ZAHID SIKANDAR, JUDICIAL MEMBER. Through this single consolidated order we intend to dispose of both the titled appeals as common questions of facts and law are involved.
2. Relevant facts in brief are that the appellant is an individual who derives income from the business of arhat/Commission of Food grain. The taxpayer failed to file income tax returns for the tax years 2009 and 2010. Consequently, notices under section 114(4) were issued to the taxpayer by the OIR and the taxpayer filed income tax returns in compliance of the said notices declaring business income at Rs.8000/- and agricultural income at Rs.110,000/- for the tax year 2009 and business income at Rs.210,000/- and agricultural income at Rs.1,262,460/- for the tax year 2010.
Thereafter, the department received an information that the taxpayer purchased certain properties during the tax years 2009 and 2010 hence the OIR vide various letters required the appellant to explain the source of investment along with documentary evidence. Details of the confronted properties are given below: 2009: S.No.Amount of propertyShare from propertyDate of purchaseSize of property
1. Rs.1,900,000/- Rs.1,007,000/- 23-6-20092 marla 21/4 sarsai 2.Rs.1,484,000/- Rs.742,000/- 27-6-2009 61/4 srsai 2010: Moveable property S.No.Vehicle No.Value of motor vehicleIncidental chargesTotal valueDate of registration 1.LED-09- 9399 ToyotaRs.1,354,000/- Rs.100,000/-Rs. 1,454,000/-23-11-2009 Immoveable property S.No.Immoveable propertyValue of immoveable propertyIncidental chargesTotal value Date of registration 1.House inside Alipur RoadRs.550,000/- Rs.27,500/- Rs.577,500/- 3-5-2010 2.House inside Alipur RoadRs.1,100,000/- Rs.55,000/- Rs.11,55,000/-22-4-2010 3.House inside Alipur RoadRs.500,000/- Rs.25,000/- Rs.525,000/-22-4-2010 4.House inside Alipur RoadRs.500,000/- Rs.25,000/- Rs.525,000/-22-4-2010 5.House inside Alipur RoadRs.600,000/- Rs.30.000/- Rs.630,000/-19-4-2010 6.House inside Alipur RoadRs.700,000/- Rs.35,000/- Rs.735,000/-19-4-2010 7.2/3rd share in property at Alipur Road BV-5S-3Rs.21,955,666 -- Rs.21,955,666/-Through Iqrar Nama Dated 15-7- 2009 8.2/3rd share in property at Alipur Road BV-5S-3Rs.6,666,667/- -- Rs.6,666,667/-Through lqrar Nama Dated 31-5- 2010 9.15 marlas plot Ghari AwanRs.60,000/- -- Rs.60.000/- 8-9-2009 10.10 marlas 5 sarsai plot Garhi AwanRs.42,000I- -- Rs.42,000/- 8-9-2009 11.6 marlas 3 sarsai plot HafizabadExchange -- -- 14-4-2010 Total Rs.32,174,333/- Rs.172,500/-Rs.32,346,833
3. In response, the AR appeared on behalf of the taxpayer and furnished explanation as well certain documentary evidence in support of his assertions. The OIR accepted the evidence regarding certain properties but the OIR being dissatisfied with the assertions on rest of the properties mentioned in the impugned orders made additions under section 111(1)(b) to the income of taxpayer at Rs.1,290,000/- and Rs.24,603,833/- for the tax years 2009 and 2010 respectively. The DCIR vide orders dated 30.06.2015 and 05.11.2015 finalized the proceedings under section 121(1)(d) read with section 122(5) for both the tax years in the following manner: 2009 Income assessed originally under section 120Rs.8,000/- Addition under section 111(1)(b)/111(2) of the Income Tax Ordinance, 2001Rs.1,290,000/- Net income assessed Rs.1,298,000/- Agricultural income (being exempt) Rs.110,000/- Total tax payable Rs.272,580/- Less paid -- Balance tax payable Rs.272,580/- 2010 Net income as declared Rs.210,000/- Addition under section 111(1)(b) as discussed aboveRs.24,603,833/- Total income Rs.24,813,833/-
4. Feeling aggrieved by the aforesaid orders, the taxpayer filed appeals under section 127 of the ITO before the CIR(A). The learned Commissioner (Appeals) after hearing the matters vide Orders Nos.423 and 422 of similar date i.e. 09.05.2017 upheld the additions to the tune of Rs.976,500/- and Rs.6,129,833/- made by the DCIR for the tax years 2009 and 2010. Hence, the taxpayer has filed these second appeals against the orders passed by the CIR(A) to the extent of confirmation of additions under section 111(1)(b).
5. Mr. Farooq Khokhar, Advocate has tendered appearance on behalf of the appellant and has submitted that the orders passed by both the officers below are illegal, void and nullity in the eye of law. No show-cause notice under the relevant provisions, of law were ever sent to the appellant confronting the allegations and the impugned additions/orders besides other grounds are liable to be annulled on this score alone. The learned counsel further submitted that income tax returns were filed and in response to queries raised by the officer, all the explanation as well as evidence was provided in support of the assertions made by the taxpayer. Finally, the learned counsel prayed for the acceptance of the titled appeals. Conversely, the learned DR supported the impugned orders and submitted that since the taxpayer failed to furnish satisfactory explanation to certain extent therefore the impugned orders are correct and liable to be maintained.
6. Arguments Heard, Record perused.
7. The perusal of the orders passed by the DCIR nowhere suggests that the assessing officer 'Issued any show-cause notice confronting the allegations under the relevant provisions of Income Tax Ordinance either under section 121(1)(d) or 122(9). It appears that the assessing officer has not confronted the relevant, provision before finalizing the amendment proceedings. Time and again the apex courts have given guidelines through their judgments that issuance of show-cause notice is a serious business and, is not a casual correspondence. The purpose of show-cause notice is to put a person on notice about allegations for which authorities intend to proceed against the person and to give him an opportunity to explain his position. Further, show cause notice is required to state all the particulars so that addressee is fully informed as to which provision has been invoked and which allegation has been alleged. It is a fundamental document which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. Reliance is placed on 2022 SCMR 92, 2018 PTD 253 and 2013 PTD 1536.
8. It appears that the assessing officer as well as the CIR(A) have passed the impugned orders completely in ignorance of the law. The assessing officer finalized the proceedings under section 121(1)(d) read with section 122(5). Application of these two provisions simultaneously is a blatant violation and the same renders the whole proceedings a nullity in the eye of law. The public functionaries are required to act within the parameters of law and are not permitted to proceed on their whims and desires. Both the provisions of section 121 and section 122 cannot be invoked simultaneously. Provisions of section 121(1)(d) of the Income Tax Ordinance, 2001 and those of subsections (1) and (5) of Section 122 are different in nature dealing with entirely different situations therefore could neither be applied simultaneously while passing an order nor the application of one could be replaced by the other. Section 121(1)(d) provides the proceedings on the basis of best judgment assessm ent whereas proceedings under section 122(5) can only be invoked on the basis of 'definite information'. The DCIR failed to finalize the proceedings in a legal and lawful manner and the CIR(A) completely ignoring this aspect upheld the impugned orders which is not justified under the scheme of Income Tax Ordinance.
Further, the additions were made in the impugned orders under section 111(1)(b) but there is nothing in the record that suggests that the assessing officer issued separate mandatory notice under section 111 of ITO for the purpose of additions under this provision. In the absence of issuance of a separate mandatory notice under section 111 with the proposed addition in order to require the taxpayer to explain his position, the said addition is illegal and unlawful. In a case titled as CIR v.
Faqir Hussain reported in 2019 PTD 1828, the Hon'ble Division Bench of the Lahore High Court declared the issuance of a separate notice under section 111 as mandatory for the purpose of addition under section 111 on account of unexplained income or assets. The relevant paras Nos.8 and 10 of the said judgment are given as under: "8. Perusal of the provisions of Section 111 of the Ordinance of 2001 shows that if the instances / categories of unexplained income and assets, mentioned therein, come to the knowledge of the Commissioner, he is not obliged to form an opinion on the, basis of information so gathered rather is required to issue notice to the taxpayer seeking explanation, confronting the information collected that its case comes within the head(s) specified in subsection (1). Though word "notice" is not specifically mentioned in the said provisions of law but words "... the person offers no explanation..." and "or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory..." clearly suggest that for an explanation to be offered by the person, he must have been issued a notice. After said notice and failure on the part of taxpayer to offer satisfactory explanation, such addition can be made in the income of the taxpayer. For an explanation to be offered by a registered person, he must have been issued a notice without which no explanation could be offered, within the contemplation of Section 111 of the Ordinance of 2001. Reference can be made to the cases of Messrs Ranipur CNG Station and Muhammad Shafique supra."
"10. Non-issuance of separate notice under Section 111 has caused prejudice to respondent- taxpayer as substantial compliance of said provisions 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."
10. This view was further fortified by another judgment passed by another Hon'ble Division Bench of Lahore High Court in a case titled CIR v. Falahud Din Qureshi reported as. 2021 PTD 192 wherein the Hon'ble apex Court relying upon the judgment CIR v. Faqir Hussain supra dismissed the reference of the department on the ground that mandatory notice under section 111 was not issued to the taxpayer. The operative part of the judgment reads as follows: "As the question involved in the instant Tax Reference Application has already been decided in the afore-referred case wherein it has been held that non-issuance of separate notice under Section 111 of the Ordinance, 2001 and failure to confront the taxpayer with proposed addition in order to require him to explain his position before making such addition was without lawful authority. In the present case also, prior separate notice under Section 111 of the Ordinance, 2001 to confront the respondent for explaining his unexplained income and assets has not been issued prior to making of addition of income for tax purpose, therefore, while relying upon the observations made in the afore-referred case law, the instant proposed question is answered in affirmative i.e. against the applicant-department and in favour of respondent-taxpayer. The instant Reference Application is decided against applicant-department."
11. On account of non-issuance of mandatory notice under section 111 by the OIR to the taxpayer, the impugned assessm ent orders are not sustainable in the eye of law in the light of the decisions given by the Hon'ble Lahore High Court referred supra. The CIR(A) has completely ignored these legal aspects and upheld the additions which is not justified and not sustainable in the eye of law.
12. In the presence of the settled legal position discussed above, the impugned orders passed by the officers below are annulled.
13. These appeals filed at the behest of the taxpayer are allowed.