' The titled appeal preferred at the instance of the Taxpayer is directed against the order of the learned Commissioner Inland Revenue (Appeals-IV), Lahore dated 12-12-2012 under sections 161/205 of the Income Tax Ordinance, 2001.
2. Brief facts of the case are that the appellant, a private limited company engaged in the business of "construction of roads, bridges, canals and of other civil engineering works" e.Filed Income Tax Return for the Tax Year 2011 which was deemed assessed under section 120 of the Ordinance.
Subsequently on scrutiny of record it transpired that the appellant had deducted nominal tax and majority of payments were made without tax deduction. Keeping in view of this default, the Inland Revenue Officer issued a notice under sections 161(1) (a), 161(1) (b) and 205 requiring to furnish explanation regarding the discrepancies as per the notice. The appellant, after obtaining adjournment, filed details vide letters dated 23-4-2012 and 11-5-2012. The AR of the appellant has been attending all the proceedings making request for adjournments which were allowed.
3. The last proceeding was held on 22-5-2012, when the case was adjourned for 31-5-2012. No compliance, however, could be made on this date. As such, the IRO inferred that the appellant had nothing to state in its defence and thereby he passed an order under sections 161/ 205 of the Income Tax Ordinance, 2001. Being aggrieved, the Appellant filed appeal before the first appellate authority, who, vide his order dated 12-12-2012 allowed partial relief. Being not satisfied with the treatment meted out by the first appellate authority, the appellant filed appeal before this forum on the specific legal as well as factual grounds.
4. The appellant agitated the orders passed by both the authorities below to be contrary to law and facts of the case. It has been vehemently argued that the assessment has been made on the basis of single solitary default without confronting the tax payer regarding deficiency in the information/documents submitted before the taxation officer. Further argued, that non issuance of show-cause notice has rendered the assessment nullity in law. Reliance has been placed upon various judgments reproduced below:-- "Non compliance of mandatory requirements rendered the proceedings defective and judgment in nullity".
' PLD 1992 SC 723 "If mandatory condition is not fulfilled entire proceedings become unlawful for want of jurisdiction."
' PLD 1971 SC 124 ' Submission is made that no wilful default was committed by the taxpayer as only one notice issued by the department was duly responded by the taxpayer through partial compliances. The Assessing Officer deliberately ignored the, explanation submitted by the taxpayer in this behalf. The appellant argued that the learned CIR(A) failed to lawfully dilate on the ground related to lack of issuance and service of mandatory notice.
5. There was no justification for finalizing the case ex parte on single default. Where opportunity of being heard is not given the order passed is liable to be cancelled. Reliance has been placed upon judgment of Hon'ble Lahore High Court, Lahore reported as 2012 PTD 964 (H.C. Lah) where cancellation made by the learned Tribunal in such as been upheld by the Hon'ble Lahore High Court, Lahore. Similarly, the AR also took another point with regard to failure of the Inland Revenue Officer having not issued mandatory notice under Rule 44(4) of the Income Tax Rules, 2002, which is reproduced below:-- "A person required to furnish the statements under sub-rule (1) or (2) shall, wherever required by the Commissioner, furnish a reconciliation of the amounts mentioned in the aforesaid annual and monthly statements with the amounts mentioned in the return of income, statements, related annexes and other documents submitted from time to time."
6. During the proceedings the Inland Revenue Officer has not issued any notice to meet the above mandatory condition of confronting the taxpayer with the deficiency and objections which he wanted to have been explained before finalization of the order.
7. It is contended that without issuance of notice and confronting the taxpayer, the officer could not assume the jurisdiction for passing the order. Reliance in this respect is placed on 2007 SCM R 307.
Wherein, it has been held that:-- "When the judges decide to condemn a man, whether a party or witness, the facts, on which condemnation is initiated to be based, must be put to him so as to give him opportunity of explanation and condemnatory facts, and thus to remove the judges suspicion about his condemnation."
' It was explained that learned Tribunal in a judgment reported as (2011) 104 Tax (sic) also held that, "notice to person subjected to action be issued even if statute does not incorporate its issuance."
In this case, the appellant has been condemned without allowing opportunity of being heard.
During the entire proceedings, no mandatory notice was issued.
8. Objection was raised that the notice dated 14-3-2012, initiating simultaneous proceedings under different sections i.e. Sections 161(1A), 161(1B) and 205 was not having legal force. Reliance has been placed on the following citations:-- ' 1987 PTD 1914 (Trib.), 1998 PTD 973 (Trib.), 2005 PTD 234 (Trib.) and 2011 PTD 321 (Trib.)
9. In view of the above citations, the assessment made is liable to be cancelled.
10. On merits it is contested that, without identifying the particulars of each description of assets, specifying names and addresses and the amount of tax to be deducted, the addition made on purchases of assets is not sustainable. It is, stated that section 161 is not the charging section. The amount deducted and collected from the recipient has to be adjusted and credited to their respective account. Reliance is placed on the judgment reported 2012 PTD (Trio.) 122, wherein it is held that:- ' Without specifying the 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 the Inland Revenue Officer was of old frame of mind and could not appreciate that the tax rendered to be deducted under section 161 has to be of some identified taxpayer/person and the taxpayer cannot be declared personally liable after establishing that he was withholding agent who failed to deduct tax from the transaction liable to such tax.
11. On merits of the case, it is explained that the IRO assessed Cost of Work Done amounting to Rs.
2,180,071,017 ignoring ]AS-11 Accounting Standard. Thereafter, there was no justification to include further payments in duplication of the same account of purchases amounting to Rs.336,956,002 out of exempted purchases and impose tax at Rs.11,793,460. All the suppliers mostly limited companies and steel rerolling mills had already discharged their tax liability through filing the return, there was no justification with the IRO to create further tax liability under section 161. The Maple Leaf Cement Limited is a Public Listed Company and other steel rerolling mills are also existing taxpayers and sales tax registered persons who all were exempted from withholding tax and that exemption certificates were duly provided during the proceeding before the ACIR, and the learned first appellate authority has admitted that steel manufacturers were covered by the sales tax special procedure where sales tax is paid with reference to the electricity bills and sales tax is disclosed in the sales tax returns. It is maintained that, before rejection of the claim of purchase from exempted parties, the IRO should have issued notice under section 176 to ascertain the correctness of declared version. In the absence of this procedure order is liable to be cancelled.
12. On the contrary, the learned D.R. Strongly defended the orders passed by both the authorities below and submitted that no prejudice is caused to the taxpayer as the ACIR, during the appeal proceedings before CIR (Appeals), through sou-motu rectification, has deleted Default Surcharge amounting to Rs. 20,996,733 and the main demand of Rs. 51,274,119 has been set-aside by the learned CIR(A).
13. We have heard the arguments put forth by the learned representatives or both the sides and have carefully gone through the available record together with the case-laws referred by the learned AR.
' After due consideration, we feel persuaded to be in agreement with the arguments put forth by the learned A.R. That the learned CIR(A) has failed to apply his judicious mind while'confirming the issues except set asiding the two issues. The learned ACIR passed ex parte order under sections 161/205 of the Ordinance, whereas, the learned CIR(A) treated the same as without considering the written arguments filed by the A.R. It is evident from the orders of the taxation Officer as well as the learned Commissioner Inland Revenue (Appeals) that taxpayer provided details in respect of payments on which tax had been deducted, it was also informed that balance amounts did not attract the provisions of section 153 either due to exemption certificates available with the parties or payments were below the taxable limit. We are of the opinion that at this juncture it was the requirement of natural justice that taxation Officer, before creating tax liability under sections 161/205, should have confronted the taxpayer through specific notice for the charge of tax. It is a very commmon practice that departmental officers, while holding a taxpayer as assessed in default, forget that section 161 is not a charging section, it is not meant for the levy of tax on any kind of income rather section 153 or other withholding sections are additional burden on taxpayers to deduct tax on the payments made to different persons who never wilfully allow to deduct the tax. Under such situation, we are of the considered view that reasonable opportunity of being heard be given to withholding agents to explain/justify the reasons, if any, for non-deduction of tax.
We further express our opinion that after filing of details/documents by the taxpayer (withholding agent) there is any shortcoming and the taxation officer intends to charge tax under section 161, specific notice be issued to the taxpayer informing him the reasons/basis for the charge of tax under section 161. This Tribunal has observed in number of cases that taxation officers unilaterally and whimsically, without confronting the taxpayers by making them easy prey charge tax under section 161, which is not fair and justified and can no longer be allowed to continue. We, therefore, suggest that such practice be avoided and provisions of section 161 without properly and adequately confronting the taxpayer should not be made a source of revenue generation.
14. Since mandatory requirement of issuance of show-cause notice before charge of tax has not been fulfilled, therefore, proceedings/super structure built is illegal. Furthermore the appellant in this case regularly attended the proceedings and for one reason or the other, adjournments were sought which were granted by the taxation officer. On last date of hearing when the appellant did not attend the office, this was solitary default on its part and there was no justification for the ex parte charge of tax under section 161 of the Income. Tax Ordinance, 2001. Facts of the case discussed above lead to the conclusions:---
(i) Condition, as per pronouncements of the different courts for the issuance of show-cause notice before charge of tax has not been fulfilled;
(ii) Condition of provision of reasonable opportunity of being heard has not been given; and
(iii) Illegalities committed are fatal for the order which are not curable
15. We must add here that show-cause notice, whether its issuance is provided in the, law or not, must, be issued so that taxpayer has at least knowledge of the intended treatment. When proper/specific final show-cause notice is issued, burden shifts upon the taxpayer to defend its case against the charges framed by the taxation officer. This Tribunal in judgment reported (2011)
104 Tax (sic) has held:-- "When a person is to be subjected to action prejudicial to his interest, has to be confronted--- Even if statute does not incorporate provision as to issuance of notice, the same shall be read as having been provided for action."
' In this case since basic conditions have not been fulfilled, therefore, judgments of the Hon'ble apex Court reported as PLD 1971 SC 124 and PLD 1992 SC 723 come into force for the rescue of aggrieved party. It has been held by the Hon'ble Court that if mandatory condition for the exercise of jurisdiction is not fulfilled, then the entire proceedings which follow become illegal and suffer for want of jurisdiction. Judgment reported as 2007 SCM R 307 holds that without issuance of show- cause notice, officer could not assume jurisdiction for passing the order.
16. Similarly Hon'ble Lahore High Court in judgment reported as 2012 PTD 964, has held that order passed without providing reasonable opportunity to explain the position was not tenable in law.
17. In view of forgoing reasons, we conclude that mandatory requirements in this case have not been fulfilled, the orders passed by the authorities below are cancelled and the appeal of the appellant is accepted.