MUHAMMAD YOUNAS Versus The COMMISSIONER INLAND REVENUE, SIALKOT Sayyid Ali Imran Rizvi , Mrs. Naheed Akhtar Durrani

ORDER

1. These two Appeals in respect of Tax Years 2014 and 2015 are against the impugned Orders of the learned C.I.R. (A), Sialkot bearing Nos. CIR(A)/SKT/I.T./294 and CIR(A)/SKT/I.T./295 respectively whereby he upheld the impugned Orders under sections 122(1)/5(i) / 111(1)(d) of the Income Tax Ordinance, 2001, dated 30.04.2018 passed by the I.R.O., Unit-14, Range-I, Gujrat Zone, R.T.O., Sialkot.

2. Facts brought on record by the learned A.R. of Appellant / Tax-payer reveal that this Appellant is an individual, who carried on business of retail sales of karyana items under the name and style of "Nawab Karyana Store" near Police Chowki, P.O. Khas, Mangowal Gharbi, Tehsil and District Gujrat, besides having 50% share in the A.O.P., M/s. Chimman Karyana Store, Main Lari Adda, Margowal Gharbi, Tehsil and District Gujrat.

2. According to learned A.R due to some mis-understanding between appellant and his representative neither filed the Returns of Income of the A.O.P., nor disclosed the share income from the A.O.P. in the individual Return of appellant/Taxpayer.

3. The appellant/tax-payer, being Managing Member of the A.O.P., operated the following bank accounts on behalf of the A.O.P.:

3. Bankers

4. Account No.

5. Title of Account

6. Habib Bank Limited, Mangowal Branch, Gujrat.

7. 0823-41507411-03

8. Chimman Karyana Store

9. Habib Bank Limited, Mangowal Branch, Gujrat.

10. 0823-00058446-03

11. Chimman Karyana Store

12. Habib Bank Limited, Mangowal Branch, Gujrat.

13. 0823-71001312-03

14. Muhammad Younis

15. MCB Bank Limited, Mangowal Branch, Gujrat.

16. 0375033971000005

17. Chimman Karyana Store

18. The said A.O.P. cured its default of non-filing of Returns of income from the Tax Years 2010 to 2017 by declaring income and paying tax thereon under the Voluntary Declaration of Domestic Assets Act, 2018 as under:-

19. Tax Year

20. Income

21. Tax Paid

22. 2011

23. Rs.

24. 311,520

25. Rs.

26. 15,576

27. 2012

28. Rs.

29. 355,635

30. Rs.

31. 17,782

32. 2013

33. Rs.

34. 427,735

35. Rs.

36. 21,387

37. 2014

38. Rs.

39. 516,410

40. Rs.

41. 25,820

42. 2015

43. Rs.

44. 434,520

45. Rs.

46. 21,726

47. 2016

48. Rs.

49. 595,035

50. Rs.

51. 29,752

52. 2017

53. Rs.

54. 745,310

55. Rs.

56. 37,265

57. The learned I.R.O. Unit-14, Range-I, Gujrat Zone, Regional Tax Office, Sialkot issued Show-Cause Notice under section 122(9) for amendment of assessment under section 122(1) read with section 122(5)(i) of the Income Tax Ordinance, 2001, dated 18.01.2018, which was followed by a Notice under section 111(1)(d) of the Income Tax Ordinance, 2001, dated 11.04.2018. Both of these Notices alleged that appellant/tax-payer had concealed the credit entries in the accounts with Habib Bank Limited, Mangowal Branch, Gujrat.

58. In reply to the said Notices, it was submitted by this Appellant / Tax-payer vide Reply dated 14.04.2018 (received by the Inland Revenue Officer on 16.04.2018) that the alleged credit entries in the accounts with Habib Bank Limited, Mangowal Branch, Gujrat, did not belong to this Appellant/Tax-payer's individual business of retail-sales of Karyana items, rather the said Account belonged to an A.O.P., under the name and style of "Chimman Karyana Store" at Main Lari Adda, Mangowal Gharbi, Gujrat, and that appellant/tax-payer has been operating the said Account as Managing Member of the said A.O.P.

59. The said A.O.P. constituted w.e.f. 01.07.2010 comprises the following members:-

60. Member of the A.O.P.

61. N.T.N. of the Member of the A.O.P.

62. Share in Profit and Loss

63. Muhammad Younas

64. 1632976-7

65. 50%

66. Muhammad Abid

67. 4288125-7

68. 25%

69. Muhammad Arshad

70. 7571805-6

71. 25%

72. According to the learned AR., the credit entries-in-question represented the sales of the said A.O.P., hence, the income declared by appellant/tax-payer from his individual business at Rs. 300,000 is not under-stated / under-assessed.

73. As there had been no concealment of Sales by appellant/ tax-payer on individual account, neither his Sales declared at Rs. 2,818,800 were liable to be pitched to Rs.27,859,754, nor any addition under section 111(1)(d) of the Income Tax Ordinance, 2001 was called for, but the learned I.R.O. had disbelieved the existence of the said A.O.P. on the basis of conjectures and surmises, and illegally made the amended assessment under section 122(1) of the Income Tax Ordinance, 2001 as under:

74. Tax Year 2014

75. Tax Years 2015

76. Total credit entries/deposits in bank account

77. Rs.27,859,754/-

78. Rs.59,905,477/-

79. Less sales declared

80. Rs.2,848,000/-

81. Rs.6,144,447/-

82. Balance for addition under section 111(1)(d)

83. Rs.25,011,754/-

84. Rs.53,761,030/-

85. Add income declared

86. Rs.300,000/-

87. Rs.826,667/-

88. Net income

89. Rs.25,311,754/-

90. Rs.54,587,697/-

91. Tax

92. Rs.8,081,614/-

93. Rs.18,328,194/-

94. The appellant filed first appeal before the learned CIR (A). Being dissatisfied has now filed instant appeal.

3. The appellant/tax-payer has assailed Order-in-Appeal on the following common grounds of appeal for both the tax years 2014 and 2015:

95. "I. That the learned C.I.R.(A) has grossly erred in law in upholding an arbitrary, un-warranted and illegal Order under sections 122(1)/(5)(i)/111(1)(d) of the Income Tax Ordinance, 2001, dated 30.04.2018.

96. II. That the impugned Order-in-Appeal is totally against the pronouncement of decision by the learned C.I.R.(A) after hearing the appeal on 02.01.2019.

97. After hearing the appeal, he uttered the following words:-

98. But when the Order-in-Appeal was received on 16.01.2019, it transpired that the learned C.LR.(A) has changed his Order as under:-

99. "AR did not provide any plausible explanation as well as documentary evidence before the Assessing Officer and the undersigned in support of his contention. In these facts and circumstances Assessing Officer passed amended order under section 122(1) of the Ordinance for tax year 2014 under the law, therefore is confirmed.".

100. That the impugned Order-in-Appeal is a classic example of a non-speaking and arbitrary Order, which is un-becoming of a Judicial authority like Commissioner (Appeals). The Order under section 122(1) (ibid) had been assailed on XIII legal as well as factual Grounds (reproduced in the impugned Order-in-Appeal), but the learned C.I.R.(A) has miserably failed to judicially determine even a single Ground of Appeal, which has not only materially prejudiced the cause of this Appellant / Tax-payer, but also it amounts to miscarriage of justice.

101. IV. That this Appellant / Tax-payer had been condemned unheard. Pursuant to the issuance of Notice under sections 122(9)/122(1) read with section 122(5)(i) of the Income Tax Ordinance, 2001, dated 11.04.2018, this Appellant / Tax-payer filed Reply on 16.04.2018, whereafter there has been no communication from the learned I.R.O. as to the rebuttal of this Appellant / Tax-payer's stance, but the learned C.I.R.(A) has arbitrarily held that:-

102. "Contention of the AR that no separate notice under sections 122(5) and 111(1)(d) of the Ordinance received by the taxpayer is ruled out as the AR himself admitted that in response to notice under section 111(1)(d) of the Ordinance written reply was submitted before the Assessing Officer which was not considered.".

103. In support of this assertion, the following case-law was produced before the leaned C.I.R.(A):-

(1) 2011 PTD (Trib.) 321;

(2) 2006 PTD (Trib.) 661;

(3) 2006 PTD (Trib.) 673;

(4) 2006 PTD (Trib.) 429;

(5) 1997 PTD (Trib.) 1994;

(6) 2001 PTD 1633;

(7) 2009 PTD (Trib.) 1067

(8) 2013 PTD (Trib.) 10;

(9) 2011 PTD 2435;

(10) 1997 PTD 47;

(11) 2009 PTD (Trib.) 1963;

(12) 2009 PTD (Trib.) 1919;

(13) 2004 PTD (Trib.) 1784;

(14) 2000 PTD (Trib.) 2531;

(15) 1988 PTD (Trib.) 117;

(16) 2007 PTD (Trib.) 2601,

104. But the learned C.I.R.(A) has blatantly ignored the above-cited binding precedents.

105. V. That the learned C.I.R.(A) has failed to take notice of the fact that the impugned Order under sections 122(1)/(5)(i)/111(1)(d) of the Income Tax Ordinance, 2001 was un-warranted, void ab initio, illegal and without lawful authority, hence, liable to be cancelled, no prescribed Notice under section 122(5) of the Income Tax Ordinance, 2001 specifying the relevant clause of subsection (5) was served upon appellant/tax-payer subsequent to filing Reply to the Notice under section 122(9)(ibid) and prior to passing the impugned Order under section 122(1)(ibid).

106. The Notice under section 122(5)(4) (ibid) issued along with the Notice under section 122(9)(ibid) was pre-mature, hence, did not constitute due compliance with law. It ought to have been issued after considering the Reply to the Notice under section 122(9)(ibid) admittedly filed on 16.04.2018.

107. The said Notice prescribed under Rule 68 of the Income Tax Rules, 2002 is sine qua non for assumption of jurisdiction under section 122(1)(ibid), and its non-issuance/irregular issuance renders the impugned Order under section 122(1)(ibid) liable to be cancelled.

108. VI That the learned CIR (A) as well as the I.R.O. have grossly erred in law in disbelieving the existence of A.O.P. under the name and style of "CHIMMAN KARYANA STORE", Main Lari Adda, Mangowal Gharbi, Gujrat having N.T.N. 8898414-6, and comprising the following members:-

109. Member of the A.O.P.

110. N.T.N.

111. Share in Profit and Loss

112. Muhammad Younas

113. 1632976-7

114. 50% share in Profit and loss

115. Muhammad Abid

116. 4288125-7

117. 25% share in Profit and loss

118. Muhammad Arshad

119. 7571805-6

120. 25% share in Profit and loss

121. Without assigning any plausible reason.

122. This A.O.P. is in existence since 01.07.2010, but it did not file Returns of Income, which have been filed after promulgation of the Voluntary Declaration of Domestic Assets Act, 2018 declaring income as under on 14.05.2018:-

123. Tax Year

124. Income

125. Tax Paid

126. 2011

127. Rs.

128. 311,520

129. Rs.

130. 15,576

131. 2012

132. Rs.

133. 355,635

134. Rs.

135. 17,782

136. 2013

137. Rs.

138. 427,735

139. Rs.

140. 21,387

141. 2014

142. Rs.

143. 516,410

144. Rs.

145. 25,820

146. 2015

147. Rs.

148. 434,520

149. Rs.

150. 21,726

151. 2016

152. Rs.

153. 595,035

154. Rs.

155. 29,752

156. 2017

157. Rs.

158. 745,310

159. Rs.

160. 37,265

161. Having accepted this Declaration filed manually as well as electronically, the learned C.I.R.(A) as well as the I.R.O. had no legal and moral justification to disbelieve existence of the said A.O.P.

162. The alleged credit entries of Rs. 27,859,754 (Tax Year 2014) and Rs. 59,905,477 (Tax Year 2015) in Account No. 0823-71001312-03 with Habib Bank Limited, Mangowal Branch, Gujrat did belong to the said A.O.P., hence, the same could not be taxed in the hands of this individual / tax-payer under section 111(1)(d) of the Income Tax Ordinance, 2001.

163. VII. That the impugned additions of Rs. 27,859,754 (Tax Year 2014) and Rs.59,905,477 (Tax Year 2015) under section 111(1)(d) of the Income Tax Ordinance, 2001 was / is tenable neither on the factual plane, nor on the legal score.

164. VIII. That no Notice under section 111(1)(d) of the Income Tax Ordinance, 2001 was issued after submission of Reply to the Show Cause Notice on 16.04.2018.

165. The impugned additions of Rs. 27,859,754 (Tax Year 2014) and Rs. 59,905,477 (Tax Year 2015) have, thus, been made on 30.04.2018 without following the procedure laid down in Section 111 of the Income Tax Ordinance, 2001, which has rendered the impugned addition void ab initio, illegal and without lawful authority, hence, liable to be deleted.

166. IX. That the learned I.R.O. had not brought on record any evidence qualifying the test of 'definite information' that the sums of money to the tune of Rs. 27,859,754 (Tax Year 2014) and Rs.59,905,477 (Tax Year 2015) were the sales or any amount chargeable to tax, which suggested to the learned I.R.O. to make the following additions under section 111(1)(d) of the Income Tax Ordinance, 2001:-

167. Tax Year Addition under section 111(1)(d)

168. 2014 Rs. 27,859,754

169. 2015 Rs. 59,905,477

170. It is strange enough that when neither the learned I.R.O. ever required this Appellant / Tax-payer to produce the "books of account", nor this Appellant / Tax-payer ever produced "books of account" before the learned I.R.O., how could the learned I.R.O. make the impugned addition of Rs.27,859,754 (Tax Year 2014) and Rs.59,905,477 (Tax Year 2015) under section 111(1)(d)(ibid) alleging concealment of income or furnishing inaccurate particulars of income.

171. X. That the alleged sums of Rs. 27,859,754 (Tax Year 2014) and Rs. 59,905,477 (Tax Year 2015) could never be treated to be net income of this Appellant/Tax-payer chargeable to tax as such by any stretch of imagination.

172. The said sums of money at the most could be treated as sales, and proper G.P. rate could have been applied thereon in order to work out the taxable income after defraying the Profit and Loss Account Expenses.

173. XI. That in case of non-declaration of bank account - business or non-business, whole of the credit entries cannot be added towards net income, rather peak credit only can be added under section 111(1)(b) of the Ordinance.

174. In the instant case, though the credit entries in Account No. 0823-71001312-03 with Habib Bank Limited, Mangowal Branch, Gujrat did not belong to appellant/tax-payer, yet had the said Account belonged to appellant /tax-payer, WHOLE of the credit entries could not be charged to tax as concealed income.

175. XII. That no addition under section 111(I)(d) of the Income Tax Ordinance, 2001 is legally tenable, as the provisions of subsection (1) of Section 111 (ibid) say that the value of investment not explained by the Tax-payer shall be included in the person's income chargeable to tax under the head "Income from Other Sources", but Section 111(ibid) does not find any mention in the charging Section 39 titled "Income from Other Sources", hence, no addition under section 111 (ibid) can be made and charged to tax as "Income from Other Sources" in the present scheme of the Income Tax Ordinance, 2001.

176. XIII. That if, after submission of the Reply to the Show-Cause Notice on 16.04.2018, the learned I.R.O. required any information or evidence on any issue, he ought to have issued Notice under section 176 of the Income Tax Ordinance, 2001 with prior approval of the learned C.I.R. Without issuing the requisite Notice under section 176 (ibid), the learned I.R.O. could not accuse this Appellant / Tax-payer that he failed to establish his version.

177. XIV. That charging to tax sums of money to the tune of Rs.27,859,754 without there being any evidence that they represented 'net income' of this Appellant / Tax-payer, is a sheer mis-use of statutory powers under section 122(1)&(5) read with section 111(1)(d) of the Income Tax Ordinance, 2001 which is not only un-constitutional, illegal, and without lawful authority, but also amounts to "mis-conduct" cognizable under the Government Servants (E & D) Rules, 1973.

178. XV. That there is no material available on record to justify the impugned Order-in-Appeal as well as the Order under section 122(1) of the Income Tax Ordinance, 2001, hence, the same are tenable neither on the factual plane, nor on the legal score.

4. Having heard the learned A.R. for the appellant/tax-payer, and the learned D.R. for the Respondent/Department, we have observed that the learned CIR (A) as well as IRO grossly erred in law in disbelieving the existence of AOP under the name and style of "CHIMMAN KARYANA STORE", Main Lari Adda Mangowal Gharbi, Gujrat having N.T.N 8898414-6, and comprising the following members without assigning any plausible reason:-

179. Member of the A.O.P.

180. N.T.N.

181. Share in Profit and Loss

182. Muhammad Younas

183. 1632976-7

184. 50% share in Profit and Loss

185. Muhammad Abid

186. 4288125-7

187. 25% share in Profit and Loss

188. Muhammad Arshad

189. 7571805-6

190. 25% share in Profit and Loss

191. As per record this A.O.P. is in existence since 01.07.2010 as per Partnership Deed, dated 01.07.2010 on the basis of which N.T.N. 8898414-6 was issued by the Respondent/Department, but it did not file Returns of Income, which have been filed after promulgation of the Voluntary Declaration of Domestic Assets Act, 2018 declaring income as under on 14-5-2018.

192. Tax Year

193. Income

194. Tax Paid

195. 2011

196. Rs.

197. 311,520

198. Rs.

199. 15,576

200. 2012

201. Rs.

202. 355,635

203. Rs.

204. 17,782

205. 2013

206. Rs.

207. 427,735

208. Rs.

209. 21,387

210. 2014

211. Rs.

212. 516,410

213. Rs.

214. 25,820

215. 2015

216. Rs.

217. 434,520

218. Rs.

219. 21,726

220. 2016

221. Rs.

222. 595,035

223. Rs.

224. 29,752

225. 2017

226. Rs.

227. 745,310

228. Rs.

229. 37,265

230. Having accepted the said Declaration filed manually as well as electronically, the learned I.R.O. had no legal and moral justification to disbelieve existence of the said A.O.P., as the following credit entries in Account No. 0823-71001312-03 with Habib Bank Limited, Mangowal Branch, Gujrat

231. Tax Year

232. Credit Entries

233. 2014

234. Rs.27,859,754

235. 2015

236. Rs.59,905,477 which did belong to the A.O.P., M/s Chimman Karyana Store according to Clause (7) of the Partnership Deed reproduced as under:-

237. "(7) That the bank accounts will be opened in any bank or banks and will be operated by the managing partner Muhammad Younas singly.".

238. We, thus, see no reason to disbelieve the said A.O.P. constituted vide Partnership Deed dated 01.07.2010, on the basis of which N.T.N. 8898414-6 had been allotted by the Respondent/Department, which enabled the said A.O.P. to file Declaration under the Voluntary Declaration of Domestic Assets Act, 2018 on 14.05.2018 i.e. prior to making the impugned Amended Assessment Orders on 30.04.2018 (served on 31.08.2018).

239. It appears that when, on filing of the above-said Declaration, the learned I.R.O. came to know that he had been divested of his power to tax the said account in the hands of appellant/tax-payer individual, Mr. Muhammad Younas, he hastened to tax the whole of the credit entries in the above-said Account under section 111(1)(d) of the Income Tax Ordinance, 2001 notwithstanding the fact that Section 111(1)(d)(ibid) did not allow him to do so.

240. Section 111(1)(d) of the Income Tax Ordinance, 2001 is reproduced as under:-

241. "(d) any person has concealed income or furnished inaccurate particulars of income including -

(i) the suppression of any production, sales or any amount chargeable to tax; or

(ii) the suppression of any item of receipt liable to tax in whole or in part,".

242. We have held in a number of cases that Clause (d) of subsection (1) of Section 111(ibid) does not warrant taxation of the whole of the credit entries / deposits in a bank account maintained by a tax-payer treating the same to be "net income" chargeable to tax. Only that part of the "bank deposits / credit entries" is chargeable to tax, which can be termed as "total income". Whole of the "credit entries / deposits" in a bank account run by a businessman can never be his "total income". Instead the credit entries represent the "SALES", which, after defraying the "COST OF SALES" i.e. [Opening Stock plus Purchases minus Closing Stock] give rise to the "GROSS PROFIT", which, after deductions of Profit and Loss Account Expenses, yield the "NET PROFIT". It is "NET PROFIT", which according to the above-reproduced sub-clause (ii) of Clause (d) of subsection (1) of Section 111 of the Income Tax Ordinance, 2001 is the "item of receipt liable to tax in whole or in part".

243. The expression "liable to tax in whole" refers to the complete escapement of a source of income envisaged by clause (i) of subsection (5) of Section 122 of the Income Tax Ordinance, 2001.

244. The expression "liable to tax in part" refers to the partial escapement or under-assessment, which has been taken cognisance of by clause (ii) of subsection (5) of Section 122 (ibid).

245. We, are of the view that Section 111(1)(d) of the Income Tax Ordinance, 2001 does not warrant taxation of the whole of the "credit entries/deposits" in a bank account of a businessman.

246. Whenever the Taxation Officer comes across un-disclosed "credit entries/deposits" in a bank account, the only course available with him is to confront the tax-payer under section 122(9) of the Income Tax Ordinance, 2001 through the Notice prescribed under Rule 68 of the Income Tax Rules, 2002, and after receiving the Reply thereto, or in the event of non-compliance, after ensuring that the Notice under section 122(9) (ibid) had been duly served upon the proper person, is bound to issue Notice under section 122(5) of the Income Tax Ordinance, 2001 specifying the relevant clause thereof viz., (i), (ii) and / or (iii).

247. Subsection (9) of Section 122 of the Income Tax Ordinance, 2001 is reproduced hereunder:-

(9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.".

248. It makes obligatory for a taxation officer to confront in sufficient details all the material facts which have led him to take action under section 122(1) of the Income Tax Ordinance, 2001. Non-issuance and non-service of this Notice renders the whole super-structure of an amended assessment to be void ab initio, illegal and without lawful authority, which is liable to fall on the ground.

249. Similar are the consequences of the Notice to be issued under section 122(5) of the Income Tax Ordinance, 2001, which being a mandatory one, renders the whole edifice of the amended assessment to fall on the ground in case of its non-issuance and non-service or improper service. There is a long line of authorities on this issue, some of which, relied upon by the learned A.R., are cited as under:-

(i) 2011 PTD (Trib.) 321;

(ii) 2006 PTD (Trib.) 661;

(iii) 2006 PTD (Trib.) 673;

(iv) 2006 PTD (Trib.) 429;

(v) 1997 PTD (Trib.) 1994;

(vi) 2001 PTD 1633;

(vii) 2009 PTD (Trib.) 1067;

(viii) 2013 PTD (Trib.) 10;

(ix) 2011 PTD 2435;

(x) 1997 PTD 47;

(xi) 2009 PTD (Trib.) 1963;

(xii) 2009 PTD (Trib.) 1919;

(xiii) 2004 PTD (Trib.) 1784;

(xiv) 2000 PTD (Trib.) 2531;

(xv) 1988 PTD (Trib.) 117;

(xvi) 2007 PTD (Trib.) 2601, crux whereof is -

(a) that where a taxation officer has not issued prescribed Notice under section 122(ibid) as laid down in Part II of the 1st Schedule to the Income Tax Ordinance, 2001, the proceedings under section 122(ibid) are illegal and un-sustainable in the eye of law;

(b) that even non-specification of the relevant clauses in the Notice under section 122(5)(ibid) is fatal for the amended assessment under section 122(1) of the Income Tax Ordinance, 2001. Action to be taken under section 122(1) read with section 122(5)(ibid) has to be specified with clarity; and

(c) that the mistake of non-issuance of the Notice under section 122(5) of the Income Tax Ordinance, 2001 precisely specifying the relevant Clause thereof is "incurable". It renders the whole amendment proceedings taken to be void ab initio, illegal and without lawful authority, having the fate of cancellation of the amended assessment.

250. Keeping in view the above statements of law, when we go through the impugned Orders, we find that the I.R.O. issued Notice under sections 122(9)/122(1) read with section 122(5)(i) of the Income Tax Ordinance, 2001 on 11.04.2018, which was replied by appellant/tax-payer on 16.04.2018, whereafter there was no communication from the learned I.R.O. as to the rebuttal of this Appellant / Tax-payer's stance. He was served with the impugned Amended Assessment Order, dated 30.04.2018 on 31.08.2018.

251. After obtaining Reply to the Show-Cause Notice under section 122(9)(ibid), it was the bounden duty of the I.R.O. to issue Notice under section 122(5) of the Income Tax Ordinance, 2001 specifying the clause, which he was going to invoke.

252. Mere mentioning of "122(5)(i)" in the Show-Cause Notice under section 122(9)(ibid) is of no avail, as at the time of issuance of Show Cause Notice under section 122(9)(ibid) a taxation officer cannot pre-empt the reply / explanation to the Show-Cause Notice under section 122(9)(ibid). It would become clear only after obtaining Reply to the said Show-Cause Notice that action under which clause of subsection (5) of Section 122 would be feasible.

253. We have observed that I.R.O. did not bother to adhere to the mandatorily prescribed legal procedure while making the impugned Amended Assessment in this case. He, after obtaining Reply to the Show-Cause Notice under section 122(9) neither issued the mandatory Notice under section 122(5) specifying the relevant clause of subsection (5) of Section 122 nor he issued the mandatory Notice under section 111(1)(d) of the Income Tax Ordinance, 2001, which was a sine qua non for making an addition under section 111 of the income Tax Ordinance, 2001.

254. As a result of non-issuance of the above said Notice under sections 122(5) and 111(1)(d) of the Income Tax Ordinance, 2001 at the right time, the impugned Amended Assessments for both the tax years 2014 and 2016 are liable to be cancelled.

255. We have also considered the following observation of the learned CIR (A) in the impugned orders:-

256. "Contention of the AR that no separate notice under sections 122(5) and 111(1)(d) of the Ordinance received by the taxpayer is ruled out as the AR himself admitted that in response to notice under section 111(1)(d) of the Ordinance written reply was submitted before the Assessing Officer which was not considered.".

257. The learned C.I.R.(A) has not mentioned the date of issuance of the Notice under section 111(1)(d) of the Income Tax Ordinance, 2001. If it was issued prior to obtaining Reply to the Show-Cause Notice under section 122(9), it was pre-mature having no consequences at all. As observed earlier, we have found no Notice either under section 122(5) or under section 111(1)(d) after filing Reply to the Show-Cause Notice on 16.04.2018. Hence, we do not find ourselves in agreement with the above-reproduced observation of the learned C.I.R.(A).

258. We, however, are surprised to know that despite making the following utterance during the hearing of appeals (duly supported by the learned A.R.'s affidavit): what caused him to dismiss the appeals by holding as under:-

259. "AR did not provide any plausible explanation as well as documentary evidence before the Assessing Officer and the undersigned in support of his contention. In these facts and circumstances Assessing Officer passed amended order under section 122(1) of the Ordinance for tax year 2014 / 2016 under the law, therefore is confirmed.".

260. We have noted that the learned CIR (A) failed to apply relevant law in the ambient circumstances of this case. It is bounden duty to judicially examine the facts brought on record and the law applied by a taxation officer in the facts and circumstances of a case. If finds illegal application of law in a case by a taxation officer, he must observe it in his order. The impugned orders are therefore, liable to be cancelled.

5. Before parting with this judgment, we have also considered the following legal ground of the learned A.R. of appellant /tax-payer:-

261. "XII. That no addition under section 111(1)(d) of the Income Tax Ordinance, 2001 is legally tenable, as the provisions of subsection (1) of Section 111 say that the value of investment not explained by the Tax-payer shall be included in the person's income chargeable to tax under the head "Income from Other Sources", in the present scheme of the Income Tax Ordinance, 2001"

262. We have come across such a ground for the first time, hence we are persuaded to dilate upon it.

263. No doubt Section 111 of the Income Tax Ordinance, 2001 is a successor of Section 13 of the repealed Income Tax Ordinance, 1979. For proper appreciation, we reproduce the two sections as under:-

264. Section 13 of the repealed Income Tax Ordinance, 1979;

265. "13. Un-explained investments, etc., deemed to be income.- (1) Where,

(a) any sum is found to be credited in the books of an assessee maintained for any income year; or

(aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable article, in any year; or

(b) the assessee is found to have made any investment in any income year which is not recorded in the books of account maintained for that income year or is not shown in the wealth statement or return of wealth furnished under section 58 in respect of that year; or

(c) the assessee is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of account, if any, maintained by him or is not shown by him in any wealth statement or return of wealth furnished under section 58 in respect of that year; or

(d) the assessee has made investment in any income year or is found in respect of any such year to be the owner of any valuable article and the Deputy Commissioner finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement or return of wealth furnished under section 58 in respect of that year; or

(e) an assessee has, during any income year, incurred any expenditure, and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of the money or valuable article, excess amount or the money from which the expenditure was met, as the case may be, or the explanation offered by him is not, in the opinion of the Deputy Commissioner, satisfactory, the sum so credited, the value of the investment, the money or the value of the article, the excess amount or the amount of the expenditure, as the case may be, shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance:

266. Provided that, where any act referred to in clauses (a) to (e) is discovered after the assessment of income of the income year to which the said act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in which the said discovery is made:

267. Provided further that in cases referred to in clauses (aa) to (e) such income shall not be chargeable to tax unless approval of the Inspecting Additional Commissioner has been obtained.

(2) Where the value of any investment or article referred to in clause (aa), (b), (c) or (d), or the amount of expenditure referred to in clause (e) of subsection (1) is, in the opinion of the Deputy Commissioner, too low, the Deputy Commissioner may determine, after giving a reasonable opportunity to the assessee of being heard, a reasonable value or the amount thereof, as the case may be, and all the provisions of subsection (1) shall have effect accordingly.

268. (2A) The provisions of this section shall not apply in respect of any amount of foreign exchange remitted from abroad through normal banking channels and got encashed in Pakistan rupees from a scheduled bank and a certificate is produced to that effect from such bank.

(3) The Central Board of Revenue may by rules provide for the determination of the value of any property or article for the purposes of this section."

269. Section 111 of the Income Tax Ordinance, 2001:

270. "111. Unexplained income or assets. - (1) Where -

(a) any amount is credited in a person's books of account;

(b) a person has made any investment or is the owner of any money or valuable article;

(c) a person has incurred any expenditure; or

(d) any person has concealed income or furnished inaccurate particulars of income including -

(i) the suppression of any production, sales or any amount chargeable to tax; or

(ii) the suppression of any item of receipt liable to tax in whole or in part, and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person's income chargeable to tax under head "Income from Other Sources" to the extent it is not adequately explained:

271. Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.

(2) The amount referred to in subsection (1) shall be included in the person's income chargeable to tax:

(i) in the tax year to which such amount relates if the amount representing investment, money, valuable article or expenditure is situated or incurred in Pakistan or concealed income is Pakistan-source; and

(ii) in the tax year immediately preceding the tax year in which the investment, money, valuable article or expenditure is discovered by the Commissioner and is situated or incurred outside Pakistan and concealed income is foreign-source.

272. Explanation. - For the removal of doubt, it is clarified that where the investment, money, valuable article or expenditure is acquired or incurred outside Pakistan in a prior tax year and is liable to be included in the income of tax year 2018 and onwards on the basis of discovery made by the Commissioner during tax year 2019 and onwards and the person explains the acquisition of such asset or expenditure from sources relating to tax year in which such asset was acquired or expenditure was incurred, such explanation shall not be rejected on the basis that the source does not relate to the tax year in which the amount chargeable to tax is to be included.

(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person's income chargeable to tax under the head "Income from Other Sources" in the tax year to which the investment, valuable article or the expenditure relates.

(4) Subsection (1) does not apply,-

(a) to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding five million Rupees in a tax year that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.

(5) The Board may make rules under section 237 for the purposes of this section.".

273. Perusal of both the Sections reveals that they themselves are not the "charging section". They only define and explain the "Unexplained investments, etc. deemed to be income" / "Unexplained income or assets", but for the purpose of charging to tax, such "unexplained income or assets" have been referred to the head "Income from Other Sources".

274. We have found that Section 30 of the Income Tax Ordinance, 1979 titled "Income from other sources" did contain the following clause (e) for charging to tax the "Unexplained investments, etc.":-

275. "30.(e) any income to which subsection (12) of section 12 or section 13 applies",

276. But when we go through Section 39 of the Income Tax Ordinance, 2001 titled "Income from other sources", we do not find any clause thereof akin to clause (e) of Section 30 of the repealed Income Tax Ordinance, 1979.

277. We are find force in the arguments of the learned A.R. that had not it been necessary to mention in the charging Section, there would not have been clause (e) of Section 30 of the Income Tax Ordinance, 1979. Without mentioning Section 111 in the charging Section 39 of the Income Tax Ordinance, 2001 obviously no "un-explained income / assets" can be brought to tax as "income from other sources".

278. It appears to be a legislative lapse which need be addressed by the legislatures.

6. Upshot of the above discussion is that the impugned Amended Assessment under sections 122(1)/122(5)(i)/111(1)(d) of the Income Tax Ordinance, 2001, dated 20.04.2018 were tenable neither on the factual plane, nor on the legal score hence, they were wrongly and illegally confirmed by the learned CIR(A). We therefore vacate the impugned Order of the learned CIR (A) and cancel the Amended Assessment Order under sections 122(1)/122(5)(i)/111(1)(d) in respect of tax years 2014 and 2015 dated 30.04.2018.

7. Both the appeals filed by the taxpayer are decided in the manner referred above.

279. KMZ/44/Tax (Trib.) Order accordingly.