SHAHID MASOOD MANZAR, CHAIRMAN.----Brief facts of the case as per assessment order are that the taxpayer is an AOP, e-filed return for the tax year 2014 which was deemed to be original assessment under section 120(1) of the Income Tax Ordinance, 2001. The case was selected for audit through parametric computer ballot under section 214C of the Ordinance ibid and notice under section 177(1) was issued for IDR accordingly. In response the taxpayer submitted the documents including a manually filed return of income of AOP which was treated as an invalid return by the Assessing Officer in terms of Section 114(2) ITO, 2001 read with Rules 73(2D) and 229 of the Income Tax Rules, 2002. Thereafter, the taxpayer was confronted with show- cause notice under section 121 due to discrepancies found in the record. Resultantly, the audit proceedings were completed and the best judgment assessment order was passed under section 121(1)(d) of the Ordinance. Taxpayer being aggrieved with the said order, filed appeal before the learned CIR(Appeals-II), Islamabad, who vide his impugned order bearing No.100/2017 dated 12.10.2017 reduced the percentage of additions finding them excessive in the following manner:- "I have perused the impugned order, grounds of appeal and considered the submissions of the learned AR.
Perusal of the order revealed that order was passed by making additions of 50% on account of cost of goods sold and stating that ample opportunity of hearing were provided but the taxpayer failed to provide the requisite details/documents while the AR contends that no notices were served upon the appellant, hence position remained unexplained and ex parte order was passed on assumption. It is observed that the additions are based on general observations and no plausible reasons for additions under the heads of cost of goods sold and profit and loss expenses were given in the order. On the other hand the declared version of the taxpayer is also not credible... In view of the facts and circumstances of the case 50% addition under the head cost of goods sold and 8- % under head profit and loss expenses are held to be excessive. Accordingly addition on account of cost of goods sold is reduced to 40% while addition on account of profit and loss expenses is reduced to 50%."
Again being aggrieved with the impugned findings of learned CIR(A), the taxpayer has challenged the said order before this forum on the grounds as set forth in the memo of appeal.
2. During the course of hearing, taxpayer's counsel before this forum contended that the learned CIR(A)'s order is not based on facts because the main stance of the appellant is selection as well as audit of invalid tax return, which is entirely ignored by him without any cause and justification. He further contended that the learned CIR(A) did not give any weightage to additional grounds submitted in hearing and passed the impugned order without discussion. Learned counsel of the taxpayer added that the ACIR failed to issue notices under section 114 and under section 120 of the Income Tax Ordinance, 2001 after declaring original return as invalid tax return, so the entire proceedings and demand raised vide order under section 121 is void, illegal and unjustified.
Concluding his arguments, learned counsel submitted that the addition on Cost of goods as well as profit and loss account made by ACIR on percentage base not maintainable as per law but no weightage was given by the learned CIR(A). Accordingly, it was prayed by the taxpayer's counsel that the impugned orders may be annulled as ab initio void.
3. On the other hand, learned DR vehemently opposed the contention of learned AR and argued that the learned CIR(A) passed the impugned order after considering all the submissions of taxpayer's counsel, hence the objection of the taxpayer's counsel is against the facts of the case. Learned DR further argued that the learned CIR(A) was not justified in reducing the addition to 40% on account of cost of goods sold and addition on account of profit and loss expenses to 50% because the taxpayer despite being afforded with opportunity of hearing, did not bother to respond and failed to explain his position along with documentary evidence, hence the action of Assessing Officer to pass the best judgment assessment order was in accordance with law.
Accordingly, he prayed that the assessment order passed by the Assessing Officer may be upheld.
4. We have heard both the parties and perused the impugned orders of the authorities below. Firstly, the perusal of impugned appellate order of the learned CIR(A) shows that on the one hand he observes that the additions were based on general observations of the Assessing officer and no plausible reasons for additions under the heads of cost goods sold and Profit and Loss expenses were given in the impugned order of Assessing Officer and on the other hand, he finds the additions excessive, reduces the same to 40% to 50% respectively. We find that the learned CIR(A) has failed to apply his mind while dilating upon the issue. Secondly, the perusal of the impugned assessment order shows that the appellant was firstly issued with the notice under section 177 of the Income Tax Ordinance, 2001 for want of audit proceedings and thereafter a notice under section 121 was issued to finalize the proceedings on the basis of best judgment assessment. The taxpayer's counsel in this regard claims that the appellant was not served/issued with the mandatory notice under section 114 and/or 120 of the Ordinance ibid. Accordingly, when we read section 121 under which the orders were passed, it provides in (1)(ab) that where a person fails to furnish return of income in response to notice under subsection (3) or subsection (4) of section 114 of the Ordinance ibid, then the best judgment assessment can be made.
Regarding this, when the learned DR was asked to explain his position that whether the notices under section 114 as required under section 121 to make best judgment assessment and notice under section 120(3), were served/issued to the taxpayer or not prior to issuance of notice under section, 121? The learned DR failed to answer and remained mum. The bizarre silence on the part of Department proves that some procedural impropriety has taken place. We are of the view that the DCIR/Assessing Officer embarked upon undue haste in passing the order under section 121(1)(d) besides bypassing the legal and procedural norms. Further, perusal of the impugned assessment order shows that the Assessing Officer issued notice under section 177(1) and on submission of the return, he found it as invalid under section 114(2). However, the return of income shall be treated as Invalid under section 114(2) read with section 120(4) in consonance. For the sake of ease and ready reference, we read both the sections as under: - "Section 114(2): -- [(2) A return of income --
(a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;
(b) shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; [ ]
(c) shall be signed by the person, being an individual, or the person's representative where section 172 applies [;] ] [(d) shall be accompanied with evidence of payment of due tax as per return of income; [ [(e) shall be accompanied with a wealth statement as required under section 116 [; and]
(f) shall be accompanied with a foreign income and assets statement as required under section 116A.] [(2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of subsection (1); and the Board may, by notification in the official Gazette, make rules for determining eligibility of the data of such returns and e-intermediaries who will digitise the data of such returns and transmit the same electronically to the Income Tax Department under their digital signatures [and other matters relating to electronic filing of returns, statements or documents, etc.]]" ."Section 120(4): -
(4) Where a taxpayer fails to fully comply, by the due date, with the requirements of the notice under subsection (3), the return furnished shall be treated as an invalid return as if it had not been furnished."
Study of section 120(4) reveals that the return of taxpayer shall be treated as invalid who fails to fully comply, by the due date, with the requirements of the notice under subsection (3), as if it had not been furnished.
It would be necessary to read subsection (3) of section 120 to completely understand the intention of legislature: - "(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice."
Combined perusal of subsections (3) and(4) of section 120 of the Income Tax Ordinance, 2001 shows that if a taxpayer fails to furnish the return by due date with the requirement of notice under subsection (3) that where the return of income furnished is incomplete, the Commissioner shall issue a notice to the taxpayer for informing him about the deficiencies other than incorrect amount of tax payable and directing him to provide such information, particulars, statement or documents by such date specified in the notice.
However, in the instant case record reveals that the Assessing Officer failed to issue the mandatory notice under section 120(3) for the said purpose. Further, we find that the filing of manual income tax IE return and furnishing the same before Assessing Officer instead of furnishing it electronically may be a procedural impropriety but it is admitted fact that no loss has been caused to the revenue. The learned counsel of the taxpayer has furnished a copy of manual tax return, which shows that the tax has duly been deducted and paid into government exchequer. So we hold that where no loss of revenue has been caused, the taxpayer cannot be burdened with undue and unwarranted additions.
5. In this view of the Matter, we observe that the due process has not been followed by the Assessing Officer which he failed to do by not issuing the notice under section 120(3) as well as under section 114 and the undue haste is obvious. It is also against the settled law emanating from the hallmark judgment in Evans case by the House of Lords and still being followed by all superior courts (1989 Crl.J. 631) including the apex court that if the statute requires a particular act to be done in a particular manner then the act must be performed in that manner alone and all other manners of doing that act would be not permissible under the law. This has been followed by the Hon'ble Supreme Court of Pakistan where hundreds of Revenue's Appeals involving billions of rupees of duty and taxes have been dismissed where the Collector or the competent authority had not signed these appeals. The relevant extract in case decided by the Hon'ble apex Court in Civil Petitions Nos.287 to 530 of 2005 dated 17-10-2005 is as under:-- "It is well settled established principle of law that when the legislature requires doing of a thing in a particular manner then it is to be done in that manner and all other manners or modes of doing or performing that thing are barred."
6. As regards the due process, we are fortified from another judgment of Hon'ble Supreme Court of Pakistan reported as PLD 2014 SC 232 wherein their lordships have held that: - "4. every person, for determination of his civil rights and obligations or in any criminal charge against him shall be entitled to fair trial and due process."
7. In another case reported as 2012 SCMR 1235, the Hon'ble Supreme Court of Pakistan has highlighted the import of Article 10A in the words; "11... concept of fair trial and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become more important that due process should be adopted for (Syed Sardar Hussain Shah, Chairman Member (Judicial)) conducting a fair trial and order passed in violation of due process might be considered to be void."
8. In view of the above discussion and respectfully following the dictum laid down by the Hon'ble Apex Court which squarely applies on this case as the due process has not been followed in the manner as it was prescribed, we hereby vacate the impugned order assessment order and appellate order being ab-initio and void.
9. The appeal is disposed of accordingly.