This appeal has been filed by the taxpayer against the impugned order dated 26.06.2019 recorded by the learned CIR (Appeals-I) Lahore, wherein remanding the assessment under section 122(1)(5) of the Income Tax Ordinance, 2001 to the taxation of ficer has been challenged.
2. Succinctly facts of the case are that the taxpayer , a private limited company derives income from manufacturing of laundry soap, washing power and dish washing soap, return for the year under consideration was filed which was deemed to be assessed under section 120(1) of the Ordinance , declaring taxable income at Rs.15,413,893/- The only show-cause notice under section 122(9) read with section 122(5) of the income Tax Ordinance, 2001 was issued, in response to said show-cause the taxpayer filed written reply which found to be unsatisfactory . After issuance of notice under section 122(9) of the Income Tax Ordinance, 2001 the taxation officer determining the liabilities and income at Rs.394,345,444/- and Rs.143,322,775/-, respectively . In appeal, the learned CIR(Appeals) remanded the matter to the taxation officer for de novo consideration for the reasons and factors as embodied in the impugned order . This has brought the taxpayer in further appeal before this forum.
3. The learned counsel has vehemently contented that the taxpayer did not make any suppression in production, sales or any amount chargeable to tax for the period under consideration. They duly declared the bank accounts in the financials filed with the department. The position of credit entries appearing in the bank accounts of the company are as under:-- Total credit entries in Bank Alfalah10,239,590/- Limited A/c No.5577005000090168 Total Credit entries in Habib Bank Limited A/c No.25400897900301503338,368,070 Total credit entries in Habib Bank Limited A/c No.0008977900173403386,379,297/- Total credit entries in Habib Bank Limited A/c No.17487900695403103,014,968/- Total amount of credit entries 838,001,925/-
4. The main thrust is on the basis of bank credit entries the suppressed receipts at [838,001,925 -- 443,665,481 1 -- Rs.324,336,444/- was without considerin g the nexus of declared financial amounting to Rs .843,41 1,375/-. The reconciliation statements with regard to correlate the amounts consists of intra-bank company account transfers, LC Margin account, loan from directors , containers security and cheques returned. The crux of the above- mentioned credit entries of all the bank accounts as well as debit side in a quick glance is approximately equal. The learned AR contended that the said information already confronted by the Deputy Director-II, Directorate of Intelligence and Investigation Inland Revenue, Lahore wherein the lesser differential amount has been confronted through show-cause notice C.No.DD-I/1 - 890/2015/1876 dated 13.03.2019 issued under section 176 of the Ordinance from the taxpayer . Subsequently , the Deputy Director-II, Directorate of Intelligence and Investigation Inland Revenue, Lahore forwarded the said information to concerned Zonal Commissioner's. The plain text of both the notices shows that no new information/facts were discovered by both the offices. In this case, the DCIR has amended the assessment by issuing a combine, notice under section 122(9) of the Income Tax Ordinance, 2001.
On perusal of both the show-cause notices, the words are to be understood in their ordinary , everyday meanings, unless the context indicates that they bear a technical sense. A textually permissible interpretation that furthers rather than obstructs the document's purpose should be favoured. In other words, the ordinary meaning rule is the most fundamental semantic rule of interpretation. It governs constitutions, statutes , rules and private instruments.
Interpreters should not be required to divine arcane nuances or to discover hidden meaning. There is a clear distinction between both the show-cause notices. It is a well settled principle that if the very foundation of an action is illegal or without jurisdiction the whole superstructure built upon it cannot validly and legally stand. Thus the assessment framed in pursuance of a combine notice under section 122 of the Income Tax Ordinance, 2001 suffers from legal infirmity and is not sustainable in the eye of law .
Invocation of Section 122(5) of the Ordinance
5. At the very ,outset, the learned counsel of the appellant that the respondent department has taken up proceedings under section 122(5) of the Ordinance on the order deemed to have been passed under section 120 of the Ordinance i.e., soon after the receipt of return of income filed under section 114 of the Ordinance. The learned counsel stated that on the issue of finishing and roving enquiries the legal superior fora has decided the issue in favour of the taxpayer . In a case reported as 2018 PTD 749 (Lahore High Court); wherein their Lords hips have held that: "7. The question as to what constitutes a "definite information" is probably one of the most debated issues not only under Income Tax Ordinance, 2001, but also under the Repealed Income Tax Ordinance, 1979, as the latter also contained a similar concept.
This is for the reason, that this term has not been defined in the statute. Some of the most illuminating judgments which explain this concept include: "Income Tax Officer and another v. Messrs Chappal Builders " (1993 SCMR 1108), "Inspecting Assistant Commissioner and another v. Pakistan Herald Ltd. through Director Finance and Corporate Affairs" (1997 PTD 1485 (SC)), "Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others" (PLD 1997 SC 700), "Commissioner of Income Tax Companies Zone-II, Karachi v. Messrs Sindh Engineerin g (Pvt.) Limited, Karachi" (2002 PTD 419), "Commissioner Inland Revenue v. Messrs Khan CNG and Filling Station and others" (2013 PTD 884), "Commissioner of Income Tax v. Messrs Bashir Brothers" (2014 PTD 1377 ). Following principles (which are expressed mostly in the language of the Court) may be deduced from these cases: --
(i) An assessment cannot be reopened or amended on the basis of every inform ation for the reason that every information is not a "definite information".
(ii) "Definite information" cannot be given a universal meaning. It has to be construed in each case.
(iii) The expression "definite information" means more than mere material which may cause a reasonable belief.
There must be definite and direct information without there being any further need to acquire further material to support it. Where the Department has to rely upon further reasoning or inquiry to clothe their information with credibility , it is not definite information.
(iv) Where a taxpayer has disclosed all the material facts without any concealment, in the absence of discovery of any new facts which can be treated as "definite information", the assessment cannot be amended.
(v) The expression "definite information" includes factual information as well as Information about the existence of a binding judgment of a competent court of law or forum. However , this does not cover a cafe where after framing assessment consciously , the Assessing Authorities realize that any provision of law has been ignored or not applied or misapplied.
(vi) Any interpretation of a provision of law by a functionary which is not charged with the duty/function to interpret such provision judicially is not "definite information". Thus, a circular issued by the Board of Revenue whereby it interprets any legal provision cannot be terms as "definite information".
(vii) A different interpretation of a legal provision or deriving a different conclusion from a given set of facts cannot be reckoned as "definite information". It is merely a change of opinion."
The learned AR also submitted that the show-cause notice under section 122(9) read with sections 122(1)/122(5) of the Income Tax Ordinance, 2001 was issued, in response to said show-cause the taxpayer filed written reply with the submission that; "no notice under section 111 of the Ordinance was issued by the DCIR for un-explained income or expenses incurred by the taxpayer appellant as well as of section 174(2 ) of the Ordinance to disallow or reduce the taxpayer's claim for a deduction". The expression "deduction" means any amount debited to trading account, manufacturing account, receip ts and expenses account or profit and loss account. The appellant maintained proper books of account as envisaged under the Income Tax Rules. In a case reported as 2019 PTD 1828 (Lahore High Court); wherein their Lordships have held that: "A specific notice to a taxpayer is pre-requisite to include unexplained income/assets in income chargeable to tax in terms of Section 1 11(1) and without such notice substantial compliance of said provision of law could not be made.
Provisions of Section 111 of the Ordinance of 2001 show that if the instance/catego ries of unexplained income and assets, mentioned therein, come to the knowledge of the Commissioner , he is not obliged to form an opinion on the basis of information so gathered rather is required to issue notice to taxpayer seeking explanation, confronting the information collected that its case comes within the head(s) specified in subsection (1).
For an explanation to be offered by the registered person, he must have been issued notice without which no explanation could be offered, within the contemplation of Section 1 11."
6. On the other hand, the learned DR has supported the orders of the authorities below for the reasons recorded therein. No new set of arguments put forth by him which may be quoted here.
7. We have heard the rival arguments and perused the record and the orders subject matter of the cross appeals.
We feel inclined to agree with the submissions made by the learned AR and found that the definite information is a pre-requisite to attract the provisions of Section 122(5) of the Income Tax Ordinance, 2001. However , it may be acquired from audit or otherwise. In the instant case, no audit of sales tax and income tax affaires were conducted.
Mere fishing and roving enquiries do not qualify the definition of definite information within the meaning of Section 122(5) of the Income Tax Ordinance, 2001. On the basis of a "definite information" and that information should be manifest in the show-cause notice and not subsequently by a finishing inquiry . The main difference between "information" and "definite" one was that in case of definite information officer not to probe. It is a settled principle of law that, "If a taxpayer discloses all the material facts without any concealment and the assessment has been consciously completed, in such a case, in the absence of discovery of any new fact, which can be treated as "definite information", there cannot be any scope for reopening the assessme nt under section 122(5) of the Ordinance". In the instant case the taxpayer already provided with the return of total income as well as during re- assessment proceedings. The impugne d orders are, therefore, unsustainable; hence, the appellate order is vacated and the order under section 122(1)(5) of the Income Tax Ordinance, 2001 is annulled. W e order so.
8. The appeal filed by the taxpayer succeeds.