasive and not on the subject, which was leading to establish that towards violation of provisions of section 21(1) and section 174(2) of the income Tax Ordinance, 2001 the taxpayer has no defense.
(8) That keeping in view the evasive explanations given by the taxpayer the default of violation of the provisions supra was . Established and consequently the defaulting amount was added in terms of section 21(1) and section 174(2) of the Income Tax Ordinance, 2001 towards income declared for the year within the meanings of section 122(5A) of the Income Tax Ordinance, 2001.
(9) That the learned Commissioner Inland Revenue (Appeals) while deciding appeal of the taxpayer has deleted the addition made under section 21(1) and section 174(2) of the income Tax Ordinance, 2001.
(10) That while deleting the addition the - lamed Commissioner Inland Revenue (Appeals) by placing reliance on judgments reported as PLD 1992 SC 549 = 1992 PTD 932, 1999 PTD (Trib.) 2851, 2009 PTD (Trib.) 121, 2008 PTD (Trib.) 1494 and 2010 PTD (Trib.) 111 that calling for information to be used against a taxpayer subsequently amounts to fishy inquiries which are not permissible under section 122(5A) of the Income Tax Ordinance, 2001, as such, according to him, the mandatory prerequisites for invoking section 122(5A) have not been fulfilled or disallowances made under section 21(1) is concerned.
(11) The addition made for violation of section 21(1) of Income Tax Ordinance, 2001 was not a reset of any sort of alleged "Fishy Inquiries" but the default was evident from the record of the taxpayer including statement of the bank accounts.
(12) That for this verdict the learned Commissioner Inland Revenue (Appeals) is not justified, as the contents of Statutory Notice to be issued in terms of section 122(5A) do permit the authority to call for information, which has duly been endorsed by verdicts as envisaging from 2012 PTD 723, 1990 PTD (Trib.) 1019 and 2009 SCMR 1279 = 2009 PTD 1392.
(13) That the judgments reported as 2012 PTD 723, 1993 SCMR 1108 = 1993 PTD 1108 and 2009 SCMR 1279 = 2009 PTD 1392, being latest on the subject were to be followed, therefore the reliance placed on earlier judgments by the learned Commissioner Inland Revenue (Appeals) is not justified.
(14) That the default of section 21(1) of the Income Tax Ordinance, 2001 is evident from record, this being erroneous and prejudicial to the interest of revenue the entire defaulting amount was liable , to be disallowed.
(17) That the appellant may be allowed to add, alter and amend anyone or more grounds of appeal at the time of hearing."
4. Brief facts of the case are that the taxpayer is an AOP consisting of two members namely Mr. Hamid Zaman CNIC No, 35201-95143035 NTN 0657940-0 and Mrs. Seema Aziz CNIC No, 35202- 27477548-2 NTN 0223932-93. The principal activity of the taxpayer is to conduct business of sale of fabrics. The Assessing Officer while proceedings under section 122(5A) considered the amounts of withdrawals from the banks as expenditure and afterwards held that expenses were not made through cross cheques and addition under sections 21(1)/174(2) was made in all the three years under appeal. The additions under sections 21(I)/ 174(2) have been deleted by Commissioner Inland Revenue (Appeals). Peak deposit in the bank account exceeding the capital of AOP was included in taxable income for tax years 2006 and 2007. Additions under section 111 have been confirmed by Commissioner Inland Revenue (Appears). Now both the parties are in cross appeals against the impugned order of the learned CIR(A) on the above referred grounds of appeals.
5. Regarding the application of section 122(5A) in this case although the learned counsel is contesting the same but as this issue has already been decided by the Hon'ble High Court therefore the grounds of appeal in this respect agitated by the Tax Payer are rejected.
6. The learned counsel of the Tax Payer appellant argued that jurisdiction in the case of appellant has wrongly been transferred by the Federal Board of Revenue from one Regional Tax Office to another Commissioner Inland Revenue. He has in this respect referred section 209(8) which reads as under: "(8) Notwithstanding anything contained in this section, every Commissioner shall have all, the powers conferred by, or under, this Ordinance on him in respect of any income arising within the area assigned to him."
5. ' The learned counsel has argued that considering the above provisions it is clear that income arising in the area assigned to the Commissioner is exclusive jurisdiction of the said Commissioner.
6. In this case, the Tax Payer jurisdiction has been exercised by a Commissioner who was not assigned the area where the business place of appellant exists. Powers exercised under section 122(5A) were delegated by a Commissioner who did not hold jurisdiction in terms of section 209(1).
7. ' Section 209(1) reads as under:- Subject to this Ordinance, the [Chief Commissioner] the Commissioner and the Commissioners (Appeals) shall perform all or such functions and exercise all or such powers under this Ordinance as may be assigned to them in respect of such persons or classes of persons or such areas as the [Board] may direct.
8. ' [Provided that the Board or the Chief Commissioner, as the case may be, transfer jurisdiction in respect of cases or persons from one Commissioner to another.] ' According to learned counsel the above provision of law clarifies that Federal Board of Revenue can only transfer jurisdiction from one Commissioner to another Commissioner.
9. ' Federal Board of Revenue has no authority to transfer the jurisdiction from Regional Tax Office to another Commissioner Inland Revenue. In this case the Appellant's jurisdiction was wrongly transferred on 2-5-2012 from one Regional Tax Office to another commissioner Inland Revenue.
10. Therefore this transfer is illegal and hence the subsequent orders are not maintainable.
11. ' Regarding Departmental Appeals the learned counsel of the Tax Payer has argued that addition under sections 21(1)/174 has .Rightly been deleted by the CIR(A) because invoking of more than one section makes the notice/order illegal.
12. ' He has contended that in this case, provisions of 174(2) and 21(1) has simultaneously been invoked which is not permissible under the law learned counsel in this regard placed reliance on the following case-law:-- 2010 PTD (Trib) 1067 (Relevant Portion at Page 1074 Para 7).
13. "Hence the very basis for acquiring the jurisdiction by issuing a combined notice under two different sections is fatal. So we have been left with no alternative except to up hold the order of the learned CIT(A)."
14. 2010 PTD (Trib.) 1552 (Relevant Portion at page 1568 para 13).
15. "It is my considered opinion that the proceedings simultaneously conducted under sections 121(1), 122(1) and 122(5) are unlawful in the light of ratio settled by this forum in the aforesaid judgment.
16. The judgment referred by the learned counsel in I.T.A No, 30/IB of 2009 for the tax year 2004 dated 25-4-2009 applies in all fours to the facts and circumstances of the case. The issue of simultaneous notice and assessme nt to the present application of section 121(1)(d) as well as 122(5) therefore is legally not sustainable. This plea of learned DR that title of assessment order shows that it was completed under sections 122(1) and 122(5) but contents of the order clear cut show simultaneous application of section 121(1)(d) and section 122. Above mentioned finding has already been followed being binding in I.T.As. Nos.476-477/IB of 2009 and I.T.A No, 405/IB of 2008.
17. Following the ratio as already settled in the matter I do not feel any hesitation to hold that proceedings conducted in this case were legally defective."
18. ' The learned counsel has argued that fishing inquiry/seeking information is not permissible under, section 122(5A) of the Ordinance. It was pointed out by the learned AR of the taxpayer that in notice/letter dated 17-5-2012 for tax years 2006 to 2008 nine different documents were required to be produced. The said details of documents required to be produced is incorporated at pages 4 and 5 of the orders under section 122(5A). This fact clearly established that Taxation Officer was holding inquiry which is not permissible.
19. ' In support of arguments/submissions that addition under sections 21(1)/174(2) cannot be made under section 122(5A) on the basis of inquiry, the learned AR relied upon the following case-laws:-- 1999 PTD (Trib.) 2851 (Relevant portion at page 2853)
20. "It is well settled principle that section 66A can be invoked only when an order passed by DCIT is found erroneous and prejudice to interest of revenue. The error and prejudice should be manifest in the show cause notice and not subsequently by a fishing inquiry.
21. "Where a revisional authority proposes to investigate without first establishing the error resulting in loss of revenue, show cause notice was not sustainable in the law".
22. 2009 PTD (Trib.) 121 (Relevant portion at page 129)
23. "The contents of provisions of section 122(5A) of the Income Tax Ordinance, 2001 do not empower the holding of inquiries, which is unlike the provisions of section 66A of the repealed Ordinance, 1979, so the initiating and concluding , the proceedings on this score cannot be lawful".
24. 2010 PTD (Trib.) 111 (Relevant portion at page 422)
25. ' Fishy enquiries cannot be approved to make basis of invocation of section 122(5A) as this type of approach, if allowed, would result in gross misuse of the provisions of law. Mere suspicions cannot be allowed to be a basis to invoke section 122(5A).
26. ' In this regard the A.Rs, of the appellant also relied upon case-law reported as:- 2012 PTD (Trib.) 1593 (Relevant Portion at Page 1609 Para 19) where in it is above that "We have also given our anxious consideration to the other case-law viz. 2010 PTD 111 as cited by the learned counsel of the appellant. In this case the Tribunal had annulled the amended order passed under section 122(5A) because the Taxation officer had issued repeated notices under section 122(9) whereby the reasons for taking action under section 122(5A) stated in the earlier notice(s)/letter(s) had been totally negated in the subsequent notice(s)/letter(s). Such type of fishy inquiries were not approved to make basis for invocation of section 122(5A), as such approach, if allowed, would result in gross misuse of provisions of law and that mere suspicion could not be a basis to invoke section 122(5A) of the Income Tax Ordinance, 2001. This Tribunal has already observed in the above referred decision that issuance of notices which merely pointed out certain deficiencies in the return while seeking information, explanations and evidence raising apprehensions are invalid and subsequent proceedings/orders/ and the Taxation Officer were held to be not sustainable in the eyes of law, therefore, annulled. We are of the opinion that principals laid down in this reported judgment are on all fours to the facts of the present case, therefore, we hold that the first appellate authority has erred in confirming the legally flawed amended orders of the Taxation Officer."
27. 2010 PTD 111 (Relevant Portion at Page 404 Para 13)
28. "The notice on the basis whereof the action under section 122(5A) has been upheld by the learned CIT(A) merely pointed out certain deficiencies in the return while seeking information,' explanations and evidence raising apprehensions. Therefore, we are of the view that initial notice was void all subsequent proceedings orders of the superstructures built thereon have become void and the order passed by the Taxation Officer is not sustainable in the eyes of law.
29. Accordingly, the impugned order of the learned CIT(A) is vacated and the order passed by the Taxation Officer under section 122(5A) is annulled and the deemed amended assessment under section 122(3) of the Income Tax Ordinance, 2001 is restored."
30. ' The learned AR of the Tax Payer argued that section 21(1) is not applicable on expenses charged to Trading Account. They relied upon case-law reported as; 2012 PTD (Trib.) 1444 (Relevant Portion at Page 1446 Para 7 where in it is held that:- "In the light of above clear-cut provisions of section 21(1) of the Ordinance as well as verdict given by this Tribunal in the above referred judgment dated 25-10-2010 we are also compelled to hold that the provisions of section 21(1) are only applicable to the expenses made in profit and loss account and that the same cannot be invoked for the purpose of making addition on account of purchases, Since, the addition of Rs,13,00,000 has been made by the authorities below by resorting to irrelevant provisions of section 21(1) of the Ordinance on account of purchase of plot on cash basis, therefore, the same is ordered to be deleted. Consequently, the taxpayer's appeal succeeds."
31. ' They argued that learned CIR(A) has rightly deleted the additions under sections 21(1)/174(2) of Income Tax Ordinance, 2001 and the appeals filed by the department are liable to be dismissed and have requested to allow the appeals filed by the Tax Payer.
7. On the other hand the learned DR argued that Commissioner Inland Revenue (Appeals) has wrongly deleted the addition made under sections 21(1)/174(2) of the Income Tax Ordinance, 2001.
32. He has contended that as per order it is clear that cash withdrawal from banks is exceeding the limit as provided under section 21(1) of the Income Tax Ordinance, 2001 and the Taxation Officer has rightly assumed that it attracts the provisions of section 21(1) of the Income. Tax Ordinance, 2001, therefore, order of the Taxation Officer is maintainable and deletion of addition made by the Commissioner Inland Revenue (Appeals) is without any justification.
8. We have heard both the sides and have also perused the impugned order of the learned CIR(A), the order passed by the Taxation Officer, relevant provision of law, the case-law referred and the available record of the case. We have noted that the learned CIR(A) in the impugned order has discussed all the issues in detail. Relevant Paras are reproduce hereunder:-- "Coining to disallowance made under section 174(2) of the Ordinance, it is observed again that the learned Additional Commissioner has misinterpreted the law and has exceeded his revisional jurisdiction, under section 122(5A) for multiple reasons. First, his observations are purely based on presumption. There was no material on record to suggest that the expenses charged to trading and profit and loss account of the appellant were without supporting evidence. Secondly the learned Additional Commissioner without first establishing that expenses were not supported by documentary evidence required the appellant to prove that the expenses charge were not hit by section 174(2). It is obvious that each and every piece of receipt, voucher or bill was requisitioned from the appellant in support of entire expenses charged to trading and profit and loss account, which clearly amounts to conducting audit of the taxpayer. Thirdly, as stated earlier, the additional Commissioner is not empowered under section 122(5A) to call for account books and conduct enquiries. The power to call for account books of the taxpayer can be exercised only while conducting audit under section 177 of the Ordinance. The instant case was never subject to audit under section 177 and thus the appellant was not required to produce books of account or other documentary evidence to prove that expenses claimed by it were not inadmissible under section 174(2) of the Ordinance. The assumption of jurisdiction under section 122(5A) on this account is, therefore, defective.
33. ' It is further observed that invoking two distinct provisions of law having entirely different scope for making disallowance of the same amount is contrary to established principles and also speaks of the fact that the Additional Commissioner was not sure whether to invoke section 21(1) or section 174(2) to the case of the appellant. It is one of the basic principles of interpretation of taxing statutes that tax can be imposed through clear word of law only and not on the basis of presumption as held by the CIR(A) that without identifying heads under which the aforesaid expenses were incurred and the Assessing Officer went a step further to presume that expense for transaction under each head exceeds Rs,50,000 and that each transaction under a particular head of account exceeds 10,000. Under the circumstances, there was no specific amount before the Assessing Officer which could attract section 21(1) and the addition under this section has been made by the Assessing Officer purely on the basis of presumptions."
34. ' Regarding additions under section 111(1)(b) of the Income Tax Ordinance, 2001 for tax years 2006 and 2007 amounting to Rs:11,271,407 and Rs,27,957,751, we are of the view that pre-condition for making addition under section 111 is to get explanation from the taxpayer about nature and source of the amount and thereafter, considering the explanations, addition is to be made "to the extent amount is not adequately explained". For ready reference section 111 is reproduced as below:-- ' Section: 111 unexplained income or assets.- (1) Where (a) Any amount is credited in a person's books of account;
(b) A person has made any investment or is the owner of any money or valuable article; or
(c) A person has incurred any expenditure and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or refunds from which the expenditure was made or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited, value of the investment, money value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head "Income from [other sources] to the extent it is not adequately explained.
(2) The amount referred to in subsection (1) shall be included in the person's income chargeable to tax in the tax year [ to which such amount relates]. On behalf of the Tax Payer it is contended that addition under section 111(1)(b) cannot be made under section 122(5A) on the basis of inquiry.
35. Reliance in .This respect is placed upon the following case-laws:-- ' 1999 PTD (TRIB) 2851 (Relevant portion at page 2853)
36. "It is well settled principle that section 66A can be invoked only when an order passed by DCIT is found erroneous and prejudice to interest of revenue. The error and prejudice should be manifest in the show 'cause notice and not subsequently by a fishing inquiry.
37. "Where a revisional authority proposes to investigate without first establishing the error resulting in loss of revenue, show cause notice was not sustainable in the law".
38. ' 2009 PTD (Trib.) 121 (Relevant portion at page 129)
39. "The contents of provisions of section 122(5A) of the Income Tax Ordinance, 2001 do not empower the holding of inquiries, which is unlike the provision of section 66A of the repealed Ordinance, 1979, so the initiating and concluding the proceedings on this score cannot be lawful".
40. ' 2010 PTD (Trib.) 111 (Relevant portion at page 122)
41. ' Fishy enquiries cannot be approved to make basis of invocation of section 122(5A) as this type of approach, if allowed, would result in gross misuse of the provisions of law. Mere suspicions cannot be allowed to be a basis to invoke section 122(5A).
42. ' Although the learned DR has supported the orders of the authorities below and has argued that peak credit has rightly been included in the income of the Tax Payer as capital declared by the partners is less than the peak credit and Taxation Officer has rightly made addition and Commissioner Inland Revenue (Appeals) also rightly confirmed the same but after considering the facts of the case.
43. We are of the considered view that addition under section 111(1)(b) cannot be made without making inquiry. Firstly the Assessing Officer will have to ask the taxpayer to submit explanation regarding nature and source of the amount and after considering the explanation, than addition under section 111(1)(b) will be made. Asking for explanation means conducting of inquiry which is beyond the scope of section 122(5A). Hence, additions under section 111(1)(b) for tax years 2006 and 2007 are ordered to be deleted.
9. Regarding the appeals of the department we agree with the order of Commissioner Inland Revenue (Appeals), in view of submissions made by the learned AR and reasoning assigned by the Commissioner Inland Revenue (Appeals) we are of the view that addition under sections 21(1)/174(2) has rightly been deleted.
10. As a result of above discussion, appeals filed by the taxpayer for tax years 2006 and 2007 are allowed to the extent of the above observation and appeal for tax year 2008 is dismissed being devoid of any merit as for this Tax year impugned order has been objected only on the legal issue of applicability of section 122(5A). Whereas the departmental appeals for tax years 2006 to 2008 are also dismissed being devoid of any merits.