Through this order, we will decide the instant reference as well as I.T.R. No.41 of 2021. The questions framed for our consideration were the following: i. Whether on facts and in circumstances of the case the learned ATIR has not erred in law and facts by holding that income tax authorities have not discharged its obligation to specify the payments made by the taxpayer on which it was obliged to deduct tax, when the notice by the Assessing Officer categorically lists down all the heads under which payments were to be withheld?
Whether on facts and in circumstances of the case the learned ATIR has not erred in law and fact by holding that the Assessing Officer did not resort to Rule 44(4) of the Income Tax Rules, 2002, whereas a show-cause notice under section 161(1A) of the Income Tax Ordinance, 2001 read with Rule 44(4) of the Income Tax Rules, 2002 was sent on 08.11.2017 followed by a reminder notice on 09-02-2018, for reconciliation and documentary evidence? iii. Whether on facts and in circumstance of the case the learned ATIR has not erred in law and fact that when the taxpayer intentionally and deliberately fails to comply with his obligations under section 161 and rule 44(4) ibid, the only way forward is to hold the amount of withholding tax in default, determinable from the available record, recoverable from taxpayer?
2. The learned counsel for the tax department submitted that proceedings were initiated under section 161 read together with section 174 of the Income Tax Ordinance, 2001 ("Ordinance"). The show-cause notice also required the taxpayer to produce a reconciliation statement within the terms of Rule 44(4) of the Income Tax Rules, 2002 ("Rules"). He contended that the taxpayer failed to furnish the required information under section 174. And the tax department was left with no option but to include the amounts deducted within the demand generated under section 174(2) of the Ordinance, given that despite various opportunities the taxpayer failed to provide the requisite record. He submitted that now the question was clarified by the august Supreme Court recently in Commissioner Inland Revenue Zone-I, LTU v. MCB Bank Limited (2021 SCMR 1325). The law as laid down by MCB read together with Messrs Bilz (Pvt.) Ltd. v. Deputy Commissioner of Income-Tax, Multan (2002 PTD 01) suggests that where a taxpayer fails to produce any record after being asked to do so, an assessm ent can be made under section 161 and recoveries can be affected.
However, where a taxpayer produces record, it is for the tax department to then identify the transactions in relation to which an obligation under section 161 of the Ordinance has not been discharged. He stated that in the instant case as no record was produced and the law as enumerated in Bilz was applied.
3. Learned counsel for the taxpayer on the other hands submitted that the assessment order itself suggests in Para 02 that the taxpayer filed his reply on 01.02.2018 as well as on 08.01.2018. But the tax department concluded that the reply filed by the taxpayer was not in accordance with the format required by the tax department. He stated that it was therefore not the tax department's case that no information was provided. And once information was provided as also observed by the Tribunal at Pages 8 and 9 of the learned Tribunal's order it was for the tax department to identify the individual transactions in relation to which the taxpayer had failed to discharge Withholding obligations under section 161. And as such individual transactions had not been identified, the learned Tribunal correctly set aside the demand generated by the tax department.
4. We find that there is no clarity in the order of the learned Tribunal with regard to the information submitted by the taxpayer. The learned Tribunal has not explicitly stated whether or not the applicant submitted the requisite information and that the learned Tribunal on such basis determined that no demand could be generated in terms of section 161 of the Ordinance. We also find that learned Appellate Tribunal appears to have misunderstood that the demand generated might have been generated in terms of the best judgment rule applicable under section 121 of the Ordinance as opposed to being generated in view of the applicant's failure to discharge withholding obligation under section 161 of the Ordinance. It appears that the learned Tribunal did not take into account the fact that within the show-cause notice the application was also put to notice to file a reconciliation statement under Rule 44(4) of the Rules as it has observed that the tax department did not bother to obtain a reconciliation statement for such purpose, which finding is incorrect in view of the record placed before us.
5. In view of the above, we find that the order passed by the learned Tribunal is not sustainable in the eyes of law. The learned Tribunal being the last fact-finding or ought to have given clear determination with regard to the factual matter before it. We find that the key question before us relates to the obligation of the tax department as well as the obligation of the taxpayer with regard to withholding obligations for purposes of section 161 of the Ordinance, and the manner in which onus shifts from one party to the other depending on whether the taxpayer has filed requisite record within the tax department. We need not reiterate the law as clarified by the august Supreme Court on the issue in MCB. The question of law before us has therefore already been decided in MCB. It is only a question of fact and the manner in which the tax department can generate a demand against a taxpayer that remains to be addressed. For such purpose we find it appropriate to remand the matter back to the Commissioner Inland Revenue. The response filed by the taxpayer is on record as observed in the assessment order dated 28.06.2018. In view the response filed by the taxpayer as well as the available record with the tax department within it database it should not be a problem for the tax department to identify the individual transactions in relation to which the taxpayer has failed to discharge his withholding obligations for purposes of section 161 and. generate a demand in the event that such delinquency is made out from the record.
6. Consequently, let the matter be remanded back to the Commissioner for such determination in view of the law laid down by the august Supreme Court in MCB. Let him afford the taxpayer an opportunity to be heard and then pass a speaking order in accordance with law as clarified in MCB.