1. Through these two cross appeals the impugned order of the learned CIR(A) dated 17-10-2012 has been objected. The taxpayer has agitated against the impugned order on the following grounds:-
(1) That the impugned order passed by the learned CIR(A) is bad in law and contrary to the facts of the case based non judicial unjust and without lawful jurisdiction.
(2) That the learned CIR(A) did not consider the illegality of the DCIR and in an arbitrarily manner confirm the order of the DCIR.
(3) That the CIR(A) had misdirected in law and facts while maintaining coram-non-Judicious order dated 29-6-2012 under section 122(1) (5) read with under section 111(1) (b) of the Income Tax Ordinance.
(4) That the learned CIR(A) had grossly erred in law and facts while maintaining the order dated 29-6-2012 of the DCIR barred by time, under Rule 29(4) of the Income Tax Rules, 2002 and unamended sections 174(3), 111(4)(b) and 122(2) of the Ordinance relevant to tax year 2006 and misapplying binding Apex Court Rulings.
(5) That the learned CIR(A) had misdirected in law and facts while ignoring that each year is a separate entity and assessm ent is governed by the law relevant to the tax year 2006 and terminal end of limitation period is fixed at the starting of the relevant tax year and rejecting the appellant grounds and misapplying/misreading binding precedents.
(6) That the learned CIR(A) had grossly erred by ignoring the fact that the DCIR have not provided proper opportunity as is evident from the body of the order the appellant filed his objections on the date 29-6-2012 and on the same day order against the appellant was passed which is not sustainable in the eyes of law.
2. ' Without prejudice to the above;
(7) That the learned CIR(A) ignored the fact that the taxpayer sold his inherited property amounting to Rs,50,00,000 this amount was also reflected in the bank entries and did not bother this amount and confirm the DCIR order on this point.
(8) That the CIR(A) confirm the GP @ 20% which is highly excessive in any case by ignoring the facts that the margin of profit decreases as the volume of sales increases and confirm the DCIR order on this point without any solid reason.
(9) That the CIR(A) ignored the facts that the profit and loss expenses allowed by the DCIR are very low in any business and confirmed the same treatment on this point."
2. While the departments in the cross appeal has objected the impugned order on the following grounds:-- " (2) That the learned CIR(A) was not justified to admit documentary evidence vis-a-vis peak cash credit in the taxpayer's bank account statement which was not produced during the amendment proceedings.
(3) That the learned CIR(A) was not justified to allow profit and loss expenses Ca. 50% of the gross profit without giving any cogent reason and in the absence of documentary evidence which were disallowed in the light of provisions of section 174(2) of the Ordinance."
3. Brief facts leading to appeal are that the taxpayer is an individual engaged in the business of a digital photo. Lab. The taxpayer filed return of income on 30-9-2006 for the tax year under consideration declaring turn over being a retailer at Rs,23,068,83 and paid tax at Rs,17,302. The said return deemed to be an assessm ent order for all purpose of the Ordinance and the taxable income and tax due thereon equal to those respective amounts specified in the return are deemed to be assessed by the Commissioner on the day return is furnished under section 120(1) of the Ordinance.
3. Subsequently bank statement of account maintained by the taxpayer in Faysal Bank Limited was sought. Accordingly a show cause notice issued on 11-6-2012 intending for amendment of assessm ent under section 122(1) read with subsection (5) for the reasons that there are discrepancies in the declared results; there are huge unexplained and undeclared credit entries/cash deposits do not correspond with the income results declared for the tax year and call for addition in total income as income from other sources in term of 111(1)(b) of the Ordinance being suppression of unexplained deposits. The tax payer was required to furnish reply supported with documentary evidences in case of non-compliance, partial compliance or unsatisfactory explanation, proceedings under section 122(1)&(5) of the Income Tax Ordinance, 2001 will be concluded accordingly was intended to be made by the assessing authority. In response thereto the taxpayer furnished written reply vide letter No,CDL/2006/999 dated 29-6-2012 and objected that the proceedings initiated against the appellant are time barred and hit by limitation. The reply and explanation tendered by the taxpayer could not find favour from the DCIR. Accordingly the DCIR proceeded to pass assessm ent order under section 122(1) read with 122(5) of the Income Tax Ordinance dated 29-6-2012 and determined total income at Rs,3,662,312 and tax payable Rs,1,154,309. Being aggrieved with the treatment by the DCIR, the taxpayer preferred appeal to the learned CIR Appeals Faisalabad. Who after considering the facts and circumstances of the case and the written arguments filed by the learned counsel of the taxpayer deleted addition of peak credit being explained by the taxpayer and allowed the 50% profit and loss expenses and rejected the main ground of the taxpayer. Hence these cross appeals.
4. Learned counsel representing the taxpayer has at the very outset raised the legal objection that the amended assessm ent order in this case passed by the Taxation officer under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 is barred by time. According to learned counsel the income tax return in the case was filed on 30-9-2006 which was taken to be an assessm ent order in terms of section 120(1) of the Ordinance. At the time of filing of return, the limitation for amending the assessme nt framed under section 120(1) was provided by the statute as five years before amendment in subsection (4) of section 122 of the Ordinance. Therefore assessm ent framed under section 120(1) of Ordinance could only be amended up to 29-6-2011 but in the case in hand the amendment order passed under section 122(1)(5) of the Ordinance has been recorded on 29-6-2012,which is absolutely time barred being passed after the time limitation of five years. This order is barred by time in view of sections 122(2), 174(3) and 111(4)(b) of the Ordinance and Rule 29(4) of the Income Tax Rules relevant to tax year 2006.The learned AR submitted that the amendment in subsection (2) of section 122 through Finance Act, 2009 is enforceable from 1st day of July 2009 and applicable prospectively to the future tax years and not retrospectively to the prior years. Similarly amendment in subsection (3) of section 174 brought through Finance Act, 2010 enforceable from 1st day of July, 2010 by virtue of preamble to the Act and section 1(3) read with section 8(37)(77) of the Finance Act, 2010 and applicable prospectively and, not applicable retrospectively to effect the vested rights accused due to afflux of time on 30- 6-2010. The amendment made by Finance Amendment Ordinance, 2009 and reenacted Finance Amendment Ordinance, 2010 stand expired and the statue reverted to its original position and the amendment made through these temporary legislation effaced from the statue book and could not be utilized for determining the rights of the taxpayer after their expiration. Further the omission of section 111(4)(b) by Finance Act, 2010 is effective from June 5, 2010 and cannot be given greater retrospective effect than given by the legislature under section 8(77) of the Finance Act, 2010. The learned AR further argued that the amendment in these provisions are impregnated with the essential attributes, characteristics or features which effect an accrued rights of the taxpayer that after afflux of certain period of time, his assessment would not be amended, record would not be called and no addition will be made. These provisions are also assembled or woven with the characteristics which have the potential of adding liability to the taxpayer therefore; these are substantive and not mere matter of procedure and cannot be applied retrospectively unless the Legislature by express words has given retrospective effect. In support of his arguments he relied upon judgment of the Honorable Supreme Court of Pakistan reported PLD 1963 SC (Pak.) 322 in the case of Na Silk Mills, Layalpur v. Tax Officer Lyalpur, judgment reported 2009 PTD 1392 SC CIT v. Eli Lilly Pakistan (Pvt.) Ltd. And PLD 1964 SC (Pak) 266 in the case of Saeed Ahmad v. The State. On the other hand, learned DR representing the Department supported the orders passed by the two authorities below and contended that the proceedings under section 122 were rightly initiated and the addition under section 111(1)(b) is validly made to the facts and circumstances of the case. The learned DR contended that proceedings under section 122 has been initiated within extended limitation period by the substituted section and is procedural in nature and apply retrospectively.
5. We have heard the learned representatives of both the parties and have perused the impugned orders of both the officers below, the case-law referred, the relevant provisions of law and the available record of the case. Before adjudication of limitation issue under consideration, it is appropriate to take bird eye view of the relevant amendments and cited judgments of the Apex Courts. The position of the above provisions, pre and post amendments, and gist of the judgments relied upon by the learned AR of the taxpayer are presented below for ready reference:- PRE AMENDMENT POST AMENDMENT Section 122(2)
4. "An assessment order shall only be amended under subsection (1) within five years after the commi ssioner has issued or isSection 122(2)
5. "No order under subsection (1) shall be amended by the commissioner after the expiry of five years from the end of the financial year in which the treated as having issued the assessment order the taxpayer"commi ssioner has issued or treated to have issued the assessment order to the taxpayer. "(Amended by Finance Act, 2009)
6. Section 174(3)
7. The accounts and documents required to be maintained under this section shall be maintained for five years after the end of theSection 174(3)
8. The accounts and documents required to be maintained under this section shalt be maintained for Six years to which they taxpayer to which they relate. relate. Amended by Finance Act, 2010 Section 111(1)(b)
9. To any amount referred to in subsection (1), relating to a period beyond preceding five tax years of assessment years.Section 111(1)(b)
10. Clause omitted by Finance Act, 2010 Rule 29(4)
11. The books of account documents and records to be maintained under this chapter shall be maintained for five years after the end of the tax year to which they relate.Rule 29(4)
12. Remained un changed Case-Laws PLD 1963 SC 322 Nagina Silk Mills, Lyalpur v. Income Tax Officer, Lyalpur "The limitation in this case under subsection (2) of section 34 of the Act has started running on the 1st day of April 1956, and that fixed the terminal date of the period of four years as the 31st of March 1960, with certainty under the law as it then stood. It is a well recognized principle of the law of limitation that once time begins to run from a specified date it cannot be interrupted or extended unless the Legislature intervenes and makes express provision to the country. No such express provision exists in the present case. By a mere process of construction it cannot be argued therefore that the new definition of "year", inserted by the Ordinance of 1960 in the Act, was calculated to effectuate a change in this respect, so as to convert the period of four years 'limitation into years of unequal length and to introduce an element of uncertainty where previously stability existed. The altered definition of the word "year" brought in by the Ordinance of 1960, seems to have direct application only to the terminal date, of the year of assessment commencing on the 1st of April 1958, which receives an extension of three months so as to end with the 30th of June, 1959. An indication to this effect is provided by section 6 of the Ordinance of 1959.
13. The new definition contains no words such as could operate to extend a period which had already commenced to run many years earlier, according to a fixed measure of time, namely, a year of twelve months."
14. "The Courts must lean against giving a statute retrospective operation on the presumption that the legislature does not intend what is unjust. It is chiefly where the enactment would prejudicially affect vested rights, or the legality of past transactions, or impairs existing contracts, that the rule in question prevails. Reference may be made in this connection to page 206 of Maxwell. On the Interpretation of Statutes, Eleventh Edition. Even if two interpretations are equally possible, the one that saves vested rights would be adopted in the interest of justice, specially, where we are dealing with a taxing statute."
15. 2009 PTD 1392 SC PAK Commissioner of Income Tax v. Eli Lilly Pakistan (Pvt.)Ltd (Page 1444, Para 47, Marked as J)
16. "In our view, the provision is impregnated with an essential attribute, which effects an accrued right of an assessee or a taxpayer that after efflux of a certain period of time, his assessment would not be opened or amended. Therefore, the section cannot be applied retrospectively unless the Legislature has by express words or necessary implication intended to give it retrospective effect."
17. (Page 1445, para 48, Marked as K)
18. The learned counsel for the respondents took the position that an element of addition of liability was woven into the overall provisions of the Ordinance, particularly into the machinery sections, including section 122, therefore, the same could not be given retrospective effect. Having anxiously considered the matter, the view we are inclined to take is that the provision is impregnated with the potential of adding to the liability of the taxpayer, therefore, the same is not a mere matter of procedure. It has already been that the taxpayer/assesses have a right that their assessments will not be reopened after the expiry of the statutory period of five years".
19. (Page 1454, Para 57, Marked as Q)
20. "Where rights and procedure are dealt with together, the intension of the Legislature may well be that the old rights are to be determined by the old procedure, and that only the new rights under the substituted section are to be dealt with by the new procedure."
21. 2005 PTD 259 (Kar. H.C.).
22. "By now it is a settled principle of the interpretation statutes that in the absence of express words used by the legislature, the retrospectively to any law is not to be given so as to reopen the past and closed transactions and deprive any person of any accrued vested right in pursuance of such past and closed transactions."
23. Likewise while resolving the issue regarding retrospective effect of the limitation extended after promulgation of new Income Tax Ordinance, 2001, it was held by this Tribunal as under in the judgment reported as: 2008 PTD (Trib) 1146 "Subsequent enlarged limitation by the new Ordinance cannot be applied in cases of those pending assessm ent which are to be governed by the repealed Ordinance, 1979 provides limitation of four years which was expired before passing of this impugned order. This contention of the department that limitation was already extended by way of new legislation does not carry weight because for the assessm ent year 1998- 99 provision of old laws are applicable and limitation enlarged in the new Income Tax Ordinance, 2001 is not to apply."
24. 'The bare reading of the above subsection, (2) of section 122 of the Ordinance, pre and post amendment reveals that the limitation period of five years remains unchanged and only beginning of the limitation has been changed from the date of issuance of order to end of financial year relevant to the issuance of such order. It is not a direct case of enlargement of limitation period by extending the terminal end but a change in the commencement of limitation period from the date of issuance of order to the end of financial year in which such order is issued. It is to be noted that in term of section 120(1) return filed by the taxpayer is taken for all purposes of the Ordinance to be an assessm ent order issued by the Commissioner to the taxpayer on the day the return was furnished. Therefore the limitation period is reckoned and computed with reference to the day the return is furnished. The identical issue came for adjudication before the Honourable Supreme Court of Pakistan in the supra Nagina Silk Mills case where the word "year" was defined by Finance Ordinance, 1960 and due to which commencement of limitation was changed from 1st day of April to 1st day of July. The honorable court after considering various authorities and thorough examining the facts of the case quashed the order being passed holding to be without jurisdiction and laid down the following principles:--
(1) The limitation in this case under subsection (2) of section 34 of the Act has started running on the 1st day of April 1956,and that fixed the terminal date of the period of four years as the 31st March 1960,with certainly under the law as it then stood.
(2) It is a well recognized principle of law of limitation that once time begins to run from a specified date it cannot be interrupted or extended unless the Legislature intervenes and makes express provision to the contrary.
(3) The new definition contains no words such as could operate to extend a period which had already commenced to run many years earlier, according to a fixed measure of time, namely, a year of twelve months.
(4) The courts must lean against giving a statute retrospective operation on the presumption that the Legislature does not intend what is unjust.
(5) Even if two interpretations are equally possible, the one that saves vested rights would be adopted in the interest of justice, specially, where we are dealing with a taxing statute.
6. The perusal of the facts of the case of the taxpayer shows that the return has been filed on 30-9- 2006 for the tax year under E consideration and the said return deemed to be assessment order issued to the taxpayer by the Commissioner on that date i,e, 30-9-2006, the day return was furnished under section 120(1) of the Ordinance and the limitation period of five years for amendment of assessm ent started running from that date i,e, 30-9-2006 and terminal end is fixed at 29-9-2011 in term of subsection (2) of section 122, relevant to tax year 2006 as it then stood. The limitation period started running from 30-9-2006 could not be interrupted because the substituted section do not contain any word which could extend period which had already commenced to run many year earlier according to fixed measure of time. Therefore, the ratio laid down in the supra judgment of Nagina Silk case is squarely applicable to the fact of the case of the taxpayer and binding in term of Article 189 of the Islamic Republic of Pakistan on the surbordinate courts. We, therefore, hold that the action under sections 122 and 111(1)(b) by the Taxation Officer in this case is barred by time and the taxpayer is clothed with the vested rights which could not be impaired or waived off. The question of extension of limitation of opening of assessment under section 122 of the Ordinance has also been dealt with for interpretation before the Honourable Supreme Court in the supra Eli Lilly case. The Department before the Honourable Supreme Court contended that the section 122 is a machinery provision and procedural in nature and apply retrospectively in the pending cases.
25. The honorable Supreme Court after examining various authorities on the subject repelled the contentions of the department and ultimately laid down the following principles:--
(i) Where the procedural provision is impregnated with the essential attributes which effects an accrued right of the assessee or taxpayer that after afflux of a certain period of time his assessm ent would not be opened or amended. The section cannot be applied retrospectively unless the Legislature has by express word or necessary implication intended to give it retrospective effect.
(ii) Where the procedural provision is woven with the attributes or characteristics of having potential of adding to the liability of the taxpayer, the provision is not a mere matter of procedure and is substantive in nature.
(iii) Where rights and procedure are dealt with together, the intension of the Legislature may well be that the old rights are to be determined by the old procedure, and that only the new rights under the substituted section are to be dealt with by the new procedure."
26. ' The examination of subsection (2) of sections 122, 174(3) and 111(4)(b) H reveals that these sections deal with limitation period and the right is accrued to the taxpayer at the start of limitation period that after the afflux of certain period of time specified therein his assessment cannot be opened or amended, addition under section 111 could not be made and prescribed record under section 174 and Rule 29 would not be called. Therefore, the amendments in these provisions affect the accrued rights and are substantive in nature and not mere matter of procedure and have not been given retrospective effect by the Legislature. Therefore, according to the dictum laid down by the Honourable Supreme Court in the supra judgment, the old rights shall be governed by old procedure and new rights shall be governed by the substituted section dealing with the new procedure. These sections also have the potential of adding to the tax liability of the taxpayer, therefore, could not be applied retrospectively unless clear words have been used by the Legislature for retrospective effect and no such words are found in the supra amendments.
27. Subsection (2) of section 122 substituted by Finance Act, 2009 is enforceable from 1st day of July, 2009 and applicable to the deemed order issued or passed on and after that date and not applicable to the deemed order already passed before the substitution of this subsection and cannot effect the limitation period which has already started many years' earlier and terminal end is fixed at that time. Moreover, no express word of Legislature found in the substituted section for giving retrospective application to the said substituted provision. Rather the word "shall" have been used in the substituted section which conveys the intention of the Legislature that it is prospective.
28. The preamble and subsection (3) of section 1 of the Finance Act, 2009 also shows that the amendment brought in the Income Tax Ordinance are enforceable from July 01, 2009 and financial proposal of the Federal Government are for the year beginning on July 01, 2009. It is also worth mentioning that under Rule 29(4) of the Income Tax Rules, 2002 the taxpayer still have been given the right to retain books of accounts prescribed under Chapter VII of the Income Tax Rules, 2002 for a period of five years after the end of tax year to which they relate. Therefore, calling of record for the tax year 2006 from the taxpayer after the expiration of limitation period of five years on 29-6- 2011 is also barred by time. After the laps of limitation period of five years on 29-6-2011 the taxpayer has clothed with a vested statutory right of non-retaining and furnishing such records before the tax authorities. The right so accrued cannot be taken away or even waived off by the affected party i,e, the taxpayer as held in the case reported as (1982) 138 ITR 462). The rule prescribed by the FBR in the exercise of powers vested under section 237 read with section 174(1) of the Ordinance has a statutory force and be read as the part of the statute which confers the power of its enactment and where right is claimed on the basis of such rules then the rules cannot be dispense with.
29. Reference may be made to the decision reported as PLD 1961 SC 105, 2003 YLR 1555, 2010 PTD 2302 and 1986 SCMR 1917. In fiscal statute where two provisions are dealing with the situation simultaneously, one section is imposing higher burden then the other, then the provision imposing lower burden shall be applicable.
30. It is also pertinent to mention that under the new scheme of Income Tax Ordinance, 2001 applicable amendments are supplied to the taxpayer in advance at the start of tax year usually effective on 1st day of July so that they can arrange their affairs accordingly and can make proper provision for tax liability. Under the repealed ordinance, applicable amendments were made available to the taxpayer after the close of the income year and that mischief has been suppressed in the new scheme. Therefore, in accordance with the object and purpose of the new scheme of the Income Tax Ordinance, 2001 amendment brought by the Finance Acts from time to time should be given prospective effect to advance the remedy and suppress the mischief.
31. Moreover, the Income Tax Ordinance, 2001 is a fiscal statute and whenever the Legislature intends to give retrospective effect to any amendment it is expressly provided therein. For examples, amendments made in sections 113, 153 and First Schedule reproduced hereinafter. Therefore, giving retrospective effect to supra amendments in this fiscal legislation is inconsistent with the object of the scheme and practice of the Legislature.
32. A-Section 113(1)"
33. ' This section shall apply to a resident company, [an individual having turnover of fifty million rupees or above in the tax year 2009 or any subsequent tax year] and any association of persons [having turnover of fifty million rupees or above in the tax year 2007 or any subsequent tax year] where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force- (Brackets inserted by Finance Act, 2010)
34. B-Section 153(9)(g)
35. An association of persons, having turnover of fifty million rupees or above in the tax year 2007 or any subsequent tax year (Clause (g) inserted by Finance Act, 2008) C-First Schedule, Part 1, Division I, Clause I, Proviso Provided further that internally displaced persons tax (IDPT), treated as income tax, on the tax payable on the taxable income of one million rupees or more, shall be levied at the rate of 5% of such tax, for tax year 2009.
36. (Proviso inserted by Finance Act, 2009)
37. D-First Sched, Part, I Division The rate of tax imposed on the taxable of Association of persons for the tax year 2010 and onward shall be 25% (Division IB inserted by Finance Act, 2010)
7. Keeping in view the delicacy of the limitation matter under consideration, in view of the facts of the case, cited provisions of law, binding judgments of the Honourable Apex Courts, findings and reasons recorded above, the invoking of section 122 of the Ordinance for the tax year 2006 by the DCIR is barred by time and the subsequent proceedings, order dated 29-6-2012 and addition under section 111(1)(b) and impugned order of he learned CIR(A) dated 17-10-2012 is void ab initio, illegal and without lawful authority. The appeal filed by the taxpayer is allowed while the cross appeal filed by the department has become infructuous hence rejected.