Commissioner Inland Revenue vs Falah Ud Din etc.

2021 P T D 192

[Lahore High Court (Multan Bench)]

Before Jawad Hassan and Muzamil Akhtar Shabir, JJ

COMMISSIONER INLAND REVENUE, MULTAN ZONE

Versus

FALAH UD DIN QURESHI

T.R. No.8 of 2019, decided on 11th February, 2020.

Income Tax Ordinance (XLIX of 2001)---

----S.111---Unexplained income or assets---Addition---Scope---Non issuance of separate notice under S.111 of the Income Tax Ordinance, 2001 and failure to confront the taxpayer with the proposed addition in order to require him to explain his position before making addition in his income is unlawful.

C.I.R. Faisalabad v. Faqir Hussain and others 2019 PTD 1828 rel.

Agha Muhammad Akmal Khan, Advocate/Legal Advisor for applicant-CIR.

Muhammad Akram Khan for Respondent.

ORDER

In this Reference Application under Section 133 of the Income Tax Ordinance, 2001 ("Ordinance of 2001") inter alia, following question of law is proposed for our opinion: - "Whether on the facts and circumstances of the case, the Appellate Tribunal has not erred in law to delete the additions made under Sections 111(1)(b) and 111(1)(d) of the Ordinance, 2001 and to vacate the orders of authorities below?"

2.The brief facts of the case are that the respondent-taxpayer derives income from real estate business and he declared income for the year as follows:

Narration Income in Pkr Income as declared 349,500 Property income as declared 84,000

The case of the taxpayer was selected for audit under Section 177 of the Ordinance, 2001 by the Director Intelligence and Investigation (I&I), Multan which thereafter was amended under Section 122(1) of the Ordinance as follows:

Narration Income in Pkr Income as declared 349,500

Property income as declared 84,000 Addition under section 111(1)(d) on account of credit entries in Bank. 42,590,522 Addition under section 111(1)(d) 23,000,000 Amended income 66,024,022

3.In appeal, the present applicant (Commissioner Inland Revenue (Appeals) upheld the addition under Section 111(1)(d) of Ordinance, 2001 amounting to Rs.42,590,522/- and remanded the matter of addition under Section 111(1)(b) of Ordinance, 2001 with certain directions for the reasons and factors as embodied in order dated 03.12.2018, which order was challenged through appeal by the respondent-taxpayer before the learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore "ATIR" which was allowed in his favour vide order dated 22.5.2019; against which, the applicant-department filed the instant Reference Application before this Court.

4.The learned counsel for applicant states that the learned ATIR did not properly appreciate the controversy in issue while deleting the addition made under Section 111 (1)(b) and Section 111 (1)(d) of the Ordinance, 2001, therefore, the said judgment is not sustainable in law.

5.The learned counsel for respondent supports the impugned order and submits that in a similar case, the above referred question of law has already been decided by a learned Division Bench of this Court in ITR No.136801 of 2018 titled "C.I.R. Faisalabad v. Faqir Hussain and others" reported as (2019 PTD 1828), wherein it has been observed as under:

"10. Non-issuance of separate notice under Section 111 has caused prejudice to respondent- taxpayer as substantial compliance of said provisions of law has not been made. The ordinary meanings of "Notice" as referred to by learned Legal Advisors, with reference to various dictionaries, are not applicable to the issue in hand. Non-issuance of proper notice in order to invoke provisions of Section 111 cannot be taken lightly and its non-compliance may lead to render the proceedings not in conformity with or according to the intent and purpose of law. In the instant case, neither notice under Section 111 of the Ordinance of 2001 has been issued to the taxpayer nor was the taxpayer specifically confronted with such proposed addition so that the taxpayer could have advanced some explanation in this regard. Thus, impugned addition appears to be without any lawful authority.

11.So far as argument of learned Legal Advisors of applicant-department, with reference to the cases of Abdul Ghani and Zamindara Paper and Board Mills supra, that mere substance of notice is to be seen and mentioning of Section 111 with its all ingredients along with notice under Section 122(9) read with Section 122(5A) fulfills the conditions, suffice it to say that law mandates the issuance of separate notice / explanation within the contemplation of Section 111, therefore, same cannot be made redundant.

12.In view of the above, our answer to the proposed question is in affirmative i.e. against the applicant-department and in favour of respondent-taxpayers.

This Reference Application, along with connected Reference Applications, is decided against applicant-department.

As the question involved in the instant Tax Reference Application has already been decided in the afore-referred case wherein it has been held that non-issuance of separate notice under Section 111 of the Ordinance, 2001 and failure to confront the taxpayer with proposed addition in order to require him to explain his position before making such addition was without lawful authority. In the present case also, prior separate notice under Section 111 of the Ordinance, 2001 to confront the respondent for explaining his unexplained income and assets has not been issued prior to making of addition of income for tax purpose, therefore, while relying upon the observations made in the afore-referred case law, the instant proposed question is answered in affirmative i.e. against the applicant-department and in favour of respondent-taxpayer. The instant Reference Application is decided against applicant- department.

7.Office shall send a copy of this order under the law to the learned Appellate Tribunal.

SA/C-37/L Reference dismissed.