ZAHID SIKANDAR, JUDICIAL. MEMBER.----The titled appeal has been preferred under section 131 of Income Tax Ordinance, 2001 (hereinafter referred as 'ITO') by the department against Order No.56 dated 24.02.2015 passed by the Commissioner Inland Revenue (Appeals-ID, Lahore.
2. Brief facts of the case are that this is the second round of litigation before the ATIR. The respondent being a 'manufacturer' of sugar is liable to collect advance tax on the sales made to retailers, distributors, dealer and wholesaler under sections 236G and 23611 of Income 'fax Ordinance, 2001. The taxpayer e-filed its sales tax returns for the tax periods July 2013 to March 2014 relevant to tax year 2014 declaring total sales at Rs. 1,274,769,854/-. Upon examination of the said returns, the OIR observed that the taxpayer made sales as stated above during the aforementioned tax periods which in his opinion did fall within the ambit of sections 236(3 and 23611 of the ITO and the taxpayer failed to collect and deposit advance tax into the government treasury as no corresponding statements of withholding tax were filed in this regard. As a consequence, the OIR initiated proceedings under sections 161/2(35 by issuing notice to the respondent taxpayer. In response, allegedly the taxpayer failed to make any compliance. The said show-cause notice culminated into order in original dated 28.05.2014 and the assessing officer created a total demand of Rs.6,306,897/-.
3. Felt aggrieved by the said order, the taxpayer filed appeal under section 127 before the CIR(A) who vide order dated 29.08.2014 confirmed the impugned order. The taxpayer assailed the order of the CIR(A) before the ATIR and the tribunal vide order dated 23.12.2014 in ITA No.2337/1.13/2014 remanded the case back to the CIR(A) for verification of sales to retailers/un-registered persons and pass a speaking order after affording adequate opportunity of hearing to the parties. The CIR(A), as per directions of the ATIR, proceeded with the matter again after issuing notices to the parties. It was asserted before the CIR(A) that proper opportunity of hearing was not provided to the taxpayer while passing the impugned order-in-original. Further, the taxpayer being a sugar mill did not make any sales to retailers rather the entire sales were made to dealers, wholesalers, distributors, Trading Corporation of Pakistan (TCP) and registered dealers. In order the support the assertions, the learned AR for the taxpayer placed upon affidavit of a Director of the company, summary of sales, detail of distributors, wholesalers, dealers and sales invoices. The stance of the taxpayer was opposed by the department, however, the CIR(A) after examining the record provided to him observed that none of the sales were made to retailers and the OIR on his own bifurcated the sales between retailers and wholesalers just to charge tax in terms of sections 236G and 236H. The CIR(A) vide order dated 24.02.2015 confirmed the charge of tax of Rs.1,099,030/- to sales amounting to Rs. 1,099,030,382/- out of total sales at Rs. 1,125,524,168/- @0.10% in terms of section 236G being made to distributors/wholesalers/dealers. Rest of the sales amounting to Rs.19,827,119/- and Rs.6,666,667/-made to Trading Corporation of Pakistan (TCP) and D.C.O Jhang was held not subjected to collection of tax in terms of section 2360 as being made to government departments. Hence, this appeal has been filed by the department before the ATIR against the order passed by the CIR(A).
4. Mr. Sarim Bhatti, DR appeared and argued the matter on behalf of the department. On the other hand, no one is present for the respondent taxpayer despite proper service of notices served through registered post. Therefore, this appeal is decided ex parte on merits and on the basis of available record and submissions made by the DR.
5. It is the claim of the taxpayer that CIRCA) erred in law by assigning the status of distributors/Wholesaler for charging tax @ 0.1% instead of @ 0.5% of the sales relying upon evidence. which was not produced to the assessing officer during the course of proceedings.
Record reflects that proceedings were initiated against the taxpayer under sections 161/205 and in view of non-compliance on the part of the taxpayer, the OIR charged tax as under: Sales to retailers as per profit Rs. 1,118,001,009/- Tax @ 0.50% under section 123HRs.5,590,005/- Less tax deducted Nil Balance tax payable Rs.5 590,005/- Sales to wholesales as per profileRs.24,672,212/- Tax @ u.10% under section 236GRs.24,672/- Less tax deducted / paid Nil Balance tax payable Rs.24,672/- Total tax 23611 and 2360 Rs.5,614,677/- Additional tax under section 205Rs.692,220/- Total tax payable Rs.6,306,897/-
6. There is no mention of any information, reason or material on record in the order-in-original as to how the learned OIR determined the bifurcation of sales which were made to retailers and wholesalers / distributors. Rather, only after not receiving any reply/details from the taxpayer in response to notices, the OIR observed that default of non-deduction of advance tax under sections 2360 and 23611 stood established. Though, every taxpayer is required to co-operate with the department by ensuring the compliance however, the assessing officer cannot be allowed to pass orders merely on assumptions. The taxpayer admittedly is a sugar mill and even in the ordinary course of business, sugar mills do not sell sugar directly to retailers rather make supplies to distributors/wholesalers etc. Bifurcating total sales between retailers and wholesalers just for the purpose of charging large amount of tax is a clear reflection of arbitrariness which is not permissible in fiscal laws. During the first round of litigation, the ATIR remanded back the matter to CIR(A) just to verify this particular fact and the CIR(A) after examining the record observed that no sale was made to retailers and upheld the Charge of tax on sales made to wholesalers/distributors. The department, in both the rounds of litigation, has not brought any material on record before the ATIR to justify the bifurcation of sales made to retailers and wholesalers/distributors.
7. The main thrust of the arguments of the learned DR is that the CIRCA) was not justified to rely on evidence which was not provided to the OIR at the adjudication stage. We are afraid that the submission of the DR in this regard is misconceived. Firstly, the matter was remanded by the tribunal to the CIR(A) to verify the sales made to retailers/unregistered persons or wholesalers and the CIR(A) could only verify the contentions of the taxpayer after examining the relevant record so no illegality has been committed by the CIR(A). Secondly, even otherwise under the provisions of section 128(5), the CIR(A) is empowered to receive and examine evidence during the first appeal which is necessary for the adjudication. The Honorable Lahore High Court in a case PTR No.222/2011 titled as The CIR v. Malik Auto and Agriculture Industries held that the Commissioner is entirely powerless in allowing documents to be produced it they are necessary or the controversy to be decided. Following question of law was formulated in the said reference (supra) and was decided by the Hon'ble High Court: "Whether under the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified to hold that Commissioner (Appeals) can judiciously entertain and accept the documents at appeal stage and section 128(5) gives full power to the Commissioner (Appeals) to decide the issue on the basis of documentary evidence produced before him?"
The relevant extract of the judgment is reproduced below for ready reference:- "It would be a travesty of the proceedings before the Commissioner to urge that the Commissioner is entirely powerless in allowing documents to be produced if they are necessary for the 'controversy to be decided. This power is ancillary to the main power to decide an appeal. '[his argument offends against the rule of administration of justice and due process. Moreover, we have already held that such a course is open to be adopted by the Commissioner (Appeals) and this is not a question which entitles a party to maintain a reference application"
Hence, the ground raised by the department regarding reliance of evidence by the CIR(A) not provided at the adjudication stage fails.
8. The impugned order clearly suggests that upon the direction of the ATM. the CIR(A) heard the matter again and after being satisfied with the assertions of the learned AR well supported by the documentary evidence, sales made to distributors/wholesalers or government departments stood verified. The department has failed to put forth any plausible rebuttal against the order of the CIRCA) and to place any material on record before the tribunal in both the rounds of litigation to justify the bifurcation of sales made to retailers and distributors. lichee, no case of interference by this bench is made out.
9. With the above stated reasons and observations, We do not find any merit in the titled appeal filed at the behest of the department, hence, the same is accordingly dismissed. The order of the CIR(A) is upheld. 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.