DR. SHAHID SADDIQ, ACCOUNT ANT MEMBER .----T itled appeals have been preferred at the instance of Appellant / taxpayer directed against the Separate Appellate Orders Nos.1234 and 1235 even dated 30-12-2020, passed by the learned CIR(A), Faisalabad, pertaining to tax years 2017 and 2018.
2. Brief facts of the case are that the taxpayer filed his returns of income declaring FTR of Rs.5,584,583/- and Rs.5,625,227/- and agricultural income of Rs.1,200,000/- and Rs.2,450,000/- respectively for tax years 2017 and 2018. The declared results constituted deemed assessment order under section 120(1) of the Income Tax Ordinance, 2001. The AQIR examined the assessment record and found that the taxpayer declared agricultural incomes for years under consideration and A claimed as exempt from tax. As per proviso to section 111(1) of the Income Tax Ordinance, 2001, the exemption to the agricultural income is available only to the extent the agricultural income tax is paid to the relevant authorities and the proof regarding the payment is provided. No proof of agriculture income tax paid to the relevant provincial authorities was available on record which rendered the deemed assessment erroneous in so far as prejudicial to the revenue. Similarly , commission on petroleum products has been declared at Rs.5,584,583/- and Rs.5,625,2277 which subject to tax under section 156A of the Income Tax Ordinance, 2001. The credit of entire amount of declared commission has been taken in cash flow statement. As per provisions of subsection (28A) of section 2 of the Income Tax Ordinance, 2001, imputable income in relation to an amount subject to final tax means the income which would have resulted in the sales tax, had these amount not been subject of final tax for years under consideration. As the tax has been deducted at Rs.671,150/- and Rs.675,027/- and the imputable income works out to Rs.3,802,600/- and Rs.3,822,108/- the taxpayer has taken credit of Rs.5,584,583/- and Rs.5,625,227/-. The excess credit of Rs.1,781,983/- and Rs.1,803,1 19/- have been claimed which means that accretion in wealth to the extent of Rs.1,781,983/- and Rs.1,803,1 19/- remained unexplained. A show-cause notice under section 122(9) read with section 122(5A) of the Income Tax Ordinance, 2001 was issued. In response thereto, the taxpayer failed to furnish any explanation. The ACIR issued various reminders but again the taxpayer failed to make compliance. Therefore, the deemed assessments were amended under section 122(5A) of Income Tax Ordinance, 2001, vide orders dated 03-Sep- 2019.
3. The Appellant being aggrieved with the order of the ACIR filed appeal before the CIR(A) who rejected the appeal. The Appellant being dissatisfied with the orders of authorities below has filed instant appeals before the Tribunal.
4. Learned AR on behalf of Appellant contended that the ACIR illegally created the impugned tax demand through ex parte orders. He submitted that the notices which claimed to have been served upon the taxpayer were actually not served. He contested that the no separate notice under section 111 was issued to the taxpayer which was mandatory for invoking provisions of section 111 of the Ordinance, 2001. Reliance was placed on 2019 PTD 1828 .
He contested that the ACIR passed order without providing proper opportunity of being heard hence, the action of ACIR is contrary to the Provisions of section 2012 PTD 964. He argued that the tax liability was created on weak grounds which are not maintainable in the eye of law. The DR on the other hand opposed the contentions of learned AR and supported the orders of authorities below for the reasons recorded therein.
5. We have given due consideration to the arguments advanced by the rival parties and perused the relevant available record. The AR submitted that the notices which claimed to have been served upon the taxpayer were actually not served. He contested that the no separate notice under section 111 was issued to the taxpayer which was mandatory for invoking provisions of section 111 of the Ordinance, 2001. In this regard he placed reliance on reported judgment of Hon'able Lahore High Court cited as 2019 PTD 1828 titled Commissioner Inland Revenue v. Faqir Hussain and another . We have perused the aforesaid judgment of Hon'able Lahore High Court and found that orders of authorities below are not sustainable in light of law laid down by the Hon'able Court. The relevant part of the judgment is reproduced as under:- "10. Non-issuance of separate notice under section 111 has caused prejudice to respondent-taxpayer as substantial compliance of said provision of law has not been made. The ordinary meanings of "Notice" as referred to by learned Legal Advisors, with reference to various dictionaries, are not applicable to the issue in hand. Non- issuance of proper notice in order to invoke provisions of Section 111 cannot be taken lightly and its non- compliance may lead to render the proceedings not in conformity with or according to the intent and purpose of law.
In the instant case, neither notice under Section 111 of the Ordinance of 2001 has been issued to the taxpayer nor was the taxpayer specifically confronted with such proposed addition so that the taxpayer could have advanced some explanation in this regard. Thus, impugned addition appears to be without any lawful authority .
11. So far as argument of learned Legal Advisors of applicant-department, with reference to the case of Abdul Ghani and Zamindara Paper and Board Mills supra, that mere substance of notice is to be seen and mentioning of Section 111 with its all ingredients along with notice under Section 122(9) read with Section 122(5A) fulfills the conditions, suffice it to say that law mandates the issuance of separate notice / explanation within the contemplation of Section 1 11, therefore, same cannot be made redundant.
12. In view of the above, our answer to the proposed question is in affirmative i.e. against the applicant- department and in favour of respondent-taxpayers.
In view of above it is apparent that non-issuance of proper notice in order to invoke provisions of Section 111 render the 'proceedings not in conformity with or according to the intent and purpo se of law. The quoted judgment of the superior courts applies on all fours of the instant case hence orders of the authorities below are annulled.
The appeal of the appellant for tax years 2017 and 2018 are allowed. W e ordered accordingly . revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.