2014 PTD 1400
ORDER
1. JAWAID MASOOD TAHER BHATTI, CHAIRMAN.-- -These cross appeals for tax years 2010 and 2011 have been filed by both the taxpayer and the department against the consolidated impugned order of the Learned Commissioner Inland Revenue (Appeals), Multan dated 25-2-2013 for both the years under review i.e. 2010 and 2011 on the identical issues in both years, which are being disposed off through this consolidated order.
2. The facts giving rise to these appeals as stated, are that the taxpayer being an AOP is a withholding agent in terms of section 53(7)(h) of the Ordinance. The taxpayer has e-filed withholding statements which were examined by the Deputy Commissioner Inland Revenue and it was observed that the appellant has not fully deducted tax keeping in view the quantum of expenses claimed in the Income Tax returns for both the tax years 2010 and 2011. Accordingly proceedings under section 161 were initiated against the assessee by issuing notices under sections 161/205 for both years. The taxpayer through its A.R. submitted reply vide its letter dated 21-3-2012 wherein it was argued that no tax was to be deducted at source on payment to Persons who produced exemption certificates. Moreover, tax was not deductible in the light of different exemptions under clauses (i), (ii), (vi), (ix), (x), (xii) and (xv) of S.R.O. 586(I)/91 dated 30-6-1991 and also under sections 149, 151, 155 of the Income Tax Ordinance. It was also stated that the taxpayer has deducted tax and deposited into the Government treasury, where it was deductible. The assessee stated that they are compiling data/documents which will take some time for it. Thereafter, the DC1R issued detailed notice under section 161 dated 19-4-2012 for compliance on 28-4-2012 wherein it was conveyed that tax was not deducted under section 153(1)(b) on all manufacturing expenses and profit and loss expenses of both years and showed his intention to hold the taxpayer defaulter of withholding tax under section 161 and to charge tax @ 6%, which was to be deducted under section 153(1)(b).
2. On due date taxpayer submitted application for adjournment on the pretext that AR of the taxpayer was proceeding abroad for 10 days. The DCIR refused to grant adjournment and treated reply dated 21-3-2012, furnished by the taxpayer, as unsatisfactory for reason that documents/evidence were required for examination and to ascertain the veracity of argument of the taxpayer for non deduction of tax at source were not produced. The DCIR also observed that the taxpayer has already filed its income tax return which was prepared on the basis of these documents and held that presence of A.R. would have been consequential requirement in case of any difference of opinion in deduction of tax at source.
3. After issuance of notice on 19-4-2012, for which compliance date was 28-4-2012, the DCIR decided the case on 28-4-2012, holding the taxpayer in default under section 153(1)(b) and charged tax under section 161(1)(a) @ 6% on consolidated amounts of all expenses claimed under manufacturing expenses and profit and loss expenses as under:-
4. Expenses subjected to deduction of Tax.
5. 2010 (Rs).
6. 2011 (Rs.)
(i) Manufacturing expenses
7. 28,761,526
8. 18,138,034
9. Amount of tax held liable to be deducted under section 153(1)(b) @ 6%
10. 1,725,692
11. 10,88,282
(ii) Profit and loss account expenses
12. 230,467,581
13. 125,549,211
14. Amount of tax held liable to be deducted under section 153(1)(b) @ 6%
15. 13,828,055
16. 7,532,951
17. Total
18. 16,493,090
19. 8,621,236
20. Being aggrieved, the taxpayer filed first appeal before the learned Commissioner Inland Revenue (Appeals) Multan. The learned CIR(A) vide his order dated 25-2-2013 disposed off the appeal in following manners:--
(a) In certain heads of expenses the learned CIR(A), Multan found that tax was either deducted and deposited wherever applicable, or the payments were exempt under the law. This fact was also perused in the presence of the Deputy Commissioner Inland Revenue/Author of the impugned order, who could not rebut it. Therefore, the additions made regarding following manufacturing expenses and profit and loss expenses, were deleted:-
(1) Depreciation.
(2) Bank markup and commission expenses.
(3) Electricity bills and expenses.
(4) Sui gas bills and expenses.
(5) Insurance.
(6) Customs and Regularity duty.
(7) Telephone bills and expenses.
(8) Mobile bills and expenses.
(9) Rent, Rates and expenses.
(10) Travelling expenses.
(11) Entertainment.
(19) Loading/un-loading.
(13) Uniform expenses.
(14) Freight.
(15) Miscellaneous expenses.
(16) Registration fee expenses.
(17) Delivery expenses.
(18) Lab expenses.
(19) Research, Development and training expenses.
(20) Foreign tour expenses.
(21) Paper and periodicals.
(22) Fee and subscription.
(23) Staff training.
(24) Dealers convention and expenses.
(25) Courier and Postage.
(26) Repair and Maintenance of furniture.
(27) Repair and maintenance of other.
(28) Gardening expenses.
21. In respect of remaining expenses, claimed under manufacturing expenses and profit and Loss expense, the Learned CIR(A) observed that tax was deducted and deposited where applicable while remaining payments are exempt under the law. The learned CIR(A) observed that this fact was perused in the presence of DCIR/author of the impugned order who could not rebut it, Even then, the learned CIR(A) held that the taxpayer is liable to withholding tax in following 6 heads of Manufacturing expenses and 10 heads of profit and loss expenses, both in tax years 2010 and 2011:--
22. Tax Year 2010
23. Total Expenses subjected to WHT
24. Deleted by CIR(A)
25. Balance Upheld
26. Sr. No
27. Manufacturing Expenses
28. 1.
29. Salaries Wages and others Benefits
30. 85,59,518
31. 55,83,837
32. 30,06,681
33. (1)
34. (2)
35. (3)
36. (4)
37. (5)
38. 2.
39. Shifting/Handling Exp.
40. 10,21,815
41. 7,15,270
42. 3,06,345
43. 3.
44. Vehicle running and Maintenance
45. 6,87,864
46. 4,12,719
47. 2,75,145
48. 4.
49. Supplies ingredients Stores and Supplies Cunsumed
50. 20,22,284
51. 13,14,484
52. 7,07,800
53. 5.
54. Repiar and Maintenance Machinery
55. 10,71,770
56. 6,96,650
57. 3,75,120
58. 6.
59. Printing and Stationery
60. 4,45,154
61. 2,67,092
62. 1,78,062
63. Sr. No.
64. Administrative and Selling Expenses
65. 1.
66. Salaries Wages and Other Benefits
67. 6,94,30,467
68. 4,51,29,802
69. 2,43,00,665
70. 2.
71. Entertainment
72. 41,91,687
73. 29,34,182
74. 12,57,505
75. 3.
76. Store Spares and Loose Tools
77. 40,82,296
78. 28,57,606
79. 12,24,690
80. 4.
81. Functions and Seminar expenses
82. 19,12,175
83. 12.42,910
84. 6,69,265
85. 5.
86. Printing and Stationery
87. 18,20,098
88. 10,92,059
89. 7,28,039
90. 6.
91. Photo State
92. 19,17,385
93. 12,46,301
94. 6,71,084
95. 7.
96. Vehicle running and Maintenance
97. 1,47,15,586
98. 95,65,131
99. 51,50.455
100. 8.
101. Repair and Maintenance Buildings
102. 38,12,879
103. 24,78,371
104. 13,34,508
105. 9.
106. Computer Expenses
107. 9,80,500
108. 6,37,325
109. 3,43,175
110. 10.
111. Miscellaneous Expenses
112. 33,58,672
113. 23,51,070
114. 10,07,602
115. Tax Year 2011
116. Sr. No
117. Manufacturing Expenses
118. 1.
119. Salaries Wages and others Benefits
120. 31,74,585
121. 20,63,480
122. 11,11,105
123. 2.
124. Shifting/Handling Exp.
125. 5,38,488
126. 3,76,943
127. 1,61,545
128. 3.
129. Vehicle running and Maintenance
130. 6,95,512
131. 4,17,307
132. 2,78,205
133. 4.
134. Supplies ingredients Stores and Supplies Cunsumed
135. 15,01,217
136. 9,75,791
137. 5,25,426
138. 5.
139. Repiar and Maintenance Machinery
140. 2,21,657
141. 1,44,077
142. 77,580
143. 6.
144. Printing and Stationery
145. 4,37,258
146. 2,62,355
147. 1,74,903
148. Sr.No.
149. Administrative and Selling Expenses
150. 1.
151. Salaries Wages and Other Benefits
152. 3,60,39,058
153. 2,23,25,388
154. 1,26,13,670
155. 2.
156. Entertainment
157. 18,72,891
158. 13,11,026
159. 5,61,865
160. 3.
161. Store Spares and Loose Tools
162. 16,29,409
163. 11,40,584
164. 4,88,825
165. 4.
166. Functions and Seminar Expenses
167. 5,20,458
168. 3,38,298
169. 1,82,160
170. 5.
171. Printing and Stationery
172. 9,28,545
173. 5,57,127
174. 3,71,418
175. 6.
176. Photo State
177. 8,12,581
178. 5,28,178
179. 2,84,403
180. 7.
181. Vehicle running and Maintenance
182. 42,38,346
183. 27,54,925
184. 14,83,421
185. 8.
186. Repair and Maintenance Buildings
187. 6,84,433
188. 4,44,881
189. 2,39,552
190. 9.
191. Computer Expenses
192. 7,47,341
193. 4,85,771
194. 2,61,570
195. 10.
196. Miscellaneous Expenses
197. 12,20,097
198. 8,54,068
199. 3,66,029
200. Now against the order of the learned CIR(A) both taxpayer as well as the department are in cross appeals before the Tribunal. The only contention of the department in both years is that under section 128(5) of Income Tax Ordinance, 2001 the learned CIR(A) was not justified to entertain the documents/evidences which were not produced before the Taxation Officer and that the learned CIR(A) was not justified to delete and reduce the tax charged under sections 161/205 of the Ordinance, on the basis of documents/evidences which were not produced before the Taxation Officer.
3. The learned DR supported the order of the Taxation Officer and the learned AR rebutted the grounds of appeal of the department on following basis:--
201. The taxpayer vide its letter No.61/2012 dated 21-3-2012 for Tax Year 2010 and letter No. 62/2012 dated 21-3-2012 for Tax year 2011 clarified regarding non deductibility of tax on various heads of accounts on the basis of legal provisions given in the above referred letters.
202. The assessee provided manufacturing and profit and loss account expenses, giving head-wise detail, but the department has charged tax on consolidated amount of manufacturing expenses and profit and loss expenses in each tax year.
203. The DCIR has taken action under section 153(1)(b) and tax is charged @ 6% which is applicable on payments on account of services rendered, while most of the payments are not covered/related to services rendered.
204. That under section 128(5) the learned CIR(A) can admit documents material or evidence which was not produced before the Commissioner if he is satisfied that the appellant was prevented by sufficient cause for producing such material or evidence before the Commissioner.
205. In this case the sufficient causes for non producing of these documents before the DCIR as argued by the learned A.R. are:-
206. That the case was fixed for hearing on 28-4-2012 through notice dated 19-4-2012. The appellant's A.R. was busy in obtaining visa of Thailand and Malaysia to participate in international convention of Rotary Club which was going to be held on 5th May 2012 at Bangkok. Due to this reason the assessee applied for adjournment.
207. In support of foreign travel of the AR following documents are produced by the A.R:--
(a) Copies of letter of adjournment for Tax Year 2010 and Tax Year 2011.
(b) Copy of Page 13 of the passport showing affixation of visa of Malaysia on 26-4-2012 at their Islamabad Office.
(c) Page 15 of the passport showing affixation of visa of Thailand on 30-4-2012 at their Karachi Office and exit from Pakistan on 4-5-2012 from Lahore Air Port.
(d) Copy of air ticket showing departure from Lahore for Bangkok on 4-5-2012.
208. The learned AR further pointed out that the DCIR was in hurry in disposing of this case on 28-4-2012 which is just 9 days after issuance of show-cause notice under sections 161/205 dated 19-4-2012 (which also includes time spent for its service) despite the fact that:--
209. Refund of Rs.30,791,200 (for Tax Years 2009 and 2011) was long outstanding which was not issued by the department in spite of various reminders/representation to the DCIR, Commissioner, Chief Commissioner and even to the FBR.
210. Being disappointed from the attitude of the department the assessee filed appeals before the learned CIR(A) against non-issuance of refund who vide his order dated 14-4-2012, directed the DCIR to issue refund uptil 31-5-2013.
211. After receipt of the order of learned CIR(A) the DCIR decided cases under sections 161/205 on 28-4-2012 and created heavy tax demand by applying rate @ 6% (which is the highest rate of withholding tax) and created tax demand of Rs.25,114,326 (Tax Year 2010 Rs.16,491,090 + Tax Year 2011 Rs.8,621,236).
212. In order to make compliance of the directions of the learned CIR(A) uptil 31-5-2012; the DCIR has passed order under section 170(3) on 30-5-2012 adjusted illegally created tax demand under section 161 from it and issued refund voucher of the balancing amount of only Rs.3,414,453.
213. It is contended that the above proceedings shows that the DCIR has not allowed adjournment claimed on the basis of valid reasons and made assessment under sections 161/205 without providing the taxpayer opportunity to submit evidences/ documents, which subsequently been provided to the learned CIR(A). All this is done by the DCIR with the bad intention of curtailing amount refund of the appellant and at the same time to avoid non-compliance of the order of the learned CIR(A).
214. The learned A.R. argued that section 128(5) allows the Commissioner (Appeal) to admit any documentary material or evidence which was not produced before the Commissioner if the Commissioner is satisfied that appellant was prevented by sufficient cause from producing such material or evidence before the Commissioner. In this case the Show-Cause Notice was issued on 19-4-2012 for compliance on 28-4-2012. During this period the AR was busy in getting visas of Malaysia and Thailand which were affixed on 26-4-2012 from Islamabad and on 30-4-2012 from Karachi and the AR ultimately left Pakistan on 4-5-2012.
215. The taxpayer was not in a position to make compliance of the show-cause notice without assistance of its AR who was dealing with the case. Therefore, the taxpayer was prevented by sufficient cause from producing such material or evidence before the Commissioner. The learned AR referred case-law of the Hon'ble Lahore High Court, reported as 2007 PTD 333.
4. We have given anxious thought to the arguments advanced by the learned AR and the relevant available record was perused and we are of the considered opinion that contention of the learned AR of the appellant carries weight as the taxpayer was prevented by sufficient cause due to which he could not submit material/evidence before the DCIR. Therefore, the learned CIR(A) has rightly entertained material/documents which could not he produced before the DCIR. Keeping in view aforementioned facts and circumstances of the case as well as after gone through the reported judgments cited supra we uphold the order of the first appellate authority. Appeals of the department for tax years 2010 and 2011 are accordingly rejected.
5. The taxpayer in the cross appeals has contested order of the learned CIR(A), partially upholding order of the DCIR by which he has held the taxpayer liable to withholding tax under section 161. The grounds of appeal for tax years 2010 and 2011 are identical. The learned council representing the taxpayer, contesting the order of the learned CIR(A), contended that the learned CIR(A) has perused details provided by the taxpayer and has observed that withholding tax was duly deducted and paid or the amount remained below the monetary threshold, still partial amount is retained liable to withholding tax in 6 heads of manufacturing Expenses and of 10 heads of expenses of Profit and Loss expenses, both in tax years 2010 and 2011. The learned counsel argued that the assessing officer has held the taxpayer defaulter of all the 17 heads of expenses claimed under manufacturing expenses and 35 heads of expenses claimed under profit and loss expenses, including depreciation, Bank mark up, Electricity, Sui Gas Insurance, Customs and regularity Duty, Telephone expenses, Mobile expenses and Salary which, otherwise are exempt from withholding tax under various provision of the Income Tax Ordinance, 2001 or S.R.Os. issued thereunder and the assessee has clarified it in its explanation given vide its letter dated 21-3-2012. The learned counsel stated that the taxation officer has made withholding tax default on consolidated amount of manufacturing expenses which were incurred under 17 different head of expense in both years. Similarly the taxation officer has made withholding tax default on consolidated amount of profit and loss expenses which were claimed in 35 different heads of expense in both years.
216. Moreover, in both years and of all expenses, the Taxation Officer made the taxpayer defaulter of withholding tax under section 153(1)(b) and charged tax @ 6% which is related to the services rendered only.
217. It is argued that without identifying name and address of the parties or person from whom and how much tax was to be deducted, provision of section 161 could not be invoked. Otherwise no-one could get credit of tax recoverable under section 161. This contention further fortified by subsection (IB) and (2) of Section 161. Under subsection (IB) if the amount of tax, required to be deducted is paid by the person, who's tax was to be deducted, then the taxpayer proceeded under section 161 shall pay only default surcharge of the period he failed to deduct tax till it was paid by that person. Subsection (2) declares that person held personally liable under section 161 shall be entitled to recover the tax from the person, from whom tax was to be collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person who's tax was not collected or deducted and without identifying the person who's tax was not collected or deducted and without identifying the amount of such tax. It appears that taxation officer could not appreciate that the tax referred to be deducted under section 161 has to be of some identified taxpayer/ person and a taxpayer can be declared personally liable only after establishing that he was a withholding agent and failed to withhold tax from a transaction liable to such tax. The learned A.R. stated that in view of the forgoing grounds taxpayer could not be held defaulter of withholding tax under section 161 and Consequently the learned CIR(A) could not held the assessee as defaulter of section 161 on some portion of 6 expenses of manufacturing expenses and of 10 expenses of profit and loss expenses.
218. The learned counsel of the taxpayer argued that the learned CIR(A) has retained partial amount in 16 heads of expenses on which the assessee was held defaulter of withholding tax under section 161 which was made on presumptive and hypothetical basis as amount retained subject to withholding tax, in each year, in 9 heads is 30% in 4 heads is 35% and in 3 heads is 40% of total expenses subjected to withholding tax by the DCIR. The %age of particular expenses retained liable to withholding tax in both year is the same. The learned AR supported his contention with following working:-
219. Expenses Upheld by CIR(A) as % of Total Expenses
220. Sr. No.
221. Nature of Expenses subject to Withholding Tax
222. Manufacturing Expenses
223. Tax year 2010
224. Tax year 2011
225. 1.
226. Salaries Wages and other Benefits
227. 35%
228. 35%
229. 2.
230. Shifting/Handling Exp.
231. 30%
232. 30%
233. 3.
234. Vehicle Running and Maintenance
235. 40%
236. 40%
237. 4.
238. Supplies ingredients Stores and Supplies Consumed
239. 35%
240. 35%
241. 5.
242. Repair and Maintenance Machinery
243. 35%
244. 35%
245. 6.
246. Printing and Stationery
247. 40%
248. 40%
249. Administrative and Selling Expenses
250. 1.
251. Salaries Wages and Other Benefits
252. 35%
253. 35%
254. 2.
255. Entertainment
256. 30%
257. 30%
258. 3.
259. Store Spares and Loose Tools
260. 30%
261. 30%
262. 4.
263. Functions and Seminar Expenses
264. 35%
265. 35%
266. 5.
267. Printing and Stationery
268. 40%
269. 40%
270. 6.
271. Photo State
272. 35%
273. 35%
274. 7.
275. Vehicle Running and Maintenance
276. 35%
277. 35%
278. 8.
279. Repair and Maintenance Building
280. 35%
281. 35%
282. 9.
283. Computer Expenses
284. 35%
285. 35%
286. 10.
287. Miscellaneous Expenses
288. 35%
289. 30%
6. It is contended by the learned counsel of the taxpayer that this issue has already been decided by the honourable High Court as well as by the Tribunal in various cases. In the case of CIT v. Ravi Plastic industries reported as 2008 PTD 1227, it has been held that:--
290. "Moreover, since the identity of the so-called supplier or the person, who has rendered the services and from whom tax was to be deducted, is not known, the tax withheld remains only deducted and cannot be adjusted against any demand, which obviously is unfair."
291. "Moreover withholding agent is neither a beneficiary in any form in the said exercise nor has been allowed an incentive for the performance of such duty on behalf of the tax functionaries. Since in this case, even otherwise it is not known as to what is the payment, the disapproval of the departmental claim that the tax has not been deducted, obviously require no interference in the orders of two forums below us.
292. In another case, this Tribunal in I.T.A. No. 4575/LB of 2004 decided on 4-5-2005 has held that:--
293. "As the Assessing Officer, in this case has failed to identify the default of particular payments which are attracted by the provisions of section 50(4) of the Repealed Ordinance, 1979 we are, therefore, of the view that the order passed by the assessing officer is liable to be cancelled being passed on presumptions, assumptions and guesswork in which case, the provisions of section 50(4) were not attracted."
294. In another case reported as 2010 PTD 1904 Tribunal has held that:--
295. "Liability of persons failing to deduct or pay tax---Assessee in default---Assessee contended that most of the Profit and Loss account expenses were below Rs.25,000 and wherever section 50(4) of the Income Tax Ordinance, 1979 was attracted deduction of tax has been made and necessary documentary evidence was furnished to assessing officer who did not scrutinize the same and disallowed expenditure without citing any instance where deduction of tax had not been made---Validity---Initiation of proceedings under sections 52/86 of the Income Tax Ordinance, 1979 were not tenable in the eyes of law, as most the expenses claimed in profit and Loss account which were brought to taxation, were below the threshold limit of Rs.25,000---Assessing Officer had failed to adhere to direction of Central Board of Revenue and also failed to cite any instance where deduction of tax had not been made by the assessee---When provisions of section 52 of the Income Tax Ordinance, 1979 were invoked to declare a person to be an assessee in default, the particular payments were identified which were attracted by the provisions of section 50(4) of the Income Tax Ordinance, 1979---Assessing Officer failed to identify the parties on account of whom the assessee company had been treated as "assessee-in-default"---Initiation of proceedings under sections 52/86 of the Income Tax Ordinance, 1979 read with sections 161/205 of the Income Tax Ordinance, 2001, were not tenable in the eyes of law which were cancelled by the Appellate Tribunal ."
296. In another case reported as 2008 PTD 787 Tribunal has held that:--
297. "Failure to pay tax collection or deducted---charge of additional tax---Rectification application---Vacation of assessment by CIT(A)---Validity---Whether default has been determined by Taxation Officer on basis of presumption and stock phrase and not single instance of payment has been specifically pointed out---Held yes---Whether CIT(A) has rightly vacated orders passed under sections 16/205 for all five years under review---Held yes--- ."
298. "Default has been determined by the Taxation Officer on the basis of presumptive and stock phrase and not a single instance of payment had been specifically pointed out..... Order vacated by the First Appellate Authority was upheld by the Appellate Tribunal in circumstances after considering the details submitted by the assessee."
299. In a case reported as 2008 PTD (Trib.) 787 it has been held that:--
300. "We have found that the default has been determined by the Taxation Officer on the basis of presumption and stock phrase and not a single instance of payment has been specifically pointed out."
301. In another case reported as 2012 PTD 122 the Tribunal has held that:--
302. " ..It is reiterated that no transaction can be held to have escaped deduction under section 161, unless it is established that: (i) taxpayer is withholding agent, (ii) a particular transaction is liable to deduction/withholding and (iii) that a specified tax of a specific person was to be withheld, who could take credit of the tax recoverable under section 161. These findings are fortified by subsections (IB) and (2) of section 161. Under the subsection (IB) if the amount of tax required to be deducted, is paid meanwhile by the person, who's tax was to be deducted then the taxpayer proceeded under section 161 shall pay only default surcharge of the period, he failed to deduct tax till it was paid by that person, subsection (2) declares that a person held personally liable under section 161(1) shall be entitled to recover the tax from the person, from whom the tax should have been collected or deducted. These provisions shall become redundant, if a person is held personally liable without identifying the person who's tax was not collected or deducted and without identifying the amount of such tax "
7. After considering the facts of the case, the relevant provisions of law and the case-law referred to by the learned taxpayer, we find that arguments put forth by the learned AR carry substantial weight. Order of the Taxation Officer holding the taxpayer as defaulter of withholding tax, without, identifying name and address of the parties or persons from whom and how much tax was to be deducted, is not maintainable in the eye of law. Consequently the order of the learned CIR(A) by the which he has upheld partial amount of expense liable to withholding tax from 6 heads of expenses of manufacturing expenses and from 10 heads of expenses of profit and loss expenses, in both year, is against the dictum of law and is, therefore, vacated. Consequently, this would result into acceptance of taxpayer's appeals for the tax years 2010 and 2011.
8. The appeals filed by the taxpayer are allowed while the cross appeals filed by the department are dismissed for the reasons discussed supra.
303. CMA/34/Tax(Trib.) Order accordingly.