' The appellant has filed this appeal against the order dated 31-12-2012 of CIR(A), Karachi passed in respect of order of Additional Commissioner, Range-B, Zone-II, Regional Tax Office-B, Karachi under section 122(5A) of the Income Tax Ordinance, 2001 on the following grounds:--
(2) That the Additional Commissioner has erred in invoking the provisions of section 122(5A) of the Income Tax Ordinance, 2001 on the original order under section 120 deemed to have been made by the Commissioner who is his senior authority and the Commissioner (Appeals) was not justified in upholding the same.
(3) That the Commissioner Inland Revenue (Appeals) has erred in law in holding that the action of Additional Commissioner under section 122(5A) of the Income Tax Ordinance, 2001 was within lawful authority and jurisdiction.
(4) That the Commissioner (Appeals) was not justified in ignoring the legal infirmity that the Additional Commissioner was asking the appellant to produce books of accounts sales/ purchase details, sales/purchases invoices, inventory record/capital verification, complete statement of accounts, complete bank statements, breakup of partner's capital, partners wealth statements, ledger accounts, cash book, partner's capital account with evidence which is not permissible under the provisions of section 122(5A) of the Income Tax Ordinance, 2001.
(5) That the Commissioner (Appeals) was not justified in confirming the addition of Rs,26,621,424 under section 111(1) (d) of the Income Tax Ordinance, 2001.
(6) That the Commissioner (Appeals) was not justified in confirming the addition of Rs,53,658,737 under section 111(1)(b) of the Income Tax Ordinance, 2001.
(7) That the Commissioner (Appeals) was not justified in holding that requirements of law have been fulfilled in making the above additions under sections 111(1)(b) and 111(1)(d) of the Income Tax Ordinance, 2001.
(8) That the Commissioner., (Appeals) was not justified in holding that section 111(1) (d) of the Income Tax Ordinance, 2001 introduced by Finance Act, 2011 has retrospective application.
(9) That the Commissioner (Appeals) was not justified in confirming the levy of WWF in the appellant's case.
3. Brief facts of the case are that the appellant an AOP is engaged in trading of general items. The appellant filed return of income showing income of Rs,520,423 which was treated as order deemed to have been made by the Commissioner under section 120 of the Income Tax Ordinance, 2001. The Additional Commissioner found the order under section 120 as erroneous and prejudicial to the interest of revenue and proceeded to amend the original order under section 122(5A) of the Income Tax Ordinance, 2001 after issuing notices under section 122(5A). In this manner the Additional Commissioner made various additions to the declared income of the appellant that included addition of Rs,26,621,424 under section 111(1)(d), Rs,53,658,737 under section 111(1)(b) and Rs,1,171,006 on account of inflated closing stock. Besides, WWF on amended income was also charged. The appellant feeling aggrieved with the treatment meted out filed appeal before CIR(A) who deleted the addition of Rs,1,171,006 but confirmed the addition of Rs,26,621,424 .And Rs,53,658,737 under sections 111(1)(d) and 111(1)(b) respectively. Charging of WWF was also upheld by the CIR(A). The appellant still feeling aggrieved has filed the instant appeal before this Tribunal.
4. Syed Riazuddin, Advocate/AR appeared on behalf of the appellant whereas Mr. Bashir Ahmed Kalwar DR appeared on behalf of the Respondent/ Department. The learned AR has mainly adopted his line of arguments taken before the Commissioner (Appeals) that are duly reproduced in the impugned order of CIR (A). The learned DR on the other hand has vehemently supported the order of CIR (A).
5. We have heard the two representatives. In grounds Nos. 1, 2 and 3 the appellant has challenged the jurisdiction of the Additional Commissioner to amend order deemed to have been made by his Commissioner under section 120 of the Income Tax Ordinance, 2001. Learned DR has made detailed arguments citing various case-law in support of his contention, however we are not persuaded to agree with the submissions made as this issue has been set at naught by the Hon'ble Sindh High Court in C.P. No,3048 of 2010 (Messrs Shell Pakistan Ltd. v. Federation and others). Therefore, appeal fails on these grounds.
6. In his arguments on the remaining grounds the AR has vehemently attacked the issuance of multiple notices to the appellant by the Additional Commissioner and over emphasis for the production of books of accounts, sales/ purchase details, sales/purchases invoices, inventory record/capital verification, complete statement of accounts, complete bank statements, breakup of partner's capital, partners wealth statements, ledger accounts, cash book, partner's capital account with evidence, which according to him is not permissible under the provisions of section 122(5A) of the Income Tax Ordinance, 2001. The AR has provided us copies of as many as four such notices issued under section 122(5A) by the Additional Commissioner requiring the appellant to produce above record and documents. Perusal of the same shows that first show cause notice was issued on 28-1-2012 in which following issues were initially confronted:-
(1) Purchase as per Sales Tax return are Rs,4954024,319 whereas the same have been declared in income tax return at Rs,468,402,424. The difference of Rs,26,62,424 is to be added to income under section 111(1)(d) of the Income Tax Ordinance, 2001.
(2) Closing stock as per income tax return has been declared at Rs, 1,170,006. But no closing stock declared in sales tax return, therefore addition under section 111(1) is warranted.
(3) WWF has not been paid same is to be charged as per law.
(4) Business capital has been declared at Rs,2,500,000 whereas peak purchases during the year was at Rs,56,158, 737. The difference of Rs,53,158,737 is to be added under section 111(1) (b) to the declared income.
' The notice under section 122(5A) further required the appellant to furnish reply supported by sales purchase details, sales purchase invoices, inventory record, capital verification, complete bank statements, wealth statements of partners ledger accounts, cash books, other books of accounts and documents. The AR also provided a copy of reply dated February 3, 2012 of the appellant furnished in response to the first show cause dated 28-1-2012. Perusal of the reply shows that it was explained that difference of Rs,26,621,211 in purchases is due to the fact that the sum of Rs,26,621,211 representing purchases covered under FTR was declared in the statement under section 115(4). The corresponding sales have been declared in FTR statement. It was further explained in the reply that figure of closing stock of Rs,1,171,006 could not be declared in the Sales Tax return due to an inadvertent mistake but it was duly reflected in the income tax return, therefore no adverse inference was warranted in the order under section 120. Besides, sales tax return was also revised to correct the mistake. Likewise in respect of addition of Rs,53,658,737 under section 111(1)(b) it was explained that the purchases and sales both were made on credit basis which is a normal market practice and does not require involvement of capital as has been envisaged in the notice.
According to the AR a comprehensive reply was furnished but the Additional Commissioner rejected the same on the grounds that it is not supported by. Concrete evidences. The officer issued another show cause on 11-4-2012 on the same issues and required the appellant to produce concrete evidences in support of the reply. Another reply vide letter dated 16-4-2012 was furnished by the appellant repeating the above contentions. The Additional Commissioner however did not found it satisfactory as according to him reply was not supported by documentary evidence. He therefore issued a third show cause notice on 25-4-2012 on the same issues and yet another show cause notice was issued on 2-5-2012. The appellant repeated the earlier replies but the Additional Commissioner rejected with the observations that books of accounts records, evidence and documents were not produced by the appellant in support of its contention. It has been contended by the AR that in the amendment of assessment under section 122(5A) the Additional Commissioner is not empowered to call for books of accounts, record, documents and evidences.
According to him seeking help of books of accounts, record, documents and evidences through notice under sections 122(9)/122(5A) to establish erroneousness and prejudice to the revenue constitutes fishing inquiries and is a clear indication to show that there was nothing erroneous and prejudicial to the interest of revenue in the order sought to be amended.
7. We have considered the submissions of AR and are in agreement with his assertion that in the proceedings under section 122(5A) the erroneousness and prejudice to the revenue should be definitive and visible from the order sought to be amended. The show cause notice should not be based on suspicion, apprehensions or assumptions. Moreover, the assessing officer cannot suggest particular evidence at the time of commencement of proceedings under section 122(5A).
This is prerogative of tax payer what he offers to explain or contradict the stance of assessing authority. Similarly the edifice of action, under section 122(5A) can be build after obtaining evidence from the taxpayer. Unfortunately in the order of Additional Commissioner before us, not only multiple notices on the same issues were issued but the learned officer has been insisting on production of books of accounts, documents and evidences to establish erroneousness and prejudice to the interest of revenue. The learned CIR(A) has not adjudicated on this issue, though argued before him. We are of the considered opinion that section 122(5A) does not empower the revisional authority to suggest an evidence and call for books of accounts, documents and evidence.
8. It has further been observed that despite receiving explanation in response to the queries raised in his notices under section 122 (5A), the Additional Commissioner issued four show cause notices pressing for production of books of accounts record, documents and evidences which is not permissible in the proceedings section 122(5A). The learned CIR(A) has not adjudicated on this issue, though argued before him. In our view action of the Additional Commissioner was patently illegal and void so far as issuance of multiple notices is concerned as law does not provide for issuance of multiple notices on the same issue. This Tribunal has already held in its decisions in I.T.As. Nos. 448/KB and 420/KB of 2008 dated 23-6-2009 reported as 2010 PTD 111 that repeated issuance of notices on the same issue constitutes fishing inquiries. It would be pertinent to quote relevant Para from the cited decision:--
12. We have found that the Taxation Officer through second notice, date 15-11-2007 has claimed to have elaborately highlighted error that caused prejudice to revenue. We are of the view that this second notice is an admission on the part of the Taxation Officer that he could not point out any errors in his, first notice under section 122(9) dated 22-10-2007 to invoke section 122(5A) which has been reproduced above. The Taxation Officer has also not mentioned as to under what legal provision the second notice was issued. The Taxation Officer issued another notice under section 122(9) dated 10-12-2007 and the third notice was again sent to the taxpayer which shows that first two notices were deficient on legal grounds. We have found that the Taxation Officer has repeatedly issued notices on the same issue which shows that he was not sure on the issues which were confronted to the assessee through first notice under section 122(9). We are of the view that this type of fishy inquiries cannot be approved to make basis for 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).
Keeping in view facts of the present case and the above decision we have no hesitation in holding that the action of the Additional Commissioner to treat the order under section 120 as erroneous and prejudicial to the interest of revenue within the meaning of section 122(5A) in the appellant's case is not sustainable in the eyes of law.
9. Regarding addition of Rs,26,621,004 under section 111(1)(d) on account of suppressed purchases it has been contended by the AR that provisions of clause (d) of subsection (1) or section 111 of the Income Tax Ordinance, 2001, treating suppression of any amount chargeable to tax production, sales or receipts as an item covered under section 111 were inserted by the Finance Act, 2011 and being detrimental to the interest of tax payer were applicable w,e,f, tax year 2012. Therefore, addition of Rs,26,621,424 under section 111(1)(d) is without lawful authority. It is further submitted that provisions of section 111(1)(d) pertain to concealment of income or furnishing of inaccurate particulars of income which is not the subject matter of proceedings under section 122 (5A) of the Income Tax Ordinance, 2001, therefore, action of the Additional Commissioner to add the sum of Rs,26,621,424 under section 111(1)(d) to the total income of the appellant is without lawful jurisdiction. It is further submitted that the addition of Rs,26,621,424 under section 111(1)(d) has been made on account of alleged suppressed or understated purchases. A plain reading of section 111(1)
(d) shows that the suppressed or understated purchases are not covered by the provisions of section 111(1)(d)(i) and (ii) of the Income Tax Ordinance, 2001. Section 111(1)(d) deals with suppression of production, any item of receipts or sales or any amount chargeable to tax. It does not deal with suppressed purchases. Accordingly, addition of Rs,26,621,424 under section 111(1)(d) being not covered by the provisions of section 111(1)(d)(i) and (ii) is void ab initio and illegal.
10. Contention of the AR found to have considerable weight. It has rightly been pointed out that the provision of clause"(d) of subsection (1) of section 111 of the Income Tax Ordinance, 2001 has been introduced by the Finance Act, 2011 and being detrimental to the interest of taxpayer does not have retrospective application. We also find force in the assertion of AR that section 111(1)(d) pertains to concealment or furnishing of inaccurate particulars of income therefore it has a nexus to the provision of section 122(1) read with subsections (5) and (8) of section 122. The AR has explained that the FBR itself in its explanatory Circular No,7 of 2011 dated 1-7-2011 clarified that by virtue of insertion of section 111(1)(d) in the Ordinance by Finance Act, 2011 any production, sale or any amount chargeable to tax and suppression of any item of receipt liable to tax in whole or in part has to be treated as "concealed income" whereas section 122(5A) deals with the orders which are found erroneous and prejudicial to the interest of revenue but the orders involving concealment in our view have to be dealt with under section 122(1) read with 122(5)/(8), therefore action of the Additional Commissioner to invoke provisions of section 111(1)(d) in his order under section 122(5A) is not sustainable in the eyes of law. The addition is not maintainable even otherwise, as after thorough perusal of the order and the show cause notices we have not been able to find even once that the appellant was required by the additional commission to explain the nature our source of investment in purchase --- Besides, on merit of the case the Additional Commissioner has chosen to ignore the written explanation offered by the appellant that the amount of Rs,26,621,424 was pertained to FTR portion of sales and corresponding sales of Rs,28(M) were declared by the appellant. Nowhere in the impugned order of Additional Commission this fact has been denied, therefore in the presence of explanation furnished by the appellant in response to the query under section 111.(1)(d) and Additional Commissioner's inability to rebut the same there was no justification for addition of Rs,26,621,424 under section 111(1)(d) in the appellant's case. The same is liable to be deleted. We order accordingly.
11. As regards addition of Rs,53,658,737 under section 111(1)(b) on account of investment in purchases it has been contended by the AR that I as per existing market practice the goods are purchased on credit basis. Perusal of the impugned order shows that appellant was duly confronted in this behalf vide 5 of the notice dated 28-1-2012 along with other queries. The appellant explained it in the following words:-- "The sales declared inclusive of sales discounts allowed to customer as the nature of business is distribution and margin of gross profit not more that 1%. The meaning of "Turn over" mentioned in subsection (3) (a) "the gross receipts exclusive of Sales Tax and Federal Excise Duty or any trade discount shown on invoices or bills derived from the (gross sales or) sales of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which the tax is already paid or payable"
It is privilege custom in trading the goods for sale taken on credit of 7 days, 10 days or 15 days from companies, and payments made after selling out, the payments made to companies, the revolving of capital in this line of business is sufficient.
' This explanation was not considered satisfactory and the officer proceeded upon the said addition based on peak purchases of Rs,56,158,737 during December, 2010 after subtracting capital of Rs 2.5(m).
12. We are of the opinion that the officer has not proved his case in absolute terms or on the basis of corroborating evidence i,e, analysis of sales tax return to examine monthly sales/purchases (cash based), opening inventory, volume of creditors, closing inventory, volume of debtors, average number of days allowed by the creditors to the taxpayer to pay off and average number of days allowed to debtors by the taxpayer for payments. Similarly, the officer has also ignored the investment in fixed assets out of invested capital of Rs,2.5 million. Moreover, the taxpayer replied that purchases were affected on credit, but the officer totally ignored these fundamental aspects of the explanation and no independent inquiry was made in this behalf. Given the circumstances the addition is not sustainable and we accordingly deleted with the directions to re-ascertain the quantum of investment in the light of possible cross variables mentioned supra. The appeal of the taxpayer partly succeeds on this issue.
13. As regard charging of WWF this Tribunal in its decision reported as (2011 PTD (Trib.) 748) has already held that no authority designated as "Taxation Officer" now exists in the Income Tax Ordinance, 2001 whereas as per section 4(4) of the WWF Ordinance, 1971, only a "Taxation Officer" can pass an order to charge WWF. Accordingly the act of an Additional Commissioner to issue notice under section 122(5A) and pass order to charge WWF is without lawful authority. Respectfully following the said judgment it is held that the order passed by the Additional Commissioner to charge WWF in the appellant's case is without lawful authority. Accordingly WWF is directed to be deleted.
14. The appeal stands disposed of in the manner and to the extent indicated above.