SHAHID MASOOD MANZAR, JUDICIAL MEMBER.---This order disposes off titled appeal filed by tax- payer against the Order No, 133/2015 dated 28.08.2015 passed by the CIR (Appeals-IV), Islamabad for T.Y. 2011.
2. Briefly stated facts leading to this case are that the appellant individual filed return for T.Y. 2011 declaring income subject to Final Tax Regime (dividend, profit on debt and Prize Bonds) and income subject to normal regime (Other Source and exempt Income). Department issued show- cause notice dated 12.06.2015 and finally assessed income as under:--- Other Source Income claimed as exempt, as Declared Rs. 590,038/- Add: Source of Accretion other than Agriculture income, as discussed above u/s. 111(1)(b) R/W 111(2) (Rs. 9,235,450 - Rs.
270,500/-)Rs.
8,964,950/- Add: Peak Entry as discussed above u/s. 111(1)(b) R/W 111(2) of A/c No, 02900154 maintained with Bank Al-Falah Ltd.Rs.9,991,043/- Total Income Rs.19,546,031/- The CIR(Appeals) observed discrepancies on part of tax-payer as under at para-16 of Appeal Order dated 28.08.2015:-- "There are certain serious discrepancies on part of Tax-payer also, which as per my observation are given hereunder: i. Neither the Salary nor the Pension has been declared in the Tax Return 2011. ii. The total Income declared at Rs. 274,500/- has been shown in column 20 of the Return as Other Source Income/(Loss), which after deduction of Rs. 4,000/- as Zakat is declared at Rs.
270,500/- as Taxable Income. iii. However, no detail of this declared income has been given in the Return 2011. iv. An exempt amount of Rs. 590,038/- under "Other Sources Income/(Loss)" has been declared in the Return 2011, without any details. However, these details have been given in para 7 of Grounds of Appeal filed in this Forum. v. Denominations and Numbers of the Prize Bonds in hand during the Year have not been detailed/declared in column No, S of Wealth Statement as required.
3. The CIR(Appeals) therefore, remanded back/set aside Assessment Order under Section 122(1) to address these discrepancies. Appellant is in 2nd appeal before this Tribunal on the following grounds:---
(1) That CIR(A) in her appeal order on paras 2 & 3 of page 10 clearly admitted that information from Board's letter dated 23.07.2014 were investigative in nature, requiring third party intervention and Section 122 could not be invoked. Thus, it is not justified at all to set aside the case instead of cancelling the same on merit.
(2) That CIR(A) was totally unjustified in remanding case back, and deviated from and violated her own Appeal Order of tax year 2010 and also not followed ITAT order vide ITA No, 327/IB/2015 for tax year 2009 as well, since the basis of reopening the case were 100% same as for the years 2009, 2010 & 2011, duly mentioned on page-9 of the CIR(Appeal-IV)'s impugned order.
(3) That CIR(A) admitted in para 9 on page 11 by highlighting irregularities & illegalities in paras 5, 6, 7, 8, 10 & 11 that DClR's action of reopening falls short of instructions and Directions from FBR and admitting the fact that there is no fun in denying sources out of which accretion and peak entries could have been easily explained, meaning thereby reopening ;were purely based on exceedingly discretionary powers and were not fulfilling requirement.to apply Section,122, thus in these circumstances' CIR(A) was not justified to remand the case back.
(4) That CIR(A) is totally unjustified in. remanding case back in the presence of illegality on face of record of not issuing notice u/s. 122 which is mandatory requirement and assessment finalized u/s. 122(1).
(5) That CIR(A) erred in writing wrong facts while typing grounds of appeal in appeal order, especially in para (iii) & (iv) on page-2 as show cause was not issued u/s. 122(5) and Appellant provided every required document sought by DCIR except bank statements as same were in his possession, for which adjournment was sought by AR of the Appellant. CIRCA) could not indicate any part of "concealment" in her appeal order, nor could she indicate any miscalculation in Tax Return/ Wealth Statement/Reconciliation Statement and, in such a scenario, remanding case back is neither justified, nor sustainable.
(6) That CIRCA) was not at all justified in remanding the case back after admitting the fact that instant case stands out of the ambit of Section 122 as mentioned in concluding remarks NOTE No, 2 "Not all information ', Definite or Otherwise, received from any authority, which is necessarily for invoking Section 122 of the Income Tax Ordinance, 2001, on all the information points, as has happened in the instant case. Thereby wasting huge effort and time on multiple sides."
(7) That C'IR(A) erred in presuming some discrepancies mentioned in paras (0, (iii), (iv) & (v) on page 13 as CIR(A) failed to understand that in Income Tax Return, there is no room and requirement of giving detail of any income, there is not line to declare pension income and there is no separate column/line to declare denomination & numbers of prize bonds separately and same information admittedly has never been asked by DCIR in any of his notice, every amount has been properly declared in proper line/column of Return. CIRCA) erred in not correcting negligent part of DCIR unconsciously finalized the order; rather made the same mistake as of DCIR made, "Agricultural Income"- Rs. 270,500/- is excluded from total sources for making addition as same has not been declared by the appellant.
(8) That CIRO) erred in not going through evidences provided with written arguments/grounds of appeal, ignoring them all while holding in para 4 of page 10 that "I am not sure if the Department requisitioned all three Bank Statements". It is totally unjustified and unfair as DCIR admitting in his impugned orders that bank statements are in his possession and made addition of peak entries on the basis of bank statements. If these were not obtained as per FBR's instruction, how it is possible to make-addition of peak entries in 2009, 2(110 & 2011?
(9) That CIR(A) has not commented on, or took notice of serious illegalities & irregularities pointed out in main grounds of appeal, which is against the cannons of justice.
(10) That the Appellant wrote two letters for appeal effect order and visited office of DCIR, pursuant to concluding remarks in Note # 4 of order of CIR(A), but neither officer replied any of these letters, nor followed the concluding remarks in Note # 1 of order of CIR(A), thus need for filing this appeal.
Appellant has been involved into unnecessary litigation.
4. We have heard the appellant's AR and learned D.R. This appear to be a first of its kind case before this Bench, which w as never set apart from audit by CIR(Appeals), and was never selected for audit by FBR but still certain directions were given by FBR for particular investigation in this case, as a consequence of which department without having any definite information nor selecting appellant for audit, proceeded to tax appellant's three years' income i,e, for tax years 2009, 2010 and 2011. During these proceedings the department acted in manner that was irregular, discriminatory and intimidatory. It is also observed that for the Tax Year 2009 ATIR has deleted department's action as incorrect in ITA No, 327/IB/2015 vide Tribunal Order dated 17.06.2015 and that for the Tax Year, 2010 CIR(Appeals) has also deleted department's taxation actions as incorrect. For the 3rd year, TN. 2011 this appeal is disposed of by Tribunal today. Department's records files are not produced before Tribunal for hearing but it is appellant's statement and confirmed by learned D.R. that directions were given by FBR in this case that were not year-wise, but were general i,e, to check prize bonds winning claim, to check the reconciliation of wealth, and from bank accounts declared to check the deposits against declared income, and then to take action as per law.
5. Following these instructions from FBR the department issued notices for tax years 2009 and 2010, whose fate is stated at para above. In the same vein as earlier 2 years department issued a show- cause notice No, 1336 on 27.04.2015 for T.Y. 2011 which raises 10 objections. The show cause is followed by the replies from the appellant and further notice from department, counter replies and adjournment application from appellant, which result in department making addition of peak Bank deposit entries under Section 111.
6. The learned AR first emphasizes that this first notice dated 27.04.2015 was illegal as it was issued by engaging Section 122(1) and Section 111(1) when at that time department was not in possession of any information that could be termed as definite information, nor could any conclusion of under assessm ent be drawn from that available information. On this our attention is drawn by the learned AR to the 10 items noted in the said notice. It is argued by AR that reading these 10 issues raised in the notice it is evident these tantamount to fishing inquiries and are not definite information of any kind. He reproduce from the show cause these 10 information as under:--- "(1) As per wealth statement filed for Tax Year 2011, the value of Plot 828 & Jammu & Kashmir Cooperative Housing Society, Islamabad has been increased from Rs. 690,000/- to Rs. 1,290,000/- as compared to wealth statement filed for tax year 2010. Please explain the same alongwith supporting documentary evidence.
(2) Similarly, the value of Villa at Lake City Raiwind Road, Lahore has been increased from Rs.
5793,163/- to Rs. 8,9 I 2,555/- as compared to wealth statement filed for Tax year 2010. Your explanation is also required on this point, alongwith documentary evidence.
(3) As per wealth statement filed for tax year 2011, Plot measuring 250 Sq. yds. Top City-I, Islamabad has been declared for the first time for Rs. 285,000/-. Please provide purchase deed of the same and explain the source in the acquisition of said plot alongwith documentary evidence.
(4) As per wealth statement filed for Tax Year 2011, Plot measuring 07 Marias Phase VIII, Bahria Town, Islamabad has been declared for the first time for Rs. 521,45/-. Please provide purchase deed of the same and explain the source in the acquisition of said plot alongwith documentary evidence.
(5) As per your wealth statement filed for tax years 2010 and 2011, you have not shown any prize bond whereas in your return and wealth reconciliation statement filed for the said period, you have declared prizes from wining of bonds to the tune of Rs. 8,370,912/-. Please explain your position with documentary evidence alongwith proofs of deduction of tax by the State Bank of Pakistan.
(6) Moreover, Account No, 0394105251002093 maintained with MCB Bank, F-8 Markaz Branch, Islamabad has not been declared in wealth statement filed for Tax Year 2011. Please explain the reason of the same. You are also requested to bring complete bank statement of the said account.
(7) As per your bank statement of account No, 088072-2 maintained with NBP, F-8 Markaz, Islamabad, the opening balance as on 01.07.2010 was Rs. 7,569,527. 70 while closing balance as on 30.06.2011 was Rs. 420,981/-. And the sum of total debit entries at closing the period come to Rs.
9,013,361/- and credit entries to Rs. 1,825,369/-. Please also explain the same alongwith documentary evidence.
(8) As per your bank statement of account No, 02900154 maintained with Bank Al-Falah Stock Exchange Br., Islamabad, the opening balance as on 25.09.2010 was Rs. 0/- while closing balance as on 30.06.2011 was Rs. 305,27.90, and the sum of total debit entries at closing the period come to Rs.18,719,000/- and credit entries to Rs. 19,162,792/-. Please also explain the same alongwith documentary evidence.
(9) You have also declared investment with SIS Securities (Pvt.) Ltd., to the tune of Rs. 288,574/- in Tax year 2011, please provide documentary evidence alongwith the source in this regard.
(10) You have also declared investment with Stock Exchange Shares to the tune of Rs. 3,889,264/- in Tax year 2011, please provide documentary evidence alongwith the source in this regard.
7. Reading these we find weight it in the AR's contention as these instances state bare facts already declared by appellant in his wealth statement/return like value of plot increased or plot, declared for first time. Each of the 10 items in the show-cause notice ends with the sentence "Please explain the same alongwith supporting documentary evidence." or words to such effect. This sentence itself shows that no information was available that the tax law terms as "definite". As such we find that issues at S. Nos, 1, 2, 3, 4, 9 and 10 are not definite information but are fishing inquiries. Similarly S. Nos, 7 and 8 states Bank Account and amount of debit entries and ask tax-payer to "Please also explain the same alongwith documentary evidence." We find this also in the nature of fishing inquiry and in no way is definite information. By now many case-law hold that department has no right to ask fishing-type questions from tax-payer when the return is deemed as assessed and the case is not selected for audit. For same reasons we also find that department was without any legal justification to ask for tax-payer's reply on these items incidentally the appellant explained their bank account in its replies.
8. This leaves items 5 and 6 from show-cause notice. Item No, 6 states that MCB Account (old account) is not declared in wealth statement and asks tax-payer to explain the reason. This too is fishing inquiry, as there could be multiple reasons for such absence, like dormant account, nil balance, abandoned account or closed account, none of which be "definite information" justifying re-assessm ent of income for tax. Factually speaking the tax-payer explains in its reply that the Bank Account was closed prior to 30th June which is why it does not appear in the wealth statement. Item No, 5 states that wealth statements T.Y. 2010, 2011 do not show prize bonds whereas reconciliation shows winning from bonds. The show-cause notice then asks tax-payer to "please explain with documentary evidence alongwith proof of deduction of tax by the State Bank of Pakistan." Again, the AR argue that firstly this case was legally deemed as assessed and was not being audited, therefore, department had no right to ask question or call for records; and second that there is no column in the wealth statement form to separately show prize bonds and, third that the bonds were declared in the relevant wealth statement as part of cash and fourth that even if department had been correct (which it was not), action 7 should have been taken in tax years 2009, 2010 where department claimed the prize pounds were not declared, and not in tax year, 2011.
9. From above discussion it emerges that not a single issue in the show-cause notice was of a kind that was "definite" proof of anything, and to top things, these were items that the appellant had already self declared. As such the notice was issued without any legal justification, and any subsequent actions emanating from an illegal notice have repeatedly been struck down by Courts.
We therefore, also so order that the assessment and appeal orders of lower authorities are vacated.
10. Passingly we may also state that OR (Appeals) made 5 observations of serious discrepancies, that are stated at para 3 above. We do not agree that these observations are "serious" or of any tax incidence. The appellant's version on those is more acceptable, namely that the form of return of income as used for tax year 2011 does not contain separate boxes to declare salary, pension or prize bond numbers by denomination or allows space to show "details" of exempt incomes i,e, each exempt income is not required to be declared separately as no codes or boxes exist in return form, etc. as such all income were correctly declared in available columns. We find this claim as factually correct. None of the 5 items stated in CIR (Appeals) order is a "discrepancy" as para 2 above shows. As such there was no reason for CIR (Appeal) to set aside the department's order and remand case back to Department as department had no cause to proceed in this case. Even the peak entry from bank account is added illegally as well as factually being incorrect. Before making addition u/s. 111 department is required to arrive at a figure of any unexplainable income, which department did not calculate. Also in doing so it should have given credit to appellant for declared/assessed incomes, but department simply added the peak Bank entry W/o allowing for already declared incomes. This is factual and procedural error. The second error i,e, legal error, is more fatal. The department forgot that this case was legally deemed as assessed, which attained sacrosanctity and could not be touched other than in situations prescribed in law.
10. The situations given in law are "definite information" and "erroneous" assessment. Neither of these is met in appellant's case as discussed earlier. It may have been possible for department to have set the case, for audit, but again this was not done.
11. As such it is clear that orders of Department as well as CIR (Appeal) are without legal sanction.
Hence both orders are vacated and declared return is accepted following the principle that since mandatory statutory law was not complied with, therefore, subsequent proceedings become coram non judice as decided in PLD 2001 Quetta 20 (that when law provides procedure for doing a thing in a particular manner then it must be done in the manner and not otherwise or it should not be done at all) and PLD 2005 Supreme Court 842 that "no sooner the question of proceeding has taken in negative it will burden of such declared procedure is bound to crumble down and as [(2005) 91 TAX 231 (H.C.Lah.)].
12. The appellant has also raised issue of harassment in shape of been having forced through steps like those during audit without actually being selected for audit. Appellant is correct in that he was unnecessarily and illegally subjected to forced process equal to audit process and he was placed under pressure by different show-cause notices allowing him less than two weeks' time to respond (thus violating Board instructions of being allowed a clear period of fifteen days for compliance as in C.No,7(2)DT-14/94 and other such instructions). Such short time as three days to respond to notices and refusal to allow time to respond even in last Ashra of Ramdan seems unjustifiable especially when Department then sits idle on the case for weeks and months. Therefore, the allegation of appellant having been so pressurized does seem discernible, however, redressal of this not available in Income Tax Ordinance, 2001 but is available in other statutes like Ombudsman and FBR Acts etc. As such no decision is handed on this issue.