Dr. FARRUKH ANSARI, ACCOUNTANT MEMBER.----The instant appeal has been filed by a private limited company, engaged in the business of manufacturing of other chemical products (sic), against the decision of the learned Commissioner (Appeals-III), Karachi, remanding back the orders passed under sections 161 / 205 / 182 of the Income Tax Ordinance, 2001 for all the three impugned tax years to the present respondents. The appeals are filed for all the three tax years on the following common grounds:- "1. That the Appellate Order Nos. 15 to 17/2018 dated 30.08.2018 passed by the worthy Appellate Commissioner under section 129 of the Income Tax Ordinance, 2001 remanding back the case of unlawful treatment meted out in the order made under sections 161 / 205 of the Income Tax Ordinance, 2001 by the Deputy Commissioner of Inland Revenue, (E&C) Unit-Ill, Range-II, Zone-I, Corporate Regional Tax Office, Karachi for the tax year 2014 is bad in law and not based on facts of the case.
2. That the worthy Appellate Commissioner was not justified to remand back the case of the appellant for de- novo proceedings ignoring the fact that all the details and documents were filed and available on the record of the assessing officer and were also filed before the worthy Appellate Commissioner showing that the appellant has deducted all the taxes correctly and lawfully and not a single instance was pointed out in support of his arbitrary and harsh action of treating the appellant a defaulter of the taxes as a Withholding Tax Agent. .
3. The relief sought on the above grounds may kindly be allowed to the Appellant accordingly.
4. The Appellant further craves to add, modify, amend/alter or add any ground before or at the time of hearing of this Appeal."
2. Since the facts of the case are similar for all the three impugned tax years, the appeals are decided through this common order, with the figures related to the tax year 2014 being discussed as an illustration. The impugned proceedings were initiated in the case through the issuance of a notice under section 161(1A) of the Income Tax Ordinance, 2001 to the appellant dated 13.09.2017, contents of which are reproduced as under:- "Please refer to above noted subject.
The monthly statements under sections 165/149 filed by you for the periods from July 2013 to June 2014 have been examined and cross verified with the return of income for the tax year 2014 for the purpose of monitoring of taxes collected/withheld by you during the year. From cross verification of both declarations numerous discrepancies are noticed which suggest that tax has not properly been deducted on certain payments. Detail of expenses as declared in return Is given as under:- S.# Head of Expenses Gross AmountRate of Tax%Tax to be Deducted
1. Salaries 23,132,340 10% 2,313,234
2. Repair and Maintenance470,572 10% 47, 057 3.
Printing and Stationery642,597 10% 64,260,
4. Rent 700,560 15% 105,084
5. Processional Charges89,925 10% 8,992
6. Other Indirect Expenses74,690 10% 7,469 Balance Payable 2,546,096/- *Evidence of payment should come with complete bank statement.
Hearing of this case has been fixed on 18.09.2017 at 11:00 am in the office of the undersigned at Income Tax House Karachi where a duly accredited council/representative (who should bring written authorization/power of attorney) may appear to defend the case. If no reply to the show-cause notice is received within the due date or no one appeared on the date fixed for hearing, it will be presumed that you have nothing to offer in defense against the treatment discussed supra and the case will be decided ex parte on merits on the basis of evidences available on record."
3. In response to this, the appellant allegedly filed few details (whose precise nature is not mentioned in the order) and reconciliation under Rule 44(4). It was however inferred that the discrepancies pointed out had still not been removed, hence recovery was ordered under section 161 of the Income Tax Ordinance, 2001; amounting to Rs.639,043/-, along with default surcharge and penalty under entry at Serial No. 15 of subsection
(1) of section 182 of the Ordinance, due to the reasons cited below:- "SALARIES EXPENSES RS. 23,132,341/- The taxpayer claimed salaries expenses amounting to Rs.23,132,341/- during the year add opening at Rs.1,100,759/-, total salaries amounting to Rs.,24, 233,100/- Closing Balance at Rs.1,295,180/- net paid salaries as per reconciliation amounting to Rs. 22,937,920/- Gross taxable payments shown at Rs.14,729,456/- and tax deducted thereon at Rs.1,339,154/-. Supporting record has been filed. Any record for remaining amount of Rs.8,208,464/- not filed. In the absence of the supporting record remaining amount of Rs.8,208,464/- is treaded as taxable payment without deduction, hence liable to charges under section 161 at the average rate 07%.
OTHER INDIRECT EXPENSES Rs.74,690/- The tax payer claimed other indirect expenses amounting to Rs.74,690/- Out of these expenses Rs.4,500/- shown as taxable expense and tax deducted at Rs.270/-. Supporting record has been filed. Any record for remaining amount not filed. In the absence of the supporting record remaining amount of Rs.74,240/- is treated as taxable payment without deduction and charges under section 161 at the @ 10%.
REPAIR AND MAINTENANCE Rs.470,572/- The taxpayer claimed repair and maintenance expenses during the year at Rs.470,5721- add opening at Rs.14,400/- total amounting to Rs.484,970/- Closing Balance at Rs. 22,938/- net paid as per reconciliation amounting to Rs.460,034/- Out of these expense Rs.387,870/- shown as taxable payments and tax deducted thereon at Rs.19,513/-. Supporting record has been filed. Any record for remaining amount not filed. In the absence of the supporting record remaining amount of Rs. 74,164/- is treated as taxable payment without deduction and charges under section 161 at the @ 10%.
PRINTING AND STATIONERY-Rs.642,597/-.
The taxpayer claiming printing and Stationery expenses during the year at Rs.642,597/- add opening at Rs.36,171/- total amounting to Rs. 678, 7682/-. On the declared expenses tax deduction is due at Rs.67,876/- whereas taxpayer shown tax deduction of Rs.18,278/- any record for exempt payments and below taxable payments not filed. Hence remaining amount of tax at Rs.49,598/- is charged under section 161.
The default of non / short deduction of tax out of its payments, taxpayer is liable for levy of default surcharge under section 205 and penalty under section 182(1)(15) of the Income Tax Ordinance, 2001."
4. The demand of Rs.817,974/- was thus created as under:- S. No.Head of account Amount paid Applicable rate of tax deductionTax deductible
1. Salaries 8,208,464 7% (Ave) 574,605
2. Other indirect Expenses74,240 10% 7,424
3. Repair and Maintenance74,164 10% 7,416
4. Printing and Stationery 49,598 Tax liability under section 161 of the Income tax Ordinance, 2001 as discussed above.639,043 Default Surcharge under section 205 @ 18% 115,027 Penalty under section 182(1)(15) 63,904 Total tax payable 817,974
5. The appellant filed three separate appeals for the three impugned years before the learned Commissioner (Appeals-HI), Karachi, who remanded the matter back to the respondent, through a single order, due to the reasons cited as under:- "It is apparent front the impugned orders that respondent has only created default under section 161 of the Income Tax Ordinance, 2001 on the payments on which tax was not deducted by the appellant. Though, the AR of the appellant has filed some detail and documents before me but the same were not produced before the respondent. It is fair and reasonable to remand the cases, for three tax years, back to the respondent to examine the details and documents of the appellant and give him proper opportunity of being heard before making any action under sections 161/205 of the Income Tax Ordinance, 2001"
It is against this order that the appellant has filed the instant appeal.
6. The case was fixed for hearing on 24.12.2019 and in response to the notices, Mr. Muhammad Aleem, Advocate appeared for the appellant and Mr. Tassawar Iqbal, Departmental Representative appeared for the respondent. Both the learned representatives were heard.
7. The learned Authorised Representative of the appellant submitted that the appellant had made proper deduction of tax and had produced the details of the same before the learned Commissioner (Appeals) and also at the original stage. He submitted that the appellant provided management services and had given details of each and every party. Although the deductions tallied with the accounts, the transactions whose amounts were below the taxable limits were not accepted and the demand was created.
8. The learned Departmental Representative however submitted that the details were not provided at the time of audit and hence the respondent was justified in passing the impugned order.
9. I have gone through the orders of the officers below and have heard both the learned representatives. It is an admitted fact that the monthly statements under section 165 of the Income Tax Ordinance, 2001 were filed in the case along the reconciliation under Rule 44(4) of the Income Tax Rules, 2002. However it is further alleged that there were certain discrepancies that suggested that the tax was not withheld properly. The nature of these discrepancies is not specified in the order. It is stated that the appellant had submitted "few" details in response to the notice. However it is not precisely indicated at this stage as to what details had been filed and on what basis did the respondent arrive at the conclusion that the discrepancies were still not removed. However the officer has subsequently stated that out of the salaries paid at Rs.22,937,920/- as per reconciliation, taxable payments were shown at Rs.14,729,456/- and the record of the remaining amount of Rs.8,208,464/- was not produced. The details of these payments were the facts within the special knowledge of the appellant and hence burden of proof regarding the same was upon it. Similarly he has further stated that out of the other expenses amounting to Rs.74,690/-, only record related to the amount of Rs.4,500/- was produced, with the record of the remaining amount of Rs.74,240/- being not produced. It is similarly stated that the amounts of Rs.74,164/- and Rs.49,598/- on account of repair and maintenance and printing and stationery respectively were not supported by the required details. It is not specifically mentioned as to what details were withheld in particular, which was important in the light of the fact that the statement under section 165 of the Ordinance was admittedly filed.
Although the learned Commissioner (Appeals) has stated in his order that some details and documents had been submitted before him, his order again does not mention whether the entire details were submitted before him or not and what were the precise details that were required and had been withheld. The learned Counsel of the appellant has submitted before this Bench certain details, such as the details of expenses, copy of annual statement of deduction of tax from salary, copy of audited financial statements etc. in support of his contention that the tax had been correctly deducted at source by the appellant and there was no shortfall. He has however neither produced the monthly statements under section 165 of the Ordinance nor the reconciliation under sub- rule (4) of rule 44 of the Income Tax Rules, 2002. The order of the learned Commissioner (Appeals) impugned before this forum is therefore partially modified with respect to the action taken under sections 161 and 205 of the Ordinance, with the directions that since the statement under section 165 of the Ordinance had been admittedly filed in this case, the respondent may therefore scrutinize the same and specifically identify the payments for which details were not provided and if any shortfall is noted in deduction of tax or its subsequent payment as a result of this scrutiny, the same may be recovered in accordance with law. It is further observed that the respondent instead of specifically working out the average rate of tax for each employee in respect of whom the tax was incorrectly deducted on the payments under the head "salary", applied a uniform rate of 7% to the entire amount on which the tax was not deducted (after confronting at the rate of 10%), although the average rate of tax varies from one recipient to another. This approach should best be avoided. Similarly default surcharge cannot be charged at a flat rate, without quantifying the period of default, which should again be avoided.
10. The penalty for all the, three impugned years has been imposed in the case without confronting-the appellant and without establishing the mens rea. It has further been passed through common orders under sections 161, 205 and 182 of the Ordinance, for all three years and not through separate orders. It is to be noted here that the penalty proceedings are quasi-criminal proceedings in nature and hence the standard of proof and other criteria for levying penalty (such as establishing the mens rea, as mentioned above) are at variance from the proceedings under sections 161 / 205 of the Ordinance, for which passing separate orders was desirable. The penalties are deleted due reasons cited above.
11. The three appeals are disposed of in the manner discussed above.