MIAN TAUQEER ASLAM (CHAIRMAN).--(1). The titled appeal for tax year 2017 filed by the Taxpayer is directed against appellate order No. 1749 dated 14.06.2023 passed by the learned CIR(Appeals-I), Faisalabad. The taxpayer has also preferred miscellaneous application seeking condonation of delay in filing the above said appeal before this Tribunal. Firstly, we take up the taxpayer's application for condonation of delay.
M.A. (Cond) No. 143/LB/2024.
2. Brief facts giving rise to the instant issue are that the appellant filed the second appeal on 19.03.2024 against the impugned order passed by the learned CIR(Appeals), Faisalabad on 14.06.2023 which was uploaded at IRIS on 27-09-2023. The impugned order was served upon the appellant electronically and not physically/manually. Allegedly, the appellant has not received original copy of the impugned order manually however, appellant was acquainted with these proceedings upon information from the recovery officer that an adverse order has been passed against him and accordingly, he has personally visited and approached to the office of the learned CIR(A) for issuing duplicate attested copy of impugned order which was provided to appellant on 12-02-2024. The appellant then filed the second appeal on 19.03.2024 alongwith miscellaneous application for condonation of delay beyond 60-days i.e., the statutory period provided for filing of appeal before ATIR against order of the learned CIR(Appeals).
3. At the very outset of his arguments, learned AR contended that whole appellate proceedings carried out by the learned CIR(A) are illegal & unlawful as the appellant has not adhered to the provisions of section 218 for manual service of the notices & consequent order passed thereon and even not a single notice was served upon the appellant physically as per provisions of section 218 of the Ordinance, 2001. As per counsel, the provisions of section 218 of the Ordinance wherein the electronic service of any notice or order, etc is a secondary but not a primary method of service.
The learned AR assailed that after insertion of Article 10A in the Constitution of Pakistan 1973, "fair trial" and "due process" are fundamental rights of every citizen for determination of his civil rights and obligations. Therefore, learned AR argued that right of appeal is substantive right which cannot be taken away on mere procedural lapses and reliance in this regard was placed on the judgment titled as Colonial Sugar Refining Co. vs. Irving reported (1905 AC 369). It was also submitted by the learned AR that the above principle was examined by the Apex Court in the case of Collector Land Acquisition vs. Mst. Katiji and others (1987) (167 ITR 471). The Apex Court found that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred rather than technicality. To strengthen his contention, learned AR placed reliance on the judgment of Hon'ble Supreme Court of Pakistan reported as (2002 SCMR 343) wherein it was held that where aggrieved party was neither served nor was aware of institution of proceedings affecting his rights, period of limitation provided by law would commence from the date, the aggrieved party became aware of such proceedings or adverse order. At the end, learned AR stated that delay, if any, in filing the titled appeal before this Tribunal may be condoned and appeal may be admitted for regular hearing and its disposal on merits.
4. On the other hand, in rebuttal, learned DR while speaking in support of stance of the department has opposed the request for condonation of delay on the plea that the impugned order had properly been served upon the appellant electronically on 27.09.2023 and there was no need for any further physical/manual service of the impugned order by the learned CIR(Appeals).
5. After perusing the facts of the condonation application, particularly in the light of law and judgments quoted supra, we are of the firm view that the submissions made by the learned AR carries substantial weight and the appellant has sufficient cause as defined in section 131(4) of the Ordinance, 2001 and within the meaning of section 5 of the Limitation Act for filing of second appeal after lapse of sixty days, mentioned above, for the reason that section 218 provides two mandatory modes of service of notice or order etc., that is (1) primary service which always requires personal service on individual; and (2) secondary service which must be either by post, electronic means or other method as prescribed for service of summons under Code of Civil Procedure, 1908 (V of 1908).
The law which encompass service of notice/orders has clear mandate which requires its adherence. To ascertain the spirit of law, the relevant provision of section 218 of the Ordinance, 2001 is reproduced as under: "S.218. Service of notices and other documents.--(l). Subject to this Ordinance, any notice, order or requisition required to be served on a resident individual (other than in a representative capacity) for the purposes of this Ordinance shall be treated as properly served on the individual if--
(a) personally served on the individual or, in the case of an individual under a legal disability or a non-resident individual, the representative of the individual;
(b) sent by registered post or courier service to the place specified in clause (b) 1 [of sub-section (2).] or to the individual's usual or last known address in Pakistan;
(c) served on the individual in the manner prescribed for service of a summons under the Code of Civil Procedure 1908 (V of 1908) [:or]
(d) served on the individual electronically in the prescribed manner.]
(2) Subject to this Ordinance, any notice, order or requisition required to be served on any person (other than a resident individual to whom sub-section (1) applies) for the purposes of this Ordinance shall be treated as properly served on the person if-
(a) personally served on the representative of the person,
(b) sent by registered post or courier service to the person's registered office or address for service of notices under this Ordinance in Pakistan, or where the person does not have such office or address, the notice is sent by registered post to any office or place of business of the person in Pakistan; or
(c) served on the person in the manner prescribed for service of a summons under the Code of Civil Procedure, 1908 (V of 1908)[; or]
(d) served on the individual electronically in the prescribed manner.
(3) Where an association of persons is dissolved, any notice, order or requisition required to be served under this Ordinance on the association may be served on any person who was 4/the principal officer or] a member of the association immediately before such dissolution.
(4) Where section 117 applies, any notice, order or requisition required to be served under this Ordinance on the person discontinuing the business may be served on the person personally or on any individual who was the person's representative at the time of discontinuance.
(5) The validity of any notice issued under this Ordinance or the validity of any service of a notice under this Ordinance shall not be called into question after the return to which the notice relates has been furnished or the notice has been otherwise complied with."
Bare perusal of the above provision of law clearly postulates mode for service of notices and orders, etc but proper service as envisaged in the provision can clearly be assumed only if the primary and substituted modes detailed in clause a, b, c & d of sub-section 1 & 2 of section 218 of the Ordinance, 2001 and are resorted to instantaneously and/or concurrently. The case in hand clearly indicates that no mode of service of order is mentioned in the order of the learned CIR(A).
There is nothing on record which suggests the service of the impugned order on the appellant through any mode so prescribed in clause a, b & c of sub-section 1 & 2 of section 218 of the Ordinance. Since the service of the order is in issue, it is expedient to take into consideration the Rule 74 of the Income Tax Rules, 2002, (Rules) which reads as under: "R.74. Service of documents electronically.--This rule applies for the purposes of the service of documents under the Ordinance or these rules.
(2) Where a person has provided an electronic address, the documents required to be served on the person be considered sufficiently served if sent to that address.
(3) For the purposes of sub-rule (2), a document is considered sent to an electronic address if the sender receives--
(a) in the case of a message sent to a facsimile number, confirmation from the sending facsimile machine that the transmission is sent;
(b) in the case of a message sent to an electronic mail address, confirmation from the server of the recipient that the message has been received[; and
(c) from the Board a digitally signed e-mail acknowledging the receipt of Electronic Income Tax Return or electronic withholding tax statement.
(4) In this rule--
(a) "document" means any notice, order or requisition under the Ordinance, and
(b) electronic address means a facsimile number or electronic mail address."
Bare perusal of above quoted Rule indicates that service of the documents electronically has been structured in the above referred Rule and the primary modes of services as prescribed and provided in section 218 of the Ordinance, 2001 have not been catered in the Rule referred supra.
However, without adverting to language of section 218 of the Ordinance, no adverse presumption as regards proper service can be mounted against the subject merely on the fact that the order has been issued and served. We may observe here that in most of these cases where service through IRIS is opted, there always comes a defense from the subject pleading non-service and/or alleging absence of ability of vigilance in monitoring the issuance/service of notices/orders served through IRIS. More so, Rule 74 of the Income Tax Rules, 2002 also places conditions for reckoning the service as sufficient service if the order is electronically served and these conditions so enumerated in the clause a, b & c of sub-rule 3 of Rule 74 are to be resorted to and complied. In the instant case, no such compliance of section 218 and Rule 74 has been reflected in the record hence, it cannot be presumed that sufficient service has been made as per supra law and Rule. It is not out of context to point out that presumption of service of notice or order cannot be established on record or proved unless simultaneously resort is made to any of the primary modes of service as prescribed in clause a, b & c of sub-section 1 & 2 of section 218 of the Ordinance. In the vogue of above referred provisions of law and in the absence of resorting to any of primary mode for service of notice/order, mere reliance on electronically service/IRIS cannot be deemed to be a service to be treated and equated as proper service in accordance with the law. Significantly, if the notices/orders are not sent by resort to primary and substituted modes so prescribed in section 218 of the Ordinance, the plea of non-service is commonly offered as defense which may or may not be accurate yet since exparte proceedings abridges/ eclipses aggrieved parties right, the provisions of section 218 are to be construed and applied strictly. Section 218 of the Ordinance, 2001 if read in conjunction with Article 129 of the Qanoon-e-Shahadat Order, 1984 and section 27 of the General Clause Act makes it abundantly clear that for accredit qua presumption of service of notice/order, service mechanism fundamentally be brought to be in conformity to clause a, b & c of sub-section 1 & 2 of section 218 of the Ordinance. Otherwise, notices/orders served only electronically on IRIS cannot alone constitute a proper service in terms of section 218 of the Ordinance and Rule 74 of the Income Tax Rules, 2002. We are of the firm opinion that mere placement of notice or order on the IRIS does not constitute valid service within the meaning of section 218 read with Rule 74 of the Income Tax Rules, 2002.
6. Before parting with the order, it is expedient to place reference on the instructions issued by FBR vide Circular No. 1(34)Secy(ITP)/2018-22938-R dated 22.02.2018 in which the Officers were directed to issue 'manual notices' besides 'electronic notices' through IRIS. The relevant paragraph of the said circular is replicated as under:-- ''Section 218 of the Income Tax Ordinance, 2001 describes various modes through which a notice shall be treated as properly served upon an individual or a person. The modes of service stated in section 218 are personal service on the individual or the representative on the person, service through registered post or courier service on the registered office or address and where the person does not have such office or address, to any office or place of business through registered post, to the last known address in Pakistan or in the manner prescribed for service of a summons under the Code of Civil Procedure, 1908. Electronic mode of service is not expressly provided in section 218. However, electronic service is provided as substituted service in rule 20, Order V of the First Schedule to the Code of Civil Procedure, 1908 As per this rule, substituted service is ordered where there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service or for any other reason where the summons cannot be served in the ordinary way.
2. As electronic service of notices is mentioned as a substitute to normal service, service of notices only through electronic means is not likely to be treated as proper service by the appellate authorities It is worth emphasizing that indiscriminate reliance on electronic mode of service also creates problems for taxpayers, as they in certain cases are unable to access electronically transmitted notices and orders. It is, therefore directed that all notices must be served as per any mode of service provided in section 218 and electronic service may be restored to an additional means of service for facilitation of the taxpayer and may not be treated as a legal mode of service."
The record shows that notices and order were issued only through IRIS and no manual service of impugned order was issued or served properly which even hinges against the above circular.
7. Furthermore, in another letter issued by the Federal Board of Revenue vide C. No. 6(4)Rev.Bud/2018 dated 23.07.2018, the same instructions were and are reproduced hereunder:-- "2. Board has received consistent complaints that Unit Officers do not allow adequate time in compliance of the statutory notices. This issue has also been highlighted in the recently held seminar of Pakistan Tax Bar Association. Such legal infirmities generate negative image of the department and ultimately result in adverse decisions in appeal.
3. In order to forestall such practice, it is emphasized that due care must he exercised to ensure that notices, including recovery notices, are properly served on the concerned taxpayers strictly in accordance with the provisions of section 218 of the Income Tax Ordinance, 2001, section 56 of the Sales Tax Act, 1990 and section 47 of the Federal Excise Act, 2005. Moreover, the following instructions must be adhered to for the purposes of taxpayers facilitation;
(i) In addition to electronic service, although legally valid, the notice should be sent through registered post with acknowledgement due.
(ii) Sufficiently time (at least fifteen days)/fair opportunity should be given to the taxpayer, after receipt of notice, to make necessary compliance.
4. These instructions must be observed in letter and spirit."
8. In our considered opinion, the learned CIR(A) was bound to serve the appellate order on the taxpayer not only electronically but also manually through registered post, which has not been done so far. Under the law, issuance of notice or order and its service on correct address is a condition precedent for assumption of jurisdiction, which means a valid and proper service as required under section 218 of the Ordinance, 2001 read with Rule 74 of the Income Tax Rules, 2002 and not otherwise. In the instant case, no evidence has been brought on record that the impugned appellate order was manually issued and physically served upon the taxpayer. Therefore, when the taxpayer has a substantive right of appeal under section 131 of the Ordinance, 2001, such a right cannot be taken away so lightly merely on some technicalities or procedural lapses whatsoever.
We are of the considered view that refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. Further, we added our view that the notion of accrual of valuable right to an adversary after the lapse of limitation in ordinary cases of civil nature is not generally applicable to the matters of revenue. Under these circumstances, we do not feel any hesitation in granting condonation of delay of 174-days in filing of appeal. Resultantly, we hold that as per provisions contained in section 131(2)(d) of the Ordinance, the appeal filed before this ATIR is not barred by time limitation as prescribed in the Ordinance, 2001. Accordingly, application for condonation of delay for filing of appeal is allowed.
ITA No. 1198/LB/2024.
9. Briefly stated, the relevant facts of the case are that the taxpayer, an individual, filed return of income for the tax year 2017 which constituted deemed assessment u/s 120(1) of the Income Tax Ordinance, 2001. Subsequently, case of the taxpayer was selected for audit by the Board u/s 214C of the Income Tax Ordinance, 2001 ("the Ordinance") and intimation whereof was also given to the taxpayer by issuance of notice u/s 177(2) of the Ordinance. Owing to non-compliance, a show cause notice u/s 121(1)(d) read with section 177(1) of the Ordinance was issued confronting the taxpayer with the proposed amendment in income. No compliance was made by the taxpayer and the learned assessing officer finalized the best judgment assessment u/s 121(1)(d) of the Income Tax Ordinance, 2001 vide order dated 16.05.2022.
10. Being aggrieved, the taxpayer filed the first appeal before the learned CIR(A) assailing the order of the assessing officer on a number of legal and factual grounds. The learned CIR(A) rejected the appeal of the taxpayer and confirmed the action of the assessing officer. Being aggrieved, the taxpayer filed the second appeal before this Tribunal on the grounds as set forth in the memo of appeal.
11. The case was fixed for hearing. It is the submission of the learned AR before us that the learned CIR(A) was not justified to uphold the illegal assessment passed by the assessing officer. The learned AR contended that the assessing officer was not justified to pass the exparte order despite joining the assessm ent proceedings by the appellant. It was stated by the learned AR that order passed u/s 121(1)(d) is not a best judgment assessment and was based on mere presumptions, surmises and guesswo rk, hence, not maintainable in the eyes of law. Conversely, the learned DR on behalf of Revenue/Department supported the orders of the authorities below.
12. We have heard both the rival parties at a considerable length and have also gone through the case record and case laws with their able assistance. After perusal of the record produced during hearing proceedings, we find that the first issue involved is the disallowance of Rs. 2,961,644/- on account of cost of goods sold based on presumptions and without any tangible basis. The AR contended that the appellant was never shown intention to make addition of Rs. 2,961,644/- under this head however, in the show cause notice, the assessing officer showed his intention to disallow Rs. 1,457,044/- i.e. 25% of the total claim of Rs. 5,828,175/- on account of cost of goods sold whereas in the assessm ent order, he disallowed Rs. 2,961,644/- under this head without any basis and without confronting the same in the notice. Learned AR contended that the addition under this head is not flowing from the show cause notice, therefore, the same is illegal. He contended that it was held in number of judgments by the higher courts that any addition without confronting to the taxpayer or any order on the ground which was not mentioned in the show cause notice is illegal. In our considered view, the assessing officer has not confronted the appellant with disallowance of Rs. 2,961,644/- in the show cause notice which has also been reproduced in the body of impugned order. It is trite law that an issue which was not confronted in the show cause notice cannot be made basis for a decision. The assessing officer cannot go beyond the charge sheet given in the show cause notice. Be that as it may, impugned action of disallowance under the head of cost of goods sold is not sustainable under the law and is hereby deleted being unlawful and unjustified.
We respectfully agree with the reported judgment of Hon'ble Supreme Court of Pakistan in case of "Collector of Central Excise and Land Customs vs. Rahim Din" reported as (1987 SCMR 1840)" which undoubtedly makes it clear that the issue which was not framed in the impugned show cause notice cannot be adjudged through an adjudication and appellate order. The relevant excerpt of the said judgment is reproduced as under:-- "However, we are of the opinion that it is not necessary to determine this question of law in the facts of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show cause notice, the order was palpably illegal and void on the face of it."
13. The next issue involved is to assess the contractual receipts of Rs. 2,257,338/- under the normal tax regime, which were declared by the appellant under final tax regime. It was contended by the AR that the assessing office changed the nomenclature of the receipts, without any basis and without supporting any provisions of law. The assessing officer assessed the contractual receipts under the normal tax regime on the plea that the appellant failed to provide the copies of tax deposit challans. The treatment meted out by the assessing officer was without examination of data already available with the department in shape of tax deposit challans. The AR produced the tax deposit challans before us for examination. We have given consideration to the assessment order and the records produced by the AR, we find that appellant provided the copies of tax deposit challans on account of tax deductions under this head and from perusal of the same, it reveals that tax deduction was made u/s 153(1)(c) and duly deposited into government treasury.
Therefore, there was no lawful justification for the assessing officer to treat the contractual receipts under normal tax regime instead of final tax regime as declared by the appellant. Thus, the charging of tax under normal law as meted out by the assessing officer is hereby deleted.
14. At the end, learned AR assailed that no credit of taxes paid at Rs. 282,337/- was given despite submissions of tax payment proofs. In support of his stance, learned AR produced copies of withholding challans. After examining the tax payment proofs submitted by the AR, we hold that the appellant is entitled for the credit of taxes paid.
15. In view of what has been stated, particularly in the light of record and legal propositions discussed hereinabove, the titled appeal is accepted and both the impugned orders of the assessing officer as well as of the learned CIR(A) are cancelled.
16. The instant appeal filed by the taxpayer is disposed of in the manners as indicated above.