' Through this order we intend to dispose of the cross appeals filed by the Taxpayer and the Department against the decision of Learned ACIR(Appeals-II), Karachi vide his combined Orders Nos. 6 to 8 dated 1-10-2011 for the tax years 2007 and 2009. The grounds of appeal filed by the rival parties are reproduced below:-- "(2) That the worthy Appellate Commissioner has erred in law on not allowing the adjustment of loss of Rs,68,614 as against the salary income earned by the Appellate in the same year.
(3) That the worthy Appellate Commissioner has also erred to confirm the taxability of capital gain of Rs,1,100,000 arising from the sale of plot, which is exempt from the levy of income tax.
(4) That the worthy Appellate Commissioner was not justified to Order the consequential relief in penalty imposed under section 182(1) of the Income Tax Ordinance, 2001 rather he should have delete the penalty in tow as no mens rea is involved in this case."
' Grounds of Appeal No, 22/KB-2012 for tax year 2007 under section 122(1) filed by the Department: "(2) That the order of learned Commissioner Inland Revenue (Appeals-II) is illegal, ab-initio void In law on facts and without justification as well as capricious and arbitrary having been finalized in violation of principles of natural justice.
(3) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting addition under section 111 was not justified in view of the fact of the case whereas facts is that Office Inland Revenue confronted by Show Cause Notice under section 129(9) of the Ordinance for the year 2007. Therefore, the treatment of the appellate Authority is prejudicial not sustainable in the eyes of law and ab-initio void on fact.
(4) That the learned Commissioner Inland Revenue (Appeals-II) erred in giving justification and failed to substantiate in deleting addition for the year 2007. However Officer Inland Revenue made addition under section 111 on the basis of concrete. Evidences and given plausible and sufficient opportunities to the taxpayer is substantial where as the CIR(A) failed to give sound reasons and citation in the order for the year under consideration.
(5) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting addition under section 111 for the tax year 2007 is arbitrary and prejudicial and CIR(A) failed to dilate the citation in the body of the order. Whereas addition made by Officer Inland Revenue in view of provisions of subsection (2) of section 111 of the Income Tax Ordinance, 2001.
(6) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting the addition under section 111 by invoking sub-clause of section 111 of the Ordinance effectively seems correct. Officer Inland Revenue made addition under section 111 as per law with justification and on concrete evidence for the year under consideration.
' Grounds of Appeal No, 23/KB-2012 for tax year 2009 under section 122(1) filed by the Department:- - "(2) That the order of learned Commissioner Inland Revenue (Appeals-II) is illegal, ab-initio void in law on facts and without justification as well as capricious and arbitrary having been finalized in violation of principles of natural justice.
(3) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting addition under section 111 was not justified in view of the fact of the case whereas facts is that Office Inland Revenue confronted by Show Cause Notice under section 129(9) of the Ordinance for the year 2007. Therefore, the treatment of the appellate Authority is prejudicial not sustainable in the eyes of law and ab-initio void on fact.
(4) That the learned Commissioner Inland Revenue (Appeals-II) erred in giving justification and failed to substantiate in deleting addition for the year 2007. However Officer Inland Revenue made addition under section 111 on the basis of concrete evidences and given plausible and sufficient opportunities to the taxpayer is substantial where as the CIR(A) failed to give sound reasons and citation in the order for the year under consideration.
(5) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting addition under section 111 for the tax year 2007 is arbitrary and prejudicial and CIR(A) failed to dilate the citation in the body of the order. Whereas addition made by Officer Inland Revenue in view of provisions of subsection (2) of section 111 of the Income Tax Ordinance, 2001.
(6) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting the addition under section 111 by invoking sub-clause of section 111 of the Ordinance effectively seems correct. Officer Inland Revenue made addition under section 111 as per law with justification and on concrete evidence for the year under consideration.
' Grounds of Appeal No, 24/KB/2012 filed by the Department for tax year 2009 under section 182(1):- "(2) That the order of learned Commissioner Inland Revenue (Appeals-II) is illegal, ab-initio void in law on facts and without justification as well as capricious and arbitrary having been finalized in violation of principles of natural justice.
(3) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in deleting to modify penalty under section 182 of the Income Tax Ordinance, 2001 was not justified in view of the fact of the case whereas the direction to modify the same is prejudicial not sustainable in the eyes of law and ab initio void on fact.
(4) That the learned Commissioner Inland Revenue (Appeals-II) erred in giving justification and failed to substantiate in modifying penalty under section 182 for the year 2009. However Officer Inland Revenue imposed penalty under section 182 on the basis of concrete evidences and given plausible and sufficient opportunities to the taxpayer whereas the CIR(A) failed to give sound reasons and citation in the order for the year under consideration.
(5) That the learned Commissioner Inland Revenue (Appeals-II) erred in law on facts in modifying penalty under section 182 for the tax year 2009 is arbitrary and prejudicial and CIR(A) failed to dilate the citation in the body of the order. It is fact that reply of the tax payer was examined and found devoid of merit. Officer Inland Revenue imposed penalty under section 182 for the concealment of income under section 111 seems correct and as per law with justification and on concrete evidence for the year under consideration.
' Tax Year 2007
2. Brief facts of the case are that Taxpayer is an Individual and deriving salary income declared in the return for tax year 2007, which had become deemed assessment order under 120 of the Income Tax Ordinance, 2001. Consequent upon selection of the case under section 177 of the Income Tax Ordinance, 2001 the deemed assessment order was amended by resorting to action under subsection (1) read with sub section (9) of section 122 of the Income Tax Ordinance, 2001 and treatments was meted out by the Assessing Officer as per order making the adjustment of loss of AOP amounting to Rs,68,614 against salary income was disallowed; the addition of Rs,1,100,000 from the gain arising on the sale of immovable property (plot) treating the same as adventures in the nature of trade and income from undisclosed sources at Rs,3,090,000 under section 111 of the Ordinance, 2001. Penalty was also charged under section 182(1) of the Income Tax Ordinance, 2001.
3. Being aggrieved, the taxpayer preferred appeal before the Commissioner Inland Revenue, Appeals-II, Karachi. The CIR(A) after hearing both the rival sides, disposed of the same vide appellate Orders Nos. 6 to 8 dated 1-10-2011, wherein for tax year 2007 the addition on account of disallowance of adjustment of loss of Rs,68,614 from AOP was confirmed. The reply of the AR in respect of gain on sale from immovable property was considered general in nature and not convincing. Therefore, an addition of Rs,1,100,000 made being in the nature of adventure in the nature of trade was also confirmed. However, the addition of Rs,3,090,000 under section 111 was ordered for deletion by the CIR(A) accepting the reconciliation of the taxpayer.
4. For tax year 2009, the penalty was deleted holding that the Taxation Officer has not mentioned the sub-clause under which the addition was made. For the tax year 2007, penalty under section 111 was ordered to be modified as a consequence of reduction in income.
5. Both the Taxpayer and Department being aggrieved with the order of Learned CIT(A) have now come in appeal before this forum. Mr. Muhammad Aleem, Advocate, attended on behalf of the taxpayer and Mr. Mumtaz Ali Bohyo, the learned D.R. Attended on behalf of the department.
6. The learned DR vehemently argued the case and supported the treatment of the Assessing Officer and contented that additions have been rightly made by the Assessing Officer after taking into consideration all the aspects of the case and requested for restoration of the amended order made under section 122(1) of the Income Tax Ordinance, 2001 and the also opposed the deletion of income made 111 and reduction of penalty 182(1) of the Income Tax Ordinance, 2001.
7. The AR also stated that in the case of the brother of the taxpayer namely Mr. Babar Badat, having I.T.As. Nos. 25, 26, 27/KB/2012 for tax years 2007, 2008, 2009, respectively, similar additions were made in the order amended under section 122(1) of the Income Tax Ordinance, 2001. In that relied case, the learned Appellate Commissioner had deleted the additions made in the amended order under section 122(1) of the Income Tax Ordinance, 2001 which was agitated by the Department by filing appeals before the learned Appellate Tribunal Inland Revenue. The learned Appellate Tribunal Inland Revenue after careful consideration of the case dismissed the appeals of the Department.
The A.R. Placed reliance on reported case i,e, as 2010 PTD (Trib.) 1700, 2010 PTD (Trib.) 1733 and 2010 PTD (Trib.) 1709.
8. Regarding the taxation of gain on sale of immovable property the AR contended that the treatment of the Appellate Commissioner was not in accordance with law as the gain on the sale of immovable property is clearly outside the purview of section 37 of the Ordinance as for the purpose of capital gain from the sale of the immovable property has been excluded from the definition of capital asset under subsection (5) of the section 37 of the Income Tax Ordinance, 2001.
In this regard reliance was also placed on the case-law reported as 2008 PTD 82.
9. We have also considered the findings of the decision of Single Bench in the case of Mr. Babar Badat in I.T.As. Nos.25 to 27/KB/2012 dated 31-5-2012 arguments of AR and the findings of CIT(A) and we come to the conclusion that findings of CIR(A) for the tax year 2009 a fair and just calling for no interference. Thus the departmental appeal for the tax year 2009 fails.
10. As far as, cross appeals for tax year 2007 are concerned, the CIR(A) has rightly upheld the action of Assessing Officer in respect of set off of AOP loss against salary income and income earned from the sale of plot. However, we do not uphold the charge of penalty on modified/annulled income.
The appeal of the taxpayer partly succeeds and on the contrary, departmental appeal for the tax year 2007 is rejected.
11. Consequently, the appeals filed by the taxpayer and department stand disposed above as above.