Raheel Kamran J. This is an Income Tax Reference Application under Section 133(1) of the Income Tax Ordinance, 2001 ("Ordinance") challeng ing order dated 16.08.2017 passed by the Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("A TIR") against dismissal of the IT A No.595/LB/2012 filed by the Applicant.
2. The following questions of law are stated to have arisen from the order dated 16.08.2017 passed by the ATIR for consideration of this Court:- I) "Whether under the facts and in the circumstances of the case the learned ATIR was justified to uphold the order of the CIR(A) who annulled the amended order passed u/s. 122(5A) of the Incom e Tax Ordinance, 2001 ignoring the fact that already completed assessment was erroneous and prejudicial to the interest of revenue being definite and visible from the order sought to be amended when cash withdrawal was huge as against income declared.
Reliance is placed on the judgment of the Hon'ble Islamabad High Court, Islamabad reported as 2015 PTD 1639 .
II) Whether under the facts and in the circumstances of the case, the learned ATIR was justified to uphold the decision of the CIR(A) who failed to appreciate that the evidence which had not been produced before the Assessing Officer cannot be entertained as per first part of section 128(5) of the Income Tax Ordinance, 2001 in the light of ratio decided by the Hon'ble Peshawar High Court in a judgment reported as 2016 PTD 832 .
III) Whether under the facts and in the circumstances of the case, the learned ATIR was justified to uphold the order of the CIR(A) as well reasoned without discussing the grounds of appeal of the Department and thrashing out the facts of the case as per ratio decided by the Hon'ble Lahore High Court in a judgment reported as 115 TAX 257".
3. Facts of the case briefly are that respondent is taxpayer who filed return of income for the tax year 2010 and declared his income as commission agent to be Rs.1,30,000/-. On examina tion of the record, Additional Commissioner Inland Revenue observed that the tax payable on declared income was shown as Rs.2600/- while the total tax deduction had been claimed as Rs.26850/- out of which Rs.20265/- related to cash withdrawals. The Additional Commissioner Inland Revenue also found that while working back, the tax deducted under Section 231A of the Ordinance yielded to the figure of total cash withdrawal of Rs.67,55,000/-, which was not commensurate with the declared results, therefore, the assess ment framed on the basis of declared results was found to be erroneous in so far as prejudice to the interest of revenue. Accordingly , the Taxation Officer issued notice dated 30.05.201 1 under Section 122(5A)(9) of the Ordinance to the respondent to amend the assessment for the tax year 2010. The respondent did not file reply to the aforementioned show cause notice. On failure of the taxpayer to furnish bank statements pertaining to all his bank accounts for the relevant tax year i.e. period between 01.07.2009 to 30.06.2010, request was made to the Commissioner Inland Revenue, RTO for the grant of authority to obtain bank statements under Section 176 of the Ordinance, which was accorded vide approva l dated 29.06.201 1. Pursuant to the said approval, statements of bank accounts of the taxpayer were obtained by the Taxation Officer who, upon examination thereof, found that a total of Rs.24,003,000/- were deposited in bank account of the respondent, treated the same to be his actual turnover/receipts for the tax year in question against the amount of Rs.3,30,000/- declared in his return and accordingly his business income was determined to be Rs.19,202,400/- with tax liability assessed at Rs.48,00,600/- whereas after adjusting the tax deducted under Section 231A of the Ordinance, balance payable was assessed at Rs.4,773,750/-. Being aggrieved, the respond ent preferred appeal before the Commissioner Inland Revenue (Appeals) which was allowed resulting in annulme nt of the amended assessment order passed for the reason that the Section 122(5A) of the Ordinance was not lawfully invoked inasmuch as the prerequisites under the said provision of the Ordinance i.e. the assessment being erroneous in so far as prejudicial to the interest of revenue were not satisfied. Being dissatisfied, the Applicant preferred appeal before the ATIR being ITA No.595/LB/2012 against the order dated 31.01.2012 passed by the Commissioner Inland Revenue (Appeals), which too was dismissed through the impugned order dated 16.08.2017.
4. Learned counsel for the applicant contends that the impugned order of the ATIR has been passed in a slipshod manner which hardly shows application of judicious mind and valid reasons. He adds that the Commissioner Inland Revenue (Appeals) was not justified to annul the assessment order passed under Section 122(5A) of the Ordinance. He emphasis that the tax deducted under Section 231A of the Ordinance as well as the amount credited in the bank accounts of the respondent were not commensurate with his declared receipts, thereby rendering the assessment order under Section 120(1) of the Ordinance as erroneous in so for as it was prejudicial to the interest of revenue. He maintains that the observation of the Commissioner Inland Revenue (Appeals) that the amount credited in the bank accounts of taxpayer actually belong to the growers was made without cross verification of the credit entries. He finally submits that Commissioner Inland Revenue (Appeals) has erred in law while entertaining the evidence which was not produced before Assessing Officer in terms of Section 128(5) of the Ordinance.
5. When none appeared on behalf of the respondent despite service, he was proceeded against ex-parte vide order dated 08.02.2020.
6. Arguments heard. Available record perused.
7. The provision of sub-section (5A) of Section 122 of the Ordinance, as it existed at the relevant time, is reproduced herein below: "Subject to sub-section (9), the Commissioner may amend, or further amend, an assessment order , if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue."
From perusal of the above provision, it is abundantly clear that an amendment of assessment under the said provision can be made only in cases where twin conditions namely , (i) the Assessm ent Order is erroneous; and (ii) it is prejudicial to the interest of revenue, are satisfied. If one of these pre-requisites is absent i.e. if the Assessment Order is not erroneous but prejudicial to the revenue or if it is erroneous but not prejudicial to the revenue, recourse cannot be had to the said section. There can be no doubt that the provision canno t be invoked to correct each and every type of mistake or error in the Assessment Order . An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being 'erroneous'. The phrase 'prejudicial to the interest of revenue' has to be read in conjunction with an erroneous Assessment Order . Every loss of revenue as a consequence of an Assessment Order cannot be treated as prejudicial to the interest of revenue. For examples, when an Assessment Order is based on one of the courses permissible in law and it has resulted in a loss of revenue or where two views are possible and the view taken in the Assessment Order is the one with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue unless the view taken in the Assessment Order is unsustainable in law. To the same effect the expression 'erroneous in so far it is prejudicial to the interest of revenue' occurring in Section 66A of the Income Tax Ordinance, 1979 in relation to the exercise of revisional powers specified therein has been interpreted in the cases of Galaxo Laboratories Limited v.
Inspecting Assistant Commissioner of Income Tax and others (1992 PTD 932) and Messrs S.N.H. Industries (Pvt.) Ltd. v . Income T ax Department and another ( 2004 PTD 330 ).
8. It is also well settled that the error and prejudice should be clearly manifest from the show cause notice and there is no room for any roving inquiry or fishing expedition. Reliance in this regard is placed on judgments in the cases of Commissioner Inland Revenue, Zone-I, LTU v. MCB Bank Limited (2021 PTD 1367 ); Honda Atlas Cars (Pakistan) Limited v. Appellate Tribunal Customs, Excise and Sales Tax (2021 PTD 1806 ) and Caretex v. Collector of Sales T ax and Federal Excise ( 2013 PTD 1536 ).
9. From perusal of the show cause notic e reproduced in the Amended Assessment Order dated 27.07.201 1, it is manifest that jurisdiction under Section 122(5A)&(9) of the Ordinance was assumed while treating the respondent' s assessment under Section 120(1) of the Ordinance for the tax year 2010 to be erroneous in so for as prejudicial to the interest of revenue merely on the ground that the figure of total cash withdraw al amounted to Rs.67,55,000/- when worked back on the basis of tax deduction under Section 231A of the Ordinance, which was not commensurate with the declared net sales/gross profit of Rs.3,30,000/-. The assumption that such worked back figure reflected sales or gross profit of the respondent is nothing more than a conje cture and surmise based on an arithmetic calculation of the Taxation Officer and the same was rightly held in appeals as not sufficient for treating the Assessment Order under Section 120(1) of the Ordinance to be erroneous in so for as prejudicial to the interest of revenue.
10. Indeed the Additional Commissioner himself realized that the aforementioned calculation was not adequate to amend assessment of the respondent under Section 120(1) of the Ordinance, therefore, he obtained all bank statements of the taxpayer for the tax year 2010 while invoking provisions of Section 176 of the Ordinance and through order dated 27.07.201 1under Section 122(5A) of the Ordinance amended assessment of the respondent the while treating the total deposits made in the bank accounts of the respondent to be his total sales/receipts liable to tax under the Ordinance.
11. The authority of the Commissioner to obtain statement of Bank account of a taxpayer under Section 176 of the Ordinance is not free from doubt inasmuch as no such power is clearly specifi ed therein, as is the case with Section 38A of the Sales Tax Act, 1990. Be that as it may, before treating the total deposits made in the bank accounts of the respondent to be his total sales/receipts liable to tax under the Ordinance, issuance of a notice under Section 111(1) of the Ordinance was a mandatory prerequisite to seek explanation of the respondent against separation of alleged sales, any amount chargeable to tax or of any item of receipt liable to tax and where no such explanation was offered by the respondent, an order under Section 111(1) of the Ordinance could have been passed and on the basis thereof a notice under Section 122(5) of the Ordinance for the amendment of assessment could have been issued and decided. Reliance in this regard is placed on judgment of the Hon'ble Supreme Court of Pakistan in the case of Commissioner Inland Revenue Zone Bahawalpur , Regional Tax Office, Bahaw alpur v. Messrs Bashir Ahmed (Deceased) through LRs. (2021 PTD 1182). In the absence of any notice under Section 111(1) and an order passed therein, the Amended Assessment Order dated 27.07.201 1 was unsustainable in law .
12. Reliance of the Applicant on judgment of the Islamabad High Court in the case of Messrs Bahria Town (Pvt.)
Ltd. v. Federation of Pakistan through Chairman FBR and 2 others (2015 PTD 1639 ) is inapt and misconceived inasmuch as factual and legal issues in the said case were on different footing. Writ Petition of the petitioner therein was dismissed for being not maintainable on the ground of alternate remedy available to it. In contrast, alternate remedies have been exhausted and jurisdiction of this Court in the instant case has been invoked under Section 133 of the Ordinance. Additionally , the aforementioned case related to Tax Year 2013 when, through Finance Act, 2012 (XVII of 2012) Section 122(5A) was amended to provide for making or causing to be made such inquiries as deemed neces sary, which was omitted through the Finance Act, 2021(VIII of 2021).
Regardless of nature and scope of such inquiries under the aforementioned amendment, the same had no application and effect in the instant case relating to Tax Year 2010 wherein the Amended Assessment Order under Section 122(5A) & (9) of the Ordinance was passed on 27.07.201 1 i.e. much prior to the aforementioned amendment.
13. As regards plea of the applicant that learned ATIR was not justified to uphold the decision of the CIR(A) who failed to appreciate that the evidence which had not been produced before the Assessing Officer could not be entertained under Section 128(5) of the Ordinance, suffice it to say that the plea does not arise from the impugned order of the ATIR which upheld the order dated 31.01.2012 passed by the Commissioner Inland Revenue (Appeals) essentially for failure of the Applicant to satisfy the jurisdictional prerequisites under Section 122(5A) of the Ordinance without any discussion on evidence. The ITA No.595/LB/2012 against the order dated 31.01.2012 was dismissed through the impugned order dated 16.08.2017 with findings to the following ef fect:- "We have heard the learned DR and also perused the relevant record available on file. We find that to invoke the provision of section 122(5A) two conditions i.e. erroneousness and prejudicial to the interest of revenue have to be simultaneously met but both these conditions are not available in this case. Therefore, we are of the considered view that the order of the learned CIR(A) is well reasoned hence no interference in the impugned order is called for".
14. Learned counsel for the Applicant-De partment has failed to specify any ground of its appeal, in addition to the above, which was legally necessary for the ATIR to have decided and failure to do so warrant interference in the impugned order by this Court in exercise of jurisdiction under Section 133 of the Ordinance.
15. For the foregoing reasons, Question No.I in Paragraph No.2 herein above is answered in affirmative, in favour of the respondent and against the Applicant whereas Questions No.II & III do not arise from the impugned order and the same require no consideration under Section 133 of the Ordinance hence not answered. Accordingly , the instant Tax Reference is dismissed.
16. Office shall send a copy of this order under seal of the Court to the ATIR as per requirement of Section 133(5) of the Ordinance.