ISLAMABAD: Taxpayers have expressed satisfaction over the orders of Appellate Tribunal Inland Revenue (ATIR) that is adjudicating legal issues on merits without being influenced by the exaggerated tax demand raised by the Federal Board of Revenue’s (FBR) field formations.
In a new order, a Division Bench of the Appellate Tribunal Inland Revenue has held that where during the audit proceedings, books of accounts required to be maintained under section 174 of the Income Tax Ordinance read with Income Tax Rules are not produced it is mandatory to frame best judgment assessment under section 121(1)(d) instead of assessment under section 122(1) which requires definite information.
When contacted for background facts and comments, Shahid Jami, Chairman of Tax Education Committee of the Tax Institute of Pakistan observed that it is a landmark judgment of the Appellate Tribunal Inland Revenue wherein a very unique legal proposition has been discussed and adjudicated for the first time.
Jami observed that it is heartening that the Appellate Tribunal being the first forum of interpretation of law independent of the department is adjudicating the legal issues on merits without being influenced by the exaggerated tax demand raised.
He explained that once a case is selected for audit either by the Board through computer random ballot or by the Commissioner, audit proceedings are initiated by issuing notice under section 177(1) of the Income Tax Ordinance, 2001, calling for record which a taxpayer is required to maintain as per section 174(1) read with Income Tax Rules, 2002. Law provides that if the record is produced then an audit report shall be issued under section 177(6A) and thereafter a show cause notice and amendment order shall be passed under section 122. Whereas, section 177(10) contains the overriding provision and provides that where a person fails to produce any accounts, documents or record required to be maintained under section 174 or any other evidence that may be required by the Commissioner then the Commissioner may proceed to make best judgment assessment under section 121 of the Ordinance.
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Jami explained that provision corresponding to section 177(10) is contained in section 121(1)(d) which provides that the Commissioner may, based upon any available information or material, and to the best of his judgment make an assessment where record is not produced in an audit case. In both these provisions the word “may” was used and the Departmental version is that it gives discretion to the assessing officer whether to make best judgment assessment under section 121 or a normal assessment under section 122. However, Judicial Member of the Tribunal M.M. Akram who is author of the judgment observed that it is a settled principle laid down by the Supreme Court that when law requires an act to be done in a particular manner it had to be done in that manner alone. In the operative part of the order of the Tribunal, certain further principles have been reiterated and it reads as under:
“9. For the foregoing reasons, both the orders passed by the lower authorities are annulled being void ab initio and without jurisdiction. It is immutable principle Taw hat defective assumption/exercise of jurisdiction by the authorities is incurable. Reliance may be placed on Director General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director General Intelligence and Investigation and others Vs M/s AL-Faiz Industries (Pvt.) Limited and others PTCL 2008 CL 337(S.C) and Collector, Sahiwal and 2 others Vs Muhammad Akhtar(1971 SCMR 681). In all these judgments it was held by the Hon’ble Supreme Court of Pakistan that:-
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i) Where essential feature of assumption or jurisdiction is contravened or forum exercises power not vested in it, or exceed authority beyond limit prescribed by law the judgment is rendered coram non judice and inoperative (2002 SCMR 122)
ii) If a mandatory condition for the exercise of jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffer from illegality and are without jurisdiction (2008 SCMR 240)”
Jami observed that for framing best-judgment assessment due to non-compliance in audit cases a shorter limitation period has been provided under section 121(3) as against longer period under section 122(4) where record is produced and usually when the assessing officer miss the shorter period of limitation they try to cover up the deficiency by resorting to the provision of section 122 which can be invoked only when definite information is acquired from audit to make amended assessment.