The above titled appeals both for tax year 2014 have been filed by the taxpayer against the combined order Nos, 949-950/2015 dated 26.01.2016 passed by the learned Commissioner Inland Revenue (Appeals-III), Rawalpindi.
The taxpayer has agitated on the following grounds:- GROUNDS OF APPEAL ( I.T.A. No,781/IB/2016 )
"(i) That the appellant order of CIR(A) as well as order of Deputy Commissioner Inland. Revenue (DCIR) passed under sections 161/205/129 of the Income Tax Ordinance, 2001 (the Ordinance) are bad in law as well as against the facts of the case.
(ii) That the CIR(A) was not justified in not annulling the premature order passed on 28-01-2014 by DCIR under sections 161/205 of the Ordinance, before the completion of the Tax Year 2014.
(iii) That the order passed by the DCIR was illegal and liable to be annulled by CIR(A). under the provision of section 74(i) of the Ordinance a Tax Year comprises of a period of Twelve months No piecemeal order for the same Tax Year could be passed under the Ordinance.
(iv) That without prejudice to above there is no concept of estimation or guess work under the Ordinance. Section 161 of the Ordinance deals with the recovery of Tax. Any assessment or estimation of receipts / income or Tax is beyond the scope of this provision and thus order passed by the DCIR is unlawful and without jurisdiction.
(v) That the CIR(A) after accepting that the appellant being a distributor would be expected to make sales to the wholesalers as well, was not justified in restricting the wholesales to 50% of the total sales. The appellant has already declared sales made to retailers in addition to wholesales made by him.
(vi) That the order passed by DCIR on date other than the date fixed for hearing is liable to be declared null and void.
(vii) That the appellant begs to add or alter the grounds before the hearing of appeal with the permission of the court.
It is prayed that the order of CIR(A) as well as order passed by the DCIR under sections 161/205/129 of the Ordinance may kindly be vacated and / or any other relief deemed proper may be granted."
GROUNDS OF APPEAL (I.T.A. No,782/IB/2016)
" (i) That the appellant order of CIR(A) as well as order of Deputy Commissioner Inland Revenue (DCIR) passed under sections 161/ 205/129 of the Income Tax Ordinance, 2001 (the Ordinance) are bad in law as well as against the facts of the case.
(ii) That the CIR(A) was not justified in not annulling the double assessment order passed under sections 161/205 of the Ordinance despite an order already having been passed for the same Tax Year 2014 under the said provision.
(iii) That the order passed by the DCIR was illegal and liable to be annulled by CIR(A). Under the provision of section 74(i) of the Ordinance a Tax Year comprises of a period of Twelve months No piecemeal order for the same Tax Year could be passed under the Ordinance.
(iv) That without prejudice to above there is no concept of estimation or guess work under the Ordinance. Section 161 of the Ordinance deals with the recovery of Tax. Any assessment or estimatio n of receipts / income or Tax is beyond the scope of this provision and thus order passed by the DCIR is unlawful and without jurisdiction.
(v) That the CIR(A) after accepting that the appellant being a distributor would be expected to make sales to the wholesalers as well, was not justified in restricting the wholesales to 50% of the total sales. The appellant has already declared sales made to retailers in addition to wholesales made by him.
(vi) That the order passed by DCIR on date other than the date fixed for hearing is liable to be declared null and void.
(vii) That the appellant begs to add or alter the grounds before the hearing of appeal with the permission of the court .
It is prayed that the order of CIR(A) as well as order passed by the DCIR under sections 161/205/129 of the Ordinance may kindly be vacated and / or any other relief deemed proper may be granted."
2. Brief facts of the case as per impugned orders are that the appellant/taxpayer is an individual running business as a distributor of cigarettes of Messrs Pakistan Tobacco Company . Original proceeding for default of section 236H of the Income Ordinance, 2001 for the tax year 2014 comprising the period from July 2013 to November 2013 were finalized under sections 161/205 of the Ordinance ibid creating a demand of Rs.13,88,565/- through an order passed on 28.01.2014. Subsequently on 22-09-2014 for the tax year 2014 another order under sections 161/ 205 of the Ordinance ibid regarding the period of December , 2013 to May, 2014 was also passed creating a demand of Rs.54,98,722/- which was later rectified to Rs.21,68,617/- under section 221 of the Ordinance ibid. The taxpayer being dissatisfied filed appeal before learned Commissioner (Appeals) against order dated 10.11.214 passed under section 221 of the Ordinance ibid who vide his impugned order remanded back the case to the assessing officer because the original order in consequence whereof the rectification order under section 221 was passed has already been remanded back with the same directions. The orders for both the periods were challenged by the taxpayer in separate appeals filed before the learned Commissioner (Appeals), who remanded back the case vide combined order dated 18.02.2015. The orders of re-assessment for both the periods were separately passed by the DCIR under sections 161/205/129 of the Ordinance, ibid on 27.06.2015 creating the same demand of Rs.
13,88,565/- for the period July 2013 to November 2013 and Rs.28,05,716/- for the period December 2013 to May 2014. Both the orders were again challenged before the learned Commissioner (Appeals) who vide combined order dated 26.01.2016 disposed the appeals for both the periods in the following manner:- "Foregoing in view both sides not being able to establish their cases completely , default of section under section 236H is directed to be rectified to 50% of the sales".
The taxpayer still being dissatisfied is in 2nd appeal before this Tribunal.
3. In response to call notice, Mr. Atif Waheed, Advocate appeared as counsel for the appellant taxpayer , while the Department was represented by Mr .Tahir Mehmood Bhatti, learned DR.
4. Learned AR at the very outset contended that two orders passed for tax year 2014 in piecemeal periods of the year are legally not sustainable. Learned AR referred to the definition of taxpayer as provided in section 2(68) and subsection (1) of section 74 of the Income Tax Ordinance, 2001 and stated that tax period is of twelve months.
Learned AR vehemently contended that there is no provision in law for passing orders in piecemeal in respect of a tax year comprising of twelve months period and the passing of an order before completion of the tax year i.e. the prescribed period of 12 months was a premature order which is legally not sustain able. In addition to above legal grounds, learned AR in his arguments also supported the stance of taxpayer on the issues raised through other grounds of appeals. Learned AR stated that complete details of sales made were provided to the DCIR. It is the contention of learned AR that being a distributor of cigarettes most of the sales were made to whole sellers and tax under section 236H on the sales made to retailers was withheld and deposited into the Govt. Exchequer . Learned AR argued that no estimation under section 161 of the ordinance could be made. According to him, the charge of tax on the taxpayer in absence of any definite information was legally not justified. Learned AR also raised the issue of tax under section 161 of the Ordinance ibid. was the liability of other perso ns which could not be recovered from the appellant/taxpayer .
5. Learned DR on the other hand defen ded the impugned orders and contended that the DCIR was justified in charging the tax under section 161 because the taxpayer failed to produce any evidence to substantiate his contentions. Learned DR further contended that the case having been remanded back to the assessing officer with the direction to provide another opportunity of being heard there remained no grievance with the taxpayer .
6. Arguments of learned representatives of both the parties have been heard. The facts of the case have also been taken into consideration. The provisions of subsection 2(68) and subsection (1) of section 74 as well as the provisions of section 153 and section 161 of the Ordinance ibid have also been thoroughly perused. Before further proceedings, it will be pertinent to reproduce here the provisions of subsection (1) of section 161 of the Ordinance ibid as under:- "Section 161 (1) Where a person?
(a) 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 or as required under section 50 of the repealed Ordinance: or
(b) having collected tax under Division II of this Part or Chapter XII or deducted tax under Division III of this Part or Chapter XII fails to pay the tax to the Commissioner as required under section 160 or having collected tax under section 50 of the repealed Ordinance pay to the credit of the Federal Government as required under subsection (8) of section 50 of the repealed Ordinance"
Perusal of above shows that the person shall be personally liable to pay the amount of tax to the Commissioner who may pass an order to that ef fect and proceed to recover the same.
7. It is observed that the whole scheme of Income Tax Ordinance, 2001 revolves around a tax year. Any order under the provisions of the Ordinance ibid except specifically provided under the law in certain special cases is to be passed in respect of a tax year. The period of tax year in normal cases under subsection (1) section 74 is defined to be comprised of twelve months. We find much force in the argument of learned AR that no piecemeal orders could be passed in respect of a tax year. When considered in the back ground of whole the scheme of tax year under the Income Tax Ordinance, 2001, the presence of words in above quoted last sentence of subsection
(1) of section 161 i.e. "who may pass an order to that effect and proceeds to recover the same" further strengthens our point of view we find that both the orders passed under section 161 of Ordinance ibid for the tax year 2014 in piecemeal are legally not sustainable. We further find that the order passed on 28.01.2014 for the period July, 2013 to November , 2013 before the completion of tax year is also a premature order .
8. Under the circumstances both the impugned orders dated 28.01.2014 for the period July 2013 to November 2013 and dated 27.06.2015 for the period December 2013 to May 2014 passed under section 161 of the Ordinance of the Income Tax Ordinance, 2001 are hereby annulled and declared as null and void.
9. Since both the appeals of taxpayer have been accepted on the above discussed legal issues. Therefore, the remaining grounds need not to be adjudicated upon.
10. Both the appeals are disposed of f as above.