DR. MUHAMMAD NAEEM, ACCOUNTANT MEMBER. This appeal has been instituted by the Revenue against the impugned appellate order dated 13.09.2013 recorded by the learned CIR(A) Lahore wherein the learned first appellate accepted the appeal of the taxpayer and cancelled the order passed by the taxation officer under section 122(5A) of the Income Tax Ordinance, 2001.
2. Summary of the facts, relevant to the disposal of present appeal, are that the taxpayer in this case is an individual derives income from manufacturing of motor cycles parts. Original return for the tax year 2007 was filed declaring income at Rs.495,000/-. Later on, the taxpayer revised his return of income by declaring the same income but manufacturing expenses were declared at Rs.5,545,000/- purchases at Rs.34,750,312/- and claimed refund at Rs.1,093,804/-. During the course of refund processing proceedings, it was observed by the assessing authority that there is a difference between the purchases declared in income tax return with that declared in the sales tax returns. In response to the notices issued, the taxpayer submitted replies and also challenged the jurisdiction of Enforcement and Collection. However, the A stance of the taxpayer was turned down and his refund request was rejected through order dated 30.06.2010 passed under section 170(4) of the Income Tax Ordinance, 2001, on the ground that the taxpayer failed to reconcile the difference in purchases. The taxpayer filed appeal before the learned CIR(A) who accepted the same and ordered issuance of refund which was ultimately issued by the department on 13.05.2011.
3. Subsequently, the Additional Commissioner, observed that the deemed assessment was erroneous insofar as prejudicial to the interest of revenue and issued show-cause notice under section 122(9) to make amendment of assessment under section 122(5A). In response to the show- cause notice, the taxpayer submitted detailed replies which were considered and rejected by the Additional Commissioner and passed the amended assessment order under section 122(5A) on 30.06.2013 and treated the alleged difference of purchases, as declared in the income tax return vis a vis declared in sales tax returns, as unexplained source of investment in terms of under section 111(1)(d)(i) and made the addition of Rs.10,374,476/-. WWF was also charged at Rs.207,489/-, as a result income for the year under consideration was re-computed at Rs.10,869,476/-. Being aggrieved, the taxpayer went in appeal before the learned CIR(A) who by virtue of impugned appellate order dated supra accepted the stance of the taxpayer and cancelled the order passed by the Taxation Officer under section 122(5A) of the Ordinance. The department feels discontented with the order of the learned CIR(A) filed appeal before this forum.
4. The learned DR, while appearing on behalf of the Revenue, has strongly challenged the order of the learned CIR (A) and has supported the order of the Taxation Officer. He has contended that there was no justification of the learned CIR(A) to cancel the assessment when the order was passed by the authority who has lawful jurisdiction over the case of the taxpayer. He has further contended that the learned CIR(A) was not justified to hold that the declaration filed by the taxpayer under tax amnesty scheme 2008 covered the unexplained income. To conclude his arguments, he has prayed for acceptance the appeal of the department and vacation the order of the learned CIR(A). Conversely, the learned AR has supported the order of the learned CIR(A) for the reasons recorded therein and has prayed for maintenance of the same.
5. We have heard the rival arguments of both the parties and perused the available record and have benefitted the case laws cited at the bar. After due consideration, we find that no exception can be taken to the treatment as accorded by the learned CIR(A) which is found fair and reasonable in the ambient circumstances of the case. The learned CIR(A) has rightly cancelled the amended assessm ent order passed by the assessing authority for the following reasons:- a. The amended assessm ent order was passed by the authority who does not have lawful jurisdiction over the case of the taxpayer. The taxpayer in the present case derived income as manufacturer of automobile spare parts and also from 09.09.2010 had become Director in M/s Bright Star Engineering Works (Pvt.) Limited. As per jurisdiction order, the powers to proceed on the case of the taxpayer vests with Zone-VIII, RTO-II, Lahore, whereas the amended assessment order was passed by Zone-X, RTO-II, Lahore. The concerned Commissioner Zone-VIII had duly clarified through his letter dated 29.06.2013 that Zone-X, does not hold jurisdiction over manufacturer of automobile and the individuals who are Directors in a company. Furthermore, Zone-VIII, having jurisdiction over the case had also initiated proceedings for audit under section 177 and passed consequential order pertaining to tax year 2013. Therefore, we are inclined to hold that the impugned order was passed by an authority who does not have lawful jurisdiction over the case of the taxpayer. b. The amended assessm ent order was passed by the assessing authority on a day which falls on a public holiday. Perusal of the record reveals that the case of the taxpayer was fixed for the first time on 29.06.2013 and amended assessment order was passed on 30.06.2013 when both these days are public holidays. This issue had already been decided by this Tribunal in a case reported as 2015 PTD 408. Relevant portion of the said decision reads as under:- "13. We have considered arguments of both the sides and we are of the opinion that principles of passing of judicial orders have been settled in the aforesaid judgment of the Tribunal. Learned DR was specifically asked to provided copies of rules, if any, to justify that judicial orders can be passed on a closed holidays. He could not do it. In our opinion the order passed on a closed holiday is not a lawful order and it is not maintainable. It is not understood as to what was the hurry which forced the taxation officer to pass an order on a closed holiday. In fact he did not take due care and caution while making the assessment. In the light of foregoing discussion we hereby hold that the impugned assessm ent order passed on close holiday was not lawful order and the same is hereby annulled."
(c) The assessing authority passed the order under section 122(5A) and made addition by resorting to the provisions of clause (i) of subsection (1) of section 111 of the Income Tax Ordinance, 2001. The relevant provision of law is reads as under:-
111. Unexplained income or assets. --- (1) where --- (a)...
(b)...
(c)...
(d) any person has concealed or furnished in accurate of income including ---
(i) the suppression of any production, sales or any amount chargeable to tax; or As per above provision of law, the addition under section 111(1)(d)(i) could be made if the taxpayer concealed / furnished in accurate income, suppressed any production, sales or any amount chargeable to tax. However, in the present case, the assessing authority made addition of the amount of alleged suppressed purchases which obviously does not falls under the segment of income as provided under clause (i) of subsection (d) of section 111, hence, the addition is not sustainable.
(d) The assessing authority made addition under section I I1(1)(d) while making amendment of assessm ent pertaining to tax year 2007, whereas clause (d) was inserted through Finance Act, 2011, i.e. applicable from tax year 2012. The assessing officer given retrospective effect to the said provision of law to make addition under clause (d) which is not permissible under the law as clause (d) was not specifically made applicable with retrospective effect. This issue has already been decided by this Tribunal in a plethora of judgment including reported as 2013 PTD 1557: Hence, the addition is not sustainable.
(e) After issuance of a notice under section 122(9), no specific notice under section 111(1)(d) of the Ordinance was ever issued to the taxpayer during the proceedings and the amended assessment order is silent in this respect although notice issued under section 122(9) wherein the assessing officer has shown his intention regarding such addition but in our view the assessing officer cannot bailout himself from the statuary obligation of confronting and issuing a specific notice for making additions under section 111 which is required under the law. Reliance in this behalf is placed on the case law reported as 2015 PTD (Trib.) 2042 and in a long line of decisions it was consistently held by the Tribunal that the issuance of a specific notice under section 111 is a pre-requisite for making addition under section 111(1). Perusal of the record reveals that no such notice was ever issued in the case which renders the whole proceedings for making such addition under section 111(1)(d) as void and illegal. We are not convinced with the contention of the learned DR that there is no need to issue a specific notice under section 111 as the taxpayer has duly confronted through notice issued under section 122(9). In the case reported as 2013 PTD (Trib.). 900, this Tribunal has held as under:- "We are of the considered view that addition under section 111(1) (b) cannot be made without making inquiry. Firstly the Assessing officer will have to ask the taxpayer to submit explanation regarding nature and source of the amount and after considering the explanation, than addition under section 111(1) (b) will be made.....
Finally, this issue has been decided by the Hon'ble Division Bench of the Lahore High Court in the case reported as 2019 PTD 1828, wherein through Departmental Reference, following question of law was proposed to be answered by the Hon'ble High Court:-- "Whether there is a need to issue a separate notice for addition under section 111 when the law only requires that if the explanation offered by a taxpayer is not satisfactory or no explanation is offered by the taxpayer, the unexplained income shall be included in the person's income chargeable under the head "income from other sources" after confronting the taxpayer under section 122(9) of the Income Tax Ordinance, 2001?"
Hon'ble High Court was pleased to answer the above question of law in "AFFIRMATIVE". While concluding the judgment, the Hon'ble High Court was pleased to hold that:- "11. So far as argument of learned Legal Advisors-of applicant-department, with reference to the cases of Abdul Ghani and Zamindara Paper and Board Mills supra, that mere substance of notice is to be seen and mentioning of Section 111 with its all ingredients along with notice under Section 122(9) read with Section 122(5A) fulfills the conditions, suffice it to say that law mandates the issuance of separate notice / explanation within the contemplation of Section 111, therefore, same cannot be made redundant."
In view of the settled legal position, the impugned addition under section 111(1)(d)(i) is not maintainable.
6. In view of the above observations made by us and case law relied upon, we are inclined to hold that the amended assessm ent order passed by the assessing authority was not sustainable in the eye of law which has rightly been cancelled by the learned CIR(A), therefore, we find no reason to intervene his appellate order which is accordingly maintained.
7. Resultantly, the departmental appeal fails.