The Taxpayer has filed appeal against the order of Commissioner Inland Revenue (Appeals)
Gujranwala for tax year 2012 passed vide order No,93 dated 30-1-2014. The original order has been amended by the Addl. C.I.R. under section 122(5A) of the Income Tax Ordinance, 2001 hereinafter (the Ordinance).
2. Brief facts of the case are that the taxpayer is a Private Limited Company. The principal activity of the taxpayer is to manufacturing and sales of GL Pipes. The Assessing Officer while taking action under section 122(5A) considered that there is a difference in value of imports as per import data available on e-portal of FBR and imports declared in the return of income and it has also been noted by the Addl. C.I.R. that tax has not been deducted under various heads of account. The issue of import has been dropped during the proceedings by the Assessing Officer being properly reconciled by the taxpayer. However, additions under section 21(c) of Income Tax Ordinance, 2001 were made which were confirmed by the C.I.R.(A). The taxpayer contested the appeal on the following grounds:--
(1) That order of the Commissioner Inland Revenue (Appeals), Gujranwala is bad in law and against the facts of the case.
(2) That proceedings under section 122(5A) of Income Tax Ordinance, 2001 had wrongly been initiated. The Commissioner Inland Revenue (Appeals) should have cancelled the order of the assessing officer.
(3) That order under section 122(5A) of Income Tax Ordinance, 2001 is also liable to be cancelled as order under section 120 of Income Tax Ordinance, 2001 was neither erroneous nor prejudicial to the interest of revenue.
(4) That order under section 122(5A) is liable to be cancelled as repeated notices have been issued to the taxpayer which is not permissible.
(5) That Commissioner Inland Revenue (Appeals) was not justified to refuse to accept from the taxpayer documentary evidence on the plea that the same was not provided to the assessing officer. His reliance on section 128(5) is not justified as the appellant sought adjournment on 30-10- 2013 an which date evidence was to be submitted. The request of adjournment was refused and proper opportunity to submit the evidence was not granted. Even otherwise Commissioner Inland Revenue (Appeals) is not justified to refuse to receive evidence without establishing deliberate default on the part of appellant as section 128(4) specifically authorises him to make inquiry.
(6) That order under section 122(5A) of Income Tax Ordinance, 2001 is also liable to be cancelled as proper opportunity of being heard was not provided to the appellant.
(7) That addition amounting to Rs, 21,081,780 on account of Freight Charges, has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(8) That addition amounting to Rs, 1,250,000 on account of Vehicle Running and Maintenance has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(9) That addition amounting to Rs, 2,072,700 on account of Machinery Repair has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(10) That addition amounting to Rs, 850,750 on account of Building Repair, has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(11) That addition amounting to Rs, 3,596,332 on account of Loading Unloading has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(12) That addition amounting to Rs, 580,000 on account of Publicity and Advertisement has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(13) That addition amounting to Rs, 2,447,500 on account of Packing Expenses has wrongly been made under section 21(c) of Income Tax Ordinance, 2001. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
(14) That WWF has wrongly been charged by the Assessing Officer which is liable to be deleted.
3. The AR's of the appellant argued that fishing inquiry/seeking information is not permissible under section 122(5A) of the Ordinance. It was pointed out by the AR's of the taxpayer that in notice/letter dated 2-9-2013 documents were required to be produced. The documents required to be produced at page 2 of the notice under section 122(5A) dated 2-9-2013. This fact clearly establishes that assessing officer was holding inquiry which is not permissible.
4. We have heard arguments of both the rival parties, perused the relevant provisions of law and material available on record and decide the appeal in the manner hereunder:--
5. We are fortified from the following case-laws on the issue that the inquiry cannot be conducted while proceeding under section 122(5A) of Income Tax Ordinance, 2001:
(1) 1999 PTD (Trib.) 2851 (Relevant portion at page 2853): "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.
"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".
(2) 2009 PTD (Trib.) 121 (Relevant portion at page 129)
"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".
Relevant para from page 129 is reproduced as under:- "Here we would not be reluctant to hold that the contents of the provisions of section 122(5A) of Income Tax Ordinance, 2001 do not empower the holding of inquiries, which is unlike the provisions of section 66A of the repealed Ordinance, 1979".
3. 2010 PTD (Trib.) 111 (Relevant portion at page 122)
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).
6. The AR of the appellant argued that in this case the assessing officer issued repeated notices i,e, 1st notice was issued bearing No, 60 dated 2-9-2013 and other notice bearing No, 141 dated 10-10- 2013 order is also not maintainable for this reason alone. Reliance is placed on case law reported as 2010 PTD (Trib.)
111. Relevant para is reproduced as under:-- Para 12 page 402 "We have found that the taxation officer through second notice dated 15-11-2007 has claimed to have elaborately highlighted errors 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 send 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 issues which show 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)....................".
Page 404 "Therefore we are of the view that initial notice was void all subsequent proceedings orders or the superstructures built thereon have become void and the order passed by the taxation officer is not sustainable in the eyes of law.
As a result appeal filed by the taxpayer is allowed while the cross appeal filed by the department is dismissed".
7. The AR's of the appellant argued that addition on account of freight expenses is also liable to be deleted as owners of truck for single journey are not liable to deduction of tax. We are in agreement with the submissions of the AR's that as per instruction of CBR contained in Circular No 1(29)IT- 1/79.PT.III dated 7 January, 1982. Payment for freight to truck owner for single journey is not liable to be deduction of tax on such payments.
Apart from above submission, the truck owners are not liable to deduction of tax. As tax paid by truck owners under section 234 of Income Tax Ordinance, 2001 is final discharge of tax of the truck owners for the tax year 2012.
8. It was also argued by the AR's of the appellant that as per amended order it has not been mentioned from whom tax was required to be deducted and deposited in the Government treasury. The AR's of the appellant further argued that names of parties have also not been confronted to the appellant on whose behalf tax was required to be deducted. This submission of the AR's of the appellant is supported with case-law reported as 2012 PTD (Trib.)
122. The order of the assessing officer is not maintainable for this reason also. Relevant para reads as under:-- "I have carefully examined both the orders under consideration and have perused the provisions of sections 161 and 153 of the Income Tax Ordinance, 2001. Though taxation officer has given some reasons for holding the respondent taxpayer as personally liable, yet I am persuaded by opinion of the learned Commissioner (Appeals). I agree with his observations that without identifying names and addresses of the parties or persons from whom and how much tax was to be deducted, provisions of section 161 could not be invoked. It appears that taxation officer was in old frame of mind and could not appreciate that the tax referred to be deducted under section 161 has to be of some identified taxpayer/person and a taxpayer can be declared personally liable only after establishing that he was a withholding agent, who failed to withhold the tax from a transaction, liable to such tax. In this case details and documentary evidence about the transaction in question was disbelieved and discarded by the taxation officer for his own reasons.
He misunderstood the spirit of section 161 of the . Income Tax Ordinance, 2001 as he himself has observed, in his order under section 161, that proceedings were initiated to ascertain the compliance level. He could only see whether withholding, as per return and statutory statements, was made or not and that any transaction, liable to withholding, had not escaped taxation. It is reiterated that no transaction can be held to have escaped deduction under section 161, unless it is established that (1) taxpayer is withholding agent, (ii) a particular transaction is liable to deduction/withholding and (iii) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section 161. These findings are fortified by subsections (1B) and (2) of section 161. Under the subsection (1B) if the amount of tax, required to be deducted, is paid meanwhile by the person, who's tax was to be deducted, then the taxpayer proceeded under section 161 shall pay only default surcharge of the period, he failed to deduct tax till it was paid by that person. Subsection (2) declares that a person held personally liable under section 161(1) shall be entitled to recover the tax from the person, from whom the tax should have been collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person who's tax was not collected or deducted and without identifying the amount of such tax".
9. On the basis of facts, we are constrained to give our findings as under:-- We agree with the contention of the AR of the taxpayer that it has paid freight directly to individual truck drivers and documentary evidence in support of the plea have been produced during the appeal hearing, hence the taxpayer was not required to withhold tax as per S.R.O. 586(1)/91 dated 30-6-1991, since withholding of tax is not required as per provision of section 153 read with S.R.O.
586(1)/91 dated 30-6-1991, therefore, invoking of provision under section 21(c) on the payments made under the head freight is not sustainable.
10. The contention of the AR that expenses incurred under the heads 'vehicle running and maintenance' of Rs,12,50,000, 'machinery repair' of Rs,20,72,700, 'building repair' of Rs,8,50,750, 'packing' of Rs,24,47,500 required the use of stores and articles which are essential ingredients of the expenses incurred under these heads, therefore, such expenses are not services as contemplated under section 153 of the Income Tax Ordinance, 2001. Further, the amount expended under these heads are petty amounts, meaning thereby that each transaction is below the basic threshold of transaction which do not attract the provisions of section 153 of the Ordinance. The AR also produced detail and documentary evidence during the hearing proceedings to substantiate his plea. As is evident from the documents produced by the AR of the taxpayer that expenses incurred are not "services" in the strict sense of the expression as defined in section 153 of the Ordinance, therefore, we agree with the contention of the AR that payments made by the taxpayer under the aforesaid heads do not attract the withholding provisions of section 153 of the Ordinance. Therefore, the provisions of section 21(c) are not attracted in the instant case. Hence we, ordered to delete the additions made by the Assessing Officer and upheld by CIR(A) as being illegal and not sustainable in the eyes of law.
11. The AR also argued that expenses under the head 'publicity and advertisement' amounting to Rs,5,80,000 are incurred during the whole year. The party-wise details and vouchers were also produced by the AR during the appeal hearing which indicates that these expenses pertain to petty expenses i,e, each transaction is less than Rs,10000. Therefore, the payments made under this head do not attract the provisions of withholding tax under section 153. Hence, consequently the invoking of provision of section 21(c) of the Ordinance is illegal and void ab initio
11. On the issue of 'loading and unloading' expenses amounting to Rs,35,96,332 incurred by the taxpayer, the arguments advanced by the AR are based on the material evidence that these payments were made to poor laborers, who are paid very small amounts of Rs,500 to Rs,1000 for each transaction which being below the basic threshold of Rs,10000 do not attract the provisions of section 153. Since the AR has supported his plea with material evidence i,e, in the shape of receipts and CNICs of the persons to whom, such payments were made. Considering these material facts, we are inclined to agree with arguments of the learned AR that single transaction of payments being very nominal do not attract withholding tax as provided under section 153 of the Ordinance, since it is established that payments made under the head 'loading and unloading' do not attract withholding provisions of section 153 of the Ordinance, therefore, we hold that in such circumstances invoking of provisions of section 21(c) is illegal and not sustainable in the eyes of law.
12.The upshot of above discussion is that action of the Addl. Commissioner for invoking of provisions of section 21(c) legally as well as factually is not in accordance with law. Therefore, we direct that additions made under section 21(c) of the Ordinance by the Addl: Commissioner are deleted.
13.It is also held that case-laws relied upon by the learned AR of the taxpayer are applicable on the facts and circumstances of the present case.
14.Since, all the additions made by the assessing officer and upheld by the learned CIR[A] has been ordered to be deleted. Therefore, we also cancel the orders of both the authorities below.
15.It may be pertinent to mention that while perusing the order of first appellate authority, a very fatal judgment or obiter has been made by the learned CIR[A]which reads as under:- "Needless to say, adjournment is not a matter of right".
This judgment or obiter is against the maxim "audi alteram partem" i,e, nobody should be condemned unheard. This is a law of natural justice, which cannot be denied against whom any proceedings are started or intended to be started. Violation of principles of natural justice, amounts to violation of law (1994 SCMR 2232). Giving a proper opportunity of being heard is the essential ingredient of natural justice. The Apex Supreme Court of Pakistan in a case reported as 2009 PTD 37 (S.C. Pak) has made a law that provisions of notice to a person against whom any authority proposed to proceed would be read in every statute irrespective of absence of such provision therein. Further, section 24A of the General Clauses Act, 1897 needs attention. The power to pass an order or give any direction conferred on authority, has to be exercised fairly, justly and for the advancement of the purpose of an enactment. An order passed against an assessee, detrimental to his interest without providing him an opportunity, in no manner can be termed as having been passed fairly and justly [CIT /CWT, Multan Zone Multan v. Muhammad Zulfiqar 2009 PTD 224 (LHC). It is also worth noting that the Board vide Circular No, 7(2) dated 1-2-1994 manifests that three opportunities of clear 15 days should be offered to the assessee before making estimation/assessm ents. It is observed that in the case of Messrs Mehru Electrical and Engg. (P.)
Ltd., v. CIR, Alwar a reference was made to High Court of Rajasthan, whether where a case is adjourned by Tribunal by giving a last opportunity to counsel for assessee, same can be adjourned again on date fixed, if sufficient or reasonable cause exists on that day - Held yes." The relevant paras are given as under:-- "(7) Undisputed facts of the case are that appeal before the Tribunal was fixed on 11-1-2010 and at the request of the authorized representative, hearing of the case was adjourned to 9-2-2010 giving him a last opportunity. Counsel for assessee moved an application for adjournment of the case on 8-2-2010 that he was going to Mumbai for some urgent work. The appeal was taken up by the Tribunal on 9-2-2010 and the application was rejected. Order sheet dated 9-2-2010 of the Tribunal shows that it is a rubber stamped order sheet, which has been filled in, it does not show any reason for rejecting the application. It also does not disclose as to whether appeal has been heard and judgment/order has been reserved or next date is fixed in the case. Impugned order has been passed on 26-2-2010, but in the original file of the Tribunal, it is mentioned that date of pronouncement is 12-3-2010. in another rubber stamped order sheet, the date 26-2-2010 is filed in blank which is not legible. However, from para. 2 of the impugned order dated 26-2-2010, it reveals that a last opportunity was granted to the learned authorized representative of the assessee for arguments in the appeal and the case was fixed for hearing on 9-2-2010. The adjournment application dated 8-2-2010 was rejected because it was clearly mentioned on the last hearing that both the parties are being given the last opportunity".
"(9) In these circumstances, we are of the view that the Tribunal committed an illegality in rejecting the application for adjournment and in deciding the appeal, ex-parte, without hearing the learned counsel for assessee, in the facts and circumstances of the present case and order of the Tribunal deserves to be set aside on this ground alone and substantial question of law, formulated above, is liable to be answered and is hereby answered in favour of the assessee".
16. The analogy derives from the above discussion is that no taxpayer can be condemned unheard. Before levy of tax or completion of his assessment, he should be provided proper opportunity of being heard. Hence, we are of the considered opinion that adjournment cannot be denied, on the basis that it is not the right of the taxpayer. Denying of adjournment, based on reasonable ground, by any authority is against the law of natural justice and as the apex Supreme Court of Pakistan has held that violation of principles of natural justice amounts to violation of law (noted supra). Hence for all authorities, sub-ordinates to apex Supreme Court of Pakistan are mandatorily required to follow the law enunciated by it.
17.In view of above, we hold that it is the fundamental right of every taxpayer that adequate opportunity of being heard is being provided to him before completion of his assessment and adjournment based on reasonable ground is an essential part of the proper opportunity of being heard as well as law of natural justice. Hence adjournment refused to the taxpayer by the assessing or appellate authority in an arbitrary or unjust manner is nullity in law.
18.An other legal issue raise by the A.R. of the taxpayer is with reference to provision of section 128(5) of the Ordinance. For the sake of brevity, it would be expedient if we reproduce the relevant provision of section 128(5) of the Ordinance which is as follows: - "(5) The Commissioner (Appeals) shall not admit any documentary material or evidence which was not produced before the Commissioner unless the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from producing such material or evidence before the Commissioner."
19. The bare reading of provision supra indicates that it contains two important expressions i,e, (i) "not produced before the Commissioner" and (ii) "Sufficient cause".
20.The situation "not produced before the Commissioner" arises due to two eventualities. Firstly, where the appellant- has failed to provide the material or evidence voluntarily to the Commissioner; and secondly where the Commissioner has requisitioned material or evidence specifically from the appellant but he has failed to provide the same to the Commissioner. The language used in the said section shows the clear intent of legislature, to our understanding of the law the provision caters the later situation. The conclusion drawn by us [supra] find support from the clarification issued by the Board vide Circular No, 5/1954 and 6/1956 (quoted in Huzamia and Ikram's Law practice of Income Tax Vol. 11, P 128) where the Board has issued advise to the AAC not to admit material or evidence "in a case where the assessee has deliberately not produced any document or evidence required to be produced, by the Income Tax Officer" (Now Commissioner). It also contained directions that the ITO should not overlook the default but make the assessment under section 63. This would preclude the AAC under section 131(4) from admitting a fresh evidence." It is therefore, desireable that while making a best judgment assessment under section 63, the ITO should invariably call for the accounts, documentary material or evidence under section 61 in order to leave no ground to the assessee to plead at the time of appeal that he was never asked to produce the accounts. In short, the provisions of section 131(4) cannot be invoked in favour of the department if there was no requisition by the ITO for the accounts".
21. The perusal of available record shows that the Assessing Officer did not requisite any material or evidence from the taxpayer, rather the Assessing Officer has given unambiguous decision without requisitioning any material or evidence from the taxpayer that the taxpayer has failed to deduct tax under. section 153 hence the payments made on different heads of accounts are inadmissible in view of provision of section 21(c) of the Ordinance. This action of the assessing officer is in-violation of the instructions issued to the assessing officer by the Board through circulars noted supra. Since it is an undisputed fact that assessing officer has not requisitioned any material or documents as envisaged in section 128(5), therefore, we hold that provisions of section 128(5) are not attracted in the instant case. Therefore, we also hold that CIR (A) was not justified to dismiss the appeal of the taxpayer on this sole ground.
22. The other essential expression used in section 128(5) is "sufficient case". Sufficient case is an expression which is found in various statutes. It essentially means as adequate or enough, as defined in different dictionaries. There cannot be any strait jacket formula for accepting or rejecting any explanations for not furnishing material or evidence before the commissioner.
23.Proof of sufficient cause is a condition precedent for exercise of the extra ordinary discretion vested in the authority. Now, all most all higher judicial for a ha's settled this proposition that the expression" "Sufficient cause" should therefore, be considered with pragmatism in a justice - oriented approach matter than the technical detection of sufficient cause for explaining not filing the material or evidence before the Commissioner. The court should decide the matters on merits unless the case is hopelessly without merit.
24.It is also a trite law that liberal construction of the expression "sufficient cause" is intended to advance substantial justice which itself presupposes no negligence or inaction on the part of the appellant, to whom want of bona fide is imputable. The expression "sufficient cause" implies the presence of legal and adequate reasons. The word "sufficient" means adequate enough, as such as may be necessary to answer the purpose intended. It embraces no more than that which provides which, when done, suffices to accomplish the purpose intended in the light of existing circumstances and when ,viewed from the reasonable standard of practical and prudent men. The sufficient cause should be such as it would persuade the authority, in exercise of its judicial discretion, to treat the fault as an excusable one. The appellant should show that besides acting bona fide, it had taken all possible steps within its power and control and had approached the authority without any unnecessary wilful default.
25. When viewed the facts of the instant case in the context of above noted discussion, it is found that the appellant had provided documentary evidence regarding the alleged discrepancies in the imports declared by the appellant and data of imports made by the appellant available on the E- portal of FBR. Whereas for material and evidence pertaining to tax withheld on the payments made by the appellant, the AR of the taxpayer had filed application for adjournment, as he was awfully occupy with preparation and filing of Income Tax return of his clients for at that point of time.
Practically, it is a sufficient cause for seeking adjournment and generally the departmental officers allowed adjournments liberally during the said period.
26. In this view of the matter we hold that the appellant was prevented by sufficient cause from producing material and evidence before the Commissioner, therefore, the action of C.I.R.(A) to refuse to entertain the material and evidence produced before him in respect of withholding of tax is not justified rather it is illegal and not sustainable in the eye of law.
27. Appeal decided in the manner as indicated above.