1. This is an application by way of reference under Section 133 of the Income Tax Ordinance, 2001 (the “Ordinance”), against order dated 25-6-2012 passed by the Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (the “Tribunal”), in ITA No. 527/LB/2012.
2. The Respondent is a private company limited by shares. It derives income from exports and local sales of manufactured textile products through its retail outlets within and outside Pakistan. It sells embroidered stitched and unstitched cloth and plain cloth under different brand names, including, Bareeze, Mini Minor, Leisure Club. On 31-12-2005 the Respondent filed its income tax return for the Tax Year-2005 declaring income of Rs.10,421,777/-. This return was taken to be an assessment order under Section 120(1) of the Ordinance. During sales tax audit it was found that the Respondent had been diverting its sales to a Benami bank account maintained at the Standard Chartered Bank Limited, Shadman Branch, Lahore, in the joint names of Aftab Ahmad and Asif Mehmood. The Respondent had not disclosed that account in its books. It was also observed that the Respondent had various outlets in various parts of the country which transferred their sale receipts online and sent a copy of the deposit slip to the Head Office alongwith the Daily Sale Reports. From the detail of monthly sales and deposit reports the auditors observed that the Respondent deposited some of its sale proceeds in the company’s account and the remaining portion thereof in the undisclosed aforementioned Benami account.
On the basis of this “definite information” proceedings under Section 122(5) were initiated against the Respondent and the Assessing Officer issued Show Cause Notice under Sections 122(9)/122(1) to it. The Respondent submitted its reply thereto which was considered unsatisfactory. The Assessing Officer, vide order dated 30-6-2011, held that the Respondent had suppressed the sales to the tune of Rs.194,955,973/- and made an addition under Section 111 accordingly. Aggrieved, the Respondent preferred an appeal before the CIR (Appeals) which was dismissed. It then filed second appeal before the Tribunal which was accepted vide order dated 25-6-2012. The Tribunal held that there was no “definite information” within the meaning of Section 122(5) of the Ordinance which could justify proceedings against the Respondent. Further, the nexus between the sale receipts of the Respondent and the money deposited in the alleged Benami account could not be established. And lastly, clause (d) of sub-section (1) of Section 111 under which the addition of Rs.194,955,973/- was sought to be made to the income of the Respondent was inserted in the Ordinance through an amendment by the Finance Act, 2011. Since clause (d) was a charging provision it could not be applied retrospectively to the case of the Respondent which pertained to the Tax Year-2005. The Department has now filed this reference application before this Court against the Tribunal’s Order dated 25-6-2012.
3. The Petitioner Department has urged that the following questions of law emanate from the Tribunal’s Order dated 25-6-2012 which require determination by this Court:
i) Whether, on the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to hold that the transfer of sale proceeds from company branches to bank account of the employees did not constitute definite information in terms of provision of section 122 of the Income Tax Ordinance, 2001?
ii) Whether, on the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to hold that the addition made under section 111(1(b) of the Income Tax Ordinance, 2001, was unlawful on the basis of provisions of Section 111(1)(d) inserted through the Finance Act, 2011?
4. There is no cavil with the proposition that Section 122(5) empowers the Commissioner to amend an assessment order treated as issued under Section 120 where there is a definite information that it is false. For facility of reference, Section 122(5) is reproduced hereunder:
“(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 under sub-section (4) where, on the basis of definite information acquired from an audit or otherwise, 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”.
5. The term “definite information” has not been defined in the Ordinance. It was also not defined in the Repealed Income Tax Ordinance, 1979, which contained a similar concept. Consequently, it has generated a lot of debts. However, it is by now well settled that every information does not qualify as a definite information and it cannot form the basis for reopening of the assessment. Further, the expression “definite information” cannot be given a universal meaning and it has to be determined in the context of circumstances of each case as to whether the material constitutes definite information or not. Reliance is placed on “Income Tax Officer and another Vs. M/s Chappal Builders” (1993 SCMR 1108) and “Messrs E.F.U. General Insurance Co. Limited Vs. The Federation of Pakisn and others” (PLD 1997 SC 700). Nevertheless, sub-section (8) of Section 122 explains:
“(8) For the purpose of this section, “definite information” includes information on sales or purchases of any goods made by the taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance, and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer”.
6. Definite information is a pre-requisite to attract the provisions of Section 122(5). However, it may be acquired from audit or otherwise. In the instant case, it was during the sales tax audit of the Respondent when the auditors discovered that it was diverting a major portion of its sale receipts through an undisclosed/undeclared account. The auditors inter alia got hold of the Respondent’s bank statements, bank vouchers, details of online money transfers by branches to the Head Office and their daily and monthly sale and deposit reports. Since all this material was acquired by the Department during the course of an audit, it does qualify for definite information within the meaning of Section 122(5).
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