NADEEM DAR, ACCOUNTANT MEMBER.---This appeal is filed by the taxpayer against CIR(A) Order No, 1883/2012 dated 19.12.2012 on following grounds:--
1. That CIR(A)'s order dated 19/12/12 to set-aside the order under sections 161/205 is bad in law and contrary to facts.
2. CIR(A) erred in law by not appreciating that department's order is unlawful being passed by audit division instead of enforcement division.
3. Information record requisition by department is hit by time, limitation under section 174(3) and liable to be annulled instead of being set aside.
4. As per section 174(3) tax authorities cannot call for records beyond 5 years.
5. In remanding case to the department, CIR(A) erred in law by allowing department to call records beyond period of 5 years.
6. CIR(A) erred-in-law by not appreciating that SC/IHC in judgment of 17.05.2011 and 26.05.2009 have not held that tax authority can requisite record beyond 5 years limitation laid down section 174(3).
7. CIR(A) erred-in-not appreciating case is hit by time limitation.
8. CIR(A) failure to provide proper opportunity to company, that department's order should have been annulled.
9. DCIR was bound to identify by parties where tax was not deducted. Therefore DCIR charged tax without identifying parties and specify instances of default record of order so, order should have been annulled.
10.CIR(A) erred in not appreciating that department have not confronted company with show- cause stating tax i,e, going to be recovered under section 161 with default surcharge under section 205, hence company was condemned unheard and department order warrants annulment because in presence of WHT statement, department was wrong to hold that withholding tax was not with held from payments.
2. The above ten grounds are overlapping and can be focused into following main issues:-- a) The department's notice asking details of payment and of tax deducted was time barred under section 174(3). b) CIR(A) should have annulled the department's order instead of remanding back. c) That show cause or proper opportunity was not given to the appellant. d) Supreme Court did not hold the conclusion drawn by CIR(A), namely that the section 174 limitation will not apply to proceedings of section 161. e) The department's failure to identify parties and instances of non-short deduction/payment of WHT; and holding default of WHT by basing it on percent of total amount of expenses claimed under the head of account, makes department's order illegal and liable to be annulled.
These main issues are dealt as follows:--
3. Issues (a) Time Barred Proceedings The department's notice asking details of payment and tax deducted was time barred under section 174(3).
Issues (b) CIR(A) Should Have Annulled, Not Remanded Case CIR(A) should have annulled the department's order instead of remanding it back.
Issues (d) SC/IHC Orders Supreme Court did not hold the conclusion as taken by CIR(A), namely that section 174 limitation will not apply to proceedings of section 161.
These issues being related, are dealt as follows.
4. The department in its order under section 161 dated 30.10.12 sates that the IHC order dated 26.05.2009 in ITR Nos, 44-45/2007 held as under:-- "...The legislature has chosen not to provide any period of limitation for passing an order declaring a person to be assessee in default. The income tax authorities for that matter, the Income Tax Tribunal has no power to read the period of limitation prescribed under section 156 of the Ordinance in section 52...".
The department's order further states as follow:-- "..,Subsequently, Honourable Supreme Court of Pakistan declared the said judgment as in accordance with law and settled norms of justice and dismissed Civil Appeal bearing No, 1091 and 1092 of 2009 filed by M/s Pakistan Mobile Communication (Pvt.) Limited against the same..."
5. The CIR(A) in his order No, 1883/2012 dated 19.12.2012 in appellant's case discussed the same as under. "...I have perused the view point of the learned AR in the light of provisions of law and the impugned order and observed that plea of the AR on this count is not based on law. The issue of limitation for action under sections 161/205 has already been settled through judgment of honorable Islamabad High Court vide judgment in ITR Nos,44, 45/2007 wherein it has been held that the legislature has chosen not to provide any period of limitation for passing on order for declaring a person assessee in default. Later on, the said judgment was upheld by the Honourable Supreme Court of Pakistan in Appeal Nos, 1091 and 1092 of 2009. In view of the said judgment there is no merit found in the plea of the on this issue..."
6. It is therefore clear to us that department carefully considered the matter of limitation and passed orders in terms of superior judiciary's decisions, and that so did the CIR(A).
7. The AR during appeal provided copy of ATIR's order ITA(LB) order dated 12.06.2014 passed in case of MCB ITA Nos, 375-379/2013. We have perused the tribunal's order carefully and find that the order dated 12.06.2014, does not discuss, nor distinguish itself from the judgment before IHC and the SC, which decisions clearly state to the effect that where no time limitation is given in legislature, then time limits cannot be applied.
8. The IHC judgment dated 26.05.2009 as per extract quoted in department's order No, 1883 dated 19.12.12 also clearly states that:-- "...the income tax authorities for that matter have no power to..." and this IHC decision was also upheld by the SC. The ATIR(LB) order is therefore not accepted in light of S.C's judgment dated 12.06.2014.
9. In view of the above, and following the IHC decision and Supreme Court's view on the same, we find that there is an absence of any time limitation in section 161, and therefore the department and CIR(A) were correct in their actions in holding that no time limitation violation was involved. The appellant's grounds of appeal pertaining to issues at (a), (b) and (d) above and its demanding annulment on basis of being time barred under section 161 therefore fail and are rejected.
10.Before taking leave of the limitation issue, we would like to comment on the limitation issue as raised by appellant. The department took action against the appellant under sections 161/205 Income Tax Ordinance, 2001. The said section does not contain any limitation of time for enforcement. The appellant has relied upon on the time limitation given in section 174(3) of the Ordinance. On that issue IHC and SC have already held in above quoted cases that there is no time limit for enforcing section 161.
11.Honorable Supreme Court in CIT v. Hossen Kasam Dada No, C.A. 23-D decided on 29.03.1961 (Citation 4 Tax 96) held that "we would have thought that the conventional method of ascertaining the intention of the Legislature after reading the statute as a whole was more likely to lead to the discovery of its true intent and is always a safer rule to follow" and in the second following para held that "Be that as it may, we for ourselves would prefer to follow the conventional path and endeavour upon a construction of the entire provisions of the Business Profits Tax Act to ascertain what the legislature intended". Applying this principle to present case shows that appellant by relying on isolated reading of section 161 and by ignoring the rest of the Income Tax Act, 2001, is going against Supreme Court's views and also is arriving at an incorrect conclusion. We find that a look at the bigger picture of the Income Tax Ordinance, 2001 (in line with S.C's views above) presents a different result.
12, we deem it appropriate to clarify the construction of Income Tax Ordinance, 2001 and placement of section 174(3) within the Income Tax Ordinance, 2001 and the implication of such placement on the 5 years documentation issue.
13.The Income Tax Ordinance, 2001 is arranged in chapters. Chapter 10 is titled "Procedural" which has 13 parts whereof "Part (viii)" contains the section relied up on by appellant, namely section 174(3). This Part-"VII" is titled as "Records, Information, Collection and Audit".
14.We are of the view that this Part-VII containing procedures, is related to conducting of audits and that all sections included in this Part VIII are sections that relate to the conduct of an audit.
15.We are also of the view that the details contained in this Part VIII of the Ordinance (from sections 108 to section 112) while primarily being applicable to audit under the Ordinance, will only apply to other parts of the Ordinance if so specifically stated elsewhere in the legislature. And the section 174(3) which is in discussion in present case, contains no such cross-reference to any time limit from Part-VII of the Ordinance.
16.The reliance of the appellant therefore, on a section taken from the audit portion of the Income Tax Ordinance and applying it to other parts of the Ordinance, is a basic error in reading and applying the present design and concept of the new Income Tax Ordinance, 2001. This view is also supported by Honourable Lahore High Court in its order dated 09.03.2011 announced in C/o Pakistan Mobile Communication Ltd v. Additional Commissioner (Audit-Ill) etc. where in last paragraph the Honorable High Court rejects the appellant/taxpayer's contention that "show-cause notice could be issued only after audit." The Honourable High Court rejected this plea as no such pre-requirement to first conduct audit was given in relevant section 14(1) of Federal Excise Act. In present case too, section 174 contains no time limits, hence none can be externally read into it.
Issue (c) Opportunity/Show cause not Given That show cause or proper opportunity was not given to the appellant.
17.We have examined the department's order under sections 161/205 which shows that a show cause was issued vide letter No, 628 on 02.06.2011. The taxpayer argued that their company filed their reply vide their letter No, 449-2012 dated 16.10.2012 as reproduced on page 2 of the department order, which states that "...with reference to notice No,96 dated 24.09.2012 issued by you under section 161 read with section 205 of the Income Tax Ordinance, 2001...".
18.These two points show that the proceedings stretched from 02.06.2011 to 30.10.2012 (for nearly one and half years) and, we find that opportunity was given to appellant to produce records before the department but that he failed to provide record for a year and half by raising legal objections.
Last para 6 of department's order dated 30.10.12 further states that "...secondly, despite proper opportunity provided, the appellant failed to produce any supporting documents, any deduction tax...."
19.This therefore clearly shows that show-cause notice was issued, as well as opportunity were provided to appellant but it chose to not provide information and documents and that instead the appellant took-up legal points (which points fail in light of IHC and SC judgments).
Therefore this ground of appeal of not having provided opportunity to taxpayer, is held as not valid nor established, and is rejected.
20.The AR cited following cases in favour of his contentions; which we have gone through and do not find aiding the applicant, as briefly stated below as being non-relevant:?
1. 108 TAX 294, HBL v.
Federation of PakistanDecided SHC dated 31.05.2013The HC did not address the question whether section 161 is subservient to time limit of section 174(4).
Its para 32 holds that Supreme Court rules laid down in c/o Pakistan Mobile will also hold, namely that for section 161 no period of limitation will apply. This does not support present taxpayer as it does notdiscuss section 174.
The secondary rule arrived by HC at para 36, namely that a time-limit for acting under section 161 does exist, "although it is not a bar of limitation as such"; contradicts the Supreme Court's decision referred to at para 32 of said HC order; and Is also not relevant to present case as the HC's judgment does not discuss whether section 174(3)'s 6 years limitation will also apply to audit proceedings. Third question given at start of cited judgment says even if CIR, "fails to discharge this onus (i,e, giving reason for belated action) then proceeding would be liable to be set-aside. This defeats the taxpayer's present plea that CIR(A)'s order No 1883/2012 dated 19.12.12 remanding case to department be "annulled".
2. 375/LB/13,Decided ATIR Tribunal relying on SHC decision in do MCB, Lahore v.
CIR, Zone-I, LTU, LahoreOrder datedMCB v. Federation of Pakistan [(2013) 108 12.06.2014 Tax 294 (H.C.Kar)] holds department orders as illegal for reason at para 7 that "... not a single word has been written to proceed with adjudication at a belated time...". We already pointed out against this table's S. No,1 above, for previous citation entry of this table that any time limits for "audit" are not applicable elsewhere. As such the cited Tribunal's decision is not relevant too, for same reasons as given above in this case.
Is further distinguishable from present case on facts. In cited case separate audit and assessment of income was done, where some expense claims were disallowed. Tribunal accepted plea that inference was that other expenses allowed) also met criteria of withholding tax requirements, and therefore, without quoting exact instance of infringement of WHT-provisions, department was not justified to hold taxpayer in default of WHT provisions for expenses beyond those already disallowed during audit. The facts in present case are different. Citation is therefore rejected as being not relevant.
3. 2012 PTD 25ITAT order dated 14.10.2011 in 1052/LB/2011ATIR upheld CIR (A) order annulling order under section 161 on grounds that "....the tax year involved in this matter is 2005 which was ended on 30.06.2005 -- maintain records... for next five years i.e. upto 30.06.2010...which had to operate prospectively not retrospectively...". Thus issue in cited case was whether amendment would apply retrospectively... which is not the present case, hence cited case is not relevant. Also, ITAT order is dated 14.10.2011 and is prior to Supreme Court's decision in Pakistan Mobile is dated later, and the later order prevails.
Hence citation is rejected.
2001 PTD 1558 Shahnawaz (Pvt.) Ltd. v.
Pak Ministry of Finance.High Court decision dated 06.04.2011The cited para in this order is para 14 which starts "...14. The first of these rights is the maximum number of years up to which the audit can be called in relation to a tax year.." This issue does not exist in present case which does not deal with audit-time but with action under section 161. Hence not applicable to this case. No other para is relied upon from said order.
1999 PTD 3357ITA/KB of 1998- 99 decided on 19.05.1997AR relies on para 8 of cited order which states, ".... we are of the view that orders under sections 52/86 be passed within time limit of 4 years...". The citation is not accepted in light of later decision of Supreme Court in case of M/s Pakistan Mobile, also referred to (in-table) above.
2003 PTD 1965ITAT order of 22.4.2003 in ITA 85/IB of 2003Department detected failure of taxpayer to deduct tax on payment of tax fee to non resident. CIT(A) said action of department was beyond 4 years hence beyond time limit. This order is not applicable as subsequently Supreme Court in do Pakistan Mobile has held there is no limit for action under section 161.
7. 4 TAX 96,Decided onCited case does not apply in present case, CIT v. Hassan29.03.1961 because cited case Kasam Dadd Pertains to Business profits tax of 1960 and not to Income Tax Ordinance, 2001. The two unnumbered paras relied upon from cited order discuss time limit to levy business profit tax in 16.01.1952 for 1946. Honorable Supreme Court's decision was by a 4 member bench, and was not a nanimous decision. Issue was regarding Business Profit Tax Act and not the Income Tax Act. Question was if a notice to assess "escaped income" should have a time limit. The honourable court held a 4 year time when no time was there in- Business Profits Tax Act. But in ascertaining time honourable court compared sections calling for return and making assessment (Which have 4 years limit) with sections calling for return of "escaped income" whereas present case is Not one of 'calling for returns'. Case relied upon is therefore Not on-all- fours with present case. And the present case neither pertains to Business Profits Tax Act of 1947, nor does it involve calling for tax returns. Hence citation does not apply.
8. 2002 PTD 14,Decided HC onAn relies on question 4 from cited case; CIT v.
Kamran28.08.2000which in turn relies on 4-years- time-limit for Model Factory rectification from H/C judgment in c/o Islam ud Din and 3 others v. ITO reported in 2000 PTD 306, and therefore holds 30 days to charge WWF from date of ITO's order. The citation is not applicable to present case as:- This is not a rectification issue. No WWF issue is raised in present case. Supreme Court has later specifically adjudged issue of time limits, same as of present case, in c/o Pakistan Mobile v.
Federation of Pakistan, in favour of department.
9. 2003 PTD (Trib.) 405ITAT dated 21.09.2002 in ITADistinguishable on both law and on facts As in said case notice for withholding 1297/LB/2002defaults issued on 26.12.1996 and order passed after 4 years silence, on June 2011. But in present case no such 4 years delay in passing of final orders. Cited case is based on the 1979 Ordinancewhile present case is on 2001 Act, and both are dissimilar in basic concept of department making assessment (1979 Law), and self-assessment by taxpayer (2001 Law); and in other aspects too. Supreme Court has specifically settled in c/o Pakistan Mobile that action under section 161 for withholding defaults can be taken w/o any time limit.
Citation is therefore rejected as non relevant.
10. 2004 PTD Issue in distinguishable from present case. In (Trib.) 1096 cited case issue raised was that officer failed ITA 100/IB of to identify each transaction involving default 2001-02 decided of withholding tax and merely calculated on 11.06.2003 default from total expenditure in relevant Head of Account. In present case this is not the issue. Hence citation rejected as not relevant.
11. 2000 PTDITA 2728/LB ofCited case holds, in last para "... we are 26641999 decided onconvinced that provisions of section 50(4) do 07.03.2000 not warrant making of estimates..." Facts were that in response to show cause the taxpayer took the plea per para 2 of cited case that WHT was not applicable as; Payments were all in cash, and each purchase was below the Rs. 25,000/- WHT limit. This is distinguishable from present case. In present case taxpayer failed to produce the records asked for, and never took plea that its payments were below WHT threshold. Also, Cited case is based on the 1979 Ordinance while present case is on 2001 Act, and both are patently not similar. Citation is rejected being not relevant.
Issue Jurisdiction
21. The learned AR had also objected that the order was passed by audit division and therefore, was in excess of jurisdiction because jurisdiction over withholding tax (WHT) belongs to enforcement division. The DR explained that show-cause notices were issued from enforcement division. This fact is not contested by the appellant. The DR also stated that the order under section 161 dated 30.10.12 was also issued by enforcement division and each page bears the office seal of DCIR "enf- IX, LTU, Islamabad". Only on the title page there is typing error where instead of "enf-IX", it is mistyped as "Audit-IX".
22.The contention of learned AR as found from record, is correct, and is also not controverted by appellant. Such typing error does not invalidate the order itself. As such, this ground being devoid of any merit, is rejected.
23.AR also raised argument that department was incorrect to ask for "reconciliation under section 161, to which the DR encounter that "reconciliation" is allowed to be called under rule 44(4). The perusal of said sub-rule shows position taken by DR to be supported from rule, hence appellant's view is rejected.
24.In view of the above, the appeal fails and we find no reason to interfere with order of learned CIR(A) dated 19.12.2012.