QAMAR-UL-HAQ BHATTI, (JUDICIAL MEMBER).---These two appeals have been assailed against the Order of the learned C.I.R. (Appeals-1) Lahore bearing Nos, 53 and 54, dated 24.12.2012, whereby he set aside the impugned Orders under sections 161/205 of the Income Tax Ordinance, 2001, dated 31.01.2012 in respect of Tax Years 2010 and 2011, and remanded back to the learned Officer Inland Revenue 'for passing speaking Order after ensuring proper service of the notice'.
2. The Appellant in this case is an A.O.P., under the name and style of "Mian Nawaz Steel Furnace", which carried on business of manufacturing and sales of "steel billets" at Narowal-Muridkey Road, Narowal upto December, 2011, whereafter it was constrained to discontinue business due to disconnection of electric power.
3. The learned I.R.O., Monitoring and Audit Cell (MAC-02), Regional Tax Office, Sialkot allegedly observed non-withholding of Tax under section 153(1)(a) of the Income Tax Ordinance, 2001 out of the payments for purchases of raw materials, and asked this Appellant to show cause of non- withholding of the said tax, which made reply as under in both the years:-- "In reply to the Letter referred to above, it is submitted that the Factory, M/s. Mian Nawaz Steel Furnace, Narowal is closed since December, 2011 due to dis-connection of electric power, and we have not been able to contact the Managing Partner, Mr. Muhammad Shahid, and collect the record for preparation of the data required by your goodself."
It may, however, be brought into your kind Notice that this Taxpayer was not obliged to deduct any Withholding Tax under section 153 of the Income Tax Ordinance, 2001, as (1)the only raw material used by the Tax-payer is the 'SCRAP', which was purchased from the commercial importers for Rs, 426,977,850 (for Tax Year 2010/and Rs, 504,603,020 for Tax Year 2011); (2)the major reagents viz., {{TABLE}} Tax Year 2010 Tax Year 2011
(i) Manganese Rs, 12,560,000 Rs, 14,875,000
(ii) Silicon Rs, 2,920,000 Rs, 3,540,000
(iii) Black Lead Rs, 2,030,000 Rs, 2,331,000
(iv) Bentonite Rs, 1,015,000 Rs, 1,275,000 {{TABLE}} were also purchased from the commercial importers; and
(3) the following reagents, viz., {{TABLE}} Tax Year 2010 Tax Year 2011
(i) Silica Rs, 188,400 Rs, 215,600
(ii) Fire Bricks Rs, 1,015,000 Rs, 1,350,000
(iii) Fire Clay Rs, 510,000 Rs, 679,130
(iv) Lining Powder Rs, 510,000 Rs, 675,000 {{TABLE}} were purchased from the local manufactures/suppliers, and the individual purchases were lesser than the threshold of Rs,25,000 warranting deduction of tax under section 153(1)(a) of the Income Tax Ordinance, 2001 by virtue of Clause (xii) of the S.R.O. 586(I)/91, dated 30.06.1991.".
4. The learned I.R.O. required this Appellant to furnish proof of the above-reproduced assertions through Letters dated 27.01.2012 for 31.01.2012, which, according to the findings of the learned CIR(A), were not served upon this Appellant due to closure of the factory, but the learned I.R.O., without establishing proper service of the Notice upon this Appellant, ventured to raise a demand of Rs, 39,859,962 as under:- {{TABLE}} Tax Year WHT charged under section 153(1)(a) read with 161Default SurchargeTotal 2010 Rs, 15,670,069 Rs, 3,949,716 Rs, 19,619,785 2011 Rs, 18,534,031 Rs, 1,706,146 Rs, 20.240,177 {{TABLE}} which caused a grievance to this Appellant, and it assailed the said Orders under sections 61/205 of the Income Tax Ordinance, 2001, before the learned CIR(A), who, despite finding that the Notices dated 27.01.2012 were not served upon this Appellant / Tax-payer, set aside the impugned Orders under sections 61/205 (ibid) for de novo action, which has not satisfied this Appellant, due to which it is before us on the following GROUNDS for both the Tax Years:- "1. That the learned CIR(A) has grossly erred in setting aside the impugned Order under sections 161/205 of the Income Tax Ordinance, 2001 despite finding that the notices in default with which this Appellant/Taxpayer was proceeded against ex parte, were not served upon this Appellant/Tax-payer.
2. That the impugned Order under sections 161/205(ibid) ought to have been annulled.
That the learned CIR(A) has grossly erred in law in holding that remand is not barred under section 129(1) (a) of the Income Tax Ordinance, 2001.
4. That the learned CIR(A) ought to have recorded a definite finding on the merits of the case.
Section 129(1) (a) of the Income Tax Ordinance, 2001 did not allow him to remand the case back to the I.R.O. for re-appraisal of the factual position.
5. That the learned I.R.O. himself has reproduced this Appellant/Tax-payer's defence in the body of the impugned Order under sections 161/205, dated 31.01.2012 that this Taxpayer was not obliged to deduct any Withholding Tax under section 153 of the Income Tax Ordinance, 2001, as (1)the only raw material used by the Tax-payer is the 'SCRAP', which was purchased from the commercial importers for Rs,426,977,850 (for Tax Year 2010 / and Rs, 504,603,020 for Tax Year 2011); (2)the major reagents viz., {{TABLE}} Tax Year 2010Tax Year 2011
(i) Manganese Rs, 12,560,000 Rs, 14,875,000
(ii) Silicon Rs, 2,920,000 Rs, 3,540,000
(iii) Black Lead Rs, 2,030,000 Rs, 2,331,000
(iv) Bentonite Rs, 1,015,000 Rs, 1,275,000 {{TABLE}} were also purchased from the commercial importers; and (3)the following reagents, viz., {{TABLE}} Tax Year 2010 Tax Year 2011
(i) Silica Rs, 18,400 Rs, 215,600
(ii) Fire Bricks Rs, 1,015,000 Rs, 1,350,000
(iii) Fire Clay Rs, 510,000 Rs, 679,130
(iv) Lining Powder Rs, 510,000 Rs, 675,000 {{TABLE}} where, purchased from the local manufactures suppliers, and the individual purchases were lesser than the threshold of Rs,25,000 warranting deduction of tax under section 153(1)(a) of the Income Tax Ordinance, 2001 by virtue of Clause (xii) of the S.R. 0. 586(1)191, dated 30.06.1991.
6. That the learned Inland Revenue Officer has grossly erred in levying a tax of Rs, 15,670,069 under section 153(1) (a) of the income Tax Ordinance, 2001 on the total Purchases of Rs, 447,716,250 (for the Tax Year 2010 and Rs, 18,534,031 for the Tax Year 2011 on the Purchases of Rs, 529,543,750).
7. That the purchases of Local items valuing Rs, 2,223,400 (for the Tax Year 2010 and Rs, 2,919,730 for the Tax Year 2011) were lesser than the threshold of Rs, 25,000, hence, no tax under section 153(1)(a)(ibid) was deductible.
8.That as the respective suppliers would have by now discharged their tax liability under the Income Tax Ordinance, 2001 for the Tax Years 2010 and 2011, there is no sense in charging any tax under section 153(1) (a) (ibid) in respect of the supplies made by them during the income year relevant to the Tax Years 2010 and 2011.
9.That the law does not provide for charging W.H.T. without identifying the parties/suppliers who would take credit thereof.
No liability exists or can be created in vacuum.
The learned I.R.O. charged W.H.T. at Rs,15,670,069 (for the Tax Year, 2010 and Rs, 18,534,031 for the Tax Year 2011) without identifying the parties/suppliers in respect of whom the same was leviable.
Such a blind levy is not warranted under the law.
10. That the impugned Order under sections 161/205 of the Income Tax Ordinance, 2001 passed on "31.01.2012" was time-barred, hence, liable to be annulled.
Monthly W.H.T. Statement was required to be filed by the 15th of the next succeeding month, and the Department got knowledgei of the alleged default after the afore-said 15th of every month. It could have taken cognisance of the matter then and there.
Though no time-limit has been provided for passing an Order under sections 161/205 of the Income Tax Ordinance, 2011, yet in such like situations a period of 90 days has been taken to be a sufficient time, and Order made thereafter has been held to be time-barred.
11. That the learned I.R.O. has grossly erred in levying a 'Default Surcharge' of Rs, 3,949,716 (for the Tax Year, 2010, and Rs,1, 706,146 for the Tax Year 2011), as there was no default in withholding of tax under section 153(I)(a)(ibid).".
5. We have heard the learned A.R., Mr. Sayyid Ali Imran Rizvi, Advocate Supreme Court, in support of above grounds of appeal, and the learned D.R., Mr. Ali Adnan Khan has supported the impugned orders for the reasons given therein.
6. Having gone through the record and evaluating the rival arguments, we donot find ourselves in agreement with the learned CIR(A) that 'it would be apt to remand this case to the learned Officer for passing speaking order after ensuring proper service of the notice'.
7. We have no doubt in our mind that when an ex parte action is taken without establishing proper service of the last notice upon the taxpayer, an assessing officer cannot be given another opportunity to take the proceedings afresh. That's why the legislature has done away with the relief of "setting aside" in Section 129(1)(a) of the Income Tax Ordinance, 2001 reproduced hereunder:-- "129(1)(a) make an order to confirm, modify or annul the assessment order after examining such evidence as required by him respecting the matters arising in appeal or causing such further enquiries to be made as he deems fit. ".
The learned CIR(A) has, thus, been mis-lead while observing that 'as regards restriction in law [Section 129(1)(a)] on remand suffice it is to say that it is confined to assessment orders only'.
8. The learned A.R. has drawn our attention to an earlier decision of this Tribunal reported in 2015 PTD (Trib) 1572, wherein, in identical circumstances i,e, an order under sections 161/205(ibid), this Tribunal has annulled the impugned Orders under sections 161/205(ibid) holding as under:-- "6 There is plethora of case-law emphasizing the importance of delivery of justice to the concerned parties be that State or the Taxpayer by applying the laws in a judicious manner. The courts have gone to the extent to rule that the person entrusted with the responsibility of dispensation of justice must apply the law in a correct manner even though the person to whom the law is to be applied may not have been able to make forceful pleading. In the instant case we have noticed the erratic and arbitrary disposal of the case of the appellant in utter disregard of the norms of justice, judicial propriety and disregard for the legal procedure to be followed before raising tax liability. The learned first appellate authority did notice all these shortcomings in the Order of the DCIR but failed to take a decision which the superior courts, in such circumstances, have taken and directed the subordinate forums to take. Instead of vacating the Order as was done in the cases relied upon by the learned AR, the learned CIR(A) remanded the case to the DCIR exposing the appellant again to the high handedness exhibited earlier. Such a dispensation of justice has not been approved by the courts of this country. For reasons discussed supra, we agree with the findings of the learned first appellate authority but only to the extent that the Order passed by the DCIR is ridden with glaring legal flaws. We cannot, however, endorse his decision to remand the case to the DCIR for de novo consideration as doing so would tantamount to gross injustice to the appellant. We, therefore, hold that the Order passed under sections 161/205 of the Income Tax Ordinance, 2001 for both the years is not sustainable in the eye of law and accordingly vacated." (at p. 1579)
9. In the instant case too, the Order passed by the I.R.O. is ridden with glaring legal flaws, which snatch legality and propriety from the impugned Orders and render them untenable in law; having the fate of annullment.
10.We have observed that:--
(i) the same learned I.R.O. in the previous Tax Year 2009 accepted this Appellant's explanation [reproduced in Para 3 (above)] on the same premises, but he has taken a U-turn in the subsequent two years viz., 2010 and 2011, and has raised a fabulous demand without any just cause, which is unbecoming of a quasi-judicial authority entrusted with the determination of rights and liabilities of the tax-payers in a democratic State, which is being run by the blood supplied by the citizens in the form of taxes. Determination of tax liability of a tax-payer cannot be made in a lighter vein. It is a solemn act, whereas we have noticed erratic and arbitrary disposal of the case of the appellant in utter disregard of the legal procedure to be followed before raising tax liability.
(ii)This Tribunal has clearly held in 2012 PTD (Trib.) 122 that: "5.. without identifying 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 taxation officer was 'in old frame of mind and could not appreciate that the tax referred to be deducted under section 161 has to be of some identified taxpayer/person and a taxpayer can be declared personally liable only after establishing that he was a withholding agent, who failed to withhold the tax from a transaction, liable to such tax no transaction can be held to have escaped deduction under section 161, unless it is established that; (i) taxpayer is a withholding agent, (ii) a particular transaction is liable to deduction/withholding and (iii) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section 161. These findings are fortified by subsections (1B) and (2) of section 161. Under the subsection (1B) if the amount of tax, required to be deducted, is paid meanwhile by the person, who's tax was to be deducted, then the taxpayer proceeded under section 161 shall pay only default surcharge of the period, he failed to deduct tax till it was paid by that person. Subsection (2) declares that a person held personally liable under section 161(1) shall be entitled to recover the tax from the person, from whom the tax should have been collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person who's tax was not collected or deducted and without identifying the amount of such tax.
The order under section 161, in question, by the taxation officer leaves a very important and necessary question that who shall get credit of the tax imposed by this order?". (at p. 125) but the Department in order to quinch its thirst of arbitrariness and despotism has been raising fabulous demands under sections 61/205(ibid) without identifying the parties who would take benefit of the tax collected from the withholding agent under section 53 of the Income Tax Ordinance, 2001 by treating it tax-payer-in-default.
The impugned Orders in the instant case are a clear departure from the law laid down by this Tribunal in 2012 PTD (Trib.) 122, hence, we cannot approve them.
(iii)This Tribunal has held in another case reported in 2015 PTD (Trib.) 654 that:
9. the levy of tax on the allegation of non-deduction of tax under 149 at the flat rate of 10% on the total, aggregate salary and wages of all employees for whole of the tax year and on the allegation of non-deduction of tax under section 153(1) (a) (b) of the Ordinance on the consolidated figure of expenses and purchases for whole of the year reported in the audited accounts on accrual basis and matching basis without any power of Best Judgment Assessment and identifying payment, time of payment, amount of tax is coram non-judice and nullity.". (at p.661)
(iv)We are also guided by the decision of this Tribunal reported in 2015 PTD (Trib) 654 that: "10. We are also inclined to agree with the arguments of the learned AR that composite reading of sections 161, 177, 120 and 122C clearly reveals that these sections are interconnected. The direct invoking of section 161 without audit under section 177 constitutes fishing and roving inquiry and have the effect of increasing the taxable income assessed under section 120, being violation of over-riding sections 120(1) and (1A) of the Ordinance, and hence action under sections 161/205 is not sustainable. In order to reach this conclusion, support is sought from the reported judgments cited as 2012 PTD (Trib.) 1815, 2012 PTD (Trib.) 122, PLD 1993 SC 473 and PLD 2003 SC 979."
(v) We are of the considered opinion that Section 161 of the Income Tax Ordinance, 2001 is applicable only within the income year during which the payments for goods and services were made, as Section 162 of the Income Tax Ordinance, 2001 reproduced hereunder: - "162(1) Where a person fails to collect tax as required under Division II of this Part or Chapter XII or deduct tax from a payment as required under Division III of this Part or Chapter XII, the Commissioner may pass an order to that effect and recover the amount not collected or deducted from the person from whom the tax should have been collected. or to whom the payment was made.", transfer the burden of payment of tax in respect of the amounts received without deduction of W.H.T. to the recipient / seller. In presence of this remedy available to the Department, it looks awkward to effect recovery of W.H.T. under section 153(1)(a) of the Income Tax Ordinance, 2001 from the payer / purchaser.
(vi)We do subscribe to the learned A.R.'s argument that monthly W.H.T. statements were required to be filed by the 15th of the next succeeding month, and the Department got knowledge of the alleged default after the aforesaid 15th of every month. It could have taken cognisance of the matter then and there.
Though no time-limit has been provided for passing an Order under sections 161/205 of the Income Tax Ordinance, 2001, yet in such like situations a period of 90 days has been taken to be a sufficient time, and Order made under sections 161/205(ibid) thereafter would be considered to be time- barred. Filing of Constitutional Petition under section 199 of the Constitution of the Islamic Republic of Pakistan, 1973 may be quoted as an example. No limitation for filing of Writ Petition has been laid down in the Constitution, but the hon'ble High Court has fixed the same at 90 days from the accrual of cause of action. Reference is made to PLD 1987 Lahore 471; 1983 CLC 1492; and 1989 CLC 1495, and relevant excerpts are reproduced hereunder:- PLD 1987 Lahore 471: "4... Although no period of limitation is provided under the Constitutional provision, the fact remains that the constitutional petition had to be filed within a reasonable period of time after obtaining the certified copies of the documents. At any rate, after obtaining the certified copies of various documents in a particular case, an aggrieved person has to challenge the impugned orders not later than three months and if a Constitutional petition is moved after the expiry of three months, the period thereafter has to be adequately and sufficiently explained by the petitioner". (at p. 473) 1983 CLC 1492: "11 . The writ petition was filed on 6th February, 1979. That shows institution within 90 days of the receipt of the copy and from the date of the knowledge.". (at p. 1497)
1989 CLC 1495: "9. It is clear from the precedent cases that the Constitutional remedy is to be invoked within reasonable time. In service matters reasonable time cannot be stretched beyond three months and delay thereafter shall have to be accounted for by the petitioners." . (at p. 1497)
(vii) To our mind it is against the policy of law that enforcement of a right may be kept pending by the Department for an indefinite period. There must be a time-frame for determination and recovery of a tax liability.
In the instant case of recovery of W.H.T. allegedly not deducted and paid, matter of non- withholding and non-payment becomes vividly clear to the Department after the last date of filing of monthly W.H.T. statements. It would be fair and just to take cognisance of the matter then and there, and the W.H.T., if found not withheld and paid, determination of liability and its recovery may be made within 90 days of the last date of filing of monthly W.H.T. returns for the respective months. This modus operardi would not only facilitate the early recovery of State revenue, but also it would discourage the tendency of non-withholding the tax where it is due.
(viii) Object of filing monthly W.H.T. statements would be achieved only, when they are scrutinised monthly, and cognisance of non-withholding be taken within a period of 90 days.
(ix)Default committed monthly cannot be taken cognizance of through an omnibus combined Order under sections 161/205 of the Income Tax Ordinance, 2001 containing no details of the parties on behalf of whom the tax is being recovered, and who would take credit of the tax recovered under section 161 of the Income Tax Ordinance, 2001.
(x)Law does not allow creation of a liability in vacuum, as has been done in the instant case. Such a blind levy is not the intent of law-maker. Not only the Parties to whom payments on account of goods and services were made must be ascertained by the Inland Revenue Officer, but also the payments made to them and the time of payment must be brought on record, before passing an Order under sections 161/205(ibid), and all the information collected by the I.R.O. must be confronted to the Tax-payer-in-default in order to satisfy the requirement of subsection (1A) of Section 161 of the Income Tax Ordinance, 2001.
11. For the reasons recorded in the above paras, we hold that the learned C.I.R.(A) grossly erred in law in setting aside the impugned Orders under sections 161/205 of the Income Tax Ordinance, 2001, dated 31.01.2012 in respect of Tax Years 2010 and 2011 for de novo action, which ought to have been annulled.
12.As a sequel to the above, vacating the impugned Order-in--Appeals bearing Nos, 53, 54, dated 24.12.2012, the impugned Orders under sections 161/205 of the Income Tax Ordinance, 2001, dated 31.01.2012 are annulled.