ISLAMABAD: Accepting taxpayer counsel Muhammad Alee’s argument that penalty orders were passed against his client mechanically, without establishing deliberate default or any loss to the national kitty, the Appellate Tribunal Inland Revenue (ATIR) Islamabad dismissed the Commissioner Inland Revenue Islamabad’s appeal in the matter.
The ATIR ruled it has no power to enlarge, reframe, or reconstruct the departmental appeal to effectively convert one appeal into twelve.
Dismissing the Commissioner Inland Revenue (WHT Zone), RTO Islamabad’s appeal, the ATIR, Division Bench-III, Islamabad, held that a single memorandum of appeal cannot be used to challenge twelve separate penalty orders, each of which carried an independent right of appeal requiring independent invocation of appellate jurisdiction.
Division Bench-III of the ATIR, comprising two members, Muhammad Naeem Ashraf and Nasir Iqbal, passed the order in response to a departmental appeal against a consolidated order of April 13, 2020, issued by the Commissioner Inland Revenue (Appeals-II), CIR(A), Islamabad.
As per details, the CIR(A) had disposed of twelve separate appeals filed by the taxpayer – arising from distinct penalty orders under section 182(1) of the Income Tax Ordinance, 2001, for monthly tax periods between July 2017 and June 2018 through one consolidated order, and had modified the penalty imposed by the Assessing Officer.
According to the order, the taxpayer, an educational institution, was treated as a withholding agent under Sections 236I and 155 of the Ordinance. The Assessing Officer found the withholding agent had failed to furnish withholding statements required under Section 165 for the relevant tax periods.
A six-page order in the matter disclosed that show-cause notices were issued under Section 182(2) through IRIS and UMS, but the taxpayer neither responded nor sought an adjournment. The Assessing Officer consequently imposed the minimum prescribed penalty of Rs 10,000 in each of the twelve separate orders.
Reacting to the verdict on social media, Advocate Muhammad Alee said: “Humbled to have succeeded in arguing a case before the ATIR on behalf of the Taxpayer. My arguments regarding the exclusion of the Taxpayer from the purview of Section 153 of the ITO due to a lesser turnover than required, a mechanical application of the penalty and no loss to the exchequer prevailed with the ATIR. The ATIR also noted that, notwithstanding the merits of the case, the Appeal was not maintainable because only one appeal had been filed against an order passed in the 12 appeals filed before the CIR(A)”.
On appeal, the CIR(A) reduced the cumulative penalty to Rs 25,000 for the entire period from 01.07.2017 to 30.06.2018. The department, being an aggrieved party, filed a single appeal before the Tribunal against the consolidated CIR(A) order, arguing that the taxpayer was legally obliged to furnish withholding statements irrespective of actual tax deduction, and that the Assessing Officer had already imposed only the statutory minimum penalty, leaving no justification for reduction.
Advocate Muhammad Alee, counsel for the taxpayer, contended that the penalty orders had been passed mechanically without establishing any conscious or deliberate default. Alee further argued that the taxpayer’s turnover fell below the threshold prescribed under Section 153(7)(h), and that no loss of revenue had been demonstrated.
Examining the maintainability of the appeal, the Tribunal held that each penalty order passed by the Assessing Officer constituted a separate adjudicatory order creating a distinct civil liability for a distinct tax period. The Division Bench observed that consolidation of the twelve first appeals by the CIR(A), done merely for procedural convenience, did not merge the separate orders into one indivisible cause of action for the purpose of further appeal. Referring to Section 131 of the Ordinance, the bench noted that the terms ‘an order’ and ‘such order’ contemplate an appeal against the specific order being contested, and that the department was required to file either twelve separate appeals or a properly constituted composite appeal disclosing and challenging all twelve orders – a requirement it failed to meet. The Tribunal further held that this defect was not merely technical, emphasizing that the right of appeal is a statutory right to be exercised strictly in the manner prescribed by law, and that it could not enlarge, reframe, or reconstruct the departmental appeal to effectively convert one appeal into twelve.
Even without prejudice to this legal finding, the bench declined to interfere with the CIR(A)’s ultimate conclusion on merits, noting that the foundational assumption underlying the penalty orders that the taxpayer was liable to furnish statements for all periods and that mere non-filing warranted separate penalties had already been disturbed by the CIR(A), rendering the original penalty orders unsustainable as framed.
Finally, the departmental appeal was accordingly dismissed, both on account of its defective filing and on merits.
