JUDGMENT: , MR. JUSTICE SHAHID JAMIL KHAN.--(1). This judgment shall also decide Reference Applications mentioned at the bottom, as similar legal proposition under similar facts is raised in all the Applications.
2. Language of the proposed questions is different in many . cases, therefore, a representative question is resettled for the legal proposition i,e, :-- "Whether under the facts and circumstances of the case, learned Appellate Tribunal was justified to hold that provisions of section 121(1)(d) of the Income Tax Ordinance, 2001 could not be invoked for non-submission of documents during audit proceedings, in presence of order under section 120 of the Income Tax Ordinance, 2001?"
3. Facts; common in all the cases, are that returns under section 114 of the Income Tax Ordinance, 2001 ("Ordinance") were filed by the respondent taxpayers for tax years 2003 to 2009. Admittedly; the returns had attained status of assessment orders under section 120 of the Ordinance.
Respondent taxpayers were selected for audit of their income tax affairs under section 177 and were served with notices under section 174(2) for production of record. On non-compliance, orders under section 121(1)(d) of the Ordinance were passed.
These orders were challenged by respondent taxpayers and the matter went up to the Appellate Tribunal Inland Revenue ("Appellate Tribunal"), where it was held that provisions of section 121(1)
(d) could not have been invoked in presence of an order under section 120; department could have proceeded under section 122 after seeking explanation under section 177(6) from the taxpayer.
Applicant Department has assailed these orders by proposing the legal proposition for our opinion.
4. Learned counsel for the applicants were confronted with the judgment by learned Division Bench of this Court in Commissioner Inland Revenue (Legal) v. Commissioner Inland Revenue (Appeals) and others (PTCL 2013 CL. 152), wherein the same legal proposition had been answered against the department holding that order under section 121 could not be passed in presence of an order under section 120, which by now is upheld by Hon'ble Supreme Court of Pakistan vide its order dated 9-5-2013, inter alia, in Civil Petition No, 526 of 2013. It is argued that the judgment passed by learned Sindh High Court in Messrs Sarah Construction Co. through Partner, Karachi v. Taxation Officer-5, Audit-2, Karachi and others (2013 PTD 682) was not considered by the Apex Court and some important aspects, considered by learned Sindh High Court, were overlooked.
5.Heard learned counsel at preliminary stage, record perused.
6. Although the argument has no force in view of Art. 189 of the Constitution of Pakistan, 1973 yet we have examined the judgment by learned Sindh High Court wherein similar proposition of law was answered in favour of the department holding that the provisions of section 121(1)(d) were rightly invoked under the circumstances by the Taxation Officer. Its perusal depicts that learned Division Bench of the Sindh High Court was not assisted properly as it had relied on the provisions under the section 121 which were not available at relevant time. Operative part of the judgment is reproduced:-- "11. As per facts of this case the taxpayer filed return under self-assessment, which stood assessed under section 122(3) of the Ordinance, 2001, thereafter the case of the taxpayer was selected for audit under section 177. Notices were issued for production of certain documents and the accounts as required to be maintained in terms of section 174 of the Ordinance, 2001, however, the applicant did not respond to such notices nor produced any documents or the accounts in support of his return of income. It will be advantageous to reproduce the relevant provisions of section 121(1)(d) and section 174(2) of the Income Tax Ordinance, 2001 invoked in the instant matter, which read as follows:-- "121. Best judgment assessm ent.--(1) Where a person fails to--
(d) produce before the Commissioner, or any person employed by a firm of chartered accountants or a firm of cost and management accountants under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon, the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income [or income] of the person and the tax due thereon [and the assessm ent, if any, treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect]."
"174(2) The Commissioner may disallow [or reduce] a taxpayer's claim for a deduction if the taxpayer is unable, without reasonable [cause], to provide a receipt, or other record or evidence of the transaction or circumstances giving rise to the claim for the deduction."
12.From the perusal of herein above provisions, it emerges that if any person fails to produce the accounts, documents and records required to be maintained under section 174 before the Commissioner/Taxation Officer, then the Commissioner/Taxation Officer is authorized to make an assessm ent of the taxable income of the person and the tax due thereon. There seems no embargo upon a Taxation Officer to make best judgment assessment under section 121 in case of a person, who fails to comply with the notice issued under section 177 by the Taxation Officer. It is clear that prior to amendment made by Finance Act, 2010 in section 177 by adding subsection (10), the best judgment assessm ent in terms of section 121(1)(d) of the Income Tax Ordinance, 2001 could be made by the Taxation Officer, hence objection in this regard as raised by the applicant is misconceived." (emphasis supplied)
The underlined part in clause (d) of ,section 121(1), ibid, was inserted through Finance Act, 2012, therefore, was not available in tax year 2004. Learned Sindh High Court has also not discussed the effect of inserting subsection (10) in section 177 through Finance Act, 2010, which is also reproduced hereunder:-- "(10) Notwithstanding anything contained in subsections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Costs and Management Accountants appointed by the Board or the Commissioner under subsection (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Costs and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect."
In our opinion, the judgment by learned Division Bench of Sindh High Court is per incuriam for placing reliance on irrelevant provisions due to lack of proper assistance.
7. We have re-examined the judgment, supra, by learned Division Bench of this Court, wherein effect of subsequent amendments in section 121(1)(d) and insertion of subsection (10) in section 177 were discussed explicitly by highlighting scheme of the Ordinance. It would be advantageous to reproduce the relevant excerpt from the judgment:-- "13. For the tax period uncle,: discussion i,e,, 2004 to 2006 the legislative scheme does not provide for cancellation or annulment or amendment of the deemed assessment order passed under Section 120 by an assessm ent order under sections 121 and 177(10) of the Ordinance, whereby deemed assessm ent is declared to have no legal effect if an assessment order under Section 121 is passed, establish that the un-amended version of these sections did not provide for cancellation or amendment of the deemed assessm ent order thereby identifying the lacuna in the law prior to the amendment. Reliance is placed on Glaxo Laboratories Ltd. v. Inspecting Assistant Commissioner of Income Tax and others (1992 SCC 910).
14.For the above reasons, we are of the view that prior to the amendment brought about in Sections 121 and 177(10) through Finance Act, 2010, Section 121(1)(d) did not apply to cases where return of total income had been filed and did not envisage a second assessment order."
The Hon'ble Supreme Court of Pakistan upheld this ratio in following words :-- "3. ...The question as framed was answered in accordance with the position of the law as it existed in 2004 and 2006. Subsequently certain amendments were made in view of the 'Judgment of the Income Tax Tribunal. These amendments do not take effect retrospectively. The Judgment of the learned High Court seems to be justified which needs no interference. For the foregoing reasons, these petitions are dismissed and leave refused."
8. It is reiterated that we could answer the legal proposition in view of binding decision by Hon'ble Supreme Court of Pakistan, however, after re-examination of the judgment by learned Sindh High Court and learned Division Bench of this Court, in juxtaposition, we convincingly answer the legal proposition as couched in the resettled question (supra) in affirmative i.e., against the applicant department.
9. Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal Inland Revenue as per Section 133(5) of the Income Tax Ordinance, 2001.
10. For the reasons given in this judgment, the applications detailed hereunder also decided in the same terms; PTR No. 309 of 2010, PTR No. 444 of 2010, PTR No. 445 of 2010, PTR No. 446 of 2010, PTR No. 590 of 2010, PTR No. 610 of 2010, PTR No. 611 of 2010, PTR No. 612 of 2010, PTR No. 613 of 2010, PTR No. 614 of 2010, PTR No. 619 of 2010, PTR No. 630 of 2010, PTR No. 646 of 2010, PTR No. 647 of 2010, PTR No. 45 of 2011, PTR No. 48 of 2011, PTR No. 114 of 2011, PTR No. 152 of 2011, PTR No. 155 of 2011, PTR No. 171 of 2011, PTR No. 181 of 2011, PTR No. 231 of 2011, PTR No. 233 of 2011, PTR No. 236 of 2011, PTR No. 237 of 2011, PTR No. 238 of 2011, PTR No. 242 of 2011, PTR No. 06 of 2012, PTR No. 299 of 2012, PTR No. 335 of 2012, PTR No. 354 of 2012, PTR No. 562 of 2012 and PTR No. 571 of 2012.