SHAHID MASOOD MANZAR, CHAIRMA N.---- Titled appeals have been filed by the taxpayer against the combined impugned order dated 02.09.2019 passed by the learned CIR (Appeals-IV), Lahore. A number of objections have been raised through grounds of appeal which are being discussed as follows.
2. Briefly stated the facts of the case, as narrated in the impugned order , are that the taxpayer filed normal returns for the tax years 2013 to 2017 which were deemed to have been assessed under section 120(1) of the Income Tax Ordinance, 2001. The assessing officer observed that the taxpayer was engaged in the business of supply of medicine, therefore, normal returns were illegal and unlawful as the taxpayer was under legal obligation to file statement under section 115(4) and normal returns on the basis of turnover was just to avail benefit to reduce the rate of tax @ 0.2% on the turnover declared. Therefore, show-cause notices were issued confronting the taxpayer with proposed rectifications, in response to which the taxpayer filed reply which was found un-satisfactory by the assessing officer. Hence, assessments were amended by creating demands of Rs.7,777,343/-, Rs.7,813,904/-, Rs.6,071,964/-, Rs.7,998,948/- and Rs.6,819,472/- respectively for the tax years 2013 to 2017. Being aggrieved the taxpayer filed appeal before the learned CIR(A) who vide his order dated 02.09.2019 rejected the appeals of the taxpayer , hence the instant 2nd appeals by the taxpayer .
3. The appellant has assailed the impugned consolidated order upheld by the learned CIR (A). For tax year 2013, the learned AR of the appellant has contended that all of the contents as narrated in the body of order are unfortunately not true and concocted as no show-cause notice under section 221 was issued question of compliance by the appellant has been categorically denied. The learned AR has argued that non-mentioning of any document reference / issuance date of alleged show-cause notice/service of the show-cause notice and misstated compliance by the appellant also support the contention of the appellant. The learned DR was specifically asked to provide copy of show-cause notice and compliance made by the appellant in which he has failed to provide which leads to the conclusion that the rectification has been made without confronting the appellant as required under section 221.
Another stance of the learned AR in respect of Tax Year 2013 is that the order passed under section 221(1) on 15.02.2019, is not sustainable in the eye of law as the same is hit by limitation as provided by subsection (4) of section 221 having been passed after expiry of five years from the date of filing of return of income on 15.12.2013 which is deemed to be treated as asse ssment in terms of section 120(1) on the day of filing of return. He contended that no rectification could be made beyond the limitation period prescribed under section 221(4) of the Ordinance of 2001 which was 15-12-2013 the date when the return of income was filed in the instant case and the declared income was deemed to be assessed under section 120(1) of the Income Tax Ordinance, 2001 on same date i.e. 15.12.2013. The appellant has provided copy of Acknowledgement Slip with Electronic Document No.
(EDN) 37369256 confirming the date of filling of return of income. In this behalf, he placed reliance on the case law reported as 2016 PTD 2579 (HC. Islamabad).
4. For TaX Years 2013, 2014, 2015 and 2017 on merit, the contention of the learned AR was that the appellant declared income under normal law in addition to income covered under final tax regime computed against supplies made which stood subjected to the withholding provisions of section 153(1) (a) of the Income Tax Ordinance, 2001.
He contended that the learned CIR (A) has unjustifiably endorsed the illegal orders passed by the assessing authority . He contended that the ACIR through arbitrary , unjust and illegal orders made rectifications by resorting to the provisions of section 221 to rectify the deemed assessments completed under section 120 just unlawfully assuming on legal score as well as merits /facts of the case. It is argued that application of provision of section 221 is only permissible if the error is apparen t, obvious and floating on the face of the judgment and can be rectified without long drawn arguments and proceedings for appreciating facts and interpretation or application of any provision of law as the scope of rectification is very restricted.
He contended that the ACIR through arbitrary , unjust and illegal orders just on assumptions as well as by making wild guess made assumptions that all sales declared are liable to tax @ % being FTR receipts and that too without any information/instance of even a single penny to support/ justify the same. There was no material whosoever on record contrary to the declaration made by the appellant in respect of sales covered by final tax is available on record to support the allegations made by the ACIR. The learned AR contended that the record is completely silent as to how come the ACIR has arrived/jumped to the conclusion without any sort of information that all sales have been made to the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001.
It has been explained that the appellant is registered as distributor with Drugs Regulatory Authority in support thereto copy of license has been produced. The appellant is registered with FBR as Distributor and same status is appearing on the sales tax returns too. Copy of online verification as well as sales tax returns have been produced.
The learned AR has also produced distributorship certificates/ agreements. He has argued that the ACIR has deliberately ignored the findings on this issue recorded in the amended order under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 during course of audit for the Tax Year 2014 made on 23.01.2018 verifying the status of the appellant as distributor , nature of business activities and same facts stood duly thrashed while completing of audit and there was no such observation/ finding that all the sales were made to "Prescribed Person". All these facts go a long way to prove that the appellant is a pharmaceutical distributor which fact has all along been accepted by the department as such observation/ findings contrary to the facts by the ACIR are incorrect/unjustified and abuse of authority .
According to the learned AR, the ACIR has made fresh assessments under the garb of provisions of section 221 of the Income Tax Ordinance, 2001 as by way of rectification the deemed income under section 120(1) of the Income Tax Ordinance, 2001 has been replaced / substituted taxed under the provisions of section 169 of the Income Tax Ordinance, 2001 which is double assessment, and as such not permissible unde r law and beyond the scope of rectification under section 221(1) of the Income Tax Ordinance, 2001.
With regard to ACIR's allegation of non-mentioning of CNIC/ NTN on Sales invoices, it is contended that this is misleading and itself speak of ulterior motive as it has nowhere been provided in rule 30 of the Income Tax Rules, 2002 that CNIC /NTN of the buyers are to be recorded as the requirement of said rule is confined to mentioning of the name and address of the customer only. The learned AR submitted that the taxpayer is a distributor of pharmaceuticals and record maintained is also in strict compliance to rules and regulations of Drug Regulatory Authority and not a single transaction has been made with any person not registered with the said authority or had license to do pharmaceutical business. The learned argued that under Article 4 of the constitution the appellant had the right to be dealt with in accordance with the law and it has been provided that "no person shall be compelled to do that which the law does not require him to do" and as it has nowhere been provided in rules that the Sale invoice should bear CNIC/NTN of the customer as such the Learned ACIR has requisitioned the same in excess of lawful jurisdiction and infringement of appellant's right under Article 4 of the Constitution.
The learned AR asserted that the assessing authority has grossly erred in law in passing order under section 221 of the Income Tax Ordinance, 2001 ignoring the limited scope of this provision of the statute. The assessing authority clearly crossed lawful jurisdiction by rectifying order under section 120(1) of the Income Tax Ordinance, 2001 which was free from any error in terms of section 221 of the Ordinance. The application of this provision of the statue is only permissible if the error is apparent, obvious and floating on the face of the judgment and can be rectified without long drawn arguments and proceedings for appreciating facts and interpretation or application of any provision of law. The scope of rectific ation is very restricted, it is a well settled that controversial or debatable issues are outside the ambit of rectification the jurisdiction while passing an order under section 221 of the Ordinance is dependent upon. existence of a mistake apparent from the record. Moreover , the said mistake should be so obvious that it should strike to one's mind without there being long drawn process of reasoning, interpretation of some sections/statute, dilation upon a moot or debatable issue which falls squarely outside the scope of rectification of mistake. To support his arguments, the learned AR placed reliance on the following case laws: - 1992 PTD 570 [SC Pak], 2007 PTD 967 [SC Pak], 2008 PTD 253 [SC Pak], 2013 PTD 508 [H.C. Karl, 2017 PTD 903 [H.C. Karl, 2016 PTD 270 [H.C. Lah], 2017 PTD 547 (Trib.), 2014 PTD 484 (Trib.), 2017 PTD 1785 (Trib.) and 2018 PTD 1480 (Trib.).
For Tax Year 2014 it is further argued that the ACIR has rectified order deemed to be assessed under section 120(1) declaring income at Rs.15,409,006/- [Normal Tax Income Rs.13,862,073/-+PTR. Income Rs.1,546,933/-] which ceased to exist consequent to amended assessment dated 23-Jan-2018 determining the income at Rs.15,549,006/- [Normal Tax Income Rs.14,002,073/-+ PTR Income Rs.1,546,933/-]. As there was no order under section 120(1) in the field the same could not be rectified under section 221.
5. For Tax Year 2016, it is the submissions of the learned AR that very initiation of proceedings under section 122 to amended the deemed assessment is unjustified and the learned CIR (A) has illegally confirmed the same. He contended that the amendment made under section 122(1)/(5) is nullity in law in the absence of definite information. There is no information on record what to say of definite information contrary to the declaration made by the appellant. The ACIR has just incor porated the provisions of the statute in the notice under section 122(9) of the Income Tax Ordinance, 2001 without giving instance of even a single transaction which in his opinion should have been declared under the FTR. He submitted that it is by now well settled that every information does not qualify as definite information and it cannot form the basis for reopening of the asse ssment. Further , the expression "definite information" cannot be given a universal meaning and it has to be determined in the context of circumstances of each case as to whether the material constitutes definite information or not. Reliance in this regard is placed on the case law reported as ( 1993 SCMR 1 108) and (PLD 1997 SC 700 ).
The learned AR submitted that the taxpayer declared income under normal law at Rs.18,028,375/- in addition to income covered under final tax regime at Rs.2,578,532/- computed against supplies made at Rs.183,574,900/- which stood subjected to the withholding provisions of section 153(1)(a) of the Income Tax Ordinance, 2001. The case of the appellant was selected for audit under section 214C and in compliance to notice under section 177 of the Income Tax Ordinance, 2001, the appellant provided the requisite record which is still in the custody of the department. The department issued notice under section 122(9) of the Income Tax Ordinance, 2001 confronting the appellant to tax sales declared in total at Rs.1,467,078,975/- with reference to section 153k1)(a) of the Income Tax Ordinance, 2001 without giving any instance of any such transaction other than the declaration made by the appellant. He submitted that the taxpayer himself has made declaration of sales made to the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001 and declaration of same has been made at Rs.183,574,900/- in the portion relating to Final/ Fixed Tax these sales have been subjected to withholding tax of 1% under clause 24(A) Part-II of the 2nd Schedule to the Income Tax Ordinance, 2001. The declaration of Sales subject to normal Tax has been made at Rs.1,283,504,075/- as the customers of the Tax Payer were not Prescribed Person" as such no tax was deductible. The Tax Payer has already provided complete details of sales having been made to as many as 7,097 customers which is already on record. The learned AR contended that the assessing authority has not given a single instance out of Sales declared under normal Tax which in his opinion were covered under FTR to draw any adverse inference with regard to the declaration made by the taxpayer who expects to be confronted accordingly and if any of the customer of the Taxpayer is found to be the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001. The learned AR contended that the record is completely silent as to how come the learned Assistant Commissioner Inland Revenue has arrived/jumped to the conclusion without any sort of information that all sales have been made to the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001. To conclude his arguments, the learned AR submitted that the amended order passed for tax year 2016 is suffering from legal infirmities "want of definite information" as well as on facts "in absence of single instance the same requires cancellation/ liable to be vacated and original order under section 120(1) of the Income Tax Ordinance, 2001 be restored.
6. Conversely , the learned DR supported the impugned orders of the authorities below and contended that the deemed orders has rightly been rectified / amended as the taxpayer has failed to discharge its tax liability in terms of clause 24(A) of Part-II of the Second Schedule to the Income Tax Ordinance, 2001.
7. We have heard the arguments of both sides and have perused the impugned orders of the officers below and the available record. After due consideration, we find that submissions made at the bar by the learned AR carries substantial weight. Firstly , we take up the legal objection of the learned AR regarding order passed under section 221 was hit by time limitation. We find that the very initiation and its subsequent conclusion of proceedings under section 221 on 15.02.2019 to rectify the deemed assessment order passed under section 120(1), for tax year 2013, on 15.12.2013, is not sustainable in the eye of law being barred by time limitation as provided under subsection (4) of section 221. For the ease of ready reference, the relevant provision is produced here-under: - "221. Rectification of mistakes,---(1) The Commissioner , the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner . ............................................... ..............................................
(4) No order under subsection (1) may be made after five years from the date of the order souht to be rectified (Underlining is for emphasis)
From the perusal of the above provision of law, it is crystal clear that no order under this section shall be made after five years from the date of the order sought to be rectified. In the present case, the taxpayer furnished his return of income for tax year 2013 on 15.12.2013 which was deemed to be treated as asses sment order to be issued under section 120(1). The assessing authority rectified the said deemed order under section 221 on 15.02.2019 which is miserably barred by time limitation of five years as provided under subsection (4) of section 221 of the Ordinance.
Therefore, the order passed under section 221 for tax year 2013 by the assessing authority is not sustainable in the eye of law which is accordingly cancelled on this ground.
8. Now coming to the taxpayer's objection regarding initiation of proceedings under section 221 to rectify the deemed order passed under section 120 for tax years 2013, 2014, 2015 and 2017, we observe that a bare perusal of the provisions of section 221 leaves no room for doubt that only those mistakes are rectifiable which are apparent from the record and floating on the surface and which do not require any long drawn process of reasoning, deliberation on a moot or debatable point. In the present case whether the receipts declared by the appellant fully or partly fall under the ambit of FTR or normal tax regime is a debatable issue between the department and the taxpayer which is obviously outside the scope of rectification provisions as contained in section
221. The application of this provision of the statue is only permissible if the error is apparent, obvious and floating on the face of the judgment and can be rectified without long drawn arguments and proceedings for appreciating facts and interpretation or application of any provision of law the said mistake should be so obvious that it should strike to one's mind without there being long drawn process of reasoning, interpretation of some sections/statute, dilation upon a moot or debatable issue which falls squarely outside the scope of rectification of mistake. From the perusal of case law relied upon by the learned AR, we observe that in cases where there could conceivably be two views or opinions the same falls outside the scope and ambit of rectification of mistake. The issue involved in the present case require detailed deliberation, lengthy arguments which could not be considered to be a mistake apparent from the record or a mistake floating on the surface. In our view, if at all the assessing authority deems it necessary to make an alteration or addition to the deemed assessments completed this was required to be done by exercise of powers under Section 122 with existence of definite information and the invoking of the powers under Section 221 for the purpose are outside the authority of the assessing authority , hence, not sustainable in the eye of law. In this behalf, we find strength from the case law relied upon by the learned AR referred supra; which are 'on all fours' applicable in the present case.
9. Even on merits, for tax years 2013 to 2017, the assessing authority rectified / amended the deemed assessment without any plausible justification. The taxpayer himself declared income under normal law as well those falls / covered under final tax regime which stood subjected to the withholding provisions of section 153(1)(a) of the Income Tax Ordinance, 2001. The assessing authority without any basis presumed that all the sales declared under normal law also falls/ covered under FTR without pointing out any instance to support his assumption. The order of the assessing authority is completely silent as how the assessing authority has presumed that all sales have been made to the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001.
10. For the tax year 2016 as well, the assessing authority invoked the provisions of section 122(5) to amend the deemed assessment, however , failed to bring on record any material / evidence to justify his action. In the order of the assessing authority for tax year 2016, he has not given a single instance of any sales out of sales subject to normal tax to draw any adverse inference with regard to the declaration made by the taxpayer as he failed to point out any of the customer of the taxpayer who is found to be the "Prescribed Person" as per section 153(7) of the Income Tax Ordinance, 2001 despite being in possession of record which the learned AR contends is still in the possession of the department. Thus in our view, invoking the provisions of section 122(5) without any material "definite information" is not justified. In this behalf, we find strength from the case law relied upon by the learned AR referred supra, which are 'on all fours' applicable in the present case.
Therefore, following the doctrine laid down in the case of Commissioner of Income Tax v. National Food Lab.
(1992 SCMR 687), Commissioner of Income Tax v. Abdul Ghani (2007 PTD 967) and Commissioner of Income Tax, Karachi v. Shadman Cotton Mills Ltd., (2008 PTD 253) the impugned orders passed under section 221 for tax years 2013, 2014, 2015, and 2017 are not sustainable in law on both factual and legal points and in view of the cases reported as (1993 SCMR 1108) and (PLD 1997 SC 700) on definite information we are inclined to hold that the ACIR had crossed jurisdiction by rectifying orders passed under section 120(1) being free from any error in terms of section 221 of the Ordinance for the tax years 2013, 2014, 2015, and 2017. Accordingly , the order passed for these years by the assessing authority are vacated and that passed by the learned CIR (A) are also consequently vacated.
With regard to the Tax Year 2016 the order passed under section 122(1) in charging the tax @% on the declared sales in total is also not sustainable in the eyes of law as status as distributor stands substantiated with support of copy of drug license as distributor registration with FBR as Distributor , which status is appearing on the sales tax returns too. Copies of distributorship certificates/agreements with vendors, Party wise list of sales with as many as 7,097 customers and findings recorded in the amended order under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 for the Tax Year 2014 wherein it has been mentioned that "the taxpayer was also confronted as to why the status of distributor may not be treated as trader " [underlining is ours] the contention of the appellant being distributor was accepted with the finding/observation "Now the taxpayer has provided complete detail of security deposits and distribution certificates from principle companies. The contention of the AR is duly substantiated with documentary evidence hence, accepted." [Underlining is ours]. As all the facts stood duly thrashed while completing audit for Tax Year 2014 on 23 Jan-2018 and there was no material/ finding contrary to declaration of the appellant no irregularity has been found from the sales record produced and there was nothing on record to substantiate the stance of the departmen t that all the sales were made to "Prescribed Person" as such the Sales declared under the normal tax were wrongly treated as supplies.
In view of the above, the impugned order passed for tax year 2016 is also not sustainable in law on both factual and legal points. Accordingly , the order passed by the assessing authority and the learned CIR(A) for the tax year 2016 are also vacated.
11. All the five appeals are decided in the manner referred above.