MUHAMMAD SAJID MEHMOOD SETHI, J. This consolidated judgment shall decide instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 ("the Ordinance of 2001"), along with following connected cases, as common questions of law and facts are involved in these cases:-
1. PTR No.333 of 2013 titled Commissioner Inland Revenue, Sialkot v . M/s M.M. Steel Mils S.I.E., Daska
2. PTR No.334 of 2013 titled Commissioner Inland Revenue, Sialkot v. M/s White Gold Steel Mills S.I.E., Daska
3. PTR No.336 of 2013 titled Commissioner Inland Revenue, Sialkot v . M/s Royal Steel Mills S.I.E., Daska
4. PTR No.337 of 2013 titled Commissioner Inland Revenue, Sialkot v . M/s Islam Steel Mills S.I.E., Daska
5. PTR No.103 of 2014 titled Muhammad Shabbir Malik v . The Of ficer Inland Revenue, Lahore & others
6. ITR No.04 of 2016 titled Commissioner Inland Revenue, Sialkot v . Imran Aslam
7. ITR No.55 of 2016 titled Commissioner Inland Revenue, Sialkot v . M/s Muhammad Kamran Butt, Narowal
2. The following questions of law, asserted to have arisen out of the impugned order dated 28.08.2013, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal") , have been proposed for our opinion:-
1. Whether on the facts and in the circumstances of the case, the Tribunal was justified to annul the order passed u/s 221 of the Income Tax Ordinance, 2001 and vacate the order of the First Appellate Authority holding that provisions of the said Section were not applicable in this case in view of Section 120(3) when the order u/s 221 was passed as the mistake was apparent from record as the taxpayer had short paid tax by apply incorrect tax rate?
2. Whether on the facts and in the circumstances of the case, short payment of tax / wrong application of tax rate does not fall in the ambit of mistake u/s 221 in view of the provision of sub Section (3) of section 120 of the Income Tax Ordinance, 2001?
3. Whether the Tribunal has not erred in law by holding that in view of Section 120(3), the provisions of Section 221 are not attracted in case of short payment of tax / wrong application of tax rate, ignoring the fact that cases of short payment of tax and incorrect payment of tax rate have specifically been excluded from the purview of deficiencies for the purpose of Section 120(3)?
4. Whether on the facts and in the circumstances of the case, a complete return furnished by a taxpayer is not a deemed assessment order u/s 120(1) read with section 120(3) of the Income Tax Ordinance, 2001 even if there is incorrect amount of tax payable on taxable income as specified in the return, or short payment of tax payable on the basis of return?
5. Whether on the facts and in the circumstances of the case, the Tribunal was justified to annul the order passed u/s 221 of the Income Tax Ordinance, 2001 and vacate the order of the First Appe llate Authority on technical basis holding that there is no mention of word "return" in Section 221(2) as observed by the Assistant Commissioner Inland Revenue when the Supreme Court in its judgment reported as 95 Tax 353 (S.C.) has held that technicalities should be overlooked as the same do not vitiate the order / notice?
3. Brief facts of the case are that pursuant to amendments brought in Section 113 and Part-III of 2nd Schedule of the Ordinance of 2001, through Finance Act, 2010, respondent-taxpayer was obliged to pay minimum tax. A show cause notice was issued to respondent-taxpayer and already finalized assessment was rectified under Section 221 of the Ordinance of 2001, vide order-in-original dated 08.05.2012, whereby balanc e payable tax of Rs.2,406,450/- was determined. Feeling aggrieved, respondent taxpayer filed appeal before Commissioner (Appeals), but the same was dismissed vide order dated 22.10.2012. Being dissatisfied, respondent-taxpayer preferred second appeal before learned Appellate Tribunal, which was allowed vide order dated 28.08.2013. Hence, this Reference Application.
4. Learned Legal Advisor for applicant-department submits that original return is a deemed assessment order under Section 120 of the Ordinance of 2001, which can be rectified within the contemplation of provisions of Section 221 of the Ordinance of 2001, when the mistake is apparent on the surface of record, but this aspect of the matter has not been thrashed out minutely by learned Appellate Tribunal while passing impugned order , hence, the same is not sustainable in the eye of law. He has referred to Messrs Saindak Metals Ltd. through Managing Director v. Chairman, Federal Board of Revenue and 3 others (2017 PTD 2227).
5. Conversely , learned counsel for respondent-taxpayer defends the impugned order .
6. Arguments heard. Available record perused.
7. Perusal of record shows that respondent-taxpayer filed income tax return for the tax year 2011 by declaring sales at Rs.232,823,500/-, net income at Rs.90610/- and tax paid at Rs.23,645/-, which was taken as deemed assessment in terms of Section 120 of the Ordinance of 2001. Subsequently , minimum tax as per Section 113 read with Part-III of Second Schedule to the Ordinance of 2001 was charged by invoking provisions of Section 221 of the Ordinance, taking it a mistake apparent on the face of record. Undeniably , income tax return for the tax year 2011 was an assessment order as per Section 120(1), therefore, the Commissione r by virtue of and in exercise of the powers contained in sections 120(1A), 121, 122(1), (4), (5) & (5A), and 177 of the Ordinance, subject to the conditions prescribed, can amend or further amend the original assessment instead of invoking provision of Section 221, relevant text is reproduced as under:-
221. Rectification of mistakes.-- (1) The Commissioner , the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner .
The above provision of law only prescribes procedure for rectification of a mistake in an order , which is apparent from the record, and the circumstances under which such exercise can be done. The provision of Section 221, thus, neither creates nor takes away any right or privilege in or from anyone, it rather provides for rectification of mistake(s) apparent from the record. The essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order , it may immediately strike on the face of it. Where an officer exercising such power enters into the controversy , investigates into the matter , reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order , then it will not amount to `rectification' of the order . Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 221 ibid. Reliance can well be placed upon Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 SCMR 687), Commissioner of Income Tax and another v. Messrs Pakistan Petroleum Ltd. and 2 others (2012 SCMR 371), The Taxation Officer / Deputy Commissioner of Income Tax, Lahore v. Messrs Rupafil Ltd. and others (2018 SCMR 1131), Islamuddin and 3 others v. The Income-Tax Officer and 4 others (2000 PTD 306), Commissioner Income Tax v. Gulf Edible Oils (Pvt.) Ltd. (2006 PTD 2854) and Messrs State Life Insurance Corporation of Pakistan, Karachi v. The Commissioner Income Tax, COS.III, Karachi and others (2021 PTD 913).
8. Whereas, the procedure for submission of income tax returns, assessments of the income and amendment of assessments is duly provided in Sections 114, 120, 121 and 122 of the Ordinance of 2001. If the return is complete in terms of Section 114(2), the same is taken as deemed assessment order within the contemplation of Section 120(1), on the day the return was furnished, which reads as under:-
120. Assessments .-- (1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub section (6) of section 1 14) for a tax year ending on or after the 1st day of July , 2002,--
(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon; and
(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.
Finality extended to the return taken to be an assessment order , is subject to sub-section (1A) of Section 120, which reads as under:- (1A) Notwithstanding the provisions of sub-section (1), the Commissioner may conduct audit of the income tax affairs of a person under section 177 and all the provisions of that section shall apply accordingly .
After issuance of audit report, if the Com missioner considers necessary , may amend the assessment as provided under sub section (6) of Section 177 in the following text:-
(6) After completion of the audit, the Commissioner may, if considered necessary , after obtaining taxpayer 's explanation on all the issues raised in the audit, amend the assessment under sub section (1) or sub-section (4) of section 122, as the case may be.
However , when the return is not complete, the Commissioner shall issue notice to taxpayer confronting deficiencies in terms of Section 120(3) and if requirements of notice are satisfied, the return is treated as complete and provisions of Section 120(1) shall apply accordingly . Sub-section (3) of Section 120 is as follows:-
(3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice.
9. The Commissioner is also empowered to amend an assessment order treated as issued under Sections 120 or 121, under Section 122(1) and in case of revised return, under Section 122(3). The Commissioner is also authorized to further amend the amended assessment order under sub-sections (4), (5) & (5A) of Section 122, as per conditions enumerated therein. For ease of reference, relevant sub-sections of Section 122 are reproduced hereunder:-
122. Amendment of assessments. -- (1) Subject to this section, the Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121 by making such alterations or additions as the Commissioner considers necessary .
(2) ....
(3) ....
(4) Where an assessment order (hereina fter referred to as the "original assessment") has been amended under sub-section (1), (3) or (5A), the Commissioner may further amend, as many times as may be necessary , the original assessment within the later of -
(a) five years from the end of the financial year in which the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or
(b) one year from the end of the financial year in which the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer .
(4A)....
(5) An assessment order in respect of tax year, or an assessment year, shall only be amended under sub-section
(1) and an amended assessment for that year shall only be further amended unde r sub-section (4) where, on the basis of "audit or on the basis of definite information" the Commissioner is satisfied that -
(i) any income chargeable to tax has escaped assessment; or (ii)total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or
(iii) any amount under a head of income has been mis classified.
(5A) Subject to sub-section (9), the Commissioner may amend, or further amend, an assessment order , if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.
10. A careful reading of sections 120, 122 and 221 of the Ordinance makes it very clear that the powers under these provisions are not overlapping rather independently clearly intended to operate within their respective compass. Section 221 of the Ordinance relates to the rectification of mistakes which are apparent from the face of record. The words used in the said provision are very specific and purposeful "any order passed by him" and does not include an order which is deemed to have been issued by the Commissioner by fiction of law which is the case for assessment orders under section 120 of the Ordinance. The words "an assessment order treated as issued under section 120" used in section 122(1) of the Ordinance are clearly distinguishable from the words used in section 221 of the Ordinance which says "any order passed by him". The act of passing of formal order by any Officer of Inland Revenue presupposes an application of mind and in most cases adjudication on merits after hearing the parties. Thus, there is a marked distinction between the deemed order and the order passed by the authority after fully applying his mind and giving proper opportunity of being heard to the person. As per well- established principle of interpretation of statutes, every word used in a statute has to be given effect to and no word or provisions of a statute is to be treated as surplus and redundant. Reference can be made to East and West Steambship Co. v. Queensland Insurance Co. Ltd. (PLD 1963 SC 395) and Jalal Muhammad Shah v.
Federation of Pakistan (PLD 1999 SC 395).
Thus, rectification is permissible only to "amend any order passed by him" and not the order treated to have been issued under section 120 of the Ordinance because the deemed order did not amount to an order passed by the authority . Had it been the intention of the legislature, it become necessary to introduce the specific provisions or amendment with certain words to cater the eventuality of deemed order in section 221 that a deemed order under section 120 can be amended in case of a mistake apparent from record. The expression "subject to this section" used in subsection (1) of section 122 ibid further restrict that the deemed order treated to have been issued under section 120 can only be amended under the said section.
11. Under the law, the tax liability of an assessee in the process of rectification cannot be altered on the basis of a consideration, which was not part of the original proceedings and the concept of rectification of mistake to correct the error committed in the assessment order , which is found floating on the surface of the record, may not be beyond the assessment already made. Such mistake should be apparent from the record i.e. floating on the surface and consequently there should not be any controversies or investigation into the matter or reassessment of any evidence in order to decide whether or not such mistake needs to be rectified . The powers under Section 221 are quite limited to the extent of mistakes apparent from record since there are other provisions of law which deal with the authority of department officials with regard to reopening of assessment, revision etc. in cases where the department is of the view that certain income had escaped from the chargeability of tax, but for exercising powers under Section 221 of the Ordinance, there must be a mistake apparently floating on the surface which is so obvious to strike one's mind without entering into long drawn process of reasoning, detailed deliberation etc. Reference can be made to Commissioner Inland Revenue, Zone-I v. Messrs Siemens Pakistan Engg. Co. Ltd. (2017 PTD 903).
12. So far as reference to the case of Messrs Saindak Metals Ltd. supra, is concerned, where the Hon'ble Balochistan High Court, approved the action of the department regarding change of head of income from "income from business" to income from "other sources" by invoking provisions of Section 221 of the Ordinance of 2001, declaring business of taxpayer assessable under Section 39 of the Ordinance of 2001 refusing it to claim benefit of Brought Forward Losses. However , the Hon'ble Apex Court in the case of Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills Ltd., Karachi through Director (2008 PTD 253), while dilating upon provisions relating to rectification in the repealed Income Tax Ordinance, 1979, observed that the expression "mistake apparent on record" must be the error or mistake so manifest and clear which, if permitted to remain on record, might have material effect on the case, however , an error of fact or law, having direct nexus with the question of determination of rights of parties, affecting their substantial rights or causing prejudice to their interest, is not a mistake apparent on the record to be rectified under S.156 of Income Tax Ordinance, 1979; and that the mistake must be of the nature, which is floating on the surface of record and must not involve, an elaborate discussion or detailed probe or process of determination. In these circumstances, the referred case law is not helpful to the case of applicant-department.
13. No doubt, one of us (Muhammad Sajid Mehmood Sethi, J.), while heading a Division Bench, vide order dated 17.04.2019 passed in PTR No.05 of 2014 titled Commissioner Inland Revenue, Zone-I, Regional Tax Office, Sialkot v. M/s. Sardar Steel Mills, S.I.E. Daska , while taking into account the law laid down by Hon'ble Apex Court in the case of Messrs Shadman Cotton Mills Ltd. supra, remanded identical cases, while setting aside the impugned orders, to Appellate Tribunal for decision afresh through speaking order as per law, however , we have reviewed the matter once again and proceeded to settle it.
14. In view of the above, the proposed questions are answered against the applicant-department, in favour of respondent-taxpayer .
This Reference Application, along with connected Reference Applications, is decided against the applicant- department.
15. Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal as per Section 133(5) of the Income Tax Ordinance, 2001.