ZAHID SIKANDAR, (JUDICIAL MEMBER).----The titled appeal has been preferred by the department under section 131 of the Income Tax Ordinance, 2001 (hereinafter referred as 'ITO') against the Order No.7184 dated 24.03.2015 passed by the Commissioner Inland Revenue (Appeals), Faisalabad wherein the learned CIR (Appeals) accepted the appeal of the taxpayer and annulled the impugned rectification order passed by the OIR under section 221.
2. Brief facts of the case are that the respondent/taxpayer is a limited company deriving income from running a textile mill besides other income. The self-assessment under section 120(1) of the ITO for the tax year 2008 was amended under section 122(5A) vide order dated 31.01.2012 wherein the taxable income under Normal Tax Regime was assessed at Rs.197,719,115/- besides income under Final Tax Regime and separate block of income. The CIR(A) vide order dated 02.07.2012 directed that scrap sale be included in local sales for the purpose of calculating ratio of export and local sale for proration of expenses. It was further directed that foreign currency exchange loss be allocated to local and export business as per their ratio. The appeal effect was given by the assessing officer and business income was assessed at Rs.25,288,838/- and B.F losses were allowed at Rs.577,514,067/-. Finally loss was assessed at Rs.552,225,929/- which was to be carried forward. However, it was observed by the ACIR that income after appeal effect was not correctly worked out and income from other source was also not properly assessed. It was further observed that profit on debt declared at Rs.154,615,000/- was chargeable to tax @035% as a separate block of income and therefore the on the basis of these observations the assessing officer issued a Show-Cause Notice No. 1299 dated 03.12.2014 for rectification under section 221. In response the assertions of the taxpayer were found untenable and the assessing officer proceeded to pass the impugned order by way of rectification in the following manner: Income assessed under NTR as above154,621,200 Less WWF @ 2% 3,092,424 Balance taxable income 151,528,776 Less BF loses as worked out above 313,762 000 Balance losses to be C/F 162,233,240 Other income as above 154,615,000 Tax @ 35% 54,115,250 Add WWF 3,092,424 Total tax payable 57,207,674 Less tax payments already allowed 15,705,147 Balance payable 41,502,527 The income declared under FTR is separate y assessed as under: -- Dividend receipts 31,067,000 Tax @ 10% 3,106,700 Paid/deducted as claimed.3,106,660 Balance payable 40 Exports receipts 5,784,680,400 Tax payable 57,846,804 Paid/deducted as claimed 5,784,804 Rental receipts 189,000 Tax payable @ 5% 9,450 Paid/deducted as claimed -- Balance payable 9, 450
3. Feeling aggrieved by the aforesaid treatment the taxpayer filed an appeal under section 127 of the ITO before the Commissioner (Appeals). The learned CIR(A) after hearing the matter vide order dated 24.03.2015 annulled the impugned rectification order and directed the assessing officer to allow carry forward of business losses and to compute WWF if chargeable in accordance with the relevant provisions of law. The department has assailed the order of the CIR(A) before this tribunal by way of filing this appeal.
4. We have heard the contentions of the learned representatives of the rival parties and have also perused the record/orders with their able assistance.
5. The learned DR agitated before us that the CIR(A) was not justified to annul the order under section 221(1) of the ITO as the mistake of set off of business losses against other income was apparent from record. After taking into consideration the 'facts and the documents provided by the learned counsel for the respondent, it is observed that the order dated 02.07.2012 passed by the CIR(A) was further challenged before this tribunal by the department but this tribunal turned down the appeal of the department on the issues against which appeal effect was given. After giving appeal effect to the order of the CIR(A), it was observed by the assessing officer that income after appeal effect was not correctly worked out and income from other source was not properly assessed, Hence, the ACIR rectified the order of appeal effect. The CIR(A) after relying on various decisions of the Hon'ble apex courts and elaborating the differentiation in the concepts of section 122(5A) (amendment in assessm ent), Appeal effect under section 124 and rectification under section 221 observed that the assessing officer has tried to amend the assessment under the garb of rectification hence annulled the impugned rectification order.
6. During the first appeal against the amended assessment order in the earlier proceedings, the CIR(A) vide order dated 02.07.2012 directed that scrap sales may be included in local sales for the purposes of calculating ratio of export and local sales for prorating of expense. It was further directed that foreign currency exchange loss be allocated to local and export business as per their ratio. The appeal effect was given by the assessing officer and business income was assessed at Rs.25,288,838/- and B.F losses were allowed at Rs.577,514,067/-. Finally, loss was assessed at Rs.55,225,929/- which was to be carried forward. Under section 124 while giving appeal effect, the assessing officer is required to confine himself within the domain of the directions given in the order and the assessing officer cannot add, delete or import anything on his own. The appeal effect order cannot be subjected to issues extraneous or alien to the appellate order. The OIR observed the discrepancy of wrong assessment of income which neither falls under the scope of rectification nor falls within the domain of section 124. If the officer was of the view that wrong assessm ent had been done, he under the law could proceed with the matter for amendment in assessm ent subject to limitation however, the OIR cannot amend the assessment of income in rectification proceedings and that too against the order of the appeal effect. The learned CIR(A) has rightly noted and observed that the assessing officer has proceeded to make amendment in the garb of rectification and transgressed his lawful jurisdiction.
7. The scope of rectification is restricted to mistakes apparent floating on the surface of the order.
There is nothing before us which leads us to conclude as to whether there was any glaring mistake committed by the OIR while giving appeal effect to the order of the CIR(A). There appears to be no error or mistake floating on the surface of the order in question rather it appears to be an attempt by the OIR to amend the assessm ent by invoking the provisions of rectification.
8. The apex courts of the country have discussed the scope of section 221 of ITO for the purpose of rectification of an order from time to time. It is a settled preposition of law by now that the scope of section 221 of the ITO is restricted to rectify the mistake apparent from the record. The expression "mistake from the record" as used in section 221 of ITO means that error or mistake is so manifest and clear that if permitted to remain on record may have material effect on the case.
9. In Mushtaq Ahmad and Co. v. CIR, 2015 PTD 1926, it was held by this tribunal that an error of law or fact having direct nexus with a question of determination of rights of parties affecting their substantial rights or causing prejudice to their interest is not a mistake apparent from record to be rectified under section 221 of ITO.
10. In the light of forgoing, we are of the firm view that the order dated 24.03.2015 passed by the CIR(A) does not suffer from any legal infirmity and is based on valid reasons and correct application of law, hence the same is accordingly upheld.
11. With the above narrated reasons, the instant appeal of the department is dismissed.