Titled appeal has been filed by the appellant/taxpayer against the order-in-appeal No. 1969 dated 30-03-2023 passed by the learned CIR (Appeals-I), Faisalabad for the Tax Year 2021, on the grounds as set forth in the memo of appeal.
2. Briefly, the facts necessary for adjudication of the appeal at hand are that the taxpayer is registered as an individual with Regional Tax Office, Faisalabad and deriving income from running a manufacturing unit of paper cone under the name & style of M/s. Nadeem Paper Cone. The taxpayer filed return for the tax year 2021 u/s 114(1) of the Income Tax Ordinance, 2001 declaring net income at Rs. 5,733,371/- and gross sale for the year in question was declared at Rs. 52,288,147/-.
The taxpayer is also registered under the Sales Tax Act, 1990. Return of income for the tax year 2021 was examined by the ACIR and by considering the taxpayer as a 'prescribed person' under sub- section (7) of section 153, a notice for reconciliation was issued under Rule 44(4) of the Income Tax Rules, 2002 and found non-complied with therefore, show cause notice dated 27-12-2021 under section 161(1A) of the Income Tax Ordinance, 2001 for recovery of tax worth Rs. 5,140,474/- alongwith default surcharge of Rs. 616,856/- (aggregating to Rs. 5,757,330/-) was issued. On account of non- compliance to the notices, the taxpayer was proceeded in absentia and the ACIR passed exparte order dated 29-09-2022 under section 161/205 of the Income Tax Ordinance, 2001.
3. Accordingly, the taxpayer being discontented by the order of the ACIR, filed the first appeal before the CIR(A) who dismissed the appeal vide order dated 30-03-2023 without examining the legal & factual aspects of the controversy in its true perspective. Again being aggrieved, the taxpayer has come up in further appeal before this Tribunal.
4. At the very outset of his arguments, learned counsel raised legal objection assailing very basis of instant case that the exparte order has been passed by the assessing officer on the date i.e. 29- 09-2022 which was not fixed for hearing therefore, order is not sustainable under law. It is contended by the AR that there was no lawful justification for the learned CIR(A) to maintain the illegal demand created by the assessing officer. Learned counsel assailed that the assessing officer has erred in law to pass the order under section 161 by considering the taxpayer as a "Prescribed Person" under section 153(7) of the Income Tax Ordinance, 2001. The sales of the taxpayer were remained below the threshold of Rs. 100 Million, therefore, the taxpayer does not fall in definition of "prescribed person". Learned AR strongly agitated that the CIR(A) was not justified to confirm order of the assessing officer without considering legal issue raised by the taxpayer therefore, impugned order of CIR(A) is also not sustainable under the law. In support of his stance, learned AR produced copies of Circular No. 03 of 2020 and income tax returns for the previous tax years. On the strength of these assertions, learned AR seeks annulment of the impugned orders passed by the authorities below.
5. On the other hand, the learned DR appearing on behalf of department has supported the orders of the authorities below and contended that the tax u/s 161/205 has rightly been charged by the assessing officer however, failed to put-forth any explanation to justify any deviation from the arguments of the learned AR for the taxpayer.
6. We have heard both the rival parties at a considerable length and have also gone through the case record with their able assistance. Before, we discuss the arguments addressed at the bar, it is worthwhile to reproduce the relevant provisions of sub-section (7) of section 153 of the Income Tax Ordinance, 2001 (as amended vide Finance Act, 2020 applicable w.e.f 1st July, 2020 relevant to the tax year 2021) having immense importance to resolve the controversy, which read as under:-- "Sub-section (7) of S. 153. In this section,--
(i) "Prescribed Person" means--
(a) the Federal Government;
(b) a company;
(c) an association of persons constituted by, or under law;
(d) a non-profit organization;
(e) a foreign contractor or consultant;
(0) a consortium or joint venture;
(g) an exporter or an export house for the purpose of sub-section (2);
(h) an association of 'persons, having turnover of one hundred million rupees or above in any of the preceding tax years;
(i) an individual, having turnover of one hundred million rupees or above in any of the preceding tax years;
(j) a person registered under the Sales Tax Act, 1990 having turnover of one hundred million rupees or more in any of the preceding tax years;
(k) a person deriving income from the business of construction and sale of residential, commercial or other buildings (builder); or (I) a person deriving income from the business of development and sale of residential, commercial or other plots (developer).
From bare perusal of clause (j) of sub-section (7) of section 153 of the Income Tax Ordinance, 2001, it becomes clear and obvious that a person registered under the Sales Tax Act, 1990 having turnover of one hundred million rupees or more in any of the preceding tax years is a prescribed person (withholding agent for the purposes of withholding tax under section 153) and shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division-III of Part-III of the First Schedule however, in the instant case, the assessing officer has erred in law to pass the order under section 161 by considering the appellant as a "Prescribed Person" under section 153(7) of the Ordinance, 2001 ignoring the amended provisions of clause (j) of section 153(7) of the Ordinance. Perusal of the record produced before us clearly reveal that sales of the appellant were below the threshold of Rs. 100 Million in any of the preceding tax years therefore, the appellant does not fall in the definition of "prescribed person". Since, turnover of the appellant remained below the threshold of one hundred million rupees to become a 'prescribed person' therefore, neither the appellant was a withholding agent nor legally required to deduct tax under section 153 of the Income Tax Ordinance, 2001.
7. The next legal issue raised by the learned AR is about exparte order passed by the assessing officer on the date which was not fixed for hearing. The submissions made by the learned AR of the taxpayer have substance. After perusal of the assessment order, there is no denial on the part of the learned DR that notice for hearing was given on 19-09-2022 for 28-09-2022 while the exparte assessm ent was framed on 29-09-2022 which in our opinion is not legally sustainable. The exparte assessm ent was made on 29-09-2022 which is the date when neither case was fixed for hearing nor any notice regarding appearance was issued to the taxpayer. The exparte action of the assessing officer was not justified as no notice was given to the taxpayer for a subsequent date on which the assessm ent order was passed. The assessing officer has acted illegally in making exparte assessm ent on a date which was not fixed for hearing without furnishing the taxpayer with requisite hearing notice. The finalization of the assessment on the date other than the one fixed for compliance is illegal and not tenable under the law. Since, factum of passing the exparte assessm ent has been made on a subsequent date qua the defaulted date, therefore, exercise of powers by the assessing officer on 29-09-2022 was not sustainable in law corollary of which would be annulment of the assessm ent order.
8. In view of what has been stated above, we are inclined to hold that the order passed by the assessing officer u/s 161/205 is illegal and not sustainable in the eyes of law. Accordingly, order of the assessing officer in this regard is cancelled and that order passed by the learned CIR(A) is vacated.
9. Appeal succeeds in the above manners.