MIAN ABDUL BASIT, JUDICIAL MEMBER. These Income Tax Appeals are filed by the appellant/department against the order Nos.1003 and 1004 / 2013 dated 28.08.2013 passed by learned CIR (Appeals-II), Islamabad pertaining to tax years 2010 and 2011. As common question of law and facts are involved in both these appeals we, therefore, intend to decide both the appeals by the instant common order. The grounds of appeals raised by the appellant/department are as follow:
1. The learned CIR (A) was not justified to annul the order passed under sections 161/205 of the Income Tax Ordinance, 2001 on account of non deduction of tax against payments made to foreign Telecom Operators in respect of Internet charges.
2. That the learned CIR (A) was not justified to delete the demand without taking cognizance of the facts obtaining on record.
3. That the observation of the learned CIR(A) that payments liable to tax deductions were not identified is contrary to the contents of the show-cause notice issued to the taxpayer company.
2. Briefly stated facts leading to the instant appeals are that taxpayer/respondent is a public limited company, engaged in providing Long Distance and International (LDI) and Wireless Local Loop (WLL) services in Pakistan. The department, while examination of the audit accounts of the taxpayer / respondent, observed that taxpayer claimed interconnection expenses / LDI expenses but no tax was appeared to have been deducted at the time of payments under sections 152 and 153 of the Income Tax Ordinance, 2001. The taxpayer was asked to provide proof of tax deduction through a show-cause notice issued under section 161 for bifurcation of payments into foreign and local telecom operators, which he failed to furnish. Resultantly, the taxpayer was treated as "taxpayer in default" by the ACIR, who also levied default surcharge by passing the assessment orders under sections 161/205 of the Income Tax Ordinance, 2001 (the Ordinance, 2001). Being dissatisfied from the treatment meted out by the ACIR, the appellant/taxpayer preferred appeals before the learned CIR (A-II), Islamabad, who expressed his opinion, while accepting the appeals of the taxpayer / respondent, as follows: "The impugned orders, arguments of the AR, and the copies of above referred judgments have been examined in detail. Keeping in view the contentions of the AR supported by the judgments of appellate authorities, it has come to surface that the ACIR failed to pinpoint the payments liable to tax deduction and has made liable the whole amount of expense booked on accrual basis without considering actual payments and also failed to determine the payees to whom payments were made and whether tax was deductable on such payments. Therefore, I have no hesitation to hold that the impugned orders of the ACIR lack pre-requisites as laid down by the appellate authorities to proceed under section 161 of the Ordinance. In consequence, the appeals are accepted and the impugned orders for both the years are annulled, demands deleted and consequential default surcharge is also deleted."
Feeling aggrieved from the impugned order passed by the L/CIR (A-II), Islamabad, the department has thrown challenge to the impugned order through the instant appeals on the identical grounds of appeals as reproduced supra.
3. In response to call notice Mr. Faheem Sikandar, DR has attended court proceedings on, behalf of the appellant/department. On the other hand, Ms. Sadia Nazir, FCA appeared to represent the taxpayer/respondent.
4. That the representative of appellant /department contends that L/CIR (A) was not justified to annul the order simply for the reason that the ACIR was failed to pinpoint the payments liable to tax deduction. It is also argued on behalf of the appellant department that the observation of the L/CIR
(A) that the assessing officer should mandatorily mention the names of the persons to whom the payments were made with the segregation of deductable and non deductable payments is against the spirit of sections 153 and 161 of the Ordinance, 2001. He also referred the judgment Hon'ble Lahore High Court reported as Commissioner of Inland Revenue v. Messrs Islam Steel Mills (2015 PTD 2335) to maintain that it is the duty of the taxpayer to furnish documents/record showing the deduction Of tax On payments to the department. He therefore prays for the acceptance of appeals. On the other hand, the L/AR appeared on behalf of the taxpayer/respondent submits that the L/Assessing Officer while framing the orders under sections 161/205 of the Ordinance, 2001 has passed a omni bus type order by virtue of which whole expenses of the taxpayer was treated as tax deductable expenses without even referring the I names of the parties and the nature of payment made to different parties. It is contended on behalf of the respondent/taxpayer that it is a mandatory condition to identify the payments transactions, parties and the quantum of tax deducted under the provision sections 153 and 161 of the Ordinance, 2001 which was missing in the assessment order and the L/CIR (A) was legally justified to annul the assessm ent order. She relied upon the judgments of this tribunal reported as 87 Tax 2601, 89 Tax 430, 2000 PTD 2664, 2012 PTD 122. She closes her arguments with the prayer to dismiss the appeals filed by the tax department.
5. We have heard both the parties, gone through the relevant record. We carefully examine the order of L/Assessing Officer and we find that Assessing Officer issued a show-cause notice with a specific payments made under the head of inter-connection expenses of amounting to Rs.
168,114,117/- but the respondent taxpayer did not explain before the assessing officer keeping itself absent and away from the proceedings initiated under section 161 of the Ordinance, 2001. Once it is established that the taxpayer is a withholding agent and payments fall within the domain of section 153 of the Ordinance, 2001 then the taxpayer is the only person who can explain the nature of payment whether deductable or not by providing the record. We have also observed that the assessing officer has himself mentioned in the assessment order that taxpayer was invited to bifurcate the inter-connection charges into those paid to foreign and local telecom Operators, which divulges that it was in the knowledge of the assessing officer that some of the payments were made to foreign telecom operators and no tax was required to be deducted from such payments. But regardless of this the assessing officer applied a same yardstick for creating demand under section 161 on whole expenditure without even considering the payments made to the foreign telecom operators and this approach, in our view, is against the law of natural justice.
We are also of the view that the order of L/CIR (A), also does not qualify to be an order passed by application of judicial mind because the assessment proceedings initiated under section 161 of the Ordinance, 2001 cannot be declared as null and void merely for the reason that the names of the parties, to whom the payments were made, had not mentioned in the order passed under section 161 of the Ordinance, 2001. The appellate authority i.e. CIR(A) has ample powers and jurisdiction in view of sections 128(4) and 129(1)(a) of the Ordinance, 2001 to examine the evidence / record and to cause such further inquiries as he deems fit and he even can call for such particulars required for finalization of the appeal proceedings. Nevertheless in the instant case the L/CIR (A) did not properly exercise the jurisdiction vested on him under sections 128 and 129 of the Ordinance, 2001 and passed the impugned order without examining the evidence and record by merely relying upon the technical basis which the law does not allow.
6. We have also gone through the show-cause notice and the order passed under section 161 of the Ordinance, 2001 and find that the respondent taxpayer was properly confront the amount paid under a specific head of expenses for which it was the duty of the taxpayer to explain either the tax was deducted or the payments were exempt from deduction as admittedly the taxpayer is a withholding agent and the payments duly falls under the domain of section 153 of the Ordinance, 2001. This is what that has been held by the Hon'able Lahore- High Court in the case reported as Commissioner Inland Revenue, Messrs Islam Steel Mills (2015 PTD 2335) in following words; "12. ......However, it goes without saying that the department must establish that the taxpayer is a withholding agent and also must specify the transactions liable to deduction/withholding. This has to be the basis for any action to be initialed under section 161 of the Ordinance. The allegation cannot take the form of a roving inquiry and must be premised' on facts and identifiable data, with specifics regarding payments made. This is also the essence of the Bilz judgment. However, the onus thereafter shifts to the taxpayer to bring forth names of persons to whom payments were made and the lawful basis (based on verifiable evidence) for failure to withhold tax."
The august Supreme Court of Pakistan in the judgment reported as Messrs BILZ (Pvt.) Ltd. v. DCIT, Multan and another (2002 PTD 1) has comprehensively address the issue of ingredients and contents of the notice and order under section 161 of the Ordinance, 2001 in following words: "8. Learned counsel stated that the Assessing Officer after having gone through the registers should have pointed out the parties from whom the advance tax was liable to be deducted. We are afraid that the contention raised by the learned counsel has no force because as it has been observed hereinabove that it is the petitioner firm itself who made the supplies, therefore, no one else better than it would have knowledge that from whom the deduction is to be made. The department had successfully discharged its obligation by making reference of the details of the supplies, which were made under different heads as per the contents of the show-cause notice. It may be noted that according to the settled principle of law that a fiscal statute has to be construed in its true perspective and in respect of payment of income-tax, if it is found due against a party, then such statute cannot be interpreted liberally in order to make out a case in favour of an assessee who has failed to pay the tax....."
7. We, respectfully having guidance from the judgments supra, are of considered opinion that the show-cause notice issued by the assessing officer does hold the necessary ingredients of section 161 of the Ordinance, 2001; i.e. (a) the person against whom the order under section 161 is issued must be a withholding agent as is. defined under section 153 (7) of the Ordinance 2001, (b) the payments made should be exactly and specifically mentioned in the notice and order under section 161 of the Ordinance, 2001, (c) the payments made as expense are fully covered under the provision of section 153(1) of the Ordinance, 2001 and (d) the issue of exemption envisages under the specific provision Part IV of Second Schedule to the Ordinance, 2001 are to be considered, as enshrined from the judgments supra. However the assessing officer while framing the order under section 161 has mentioned that the bifurcation of the amount paid was required which the assessing officer was required to do to meet the ends of justice. We, at the same instance, are also of the concurred view that it was the duty of taxpayer / respondent to appear and produce the relevant record for arriving at a legal, just, fair and equitable finding in the proceedings initiated under section 161 by the tax department.
8. In the sagacity of above narrated facts, circumstances and legal position we are of the considered opinion that the matter be sent back to the Assessing Office being plenipotentiary to examined the record in respect to nature of payment, quantum of tax deduction and status of the parties to whom the payments were made before finalizing of proceedings initiated under sections 161/205 of the Ordinance. It is that the assessing officer should also observe that the aspect of section 161(1)(b) while framing and finalizing the assessment proceedings. Needless to observe that the taxpayer/ respondent will be given a proper, fair and adequate opportunity of representing himself and the taxpayer / respondent is also urged to appear before the assessing officer and produce the record relating to deduction on payments. It is also a matter of grave consideration for us that the instant cases are very old i.e. pertaining to tax years 2010 and 2011, it is therefore the assessing officer should finalize the proceedings expeditiously preferably within a period of 60 days from the receipt of certified copy of this order. It is, therefore, the orders of assessing officer and that of learned CIR (A) are set-aside and appeals of the department are disposed of in above terms. With the observation narrated herein above the cases are remanded back to Assessing Officer.
7. Order accordingly.
9. This order consists of 6 (six) pages and each page bears my signature.