SHAHID MASOOD MANZAR, CHAIRMAN .----Brief facts of the case are that the appellant an individual is a doctor by profession. He derived income by rendering services as a Nephrologist at Al-Shifa International Hospital. For rendering professional services tax was deducted at source section 153(1)(b) of Income Tax Ordinance, 2001 as follows: - Tax Year Payment amount Tax deducted 2014 8,897,003 622,791 2015 10,763,990 1,076,399 2016 12,816,967 1,281,698 The tax deducted as above was treated as final discharge of tax liability by the taxpayer and were declared under the Final Tax Regime. The assessing officer through desk audit found it contrary to law and proceeded to finalize the assessments for all three years treating the gross professional receipts as net income and passed orders as under on 19.09.2017.
Tax Year Net income assessed 2014 8,897,003 2015 10,763,990 2016 12,816,967 Against this treatment the appellant preferred appeals before the learned CIR(A) for all three years which were decided ex parte confirming the assessment orders holding that on the date fixed for hearing nobody attended for hearing nor any application for adjournment was received hence the instant appeals before this Tribunal on the grounds as mentioned in the memo of appeals.
2. The learned AR of the appellant attending the hearing pleaded with evidence that the application for adjournment of hearing sent by courier was certified by the courier to be delivered in learned Commissioner (Appeals)' office in the forenoon of the date of hearing. Application was based on a genuine ground since the doctor's mother had suffered severe stroke and was hospitalized on the date of hearing under this care and supervision. He has contended that the learned Commissioner (Appeals) did not take into account the fact that the order of the assessing officer is unlawful being passed without assuming jurisdiction as per law by using notice under section 122(5) of the Income Tax Ordinance, 2001. He has argued that the entire proceedings were unlawful since the statement filed under section 115(4) of the Income Tax Ordinance, 2001 was held to be invalid hence no deemed assessment in terms of section 120 and section 169 of the Income Tax Ordinance, 2001 was in place which has been amended through the order under appeal. According to the learned AR, the assessment had unlawfully finalized without calling for return of income under section 114 of the Income Tax Ordinance, 2001 and the learned Commissioner (Appeals) wrongly passed the appellate order ex parte without considering the merits of the case.
He has submitted that the ex parte order of the learned Commissioner (Appeals) is unlawful since on the next of date fixed for hearing 21.03.2018 the mother of the taxpayer suffered massive brain hemorrhage was admitted in hospital and were, therefore, unable to attend hearing which was intimated telephonically and by adjournment application sent through courier duly delivered in learned Commissioner (Appeal)'s office at 10:23 am 21.03.2018.
According to the learned AR the ex parte proceedings with observation quote "The appeal was fixed for 22/03/2018. The hearing notices were served on the appellant. In response to call notice, NEITHER ANYONE ATTENDED THE HEARING NOR ANY APPLICA TION FOR ADJOURNMENT WAS RECEIVED. " He has contended that the same is contrary to reality since adjournment was sought verbally as well as in black and white within time on bona fide grounds which unfortunately lost sight of the learned Commissioner (Appeals). He has contended that the learned Commissioner (Appeals) has arbitrarily rejected application to recall through rectification under section 221 of the Income Tax Ordinance, 2001 and the learned Commissioner did not appreciate that non-allowance to revise and file a NORMAL LAW RETURN under section 114 of the Income Tax Ordinance, 2001 is not only arbitrary but unlawful as well. It is contended that the learned Commissioner (Appeals) did not consider that the application filed for filing of return under Normal Law was not disposed of in accordance with law. The taxpayer had inherent right to file return under normal law at any time before completion of assessment. Particularly when the statement filed under section 115(4) of Income Tax Ordinance, 2001 was held to be invalid. He has argued that the learned Commissioner did not decided the ground that after the department proceeded on the declared professional receipts under normal law, the taxpayer was to be allowed admissible expenses under the law and in the prese nce of complete head-wise break up and full support of profit and loss account expenses claimed disallowance in toto without pointing out any reason for inadmissibility is not only unlawful but also improper , unjustified and extremely harsh as well. According to the learned AR the issuance of notice under section 122(9) of the Income Tax Ordinance, 2001 does not put any bear on filing of revised/normal law return. It is contended that the learned Commissioner (Appeals) did not dilate/consider the ground that on mere assumption disallowance of expenses on the basis that the doctor rendering service at Al-Shifa International Hospital does not have to incur any expe nse at all and the disallowance of entire expenses on the ground that the expenses were to be claimed in the return is self-contradictory since on the one hand normal return was not allowed to be filed and on the other the same are disallowed totally on that basis. The income and expenditure statements filed during the course of assessment proceedings prior to assessment were arbitrary and unlawfully ignored and the gross services receipts were assessed as net income and the learned Commissioner (Appeals) also ignored the judgment of the honorable High Court quoted (2016 PTD 100 ) wherein it was held: "In section 153(1) (b) and as the benefit of final tax regime under section 153(3) having clearly not been extended to transitions relating to rendering of or providing services the tax return in all such cases are to be filed and assessed under normal law tax regime."
It has further been contended on behalf of the appellant that before the completion of assessments and even before issuance of show cause notice under section 122(9) of Income Tax Ordinance, 2001 on 24.05.2017 he filed normal law returns manually for the first time on 14.03.2017 since the online system was not operative acknowledgement filed. Thereafter he also applied to the zonal Commissioner to allow filing of normal tax return under section 114 since Final Tax Regime return filed by him was invalid but the request of the appellant was denied.
The learned AR pleaded that income and expenditure statements were filed during the course of assessment proceedings and all necessary supports pertaining to various heads of expense s as well were filed. Necessary evidence of filing/acknowledgement of the same is adduced and supports are produced here as well as for perusal.
The learned AR of the appellant has argued that though the tax deduced at source on professional receipts constitutes minimum tax but the income being assessed as income from business or profession is eligible for allowance of expenses incurred to earn the said income to the extent of verifiability and admissibility .
In order to substantiate his contentions reliance is placed on the following judgment reported (2016 PTD 100) wherein it has been held that "Irrespective of the fact what kind of service of resident person renders or provided, it falls within the meaning of 'service' as described in Section 153(1)(b) and as the benefit of Final Tax Regime under section 153(3) havin g clearly not been extended to transactions relating to rendering of or providing of services, the tax return in all such cases are to be filed and assessed under Normal Tax Regime. The advance tax, if any deducted under section 153(1) from the receipts of such person would be adjusted against his tax liability ." It is further held by the Hon'ble High Court that: "The Federal Board of Revenue, therefore, for two distinct reasons discussed in the foregoing paragraphs was justified in issuing notices to the petitioner for the disputed years in order to amend the tax returns under Normal Tax Regime that were originally furnished under the Final Tax Regime." Reliance is also placed on another parallel case of Dr. Ghulam Saddique Shifa International Hospital, Islamabad which has been decided by the learned Commissioner Inland Revenue, Zone-II, RTO, Islamabad under section 122(5A) of Income Tax Ordinance, 2001 for tax years 2004 and 2005 vide order dated 29.06.2016 and the expenses has been allowed as under: - Tax Year Total expenses claimed against services receipts from Shifa InternationalExpenses allowed by the Additional Commissioner 2014 Rs.4,453,600 Rs.1,263,213 2015 Rs.6,343,860 Rs.1,590,415 In view of the above submissions, learned AR has requested to allow the expenses in this case also.
3. On the other hand, the learned DR supported the orders passed by the authorit ies below . He argued that since no expenses were claimed in the Final Tax statement filed in the first instance the adjudicating authority was justified for not allowing any expenses at all. He has, therefore, requested to dismiss the appeal.
4. After perusing the rival arguments and perusing the documents produced and case laws relied upon the moot issue whether the appellant was entitled to get set of/deduction of any expenses from his professional services receipts keeping in view the decision of the Hon'ble High Court reported as (2016 PTD 100) is decided in his favour that he was justified to claim expenses. The appellant had rightly claimed expenses. The tax returns were lawfully filed under normal tax regime which was to be assessed under normal tax by allowing expenses to the extent as were admissible and verifiable on the basis of details and documents filed during the course of assessment proceedings and has been placed before this Bench as well.
After going through the head wise claim of expenses supported by valid and lawful documentary evidences we are of the view that both the officers below have wrongly rejected the claim of expens es. It is, therefore, directed that the taxpayer should be allowed profit and loss expenses at forty percent of the claim ed expenses for all three years under review .