2022 P T D 1889
[Balochistan High Court
]
Before Zaheer- ud-Din Kakar and Muhammad Aamir Nawaz Rana, JJ
COMMISSIONER INLAND REVENUE ZONE -I REGIONAL TAX OFFICE,
QUETTA
Versus
Messrs BALOCHISTAN ONYX DEVELOPMENT CORPORATION LTD.
Income Tax Appeal No.01 of 2014, decided on 22nd August, 2022.
Income Tax Ordinance (XLIX of 2001) ---
----Ss.122 & 133---Audit, selection for ---Definite information ---Pre-condition--- Case of
respondent/taxpayer was selected for audit by Commissioner Inland Revenue ---Validity ---
Adjud icating authority i.e. Commissioner Inland Revenue in violation to legal provision as it
stood then on 01- 07-2009 selected case of respondent / taxpayer for audit taxpayer and
subsequently under S.122(1) & (5) of Income Tax Ordinance, 2001 created an addit ional tax
liability ---In order to initiate such like proceedings "definite information" was required---
Merely on the basis of presumptions and assumptions proposed income was supposed which
was against the mandate of S.122(5) of Income Tax Ordinance, 2001- --Without any definite
information within the scope of S.122(5) of Income Tax Ordinance, 2001 proceedings were
initiated and merely on the basis of assumptions the liability was created ---High Court
declined to interfere in the matter as Appellate Authorit y and Appellate Tribunal Inland
Revenue rightly recorded findings against the decision of adjudicating authority--- Reference
was dismissed in circumstances.
Messrs Chenone Stores Ltd. v. Federal Board of Revenue 2012 PTD 1815;
Shahnawaz's case 2011 PTD 15 58 and CIR v. Khan CNG and Filling Station 2013 PTD 884
rel.
Sohail Ansari assisted by Sanaullah Ababki, Additional Attorney General for
Applicant.
Sharjeel Haider for Respondent.
Date of hearing: 1st August, 2022.
JUDGMENT
MUHAMMAD AAMIR NAWAZ RANA, J .----Through this Income Tax Reference,
following questions of law have been brought before this Court by the Commissioner Inland
Revenue Zone- I, Regional Tax Office, Quetta (applicant):
Questions of law:
(1) Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland Revenue was justified in holding that the CIR did not have the jurisdiction to select the case for audit under section 177(2) in view of the amendment made in Finance (Amendment) Ordinance, 2009 dated 28- 10-2009.
(2) Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland Revenue was justified in holding that the CIR/DCIR may amend the assessment under section 122(1), (4)/(5) after fulfilling the requirement of law, subject to definite information within the meaning of section 155(5) read with section 122(8) of the Income Tax Ordinance, 2001.
Facts:
2. The respondent/taxpayer is a private limited company having the business of
extraction and sales of marbles. The respondent/taxpayer had filed return of income for the year 2009 declaring net income of Rs.726,812/ -. The case was selected for audit by the
Commissioner Inland Revenue Zone -I on 05.04.2011 and subsequently order was passed
under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 (same shall be referred hereinafter "the Ordinance") through which liability of Rs. 22,289,727/ - was
created against the respondent. For ready reference the operative portion of the same is reproduced herein below:
"In th e light of the above discussion the deemed assessment order under section
120(1)(b) of the Income Tax Ordinance, 2001 warrant amendment under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 as under:
Income declared by the taxpaye r Rs.726812/ -
Addition proposed
1. No deduction of withholding taxes as
mentioned above. Rs.1,480,520/ -
2. Deprecation as discussed above. Rs.2,525,000/ -
3. Trade discount as mentioned above Rs.1,884,800/ -
4. Addition under sections 21(c) and 21(L) on
account of payments mad to suppliers and
services provided as discussed above. Rs.57,067,803/ -
Total Proposed Income Rs.63,684,935/ -
Tax on the proposed income @ 35% Rs.22,289,727
Less Tax paid Rs. 254,384
Balance tax payable Rs.21,935,343/ -
3. That the said order was challenged by the taxpayer before learned Commissioner
Inland Revenue (Appeals -III), Karachi @ Hyderabad. The appeal so filed by the taxpayer
was allowed vide order dated 16.02.2012 and the order passed by adjudicating authority was
set-aside, against the said order the department filed an appeal before the Appellate Tribunal
Inland Revenue (Pakistan) Karachi Bench, Karachi but same was also dismissed vide order dated 30.11.2013, hence this Reference under s ection 133 of the Ordinance.
• Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland Revenue was justified in holding that the CIR did not have the jurisdiction to select the case for audit under section 177(2) in view o f the amendment made in
Finance (Amendment) Ordinance, 2009 dated 28- 10-2009.
In order to resolve the referred question of law, the legislative history of section
177(2) has to be kept in mind from the inception. From 13.09.2001 to 30.06.2002 Commissioner enjoyed the power to select a taxpayer for audit on the basis of an objective
criteria supplied in subsection (1)(a) to (d) of section 177 of the Ordinance (as it stood on that date). The Central Board of Revenue (subsequently stood as Federal Board of Re venue)
enjoyed power under section 177(3) of the Ordinance to appoint a firm of chartered accountants to conduct an audit of the income tax affairs of any person. Power to select a taxpayer for audit, however, mainly lay with the Commissioner. During the period
01.07.2002 to 29.06.2004, the same position continued except with the insertion of sections
177(1- A) and (1 -B) through Finance Ordinance, 2002 and 2003 which further streamlined
the process of audit by highlighting that the audit be conducted once the taxpayer is selected for audit and in case of discrepancy the assessment be amended.
Through Finance Act, 2004 CBR was specifically given the power to lay down a
criteria for selection of any person for audit of its tax affairs. Additionally, the Commis sioner
could select a person for audit on the criteria framed by the CBR or according to the statuary selection criteria given in section 177(4)(a) to (d). This position continued till 30.06.2009; through Finance Act, 2009 the Commissioner enjoyed the powe r to select a person for audit
according to the criteria laid down by the CBR or according to the statuary criteria under section 177(4)(a) to (d) of the Ordinance; relevant to point out here section 177(8) (as it was on 01.07.2009) states that CBR may appoint a firm of chartered accountants to conduct audit of the income tax affairs of a person selected for audit by the Commissioner or by the Board of Revenue. Under Finance (Amendment) Ordinance, 2009 and 2010 the word "select" was dispensed with in sectio n 177(1) and the Commissioner was vested with the power to call for
record of any case for conducting the audit of the Income tax affairs of any person. More importantly, the statuary criteria for selecting a taxpayer for audit by the Commissioner (provide d in section 177) was also deleted, however, section 177(8) (as it stood on
28.10.2009) provided that Board may appoint a firm of Chartered Accountants or a firm of Cost and Management, Accountants to conduct the audit of the income tax affairs of any person or classes of person selected for audit by the Commissioner or by the Board (no
criteria of selection is provided in the said section). On 01.07.2010 under Finance Act, 2010 the status of section 177 remained largely the same except the introduction of the first proviso of section 177(1)(a)(b) which provided that in case records are called from a tax payer as opposed to a "person" in section 177(1), the Commissioner will record reasons in writing for doing so. The words "selected for audit" under section 177(8) were removed.
Finance Act, 2010 also introduced section 214C in the Ordinance. This section reintroduced
and reinforced the concept of selection and empowered FBR to select a person for audit on
the basis of computer ballot, which is either random or parametric; section 214C further provides that once the taxpayer is selected for audit, the said audit is to be conducted as per procedure provided under section 177 and all the provisions of the Ordinance, except the first proviso of subsection (1) of section 177 of the Ordinance shall apply.
4. Since in this Reference the tax return of taxpayer pertaining to tax year 2009 are in
question so we have to see what was the legal position of section 177 in the said year; from 13.09.2001 till 27.10.2009, the said section clearly provided the taxpayer had to be selected
for audit by the Commissioner on the basis of statutory criteria developed by the CBR or on the basis of statuary criteria under section 177(4).
5. In view of the judgment passed in Shahnawaz ca se
2, the Ordinance applies in relation
to the tax year as it stands on the first day next succeeding the last day of the tax year. Thus, in relation to the tax year 2009, section 177 is to be applied as it stood (as part of the 2001 Ordinance) on 01.07.2009 and it is on that basis the taxpayer can be selected for audit.
Admittedly from 13.09.2001 till 27.10.2009, the said section clearly provided that a
taxpayer had to be selected for audit by the Commissioner on the basis of statutory criteria
developed b y the CBR or on the basis of statuary criteria under section 177(4) (subsection
(4) of section 177 was omitted through the Finance Act, 2010) so in such view of the matter
with regard to law applicable in the year 2009, the selection made by the Commissioner Inland Revenue Zone -I regarding the returns of income for the year 2009 so filed by the
taxpayer, the same has rightly been declared illegal and without lawful authority by the
Commissioner Inland Revenue (Appeals -III) as well as by the Appellate Tribun al Inland
Revenue (Pakistan) so this law question is decided against the applicant.
Whether on the facts and circumstances of the case, the Learned Appellate Tribunal
Inland Revenue was justified in holding that the CIR/DCIR may amend the assessment under section 122(1), (4)/(5) after fulfilling the requirement of law, subject to definite information within the meaning of section 155(5) read with section 122(8) of the Income Tax Ordinance, 2001"
That adjudicating authority i.e. Commissioner Inland Revenue Zone -I in violation to
the legal provision as it stood on 01.07.2009 selected the case for audit of the taxpayer and
subsequently vide order under section 122(1) read with section 122(5) of the Ordinance
created a tax liability of Rs.22,289,727/ -. In ord er to initiate such like proceedings "definite
information" was required but it is apparent from the orders of the fora below that merely on the basis of presumptions and assumptions proposed income was supposed which is against
the mandate of section 122( 5) of the Ordinance. In this regard reliance is being place upon
the case titled as CIR v. Khan CNG and Filling Station
3. The relevant excerpt is reproduced
as under:
"12. The term "definite information" in section 122(5) of the Ordinance is not just any
information but definite enough to satisfy the concerned officer that income chargeable to tax of an assessee has escaped assessment or total income of an assessee has been under -assessed, etc. "Definite" means indisputable, known for certain,
explicitly precise, clearly defined, leaving nothing to implication, established beyond
doubt and cut and dried. Definite information is, therefore, that select information
which f alls within the restrictive meaning of the word "definite" explained above. The
law also provides that definite information must be acquired from audit or otherwise. Applying the interpretative tool/doctrine of ejusdem generis which literally means "of the same kind or class" and the doctrine provides that where general words follow an
enumeration of two or more things, they apply only to persons or things of the same
general kind or class specifically mentioned the word "otherwise" appearing next to
the wo rd "audit" in section 122(5) of the Ordinance on the basis of the above doctrine
means a methodology akin or similar to audit where some determined, final, certain, indisputable, calculated information is picked up from any available record of the assessee. "Otherwise, " therefore, does not mean putting information through further process of calculation by the department. The word "acquired" used in section 122(5) of the Ordinance which literally means to "gain possession of" in the present context connotes that the information already exits and has to be picked up from the records
or documents. This acquisition provides no margin for incomplete, imprecise and inexact information to be completed through further calculation or processing as that would not be acquiring information but analyzing it.
13. Reading of section 122(5) of the Ordinance, therefore, shows that information in a definite, final and conclusive form must already exist in some document or record at the time of acquisition. Any information wh ich is incomplete or requires further
processing falls outside the domain of definite information and can best pass for a departmental opinion, judgment, guesstimate, approximation or estimate".
6. The perusal of order under section 122(1) read with section 122(5) of the Ordinance
passed on 01.12.2011 by the adjudicating authority reveals that without any definite
information within the scope of section 122(5) of the Ordinance, the proceedings were initiated and merely on the basis of assumptions the liabil ity was created. The Commissioner
Inland Revenue (Appeals) and Appellate Tribunal Inland Revenue have rightly recorded findings against the decision of adjudicating authority. The said decisions are in consonance with the fiscal and legal interpretation of referred sections therefore do not require
intervention of this Court. Consequently, the legal issues are decided against the applicant and Reference is answered against the applicant by upholding the impugned decisions of the
fora below.
Office shall send a copy of this judgment under seal of the Court to learned Appellate
Tribunal as per section 133(5) of the Income Tax Ordinance, 2001.
MH/142/Bal. Reference dismissed.This judgment is reproduced from a publicly available source for informational purposes and does not constitute legal advice. If you believe this listing contains an error,
let us know.