Reference Application, filed by the department, is directed against order dated 07.05.2014, of learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (`Appellate Tribunal'), wherefrom four questions of law were formulated and proposed for determination, however, in the course of submissions, following question is pressed and argued, which reads as; Whether on the facts and circumstances of the case, the learned Appellate Tribunal was justified to validate the revision of return filed after issuance of notice under section 122(9) without fulfilling the preconditions relevant to the provisions of section 114(6A) of the Ordinance?
2. Learned counsel for the applicant department elaborated essential facts, which are that return for Tax Year 2007 was filed on 28.09.2007, declarations wherein were treated as deemed assessm ent order under section 120 of the Income Tax Ordinance, 2001 (`Ordinance, 2001').
Thereafter, concerned Commissioner sought amendment of the deemed assessment order by invoking section 122(5-A) of the Ordinance, 2001 and accordingly notice under section 122(9) of the Ordinance, 2001 was issued on 21.05.2010. Notice was responded on 25.06.2012, when taxpayer also submitted revised tax return, which was followed by another notice under section 122(9), dated 10.06.2013. Reply by the taxpayer was filed on 21.06.2013, on which date assessment was amended.
3. Learned counsel explained that Commissioner Inland Revenue, while carrying out amendment of assessm ent order, considered the revised return filed on 25.06.2012 and rejected it on the premise that requisite pre-conditions, envisaged in terms of second proviso to subsection (6-A) of section 114 of the Ordinance, 2001, whereunder certain conditions were imposed in lieu of submission of revised return once notice under section 122(9) ibid was issued. [Subsection (6A) was inserted in the Ordinance through Finance Act, 2010]. Adds that Appellate Tribunal erred in law and erroneously held that 'Besides the return filed by the taxpayer was in strict conformity with the law in force of the said date'. Learned counsel emphasized that since revised return was submitted on 25.06.2012, therefore, law existing on said date was applicable, which critical point escaped notice of the Tribunal.
4. Conversely, learned counsel for the taxpayer submits that revised return was filed in line with the mandate of subsection (6) of section 114, existing at the time of submission of original return, when no pre-conditions were prescribed therein. Adds that amendments introduced in subsections (6) and (6-A) of section 114 of the Ordinance, 2001, either through Finance Act, 2009 and Finance Act, 2010 cannot be made applicable with retrospective effect to prejudice right of filing revised return within 5 years, without the necessity of fulfillment of such pre-conditions, as subsequently introduced.
5. Arguments heard. Record perused.
6. It is pertinent to encapsulate the controversy; whether revised return, for the Tax year 2007, could be subjected to pre-conditions under subsection (6A) of section 114 of the Ordinance, 2001 - precisely the second proviso, which triggered once notice under section 122(9) of the Ordinance, 2001 was issued - when no such pre-conditions were in place, at the time of filing of original tax return on 28.09.2007.
In the light of the submissions made, there is another question, and equally significant (`additional question'), evidently arising out of the order of the Appellate Tribunal, which is, Whether, in the facts and circumstances of the case, the learned Appellate Tribunal was justified to treat revised tax return submitted on 25.06.2012 as valid at qualified as amended assessment order in terms of subsection (3) of section 122 of the Ordinance, 2001, when pre-condition under second proviso to subsection (6A) of section 114 was not met?'
7. It is apt to reproduce, for convenience, observations / findings recorded by the Appellate, relevant in the context of the questions raised, which findings read as, we have given due consideration to the arguments raised by the learned AR and also gone through the relevant record available on the file and are of the considered view that the revised return filed by the taxpayer for assessment of his normal law suffered from no legal infirmity. It was a legal and valid assessment in terms of section 120 of the Income Tax Ordinance, 2001.
Besides the return filed by the taxpayer was in strict conformity with the law in force on the said date'.
[Emphasis supplied]
8. Learned counsel for the taxpayer emphasized that tax return was filed on 28.09.2007, within the limitation provided under unamended subsection (6) of section 114 of the Ordinance, 2001 and no pre-conditions were envisaged against filing of revised return, upon discovery of any omission or wrong statement in the original return. It is expedient to reproduce unamended subsection (6) of section 114 of the Ordinance, 2001 - before being substituted through Finance Act, 2009 and Finance Act, 2010 as it existed on 28.09.2007.
"Any person who, having furnished a return, discovers any omission or wrong statement therein, may furnish a revised return within five years of the date that the original return was furnished"
9. Submissions on behalf of taxpayer are misconceived. It is pertinent to iterate that no question of retrospective application of amended subsections (6) and (6A) of section 114 of the Ordinance 2001 is involved. Original tax return was filed on 28.08.2007. Notice under section 122(9) of the Ordinance, 2001 - upon invoking powers in terms of section 122(5-A) - was issued on 21.05.2010, by which date no revised return was furnished - which was furnished on 25.06.2012, accompanying reply to the notice under section 122(9). Commissioner, upon receipt of revised return, issued another notice under section 122(9) of the Ordinance, 2001 dated 10.06.2013, confronting taxpayer with entries in the computation chart of allocation of expenses submitted with reply on 25.06.2012. Commissioner, besides determining liability to pay tax also declared revised return invalid, in wake of non- compliance of pre-conditions imposed in terms of second proviso to subsection (6A) of section 114 of the Ordinance, 2001.
10. It is pertinent to mention that before the furnishing of revised tax return by the taxpayer, subsection (6) of section 114 of the Ordinance underwent substantial change, firstly by virtue of Finance Act, 2009 and secondly through Finance Act, 2010 - by which amendment subsection (6- A) of section 114 of the Ordinance, 2001 was also added, second proviso thereto imposes pre- conditions upon furnishing of revised return once notice under section 122(9) was issued having nexus - to the facts of the case at hand. Taxpayer cannot claim any substantive right to submit revised return unconditionally, for five years, after furnishing of original tax return. Legislature has imposed conditions upon the privilege of filing revised return(s), which revised returns if filed after the amendments introduced through Finance Act, 2009 and Finance Act, 2010, have had to comply with and fulfil pre-conditions. There is no cavil that amendments made in subsections (6) and (6A) of section 114 are not applied retrospective but prospectively, hence, revised return filed by the taxpayer must meet pre-conditions, in terms of second proviso to subsection (6A) of section 114, failing which such return cannot claim any validity or status of amended assessment order in terms of subsection (3) of section 122 of the Ordinance, 2001. Validity of revised return, as filed on 25.06.2012, undoubtedly had to be examined and determined in the context of affirmation that whether pre-conditions were met or not The question of limitation for filing revised return(s) is not agitated before the Appellate Tribunal, which is not relevant for the purposes of determination of the questions.
11. In view of the aforesaid, we hold that the observation / determination of the Appellate Tribunal, on both the counts, firstly, that revised tax return was a legal and constitutes valid assessment order, and secondly that it was in strict conformity with the law in force on the said date are erroneous and result of misapplication of law. The impression created by the Appellate Tribunal, while observing that 'Besides the return filed by the taxpayer was in strict conformity with the law in force of the said date', is that revised return, furnished on 25.06.2012, was in conformity with the law on the said date - 25.06.2012 - is misconceived. On 25.06.2012 subsection (6A) of section 114 of Ordinance, 2001, and the pre-conditions imposed thereunder, was available on the statute book and attracted to the revised tax return furnished. It is evident that Appellate Tribunal overlooked the cause and effect of amendment introduced through Finance Act, 2010, through adding subsection (6A) of section 114 of the Ordinance. We are unable to find any determination by, the Appellate Tribunal regarding the effect of amended subsection (6A) of section 114 and consequence on non- fulfilment of pre-condition before filing of revised return, when notice under section 122(9) was already issued on 21.05.2010 - and taxpayer took two years to furnish revised return on 25.06.2012.
Appellate Tribunal also failed to appreciate the record - factual statements / assertions of the taxpayer made before the Commissioner Inland Revenue while submitting reply to another notice dated 10.06.2013 - while determining the validity of revised return. It is expedient to reproduce relevant portion from the text of the order of the Commissioner, reads as follows.
The AR further contended that in notice dated 10.06.2013, intention to reject revise return on the ground that default tax is not deposited with revised return, it is stated that the return was revised to correct our mistake stated above, which never was confronted to us, Secondly, as per original return, there was a refund of Rs. 638,780/- which is reduced to Rs.15,019/-. Therefore, there is no default amount to be paid.'
12. In view of the statement of the taxpayer, it was imperative for the Appellate Tribunal to adjudge the matter, in the context of the law as available at the time of submission of revised return.
13. In view of the above, both the questions - proposed and additional - are answered in negative.
Reference application is allowed and matter is remanded to the Appellate Tribunal to consider and decide afresh question of appropriation of expenses under the final and normal tax regime, in the light of the questions of law determined and answered.
14. Office shall send a copy of this order under seal of the Court to the learned Appellate Tribunal, Inland Revenue as per section 133(5) of the Income Tax Ordinance, 2001.