MUHAMMAD SAJID MEHMOOD SETHI, J.---Through instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 ("the Ordinance of 2001"), following questions of law, urged to have arisen out of impugned order dated 27.05.2006, passed by learned Income Tax Appellate Tribunal, Lahore Bench, Lahore ("Appellate Tribunal"), have been proposed for our opinion:- I. Whether the impugned notice dated 24.05.2005 and the order of Income Tax Appellate Tribunal ("the ITAT") dated 27.05.2006 amount to. change of opinion from the order of assessment passed by Assessing Officer on 28.09.2002 and, if so, whether the impugned notice dated 24.05.2005 issued under Section 221 of the Income Tax Ordinance, 2001 and the order passed by the ITAT dated 27.05.2006 also under Section 221 is wholly without jurisdiction?
II. Whether in the facts and circumstances of the case, the ITAT could, under garb of Section 221, act as an appellate authority and go beyond the scope of Section 221 of the Income Tax Ordinance, 2001, which section only covers a case of rectification of a mistake?
III. Whether the ITAT in the impugned order dated 27.05.2006 failed to fully appreciate and apply the ratio decidendi of the Hon'ble Supreme Court of Pakistan in the case of CIT v. M/s Food Laboratories 1992 PTD 370?
IV. Whether in the facts and circumstances of the case, the ITAT was legally justified to uphold the order passed by the Taxation Officer and vacate that of the Commissioner of Income Tax without taking note of the provisions of Section 221 of the Income Tax Ordinance, 2001?
V. Whether on the facts and in the circumstances of the case, the ITAT had been correct in treating the notice under section 221 of the Income Tax Ordinance as valid without taking into account the pendency and / or disposal of earlier two different proceedings initiated by the Deputy Commissioner, Income Tax (vide show-cause notice dated 24.03.2003) as well as the Additional Commissioner of Income Tax (vide show-cause notice dated 29/30-05-05) and joined by the appellant company before both the officers?
VI. Whether in the facts and in the circumstances of the case, the ITAT was legally justified to ignore that the proceedings under section 221 of the Income Tax Ordinance, 2001 are not his own motion but verbatim reproduction of the conclusions or inferences drawn by the Additional Commissioner of Income Tax appearing in his Notice under section 122(5A) dated 29/30-05-05 of the Income Tax Ordinance, 2001?
VII. Whether the two previous notices dated 24.03.2003 and 29/30-05-05 are deemed to have been decided and operated as res judicata?
VIII. Whether Section 221 has retrospective effect and applies to an assessment made prior to 30.06.2003?
IX. Whether the ITAT's order is illegal inasmuch as the conclusion of the ITAT that the Refinery of the appellant company was installed after 30.06.2000 is based on conjectures and surmises?
X. Whether under the law, the findings contained in the assessment order can only be disturbed if there is concrete evidence on the record showing that the Refinery had not been installed by 30.06.2000 and if there is no such evidence, whether the ITAT's order dated 27.05.2006 is sustainable in law?
XI. Whether the ITAT was not bound to take into account the certificate of EPC contractors and, the balance sheet of the appellant company in determination of the installation of the Refinery of the appellant company?
XII. Whether the capitalization of liabilities in the balance sheet can be treated as physical installation of plant and machinery in the facts and circumstances of this case and, if not, then whether the ITAT's order is illegal and amounts to misreading of the law and principles upon which the balance sheet of the appellant company are based?
XIII. Whether the ITAT's order is based on totally wrong interpretation and misreading of the balance sheet and contrary to the general principles of accounting and international Standards of Accounting?
XIV. Whether the ITAT was not bound to have the issue of installation of the Refinery decided as a matter of evidence after due probing by the relevant officer?
XV. Whether if the ITAT had any jurisdiction or was desirous of determining this issue of installation of the Refinery, then whether the ITAT was not bound under law to give an opportunity to the appellant company to establish this factual position and, if so, whether the ITAT was not bound to remand the case for determining this instead of coming to the conclusion himself based on no evidence? XVI. Whether the ITAT was legally bound to take and accept the balance sheet in tow rather than impose its own interpretation. on some sections of the balance sheet and reject the other parts of its whims and fancy?
2. Brief facts of the case are that the original assessment was finalized at net loss of Rs.11,030,454,029 on 28.09.2002. This order was rectified twice under Section 156 as 'incorrect calculation of tax under Section 80D of the repealed Income Tax Ordinance, 1979 was made in the original order. Thereafter, Show-Cause Notices ("SCNs") under Section 122(5A) dated 24.03.2003 and 29/30.05.2005 were issued by Deputy Commissioner of Income Tax ("DCIT") and Additional Commissioner of Income Tax ("ACIT") respectively, to which applicant-company submitted replies.
However, another notice dated 24.05.2005 ("impugned notice") under Section 221 of the Ordinance of 2001 was served upon applicant alleging that initial depreciation on buildings and plant and machinery of Rs.195,894,400 and Rs.8,381,636,000 was wrongly allowed. However, as per Rule 5 of the Third Schedule to the Ordinance of 1979, initial depreciation was allowable only if buildings and plant and machinery were installed by 30th June, 2002, whereas additions were made after the said date. The notice was replied, which culminated in passing of order dated 02.06.2005, whereby original assessm ent order passed under Section 62 was rectified, disallowing the initial depreciation. In appeal, the rectification order was held as null and void by the first appellate authority, vide order dated 06.10.2005. Feeling dissatisfied, respondent-department filed appeal before learned Appellate Tribunal, which was allowed vide order dated 27.05.2006. Hence, instant Reference Application.
3. Learned counsel for applicant-assessee submits that impugned order is absolutely illegal and without any lawful authority as impugned notice dated 24.05.2005 and the impugned order passed by learned Appellate Tribunal amount to "change of opinion" from the assessment order dated 28.09.2002. She adds that learned Appellate Tribunal was not justified in treating notice under Section 221 of the Ordinance of 2001 as valid without taking into account the pendency / disposal of earlier two different proceedings initiated by the DCIT vide SCN dated 24.03.2003 as well as ACIT vide SCN dated 29130.05.2005. She further submits that capitalization of liabilities in the balance sheet cannot be treated as physical installation of plant and machinery, therefore, impugned order is based on misreading of available record, and thus, the same is unsustainable in the eye of law. In support of her submissions, she has referred to Commissioner of Income-Tax Company's II, Karachi v. M/s National Food Laboratories (1992 SCMR 687).
4. Conversely, learned Legal Advisor for respondent-department defends the impugned order while relying upon Sh. Muhammad Iftikhar-ul-Haq v. The Income-Tax Officer, Bahawalpur (1966 PTD 259) and Fecto Belarus Tractors Limited v. Pakistan through Ministry of Finance Economic Affairs and another (2001 PTD 1829).
5. Arguments heard. Available record perused.
6. The main submissions of learned counsel for applicant against the proceedings / impugned decision are (i). Change of opinion by Appellate Tribunal; (ii). Proceedings beyond scope of Section 221 in violation of law laid down in case of M/s. National Food Laboratories (supra); (iii).
Proceedings under Section 221 are verbatim reproduction of Notice under section 122(5A) dated 29/30.05.05; (iv). Retrospective I application of Section 221. It is evident from available record that initial depreciation was never claimed by the applicant-company, rather First Year Allowance @ 80% of the "capitalized assets" was claimed, which was not allowed for the reasons recorded in the assessm ent order. The Taxation Officer directed to allow initial depreciation under Rule 5(1)(cc), which provision of the Third Schedule of the Income Tax Ordinance, 1979 was not relevant to the facts of the instant case, because it speaks of 40% depreciation allowance to machinery or plant given on lease by a Schedule Bank, a Financial Institution or Modarba or leasing company duly approved by the FBR.. The case of applicant-company for allowing initial depreciation being against the aforesaid provision of Taw, compelled the Taxation Officer to rectify the order in exercise of power under Section 221. In this regard, neither any fresh evidence was taken into consideration nor investigation was made to formulate basis of rectification. The depreciation having been wrongly allowed under Rule 5(1)(cc) of the Third Schedule to the Ordinance of 1979, had to be rectified because the relevant provision Was Rule 5(1) of the said Schedule' and its requirement had to be satisfied for allowing initial depreciation. An incorrect statement of law is always open to rectification and penitence as held by Hon'ble Apex Court in Karachi Development Authority v. Central Board of Revenue and others (2005 PTD 2131). The Taxation Officer was empowered under Section 221 to rectify the assessment order. Learned legal advisor for respondent-department has referred to letter dated 30.09.2004 to contend that said officer was duly authorized to rectify the mistake. The controversy. whether the assessment order could be rectified and whether Section 221 could be applied retrospectively, has been laid to rest by the Hon'ble Apex Court in the case of Taxation Officer/Deputy Commissioner of Income Tax, Lahore v.
M/s Rupafil Ltd. and another (2018 SCMR 1131).
7. The expression "mistake apparent from the record" as used in Section 221 means that error or mistake is so manifest and clear, which if permitted to remain on record, may have material effect on the case. Conditions precedent to amend an assessment order under Section 122(5A) are different from the conditions laid down in Section 221. For Section 122(5A), the order has to be erroneous insofar as prejudicial to the interest of revenue, whereas Section 221 empowers the Taxation Officer to amend the order to the extent of rectifying the legal or factual mistake apparent from the face of the assessm ent order if mistake is apparent, obvious and floating on the surface of order and can be rectified without long drawn arguments and proceedings for appreciating facts and interpretation of provisions of law. There is no involvement of any fresh investigation.
Mistake was apparent on the basis of facts floating on record and the applicable law. Under the law taxing authority has power to correct a mistake in tax matter resulting in loss of revenue in blatant violation of law after terming such mistake to be apparent on face of record. Any other interpretation of the said provision would be against the spirit of Article 4 of the Constitution guaranteeing equal treatment in accordance with law. Reference in this behalf can be made to Commissioner of Income Tax v. M/s. Pakistan Petroleum Ltd. and others (2012 SCMR 371), Commissioner of Income Tax v. M/s. Eli Lilly Pakistan (Pvt.) Ltd. (2009 SCMR 1279), Commissioner of Income Tax, Karachi v. Abdul Ghani (PLD 2007 SC 308), M/s. National Food Laboratories (supra) and Sh. Muhammad Iftikhar-ul-Haq v. The Income-Tax Officer, Bahawalpur (PLD 1966 SC 524).
8. Learned counsel for the applicant has contended that the concrete evidence was brought on record that refinery was installed by 30.06.2000. Learned Appellate Tribunal has observed that there was no installation certificate of machinery from any independent authority or institution to the effect that plant and machinery were installed by 30.06.2000. The certificate issued by the Contractor on 14.06.2000 did not indicate that the entire machinery was installed. It is also to be noted that addition to the plant and machinery worth Rs.8,687,436,000/- was made after 30.06.2000 to bring the plant in a position to start trial production, which is not a meager part of investment compared with total investment in the plant and machinery. The assessee did not claim any initial depreciation and the investment was shown as capital investment in the form of work in progress as per the method of accounting regularly employed by the assessee. There was no conclusive evidence w say that machinery was actually installed and the building was erected by 30.06.2000. The reasons recorded by the learned Appellate Tribunal that the refinery was installed after 30.06.2000 is based upon concrete documentary evidence, as noted supra. We have already ruled in the afore-going paragraphs that the assessment order was rightly rectified and above findings of learned Appellate Tribunal are based on facts, which could not be displaced by learned counsel for applicant despite arguments at some length. It is well-settled that the findings of facts given by Appellate Tribunal are not open to further scrutiny by this Court in reference jurisdiction when the same have not been shown to be either perverse or against record and this Court has to give opinion in advisory jurisdiction, on the basis of facts as determined by Appellate Tribunal. Reliance is placed upon Messrs F.M. Y. Industries Ltd. v. Deputy Commissioner Income Tax (2014 SCMR 907). andPakistan Match Industries (Pvt.) Ltd. and others v. Assistant Collector, Sales Tax and Central Excise Mardan and others (2019 SCMR 906).
9. Learned counsel for applicant has argued that two previous notices dated 24.03.2003 and 29/30.05.2005 were issued but not finalized. No adjudication on merits was made on the' said notices, therefore, doctrine of res judicata is not applicable to the present case as mere issuance of notice does not bar the authority from either issuing fresh notice or to exercise the power of rectification within the scope of Section 221 of the Ordinance ibid. Reference can be made to DH Travels v. Commissioner Enforcement and others (2018 PTD 657) and Pir Bakhsh Represented by his legal heirs and others v. The Chairman, Allotment Committee and others (PLD 1987 Supreme Court 145).
10. The findings of learned Appellate Tribunal, being in conformity with the law and supported by the case law, are unexceptionable.. Therefore, the questions proposed for our opinion are answered in favour of respondent-department and against the applicant-company. Resultantly, this Reference Application is dismissed.
11. Office shall send a copy of this judgment under seal of the Court to learned Appellate Tribunal as per Section 133 (5) of the Ordinance of 2001.