The appellant through these two appeals has objected against the consolidated order of the. learned CIR(A) dated 18-5-2011 for the tax years 2008 and 2009. The following common grounds have been taken by the appellant:-- "(1) That the learned Commissioner Inland Revenue (Appeals-II), RTO, Karachi erred in passing the order under section 129 of the Income Tax Ordinance, 2001 (the Ordinance), on account of following legal infirmities.
(2) That the learned CIR(A) erred in not quashing the view of ACIR to assume jurisdiction to form view regarding 'erroneous and prejudicial to the interest of revenue', which is beyond the powers of ACIR as same cannot be delegated by the Commissioner.
(3) That the learned CIR(A) erred in accepting the ACIR powers to pass amended order under appeal which is beyond his jurisdiction because of deemed assessment order passed by Commissioner.
(4) That the learned CIR(A) erred to assume jurisdiction of ACIR to pass order under section 122(5A) of the Ordinance which is revisional in nature and cannot be exercised by officer below Commissioner.
(5) That the learned CIR(A) erred in not quashing the order passed by the ACIR who ignored the judgment of Honourable Lahore High Court stating his office is not in justification of Lahore High Court; whereas he himself attempted to rely on Honourable Supreme Court of Pakistan judgment.
(6) That the learned CIR(A) erred to concede the misinterpretation of ACIR's judgment of Supreme Court against Islamabad High Court decision (Writ Petitions Nos,517-518 of 2009 and Writ Petition No,653 of 2009) stating that apex court confirmed the same whereas instead of confirming same, apex court disregarded (impliedly overrule) the decision of Islamabad Court stating that legal objection should be first responded by the concerned Commissioner.
(7) Allocation of expenses (7.1) That the learned CIR(A) erred in not quashing the allocation of expenses by ACIR under section 67 of the Ordinance and Rule 13 of the Income Tax Rules, 2002 and the same are not allocated on a reasonable basis at all and on wrong presumptions/inferences.
(7.2) Without prejudice to the ground 7.1 above the learned CIR(A) did not quash the allocation of expense by ACIR on 'profit on debt' amounting to Rs,23.567 million for the tax year 2008 and Rs,85.292 for the tax year 2009 without stating any reasons thereof; despite the fact that in number of case-laws it is held that no income is earned without allocation of reasonable expenses.
(8)Advance tax (8.1) That the learned CIR(A) erred by not giving credit of advance tax amounting to Rs,3.729 million for the tax year 2008 and Rs,14.747 million for the tax year 2009 while working out taxes payable despite the fact that the evidences of the tax deducted at source was provided during assessment as well as during hearing of appeal before the learned CIR(A)."
2. The appellant in this case is an unlisted public limited company under Non-banking Finance Companies Rules, 2003 and is engaged in the business of investment advisory and investment in securities. The returns for the two years under review were filed. For the tax year 2008, the loss at Rs,65,141,682 besides commission income which falls within the scope of Final Tax Regime (FTR) and the Additional Commissioner found the declared returns which are the deemed assessment order under section 120 of the Income Tax Ordinance, 2001 to be erroneous And prejudicial to the interest of revenue after examination of the record for the following reasons:-- (a)The business expense has been wrongly apportioned against income from other sources.
(b)Expenses have not been properly prorated between commission income and other revenues like free/services charges (FTR and non FTR income). The computation of income has not been made in accordance with the provision of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002.
For the tax year 2009, the return of total income was e-filed declaring a loss of Rs,160,718,951 besides commission income being in the scope of Final Tax Regime which was also treated to be erroneous and prejudicial to the interest of revenue. Hence for the both the tax years, section 122(5A) was invoked and ultimately the amended order was passed which was agitated in the first appeal before the learned CIR(A) who has upheld the invoking of section 122(5A) of the Income Tax Ordinance, 2001 for both the years.
3. Mr. Khurram Iqbal, CA, learned AR counsel for the appellant, has contended that the tax year 2008 is the first year and tax year 2009 is the last year of the appellant/taxpayer company as thereafter it stood merged in the KASB Bank Limited. He has contended that the Taxation Officer has allocated total expenditure on the ratio of turnover without identifying specific expenditure to exempt/taxable activity. According to learned counsel, the plain reading of section 67, of the Income Tax Ordinance, 2001 and Rule 13 of the Income Tax Rules, 2002 stipulates that only common and inseparable expenditures are to be allocated on a reasonable basis. He has contended that the issue has already been dilated by this Tribunal in so many cases in favour of the taxpayer. He has in this regard referred the following decisions of this Tribunal: (a)I.T.As. Nos,61/KB/2005, 62/KB/2006, 63/KB/2007, 64/KB/2008 and 65/KB/2009 in case of KASB Bank Limited (b)I.T.A. No,229/KB/2009 of International Housing Finance Limited (c)2005 PTD 2586 (Lah. HC) in case of Atlas Investment Bank (d)2002 PTD (Trib.) 1568
(e) 2010 PTD (Trib.) 25 in case of Dawood Capital Management
(f) 2012 PTD (Trib.) 1385 in case of Millat Tractors Limited The learned counsel has contended that the taxpayer company was incorporated to undertake the business of money market activities, capital market activities, project finance activities, corporate finance services and general services as specified by the Commission. He has contended that for the above referred activities, overall business plan was developed and costs incurred in both the tax years under review. For the tax year 2008, Rs,66.5 million was paid to Merrill Lynch Singapore, Rs,14.1 million consultancy fee, Rs,9.7 million salaries allowance and Rs,19.7 million administration expenses. According to learned counsel, the expenditure paid to Merrill Lynch Singapore and Consultancy Fee does not relate to earning exempt/FTR sources income, hence is specific to normal tax income and is not required to be apportioned at all being out of ambit of section 67 read with Rule 13. According to learned counsel, the expenditure related to normal income and exempt/FTR income for the two years under review were furnished before the Additional Commissioner/Taxation Officer with all details and even before the learned CIR(A) but both of them have not considered the details and evidences in this regard. The learned counsel has contended that the capital gain (exempt income) is earned in treasury department which makes investment in equity market. This department is staffed with few people but have large turnover. Therefore, on the basis of turnover expenditure cannot be allocated to this segment of income. But these facts have been ignored by both the officers below. He has, therefore, requested that the orders of both the officers below may be cancelled and the declared results may be directed to be upheld.
4. On the other hand, the learned DR is supporting the impugned orders of both the officers below.
He has contended that the Additional Commissioner/ Taxation Officer has righty invoked the provisions of section 122(5A) of the Income Tax Ordinance, 2001 and the action taken by him is well within the ambit of law as provision of section 210 of the Ordinance empowers the Commissioner to delegate the powers and functions to any Officer Inland Revenue subordinate to him except the power of delegation as expressly mentioned in section 210(1A) of the Income Tax Ordinance, 2001.
He has contended that section 211 of the Income Tax Ordinance, 2001 treats the powers exercised or the functions performed by the Officer Inland Revenue under a delegated authority as powers or functions exercised or performed by the Commissioner. He has contended that since under Income Tax Ordinance, 2001, by fiction of law the taxpayer itself is assessing authority at its income because the returns filed under section 114(4) shall be taken for all purposes of the Income Tax Ordinance, 2001 to be an assessm ent order issued to the taxpayer by the Commissioner on the day the said return was furnished. The learned DR has contended that the said provisions of the Income Tax Ordinance, 2001 and the repealed Income Tax Ordinance, 1979 had entirely different schemes regarding assessm ent of income and the tax payable thereon and the principles that governed remedial action under section 66A of the repealed Income Tax Ordinance, 1979 cannot be applied to action under section 122(5A) of the Income Tax Ordinance, 2001. He has contended that the assessm ents have been deemed to have taken place by fiction of law and not finalized by Commissioner with conscious application of mind unlike was done in the repealed Income Tax Ordinance, 1979, under sections 59(1), 62, 63 and 65 on which provisions of section 66A were invoked. It is contended that none of the Officer Inland Revenue is empowered to make an assessm ent under section 120 of the Income Tax Ordinance, 2001. Therefore, the assertion that to pass an amended order under section 122(5A) of the Income Tax Ordinance, 2001 to be framed by a superior authority hardly remains applicable. According to learned DR, the factual position is that the taxpayer himself is making his own assessment and the authority under the Income Tax Ordinance who has been delegated the powers under section 122(5A) can pass an order under this section. It is only because of the restriction placed under subsection (1A) of section 210 that the powers under section 122(5A) cannot be delegated to an officer below the rank of Additional Commissioner. The learned DR in this regard has also referred the decision of the Honourable Islamabad High Court dated 2-7-2009 in Writ Petition No,653/09 which has already been approved by the Honourable Supreme Court of Pakistan while deciding Constitutional Petitions Nos,1664- 1665/2009 vide order dated 11-9-2009. The ratio of the above judgment is that the Additional Commissioner under delegated authority can perform the functions and exercise the powers of the Commissioner with specific reference to section 122(5A) of the Income Tax Ordinance, 2001. The learned DR has contended that this Tribunal has already followed the above decisions while deciding the appeal filed by the Karachi Port Trust reported as 2010 PTD (Trib.) 2306. The learned DR has further contended that the Additional Commissioner/Taxation Officer has rightly allocated the common expenses under section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002 because where the appellant derives both Final Tax Regime (FTR) income and NTR income or taxable income and exempt income, then the same has to be allowed on B prorata basis between income covered under FTR and NTR and similarly between taxable income and exempt income. It is contended that it is a settled principle of law that wherein allowance/deduction/expenditure (by whatever name it is called) is common, the same has to be prorated between the income assessable under Normal Tax Regime (NTR) and Final Tax Regime
(FTR) on the basis of their ratio of turnover. This principle is applicable to all types of expenditures where these expenses are common. In this case the expenses prorated by the Taxation Officer are common in terms of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002. These expenses are to be prorated on the basis of the principle of apportionment as envisaged in section 67 read with Rule 13 of the Income Tax Rules, 2002. Such treatment, according to learned DR, has also been upheld by the Honourable Sindh High Court in the case of Messrs Atlas Investment Bank Ltd., v. CIT reported as 2005 PTD (MC Kar) 2586 and also in the case of Messrs Crescent Investment Bank Limited v. ITAT reported as 2005 PTD 2599 (Lah HC). It is contended that this Tribunal in the case reported as 2005 PTD 1850 and 1999 PTD (Trib.) 3880 has also decided the issue in favour of the Department. It is contended that in all these judgments, a fundamental principle has been laid down that where an expenditure/allowance/ deduction is exclusively related to any particular head/source of income but wherein deduction/allowance/ expenditure is common and it is inseparable the same has to be apportioned/allocated on prorata basis which exactly has been done by the Taxation Officer in this case while allocating common expenses/ deduction in the case of the appellant. The learned DR in view of these facts and circumstances of the case has requested to uphold the impugned orders of both the officers below.
5. We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIR(A) and the amended orders for the years under review. We have also examined the case-law referred and the other available record of the case.
6. We have found that in this case, the Additional. Commissioner/ Taxation Officer has invoked section 122(5A) of the Income Tax Ordinance, 2001 for both the years under review for the reason that in both the years the appellant/taxpayer has wrongly apportioned the business expenses against income from other sources. Likewise, the expenses have not been properly prorated between commission income and other revenues like fee/service charges which relate both to FTR and non FTR income and the computation of income has not been made in accordance with the provisions of section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002. For the tax year 2009, the diminution in the value of investment being a notional loss and merely a provision is not an allowable expense but has been claimed as expense. After considering the facts and circumstances and the legal position of the case, we are of the view that the Additional Commissioner/Taxation Officer has rightly apportioned common expense/deduction in accordance with the provisions of law and rules as contained in section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules, 2002 as he has in this regard placed reliance on the decisions of the Honourable Sindh High Court reported as 2005 PTD (HC Kar.) 2586 and the decision of the Honourable Lahore High Court reported as 2005 PTD 2599 and also the decisions of the Full Bench of this Tribunal reported as 2005 PTD 1850 and another decision reported as 1999 PTD (Trib.) 3880. The appellant in this case has admittedly not allocated common expenses as per section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of the Income Tax Rules;, 2002 of FTR and non FTR income. We are, therefore, of the view that the learned CIR(A) has rightly held that this fact is established and then it is confirmed that by not allocating/prorating the common expense the deemed assessments under section 120 of the Income Tax Ordinance, 2001 for both the years under review were definitely erroneous which are also prejudicial to the interest of revenue as well and has rightly been maintained the impugned orders of both the officers below. The impugned order of learned CIR(C) is, therefore, upheld and both the appeals filed by the taxpayer are dismissed.