MUHAMMAD JAWED ZAKARIA, JUDIC IAL MEMBER ,-- By this order , we intend to dispose of above titled appeal filed by the appellant/taxpayer against the impugned order No. 02 dated 2.11.2017 passed by the learned CIR (Appeals-IV), Karachi. The appellant/taxpayer has raised the following grounds of appeal:---
1. That the Order No. 02 dated 02-11-2017 passed under section 129 of the income Tax Ordinance, 2001, dated 02- 11-2017 for the Tax Year 2014 by the learned Commissioner Inland Revenue (Appeals-IV), Karachi, is bad in law as well as on facts of the case.
2. That the learned CIR (Appeals-IV), Karachi in the appeal order has totally ignore d the grounds of appeal put forth by the appellant for remedy from his office.
3. That the CFR (Appeals-IV), Karachi in the appeal order has totally ignored the verbal and written legal and factual submissions submitted in his office including evidences handed over to him during the course of hearing.
4. That the learned CIR (Appeals-IV), Karachi has totally mislead himself by considering that the assessing officer has pointed out certain defects in the claim of expenses through show-cause notice which were not properly complied by the appellant.
5.That the only reason quoted in the impugned order for rejecting the appeal mentioned in the impugned order is "the appellant approached the concerned Commissioner Inland Revenue, and requested for granting further time to support their declared version. This reque st of the appellant was duly considered by the concerned Commissioner IR and. he directed to the assessing officer to allow further time to the appellant ......... " is totally wrong. During the entire assessment proceedings the appellant never asked for time to the Commissioner IR, Zone-III, LTU-II, Karachi.
6. That the learned "CIR (Appeals-IV), Karachi has erred by supposing that the appellant filed a request letter to CIR, Zone-Ill, L TU-II, Karachi for granting further time for submission of supporting details/documents.
7. That the learned CIR Appeal has erred by assuming in the order that Commissio ner IR, Zone-III, LTU-H, Karachi has allowed time for submission of details and supporting evidences, which is totally wrong and baseless.
8. That the appellant has filed a letter dated 07-04-2017 to the Commissioner IR, Zone-Ill. LTU-II, Karachi against the attitude of the assessing officer and requested him to direct the concerned officer to examine the record on merit and finalize amended assessment after considering appellant's explanations, which were already submitted to him during the course of hearing.
9. That the learned CIR (Appeal-IV), Karachi has wrongly quoted that details/supporting evidences were not provided during the course of hearing while in the amended assessment order assessing officer / DCIR has himself admitted that the details were submitted by the appellant during amended assessment proceedings
10. That the learned CIR (Appeal-IV), Karachi has erred that any specific show-cause notice was issued to the appellant and pointed out any specific discrepancy by the OIR. However , in initial letter he showed his attention to disallow the entire purchases and expense 100% for non-production of record while most of the details were in his custody and the remaining details were furnished by the appellant on 06-04-2017.
11. That the learned CIR (Appeal-IV), Karachi has erred by neglecting the facts that all the power bills were already submitted, withholding tax deducted u/s. 235 was also claimed in the return of income, and consumer number was also mentioned in the return of income as well as in the amended assessment order , which is an undeniable fact.
12. That the learned CIR(Appeal-IY), Kara chi has erred by ignoring the fact that section 174(2) can only be invoked if a taxpayer remain unable to provide any record to the Commissioner which was asked by the Commissioner during any proceedings. While entire details of purchases, salaries/ labour charg es, travelling expenses, repair & maintenance and professional tax etc., were furnished and no specific discrepan cy was pointed, out through any show-cause notice to the appellant before passing the amended assessment order .
13. That the learned CIR (Appeal-IV), Karachi has erred by ignoring the legal provision that section 174(2) cannot be invoked if 3rd Party (Brokers) didn't comply the letter of DIR.
14. That the learned CIR (Appeal-IV), Karachi has erred by ,ignoring the fact that in the amended assessment order the DCIR has made addition of 9.7 million whereas in the wealth statement/wealth reconciliation there is increase of only 4.6 million and this increase was made from the T/Y 2014 income of the appellant from flour mill, which is totally reconciled.
15. That the CIR (Appeal-IV), Karachi has erred by ignoring the fact that monito ring for the tax year 2014 in the appellant's case was also conducted by the department and details were filed during the monitoring proceedings, which was finalized through order u/s. 161(205) dated 20-10-2015.
16. That the CIR (Appeal-IV), Karachi has erred in not considering the fact that the assessing officer has totally ignored the Circular No. 7(2) dated 01-02-1994 manifests that opportunities of clear 15 days should be offered to the assessee before making estimation/assessment.
17. That the order under appeal passed by the CIR (Appeal IV), Karachi is entirely based on wrong assumptions, supposition and against the facts, which is illegal and against the norms of justice.
18. That the learned CIR (Appeals-IV), Karachi has erred by not properly applying judicial mind, ignoring the evidences on record and legal submissions of the appellant.
19. That the appellant craves permission to alter, amend or modify all or any of the ground of appeal on or before the date of hearing.
Facts of the case
2. Brief facts of the case as stated by the learned counsel are that the taxpayer appellant is a proprietorship concern and is running a flour mill name and style as M/s. Al-Noor Food Industri es for the last two decades. The appellant has filed normal income tax return u/s.1 14(1) which has become deemed assessment order u/s. 120 of the ITO, 2001, as well as statement of assets/ liabilities u/s. 116(2) alongwith wealth reconciliation statement within due date for the Tax Year 2014. In the return of income filed for the tax year 2014 the appellant has declared business income of Rs. 6,940,548/- while the gross revenue was declared amounting to Rs. 863,489,049/-. The Appellant has also declared the cost of sales at Rs. 837,678,144/- however , gross profit was Rs. 27,810,905/-. In the initial order passed u/s. 122(1) dated 28-08-2017 by the DCIR, Unit-III (Audit), Zone Ill, L TU II, Karachi the following additions were made: DESCRIPTION AMOUNT CLAIMED IN THE RETURNDISALLOWED BY THE DCIR U/s. 174(2)
Purchases from Brokers562,229,907 96,535,630 Salaries & Wages 10,966,835 2,150,254 Power (Electricity) 30,874,548 30,874,548 Gas 229,900 229,900 Repair & Maintenance 2,171,589 322,831 Professional Charges 95,300 95,300 Travelling 1,241,533 620,768 At the same time the DCIR had added back Rs. 9,700,000/- in the income of the appellant u/s. 111(1)(b) of the Income Tax Ordinance, 2001.
Against the initial impugned order passe d u/s. 122(1) by the DCIR the appellant preferred an appeal before the Commissioner Inland Revenue (Appeal) for want of justice from the learned CIR (A) but in the Order No. 02 dated 02-11-2017 passed u/s. 129 of the Income Tax Ordinance, 2001 by the learned CIR(A) the additions made by the DCIR were confirmed.
Being aggrieved and dissatisfied with the treatment meted out by the OIR, taxpayer filed appeal before the learned CIR(A) who vide his impugned order confirmed the order passed by the DCIR. Hence, the instant appeal before this Tribunal.
3. Narrating the background of the case, the learned counsel for the appellant, submitted that Notice for intimation/call for record u/s. 177(1) of the Income Tax Ordinance, 2001 with the subject "Selection of case for Audit (Tax Year 2014) u/s. 214C " dated 26th October , 2015 was issued from the office of Commissioner Inland Revenue, Zone III, LTU-II, Karachi. Notice for intimation/call for record u/s. 177(1) of the Income Tax Ordinance, 2001 dated 17th February , 2016 from the office of Commissioner Inland Revenue, Zone III, LTU-II, Karachi. Notice u/s. 176(1) (to obtain information or evidence) with the subject notice u/s. 177 regarding audit proceedings Ws.
214C of the Income Tax Ordinance, 2001 for the Tax Year 2014 dated 3rd March, 2016 from the office of Mr. Rab Nawaz Ahmed Matiana, DCIR (Audit) Unit III, Range-B, Zone III, LTU-II, Karachi. Notice u/s. 122(9) (Notice to amend assessment) with the subject notice u/s. 122(9) read with section 122(1)/122(5) of the Income Tax Ordinance, 2001 for the Tax Year 2014 dated 17th March, 2017 from the office of Mr. Asif Nazir Sheikh ACIR (Audit)
Unit III, Zone III, LTU-II, Karachi. The earlier two notices were intimation letters received from the concerned Commissioner Inland Revenue Office, however , letter dated 3rd March, 2016 was compiled by the appellant on 21st March, 2016. Detailed reply was furnished by the appellant and relevant details/documents were handed over to Mr. Rab Nawaz Matiana. After lapse of one year 2nd notice u/s. 122(9) of the Income Tax Ordinance, 2001 dated 17th March, 2017 was issued from the office of Mr. Asif Nazir Sheikh with the intention to disallow the entire expenses 100% in respect of commission, power , gas charges, repair & maintenance, stationary , professional charges, other direct expenses, other indirect expenses, travelling and rent expenses for non-pr oduction of record u/s. 174(2) of the ITO 2001. In the said notice he also informed the appellant that wealth statement of the appellant is not being filed for the last five years. In response to the said notice the appellant filed detailed reply on 6th April, 2017 and handed over to him pending documents in support of claim in the return alongwith three bank accounts statement.
4. During the course of hearing the appellant also informed that monitoring of the case has also been conducted for the tax year 2014 and copy of the order passed u/s. 161/205 dated 20th October , 2015 was also handed over to DCIR on 6th April, 2017 and also furnishe d before this bench. Instead of examining the case on merit he passed an unjustified order and an addition of Rs. 130,829,581/- was made u/s. 174(2) of the ITO 2001 as well as added back Rs. 9,700,000/- /s. 111(1)(b) of ITO 2001. In the order DCIR disallowed purchase of Rs. 96,535,630/- with the reason that third party verification was not -received from brokers from whom the purchases were made by the appellant. However , complete details were furnished alongwith reply . It was also explained that purchases were made from government and from private parties through brokeri. Complete details of brokers, breakup of purchases made and challan of withholding tax on commission u/s. 233 of the Income Tax Ordinance, 2001 (also available on Iris) were furnished but he didn't consider the evidences.
However , during the monitoring proceedings where the concerned taxation officer after examining the details of salaries & wages, power , gas, Repdir & maintenance, professional charges and travelling expanses submitted along with other details in his of fice, passed the order u/s. 161/205 of the IT O 2001 without rejecting any expense.
In the audit proceedings he contended that the attitude of the DCIR was not justified and he did not examine the record on merit.
5. On legal plane, the learned counsel for the appellant vehemently argued that the concerned DCIR made additions u/s. 174(2) of IT O 2001. He referred to Section 174(2) for ready reference which is being reproduced: "Section 174. Records. (2) The Commissioner may disallow [or reduce] a taxpay er's claim for a deduction if the taxpayer is unable, without reasonable [cause] to provide a receipt, or other record or evidence of the transaction or circumstances giving rise to the claim for the deduction."
6. From the above it is obvious that the OIR may disallow or reduce the taxpayer's deduction if relevant documents were not furnished by the taxpayers. However , in the order under appeal the taxation officer is admitting that details were furnished by the taxpayer . Howeve r, due to non-availability of third party verification (brokers) he disallowed the expenses of the taxpayer . The OIR disallowed the purchases made from private parties through brokers while on the other hand he allowed entire commission paid to those brokers against the same purchase.
7. The learned counsel argued that the taxation officer could only invoked section 174(2) if details were not furnished by the taxpayer but in the order he has admitted that the taxpayer has furnished details. Therefore section 174(2) cannot be invoked in the appellant's case and the addition made u/s. 174(2) is illegal and unjustified were not liable to be confirmed. However , the taxation officer mentioned in the order that the appellant did not furnish the detail of power and gas as well as third party verification was not done. He further stated that he wrote a letter to K- Electric for verification of electricity charges in respect of the subject taxpayer but they refused that the details cannot be provided due to the absence of Consumer Number (Page No. 13 of the initial order). However , surprisingly on Page No. 18 of the order he is showing the Consumer Number of appellant electricity bill.
8. It was further submitted by the learned A.R. that during the entire proceedings only two notices were received by the taxpayer on 3rd March, 2016 notice u/s. 176(1) and another on 17th March, 2017 u/s. 122(9) of the ITO 2001 for submission of details. Before passing the order the DCIR didn't issue any show-cause notice or confront the same to the taxpayer . There was no definite information before him in the audit proceedings and the said order is totally violation of section 122(5) and section 177(6) of the ITO 2001. It was asserted by the learned counsel that the addition made u/s. 111(1)(b) is totally illogical and based on false assumption. In the Tax Year 2013 the appellant mentioned prize bond at Rs. 3 (M) and personal Bank balance of Rs. 1.56(M). In the Tax Year 2014 the appellant declared the income of Rs. 6.94(M) and total increase of Rs. 4.6(M) instead of examining the wealth statement on merit. The AR further contended that the OIR again played a decisive role by neglecting the facts that in Tax Year 2014 prize bond and personal bank balance were added in the capital. Wealth reconciliation statement is fully reconciled there is no flaw or any definite information of additional income, but the OIR intentionally created illegal addition only to harass the taxpayer and created illicit tax demand. During the entire proceedings the DCIR did not issue any specific and separate notice u/s. 111 of the ITO, 2001 for making any addition, however , there is no unexplained income/investment in the appellants case.
9. The learned counsel vehemently argued that the learned CIR (A) didn't discuss grounds of appeal filed by the appellant along-with appeal documents. Surprisingly , the learned CIR (A) confirmed the order passed by the DCIR with the following new reasons:
1. The appellant approached the concerned Commissioner and requested for granting further time to support their declared version.
2. The request of the appellant was duly considered by the Commissioner and he directed to the assessing officer to allow further time to the appellant for filing details/supporting evidences.
3. Despite of availing sufficient time the appellant couldn't furnish details to the concerned officer .
4. The assessing officer passed the impugned order on the basis of available record.
10. Mr. Syed Muhammad lmran Salim, the learned counsel for the appellant strongly rebutted all the aforesaid four allegations as mentioned in the order passed by the CIR (A) as the same has no ground reality . During the entire proceedings the appellant had never made any request to the Commissioner for time for submission of details. The learned counsel argued that in fact, the appellant has submitted entire details through letters on 21-03-2016 and 06- 04-2017 all the details were furnished alongwith bank statements of three accounts for the period from 01-07-2013 to 30-06-2014. The appellant filed all the details as asked by the assessing officer and there was no short fall of document at his/appellant part. The CIR (A) misdirected himself by creating new reason for rejection of case. In the order u/s. 122(1) the DCIR has admitted that details were furnished by the appellant. Simultaneously , in the order the DCIR is showing Consumer Number of K-Electric but the CIR (A) neglected grounds of appeal and dismissed the appellant's plea with the wrong assumption that the appellant asked the Commissioner for time to file details.
Complete details were furnished during audit proceedings and appellant never requested the Commissioner to allow time for filing of details. On 7th April, 2018 the appellant filed a complaint to the Commissioner and informed him that the 'act of concerned officer (Mr. Asif Nazir Sheikh AC/DCIR) is against the spirit of law and to meet the justice the appellant requested the Commissioner to direct the AC/DCIR to examine the record on merit. Hence, the order under appeal passed by the CIR (Appeals-IV), Karachi is entirely based on wrong assumptions, supposition and against the facts which is illegal and against the norms of justice. The learned CIR (A) Karachi did-not apply his judicial mind, totally ignoring the evidence s on record and legal submissions of the appellant therefore order is liable to be quashed, declared illegal, ab-initio void.
11. The learned D.R. on the other hand, supported the orders of the officers below . The learned D.R. vehemently contended that the additions were rightly made u/s. 174(2) as the taxpayer had failed to furnish evidence in support of his claim. He further argued that the expenses claimed in profit and loss account were disallowed for want of evidence as the taxpayer had failed to furnish evidence. He also argued that the taxpayer had failed to explain increase in the wealth and decrease in the liabilities, therefore, the addition was rightly made u/s. 111(1)(b) of the Income Tax Ordinance, 2001
12. The learned counsel while rebutting the arguments of learned D.R. objected that: No definite information, neither furnished nor proved and no addition is based on definite information. Mandatory requirement of sections 174, 122(1) not fulfilled. Before modification u/s, 122(1) the finalized deemed assessmem/amended deemed order must be canceled for the purpose of modification. If deemed order existing in the field and not cancelled before invoking Section 122, the alteration and modification is illegal. Before embarking upon proceedings under section 122, the requirements of section 122 (1) are to be fulfilled in letter and spirit. The selection of the audit and conducting audit in itself does not mean an assessment or modification of assessment. That the DCIR/OIR has not given any mandatory notice (s) u/s. 122 (1) of the Income T ax Ordinance, 2001. That for passing order u/s. 122(0 the availability of the "definite information" is the precondition and submitted that Sub-Section 122(1) provides that an assessment order shall only be amended u4. 122(1) and 122(5) read with section 177, where "definite information" has been acquired through audit u/s. 177; In the instant case no such definite information was acquired by the DCIR/OIR. Without prejudice to abpve, the deemed order u/s. 122(1) can be amended either under sub-sections (4), (5) read with S. 177 of the Income T ax Ordinance, 2001 subject to definite information. That impugned assessment having been framed u/s. 122(1) without fulfilling the requirement and without invoking the provision of section 122(5). That no assessment could be made u/s. 122(1) alone without invoking sub-section (4), (5) or (5A) of the Income Tax Ordinance, 2001.
The Audit Policy has not been followed and mandatory requirement of section 177 has not been fulfilled. After selection of the case for audit u/s. 214C audit is conducted u/s. 177 and then Audit Report u/s. 177(6) is to be confronted to the taxpayer and if the reply is satisfactory then the audit proceedings may be dropped. However , after perusal of the reply , if the Commissioner considers that the deemed assessment needs some modification then he should proceed to amend the assessment u/s. 122(1) subject to section 122(5) (definite information) of the Income Tax Ordinance, 2001. As steps wise procedure for selection of the case for audit was not followed and no opportunity provided for rebuttal of so-called audit report/observations. Hence entire proceedings/exercise is void ab-initio. No definite information, neither furnished nor proved and no addition is based on definite information. Mandatory requirement of sections 177(6), 122(5) not fulfilled. That the mandatory independent separate and specific notice u/s. 111 had not been issued to the taxpayer , therefore, the action of the DCIR is not within the parameters set by the superior Courts. In this regard he placed reliance on the judgment of the Honourable High Court of Sindh in the case reported as 2017 PTD 1839 (H.C.
Sindh).
In support of his contentions he placed reliance on the judgments bearing ITA No. 51/KB/2014 dated 3.10.2014 CIR vs. Dewan Steel Mills Karachi, ITA No. 2505/LB/2015 dated 28.4.2016 and ITA No 373/KB-2012 dated 5.4.2017, Dr. Azeeem Alamani reported as 2015 PTD 1242 and ITA No. 64/KB/2015 dated 6.6.2018 in the case of CIR vs. Jawed Metal.
13. We have heard both the learned repre sentatives and have also gone through orders of the authorities below and perused the records of the case.
14. At the very outset it is opined that the amended order was framed on mere presumption and assumption without adhering to audit procedure laid down by the Honble Lahore High Court in it's judgment reported as (2017) 115 Tax 84 and 2015 PTD 1242 '(Tribunal).
15. Further , perusal and examination of the amended order passed u/s. 122(1) and 122(5) of the Income Tax Ordinance, 2001 reveals that the DCIR while passing the order had not adhered to the requirements of law. In this regard we may refer to sub-section (6) of section 177 of the Income Tax Ordin ance, 2001 which is reproduced hereunder:--- "177. Audit ... .
(6) After completion of the audit , the Commissioner may, if considered necessary , after obtaining taxpayer's explanation on all the issues raised in the audit , amend the assessment under sub-section (1)or sub-section (4) of section 122, as the case may he."
(underlining for emphasis)
16. A bare reading of the above sub-sect ion (6) quoted supra, clearly lays down firstly, that it is obligatory upon the CIR/DCIR/OIR that after formulation of the audit report/audit observation/objections/charge-sheet, he ought to first confront the same to the taxpayers the contents of the Report on all the issues . Secondly , after considering the explanation of the taxpayer , if he considers necessary that the same is required to be amended on the .basis of definite information then he may invoke sub-section (I) of Section 122 for acquiring jurisdiction to amend the order under sub-section (4) read with sub-sec tion (5) as the case may be. However , the DCIR has not followed the requirement of law in letter and spirit and passed the order u/s. 122(1) of the Income Tax Ordinance, 2001 without confronting the Taxpayer the contents of the audit report/charge-sheet/audit objections before invoking the amending assessment order u/s. 122(1) read with sub-section (4), (5) and clauses (i), (ii) & (iii) of Section 122(5) of Income Tax Ordinance, 2001 or even before the issuance of notice u/s. 122(9) of the Income Tax Ordinance, 2001.
Hence, the amended assessment in this case has been framed in total ignorance of the law and in violation of the prescribed procedure and legal and mandatory requirements . The CIR/DCIR/OIR, in total oblivion of the mandatory requirement/condition precedent has been set out for the amended assessment under the provisions of section 122(1) in continuation to the proceedings of audit u/s. 177 without acquiring proper jurisdiction as prescribed in sections 177(e), 122(1) and 122(5). In our opinion the fact that the order has been amended under section 122 should be the point of favour of selecting a case for audit instead of being treated as an obstacle in the path of selection of case for audit because on the basis of amendment of an order it can be safely assumed that the return which has been converted into assessment order cannot be relied upon.
17. The audit proceeding under section 177 is only a procedure/mode and method to find out some defects in the accounts and to obtain information to further enter into the jurisdiction under section 122(1) for making an amended assessment after acquiring authority under section 122(5) on the basis of "definite information". We may further observe that for all practical purposes S. 177 of the Income Tax Ordinance, 200 was a just process/mode and method and prescribed path to reach to conclusion as to from where the CIR/OIR/DCIR/assessing officer could further modify an already assessed income for which law had very clearly provided the provision in terms of Section 122(5) of the Income Tax Ordinance, 2001,
18. We are of the considered opinion that Section 177 does not in itself provide any power or absolute empowerment to modify assessment or re-determine the income of taxpayer . In this regard the key point which is to be kept in mind is that it is not a return of income which is being processed by the CIR/DCIR/OIR, selecting and thereafter conducting/doing audit. He is dealing with an 'assessment order' which by process of law has acquired a sanctity . The finalized assessment, therefore, cannot just be modified or disturbed in continuation of the proceedings of audit under section 177.
19. The selection of audit or even conducting/doing of audit does not mean or include an assessment or amended assessment/alteration or modification of assessment. The selection of audit and thereafter conducting of audit proceeding is just process and audit authority before invoking provision of section 122 for amendment have to frame charge-sheet/audit observation/audit qualification/audit report and the same ought to be communicated to the taxpayer for rebuttal and the explanation /reply/ assertion/contention/ objections of taxpayer must be obtained and considered before proceeding for invoking Section 122. Then after acquiring jurisdiction, and fulfilling all the requirements of sub-sections (1) and (5) of Section 122 only thereafter assessment may be amended u/s. 122. The mere (firstly) issuance of notice u/s. 122(9) read with u/s. 122(1) after selection but before conducting audit of the taxpayer is not complete requirement of law. Department first has to reject the objec tion/rebuttal of taxpayer on audit report then require to acquire jurisdiction u/s. 122(1) and then 122(5). However , this having not been done so. We may conclude this issue that the CIR/OIR after selection and conducting audit ought in every case to be able to give the taxpayer all the charges/objection/issues raised in audit against taxpay er such as to enable him to answer/explain them before invoking provisions of section 122 'and after obtaining and considering explanation of taxpayer on audit objections, only thereafter , if the CIR/OIR may consider necessary . The CIR/DCIR/OIR, may amend the assessment u/s. 122( l), (4)/(5) after fulfilling all the requirements of law subject to definite information and fulfilment of further condition of clause (i), (ii) or (iii) of sub-section (5) of Section 122.
20. Adverting to the' other aspect of the impugned order passed by the officers below that no definite information was found to have been available with the DCIR within The meaning of section 122(5) read with section 122(8) of the Income Tax Ordinance, 2001. The Hon'able Lahore High Court in its recent decision (2013) 107 Tax, 41=2013 PTD 884 (H.C.Lhr) on the subject of "definite information" with reference to section 122(5) of the Income Tax Ordinance, 2001 has held as under:--- "The term "definite information" in section 122(5) of the Ordinance is not just any information but definite enough to satisfythe concerned officer that income chargeable to tax of an assessee has escaped assessment or total income of an assessee has been under-assessed, etc. 'definite' means indisputable, known for certain, explicitly precise, .clearly defined, leaving nothing to implication, established beyond doubt and cut and dried . Definite infirmation is, therefore, that select information which falls within the restrictive meaning of the word "definite" explained akove. The law also provides that definite information must be acquired from audit or otherwise. Applying the interpretative too/doctrine of ejusdem generis which literally means "of the same kind or class" and the doctrine provides that where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned the word "otherwise" appearing next to the word "audit" in section 122(5) of the Ordinance on the basis of the above doctrine means a methodology akin or similar to audit where some determined final certain, indisputable, calculated information is picked up from any available record of the assess ee. "Otherwise," therefore, does not mean putting information through further process of calculation by the department . The word "acquired" used in section 122(5) of the Ordinance which literally means to "gain possession of in the present context connotes that the information already exists and has to be picked up from the records or documents. This acquisition provides no margin for incomplete, imprecise and inexact information to be complete through further calculation or processing as that would not be acquiring information but analyzing it. Reading of Section 122(5) of the Ordinance, therefore, shows that information in a definite, final and conclusive form must already exist in some document or record at the time of acquisition. Any information which is incomplete or requires further processing falls outside the domain of definite information and can best pass for a departmental opinion, judgment , guesstimate approximation or estimate."
21. We may also rely on the judgmen t reported as 2007 PTD(T rib.) 2601. The relevant extract of which is reproduced as under: "15. In most of the cases the Courts try to implement the provisions of law and avoid declaring it as redundant. It is obviously under the spirit that laws are always made for implementation and not to just remain as part of the statute without being of any benefit to the public-a t-large. However , this Tribunal has in many cases not allowed issuance of notices in slipshod manner without indicating the actual reason of issuance thereof. The Hon'ble Lahore High Court has even gone to hold that issuance of a notice under section 65 without indicating the reason of issuance of notice in terms of sub-section (1), (2) or (3) or (a), (b) or (c) of the said section to be as illegal. In this case notice under section 62 is statedly issued which provisions does not exist in the scheme of new law. There is a provision under the title "amendment of assessment" and the same is 122(1) and all other provisions are subject to the said section
122. In the earlier part of our discussion we. have already held that section 122(1) is the mother provisions while all other sub-sections are helping and the same determine the fitness of the amendment of the assessment to be made under section 122(1).-The Assessing Officer in this case has not even bothered to mention the sub-section in its notice. Hence even if one is confident that section 122 could be enough for acquiring jurisdiction, non-mentioning of the other provision in terms of sub-section (5) or sub-section (5A) is fatal as the parameters for each of the said provisions are entirely different from the other , Besides, erroneousness of the asse ssment for determining prejudice to the interest of revenue in a deemed assessment order shall also need a good deal of dilation and discussion.
There are certain more questions which would require answer in a case like this. The Assessing Officer has proceeded to make the assessment under section 120. The provision of section 122 which has been titled as assessments and as a sub-title as an amendment of assessment, provides full authority for making an assessment.
These provisions in fact are para meteria to the assessments under section 62 as well as 63 in addition to 65 and 66(A) etc. Section 120 does not come into picture for amendment of an assessmen t. Its supplication is only upto the deemed assessment order and has no extension beyond the said language.
16. The upshot of the above discussion therefore is obvious. The jurisdiction in this case could only be acquired by the Taxation officer after receiving of an information froth the audit department by issuance of a notice under section 122(5). Since said notice have not properly been issued for acquiring jurisdiction over this case, one cannot agree with the department that the subsequent proceedings are justified".
22. We may further . seek support from the judgment of Appellate Tribunal vide order 2013 PTD 1083 , (2013) 107 Tax 389 (Trib.) in, the light of various 'cases decided by the Hon'ble Supreme Court on the subject of "Definite Information" has held as under:-- "We are persuaded to agree with the arguments of learned AR that pre-requisite for invoking section 122(5) of the Ordinance was definite information with regard to escapement or under assessment of income or assessment at too low a rate or subjection of excessive' relief or refund. Further, the definite information must have come in the possession of Department after completion of assessment this dictum is elaborated in detail by the honourable Supreme Court in CIT v. Eli Lilly Pakistan (Pvt) Ltd. 2009 SCMR 1279 = 2009 PTD 1392 and Central Insurance Co. and others v. CBR, Islamabad and others 1993 SCMR 1232 = 1993 PTD 766. We are also in agreement with the arguments of learned AR that in the presence of favourable judgments of higher Courts on the issue the department could not invoke section 122(5) as mere disagreement with the decisions of higher Courts did not constitute definite information. The honourable Lahore High Court in Saitax Spinning Mills Ltd. v. Commissioner of Income Tax 2003 PTD 808 disapproved reopening of a completed assessment for want of definite information. Moreover, mere disagreement over legal interpretation of section 67 and estimation of life of computer software was not definite information as wrongly assumed by the Department. We therefore decide the appeal for this year in favour of taxpayer by declaring invoking of section 122(5) of above issues as unlawful"
23. We, therefore, hereby hold that it is a trite law that the provisions of sub-section (5) of section 122 of the Income Tax Ordinance, 2001 allows amendment of any assessment only when the department is in possession of definite information and not otherwise, and in this context the DCIR was under legal obligation to specifically identify the nature of suppressed income anti issue notice in terms of clauses (i), (ii) and (iii) of sub-section (5) of section 122 of the Income Tax Ordinance, 2001 highlighting the fact under which category appellant's case falls. Non- issuance of such notice clearly meant that while passing the amended assessment order DCIR was not in possession of definite information and the reason assigned for additions/ dis-allowa nces while passing the amended assessment order cannot be termed as definite information. Thus, the law has rendered the entire proceedings void ab initio, and illegal. Even otherwise the simple issuance of notice u/s. 122(9) even in this particular case before conducting audit of the taxpayer and what to speak of prior to confrontation audit report/objection/charge-sheet for obtaining rebuttal/Explanation by the taxpayer was not enough to further proceed in the matter for amending u/s. 122 already completed under law. Before making any additions and dis-allowance s to the assessed income under the grab of audit u/s. 177 and amended assessment u/s. 122(1)/122(5). The tax department is required to acquire legal jurisdiction under the provisions of section 122(5). This can only be done to modify or alteration or amend the already assessed income only by establishing that taxpayer's income is either under assessed or assessed at too low rate or subject to excessive relief or refund and to be based on definite inform ation. However , we also find that there is no specific finding in terms of "definite information". It appears the findings of the learned CIR (A) are legally invalid as it appears that there was no grave error in deemed assessment. The IR Department has to qualify through audit that the deemed assessment is under assessed or as the case may be in terms of Section 122(5)
[subject to definite information]. The requirement of section 122(5), are to be strictly fulfilled in letter and spirit. The initiation of conducting audit of assessment through notice under Section 122(9) prior to audit tantamount to amend assessment before audit which is legally not justified and order is passed in conseq uence thereof being unlawful are not sustainable and ab-initio void. Unless any definite information acquired in the possession of the DCIR/OIR as a result/finding of audit conducted by the CIR u/s. 177 and the OIR/CIR is satisfied that on the basis of "Definite information" and not on the basis of "Mis- information" or "Doubtful information" that these further three pre-requisite requirement to be stretched in pursuance to definite information but these are not cumulative or to be established together: (i)Any income chargeable to tax has escaped; or
(ii) Total income has been under-assessed, or assessed at too low rate, or has been the subject of excessive relief or refund; or
(iii) Any amount under a head of income has been mis-classified.
24. It is also opined that additions under Section 111 have been made without issuing specific and separate notice under Section 111 which is sine qua non and no addition u/s. 111 can be made without independent, specific and separate notice u/s. 111 with specificatio n of relevant clauses and sub-section of section 1)1 of the Income Tax Ordinance. Furthermore, the "Definite Information" is missing from the amended order while making addition u/s. 111(1)(a) and (c) therefore, the additions made under section 1 11 are hereby deleted.
25. The DCIR has not given independent specific, separate notice or disclosed his mind under separate notice which clause apply . Each clause has different eventuality . Hence the aforesaid additions u/s. 111(a) are without filling the legal requirement of said clauses and specific separate notice is illegal, unwarranted and uncalled for, ab initio void. That in numerous cases it has beers held by the higher appellate Courts that specific, separate and independent mandatory notice u/s. 111 of the I.T. Ordinance, 2001 specifying and invoking a relevant sub-section and particular clauses be issued prior to making addition. However , in the instant case no specific,separate and independent mandatory notice u/s. 111(1) of the I.T. Ordinance, 2001 has been issued and served upon the appellant. Therefore the addition made u/s. 111 of I.T. Ordinance, 2001 is unjust, unfair , illegal and rightly deleted by the learned CIR (A). Reliance may be made on judgment of the Tribunal reported as 2012 PTD (Trib.) 312 whereby the learned Tribunal has cancelled the order passed u/s. 122(1) by the DCIR as statutory notice was not served upon the taxpayer . The relevant partition of which is reproduced below: "Ss. 111 (1)(b), 122 & 128---Unexplain ed income or assets---Proper service of statutory notices---Revenue contended that first Appellate Authority was not justified in treating the service of statutory notices under S. 218 of the Income Tax Ordinance, 2001 as improper and annul the other passed under S. 122(1) of the Income Tax Ordinance, 2001 merely on technical grounds---T axpayer contended that notice issued were not properly served and opportunity of being heard was not provided to explain the source of investment and taxpayer had valid source to explain the investment--First Appellate Authority had given a categorical finding that the notice issued were not properly served and the assessment had been made without providing reasonable opportunity of being heard to the taxpayer --- Assessing .Officer failed to serve statutory notice in accordance with law--First Appellate Authority was justified to cancel the assessment made under S. 122(1) of the Income Tax Ordinance, 2001--Appeal filed by the Revenue was dismissed being devoid of any merit. In arriving at this conclusion our view is fortified with the judgment of ATIR 2012 PTD (Trib) 790; wherein it has been held that "that no separate notice under S. 111(C) of the Income Tax Ordinance, 2001 was issued: and that addition was not sustainable in the eve of law--V alidity--W ithout issuance of separate notice no addition could be made--Addition was deleted by the Appellate T ribunal being wrongly made by the T axation Officer ." The DCIR has failed to comply with the requirement of law and if the law had prescribed method for doing of a thing in a particular manner , such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted. Reliance is placed on PTCL 2008 CL 337 (SC). In another case, the honourable Supreme Court of 'Pakistan in Collector , Sahiwal v . Muhammad Akhtar 1971 SCMR 681 their lordships observed as under: "The principle so far as this country is concerned, is accordingly well-settled that where the requirement to be fulfilled to be given by the statute. is a mandatory , then the failure to comply with such a mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute." It was further observed by their lordship that any .further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a .hearing at a subsequent stage." In another case reported as (1993) 67 TAX 74 = NTR 1993 TRIB 143 it has been held that no addition is legally sustainable if mandatory requirement had not been complied with. Further it has been held in many cases that if the law requires a thing to be done in a particular manner , it would be legal and valid only if it was done in the manner and not otherwise. Reliance is placed on the judgment of the honourablePeshawar High Court reported as 2005 MLD 1329 ."
Recently the Division Bench of this Tribunal vide order passed in the case of CIR v. Pharmaceutical, Karachi bearing IT A No. 65/KB/2018, dated 24.9.2018 has resolved the controversy at rest by observing that: "We will now see the manner in which each and every addition was made by the ACIR towards the income of the appellant which was later annulled by the learned CIR(A). The first addition is for ,Rs. 6,931,024/- which was made out of declared purchases to the extent of 20 percent on account of unverifiability . in addition thereof another addition of Rs. 2,745,682/- was made out of manufacturing expense by curtailing the same by 50 percent. Lastly , an amount of Rs. 4.385,341/- was added back out of the expenses debited to the profit and loss account to the extent of 50 percent of the claim.
7. Having discussed the extent and manner in which said additions were made towards the income of the respondent taxpayer , we are inclined to agree with the treatment meted out to such addition by the learned CIR(A).
Even a passing glance towards the 'original order clearly indicates that all these additions were made on the basis of pure guesswork and conjecture which by no stretch of imagination can be allowed to "hold field when seen with particular reference to the provisions of section 122 of the Ordinance. This section which enables the revenue authorities to amend an assessment order provides modalities for making the intended amendments. Under normal circumstances, correct manner to which the ACIR could have based his action was to invoke provisions of sub- section (5) of section 122 which gives powers to make necessary amendments on the basis of some 'definite information' from an audit or otherwise in the following eventualities:--- i. Any income chargeable to tax has escaped assessment, ii. Total income has been under -assessed, or assessed at too low a rate, or have been the subject of excessive relief or refund, iii. Any amount under a head of income has been misclassified.
8. Moreover , the term 'definite information' has also been 'defined in sub-section (8) of section 122 as under:---
(8) For the purpose of this section, "defin ite information" includes information, on sales or purchases of any goods made by the taxpayer receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance and on the acquisition, possession or disposal of any money , assets, 'valuable article or investment made or expenditure incurred by the taxpayer .
9. After discussing the above facts of the case, we are of the view that the law has provided a mechanism when a taxpayer after selection of his income tax affairs for audit fails to furnish required details and documents considered necessary for completion of audit.....
10......It may be appropriate to reiterate that resorting to mere' guesswork while proceeding within the periphery of section 122(1) is not permissible under the law and is liable to be discarded. Simila rly, resorting to the provisions of section 111 of the Ordinance which deals with unexplained income or assets is hopelessly misplaced in the wake of given circumstances of the case. We accordingly agree with the findings of the learned CIR(A) that the order under section 122(1) is unlawful and not sustainable. The departmental appeal therefore fails."
26. Last, but not the least, we may also rely on the latest judgment of Hon'ble High Court of Sindh at Karachi reported as 2017 PTD 1839 titled as the Commissioner Inland Revenue, Zone-I, RTO, Sukkur Vs. M/s. Raninur CNG Station, Sukkur whereby the Hon'ble Judges their lordships Mr. Justice Aqeel Ahmed Abbasi and Mr. Justice Nazar Akbar , observed that no separate, independent notice u/s. 111(1) was given to the taxpayer , the addition so made was deleted, the relevant portions of which read as under:-- "4. From bare perusal of the above statutory provisions, it is clear that the addition under section 111 of the Income Tax Ordinance, 2001, can be made, only if an opportunity is provided to the taxpayer through specific notice, whereby , the taxpayer is confronted with any of the aforesaid eventuality as visualized under section 111 of the Income Tax Ordinance, 2001, whereas, if the taxpayer fails to offer any explanation about nature and source of the amount credited or the investment made, money or valuable articles, or funds from which the expenditure was made; only then, such addition can be made in the income of the taxpayer . In 'the instant case, it appears that no Notice under section 111 of the Income Tax Ordinance, 2001 was issued to the taxpayer , nor the taxpayer was specifically confronted with such proposed addition by the taxation office so that the taxpayer could have offered some explanation in this regard In view of above 'undisputed facts, the addition made by the taxation officer under section 111 in the instant matter appears to be without any lawful authority . While confronted with above factual and legal position as emerged in the instant case, learned counsel for the applicant could not controvert the same nor could point out any error or illegality in the order passed by Appellate Tribunal. Whereas, the Appellate Tribunal in the instant case, after having taken cognizance of the above factual as well as the legal provisions as contained in Section 111 of the Income Tax Ordinance, 2001, relating to providing an opportunity to the taxpayer to explain the unexplained income or assets, has been pleased to hold as under: "We have heard both the learned representatives and have gone through the record of the case. On perusal of the impugned order it transpires that the CIR(A) has discussed the issues in detail. Before making addition under section 111(1) of the Income Tax Ordinance, 2001, the ACIR had not adhered to condition as laid down by the law .
No specific notice under section 111 of the Ordinance, 2001 was issued by the ACIR, hence, the learned CIR(A) was justified in deleting the addition made under section 1 11(11 of the Ordinance, 2001.
In view of the above facts and circumstances the impugned order passed by the learned CIR(A) is legal, lawful and in accordance with law, therefore, no interference is required in the impugned order of the learned CIR(A) which is hereby upheld.
5. It may be further observed that in view of the Article 10A of the Constitution and Section 24-A of the General Clauses Act, every public functionary , including the Taxation Authorities, are required to provide fair opportunity of being heard to any person before taking an adverse action against him, or passing any order of assessment or creating any additional liability of tax, by confronting such person with the proposed action in writing. The fair trial and right of hearing is regarded as a cordinal principle of Natural justice, which has to be read into every Statute, even if it may not be specifically provided therein.
6. In view of hereinabove facts and circumstances of this case, we are of the opinion that impugned order passed by the Appellate Tribunal Inland Revenue, in the instant case, does not suffer from any error and illegality , which otherwise depicts correct legal position. Accordingly instant reference application being devoid of any merits is hereby dismissed, and the question of law as proposed here in above is answered in affirmative against the applicant and in favour of the respondent."
EXPENSES DISALLOWED U/S. 174(2). THROUGH ORDER U/S. 122(1) OF THE OT O, 2001 The learned counsel submitted following chart of disallowance expenses/ additions alongwith following case laws.
S. NoDESCRIPTION AMOUNT CLAIMED IN THE RETURNDISALLOWED BY THE DCIR U/s. 174(2) through Order u/s.122(1)ALLOWED BY THE DCIR U/s. 174(2) through Order u/s 122(1)ALLOWED BY THE DCIR IN MONIT ORING order u/s 161/205 of the ITO, 2001.REMARKS Legal References
1. Purchases from Brokers on which commission paid u/s. 233 of the IT O, 2001562,229,00796,535,630 362,229;907 DCIR allowed the commission paid to brokers but disallowed the purchases, made from those brokersCircular No. 10 of 2011 dated 27- 08-2011.
2. Commission paid to brokers for purchase of wheat354,300 354,300 354,300 CHALLANS ATTACHED WITH THE'
APPEAL
3. Salaries & Wages10,966,835 2,150,254 10,966,835 The total amount of the Salaries & Wages was already allowed in the Monitoring . .
Order passed by the DCIR u/s. 161/205 of The IT O, 2001
4. Power (Electricity)30,874,548 30,874,548 30,874,548 The total amount of the Electricity bills having Consumer No. mentioned in the return of T/ y 2014 was already allowed in the Monitoring'
Order passed by the DCIR u s. 161/205 of The IT O 2001.
5. Gas 229,900 229,900 229,900 The total amount of the Gas was already allowed in the monitoring
Order passed by The DCIR U s. 161/205 of The ITO,2001. .
6. Repair & Maintenance 2.171,589 322,831 2,171,589 The total Amount of the Repair & maintenance was already allowed in the Monitoring
Order passed by the DCIR u/s. 161.
205 of the ITO, 2001.
7. Professional Charges95,300 95,300 95,300 The total amount of the Professional Charges wasalready , allowed in the Monitoring
Order passed 0 The DCIR u/s. 161/205 of the IT O, 2001.
8. Travelling 1,241,533 620,768 1,241,533 The total amount of Travelling was already allowed in the Monitoring
Passed by the DC1R , u/s 161/205 of the ITO, 2001 Reliance has been placed: We are not inclined to agree with the contention raised by the learned counsel(s) that the cases of Indian jurisdiction cited Supro are not part of the record to recall and rectify the Tribunal's order rendered in the present case. Since, copies of reported and unreported judgments were referred to at the bar and also as the matter of fact are mentioned in the reported Tribunal's judgment therefore such orders actually constitute part of the record. Hence this objection is over -ruled "2007 PTD (T rib.) 181 In the case reported as 1990 PTD (Trib.) 524, it has been held that "when a document is filed with the department, then it is in the custody of the Department and any interpolation, tampering or misplaced/lost etc. cannot be laid at the door of the assessee for obvious reasons."
ADDITION MADE U/S. 1 11(1)(B) THROUGH ORDER P ASSED U/S. 122(1) OF THE IT O 2001..
S. No ADDITION MADE U/S. 111(1)(B) OF THE IT O, 2001 ON INCOME FROM OTHER SOURCESWEAL TH STATEMENT U/S. 1 16(2) OF THE IT O. 2001.
UNRECONCIL - EDTOTAL INCOME FOR THE T/Y 2014 A/C T O RETURN OF INCOMERemarks LEGAL REFERENCE 9,700,000 RECONCILED 6,940,548 In the Tax Year 2013 the appellant mentioned prize bond on Rs. 3 (M) and personal bank balance of RE. 1.564M).
In the Tax Year 2014 the appellant declared the income of Rs. 4.6. (M) and in Tax Year 2014 prize bond and Personal bank Balance was added in the capital. DCIR have had not issued any separate, independent specific and valid notice under section 111 for making any addition under section 111.Violation of section 122(9)
Of the IT O, 2001, i.e. no opportunity Was provided by the DCIR for confrontation.
Violation of Section 122(8) as there was no definite information.
Assessment order could not be amended under section 122(1) of the ITO, 2001 on the basis of information the existence of which had not been undoubtedly established.
2011 PTD (Trib.) 187 "The definite information should not be based on mere guess, gossip, or rumour but it should be based on material evidence."
1993 PTDRECONCILED/ [Kar. H.C]804 "Any information Which creates doubts or provides reasons to suspect that the income has been concealed does not form a part of the definite information".
2010 PTD .
(Trib.)1221 2012 PTD (Trib.)312 "whereby the learned Tribunal has cancelled the order passed under section 122(1) by the DCIR as statutory notice was not served upon the taxpayer", CIR, R TO Hyderabad Vs. Dr. Muhammad Azeem Almani 2015 PTD
(Trib) 1242 .
"Debatable information ' could not be Held to be Definite information"
[2004 LTD 983] Reliance has been placed through 2019 PTD 179 ATIR Islamabad dated 17-03-2016:-- "The perusal of the order of the IRO reveals that from the beginning of proceeding s through the issuance of show- cause notice till the finalization of assessment the taxpayer has been confronted and proceeded under the provisions of section 111(1) (d) of the Ordinance. Thus it is established beyond any doubt that the IRO with his cautious mind invoked and applied the provisions of section 111(1)4 as well as 21(c) of the Ordinance which were not applicable on the facts of the case before us. For the reason discussed above and also relying upon the judgment of ATIR reported as (2015) 111 TAX 447 (Trib) the addition of Rs. 22.35.900/- made u/s. 111(1)(b) is also deleted"
(a) That the Commissioner Appeals erred in not applying the judicial mind that the Conditions specified under sections 177(6) and 122(9) of the IT O 2001 are not fulfilled by the Commissioner .
Reliance has been placed:-- 2007 PTD 2601 ATIR dated 20-07-2007 "the language "subject to this section". The language thus restricts all further proceedings for amendment of an assessment which means it can only be amended if they are covered by the provisions of this section. So before going further one should keep in mind that amendment of assessment for which this section has been prescribed cannot be made if the requirements and qualifications prescribed in this section are not completed before making such amendment of the assessment.
16. The jurisdiction in this case could only be acquired by the Taxation Officer after receiving of an information from the audit department by issuance of a notice under section 122(5). Since said notice have not properly been issued for acquiring jurisdiction over this case, one cannot agree with the department that the subsequent proceedings are justified.
17. On the basis of discussion as above and the judgment of the ITAT Lahore, I hold the notice. issued under section 122 to be as without jurisdiction having not mentioned the exact provision of law. The subsequent proceedings also being based on an illegal notice thus would crumble to ground hence are hereby accordingly cancelled."
In the case reported as 2019 PTCL 49 it was held that Mere issuance of audit notices is no adverse action initiated itself as after conduct of audit it is not that in each and every case a demand of extra tax would be necessarily raised.
A full bench of the Islamabad High Court in the case reported as Pakistan Telecommunication Company Ltd v. Federation of Pakistan ( PTCL 2016 CL 302) has been pleased to .hold as under: "27. In the context of further appreciating the powers of the Commissioner under section 177, it would be relevant to examine the consequences flowing from conducting an audit. Is audit in itself an adverse action and order , or a necessary tool to safeguard the interests of the exchequer , particularly in the context of a universal self-assessment scheme. The mere conduction of an audit may not even cause inconvenience if the taxpayer has fulfilled the statutory duty of maintaining the record prescribed under the Ordinance of 2001 or any other law. As already noted above, the scope of audit is restricted to two categories. of records, documents etc, If a taxpayer has maintained the records; documents etc. prescribed under the Ordinance, 2001 or under any other law at the time being enforced, the latter is not exposed to the Conseque nces stipulated in sub-section (2) of section 177, The failure on the part of a taxpayer to fulfil Inc statutory obligation 'of maintaining the prescribed record would empower the Commissioner to exercise powers envisaged under section 177(2). The legislature has therefore. struck, a balance and has provided a mechanism to safeguard the rights of both the taxpayer as well as the excheq uer, The mere conducting of an audit does not create any liability or in any manner adversely effects the return treated as an assessment order under section 120. The completion of an audit has no effect whatsoever on the assessment order deemed to have been passed under section 120, as it can only be amended in the manner presc ribed under section 122. In this regard the legislature has prescribed a stringent procedure and pre-conditions. Section 122 provides for the mechanism and the safeguard for amending an assessment order" (Emphasis supplied)
"If the notice is illegal without jurisdiction and not in accordance with law it is void and all proceedings in pursuance of such notice are vitiated " 2008 PTD 1 162 "The learned counsel of the Tax Payer/respondent emphasized that on plain reading of section 122(5) for passing order under section 122(1) and 122(5) the availability of the "definite information" is the precondition and submitted that section 122(5) provides that an assessment order shall only be amended under section 1220) and 122(5) read with section 177, where "definite informat ion" has been acquired through audit or otherwise. In the instant case no such definite information was acquired by the DCIR/OIR. Addbacks/disallowances out of profit and loss account expenses which stand declared in the return and accounts filed with the return do not constitute "definite information" within the meaning of section 122(8) and the case-law on the subject."
"Before parting with this judgment we may observe that: No tax shall be levied or collected except by authority of law. A tax can only be imposed by a legislative Act and not on executive order. It thus embodies the democratic principle "No taxation without representation". The law imposing a tax must be a valid law, that is, it should not violate any provision of the Constitution and should be within the legislative competence of the legislature. It will be valid only if it is made in accordance with the procedure prescribed by the statute. This Court cannot hold that the Revenue Department was constitutionally free to ignore all the procedures of the law and power to tax is not power to destroy Who will sympathies with the Revenue Officers for impatient ,commitment to their cause for targeted killing of taxpayers but respect for judicial process is a small price to pay for the civilising hand of law, which alone can be given abiding meaning to Constitutional freedom. "The law makes no difference between great and petty officers; thank God, they are all amenable to justice."
48. Consequently , both the Departmental appeals are dismissed and disposed of in the manner as indicated above." 2015 PTD (T rib.) 1242 2012 PTD (Trib.) 312 "whereby the learned Tribunal has cancelled the order passed under section 122(1) by the DCIR as statutory notice was not served upon the taxpayer", CIR, RTO Hyderabad Vs. Dr. Muhammad Azeem Almani 2015 PTD (T rib.) 1242
27. Here, it would not be out of place to mention that where a law requires a thing should be done in a particular manner unless the same is done in the prescribed manner the same shall be illegal. In case of Khalid Saeed vs. Shamin Rizvi reported as 2003 SCMR 1505 the Hon. Supreme Court of Pakistan while considering the impact of violation or non-observance of method prescribed by law for doing any act in particular manner or mode observed that if the law had prescribed method of doing a thing in a particular manner , such provision of law is to be followed in letter and spirit and achieving or attain ing the objective of performing or doing of a thing in a manner other than provided by law would not be permitted and would be illegal. In addition thereof the amended assessment is not in strict compliance of the provision and the procedure provided in statute and lacks jurisdiction.
Summarised conclusions
28. The above findings may be summarized as under:--- Audit under section 177 read with sub-section, (6) of Section 177 is void ab-initio and not in accordance with law having no legal effect. Amendment under section 122(1) without fulfilling legal requirement of Section 177(6) is without jurisdiction or in excess of jurisdiction. Amendment 'proceedings initiated and notice issued u/s. 122(9) prior to conduct audit is ab initio void. Provisions of Section 122 of the Income Tax Ordinance, 2001 start with the language "subject to this section". Such language restricts all further proceedings for amendment of an assessment which means it could only be amended if they were covered by the provisions of this section. Amendment of assessment for which this section has been prescribed cannot be made if the requirements and qualifications prescribed in this section were not completed before making such amendment of the assessment. That once audit proceedings were initiated under section 177 of the Ordinance and amendment was required to be made under section 122(5), assumption of jurisdiction under section 122(5) was a condition precedent for amendment i.e. "Definite Information" which is missing in this case. . DCIR failed. to fulfill pre-requisite requirement under section 122(5) and has not brought on record "definite information". What to speak of "definite information" clauses (i), (ii) and (iii) of sub-section (5) of section 122 further stipulate three conditions for issuing of a notice that is any income chargeable to tax has escaped assessment; or total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or any amount under a head of income has been misclassified. If "deemed assessment" selected for audit and conducted audit u/s. 177, it may be amended by invoking jurisdiction u/s. 122(1) subject to fulfilment of conditions as envisaged under sub-section (6) of section 177 and after fulfilling the prerequisite requirement of "definite information" under sub-section (5) of Section 122 and subject to execution of conditions of clauses (1), (ii) and (iii) of section 122(5). No proper and valid notice issued u/s. 122(5) and no notice issued under which clause the DCIR had amended order u/s. 122(5) and what was the specific "definite information". No specific, separate and independent valid notice u/s. 111 issued for additions u/s. 111(1)(a) and u/s. 111(1)(c). Moreover , there was no un-explained income or expenditure proved by the DCIR without any shadow of doubt. As while making the additions u/s. 111(1) and 111 (1)(c) legal requirements have not been followed and definite information is missing. In the impugned order the AC/DCIR mentioned that the details were furnished by the appellant while the CIR(A) confirmed the appeal with the reason that details were not furnished.
In the order the AC/DCIR didn't allow power and gas expenses with the reason that bills were not provided and consumer number is not available while the consumer number is mentioned in the impugned order and CIR(A) totally ignored the order . The AC/DCIR disallowed the purchas e while allowed the commission paid on the same purchase however the CIR(A) again ignored the facts, In the wealth reconciliation statement total increase is Rs. 4.6 (M) while in the impugned orders surprisingly addition u/s. 1 11(1)(b) is Rs. 9.7 (M). Additions and disallowances are not tenable on merit even on factual scores. Purchases and expenses disallowed/confirmed in the impugned orders have already been admitted in the monitoring order passed u/s. 161/205 by the same office.
29. In view of the foregoing discussion, we vacate the orders of the officers below and allow the appeal filed by the taxpayer .
30. Before parting with this judgment, we may observe that no tax shall be levied or collected except by authority of law. A tax can only be imposed by a legislative Act and not on executive order . It thus embodies the democratic principle "No taxation without representation ". The law imposing a tax must be a valid law, that is, it should not violate any provision of the Constitution and should be within the legislative competence of the legislature. It will be valid only if it is made in accordance with the procedure prescribed by the statute. This Court cannot hold that the Revenue Department was constitutionally free to ignore all the procedures of the law and power to charge tax is not power to destroy . Who will sympathize with the Revenue Officers for impatient commitment to their cause for achieving the budgetary targets and ought not to try culled out budgetary targets of revenue from arteries .of taxpayer but must respect to judicial process which rightly termed a small price to pay for the civilising hand of law, which alone can be given abiding meaning to Constitutional freedom. "The law makes no difference between great and petty officers; thank God, they are all amenable to justice."