' MUNSIF KHAN MINHAS, JUDICIAL MEMBER.---The above titled appeals on behalf of the taxpayer are directed against the consolidated order of learned CIR ( Appeals-III), Islamabad dated 24-2-2011 pertaining to Tax Years, 2004, 2005 on the following common grounds;-
(1) That Order passed by the Deputy Commissioner Inland Revenue and that of Commissioner Inland Revenue (Appeals) is void in law, without jurisdiction and against the facts of the case.
(2) That selection of case for Audit by the Commissioner is against the provisions of section 177(4) of Income Tax Ordinance, 2001 as well as against the provisions of natural justice.
(3) That without prejudice to above, the action of Assessing Officer to continue the proceedings under section 122 without issuance of notices as directed by the Honorable Lahore High Court, Rawalpindi Bench, Rawalpindi as per judgment dated 8-6-2009 in. Writ Petition filed by the appellant, renders the whole proceedings void in law and tantamounts to contempt of Court.
(4) That instead of complying the directions of Honorable High Court, the taking of proceedings under section 122(5) is a clear cut change of opinion which is not acceptable in law. The initiation of proceedings under section 122(5) without closing the audit proceedings wider section 177(4) are even otherwise legally not sustainable.
(5) That the Order of Amendment passed by the Deputy Commissioner under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 without having any definite information is liable to be annulled. The calculations based on so called OGRA formula which is hypothetical and not prepared or certified by any scientific lab or research institute could not constitute any definite information.
(6) That without prejudice to above, the said OGRA formula is even otherwise not applicable for the year under consideration as the CNG was being sold in pressure based unit of bar and not weight unit of K.G. No per K.G. Sale price was regulated or fixed by SNGPL or OGRA during the said period.
(7) That without prejudice to above, calculation of sales made by the Assessing Officer did not constitute a definite information as the percentage of wastage cannot be fixed at a rate of 11% for all CNG Stations which depends upon various factors. Further the element of discount allowed has also not been taken into consideration.
(8) That without prejudice to above, estimation of Sales made by the Assessing Officer is not justified legally as well as on the facts of the case. Even otherwise Declared Sales have complete Support of Sales Tax Returns accepted by the Sales Tax department.
(9) That the Assessing Officer was not justified to make additions under the heads Cost of Sales and Profit and Loss expenses in the absence of any definite information. The Assessing Officer initiated amendment proceedings under sections 122(1)/122(5) D on the basis of so called OGRA formula and there was no mentioning of any such information regarding cost of Sales or P&L expenses therein. Further, no estimation could be made under section 122(5) of the Ordinance.
(10) That without prejudice to above, the additions made under the heads Cost of Sales and P & L expenses are also not justified on the facts of the case.
(11) That without prejudice to above, the Amendment Order is liable to be annulled because the relevant provision of Subsection (5) of Section 122 of the Ordinance applicable in the case of the appellant has not been specified.
(12) That the Order passed by the Deputy Commissioner is without Jurisdiction and lawful Authority.
(13) That without prejudice to above, initiation and finalization of proceedings by the Deputy Commissioner for Tax Year 2004 and the Tax year 2005 on the same date is liable to be declared illegal and void being against the directions issued by the FBR vide its Circular No.4(36)ITP/2002 which are binding upon every officer of the Board under Section 206 of the Income Tax Ordinance, 2001.
2. Brief facts leading to these appeals are that the taxpayer in the instant case derives income from running of CNG Station. Returns for the Tax Years under appeal were treated to be assessment order issued by the Commissioner under section 120 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance). However, the cases of the above mentioned taxpayer for the years under consideration were selected for audit under section 177(4) of the Ordinance. The cases for the years under appeal were selected for audit vide letter dated 4-12-2008. Subsequently IDR (Information Document Request) were also issued by the Assessing Officer. Amendment proceedings were initiated by issuing combined show-cause notice under section 122(9) of the Ordinance for the Tax Years under consideration. Being dissatisfied with, the treatment given by the DCIR(A-II), the assessee preferred appeal before learned CIR(A-III) who uphold the order passed by the Taxation Officer.
3. The first appeals filed by the taxpayer were dismissed by the CIR (Appeals-III), Islamabad vide order passed in the cases under consideration on 24-2-2011. The taxpayer being dissatisfied with the findings of the learned CIR(A) have come up in second appeal before this Tribunal on the grounds raised supra.
4. Mr. Atif Waheed Advocate/AR present on behalf of appellant in the above mentioned case while Mr, M. Jawad, DR, present on behalf of the revenue who have been heard.
5. During court proceedings learned AR states that initiation of proceedings of amendment by DCIR(Audit-II),Rawalpindi was also void ab-initio having been passed without any jurisdiction.
According to the learned AR the assessing officer has not acquired jurisdiction under section 122(5) for amendment of order under section 120(1) which could not be exercised until first definite information as acquired under section 122(5) is first established. Learned AR further states that the assessing officer was himself confused who has given references of section 122(4) in the amendment proceeding which has no relevancy to the issue under consideration.
6. The learned AR also contends that the order passed under section 122(5) without there being any definite information was beyond the Jurisdiction of Assessing Officer. According to learned AR, the so called OGRA formula evolved on hypothetical calculations and the sales worked out by the Deputy Commissioner through conversion of "MMBTU" units into "K.G." units on the basis of said formula is merely an estimation which could not constitute any definite information. The learned AR raised objections that sale price of Gas adopted by the assessing officer is merely a guess work as no sale price of Gas for CNG stations was fixed or allowed to be fixed by All Pakistan CNG Association to avoid cartelisation. The Price of CNG could not be fixed by the All Pakistan CNG Association as per clause 13 of CNG Production and Marketing Rules, 1992. Further, the CNG was not sold at the same price on all the stations and it is a matter of common knowledge that discount ranging from 15 to 30% was being allowed by the CNG stations under competitions. According to learned AR, the "temperature" and "pressure" factors always play key role in conversion of "MMBTU" units of CNG into "K.G." which fact has been totally ignored by the Deputy Commissioner. According to learned AR, it is a matter of common practice that the same quantity i.e. K.G.'s of Gas when filled on different stations due to variation in pressure and temperature yield different mileage. It was also pointed out that a fixed value of "Specific Gravity" and "Calorific Value" cannot be applied at all the CNG stations since the temperature and pressure are never the same. According to learned AR, the "calorific value" and "specific gravity" never remain constant since their values depend upon the constantly changing factors of "temperature' and '!Pressure".
' Learned AR also states that the gas meter with electronic volumetric character device for measurement of precise quantity of gas, subsequently supplied to CNG Stations were not installed during the relevant period and the same were asked to be provided vide Ministry of Petroleum and Natural Resources letter No.CNG-7(9)/06 dated 17-7-2007 i.e. After the period under consideration.
' Another objection raised by the Learned A.R. Is that for the period under consideration, CNG was sold in pressure based unit of "bars" and not in "K.G." units of Weight. According to him it took a long time to switch over the prevailing system of Sale of CNG from units of "bars" to "K.G.s". In support of his contention the A.R. Reproduced copies of correspondence letter between OGRA and all Pakistan CNG Association. It was also pointed out that in para 4.4 of the above letter it was also directed to provide gas for CNG stations at maximum possible pressure which obviously meant that all the stations were not being provided the Gas at the same pressure.
' As per contention of the learned AR, the formula was not prepared by any practical scientific methods or certified by any research lab. Said OGRA formula even otherwise does not constitute a "definite information" as the ratio of "MMBTU" to "Kg" values as worked out by the Deputy Commissioner on the basis of said formula is not constant even for two months of a year and is changing every month.
' Another objection raised by the learned AR is that Sales worked out by allowing wastage at 11% on estimate basis is a being guess work which could not constitute any definite information. Further the fact of discount allowed has been totally ignored while working out of sales. Moreover, the declared sales even otherwise have complete support of Sales Tax record and Sales Tax returns filed and accepted by the department on the basis of the same.
7. Learned AR further states that the Assessing Officer was not justified to make addition under the head cost of sales. He states that the assessing officer has only taken into account the Sui Gas bills and has not considered the electricity bills which is also a verifiable expense and the bills of which were already filed along with return.
8. Another contention of the learned AR of the appellant that the addition out of P&L expenses on estimate basis was not in any case justified under the provision of section 122(5) of the Ordinance.
According to learned AR when the assessing officer himself accepted that he was not carrying out the audit how he could disallow the expenses. Another issue raised by the learned AR of the appellant was that the relevant provision of subsection (5) of section 122 of the Ordinance having not been specified, the order was even otherwise liable to be annulled. Learned AR also points out that carrying out of the audit for more than one of the previous years was in violation of the directions of FBR issued vide circular No.4(36) ITP/2002 which were binding upon the assessing officer under section 206 of the Ordinance.
9. Learned DR on the other hand in his arguments defended the impugned orders. According to learned DR the Sales adopted by the assessing officer on the basis of OGRA formula were justified and reasonable. According to the learned DR the sales were worked out on the basis of OGRA formula prepared on the basis of information provided by SNGPL and OGRA etc. Learned DR further submitted that F the amendment proceedings were completed under sections 122(1)1122(5) and not on the basis of audit. However, the learned DR was unable to putforth any argument on the said issue regarding the addition under the cost of sales and P&L expenses in this regard. Learned DR further submits that most of the CNG Stations have agreed to pay tax on the basis of agreed formula at the rate of 4%. According to him the CNG was not sold in pressure based unit of "bar" and was already being sold in "K.g." even before the period under consideration. However no documentary evidence was reproduced by the Learned D.R. In support of his claim.
10. The learned AR however raised the objection that the contentions of the DR was not correct. Learned AR produced a copy of judgment of the Tribunal dated 27-4-2010 in I.T.As. Nos.81, 82/IB/2010 and 20 other cases whereby the order passed under section 122(5) on the basis of said agreement were cancelled by this Tribunal.
11. We have considered the facts of the cases and the contentions of the Revenue are not found to be convincing. In our opinion information gathered now cannot be applied for .The period pertaining, to 6-7 years before in the instant cases. A number of objections raised by the taxpayer with regard to the authenticity of the formula applied by the assessing officer are of relevancy. The assessm ent order is silent with regard to explanation of the Taxpayer in this regard. No effort was made by the Assessing Officer to verify the fact that whether the CNG was sold in Pressure based units of "bars" or weight units of "k.g." Further the sale price adopted by him .Has no authenticity. The element of wastage is not a constant factor and always depends upon the conditions of compressor machinery. The Deputy Commissioner has also not considered the discount allowed which was a common practice during the said period.
12. The learned AR has produced the judgment of this tribunal. The learned Accountant Member differed with view expressed by Judicial Member in I.T.As. Nos. 224-225/IB/2011 with regard to characterization of OGRA formula as a definite information. As a difference of opinion arose between the learned members of the division bench, therefore worthy Chairman referred these appeals to referee learned Judicial member Mr. Munir Sadiq and purposed two questions for adjudication, which are reproduced here:--
(1) Whether or not OGRA formula can be characterized as definite information?
(2) If issue No. 1 is answered in negative even then instead of annulment of demand assessment, should not the taxpayer be asked to avail the facility of concessionary payment of tax at the rate of 4% as most taxpayers in this line of business have availed this facility?
13. Mr. Munir Sadiq learned Judicial member expressed his view, same is reproduced here:-- "As regard the first question, I am of the view that scientific advancements and the research methodologies should be adopted in order to progress but when a legal; question is before a court of tribunal it is bound to apply the law and decide the case accordingly to peculiar facts and circumstances of the case. In the present case, OGRA provides a formula to the tax authorities for determining sales per month by converting the energy units (MMBTU) into mass units (kgs) but OGRA has not associated any of the appellants or representatives of the CNG stations before making such scientific research or during such scientific research/study. It only consulted Sui Northern Gas Company Ltd. And Sui Southern Gas Co. Ltd. Therefore, this formula cannot be used to disadvantage of the appellants because justice should not be done but it should manifestly seem to have been done. Moreover, this formula provides a mode of determination and assessment, but in no terms it could be treated as definite information. Needless to observe that the tax authorities have themselves opted for taxation on the basis of 4% tax gas charges instead of this formula and the results mentioned. In. Earlier part of, this order show that tax per MMBTU as per OGRA formula is Rs.
51.8 whereas on basis of gas charges at 4% tax per MMBTU is Rs.
7.49 and each formula depicts result which shows a huge difference between net incomes as well as the tax chargeable. The scheme of Income Tax Ordinance, 2001 shows that it has given 'sanctity to the deemed assessm ent under section 120 of the Income Tax Ordinance, 2001 which is not to be disturbed except in accordance with the provisions of section 122 of the Income Tax Ordinance, 2001. Therefore, I agree with learned Judicial Member that despite scientific conversion said formula does not fulfil the yardstick/touchstone of definite information and under the law assessm ent can only be amended on the basis of definite information. Consequently, the amended assessm ent is annulled and the deemed assessment under section 120 of Income Tax Ordinance, 2001 is restored.
' Now I come to the second issue, my brother learned Accountant Member, has proposed that if issue No. 1 is answered in negative even then instead of annulment of amended assessment, should not the taxpayer be asked to avail the facility of concessionary payment of at the rate of 4% as most taxpayers in this line of business have availed this facility. Suffice it to say that judicial forums are bound to decide every case as per law and facts of the case. The appellants cannot be forced to follow the option availed by other taxpayers because it is their inalienable right to be treated in accordance with law. No doubt, this tribunal ought to protect the revenue but strictly in accordance with law. In the instant case, as a result of decision on issue No. 1 the deemed assessm ent under section 120 of the Income Tax Ordinance, 2001 stands restored, therefore, issue No.2 is answered in negative."
' Now it is a decided issue with majority view, which is to be followed onwards in such like cases.
14. With these discussions and observations we have been left with no other option except to annul the amended assessm ent and restore the deemed assessment under section 120(i)(b) under the Income Tax Ordinance, 2001.
15. Appeals stand accepted in the above terms.