Cir Okara Zone vs Shakoor Ahmad

Form No: HCJD/C-121

ORDER SHEET

LAHORE HIGH COURT

MULTAN BENCH MULTAN

JUDICIAL DEPARTMENT

I.T.R No.62/2025 Commissioner Inland Revenue Versus Shakoor Ahmad S.No. of order/ Date of order/ Order with signature of Judge and that of Proceeding Proceeding parties or counsel, where necessary.

14.01.2026 Malik Muhammad Shahzad Awan, Advocate for the applicant-department.

Mr. Furqan Ahmed Khan, Advocate for the respondent- taxpayer, assisted by Mr. Rehan Ahmad Khan, Advocate.

Through this single order, the present as well as connected ITRs bearing No.63/2025, 64/2025 and 65/2025 are being simultaneously decided as all reference applications filed under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance”) involve common questions of law and are directed against the same consolidated order dated 14.03.2025 passed by the Appellate Tribunal Inland Revenue, Single Bench, Multan (“the Tribunal”), however, the tax period therein is different.

2.Although multiple questions have been raised, however, fate of present reference application depends upon answer to the following legal questions, which are intertwined and read as under:

“1. Whether in the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue Multan Bench, Multan was justified in upholding the order of the learned CIR(A) wherein the learned CIR(A) has reduced the turnover of the taxpayer for charging of advance tax under section 236H of the Income Tax Ordinance, 2001 upto 33% of the total turnover without quoting any provision of the Income Tax Ordinance, 2001?

2.Whether in the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue Multan Bench, Multan was justified in mechanically validating the order of the learned

CIR(A) who relied on an earlier judgment of CIR(A) for restricting application of 236H only to the extent of 33% of the total turnover— thereby relying on another case which was decided in violation of the existing legal provisions and for which no rationale or evidence existed?”

3.Arguments heard. Record perused.

4.By way of factual background, it has been noted that the respondent-taxpayer is individual who derived income as Distributor/Dealer/Whole-seller of M/s Beverages (Coca Cola Limited Company) for various tax years 2014, 2015, 2016 and 2017 for which variable income was declared. Admittedly, Section 236H of the Ordinance, inserted through Finance Act, 2013 was applicable and the taxpayer was required to collect advance tax under said provision of law on account of sales made to the retailers. Section 236H of the Ordinance reads as under:

“236H. Advance tax on sales to retailers.- (1) Every manufacturer, distributor, dealer, wholesaler or commercial importer at the time of sale to retailers, and every distributor or dealer to another wholesaler in respect of the said sectors, shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.

(2)Credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the retailer on the taxable income from the tax year in which the tax was collected.”

5.It is admitted feature of the case that during the relevant period, 0.5% withholding tax was payable. A notice was issued under Section 161(1A) of the Ordinance regarding above referred tax years, which was responded by the respondent-taxpayer who gave bifurcation that being a Distributor, the sale of beverages was not made to the retailers only but also to the end users/consumers and

therefore, such portion of sales is required to be excluded. It was also pleaded by the respondent-taxpayer that as per general practice if the distributors make sales to different types of purchasers, normally upto 30% of the total sales is made to the retailers and relied upon a parallel case of Ch. Muhammad Azhar Mehmood, Faiz ICE Factory, Pakpattan having registration No. 36402-0832449-1 wherein statedly the Assessing Officer Unit-01, Pakpattan imposed tax U/S 236H as per the above said ratio. It was further contended that the Commissioner Inland Revenue (Appeals), Multan through order dated 13.04.2015, passed in Appeal No.761 in the case of M/s Ali & Company, Shadman Town, Sahiwal also ordered to restrict sale for purpose of imposing tax U/S 236H upto 30% of the total sales.

6.The response of the respondent-taxpayer was found unsatisfactory and therefore, the Orders-in-Original of even date, i.e., 19.03.2019 were passed and tax demand(s) under Section 161(1A) of the Ordinance were generated for different tax years alongwith default surcharge under Section 205 of the Ordinance. However, when the appeals were preferred, the Orders-in-Original were upended by the Commissioner Inland Revenue Appeals-III, Lahore (“CIR Appeals”) vide order dated 05.10.2020. Operative part of the said order reads as under:

“Apart from the above, the learned Counsel for the appellant contended that in a parallel case i.e Ch. Muhammad Azhar Mehmood, Faiz ICE Factory, Pakpattan (distributor of Pepsi/coke) the assessing officer, Unit-1, Pakpattan /department itself imposed tax u/s 236H adopting "sales made to retailers at 31% of total declared turnover against declared sale made to retailers @ 22.57%.

The learned Counsel for the appellant further contended that the Commissioner Inland Revenue (Appeals) in an appellate order No.761 dated 13.04.2015 in the case of M/s Ali & Company.

Shadman Town, Sahiwal also ordered to restrict the sale to retailers at 33% of the total sales, whereas the Inland Revenue Officer was not justified to ignore the department's its own parallel treatment as well as treatment by the appellate authority in the aforementioned case.

The contentions of the appellant have been considered and facts perused from record. It is observed that the assessing officer was not justified to ignore the parallel orders passed by department as well as by the appellate authority on the same issue. Therefore, the arguments putforth by the appellant's AR are convincing and the sales made to retailers are modified/restricting upto 33% by following the parallel cases as well as facts of the case for the years under appeal.”

The above finding of CIR Appeals was upheld by the Tribunal through impugned order dated 14.03.2025.

7.Record clearly depicts that the respondent-taxpayer provided bifurcation of its sales in following manner:

Sr. Category of 2014 (Sales) 2015 2016 (Sales) 2017 (Sales) # Purchaser (Sales)

1 Retailers 2,79,60,800- 412,54,800- 4,60,88,200- 2,10,20,450- 2 Functions & 2,82,82,600- 332,84,260- 4,58,22,600- 1,62,42,600- Gatherings

3.Marriage 2,20,68,900- 342,62,600- 3,88,77,300 1,18,72,450 Halls, Restaurants etc.

4.Cash sales 2,21,95,470- 310,47,363- 4,62,36,830 1,83,25,300- directly to consumers

Without commenting upon the veracity of the above-quoted bifurcation lest it may prejudice case of either side, it has been noted that the CIR Appeals has reduced the turnover of the taxpayer for charging of advance tax under Section 236H of the Ordinance upto 33% of the total turnover without quoting any provision of the Ordinance, hence, the same has no legal basis. When confronted, learned counsel for the respondent-taxpayer could not refute this legal position,

however, avers that the Assessing Officer was obligated to deal with material available on record in support of the direct sales to the end users/consumers.

8.We are of the view that the tax law requires determination of liability to be based on actual verifiable transaction, and not arbitrary percentages, more so, when the law does not prescribe such percentage/formula, therefore, the CIR Appeals as also the Tribunal erred in applying the said percentage. At the same time, we find force in argument of learned counsel for the respondent-taxpayer inasmuch as the Assessing Officer also failed to discharge its duties to make the assessment based on facts and record presented by the respondent-taxpayer. It was obligatory on the Assessing Officer to assess the record and see whether the portion of sales by the respondent-taxpayer went directly to the end users/consumers and should not be subjected to the withholding tax under Section 236H of the Ordinance for the purpose of advance tax. While the Assessing Officer failed to discharge its duty of making assessment on the basis of record, the CIR Appeals as also the Tribunal, instead of appreciating the record, restricted the obligation under Section 236H to the extent of 33% turnover, which is not supported by any provision of law and the legislative intent to capture tax for the specific supplies made during the relevant period. If the sales are made directly to the end users/consumers, the same do not fall under the ambit of sales to the retailers. Section 236H of Ordinance primarily deals with sales to the retailers and in cases where the distributor claims direct sale to the general consumer against gross sales/receipts, the Assessing Officer shall examine the nature of transaction for the purpose of advance tax, as the case may be.

9.In view of the above discussion, the present as well as connected reference applications are decided in favour of the applicant-department and against the respondent-taxpayer, hence, allowed. As a corollary, the orders passed by the Tribunal, the CIR Appeals as also the Orders-in-Original are set aside and the cases are remanded to the Assessing Officer who shall re-assess the liability of the respondent- taxpayer afresh, keeping in view the bifurcation of the sales provided by the respondent-taxpayer, to determine veracity thereof for the purpose of advance tax under Section 236H of the Ordinance.

10.Office shall send a copy of this order under seal of the Court to the Tribunal, as per Section 133(8) of the Ordinance.

(Sultan Tanvir Ahmad) (Anwaar Hussain) Judge Judge

Approved for reporting.

Judge Akram