In this reference application under Section 133 of the Income Tax Ordinance, 2001 ("Ordinance "), the following questions of law are raised arising out of the Appellate Tribunal Inland Revenue, Lahore Bench ("Tribunal ") order dated 14.12.2017:-
(i) "Whether in the facts and circumstances of the case the learned ATIR was justified to rectify order under section 221 of the Income Tax Ordinance, 2001 ignoring the definition of the prescribed person in terms of section under section 153(9)(g) of the Income Tax Ordinance, 2001 prior to its amendment through Finance Act, 2010?"
(ii) "Whether the Appellate Tribunal has not travelled beyond the scope of its powers and jurisdiction by reviewing its earlier order under the garb of rectification after entertaining long drawn arguments which is not permissible under the scope of section 221 of the Income Tax Ordinance, 2001?"
(iii) Whether an order passed by the Appellate Tribunal consciously with application of mind after minutely the facts and circumstances of the case and law applicable can be subsequently rectified by the Tribunal under the provision of section 221 of the Income Tax Ordinance, 2001?"
2. The relevant facts are that the learned Tribunal vide order dated 05.04.2017 dismissed the appeal of the respondent-assessee, however , on rectification application under section 221 of the Ordinance, the said order was set aside through impugned order dated 14.12.2017.
3. Learned counsel for the petitioner submits that the order passed in appeal could not be set aside through rectification application. Learned counsel for the respondent, on the other hand, submits that this reference application is not maintainable against the order passed on miscellaneous applica tion and further , the error being apparent on the record the same was correctly rectified by the Tribunal.
4. Arguments heard. So far as the question of maintainability of this reference application is concerned, the learned Division Bench of this Court in the case of Messrs Honk Kong Chinese Restaurant, Main Boulevard Gulberg, Lahore v. Assistant Commissioner of Income Tax, Circle 6, Lahore and others (2002 PTD 1878 ) held that where rectification application is dismissed by Tribunal, the reference applic ation before this Court is not maintainable because the order does not merge into final order . However , if rectification application is allowed and the original order of the Tribunal is set aside, then said order will become part of the original order and reference application will be maintainable before this Court. In the present case, the rectification application being allowed and original order of the Tribunal being set aside, this reference application is maintainable in view of the law settled in the afore-noted judgment.
5. On merits of the case, the record shows that for tax year 2010- 2011, the respondent was found to be an assessee in default by the Tribunal in its original order dated 05.04.2017 on the basis of its declared turnover of Rs.50,00,000/- for tax year 2009. The plea of the respondent that revised return of tax year 2009 was filed on 09.08.2012, where the turnover was reduced to Rs.49,81 1,430/- was not accepted by the Tribunal, as same was revised after service of show-cause notice and also after the returns filed for tax year 2010-201 1. However , on rectification application, the above-said finding of the Tribunal was reversed on the ground that show-cause notice was issued under wrong provision of law .
6. The scope of Section 221 of the Ordinance is restricted to rectify the mistake apparent from the record. The expression "mistake apparent from the record" as used in Section 221 of the Ordinance means that "error" or "mistake" is so manifest and clear which if permitted to remain on record may have material effect on the case.
However , where defect in order has direct nexus with the question of determination of rights of parties and also effect their substantial rights or cause prejudice to their interest the said defect in order is not a mistake apparent on the record to be rectified under Section 221 of the Ordinance but same can only be challenged before higher forum. In this regard, reliance is also placed on the case of Commissioner of Income Tax/W ealth Tax v.
Muhammad Naseem Khan (2013 PTD 2005 ).
7. Perusal of the original order passed by the Tribunal dated 05.04.2017 shows that the learned Tribunal has assessed the matter in detail and after applying its judicial mind did not agree with the contentions of the assessee and found the respondent to be an asses see in default. The said order could not be rectified under Section 221 of the Ordinance being an error on face of record but if the respondent was aggrieved due to some legal defect in the order , the same could only be challenged before the next forum. In view of above discussion, the impugned order dated 14.12.2017 is not sustainable being beyond the scope of Section 221 of the Ordinance.
8. For reasons recorded above, this reference application is allowed and questions raised are answered accordingly in favour of the petitioner-department and against the respondent-assessee.
9. Office shall send the copy of this order under the seal of the Court to the learned Tribunal as required under Section 133(5) of the Ordinance.