SHAHID MASOOD MANZAR, JUDICIAL MEMBER - -- This appeal has been filed against the impugned order No, 297/2016 dated 20-02-2017 passed by the learned Commissioner Inland Revenue, Appeals-II, (CIR-A) Islamabad. As per facts the appellant an individual derives income from salary, contracts and other sources. His return for the year under consideration was deemed as assessm ent order in terms of Section 120 of the Income Tax Ordinance, 2001. As a result of assessm ent refund of Rs. 21,202,142/- became due to the tax-payer: While his claim of refund was being processed, the Directorate of Intelligence and Investigation(IR) called for the assessment record. The tax-payer felt that his claim of refund was being intentionally delayed. He therefore, filed a petition before the Federal Tax Ombudsmen (FTC) for expeditious release of refund. His petition was favourably disposed of by the FTO directing the department to pass the refund order u/S. 170(4) in accordance with the provisions of law. The department, instead of issuing the refund, started proceedings for amendment of assessment in the light .of Investigation Report obtained from Directorate of Intelligence and Investigation(IR). Notice u/S. 122(9) was issued through which the tax-payer was confronted on certain issues (being discussed in the latter parts of this order).
Explanation/reply furnished by the tax-payer was turned down, and order of amendment of assessm ent u/S. 122(5A) was passed by the concerned Additional Commissioner on 18-04-2016.
Various additions were made in the assessment order in question resulting in tax demand of Rs.
43,286,161/- in addition to tax of Rs. 81.088/- u/S. 153(1)(a). The tax-payer filed appeal against the afore-mentioned order before the learned CIR-A, Islamabad who vide his order dated 20-02-2017 summarily rejected the appeal holding that according to Section 18 of the Federal Ombudsmen Institutional Reforms Act, 2013 no Court or Authority shall have jurisdiction to entertain a matter which falls within the jurisdiction of an Ombudsmen nor any Court or Authority shall assume jurisdiction in respect of any matter pending with or decided by the Ombudsmen. The taxpayer's appeal was dismissed by the learned CIR-A because the issue relating to refund was decided by the FTO. The grounds of appeal raised before the learned CIR-A were not even considered for adjudication.
2. The tax-payer has now filed second appeal before this forum on the following grounds:--- "(1) That both the impugned order(s) [i,e, order passed under Section 122(5A) read with Section 111(1)(b) of the Income Tax Ordinance, 2001 having DCR No, 01/80, dated 15-04-2016 by the Additional Commissioner Inland Revenue, Zone-I, Regional Tax Office, Islamabad and the Appellate Order No, 297/2016, dated 20.02.2017 passed by the learned Commissioner Inland Revenue (Appeals), Islamabad are bad in law and against the facts of the case.
(2) That the impugned order so passed by the learned CIR(A) is barred by time under Section 129(4) of the Income Tax Ordinance, 2001. Hence, the appeal filed by appellant before CIR(A) stood accepted under the law and the order passed.by the learned CIR(A) is illegal.
(3) That the learned CIR(A) is not able to address all grounds of appeal, hence the appellate order so passed is not justified.
(4) That the assessment order was passed under Section 122(5A) of the Income Tax Ordinance, 2001 [the Ordinance] and the same is appealable under Section 127 of the Ordinance. There is no other remedy available with the tax-payer except to file appeal before the learned CIR(A); hence the rejection of appeal by the Honourable CIR(A) on point of jurisdiction is not justified and is unlawful.
(5) That after the issuance of show-cause notice the appellant neither filed any appeal before FTO nor any adjudication is pending before FTO. Therefore the contention of the learned CIR(A) regarding judgment of FTO in this instant case is not justified and against the facts of the case.
(6) That without having any definite. [as per sub-sections (5) & (8) of Section 122 of the Ordinance], the impugned order so passed by the assessing officer is illegal, void ab initio and beyond the scope of this Section. Guidance may be sought from reported cases: 2014 PTD 1377, 2013 PTD 788, 2012 PTD 1953 [Trib], 2010 PTD 111 [Trib.], 2008 PTD 1491 [Trib.], 1999 PTD 2851 [Trib.], 1999 PTD 700 [Trib.]
(7) That the Honourable FTO while deciding complaint filed by the Appellant [having No, 83/ISD/lT(59)/879] finds that the department tantamount to maladministration vis-a-vis recommend to obtain record from Directorate of l&I and confront the issues raised by them [if any] to finalize the refund proceedings. However, [despite of the confrontation of same by the then assessing officer dated 29-10-2015 and detailed written reply from Appellant dated 10-12- 2015], the learned assessing officer by completely ignoring the recommendations of Honourable FTO, initiates fresh proceedings under Section 122(5A) of the Ordinance, which is unlawful and against the facts of the case.
(8) That after seeking adjournment the Appellant has filed his detailed written reply dated 15-04- 2016; however, the learned assessing officer by completely ignoring the same and with a preset frame of mind passed the impugned order on the same date i,e, on 15-04-2016]. This is mala fide, unlawful and against the basic principles of natural justice.
(9) That the mere issuance of show-cause notice is not sufficient unless the proper opportunity of being heard is not provided vis-a-vis it is also the basic principle of natural justice that no one should be condemned unheard, the Superior Courts have laid a great emphasis on it. Guidance may be sought from reported cases: 1994 SCMR 2232, PLO 1990 SC 666, PLD 1964 SC 673, 1988 CLC 1318, 1981 CLC 909.
(10) That in presence of a valid advance tax challan under Section 236A of the Ordinance [deposited by the Appellant against his NTN/ name; the rejection of tax credit amounting to Rs.
15,626,629/- on the basis of assumptions is unlawful, not justified and against the facts of the case.
(11) That the Appellant has entered into a contract during the period under question and against the same he received payments under different heads in advance, where the tax was accordingly charged and deposited against the NTN/name of the Appellant in the government treasury. The Appellant after declaring the same in his return of total income for the Tax Year 2014 as income and similarly booked as "liability" in his wealth statement of the same period. Therefore, the addition so made by the learned assessing officer on this account of amounting to Rs.
24,335,825/- & Rs. 71,319,086/- under Section 111(1)(b) of the Ordinance & being assumed normal tax is illegal and against the facts of the case.
(12) That the learned assessing officer confronts Appellant regarding the liability/loan of Rs.
39,220,902/- vis--vis admitted its genuineness. However, he himself while deciding this issue made addition of the same amount under Section 111(1)(b) of the Ordinance by treating the loan as asset. Therefore, the addition so made is based on wrong understanding/treatment of loan in wealth reconciliation statement, which is not justified and against the facts of the case.
(13) That the Appellant gave loan of Rs. 4,900,000/- to his friend and booked the same as asset under the head of moveable asset against his name [loan receivable] by the end of the Tax Year 2013 [being part of assets], however, during the Tax Year 2014 he returned the loan and its treatment in the wealth statement was accordingly made [i,e, the asset declared under moveable asset was removed and bank account balance increased]. Therefore, the addition so made by the assessing officer [in-spite of admission of its genuineness] is based on wrong understanding/treatment of return of loan in wealth reconciliation statement, which is not justified and against the facts of the case.
(14) That the Appellant received loan of Rs. 4,630,000/- from his father and booked the same as his liability under the head of liabilities by the end of the Tax Year 2013, however, during the Tax Year 2014 the Appellant returned the said amount of loan to his father and its treatment in the wealth statement was accordingly made [i,e, the liability created under liabilities was removed and bank account balance decreases with the same amount]. Hence, the addition so made by the assessing officer [in-spite of admission of its genuineness] is based on wrong understanding/treatment of loan in wealth reconciliation statement, which is not justified and against the facts of the case.
(15) That the Appellant received loan of Rs. 28,184,500/- from his mother and booked the, same as his liability under the head of liabilities by the end of the Tax Year 2013, however, during the Tax Year 2014 the Appellant returned partial amount of his loan and its treatment in the wealth statement was accordingly made [i,e, the liability created under liabilities was reduced and bank account balance decreases with the same amount]. Hence, the addition of Rs. 11,700,000/- so made by the assessing officer [in-spite of admission of its genuineness] is based on wrong understanding/treatment of loan in wealth reconciliation statement, which is not justified and against the facts of the case."
3. At the very outset learned AR stated that the learned CIR-A did not appreciate the relevant provisions of law relating to the powers and functions of FTO. He stated that the Federal Ombudsmen Institutional Reforms Act, 2013 was promulgated on 20-03-2013 to make institutional reforms for standardizing and harmonizing the laws relating to Federal Ombudsmen institution and the matters ancillary or akin thereto. He stated that the learned CIR-A failed to appreciate that the institution of "Federal Ombudsman" is different from the "Federal Tax Ombudsman (FTO)". These two institutions have their own domain of functions/operations which are separate and distinct from each other. The learned CIR-A took into consideration, the wrong provisions of law (Contained in the Federal Ombudsmen Institutional Reforms Act, 2013). This tax-payer never approached the office/forum of the Federal Ombudsmen. He rather filed a petition of his grievances before the FTO who was competent to decide the matters relating to maladministration. and refunds. The FTO operates under a separate/independent statute i,e, Federal Tax Ombudsmen Ordinance, 2000.
Learned AR stated that under the provisions of Section 9(2)(b) of the FTO Ordinance a specific bar has been placed on the jurisdiction/powers of FTO in the matters relating to assessment of income and determination of liability of tax. The learned AR contended that this tax-payer agitated only the matter of refund before the FTO. The issue(s) relating the assessment of income were never raised before the FTO. Therefore, the learned CIR-A was fully competent to adjudicate the grounds of appeal raised before him. But unfortunately he applied a totally irrelevant law and illegally/wrongly rejected the taxpayer's appeal. Learned AR submitted that the impugned order u/S. 122(5A) was illegally passed resulting in unrealistically heavy tax demand. A valid and legal appeal lies against this order. The learned DR, however, opposed the contention of tax-payer's AR and contended that the learned CIR-A was fully justified to reject the appeal because such appeal was not legally maintainable.
4. Second issue in this appeal is regarding credit of tax deduction u/s. 236A. In this regard, learned AR stated that initially four persons pooled their resources to take part in auction of commercial plot by CDA. The tax-payer had 25% share in investment as well as tax paid u/S. 236A. The tax- payer made payment of Rs. 20,833,283/- u/s. 236A. The challan of payment and CPR of this amount was generated in the name of the tax-payer. Later on his share in investment was reduced but this reduction did not have any effect on the amount of tax paid. All the shareholders have also filed affidavits to this effect and have validated the tax-payer's contention. The learned AR pleaded that although at subsequent stage alteration was made in the share of investment but it did not have any effect on the share of tax payment which had already been made. He stated that assessing officer changed the tax-payer's share in tax payment from Rs. 20,833,283/- to Rs. 5,206,654/- (equal to 10%). He contended that the share of tax payment of the tax-payer is supported with documentary evidence. In the presence of authenticated documentary evidence, no change could be made in the amount of tax paid on the basis of any presumption or guesswork.
Learned DR however supported departmental action and stated that since share of the tax-payer was reduced in investment, therefore consequential reduction in his share of tax was made in a legal manner. He could not take credit of tax which was not proportionate to his share in investment. Therefore the assessing officer was fully justified to reduce it from Rs. 20,833,283/- to Rs. 5,206,654/- (equal to 10%).
5. The next issue is contract receipts of Rs. 93,701,312.' Learned AR stated that M/s. Shad Enterprises
(AOP) awarded a construction contract of Rs.93,701,312/- in favour of tax-payer and full amount of contract money was paid. The tax-payer accordingly declared it in the return and at the same time showed it as a liability in the wealth statement. He stated that the assessing officer subjected the whole amount to assessm ent and held that a sum of Rs. 24,335,825/-, received after 30-06- 2014 was liable to addition u/S. 111(1)(b). A sum of Rs. 71,319,086/- was treated as taxable, being normal income from rendering of services. A sum of Rs. 18,398,324/- was treated as presumptive income u/S. 153(1)(c) and a further sum of Rs. 3,378,647/- was also assessed u/S. 153(1)(a) as presumptive income from supplies. He contended that addition of Rs. 24,335,825/- u/S. 111(1)(b) and Rs. 71,319,086/- u/S. 153(1)(b) was based on presumption because the construction contract did not materialize and the entire amount appearing in the wealth statement as a liability was returned.
The additions, as detailed above were absolutely uncalled-for. He claimed that the assessing officer resorted to presumption and 'guesswork, whereas the actual facts on ground were totally omitted.
Learned DR on the other side stated that the tax-payer had himself declared payment of Rs.
93,701,312/- as contract receipts, hence the treatment meted out to him was fully justified.
6. The fourth issue in appeal is liability of Rs. 39,220,902/- as loan from friend. The assessing officer observed that a loan of Rs. 39,220,902/- claimed to have been received from a friend was not shown in the reconciliation of wealth statement. He inferred that the wealth was artificially/wrongly made and there was aclear discrepancy of the said amount and established that without recognizing the above-mentioned amount in the reconciliation of wealth statement, the sources of investment to that extent remained un-explained. Therefore addition of the said amount was made u/s. 111(1)(b). While explaining the tax-payer's position, learned AR stated that the assessing officer did not appreciate the correct position because the liability in question was shown in the wealth statement and the amount in question was correspondingly shown as a credit balance in the bank account statement. Section 111(1)(b) provides that where the sources of funds are not explained, the addition of such amount can be made, as income from unexplained sources. In this case the liability in question was generated from verifiable/explainable sources. The genuineness of this liability was not questioned by the assessing officer. He created an imaginary example and made the impugned addition on the basis of presumption and guesswork. Liability in question was not only verifiable but was duly shown in the wealth statement as well as the bank account statement. Therefore, there was no justification for making this addition.
On his turn the learned DR while supporting the action of the officers below stated that since the amount in question was not accounted for in the reconciliation of wealth statement, it was correctly treated as income from unexplained sources and the addition of the said amount u/s. 111(1)(b) was fully justified.
7. The next issue is liability of Rs. 4,900,000/- as loan from friend. The learned AR contended that it was observed by the assessing officer that a loan of Rs. 4,900,000/- given to Muhammad Pervaiz in tax year 2013 was not appearing in tax year 2014. It was inferred that the loan had been returned but was not shown as inflows, in the reconciliation of wealth statement. The tax-payer explained that the liability in question was paid back and this payment was duly reflected in the statement of bank account. The assessing officer did not accept the contention. He was of the opinion that this amount should have been shown in the reconciliation of wealth statement. Accordingly, learned AR coined an example to establish that without recognizing the above-mentioned amount in the reconciliation of wealth statement, the sources of investment to that extent remained unexplained.
Therefore addition of the said amount was made u/s. 111(1)(b). While explaining the tax-payer's position, learned AR stated that the assessing officer did not appreciate the correct position because the liability in question was shown in the wealth statement and the amount in question was correspondingly shown as a credit balance in the bank account statement of tax year 2013. Its payment during the periods relevant to tax year 2014 was accordingly shown in the bank statement. Section 111(1)(b) provides that where the sources of funds are not explained, the addition of , such amount can be made, as income from unexplained sources. In this case the liability in question was paid back from verifiable/explainable sources. The genuineness of payment of this liability was not questioned by the assessing officer. He created an imaginary example and made the impugned addition on the basis of presumption and guesswork. Payment of liability in question was not only verifiable but was duly shown in the wealth statement as well as the bank account statement. Therefore, there was no justification for making this addition which should have to be deleted.
Learned DR on the other hand while supporting the action of the officers below stated that since the amount in question was not accounted for in the reconciliation of wealth statement, it was correctly treated as income from unexplained sources and the addition of the said amount u/s. 111(1)(b) was fully justified which should have to be deleted which should have to be upheld.
8. The next issue is the loan from father. According to learned AR, it was observed by the assessing officer that in tax year 2013 the tax-payer introduced a liability of Rs. 4,630,000/- as loan from father. The liability did not appear in the wealth statement for tax year 2014. It was inferred that the loan had been returned but was not shown as inflows, in the reconciliation of wealth statement.
The Appellant/tax-payer explained that the liability in question was paid back and this payment was duly reflected in the statement of bank account. The assessing officer did not accept the contention. He was of the opinion that this amount should have been shown in the reconciliation of wealth statement. He was of the view that without recognizing the above-mentioned amount in the reconciliation of wealth statement, the sources of investment to that extent remained unexplained. Therefore, addition of the said amount was made u/s. 111(1)(b). While explaining the tax-payer's position, learned AR stated that the assessing officer did not appreciate the correct position because the liability in question was shown in the wealth statement and the amount in question was correspondingly shown as a credit balance in the bank account statement of tax year 2013. Its payment during the periods relevant to tax year 2014 was accordingly shown in the bank statement. Section 111(1)(b) provides that where the sources of funds are not explained, the addition of such amount can be made, as income from unexplained sources. In this case the liability in question was paid back from verifiable/explainable sources. The genuineness of payment of this liability was not questioned by the assessing officer. He created an imaginary example and made the impugned addition on the basis of presumption and guesswork. Payment of liability in question was not only verifiable but was duly shown in the wealth statement as well as the bank account statement. Therefore, there was no justification for making this addition.
Learned DR on his turn while supporting the action of the officers below stated that since the amount in question was not accounted for in the reconciliation of wealth statement, it as correctly treated as income from unexplained sources and the addition of the said amount u/s. 111(1)(b) was fully justified which should have to be upheld.
9. Next is the issue of reduction in loan payable to mother. According to learned AR, it was observed by the assessing officer that in the tax year 2013 the tax-payer declared loan of Rs. 28,184,500/- as payable to mother but in tax year 2014 this liability was reduced to Rs. 16,484,506/- meaning that an amount of Rs. 11,700,000/- was paid back. It was inferred that the loan had been returned but was not shown as inflows, in the reconciliation of wealth statement. The tax-payer explained that the liability in question was paid back and this payment was duly reflected in the statement of bank account. The assessing officer did not accept the contention. He was of the opinion that this amount should have been shown in the reconciliation of wealth statement. He coined an example to establish that without recognizing the above-mentioned amount in the reconciliation of wealth statement, the sources of investment to that extent remained unexplained. Therefore addition of the said amount was made u/s. 111(1)(b). While explaining the tax-payer's position, learned AR stated that the assessing officer did not appreciate the correct position because the liability in question was shown in the wealth statement and the amounting question was correspondingly shown as a credit balance in the bank account statement of tax year 2013. Its payment during the periods relevant to tax year 2014 was accordingly shown in the bank statement. Section 111(1)(b) provides that where the sources of funds are not explained, the addition of such amount can be made, as income from unexplained sources. In this case the liability in question was paid back from verifiable/explainable sources. The genuineness of payment of this liability was not questioned by the assessing officer. He created an imaginary example and Made the impugned addition on the basis of presumption and guesswork. Payment of liability in question was not only verifiable but was duly shown in the wealth statement as well as the bank account statement.
Therefore,- there was no justification for making this addition which should have to be deleted.
Learned DR on the other side while supporting the action of the assessing officer stated that since the amount in question was not accounted for in the reconciliation of wealth statement, it was correctly treated as income from unexplained sources and the addition of the said amount u/s. 111(1)(b) was fully justified which is to be upheld.
10. On the legal point, learned AR has argued that the impugned assessment order has been passed u/s. 122(5A). Under the relevant provisions of law, an assessment order can be amended u/s. 122(5A) if the Additional Commissioner considers that such order is erroneous insofar it is prejudicial to the interest of revenue. A plain reading of the impugned assessment order proves that the Additional Commissioner nowhere established or even mentioned that the deemed order u/s. 120 was erroneous insofar as being prejudicial to the interest of revenue. According to learned AR, this is serious lacuna in the assessment order u/s. 122(5A) as it was a legal obligation on the Additional Commissioner to first establish that the deemed order u/s. 120 was erroneous insofar as being prejudicial to the interest of revenue. This legal obligation was not fulfilled and the learned CIR(A) has also failed to consider this fact. Learned AR has contended that hence entire proceedings are plagued with a legal deficiency, the impugned assessment order is liable to be annulled on this legal position also.
11. We have heard both the parties in detail and have perused the impugned orders of the officers below, relevant available record of the case and the case-law referred. We have found that in this case the learned CIR(A) has disposed off the appeal with the observation that the appeal is not maintainable. The relevant paras of the impugned orders of the learned CIR(A) are reproduced hereunder:--- "C. APPELLATE PROCEEDINGS & FINDINGS Statutory notice u/s. 128 of the Income Tax Ordinance, 2001 for hearing of appeal was issued to the appellant in response to which the AR appeared on behalf of the appellant and pleaded the case as per grounds of appeal. No one represented the department. The appeal is disposed of as under:
(i) Perusal of the order revealed that the appellant had filed refund application claiming refund of Rs. 21,202,142/- which was under process. Meanwhile the Directorate of l&I took the case for investigation. On the other hand, the appellant approached the Honourable FTO for release of refund who decided the complainant with certain directions. In the light of FTO order and recommendations of the Directorate l&I and on the basis of available record notice confronting the tax-payer with the discrepancies was issued and after considering reply, impugned order was passed by making additions under Section 111(1)(b) as unexplained income and loan from friend, addition u/s. 153(1)(b) income from rendering of services chargeable to normal tax and addition on account of repayments of loan to mother and father. The AR reiterated the arguments taken into grounds of appeal and contended that in response to notice position was explained through letter dated 15-042016 and additions made by the assessing officer are illegal and unjustified.
The AR agitated passing of order u/s. 122(5A) stating that it is based on information provided by the tax-payer.
(ii) The arguments of the AR were heard and record was perused. Before discussing various additions made by the assessing officer, it is considered appropriate to discuss the issue of maintainability of appeal. The record shows that the appellant had filed appeal before honourable FTO against non-issuance of refund, which is basic point from where proceedings were initiated u/s. 122(5A). The Honourable FTO decided the matter vide order dated 19-10-2015 in complaint No, 83/ISD/lT(59)/879/ 2015. According to Section 18 of Federal Ombudsman Institutional Reforms Act, 2013 "no Court or Authority shall have jurisdiction to entertain a matter which falls within the jurisdiction of an Ombudsman nor any Court or Authority shall assume jurisdiction in respect of any matter pending with decided by the Ombudsman."
Now on the basis of above position it can be concluded that CIR(A) has no jurisdiction to entertain a matter which is pending with, or decided by Honourable FTO. In the instant case, the appellant had filed complaint before FTO which was decided by him, and it cannot be entertained by CIR(A) thanks to Section 18 of Federal Ombudsman Institutional Reforms Act, 2013. It would be advantageous to refer ground No, 3 of appeal in which the appellant has mentioned that the assessing officer ignored the recommendations of Honourable FTO and started proceedings u/s. 122(5A) of the Ordinance. In other words, the learned AR has based his contention upon the judgment of Honourable FTO and has prayed for annulment/quashment of order passed u/s. 122(5A) of the Income Tax Ordinance, 2001.
In view of above discussion, it is held that the appeal is not maintainable at this forum. However, the appellant is at liberty to approach Honourable FTO or redressal of grievances, if any."
We have found from the above paras of the impugned order of the learned CIR(A) and keeping in view the other relevant facts that the matter before the learned FTO was regarding the issue of refund which as per above order was disposed of vide order dated 19.10.2015 by the learned FTO. In this case learned FTO decided the refund matter with certain direction and the Taxation Officer has passed order u/s. 122(5A) which is appealable before the learned CIR(A) and only he has to decide the appeal on merits under the law as the amended order is a Judicial Order and not the executive order, therefore, the learned/CIR(A) is the only forum to decide the appeal keeping in view the relevant law.
Accordingly, the case is remanded back to the learned CIR(A) to decide the appeal considering the above-referred arguments, the facts of the case on the basis of the grounds of appeal put forth before him. He is directed to afford the reasonable opportunity of being heard.
12. The appeal filed by the tax-payer is decided as above.