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Click=
Link
to view Judgment.
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Title |
Citation |
Remarks |
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01 |
(=
2000) 82
Tax 105 (Trib) |
B=
ooks of
Accounts- their appraisal by assessing officer explained. |
|
|
02 |
(=
2000) 82
Tax 117 (Trib) |
R=
eview of
predecessors appellate order by successor in the garb of rectification not
permissible. |
|
|
03 |
(=
2000) 82
Tax 96 (Trib) |
R=
eview of
predecessors appellate order by successor in the garb of rectification not
permissible. |
|
|
04 |
(=
2001) 83
Tax 35 (Trib) |
E=
xemption
u/s 118-D when rightly due, cannot be curtailed by concomitant charge u/s
80-D. |
|
|
05 |
(=
2001) 83
Tax 71 (Trib) |
E=
xercise
of revisionary jurisdiction u/s 17-B of W.T. Act 1963 explained. |
|
|
06 |
(=
2001) 84
Tax 77 (Trib) |
E=
xercise
of jurisdiction u/s 66A of I.T.Ord’79 explained. |
|
|
07 |
(=
2001) 84
Tax 77 (Trib) |
C=
harge of
C.A.T explained. |
|
|
08 |
(=
2001) 84
Tax 153 (Trib) |
U=
nexplained
Investment u/s 13(1)(aa) & Exemption vide Clause 130-A of 2nd
Schedule to the I.T. Ord’79 explained. |
|
|
09 |
(=
2001) 84
Tax 189 (Trib) |
S=
tatutory
provisions governing Wealth Tax Assessment under W.T. Act 1963 explained.=
|
|
|
10 |
(=
2002) 85
Tax 387 (Trib) |
W=
hen
collective enterprise constitutes an AOP. |
|
|
11 |
(=
2002) 86
Tax 403 (Trib) |
E=
xercise
of revisionary jurisdiction u/s 66A of I.T. Ord’79 explained. |
|
|
12 |
(=
2003) 87
Tax 8 (Trib) |
E=
xercise
of revisionary jurisdiction u/s 66A of I.T. Ord’79 explained. |
|
|
13 |
(=
2003) 87
Tax 303 (Trib) |
D=
eemed
Income u/s 12(18) of I.T.Ord’79- how arises. |
|
|
14 |
(=
2003) 87
Tax 241 (Trib) |
E=
xercise
of option to opt out of presumptive tax regime explained. |
|
|
15 |
(=
2003) 88
Tax 21 (Trib) |
U=
nexplained
investment u/s 13(1)(a) of I.T.Ord’79 explained. |
|
|
16 |
(2003) PTD TRIB 2547 |
U=
nexplained
investment u/s 13(1)(a) of I.T.Ord’79 explained. |
|
|
17 |
(=
2003) 87
Tax 524 (Trib) |
M=
ischief
of Section 12(9A) of I.T. Ord’79 explained. |
|
|
18 |
(=
2003)
PTD TRIB 2499 |
M=
ischief
of Section 12(9A) of I.T. Ord’79 explained |
|
|
19 |
(=
2003) 88
Tax 35 (Trib) |
A=
ssessee
in default u/s 52 of I.T. Ord’79 explained. |
|
|
20 |
(=
2003)
PTD TRIB 2586 |
A=
ssessee
in default u/s 52 of I.T. Ord’79 explained |
|
|
21 |
(=
2003)
PTD TRIB 1972 |
W=
hen
properly substantiated assessee’s declared version required to be
accepted. |
|
|
22 |
(=
2003) 88
Tax 201 (Trib) (=
2004) 89
Tax 107 (Trib) |
W=
hen
reliance can be placed on ‘parallel case’ to discard regd sale
deed. |
|
|
23 |
(2003) 88 Tax 136 (Trib) |
C=
o-owners
of immoveable property do not necessarily also constitute an AOP. |
|
|
24 |
S.O.I.T. Vs M Burhan Khalid c/o M F Ellahi & Co Pv=
t Ltd
Sialkot |
(=
2003) 88
Tax 316 (Trib) |
O=
wnership
u/s 2(16) of W.T. Act 1963 explained. |
|
25 |
S.O.I.T Vs Irfan Farooq c/o Prestige Surgical Pvt Ltd
Sialkot |
(=
2004) 89
Tax 301 (Trib) |
O=
wnership
of Immoveable Property under Wealth Tax Law explained. |
|
26 |
(=
2004) 89
Tax 504 (Trib) (=
2004) 90
tax 282 (Trib) |
P=
ayment
of penalty for infraction of law not admissible business expenditure u/s
23(1) of I.T.Ord’79- 66A action in order. |
|
|
27 |
(=
2004) 89
Tax 509 (Trib) |
E=
xcess
Income over presumptive income- Extent of Credit- Rectification of main o=
rder
not possible as no error found therein. |
|
|
28 |
(=
2004) 90
Tax 36 (Trib) |
W=
hen
assessment order incurably defective annulment is in order & no law p=
oint
arises for reference to High Court. |
|
|
29 |
(=
2004) 90
Tax 88 (Trib) |
A=
ccounting
treatment of Excise Duty explained. |
|
|
30 |
(=
2005)
PTD TRIB 323 |
A=
ccounting
treatment of Excise Duty explained. |
|
|
31 |
(=
2004)
PTD TRIB 2777 |
C=
arry
forward of accounting depreciation on fixed assets when intervening period
falls in the presumptive tax regime- law explained. |
|
|
32 |
(=
2004) 90
Tax 125 (Trib) |
C=
apital
gain – How arises. |
|
|
33 |
(2004) 90 Tax 325 (Trib) |
E=
xparte
asstt finalized belatedly not illegal provided default on due date
established. |
|
|
34 |
(2005) PTD TRIB 211 |
E=
xparte
asstt finalized belatedly not illegal provided default on due date
established. |
|
|
35 |
(=
2004) 90
Tax 344 (Trib) |
A=
ssessee
placed in presumptive tax regime cannot be burdened with addl taxation. |
|
|
36 |
(=
2005)
PTD TRIB 203 |
A=
ssessee
placed in presumptive tax regime cannot be burdened with addl taxation |
|
|
37 |
Irfan Farooq c/o Prestige Surgical Pvt Ltd Sialkot Vs =
DCIT
Sialkot |
(=
2004) 90
Tax 346 (Trib) |
N=
o error
in main order [ (2004) 89 Tax 301 (Trib)] & same not rectifiable. |
|
38 |
(=
2005)
PTD TRIB 234 |
M=
ultiple
statutory Notices issued simultaneously under different provisions of sta=
tute
cause serious prejudice to taxpayer. |
|
|
39 |
(=
2005)
PTD TRIB 224 |
i=
).
Payment of Service Charges to Federal Bank by assessee on account of use =
of
Credit Line is admissible expenditure u/s 23(1). ii) Looking to ambient
circumstances gain on sale of defaulters immoveable properties is a reven=
ue
gain & not capital gain. |
|
|
40 |
(=
2005)
PTD TRIB 309 |
L=
evy of
penalty for failure to file C.A.T Return justified. |
|
|
41 |
(=
2005)
PTD TRIB 311 |
i=
. Return
qualifying USAS is reqd to be processed u/s 59(1) & not 59A- i=
i. When
Return wrongly accepted u/s 59A & prejudice to revenue patent IACR=
17;s
intervention u/s 66A justified. |
|
|
42 |
(=
2005)
PTD TRIB 1578 |
i=
. Matter
outside scope of rectification u/s 156. ii. Limitation u/s 156(4) not
attracted. Iii. Applicable Law is the current law notified thru Finance B=
ill. |
|
|
43 |
(=
2005)
PTD TRIB 1593 |
i.
IAC’s intervention u/s 17-B of WTA not possible in the year when
provision not borne on Statute. Ii. When person holds clear title to
immoveable property he cannot claim to be ‘benamidar’ 7 not r=
eal
owner on the basis of some indirect evidence adduced by him. Iii. When as=
set
concealed by person holding clear title no claim for exemption under 2 |
|
|
44 |
(=
2005)
PTD TRIB 1602 |
i.
Deducting Authority u/s 50(4) bound to deposit deducted tax in Treasury
within stipulated timeframe. Ii. Orders u/s 52 of I.T.Ord’79 may be
passed separately for different time frames falling in the same asstt per=
iod. |
|
|
45 |
(2005) PTD TRIB 1708 |
i.
Limitation u/s 17(A)(1)(a) of WTA explained- ii. Revision of W.T. return must be
corroborated by material on record. |
|
|
46 |
(=
2005)
PTD TRIB 1676 |
R=
eturn
properly qualified USAS reqd to be accepted and no arbitrary
disqualifications invented by IAC on Inspection of record of any avail u/s
66A. |
|
|
47 |
(=
2005)
PTD TRIB 1562 |
i=
. No
limitation of time laid down in law for action u/s 52 of I.T.Ord’79=
. ii
Examination of books of accounts not condition precedent for invoking
provisions of Section 52. |
|
|
48 |
(=
2005) 92
Tax 33 (Trib) |
DB
competent to declare judgment of another DB as ‘per incuriam’
provided the facts / law so justify. |
|
|
49 |
(=
2005) 92
Tax 41 (Trib) |
W=
hen
factual position / legal position not properly appreciated by 1st appellate authority remand back =
in
order. |
|
|
50 |
(=
2005)
PTD TRIB 2151 |
I=
AC Vs
Rana Textile Mills Pvt Ltd Lhr |
|
|
51 |
(=
2005) 92
Tax 103 (Trib) |
M=
ischief
of Section 12(18) of I.T.Ord’79 explained. |
|
|
52 |
(=
2006) 93
Tax 99 (Trib) |
I=
ssue of
multiple statutory notices simultaneously under different provisions of t=
he
statute not approved. |
|
|
53 |
(=
2006) 93
Tax 101 (Trib) |
i=
. Income
attributable to a particular source reqd to be substantiated. i=
i. Valid
contract between two genuine parties reqd to be bonafide, arms length &am=
p;
transparent. |
((2000) 82 TAX 105 (Trib.)J
[ THE INCOME TAX APPELLATE TRIBUN=
AL,
Present:
M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed,
Judicial
Member.
I.T.A.
Nos. 2447/LB and 2448/LB of 1992-93, 9958/LB of 1993-94 and
5609/LB
of 1995 (Assessment years 1990-91 to 1993-94),
decided
on 23-5-2000.
Department
Income
Tax Ordinance, 1979 cXXl of 1979) - Section 13 - Rejection of accounts -
Upholding by C.l.T. (A) - Validity - Maintenance of record and checking by
Excise/Sales Tax Authorities - Rudiments of difference in requirement of ty=
pe
of records to be determined for purposes of sa/es tax and for purposes of
determination of total income - Range and scope of examination of tax payers
account by assessing officer and examination of Excise/Sales Tax Authoritie=
s -
Manipulation of trading account - Effect of - Opportunity of being heard -
Question of fact - Application of G.P. rate of 35%
-
Justification of - Whether Assessing officer’s examination of a tax
payer’s account had much wider range and scope than the examination of
Excise/Sales Tax Authorities in the context of le of excise duty/sales tax -
Held yes - Whether reasonable opportunity had invariably been given to the
assessee to submit its books of accounts and necessas’y supporting
documentation - Held yes - Whether Assessing officer had not drawn adverse
inference behind the back of assessee - Held yes - Whether accounts maintai=
ned
by assessee-company were specially tailored to the requirements of Excise/S=
ales
Tax Authorities and were deficient for purposes of determination of total
income by Income Tax Officer - Held yes - Whether looking to the type and r=
ange
of products manufactured by assessee and its privileged position in market,
application of G.P. rate of 35% was fair and reasonable - Held yes
Assessing
officer’s examination of at taxpayer’s accounts has a much
wider
range and scope then the examination of Excise/sales Tax Authorities
in
the context of levy of Excise Duty/Sales Tax. [ 111 JA.
The
appellant-company had itself disclosed “other income” in the
assessment years 1988-89 & 1989-90 but such ‘other income’ =
has
not been disclosed in the assessment years 1990-91 to 1992-93. Such
‘other income’ is relateable to income realized as a result of =
sale
of waste. The only logical conclusion from the company’s non-declarat=
ion
of other income’ in 1990-91 to 1993-94, therefore, would be that the
company has managed to reduce waste to ‘nil’ which of-course is
incredible and totally implausible as no manufacturing facility, no matter =
how
efficiently managed, can chieve 100% efficiency and reduce wastage to zero.=
[
113 ]B.
Assessee
Versus
106 TAXATION [ 82
Close
scrutiny of the assessment record, including order sheets from 1990-91 to
1993-94, show that reasonable opportunity has invariably been given to the
appellant to submit its books-of-accounts and necessary supporting
documentation before the assessing officer. [ 113 ]C.
However,
it is the CIT(Appeal’s observation, duly recorded in the appellate
orders, that the appellant failed to avail of this opportunity and did not
produce the company’s books-of-accounts and related documentation bef=
ore
him at appellate stage to rebut the assessiAg officer’s observations
recorded In the assessment orders that were the subject-matter of appeal.
[
113-114 ID.
We
find that Nnecessary opportunity’, as envisaged in law has inf act be=
en
given
to the appellant and the assessing officer has not drawn adverse
inference
‘behind the back’ of the appellant. [ 114 JE.
As
already explained above, the accounts maintained by appellant- company are
specifically tailored to the requirements of Excise/Sales Tax Authorities a=
nd
are deficient for purposes of determination of total income by the Income T=
ax
Officer. The appellant-company Is a manufacturing concern and is expected to
maintain daily production record showing utilization of raw- material inputs
viz-a-viz achieved production. It is not understandable as to why the
appellant-company has not produced such record before the assessing officer=
. [
115 ]F.
The
GP rate usually applied in the case of a manufacturer’s products
comparable to the products manufactured by the appellant, ranges between 30=
to
40%. The department has been applying GP rate of 35% uniformly and such
application has been confirmed by the CIT, (A) and ITAT. Looking to the type
and range of products manufactured by the appellant (self-adhesive PVC, BOP=
P,
Kraft Paper Tapes, Neoprene Resins and industrial Glues) and the fact that =
it
uses state of the art; imported technology and high-quality raw-material in=
puts
with a high import component, and taking into account the ready demand for =
its
finished products and its privileged position in the market, application of=
GP
rate at 35% is fair and reasonable. Hence maintained.
[
116 ]G.
Cases
referred to:
(1967)
PTD 205 and (1981) PTD’213.
Muhammad
Akbar, F.C.A., for the Appellant.
Mrs.
Ta/at A/ta!, D.R., for the Respondent.
Date
of hearing: 13-4-2000.
ORDER
[
Order was passed by M. Munir Qureshi, Accountant Member.] -
The
appellant, a Public Limited company, engaged in the manufacture and
2000] APPL TRIBUNAL [ No. 2447/LB of 1992=
-93] 107
sale
of Adhesive Tapes tiled writ petition before the Honourable Lahore High Cou=
rt
against appeals decided by the Income Tax Appellate Tribunal for the assess=
ment
years 1990-91 to 1993-94 vide ITA No. 2447/LB of 1992-93 (Assessment year
1990-91), ITA No. 2448/LB of 1992-93 (Assessment year 1991 -92), hA No. 995=
8/LB
of 1993-94 (Assessment year 1992-93) and ITA No.
5069)/LB
of 1995 (Assessment year 1993-94). In the cited consolidated orders of the =
hAT,
dated 25-10-1997, the Tribunal has upheld rejection of the Company’s
accounts by the CIT(A) but accorded relief in the estimates of Turnover as
under:
Asstt:
year. Sales<=
span
style=3D'mso-tab-count:1'> Sales Sales
declared. Estimated. reduced by
hAT,
1990-9 &=
nbsp; Rs. 86,67,224
1991-92 =
Rs. 1,53,51,037=
1,65,00,000 1,60,00,000
1992-93 =
Rs. 72,64,599
1993-94 =
Rs. 79,87,583
As
for cost of sales, the assessing officer had applied G.P. rate uniformally =
at
35% in the assessment years 1990-91 to 1993-94 except for assessment year 1=
991
-92 in which the declared G. P. rate of 42.2% has been adopted. The declared
and applied G. P. rates in 1990-91 to 1993-94 are summarized below:
Asstt:
year. G. P.<=
span
style=3D'mso-tab-count:1'> G. P. By ITAT.
declared =
applied
1990-91 =
14.24% &=
nbsp; 35% 35%
1991-92 =
42.2% 42.2% 35%
1992-93 =
Gross
Loss 35% 35%
1993-94 =
24.19% &=
nbsp; 35% 35%
As
regards add backs made against P&L account expenses claimed by the Comp=
any,
the hAT had accorded relief to appellant by deleting add backs made against
Printing & Stationary and Entertainment, and had confirmed add backs ma=
de
against Vehicle Running and Charity & Donations in all the years. As for
Postage, Telephone & Telegraph, the ITAT had fixed add back quantum at =
15%
of billed amount. In the case of Repair & Maintenance for 1990-91 and
1991-92, the ITAT had restricted add back amount to As. 20,000/- and As.
50,000/-
respectively and had confirmed add backs made for 1992-93 and
1993-94
as approved by CIT(A). In the case of Miscellaneous Expenses, add backs mad=
e in
1990-91 and 1991-92 had been deleted. In the case of carriage expenses, the
ITAT had confirmed add backs made for 1990-91 and 1991-92 and reduced the a=
dd
back to As. 7,500/- in 1992-93 and As. 10,000/- in 1993-
108 TAXATION [
94.
In the case of Packing Material, add backs made for 1990-91 to 1993-94 had =
been
confirmed.
The
first appellate authority had upheld rejection of appellant’s accounts
for the assessment years 1990-91 to 1993-94. The CIT(A) in his orders for t=
he
assessment years 1990-91 and 1991-92 has upheld rejection with the following
observation: NThe record protuced before the officer was not produced befor=
e
me.
Details of purchases and sales lying on records indicate unverlable address=
es
of parties whom it was not possible to contact. Apparently, the
assessee/appellant is represented by a Chartered accountant who ought to kn=
ow
his duties $ If complete addresses are not furnished before the officer it =
Is
not possible for him to put them to any verification whereas it cannot be s=
aid
that in calling for details no opportunity to prodl4ce that were complete i=
n
•
every respect was not provided.
In
these circumstances, the first and foremost duty of
-
representathies in appeal should be to appear with relevant records in rebu=
ttal
of the observations contained in the assessment orders. Obviously, these ap=
peal
proceedings provide further opportunity in support of the income returned.
Hence this opportunity, which lapses by lathes that are attributable direct=
ly
to the assessee and its representatives.
History
in the case also indicates rejection of books and estimates of sales and
applied rates in the past two years. G. P. applied at 35% is based on histo=
ry
and estimated sales not excessive and In this view of the matter I decline =
to
interfere particularly when the trading a/c additions are under-cast as the
declared profits were under-valued on a/c of miscellaneous sales of empty
cartons treated as a direct deduction from costs which is not an approved
principle of accounting.
For
assessment years 1992-93 and 1993-94, the CIT(A) has again upheld
rejection
citing the position of accounts statedly maintained on the same lines
as
in assessment years 1990-91 and 1991-92 when these had been rejected.
The
appellant in writ petition filed before the Lahore High Court has argued th=
at
its accounts had been wrongly rejected by the Department in the assessment
years 1990-91 to 1993-94 and the said rejection of its accounts have been
confirmed without any justification by the first appellate authority and the
Income Tax Appellate Tribunal.
The
Honourable High court in disposing of appellant’s writ petition has
observed
that the ITAT while determining the tax liability of the assessee has
not
examined the principles on which that liability was determined.
2000] APPL. TRIBUNAL P.T.A. No. 2447/LB of
1992-93] =
; 109
Accordingly,
the decision of the Tribunal for the assessment years 1990-91 to 1993-94 has
been set-aside and matter remitted back to the ITAT for denovo decision with
the specific direction that the reasons be given if the Tribunal does not
accept the accounts furnished by the Appellant.
The
appeHant in arguing its case for acceptance of the Company’s accounts
emphasized that the Company maintains a comprehensive set of accounts with =
full
supporting documentation and the Department had rio valid reasons to reject=
the
same. It especially pointed out that the goods manufactured by the
appellant-company are subject to levy of sales tax and the prescribed recor=
ds
as per relevant Excise Rules have been duly maintained and scrutinized by t=
he
Excise/Sales Tax Authorities. The said record comprising RG-I,
The
main thrust of appellant’s arguments in support of its contention that
declared version be accepted is that the record maintained as per prescribed
Excise Rules Is sufficient to substantiate the final accounts of the Company
submitted before the assessing officer alongwith the Return of Income. We h=
ave
given this matter our earnest consideration as it is of considerable
significance in deciding the issue before us. In our considered opinion, th=
ere is
a fundamental difference in the requiremePt of types of record/accounts in =
the
context of liability to be determined for purposes of sales tax and for
purposes of determination of total Income. In the case of determination of
ability for purposes of levy of sales tax, the Excise/Sales Tax Authorities=
are
mainly concerned with monitoring production and evaluating average sale rat=
e.
The Excise Authorities expect a minimum level of production to be achieved
periodically and provided that level is achieved, the Excise Authorities are
generally satisfied with the results disclosed. The Excise Duty is paid with
reference to achieved production and sales tax is levied on the Turnover (i=
.e.
manufactured goods that are disposed off in the market. If the Excise/Sales=
Tax
Authorities are satisfied that production of goods is correctly recorded and
the average sale price disclosed is reasonable, then in their view of the
matter the available records as per the prescribed Excise Rules are suffici=
ent
and no further queries are considered necessary.
In
the case of determination of total income, however, the range and scope of
accounts/supporting documentation required is, in our opinion, much wider. =
The
assessing Officer is not simply concerned with the achieved level of produc=
tion
and the quantum of sales made in the market. The assessing officer must go
beyond actual physical production and examine purchases and incidental expe=
nses
thereon. He must examine average purchase price in-depth and be satisfied t=
hat
it is correctly disclosed and that
110 TAXATION [ 82
there
is no under/over invoicing. Similarly, the sales are subjected to close
scrutiny to see that there are no significant variations in sale rate of the
same commodity/goods and that the average sale rate is consistent with the =
bona
fide price prevailing in the market. The cost of sales is a matter of
consequence for the assessing officer as the gross profit rate evolving
expressed as a percentage is often referred to while evaluating the declared
trading results. The G.P. percentage is routinely cited by the assessing
officer while framing an order of assessment. This G. P. percentage is
generally not accepted to change significantly from year to year, “ot=
her
things remaining the same” and further more, disclosed G. P. percenta=
ge
is expected to be comparable with the G. P. percentage declared in other.
similar cases.’ Variations in the 6. P. percentage are required to be
closedly investigated and commented upon by the assessing officer and the
assessee is interrogated on the same and where no satIsfactory reasons are
forth-coming for a G.P. percentage that is not upto the level expected from=
the
business then the prevailing market’ G. P. percentage is usually appl=
ied.
The purchases and sales are also scrutInIzed to see how far these are prope=
rly
vouched and verifiable. Where purchases and/or sales are found to be not fu=
lly
and properly vouched/verifiable, then the possibility of rejection of decla=
red
version is considered. THE ASSESSING OFFICER MUST ALSO SEE THAT THE MANNER =
IN
WHICH THE ACCOUNTS ARE DRAWN UP CONFIRM TO STANDARD ACCOUNTING PRACTICES AND
PROPERLY REFLECT PROFITABILITY POSITION. This is a matter of considerable
significance for the assessing officer because he has to rule out any
manipulation of trading results so as to arbitrarily achieve acceptable gro=
ss
profit say by under Invoicing purchases or debiting the P&L account with
expenses that properly pertain to the trading account. Similarly, he must
analyse sales made and see whether the sales returned back to the seller for
any reason have been reduced from the gross sales or not. He must also see
whether any discounts allowed by way of reduction of sales price have been
given proper effect in the trading account and whether any tax-duty on sales
made are included in the sales disclosed. All these aspects have a direct
bearing on the gross profit position. The gross profit percentage is one of=
the
essential parameters employed to appraise the operating results. Thus is a
tax-payer is able to hood-wink the assessing officer by manipulating the
trading account he may arbitrarily achieve the required level of gross prof=
it
in its particular line of business. The assessing officer is thus required =
to
make lndepth examination of the debit and credit sides of the trading accou=
nt
to rule out any manipulation. The tax-payer must facilitate the assessing
officer in his endeavour to determine the tax-payer’s total income by
maintaining accounts in a manner that enable the assessing officer to corre=
ctly
determine the tax payer gross and net profit in a given time frame. The
tax-payer must also be prepared to answer various queries regarding the run=
ning
of the business, the production process employed, the waste disclosed, the
capacity utilization, the unit consumption of energy, the disposal of waste=
and
resultant income
2000] APPL. TRIBUNAL [ No. 2447/LB of 199=
2-931 111
therefrom
(etc). Even with regard to business expenses not directly debitable to the
trading account but required to be charged to the P & L account. docume=
ntation
Is required to be produced to substantiate the expenses and the assessing
officer Is required to examine the documentation and the reasonableness of =
the
expenditure claim In the context of the business transacted by the tax-paye=
r.
Thus were the assessing officer is, say, of the opinion that a particular
expenditure claim preferred (like for example expenses claimed for us of
telephone) contain a personal element then appropriate disallowance of the
claim may be required to be made. The assessing officer may also disallow an
expenditure claim in its entirety If it is found that the expenditure has no
proper nexus with the business transacted. The assessing officer will also
disallow expenditure that is found to be of a “capital nature” =
as
only Revenue’ expenditure can be debited to the P&L account. The
credit side of the P & L account must also be looked into. Generally
speaking income realized by a business that is not directly relatable to the
trading activities as such, is credited to the P & L account. Thus inco=
me
realized by, say disposal of waste material/packing material Is credited to=
the
P&L account directly,. Similarly, other receipts/incomings not directly
relatable to trading activity are credited to the P & L account.
The
examination of the balance-sheet is again a very significant requirement In=
the
assessing officer’s appraisal of accounts. The assets and liabilities
sides of the balance-sheet require close scrutiny to ensure that whatever
accretion/decretion is cited is properly explained. Any unexplained accreti=
on
has to be looked into and evaluated in terms of express statutory stipulati=
on.
Such unexplained accretion can be found to constitute “deemed
income” and separately included in a tax-payer’s total income. =
Even
where an accretion is explained, it can sometimes have tax consequences, Th=
us
where a loan is received otherwise then by crossed cheque beyond a stipulat=
ed
threshhold, the same Is to constitute tax-payer’s deemed Income u/s 12
(18). The valuation of stocks is also required to be made in a consistent
manner according to well-defined parameters.
As
is obvious from what is stated above, the assessing officer’s
examination
of at taxpayer’s accounts has a much wider range and scope A then the
examination of Excise/sales Tax Authorities in the context of levy of
Excise
Duty/Sales Tax.
In
the case of the appellant, examination of the assessment record
clearly
establishes that (a) the appellant has consistently credited the
company’s
purchase account in the ledger by the amount of sales proceeds
of
containers/cartons in which raw-material is purchased. This has the
obvious
effect of reducing purchases. Further more, the appellant-company has
consistently credited sales with amounts realized as a result of sale of
damaged/unuseable
roles of PVC. The treatment so accorded by appellant company is squarely
against established accounting norms as it has the effect
e
112 TAXATION [ 82
of
arbitrarily pitching up the company’s gross profit. Further more, such
treatment by the appellant reduces its overall tax liability as the amount
realized from disposal of containers/cartons/damaged roles of PVC/other was=
te
material, should property be credited directly to the P & L account. By=
not
doing so and by changing the trading account in the manner described above,=
the
appellant-company has deliberately’ year after year, arbitrarily
manipulated gross profit and has avoided crediting the P&L account with
realizations made from sale of assorted materials described above. This has
been done consciously and deliberately obviously to secure tax benefits that
would not have been available to the company had the company drawn up its f=
inal
accounts according to established norms of accountancy.
Both
purchases and sales of the company are not 100% open to verification. No do=
ubt,
the bulk of purchases made are imports and these are of course satisfactori=
ly
documented. Nevertheless, a part of the purchases made by the company are of
local origin. Thus in assessment year 1990-91 against total purchases of Rs=
. 83,84,
313/- purchases of Rs. 11,38,325/- are local. Out of these local purchases =
of
As. 11,38,325/, purchases of As. 6,33,702/- (of toluene) have been made from
PSO limited and are of-course open to verification. However, other local
purchases are not open to 100% verification and include purchases of paper
core, cloth, local chemicals (etc). Similar position obtains in the assessm=
ent
year. 1991-92 to 1993-94 also. Again looking to sales, these two are not 10=
0%
open to verification and instances of such sales not open to verification h=
ave
been recorded in the assessment orders passed. The appellant has not been a=
ble
to satisfactorily rebut the assessing officer’s findings In this rega=
rd
and the first appellate authority has specifically noted in the adjudication
made for the assessment years 1990-91 & 1991-92 that the appellant fail=
ed
to produce books-of-accounts and supporting documentation to counter the
assessing officer’s observations regarding unverifiability of part of=
the
purchases and sales.
The
acid test for acceptance/rejection of .accounts in the context of determina=
tion
of total income must be the suitability of such accounts for purposes of
determining the gross and net profits. As explained above, the
appellant-company has arbitrarily manipulated its trading account, year aft=
er
year by under-casting purchases and over-casting sales and thereby artifici=
ally
over reporting gross profits. That being so, the company’s operating
results have been rightly rejected by the assessing officer and confirmatio=
n of
such rejection by the first appellate authority is thus fully justified.
The
company has not produced stock registers before the assessing officer and t=
he
order-sheets bear this out. The only stock record produced is that maintain=
ed
for Excise/Sales Tax Authorities. The qualitative and quantitative details
required in the context of income tax proceedings for purposes of determina=
tion
of the company’s total income are lacking in this record. No doubt
non-maintenance of stock register aione cannot be made
2000] APPL. TRIBUNAL [ No. 2447/LB of 199=
2-93] 113
basis
for rejection of account. Similarly, low citation of GP rate alone also may=
not
necessarily lead to rejection of accounts. As pointed out above, however, t=
hese
are not the only deficiencies noted in appellant’s case and looked at=
in
their totality, including the fact that the appellant-company has, year aft=
er
year under-cast purchases and over-cast sales, a case for rejection of acco=
unts
is clearly well-established. It also needs to be especially noted that the
appellant- company had itself disclosed Nother incomev in the assessment ye=
ars
1988-89 & 1989-90 but such ‘other income’ has not been
disclosed in the assessment years 1990-91 to 1992-93. Such ‘other
income’ is relateable to income realized as a result of sale of waste.
The only logical conclusion from the company’s non-declaration of oth=
er
income’ in 1990-91 to 1993-94, therefore, would be that the company h=
as
managed to reduce waste to ‘nil’ which of-course Is incredible =
and
totally implausible as no manufacturing facility, no matter how efficiently
managed, can achieve 100% efficiency and reduce wastage to zero. This too c=
asts
serious doubt on the veracity of the company’s accounts.
Coming
now to the opportunity accorded to appellant to explain its
position
before the assessing officer at assessment stage.
Close
scrutiny of the assessment record, including order sheets from
1990-91
to 1993-94, show that reasonable opportunity has invariably been c given to=
the
appellant to submit its books-of-accounts and necessary
supporting
documentation before the assessing officer. The books-of-account actually
presented before the ITO consisted of cash book, ledger, and vouchers. Daily
production record and stock register (other than for excise/Sales tax purpo=
ses)
was not produced. Besides, import documents, salary sheets were made availa=
ble.
The order sheets make it clear that various aspects of the case were discus=
sed
with the AR and details, where considered necessary, were called for. Thus =
is
assessment year 1992-93 details regarding consumption of units of electrici=
ty
and sui gas consumed during the assessment year as well as in the preceding
year were called for and taken on record. Similarly in 1993-94 assessment y=
ear,
details of share deposit money, sources of investment, and copies of the
company’s minutes book and resolutions were called for Adjournments
requested by appellant were also allowed. Besides opportunity given by the
assessing officer to substantiate declared version with necessary accounts/=
related
records, it is noted that the first appellate authority also while conducti=
ng
appeal proceedings for 1991-92 and 1992-93 assessment years, gave the appel=
lant
the opportunity to rebut the assessing officer’s observations recorde=
d in
the assessment orders impugned before him by making specific reference to t=
he
company’s books of-accounts and supporting documentation. However, it=
is
the CIT(Appeal’s observation, duly recorded in the appellate orders, =
that
the appellant failed to
avail
of this opportunity and did not produce the company’s books-of- D
114
TAXATION [
accounts
and related documentation before him at appellate stage to rebut the assess=
ing
officer’s observations recorded in the assessment orders that were the
subject-matter of appeal.
Given
the above narration of the factual position obtaining in this case regarding
opportunities given to the appellant to substantiate declared- version, we =
find
that “necessary opportunity”, as envisaged in law has intact
been
given to the appellant and the assessing officer has not drawn adverse E
inference ‘behind the back’ of the appellant. The factual posit=
ion
regarding
maintenance of accounts by the appellant wherein appellant has deducted the amount real= ized from sale of packing material/cartons/drums from the over all purchases of = the company and/the crediting of sales with amount realized on account of sale = of damaged of PVC roles is the admitted position and there is no dispute here<= o:p>
As
explained above, this methodology adopted by the company does not constitute
sound accounting practice and makes it problematic for the assessing office=
r to
arrive at the correct net profits position of the company. This defect by
itself, therefore, is sufficient to warrant rejection of the company accoun=
ts.
The
Superior Judiciary in
produced
by the assessee in case he was not satisfied about it. He was entitled to
reject the accounts believed by him to be false and unreliable, although th=
ere
may be no direct and definite evidence with him to prove their incorrectnes=
s.
There is no rule of law compelling a Judge to accept evidence, even though =
it
IS uncontradicted, which he beleives to be a pack of lies, (in re: Baghat
Halvai). In this connection in Ganga Ram Balmokand v. Commissioner of Income
Tax,
2000] APPL. TRIBUNAL [ No. 2447/LB of 199=
2-93] 115
altogether
capricious and injudicial. In matters like these a very wide discretion ves=
ts
In the income tax authorities in view of the exigencies of the case, and the
control exerciseable on them Is very meagre. What alone has to be seen in s=
uch
cases is whether the discretion has been judicially exercised and if it is =
once
found to be so exercised, no Court can interfere with the order N
(S.I.C)
As
already explained above, the accounts maintained by appellant- company are
specifically tailored to the requirements of Excise/Sales Tax Authorities a=
nd
are deficient for purposes of determination of total income by
the
income Tax Officer. The appellant-company is a manufacturing concern F and =
Is
expected to maintain daily production record showing utilization of raw-
material inputs viz-a-viz achieved prdduction. It is not understandable as =
to
why the appellant-company has not produced such record betore the assessing
officer. This has been recognized by ITAT in ITA Nos. 2057, 2058 and 2059 of
1963-64 and STA Nos. 248, 249 and 250 of 1963-64 (Assessment Years 1956-57,
1957-58, 1958-59 and 1959-60) decided on 8-7-1966 wherein it has been held
that: “true that in a case of a dealer who purchases and sells goods =
as
such without subjecting them to a manufacturing process the absence of a st=
ock
register would not entail the rejection of the account version unless the
profit rate disclosed is ridiculously low but the same considerations do not
apply in the case of a manufacturer who has got to maintain a manufacturing
record without which the correctness of production and consequently the
declared sales cannot be vouchsafed. The plea of the assessee for the
acceptance of accounts is, therefore, unmerited and must fall;”
(S.l.C)
The
importance of maintenance of a manufacturing account giving quantitative re=
conciliation
in the case of a manufacturer has also been recognized in case reported as
(1967) PTD 205 wherein it has been held that even though accounts may have =
been
maintained regularly in the case of a manufacturer, absence of a manufactur=
ing
account giving quantitative reconciliation would entitle the Income Tax Off=
icer
to reject the accounts and frame assessment according to his judgments.
Thus,
in view of the peculiar manner in which the books-of-accounts have
been
maintained and the final accounts of company drawn up, as discussed
above,
we find that rejection of declared-version is justified.
In
the matter of estimate of Turnover, we have examined the position of
sales
declared by the appellant and the estimates made by the assessing
officer
and relief given by the CIT(A) and Income Tax Appellate Tribunal.
t
116 TAXATION [
Looking
to all pertinent aspects, we find that sales as reduced by ITAT to Rs.
92,00,000/-
in 1990-91, Rs. 1,60,00,000/- in 1991-92, Rs. 80,00,000/- In 1992-
93
and Rs. 90,00,000/- in 1993-94 are fair and reasonable and call for no
interference.
Hence maintained.
In
the matter of application of GP rate, the ITAT has previously
uniformally/approval GP rate at 35% when the appellant had been declaring GP
rate ranging between 5.74% to 42.2%. Scrutiny of the assessment orders shows
that the GP rate of 35% is being applied in this case since assessment year
1988-89. The appellant Is a manufacturer of high-quality Industrial adhesive
tapes with a high raw-materials Import component and appears to have a
privileged position in this line of business in
The
GP rate usually applied in the case of a manufacturer’s products
comparable to the products manufactured by the appellant, ranges between 30=
to
40%. The department has been applying GP rate of 35% uniformly and
such
application has been confirmed by the CIT, (A) and ITAT. Looking to the G t=
ype
and range of products manufactured by the appellant (self-adhesive PVC, BOP=
P,
Kraft Paper Tapes, Neoprene Resins and Industrial Glues) and the fact that =
it
uses ‘state of the art; imported technology and high-quality raw-mate=
rial
inputs with a high Import component, and taking into account the ready dema=
nd
for Its finished products and Its privileged position In the market,
application of GP rate at 35% Is fair and reasonable. Hence maintained.
Add
backs against expenses have been looked into and we find that
treatment
as approved by the first appellate authority is reasonable and calls
for
no interference.
Resultantly,
the appeals for 1991-92 to 1993-94 are disposed off as
above.
Appeals
disposed
of
accordingly. =
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sp; =
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2000]
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[ 82 TAX 117 (Trib.)]
[ T=
HE
INCOME TAX APPELLATE TRIBUNAL
Present:
M. Munir Qureshi, Accountant Member and Kha wa/a Farooq Saeed,
Judicial
Member.
LT.A.
No. 4537/LB of 1999 (Assessment year 1995-96),
decided
on 7-6-2000.
Department Versus Assessee
Income
Tax Ordinance, 1979 (XXXI of 1979) - Sections 59, 62, read with Circular No=
. 5
of 1995 - Rectification of mistake - Order of C.l. T. (A) rectified by
successor C.!. T. (A) - Jurisdiction and scope - Assessee earning income fr=
om
purchase and sale of used cars - Income de entirely from commission received
from sale of brand new vehicles - Change in nature of business, concealment=
of
income and suppression of receipts from commission - Observations of depart=
ment
- C.I. T. (A) rectified order of his predecessor and held that case had alr=
eady
been finalized and D.C.I.T. had no jurisdiction to proceed u/s 62 - Challen=
ge
to - Selection of return for normal law assessment - Validity - Jurisdictio=
n of
successor CJ.T. (A) to recti4’ the order of his predecessor -
Qualification of return under the scheme
-
Question of law - Whether successor C.!. T. (A) could disturb clear cut fin=
ding
recorded by his predecessor with regard to disqualification of assesseeR=
17;s
return under BBSAS - Held no - Whether it was open to department to select
certain percentage of returns for normal law assessment
-
Held yes - Whether assessee fell in categoiy of “new tax payer”=
and
its return could be taken up for normal law assessment - Held yes
The
predecessor CIT(A) had already interpreted Circular No. 5 of 1995
and
had explained that the assessee M/s. H.... B fall in the category of
“new
taxpayers”. [ 125 ]A.
It
was not open to the successor CIT(A) to disturb the clear-cut finding recor=
ded
by his predecessor with regard to dis-qualification of assessee’s ret=
urn
under BBSAS especially when the successor ClT(A) could not show that his
predecessor had wrongly cited pertinent facts or had wrongly interpreted the
relevant law/applicable circulars. [ 125 ]B.
The
provisions of Section 65 would be applicable in the case of an “exist=
ing
assessee” in terms of Circular No. 5 of 1995. In the case of a “=
;new
taxpayer,” it is open to the Department to select a certain percentag=
e of
returns filed for normal law assessment. In the present case, it has been s=
hown
that the assessee M/s. H.... B.... falls in the category of “new
tax-payer and, therefore, its return could be taken up for normal law
assessment.
[
126 Ic.
118 TAXATION [ 82
Statutory
notices u/s 61 of the Income Tax Ordinance were issued to the assessee on
10-12-1995, 21-12-1995, and 10-12-1996 and the assessee’s then AR, Mr.
Hadi, FCA, did appear in compliance before the assessing officer and was du=
ly
confronted with the department’s finding regarding ineligibility of
assessee’s case under BBSAS for 1995-96. [ 127 ]D.
CIT(A)’s
finding that assessment stood finalized u/s 59 (4) as no order had been pas=
sed
by 30-6-1996 is wholly misconceived as the assessee had already been advised
weli before 30-6-1996 that his return for the year did not qualify under BB=
SAS
and notices u/s 61 had been issued and served and case discussed with the t=
hen
AR. (page 128 JE.
The
successor CIT(A) has virtually re-Interpretated statutory provisions, inclu=
ding
BBSAS provisions for 1995-96, after a firm finding on the issues had been d=
uly
recorded by his predecessor in office. The successor CIT(A) had no authority
under the law to record a different finding on the same cited facts and in =
fact
the successor CIT(A) has not even marshalled facts properly but rather has
distorted the factual position by omitting all references to action u/s 61
before 30-6-1996 and subsequent interaction between the department and the
assessee on various pertinent aspects as well as the fact the departmen had
continued to requisition information having a bearing on the computation of
assessee’s total Income, before as well as after 30-6-1996. (page 128=
]
F.
Sha
hid Zaheer, D.R., for the Appellant.
TalatJaved,
F.C.A., for the Respondent.
Date
of hearing: 3-6-2000.
ORDER
[
Order was passed by M. Munir Qureshi, Accountant Member.1 - This is an appe=
al
by Revenue against order of the CIT(A), dated 14-4-1 999 in which the first
appellate authority has rectified the order of his predecessor and has held
that the order passed by the predecessor CIT(A) was defective insofar as no
adjudication had been made with regard to Ground No. 1.
Briefly
stated, the facts in this case are that the assessee, an AOP, filed Return
under BBSAS for 1995-96 declaring Total Income of Rs. 1,04,775/- on 30-8-19=
95.
On scrutiny of the Return, the DCII found that (a) the assessee had changed=
its
nature of business from purchase and sale of “used” cars of
assorted brands to exclusive sale of new, Honda brand automobiles supplied =
by
H.... A.... C (
I
2000] APPL TRIBUNAL [ Nos. 4537/LB of 1999) 119<= o:p>
recorded
a change insofar as the previous AOP having three Members known M...... by =
the
name of MA... S...... S.... R NIN 04-03-0808359 (Mr. M.... A , Mr. A H and =
Mst.
N H ) stood enlarged with the induction of new members so that the total
strength of the new AOP known by the name of H B was of six members.
Besides
the above, the DCIT also found that the gross commission receipts from
HACPL’ declared by M/s. H B for assessment year 1994- 95 amountIng to=
Rs.
37,12,457/- was not consistent with the Information furnished by HACPL show=
ing
gross commission disbursed to assessee amounting to Rs. 65,69,013/-. Prima
fade, the assessee appeared to have concealed/suppressed commission receipts
from HACPL.
In
view of the fact that the assessee having changed its nature of its business
and furthermore, the assessee having concealed/suppressed gross commissioner
receipts from HACPL. the DCIT found the assessee to be ineligible under the
BBSAS for 1995-96. Statutory notices u/s 61 of the Ord., were then issued on
10-12-1995 and duly served on the assessee on 14-12-
.1995.
In compliance, Mr. M. A. Hadi, chartered accountant/AR appeared before the
assessing officer and discussed various aspects of the case. Statutory noti=
ces
u/s 61 were subsequently also issued on 21-12-1995 and
10-02-1996.
The
assessee’s AR challenged the selection of Return filed for 1995-96 un=
der
BBSAS for normal law assessment on the Ground that the said Return’ d=
uly
qualified for acceptance under BBSAS. The AR was confronted with the findin=
gs
made by DCIT regarding status of the assessee and concealment/suppression of
gross commission receipts. The AR contested DCIT’s findings and denied
any change in the nature of business/status of the assessee. As regrades, t=
he
alleged concealment of gross commission receipts, the AR explained that the
assessee did not maintained any regular accounts and the alleged discrepanc=
y in
gross commission receipts referred to by the DCIT was In fact due to cash b=
asis
recording receipts adopted by the assessee as against the accrual basis ado=
pted
by the Principal (HACPL).
The
DCII further found that besides commission earned by the assessee from HACP=
L on
H vehicles, the assessee had also made independent purchases of brand new H=
onda
motor vehicles of some 205 cars during the period relevant to assessment ye=
ar
1995-96. The assessee’s earnings on such independent purchase of motor
cars was also found to have been conceaIed. When confronted on the matter, =
the
assessee’s AR explained that the assessee was required by HACPL to
purchase motor vehicles independently from those supplied by HACPL for
show-room disp(a purposes and it was for this reason that the assessee had =
made
purchases on own account of Honda Motor vehicles besides the Honda vehicles
supplies on commission basis by
HACPL
120 TAXATION [ 82
After
discussion of the case with the assessee’s A.R. and after examining t=
he
assessee’s response on various findings confronted, the DCII found th=
at
(a) M/s. H... B... fell in the category of a “new assessee” and
furthermore, that M/s. H... B... had actually concealed/suppressed gross
commission receipts from HACPL and the explanations given were wholly
unsatisfactory. The DCIT held that for the reasons aforementioned, the
assessee’s case fell in the definition of Nnew assessee”. 1 on
account of furnishing inaccurate particulars of its income, its return for
1995-96 fell outside the purview of BBSAS in terms of para 6 of Circular No=
. 5
of 1995.
After
recording finding, as above, the DCIT proceeded to frame
assessment
under normal law and determined total income at Rs. 49,55,162/-
computed
as under:
Net
Income as per P & LA/c =
; Rs.
1,04,775/-
Add
Difference In
Commission
Receipts
disclosed
by Assessee
and
intimated by HACPL. As.
28,56,356/-
Additions
out of P&L A/C.
Total
B. F. =
As.
29,61,131/-
Financial
Charges.
As.
14,42,247/-
(Claimed
disallowed In
entirety
as found not relevant
to
assessee’s business) =
; Rs.
14,42,247/-
Sales
and Marketing
Claimed
Rs. 6,64,954/-, added back
Rs.
3,32,477. Rs. 3,32,477
Administrative
Expenses.
Claimed
Rs. 15,00,482/-
added
back As. 2,19,307/- Rs. 2.19,3=
0Th
As.
49,55,162/-
The
order of assessment is dated 4-6-1998 and the DCIT has issued
notice
u/s 116 for furnishing of inaccurate particulars of income.
In
appeal before the first appellate authority, the assessee reiterated its cl=
aim
for acceptance under BBSAS. The CIT(A) examined the case in-depth and found
that the assessee’s claim under BBSAS was wholly misconceived as the =
DCIT
had rightly come to the conclusion that the assessee’s case fell in t=
he
category of “new tax-payer” as the “nature of business=
221;
of the newly
[ 82 TAX 96 (Trib.)1
[ T=
HE
INCOME TAX APPELLATE TRIBUNAL,
Present
M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed, Judicial Memb=
er.
I.T.A.
No. 4538/LB of 1999 (Assessment year 1996-97),
decided
on 20-6-2000.,
Department Versus .. &=
nbsp; Assessee
Income
Tax Ordinance 1979 (XXXI of 1979) - Section 156 Rectification of mistake
-‘Application for - Acceptance,by’ (Successor) C.!. T (A)- Vali=
dity
- Assessee an. AOP deriving income as dealer of cars - Filed return for
assessment year 1996-97 under BBSAS - Non acceptance by Assessing Officer on
ground of concealment and suppression of commission receipts - Addition u/s=
13
- Order set aside by predecessor C.I.T (A) for want of proper show cause
notice, also for not allowing extent/on oft/me as requested by assessee -
Application ‘for rectification of ‘order was accepted by the su=
ccessor
C.I.T. (A) who concluded that his predecessor had failed to make proper
adjudication regarding autcmatlc finalization of assessment u/s 59(4) and
allowed return under BBSAS - Appeal against - Jurisdiction of (successor)
C.I.T. (A) to rectify order of his predecessor - Question of law -
Interpretation - Scope and application of - Whether scope of section 156 co=
uld
be enlarged perforce to permit wholesale review of predecessor C I. T. (A)
‘a order - Held nO - Whether action of successor C.!. T. (A) in invok=
ing
provision of section 156 to rectify order of his predecessor in office was
illegal and without jurisdiction - Held Yes
The scope of Section 156. While It is arguable that u/s 156 it might have been possible for the successor C(T(A) to find that assessee’s Return for<= o:p>
2000] APPL. TRIBUNAL [ No. 4538/LB OF 199=
9j &=
nbsp; 97
1996-97
stood accepted/assessed u/s 59(4) on 30-6-1997. However, the scope’of
Section 1.56 cannot be enlarged perforce to permit wholesale review of
predecessor CIT(A) order. Thus by making such Wholesale review of his
predecessor CIT(A). order the successor .CIT(A) undoubtedly exceeded his
jurisdiction.
[ 103’]A. .. . -
The
action of the successor CIT(A) in invoking the provisions of section 156 to
rectify the order of.his predecessor in office Is found to be Illegal for t=
he
reason. that the predecessor In office has recorded firm findings after
discussing exhaustively all pertinent aspects and these findings are not op=
en
to Review by successor CIT(A). That being so, the, appellant was required to
file formal appeal against the appellate order of (predecessor) CIT(A) rath=
er
than, move a rectification application before successor. CIT(A). As success=
or
.CIT(A) had no jurisdiction in.Iaw to take action u/s 156 in the manner don=
e by
him In the present ase, we, therefore, annul the order of successor CIT(A)
and.restore the order of predecessor CIT(A). [ 104 38.
Cases
referred to:
(1996
PTD Trib. 1117); (AIR 1987 SC 1160) and (AIR 1972 Mad. 309).
Shahid
Zaher, DR.; for the Appellant.
Ta/at
Javed, F.C.A., for the Respondent.
Date
of hearing: 3-6-2000. , .. . .
ORDER
(The
Order was passed by M. Munir Qureshi, Accountant Member.J - This Is an appe=
al
by revenue directed against order of CIT(A), dated 14-4-1999 In which.. the
first appellate authority has urectifiedn u/s 156 of the Ord., the adjudica=
tion
made by his predecessor in office vide order dated 12-11-1998.
2.
The departmental contention is that the(successor) C had no jurisdiction In=
law
to rectify order passed by. this predecessor In office. Further more,: it is
also the departmental case that . the (successor) CIT(A) had no justificati=
on
in law to hold that no formal order of assessment having been passed till
30-6-1997, Return filed for assessment year .1996-97 under BBSAS was deemed
have been finalized u/s 59 on that date.
3
Briefly stated, the facts in the case are that the appellant an AOP denying=
income
‘as dealer of H. A.... C.... P... L...(HACPL) filed Return for 1996-9=
7
under
BBSAS declaring tOtal income at Rs. 460,495/- comprising gross comrnl recei=
pts
from HACPL/amounting to Rs. 8157170/- against which expenses had been charg=
ed
aggregating Rs.76,96,675/-. The Return filed was accompanied by trading, pr=
ofit
& loss account, computation chart and personal accounts of members of A=
OP.
The Return so filed was not accepted by the assessing officer under BBSAS on
account of (a), concealment property purchased by AOP vide No. 63-A.... A..=
..
M.... comprising commercial
98
“
TAXATION
[
82
immovable
property (land) measuring 5 kanal at 63-A.... R.... M.... having a register=
ed
value of Rs. 25,00,000/- and (b). suppression of commission receipts from H=
ACPL
The said property has not been cited either in the statement of affairs of =
AOP
or in the indMdual wealth tax Return of any of the Members of AOP. Such con=
cealment
was found to automatically oust the appellant’s claim for assessment
under BBSAS in view of the provisions of Self Assessment Scheme announced f=
or
1996-97 Para-2 (h) of Circular No. 4 of 1996 dated 1-7-1996).
4.
Besides, the concealment of property purchased by AOP, discussed above, the
appellant also statedly suppressed commission receipts amounting to Rs.
67,05,114/- (The actual commission receipts by appellant AOP from HACPL
aggregates Rs. 148,62,284/-). The information regarding comrq receipts was
formally requisitioned from HACPL and duly submitted to the assessing offic=
er
and a finding of suppression of commission receipts has been recorded by the
assessing officer after examining the details furnished by HACPL regarding
commission disbursed to the appellant.
5.
The factum of concealment detected in appellant’s case was duly
confronted to appellant through statutory notices issued u/s 61 & 62 of=
the
ord. Detailed discussions were made with the appellant’s AR. s M/s M.=
A.
Hadi, FCA and Mr. Talat Javed, FCA.
6.
When formally confronted on the matter, the appellant had no plausible
explanation to offer regarding non-disclosure of commercial property purcha=
sed
by the appellant/AOP at A.... R.... M.... and, the under statement of gross
commission receipts. The appellant sought extention in time for filing of r=
eply
In the matter pertaining to disclosure of land purchased by the appellant
bearing No. 63, A.... A.... M..... The assessing officer interpreted this
“as delaying tactics” deliberately adopted in the face of
irrefutable evidence to the effect that the appellant/AOP had infact purcha=
sed
valuable property at 63- A.... R.... M...., the market value of which prope=
rty
was much higher than that disclosed in the registered deed executed on 9-10=
-1995
for Rs. 25,00,000/-. Local enquiries, were got conducted by assessing offic=
er
and these confirmed that the bona fide market value of the cited property
ranged between Rs. 22,00,000/- to Rs: 25,00,000/- per Kanal. The assessing
officer also found that the appellant had made payment through 2 cheques
bearing No’s. 257202 and 257203 both dated 9-10-1995, amounting to Rs.
86,00,000/- and As. 25,00,000/- respectively drawn on Plantinum Commercial =
Bank
Limited, H B M The assessing officer further found that the face of the two
cheques bears the following remarks:-
“for
purchase of land at
63-A....
R.... M....
7.
As stated above, the appellant AOP has neither cited this land at 63-A.... =
A ,
in the statement of affairs of AOP annexed with the Return of income
-a
2000] APPL TRIBUNAL [ No. 4538/LB OF 1999=
] &=
nbsp; 99
filed
nor in the individual wealth, tax Returns of any of the Members of the AOP.=
In
the balance sheet of AOP as on 30-6-1 996 also, there is no mention of the =
land
in question.
8.
In view of the definite, unequivocal and irrefutable evidence regarding
purchase of 5 Kanal commercial land at 63-A.... R.... M.... by the
appellant/AOP, the assessing officer recorded a firm finding to the effect =
that
(a) the appellant AOP had concealed purchase of cited land and (b) under st=
ated
bona fide market value of the said land. The market value of cited land has
been appraised at Rs. 1,11,00,000/- and it has been established, as discuss=
ed
above, that the appellant/AOP had made payment In that amount also.
Consequently, the difference between declared value of As. 25,00,000/- and
market value of Rs. 1,11,00,000/- amounting to Rs. 86,00,000/- has been bro=
ught
to tax u/s 13 (1) (d) while the admitted purchase price as per registered d=
eed
amounting to Rs. 25,00,000/- has been brought to tax u/s 13 (1) (c).
9.
In the matter of suppression of commission income when formally confronted =
on
the matter, the appellant avoided making a direct response and instead
submitted various explanations. Basically, the appellant argued that the
apparent discrepancy in commission receipts as disclosed by the assessee an=
d as
Intimated by HACPL was due to the fact that accounts were drawn up and
maintained in a different manner by the two parties involved. The appellant
under took to reconcile the discrepancy and file a reconciled statement bef=
ore
the assessing officer. However, that was not done. On the other hand the
assessing officer found that the appellant’s account maintained In the
HACPL ledger showed that HACPL had credited appellant’s account on a =
month-wise
basis from July, 1995 to June, 1996 so that the total credits as on 3t 996
aggregated Rs. 318480600/-. The scrutiny of appellant’s ledger accoun=
t as
maintained by HACPI Indicated that the appellant, besides earing commission
income from HACPL had also purchased and sold H A.... C.... on ‘OWfl
account’: When confronted on the matter, the appellant explained that=
it
was H A.... policy that its dealers purchase Honda cars on own account as w=
ell
as for ‘display purpose’ in the show room. However, the
appellant’s explanation was not found plausible by the assessing offi=
cer
as the appellant was found to have purchased 426 cars during the year and t=
he
assessing officer concluded that such a large number of cars could not have
been purchased merely for display purposes.
10.
The assessing officer found that the appellant/AOP is not declaring any
Income/from purchase and sale of motor vehIcles on own account and only
disclosing
commission income earned from HACPL on supplies of vehicles booked by
customers, consequently, the assessing officer when evaluating the
appellant’s claim on account of financial charges during the year
aggregating Rs. 3789906/- on account of running finance facility with
plantinurn Commercial Bank Ltd. (40 Million) decided to curtail admissibili=
ty
of
100 TAXATION [
cited
financial charges by 50% as the loan facility from bank was not being utili=
zed
fully for transacting the admitted business of the AOP. Rather Part of the =
loan
facility was being diverted towards purchase of motor vehicles on account
against which no Income has been disclosed by the appellant in Return filed=
.
11.
Other items of expenditure have also been looked into by the assessing offi=
cer
and add backs made against salary, entertainment, vehicle running, telephon=
e,
donation, car repairs, medical aid, carriage, charity, sales and Marketing
& gifts commission paid to other parties claimed at Rs. 8,86.000/- had =
been
disallowed In its entirety as this was found to be totally unverifiable. The
appellant then filed appeal before CIT (A) who adjudicated the appeal filed=
for
1996-97 vide order dated 12-11-1998.
12.
Before the CIT (A), the appellant submitted, as per grounds of appeal filed,
that the assessment as made u/s 62 vide order dated 4-6-1998 was of no
àonsequence as the appellant cases was deemed to have been finalized=
u/s
59 (4) under BBSAS on 30-6-1997, no order having been passed by that date a=
nd
appellant’s return not having been found ineligible for processing un=
der
BBSAS. The appellant further contended that additions made u/s 13 had been =
made
behind the back of the appellant/AOP and notices issued u/s 13 (2) were
allegedly never brought to the notice of and of the Members of the AOP. The
appellant denied concealment of 5 Kanals land at 63-A.... R and submitted t=
hat
the payment for cited land had been made through AOP’s bank account w=
hich
was proof that there had been no concealment. The appellant also submitted =
that
acquisition of cited land had not been made declared formally in the statem=
ents
annexed with the Return filed for 1996-97, as there was statedly no such
requirement under BBSAS for 1996-97. Similaily, with regard to alleged
suppression of commission income, the appellant contended that there had be=
en
no suppression and the apparent discrepancy was the result of different
accounting methods of HACPL and appellant/AOP. The appellant contested the
assessing officer finding to the effect that the appellant had purchased and
sold H.... A... cars on own account besides commission income earned on
supplies of such vehicles by HACPL Add backs against P & L expenses cla=
imed
were also contested including curtailment of financial charges by 50%.
13.
The first appellate authority (predecessor) after making appraisal of
AOP’s affairs, recorded a firm finding to the effect that the
appellant/AOP having concealed purchase of property No. 63-A.... A.... M....
and having suppressed commission income earned amounting to As. 6705114/- f=
rom
HACPL In the period relevant to assessment year 1996-97, the Return filed u=
nder
BBSAS stood disqualified and in the presence of the disquaiifications arisi=
ng
from concealment of cited land and suppression of commission receipts, there
could be no question of acceptance of Return under BBSAS/59 (1), finalizati=
on
of assessment or under deeming provisions of
BEFORE THE INCOME TAX APPE=
LLATE
TRIBUNAL,LHR BENCH,LHR
RA No. 293/LB/2001
(Assessment
Year 1995-96)
NTN:
21-05-0019623
Late Haji Muhammad Hanif C/o Zohaib Jewellers, <=
st1:place
w:st=3D"on">Lahore &=
nbsp; Applicant
&=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; =
Versus
CIT/WT, Zone-C, Lahore. =
&nb=
sp; =
&nb=
sp; =
Respondent
Applicant
by =
; : &=
nbsp; Mian
Aashiq Hussain,ADV.
Respondent
by =
; : &=
nbsp; Mr.
Anwar-ul-Haq,DR.
Date
of hearing &nb=
sp; : &=
nbsp; 25-07-2001
Date
of order =
; : &=
nbsp; 27-07-2001
O R D E R
=
&nb=
sp;
=
&nb=
sp; =
&nb=
sp; =
This Reference Application by an individual membe=
r of
an AOP, formulates the following questions of law statedly arising out of t=
he
Tribunal’s order bearing ITA No.4279/LB/2000 (Assessment year 1995-96) dated 24.1.2001:-
1. &nbs=
p;
Whether the learned Tribunal was justified to uphold the
addition u/s =
13(1)(aa) at Rs.1,32,66,600
without considering the material fact that the ample accumulated resources to fin=
ance
the purchase of gold?
2. &nbs=
p;
Whether the learned Tribunal was justified to ignore documentary evidence wit=
hout
any verification? After findi=
ng
that applicant imported 3000
Tolas of gold, whether the Tr=
ibunal
was justified to uphold application of Section 13(1)(aa) instead of specifi=
c provisions
of Section 80(C)?
3. &nbs=
p;
Whether the Tribunal was justified to presume that revis=
ed
returns indicate that original
returns must have been filed before issuance of notice u/s 61 of the Ordina=
nce?
4. &nbs=
p;
Whether the Tribunal was justified to rely upon irreleva=
nt
assertions of AAC, neither taken up in grounds of appeal nor argued at the =
time
of hearing of the appeal?
5. &nbs=
p;
Whether explanation u/s 13supported by documentary evide=
nce
could be rejected without disclosing any basis thereof in a notice u/s 62 of
the Ordinance?”
2. =
The
facts in this case, interalia=
, are
that the assessee is a returning expatriate Pakistani who in the period
relevant to assessment year
3. =
The
assessee then filed a Miscellaneous Application for rectification of the Tribunal’s order bearing=
ITA
No.4279/LB/2000 dated 24.1.2001 and now adopted a different stance and argu=
ed
that the gold in question had actually been “imported“ by
him into Pakistan and such import was covered u/s 80-C of the Ordinance as it fell in the presumptive tax
regime. It was argued that payment of duty on the gold brought as Personal
Baggage was akin to payment of tax u/s 50(5). The assessee’s contenti=
on
was looked into and found to be misconceived as the gold in question was
admittedly brought as personal baggage item and duty duly paid to the custom
authorities.
4. =
The
D.R. has pointed out that under the law there is no way that the applicant =
can
circumvent the fundamental requirement of offering explanation in specific
terms regarding the sources of investment involved as the assessee first
purchased the gold and then brought it into Pakistan. The D.R. pointed out =
that
even if it be accepted that this is a case of “regular
import” of gold into Pakistan, that would not
absolve the assessee from the
separate requirement of explaining the sources of investment when called up=
on
to do so by the assessing officer and when the sources are not identified
5. =
We
have heard both sides and have examined the available record and our findin=
gs
are recorded hereunder:-
1. &n=
bsp; =
;
Questio=
n No.1
as formulated above has been looked into. After due consideration, we find that the availability of resource=
s to
finance purchase of cited gold bars is a question of fact. The Tribunal had
held vide order referre=
d to
Supra that since actual
availability of sources to meet purchase of 3000 ‘tolas’
gold bars by the applicant /appellant had not been established , therefore,
recourse to the provisions of
section 13(1) (aa) was justified. The applicant has not submitted any
evidence whatsoever of (i) actual resource availability and (ii) actual purchase of the go=
ld in
question. The conclusion is therefore inescapable that the acquisition of 3000 tolas=
gold
bars by the applicant/appellant is unexplained as to source. That being so,
question No.1 as formulated above is not a valid question of law and hence found not fit for refere=
nce.
2. &n=
bsp; =
;
Questio=
n No.2
has been examined. The
applicant/appellant has filed no documentary evidence whatsoever to
substantiate actual resource availability and actual purchase of 3000 tolas
gold bars. This is clearly not a case of regular import of gold and no Bill=
of
Entry has been made out. Rather, the gold has admittedly been brought in=
to
3. &n= bsp; = ; Questio= n No.3 has been looked into. By defin= ition, a “REVISED RETURN OF INCOME” seeks to revise / amend&= nbsp; an “Original Return of Income.” The filing of a Return of Income is a questio= n of fact and no question of law arises in this context. Hence question No.3 is found not fit for reference.<= o:p>
4. &n=
bsp; =
;
Questio=
n No.4
has been looked into. After due
consideration, we find that the Tribunal has not relied on any, so called,
“irrelevant assertion of the AAC” in reaching its conclusions as
given in ITA No.4279/LB/2000 dated 24.1.2001. Applicant’s contention =
in
question No.4 is an incorrect,
unsubstantiated allegation and not a question of law at all. Hence found not
fit for reference.
5. &n=
bsp; =
;
Questio=
n No.5
has been examined. As no docum=
entary
evidence has been filed by the applicant/appellant to establish (i) actual
availability of resources and (ii) actual purchase of 3000 tolas gold bars,
mere filing of copy of trade
licence by the applicant/appellant is not sufficient to discharge onus u/s =
13.
Similarly, proof to show that the applicant had been abroad for a given period is also not sufficien=
t to
discharge onus u/s 13. As the applicant / appellant did not file the evidence required=
by
the assessing officer viz proof of resources and proof of actual purchase of
gold, therefore, the question of subsequent interrogation u/s 62 on these
points by the assessing officer did not arise. The question as posed is
therefore, found to be totally misconceived and moreover does not arise from
the Tribunal’s cited Order. Hence question No.5 is found not fit for
Reference.
The Reference application is disposed off as
above.
(SY=
ED
NADEEM SAQLAIN ) &nb=
sp; =
(MUHAMMAD
MUNIR QURESHI
JUDICIAL MEMBER=
&=
nbsp; &nbs=
p; (ACCOUNTANT MEMBER
INCOME T=
AX
APPELLATE TRIBUNAL, LAHORE
ITA=
No.
552/LB/02
(Assessment Year 1999-2000)
NTN: 04-13-0037451
Commissioner of Income Tax, Multan
&nb=
sp; =
&nb=
sp; =
&nb=
sp; =
&nb=
sp; Versus
Muhammad Shahid, Ex-Prop: Madina Cold Storage
Appellant by&nb=
sp; =
: &=
nbsp; Mr.
Anwar Ali Shah, DR
Respondent by =
; : &=
nbsp; Mirza
Saleem Baig, Adv.
Date of hearing=
: &=
nbsp; 10-02-2004
Date of order <=
/span>: &=
nbsp; 10-02-2004 &=
nbsp;
O R D E R
This
appeal by Revenue arises out of order of the CIT(A),
2. =
It
is the departmental contention that the first appellate authority has
unjustifiably vacated the order of the assessing officer.
3. =
According
to the DR, in this case, the assessee had realized a clear business gain
arising out of sale of share in AOP and the same has rightly been brought to
tax as business income of the assessee. It is explained that on leaving the=
AOP
in which he was a member, the assessee received an amount of Rs.316,173/- w=
hich
is the assessee’s share in the capital AOP and so reflected in the
relevant balance sheet of the AOP. After his departure as member of the AOP,
the assessee sold his 10% share in AOP to M/s Jabir Ahmad, Zakir Ahmad,
Muhammad Usman,
(2) =
&nb=
sp; ITA
No. 552/LB/02
Muhammad Hanif & Ch. Muham=
mad
Riaz and in return received an amount of Rs.550,000/- from them thereby
realizing a gain of Rs.233,827/-. The assessing officer held this gain to be
taxable and framed assessment accordingly.
4. &=
nbsp; Before
the CIT(A), the assessee argued that depreciation as statutory had been all=
owed
on the assets held by the AOP and the profit earned on sale of such
(depreciable) assets of the AOP should have been assessed in the AOP’s
hands and the members of the AOP were not liable to any tax on such profit.
Thus, according to the assessee the share disbursed to him on his departure
from the AOP is also akin to sale of assets by the AOP. So far as the membe=
rs
are concerned, it was pointed out to the CIT(A) that as depreciation under =
the
Third Schedule is not allowable on the capital investment of the members of=
the
AOP, Rule 7 of the Third Schedule is not applicable so far as the gain in t=
he
hands of the member is concerned. The assessee’s contention found fav=
our
with the CIT(A) who held that the order passed by the assessing officer
determining business income u/s 22 of the (repealed) Ordinance, 1979 in the
hands of the assessee was not tenable as “neither the appellant claim=
ed
depreciation on capital investment nor had the department allowed the same =
to
the assessee”.
5. =
Before
the Tribunal, the assessee’s AR has referred to ITAT judgment in a
related case cited as ITA No.5572/LB/2002 (Assessment Year 1999-2000) dated
01-10-2003, in which the Tribunal has dismissed the departmental appeal aga=
inst
the order of the CIT(A) and has maintained the viewpoint of the CIT(A) [Sin=
gle
Bench judgment].
(3) &=
nbsp; &nbs=
p; ITA
No. 552/LB/02
6. =
According
to the AR, as the facts and circumstances of the assessee’s case are =
same
as is in cited judgment of the Tribunal, the order of the CIT (A) is requir=
ed
to be maintained.
7. =
I
have heard both sides and have examined the available record and in my
considered judgment, prima facie, this is a clear case of “capital
gain” realized by assessee and the provisions of section 27 of the In=
come
Tax Ordinance, 1979 [since repealed] therefore apply. Rule 7 of the =
Third
Schedule to the Income Tax Ordinance, 1979 [since repealed] clearly =
does
not apply in this case as the AOP has not realized<=
/u>
any gain on disposal of its (depreciable
assets). Rather, assessee’s “capital investment” =
in
the AOP standing to his credit in the balance sheet has been handed over to=
him
on his departure from the AOP. The assessee has then sold his 10% share in =
the
AOP to the persons cited Supra and has realized a gain, as explained above.
This is clearly a capital gain in his hands and was required to be brought =
to
tax accordingly. Assessee’s capital investment is not subject to any
depreciation allowance and does not constitute immovable property and is
therefore not within the purview of sub-clauses (i) & (ii) of clause (a=
) of
sub-section (2) of section 27 of the Income Tax Ordinance, 1979 [since
repealed]. Any depreciation allowed to the AOP on its depreciable ass=
ets is a separate matter and is not at=
all
of any direct relevance in the context of capital gains realized by the
assessee on sale of his 10% share in the AOP to the persons cited Supra.
(4) &=
nbsp; &nbs=
p; ITA
No. 552/LB/02
8. =
In
my judgment, the DR did not properly assist the Tribunal when appeal bearing
ITA No. 5572/LB/2002 (Assessment Year 1999-2000) dated 01-10-2003 was heard.
The assessee / respondent was not present before the Tribunal on that date.=
The
DR did not explain to the Tribunal that rule 7 of the Third Schedule to the
Ordinance was not relevant in the present case at all as that rule dealt wi=
th
disposal of depreciable assets and the treatment of resultant
gains or losses. It was not explained that the AOP has not disposed off any=
depreciable
assets. Rather, only capital investment share has been disbursed to=
the
outgoing member and as the member has been able to get a higher amount from=
an
incoming member stepping into his shoes and making capital investment in the
AOP as Member of the AOP, the differential amount is a capital gain. As the
applicable law has not been properly appreciated by the Tribunal in its cit=
ed
order for lack of assistance, that order is an order passed ‘per
incurium’ and is not binding on this Bench.
9. =
For
the reasons given Supra, the order of the CIT (A) is found to be wholly
misconceived in law and is hereby vacated. The order of the assessing
officer also cannot be maintained as the ITO has wrongly treated the gain
realized on sale of his share in the capital of the AOP as business income =
when
it was actually a capital gain, as explained Supra. The order of the assess=
ing
officer is therefore annulled. The assessing officer may however explore the
possibility of suitable remedial action, as feasible in law, subject to
limitation of time laid down in law.
10. Resul=
tantly,
the appeal is disposed off as above.
(MUHAMMAD MUNIR QURESHI)
&=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; ACCOUNTANT MEMBER
[Empowered
u/s 130 (8) (a) of the Income Tax Ordinance, 2001, to exercise powers and
functions of the Appellate Tribunal sitting singly]
INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH
RA =
No.
100/LB/04
(Assessment Year 1993-94)
NTN: 06-09-1445811
Commissioner of Income Tax, MTU, DHA, Lahore
&nb=
sp; =
&nb=
sp; =
&nb=
sp; =
&nb=
sp; Versus
Faiq Qayyum, Kashmir Chemical
Applicant by&nb=
sp; =
: &=
nbsp; Mr.
Bashir Ahmad Shad, DR
Respondent by =
; : &=
nbsp; Nemo.
Date of hearing=
: &=
nbsp; 11-05-2004
Date of order : &n=
bsp; 11-05-2004 &=
nbsp;
O R=
D E
R
This reference application by Revenue, formulat=
es the
following question, statedly, question of law, for reference to the High Co=
urt:
-
“Whether the ITAT was right to hold that =
excise
duty is to be debited to profit and loss account and not to manufacturing a=
nd
trading account”
2. &=
nbsp; According
to the DR, excise duty being an indirect levy, properly pertains to the
manufacturing / trading account and not to the P & L account.
3. =
The
assessee / respondent is not present and no adjournment has been sought. The
application will be decided exparte on merits.
4. =
The
question has been examined.
(2) =
&nb=
sp; =
ITA
No. 100/LB/04
5. =
As
clarified in “Carter’s Advanced Accounts, [page 31]: -
=
220;DUTY:
This includes both Customs and Excise duties. Customs duties are levied on
goods imported and exported; excise duties are imposed on goods produced and
consumed in the country itself. A distinction must be made between duties on
Purchases and duties of Sales, the former being debited to Trading Account =
and
the latter to Profit and Loss”
5. &=
nbsp; The
Tribunal in [1960] 2 – Tax (V – 4), has referred to the
well-established accounting principle enunciated above and in ITA No.
7428/LB/96 (Assessment Year 1993-94) dated 30-10-2003, that principle has b=
een
followed by this Bench.
6. =
Excise
duty is chargeable on the manufacture or sale of items of domestic consumpt=
ion.
Where in the case of a manufacturer / product the levy is charged with
reference to production or purchase of inputs, it is an integral component =
of
cost of production and for accounting purposes is required to be debited to=
the
manufacturing / trading account. Where it is charged with reference to sale=
s,
it is to be debited to the P & L account. Contrary to the popular view =
that
every levy of excise duty is bound
to be passed on to the customer in its entirety, actual incidence of=
the
duty will be determined by the
manufacturer’s / producer’s relative competitive position
vis-à-vis other manufacturers / producers and the elasticity of demand of the
finished product. Where the manufacturer’s relative position in the
market is good (i.e. he is able to keep cost down at least to the level of =
his
competitors) and the finished product has relatively inelastic demand (i.e.
product is not price sensitive) the duty will be passed on to the purchaser=
in
a greater degree than if the manufacturer’s / producer’s positi=
on
were
(3) =
&nb=
sp; =
ITA
No. 100/LB/04
otherwise.
It is certainly not axiomatic that the duty will always be passed on to the
purchaser in its entirety. Obviously if the duty cannot be passed on to the
customer in its entirety it will erode the profit of the purchaser. Thus
whereas income tax is invariably borne in full by the person earning income=
, it
is not axiomatic that excise duty will always ultimately be borne in its
entirety by the purchaser. Admittedly, the GP rate expressed as a percentage
will rise where the duty is debited to the P & L account. However, the =
GP
rate is nothing “sacrosanct” and the assessing officers –=
and
those who supervise them – need not be obsessed with it. While the si=
gnificance
of the GP rate as a ready reckoner of (gross) profitability is certainly th=
ere
– hence its significance as a parameter in a Scheme of Self Assessment
– charging excise duty to the manufacturing / trading account or the P
& L account will not by itself alter the net profit of the business.
However, since all expenses and receipts are required to be correctly
marshalled and charged, excise duty is to be charged to the manufacturing /
trading account or the P & L account depending on various aspects refer=
red
to Supra. There is no golden rule that it has to be charged to the
manufacturing / trading account under all circumstances simply because it is
categorized as an indirect tax. Ultimately, all costs are reflected in sale
price and while it is a truism that the producer has to recover all costs i=
f he
is to stay in business, this too, is not always true. Thus in
“dumping”, goods are actually sold below cost in order to captu=
re a
market.
(4) =
&nb=
sp; =
ITA
No. 100/LB/04
7. =
If
the excise duty is indeed passed on in full to the purchaser and is not
relatable to inputs at all as appears to be the case here then obviously it=
has
no bearing on product cost and it cannot therefore be charged to the
manufacturing / trading account but is required to be charged to the P &=
; L
account. If on the other hand excise duty were relatable to inputs/ product=
ion
then to the extent that it enters into product cost, it is required to be
charged to the manufacturing account.
8. =
Whatever
GP rate emerges as a result of the accounting treatment for excise duty wil=
l be
the appropriate GP rate for that business and this rate may or may not be
consistent with the industry norm but it would not be proper to apply a hig=
her
GP rate simply because of the general industry norm.
9. &=
nbsp; The
question as formulated is not fit for reference to the High Court.
10. =
Reference
is refused.
(MUHAMMAD
MUNIR QURESHI)
&=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; ACCOUNTANT =
MEMBER
(MU=
HAMMAD
TAUQIR AFZAL MALIK)
JUDICIAL M=
EMBER
INCOME T=
AX
APPELLATE TRIBUNAL,=
LAHORE
MA =
No.
81/LB/03
(Assessment Year 1994-95)
NTN: 22-11-1718242
M/s TetraPak Pakistan Limited, Lahore <=
/o:p>
&nb=
sp; =
&nb=
sp; =
&nb=
sp; =
&nb=
sp; Versus
Taxation Officer, Circle – 11, Coys. II, =
Applicant by&nb=
sp; =
: &=
nbsp; Mr.
Shahzad Hussain, FCA.,
&nb=
sp; =
&nb=
sp; =
Mr.
Asim Zulifqar ACA &
&nb=
sp; =
&nb=
sp; =
Mr.
Hussain Tariq, Adv.
Respondent by =
; : &=
nbsp; Mr.
Anwar Ali Shah, DR and
=
&nb=
sp; =
&nb=
sp; Mr.
Shahid Jamil Khan, LA
Date of hearing=
: &=
nbsp; 13-06-2003
Date of order : &n=
bsp; 25-08-2003 &=
nbsp;
O R D E R
This
miscellaneous application by a limited company arises out of order of the
tribunal bearing ITA No. 2179/LB/99 (Assessment Year 1994-95) dated 05-11-2=
002.
It
is the applicant's contention that the tribunal has wrongly held that the
applicant company produced no evidence before the assessing officer to
establish that it's excess income over imputable income as per computation =
of
income for the year arises fr=
om the
normal business activities of the company in the period relevant to the
assessment year under reference. It is the applicant's contention that a
written reply was duly filed before the assessing officer clarifying all
pertinent aspects as evident from the assessment order itself. Thus statedly
prima facie, there was an error floating on the face of tribunal's impugned
order that was required to be recalled / rectified.
Briefly
stated, the relevant facts in this case are that the assessee company falls=
in
the presumptive tax regime and has made total sales aggregating Rs 518,687,=
063
in assessment year 1994-95, comprising exports Rs 12,037,045 and supplies
(within Pakistan) Rs 506,650,018 and total tax deducted at source u/ss
80-C / 80-CC amounts to Rs
12,756,528. An additional amo=
unt of
tax amounting to Rs 376,924
(2) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
assessing
officer at Rs 153,578,877. Thus prima facie there is a difference of Rs
126,775,914 and this excess income over imputable / presumptive income has =
been
held by the assessing officer to have been not offered by the assessee comp=
any
for levy of income. The assessee company was formally required by the asses=
sing
officer to explain 'the fate of the book profit over and above the presumpt=
ive
income' . It is the assessing officer's finding that the assessee 'could not
explain as to what is going to be the fate of the book profit over and above
the presumptive income.' The =
ACIT
has held that such book profit attracts tax under normal rate and since such
excess income had been duly incorporated in the Balance Sheet the assessing
officer charged the same to tax at normal rate.
The
treatment as accorded by the assessing officer was found by the CIT(A) to be
misconceived in law for the reason that the ACIT had allegedly invoked the =
provisions
of section 80C(5) read with section 13(1)(a) of the Ord'79 (since repealed)
when the conditions precedent for such invokation [of the provisions of sec=
tion
13(1)(a) ] were statedly absent. Additionally, the CIT(A) has also found the
charge of WWF by the ACIT to be wrong as no order of assessment was require=
d to
be passed in the case of the assessee company (as it fell in the presumptive
tax regime) and was not so passed and as charge of WWF was consequential to
such an order of assessment therefore it followed that the ACIT's action in
this regard was wrong. Result=
antly,
the entire demand raised against the assessee company stood wiped out.
The
deptt contested the CIT(A) adjudication of assessee company's appeal before=
the
tribunal and the tribunal held that the CIT(A) was misconceived in his view
that the provisions of section 13(1)(a) / 30 could not have been invoked given =
the
facts and circumstances of assessee company's case and as unexplained exces=
s income
over imputable income was found to be indeed available to the company ( that had not been offered for tax
although it was included in the overall book profit as per the final accoun=
ts
of the company) the tribunal held that recourse to the provisions of section
80C(5) was justified. The CIT(A) findings in this regard thus stood reverse=
d.
However with regard to charge of WWF, the tribunal maintained the findings =
as
recorded by the CIT(A).
It is now the assessee company's
contention before the tribunal that the tribunal's finding with regard to i=
nvokation
of section 80C(5) is allegedly based on the mistaken presumption that the
assessee had not filed any reply to the confrontation notice issued u/s 62 =
by
the assessing officer with regard to excess income over imputable income. I=
t is
vehemently argued that such a presumption was wrong as the company had file=
d a
reply on 25/6/97 to the ACIT's show cause notice dated 12/6/97. Additionall=
y it
is argued that, as pointed out to the ACIT in it's reply to the show cause
notice, the company maintains audited books of accounts and has no other so=
urce
of income than that disclosed in the final accounts and hence whatever prof=
it
arose
(3) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
can only be seen as emanating fr=
om the
company's normal commercial operations. Furthermore it is argued that the
assessing officer had not rejected the assessee's books of accounts and in =
the
absence of such prior rejection of it's audited books of accounts no additi=
on
could statedly be made u/s 13(1)(a). Also, it is the applicant’s
contention that its case falls in the presumptive tax regime and only state=
ment
u/s 143-B is required to be filed which has been done and as necessary tax =
due
under the regime has been correctly deducted at source, the declared versio=
n is
statedly bound to be accepted – especially as it is supported by audi=
ted
books of accounts / final accounts. AR of applicant has also emphasized bef=
ore
the Tribunal that in the period subsequent to 1994-95, the department had n=
ot
made any addition on account of excess income by invocation of section 80C(=
5)
and this was statedly indicative of the department’s acceptance of the
declared version in each year, as per accounts. Finally, the AR of applicant
deposed before the Tribunal that the then Zonal CIT, Coys. Zone – II,=
According
to the AR of applicant the tribunals alleged “wrong finding” wi=
th
regard to reply filed by the assessee company before the ACIT fell within t=
he
scope of rectification.
The
following case law has been cited by assessee and Revenue in support of the=
ir
respective arguments before the Tribunal :
&=
nbsp; (1997)
76 Tax 5 (SC. Pak) ; =
; (2003)
87 Tax 8 (Trib) ;
&=
nbsp; (1992)
SCMR 687 ; &nb=
sp; 1971
PTD 204
&=
nbsp; (2003)
88 Tax 21 (Trib) ; &=
nbsp; &nbs=
p; 1992
PTD 570 SC ;
&=
nbsp; 2000 PTD 14 Kar.=
H.C. ; &=
nbsp; 2000
PTD 306 Kar. H.C.;
&nb=
sp; (1980) 42 Tax 1 (Trib) ; =
2000
PTD 2407
&=
nbsp;
The
DR and LA to the deptt have contested the submissions made by applicant's AR
and the LA has argued strongly that the assessee's prayer for rectification=
of
tribunal's impugned order was utterly misconceived as there was no 'error' =
in
that order. The LA submitted that the applicant was only indulging in
'wordplay' when it said that the tribunal had wrongly held that 'no reply' =
had
been filed by the company before the ACIT when notice was issued to it
regarding the ACIT's quantification of excess income over imputable income =
and
his finding that the same was liable to tax at normal rate as it had not be=
en
offered for tax by the assessee company. It is pointed out by the LA that t=
he
tribunal had observed that no explanation” was offered by the
assessee company which in the given context could only be taken to mean tha=
t a
plausible reply to the ACIT's show cause notice had not been offered which =
the
LA asserts is also consistent with the
(4) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
factual
position obtaining here.It is emphasised by the LA to the Deptt, that the
Hon'ble Supreme Court of Pakistan in it's landmark Ellahi Cotton Mills Ltd
judgement [1997) 76 Tax 5 (SC. Pak)] had laid down the rule that whe=
re
excess profits arise to an assessee and the assessee cannot show, to the
satisfaction of the assessing officer, that such excess profits arose o=
ut
of the normal commercial activities of the assessee as disclosed to revenue,
then the deptt could take
cognizance of such (unexplained) excess profits and bring the same to tax. =
It
is further emphasised by the LA that the Supreme Court had held in the cited
judgement that the burden of proof was on the assessee and if the assessee
failed to discharge the burden of proof, in that event section 80C(5) could=
be
legitimately invoked by revenue. According to the LA the tribunal's finding=
was
in consonance with the Supreme Court judgement as the assessee company had
indeed failed to establish before the ACIT that the huge excess profits over
imputable income available to the assessee actually arose out of it's normal
commercial operations. As regards the assessee's AR's contention that addit=
ion
(of excess profit amount) u/s 13(1)(a) was not possible without first rejec=
ting
the books of accounts, the LA submitted that such a view was misconceived as
section 13 was an independent charging section and as held held by the trib=
unal
in [(2003) 88 Tax 21 (Trib)]
the relevant provisions could be invoked independently by the assess=
ing
officer where the facts and circumstances so warrant and the statute did not
envisage any prior reequirement of rejection of books of accounts in this
regard.
During
the course of proceedings the tribunal had directed the applicant to make a
response in the light of tribunal's judgement in appeal cited as [(2003)=
87
Tax 8 (Trib)] as in that appeal too the tribunal had dealt with the iss=
ue
of excess profits arising to an assessee over the imputable income.
According
to the AR of applicant tribunal's cited judgement was statedly not applicab=
le
in the applicant's case as in the cited judgement the assessee had failed to
offer any explanation to the assessing officer's confrontation whereas the
assessee applicant had allegedly duly filed a proper reply to the ACIT's
confrontation that was statedly plausible and thus merited acceptance by the
tribunal.
The
tribunal had also interrogated the applicant with the gross profit and net
profit declaration of the assessee company over time and especially the GP =
and
NP disclosed by the company vis a vis other manufacturers in this line of
business (manufacture of packaging material).
The
applicant had advised that the applicant statedly manufactured a unique pro=
duct
line using specialized materials and thus it's case could not be fairly
compared with other manufacturers .
The
tribunal then pointed out to the applicant that many taxpayers “exploited” the presum=
ptive
tax regime by declaring inflated book profits in the periods that they fell=
in
this regime vis a vis the
(5) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
periods
when they were assessed to income tax
under normal law provisions. Such taxpayers routinely took the stance
that whatever book profit's they declared under the presumptive regime were=
the
profit's that arose to them from their normal commercial transactions and t=
hus
they were able to effectively get the benefit of huge excess profits without
paying any income tax thereon.
The
applicant while generally acknowledging that the GP and NP disclosed by the
company had indeed increased under the presumptive regime, especially in the
subsequent assessment years, this was attributed by the AR to 'improved
economies' due to better management and increase in the output resulting in=
a
spread of the fixed costs over increased output and thus reduction in unit
costs and resultant increase in GP / NP.
We
have heard both sides and have perused the 'case law cited' and have examin=
ed
the available record and our findings are recorded as under:
1. =
In
the reply filed by the assessee company to the ACIT's show cause notice not=
one
word has been said by the company regarding the alleged specialized nature =
of
it's product line-up and the
'spread' of fixed costs over increased output and the role played by both in
enabling the company to realize huge excess profit's over imputable income.
These "reasons" for the emergence of excess profit's are now being
cited before the tribunal for the first time. It folows therefore that the
excess profit's whose "explanation" was called for by the ACIT we=
re
never "explained" before the ACIT and only a general
"reply"to the ACIT's show cause notice had been sent stating simp=
ly
that the company maintained audited books of accounts and had computed it's
income for the year as per the final accounts. Prima facie, therefore, the
company failed to discharge the burden of proof referred to in the Supreme
Court judgement cited Supra and consequentially the tribunal has rightly he=
ld
that no proper explanation has been offered by the company in response to t=
he
ACIT's show cause notice. It must logically follow therefore that there is =
thus
no "error" in the tribunal's order such as that made out by the
applicant.
2. =
We
entirely agree with the LA to the deptt that the provisions of section 13(1=
)(a)
are independently invokable and are not dependent on any prior rejection of=
the
books of accounts. Such excess profit's as have emerged in assessee company=
's
case can only be brought to tax through the machinery of section 13(1)(a) a=
nd
not by direct invokation of the provisions of section 80C(5). Admittedly, t=
he
ACIT has not circumvented this procedure.
3. The
quantification of imputable income on "work back basis" as made by
the ACIT is entirely reasonable and the tax deducted at source on supplies,
imports and exports is a sound parameter for working out the imputable inco=
me.
(6) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
4. =
There
can be no doubt whatsoever that excess income over imputable income is inde=
ed
available to the assessee and the gap between the two is so pronounced that=
it
is not at all plausible to infer that the huge supernormal profit's / excess
income available to the assessee company arise from it's normal commercial
transactions. The "ambient circumstances" here are of paramount
significance and these lead to the inescapable conclusion that given their
quantum and the timeframe involved the excess profits cannot be reasonably =
seen
as arising to the company from it's routine commercial operations. Under th=
ese
circumstances the assessing officer has no option but to proceed u/s 80C(5)
through the machinery provided by section 13(1)(a) / 30.
5. &=
nbsp; No
doubt the assessee falls in the presumptive tax regime and has also been
subjected to tax deduction at source, nevertheless, the protection availabl=
e to
the assessee u/s 80C(4) is not a blanket protection and when excess income =
over
presumptive income is detected, the protection u/s 80C(4) will only be
available if the assessee can satisfactorily establish before the assessing
officer that the excess income genuinely arises to the assessee from its no=
rmal
commercial activity.
&nb=
sp; =
In
the case of the present assessee, the record shows that in the years when t=
he
presumptive regime was not on the statute i.e. prior to assessment y=
ear
1991-92, the gross profit percentage did not approach even 25% but w.e.f.
assessment year 1991-92 ( when section 80-C come on the statute ) the GP
percentage abruptly and significantly escalated to 33% odd in 1991-92, 38% =
odd
in 1993-94, 40% odd in 1994-95 and 44.4% in 1996-97 and so on in the subseq=
uent
years as well. Considering that in the entire corporate manufacturing secto=
r in
Pakistan a gross profit percentage of 25% is the exception, the sudden jump=
in
the gross profit percentage in assessee’s case after the presumptive tax regime came on the statute, is
proof positive that the company had “exploited” the presumptive=
tax
regime by “laundering / whitening “ its hitherto undisclosed ex=
cess
income now declared before the department in the garb of higher gross profi=
t.
The explanation tendered by the assessee before the Tribunal (referred to
Supra) is clearly a rather naïve attempt to evade the core issue i.e. =
the
sudden escalation in gross profit available to the company when there has b=
een
no significant and demonstrable change in the objective parameters that
determine gross profit in a given period.
6. &=
nbsp; AR’s
contention regarding the then Zonal CIT’s alleged direction to the th=
en
assessing officer not to invoke the provisions of section 80C(5) in the
subsequent assessment year, this is not borne out from the relevant record =
and
no evidence in support of the statement made was adduced by the AR before t=
he
Tribunal.
(7) &=
nbsp; &nbs=
p; MA
No. 81/LB/03
7. &=
nbsp; As
for the department not invoking section 80C(5) after assessment year 1994-9=
5,
we find that the department has very strongly defended the invocation of
section 80C(5) in 1994-95 and has firmly contested the relief accorded by t=
he
CIT (A) which clearly goes to show that there is no wavering of the
departmental resolve in 1994-95 to bring the excess income to tax. At the
present time, we are only concerned with 1994-95 and it would not be proper=
at
this stage to take up the treatment accorded in the subsequent years.
For
the reasons given Supra, we hold that the impugned order of the tribunal is=
not
open to any rectification as no "error" therein has been conclusi=
vely
established by the applicant. The application is accordingly rejected.
(MUHAMMAD =
MUNIR
QURESHI)
&=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; ACCOUNTANT MEMBER
(EHSAN
=
JUDICIAL MEMBER
INCOME T=
AX
APPELLATE TRIBUNAL,=
LAHORE
ITA=
No.
1186/LB/02
(Assessment Year 1997-98)
NTN: 30-03-0815592
M/s En-Em Industries Limited, Lahore Appellant
&nb=
sp; =
&nb=
sp; =
&nb=
sp; =
Versus
CIT, Special Zone -, Lahor=
e. &=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; Respondent
Appellant by&nb=
sp; =
: &=
nbsp; Mr.
Muhammad Akbar, FCA
Respondent by =
; : &=
nbsp; Mr.
Anwar Ali Shah, DR
Date of hearing=
: &=
nbsp; 19-02-2003
Date of order <=
/span>: &=
nbsp; 16-04-2003 &=
nbsp;
O R D E R
This
appeal by an unlisted public limited company arises out of order of the CIT,
Special Zone,
2. =
Briefly
stated, the facts in this case are that in exercise of his revisionary
jurisdiction u/s 66A of the (repealed) Ordinance, the CIT, Special Zone,
Lahore, exercising powers of the IAC has, on 25-02-2002, cancelled the
assessment finalized by the ACIT u/s =
62 of
the (repealed) Ordinance vide order dated 28-02-1998 for the reason that the
assessing officer had allowed assessee’s claim amounting to Rs.
4,95,06,000/- as an admissible deduction u/s 23 (1) (xviii) of the (repeale=
d)
Income Tax Ordinance, 1979, when the said payment represented penal interes=
t /
additional mark up charged by NDFC for non-payment of loan amount outstandi=
ng
against the assessee. It is the CIT’s contention that
(2) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
payment made by an
assessee on account of infarction of law is not an admissible deduction u/s=
23
(1) as it is not a payment laid out wholly or exclusively for the purposes =
of
business. The CIT has referred to Supreme Court of Pakistan judgement reported as (1999)-79-Tax-589, in =
this
context.
3. =
The
AR of appellant has contested the CIT’s action on several counts.
4. =
According
to the AR, section 66A of the (repealed) Ordinance is specific to the IAC i=
.e.
Inspecting Additional Commissioner of Income Tax. In the present case, the
powers u/s 66A having been exercised by the (Zonal) Commissioner of Income =
Tax
and not by the Inspecting Additional Commissioner of Income Tax, it is
contended that the revision as made by the CIT is, prima facie, illegal and=
ab
initio void. It is argued by the AR that the IAC alone is empowered u/s 66A=
to
revise order passed by the DCIT and the CIT finds no mention in section 66A=
. It
is especially pointed out that in the present case the order of assessment =
has
been passed by the ACIT and not by the IAC performing function of assessing
officer and it is therefore essential that the IAC (not the CIT) invoked the
powers specified u/s 66A.
5. =
According
to the AR, the defect in jurisdiction in this case is incurable and necessa=
rily
fatal to the attempted revision of the ACIT order.
(3) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
6. &=
nbsp; Referring
to the Supreme Court of Pakistan order cited Supra, the appellant has argued
that reliance placed by the CIT on the cited judgement is misconceived for =
the
reason that said judgement has been passed on 21-05-1998 which is after the
date of finalization of assessment u/s 62 by the ACIT (i.e. 28-02-1998) and
being a subsequent judgement, it is statedly not applicable retrospectively=
/
retroactively as held by the ITAT in (2002) 86 Tax 44.
7. &=
nbsp; It
is further the appellant’s contention that revision u/s 66A is ruled =
out
as there is, statedly, nothing in the ACIT’s order of assessment that=
may
legitimately be seen to be erroneous in so far as it is prejudicial to the
interests of revenue.
8. =
According
to the appellant, as per terms of agreement reached between the assessee
company (the debtor) and NDFC (the creditor), an amount of Rs. 80 lacs is t=
o be
paid back to the assessee company by NDFC yearly, provided the assessee com=
pany
is able to make payment, as per agreed schedule. It is the appellant’s
contention that the assessee company having fulfilled its obligation under =
the
agreement reached with NDFC, amount of Rs. 4 crores had been paid up by the
NDFC uptill assessment year 2002-03 @ Rs.80 lacs per annum and the same hav=
ing
been duly disclosed by the assessee company in its yearly return of income =
and
the same having been offered for tax, no prejudice had actually been caused=
to
revenue and hence there was no justification for exercise of revisionary
jurisdiction u/s 66A. In this context, it is pointed out by the appellant t=
hat
the total mark
(4) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
up, as per books
aggregates Rs. 3,93,80,103/- and out of this, an amount of Rs.1,85,72,204/-
constitutes additional mark up / penal interest and against this amount Rs.=
4
crores had been disclosed by the assessee company uptill assessment year
2002-03 @ Rs.80 lacs per annum received from NDFC. Thus against additional =
mark
up amount of Rs.1,85,72,204/- paid by the assessee company an amount of Rs.4
crores had been declared by the assessee to the department by recognizing
benefits it has received from NDFC and after invocation of the provisions of
section 66A, it was the assessee company’s predicament as to how to
account for the disclosure of said amount of Rs.4 crores to the department =
by
the assessee company.
9. =
According
to the DR, the appellant’s challenge to the jurisdiction of the CIT,
Special Zone, Lahore, in matter pertaining to the invocation of the provisi=
ons
of section 66A, is wholly misconceived as the Special Zone has specialized
jurisdiction over cases involving textiles, including dying / finishing /
processing of cloth and in this Special Zone, the IAC exercised functions of
assessing officer (i.e. DCIT) and the Zonal Commissioner of Income Tax
supervised the assessment work, besides administering the Zone, and thus was
the de-facto IAC just as the IAC was the de-facto DCIT. It is pointed out by
the DR that the original assessment had been finalized by the ACIT in a
different Zone i.e. Company Zone – III, Lahore and the case thereafte=
r had
been especially assigned to Special Zone, Lahore alongwith other cases of
textiles. On transfer to Special Zone, the case was placed in the charge of=
IAC
performing the function of
(5) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
DCIT and such IAC =
/ DCIT
was supervised by the CIT who was performing the functions of IAC. It is
emphasized that there is no other IAC in the Special Zone besides the IAC
performing the functions of DCIT and only the Zonal CIT had been invested w=
ith
the authority to supervise the IAC performing the functions of DCIT in the
Special Zone. Under the given facts and circumstances, therefore, it is
contended that only the Zonal CIT could invoke the provisions of section 66A
and that is what has been done in this case and there is therefore no defec=
t of
jurisdiction whatsoever in the order as passed by the CIT.
10. As fo=
r the
reliance placed by the CIT on the cited Supreme Court of Pakistan judgement=
, it
is the DR;s contention that the said judgement lays down a principle of law
that is well recognized viz: no payment made by way of penalty for violatio=
n of
law can be claimed as admissible deduction u/s 23 (1) of the (repealed)
Ordinance and the date of cited order of the Supreme Court of Pakistan is n=
ot
the Ist time that the said principle had been recognized by the department.=
11. As re=
gard
the appellant’s contention that no prejudice has been caused to reven=
ue,
the DR pointed out that in the assessment year 1997-98, additional mark up /
penal interest had admittedly been paid by the assessee company to NDFC on
account of its failure to pay back loan amount in time to NDFC and by debit=
ing
such additional mark up / penal interest to P & L account of the company
for that year, the net income stood
(6) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
reduced resulting =
in
reduced tax demand and the consequent loss to revenue is therefore obvious.
That being so, it is contended that invocation of the provisions of section=
66A
was fully justified.
12. Final=
ly, as
regards the so called benefit to revenue resulting from payment of Rs. 80 l=
acs
per annum by NDFC to the assessee company subsequent to finalization of
assessment for 1997-98, it is contended that the same is not relevant to
assessment of assessee’s total income for 1997-98 and hence of no
consequence in the present case.
13. We ha=
ve
heard both sides and have examined the available record and our findings are
recorded as under: -
1. Appellant’s challenge to the jurisdictio=
n of
the CIT, Special Zone,
(7) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
The fact that the original assessment in this c=
ase
has been finalized by an ACIT is not at all relevant as the said ACIT was
placed in a different Zone altogether in which there was no specialized
assignment of jurisdiction in textile cases, as in Special Zone, Lahore, and
the appellant’s case having been transferred from that Zone to the
Special Zone, Lahore, the administrative hierarchy of Special Zone became
relevant. In that hierarchy, the IAC was the DCIT and the CIT was the IAC which
arrangement in no way divests the CIT working as IAC from exercise of
jurisdiction u/s 66A. We therefore hold that the exercise of jurisdiction u=
/s
66A by the CIT, Special Zone,
2. &n=
bsp; =
;
The relian=
ce
placed by the CIT, Special Zone,
(8) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
and it is clarified i=
n the
said judgement that only such expenditure can qualify as an admissible busi=
ness
expenditure that has been incurred for the sole objective of promoting the
business, whether directly or indirectly. Needless to say, payment of penal=
ty
for infarction of law cannot be reasonably seen as expenditure incurred for
promotion of business and such expenditure must therefore be disallowed in =
its
entirety. Failure of the assessing officer to recognize the patent inadmiss=
ibility
of such expenditure an admissible deduction is fully actionable u/s 66A as
prejudice to revenue is inevitable when the assessing officer fails to tae
cognizance of an deduction claimed by the assessee.
We will therefore hold that reliance placed by =
the
CIT on the reported Supreme Court of Pakistan judgement is quite in order. =
3. Coming now to the appellant’s contention
that benefit received by the assessee company from NDFC subsequent to
finalization of assessment for 1997-98 @ Rs. 80 lacs per annum and aggregat=
ing
Rs.4 crores uptill assessment year 2002-03 having been duly disclosed by the
assessee company in the returns of income filed annually, there was no real
loss of revenue in the final analysis and hence there was no cause for acti=
on u/s
66A.
(9) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
In our considered judgement, the appellant̵=
7;s
contention on the matter is totally misconceived as the events subsequent to
1997-98 assessment year in which the provisions of section 66A have been
invoked can have no bearing on the exercise of revisionary jurisdiction by =
the
CIT in that year (i.e. 1997-98). Admittedly, in the one year that deduction=
on
account of additional mark up / penal interest has been allowed to the asse=
ssee
company, less tax is payable by the assessee company than what would be pay=
able
if the deduction had been recognized to be inadmissible in law and had not =
been
allowed by the assessing officer. Under the given facts and circumstances,
prejudice to revenue in assessment year 1997-98 is manifest and what has
happened in the subsequent years is altogether a different sequence of even=
ts
that in no way can be claimed to neutralize / nullify the loss to revenue in
assessment year 1997-98 resulting from the assessing officer’s patent
failure to recognize an inadmissible deduction u/s 23 (1). We therefore see=
no
merit in appellant’s reference to the amount of Rs. 4 cores received =
by
the assessee company from NDFC uptill 2002-03 so far as the CIT’s act=
ion
u/s 66A is concerned in assessment year 1997-98.
&nb=
sp;
(10) &=
nbsp; &nbs=
p; ITA
No. 1186/LB/02
4. We note that the CIT has cancelled the assessm=
ent
framed in this case and has directed the assessing officer to reappraise the
claim of additional mark up / penalty interest preferred by the assessee
company. The assessee will have full opportunity to explain its point of vi=
ew
further before the assessing officer.
5. &=
nbsp; For
the reasons recorded Supra, we maintain the order as passed by the CIT, Spe=
cial
Zone,
Resultantly, the appeal is rejected.
(MUHAMMAD MUNIR QURESHI)
&=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; ACCOUNTANT MEMBER
(EHSAN
JUDICIAL MEMBER<=
/span>
INCOME TAX APPELLATE TRIBUNAL,
MA No. 662/LB/03
(Assessment Year 2000-01)
NTN: 19-02-0391558
Mr. Irfan Farooq C/o
Prestige Surgical
(Pvt) Limited,
=
&nb=
sp; =
&nb=
sp; =
&nb=
sp; Versus
DCIT/WT, Circle R=
11;02,
Applicant by &=
nbsp; : &=
nbsp; Mr.
Shafqat Mehmood Chohan, Adv.
Respondent by &=
nbsp; : &=
nbsp; Dr.
Abdul Sattar Abbasi, DR
Date of hearing =
: &=
nbsp; 11-11-2003
Date of order : &=
nbsp; 14-11-2003
O R D E R
=
This misc. application by an individual is for =
recall
of Tribunal’s order bearing WTA No. 1276/LB/02 (Assessment Year 2000-=
01)
dated 15-08-2003.
2. As per applicant,
the judgment as passed by the Tribunal is in conflict with the judgment
allegedly announced in Court on 13-08-2003 when,=
as
per affidavit filed by the assessee, the Tribunal had, statedly, rejected t=
he
departmental appeal. Further, according to the applicant, the aforecited or=
der
of the Tribunal is erroneous insofar as the facts of applicant’s case
have not been properly appreciated and reliance has wrongly been placed on
Supreme Court of Pakistan judgment cited as [1964 PLD 456] and the applicant has been wrongly=
cited
as “co-owner” in plot measuring 34 Kanals (680-marlas) at Zafar=
Ali
Road, Sialkot Cantt, in which assessee’s share had been determined at=
85
marlas & has been appraised for purposes of levy of wealth tax by
(2) =
&nb=
sp; MA
No. 662/LB/03
the assessing office=
r at
Rs. 1,27,0000/- per marla thus aggregating total value in assessee’s
hands at Rs. 10,795,000/-.
3. Briefly stated, =
the
relevant facts in this case are that the assessee filed return of net wealth
for the assessment year
2000-01 in which assessee’s share in the plot of land referred=
to
Supra has been duly declared at Rs. 2,50,000/-. On scrutiny of the return, =
the
assessing officer found the declared value to be understated and proceeded =
to
appraise the plot as per rate schedule notified by the District Collector, =
Sialkot
(Sr.No.73 of the rate list) at Rs. 1,27,000/- per marla and resultantly, the
total value in assessee’s case for 85 marlas came to Rs.10,795,000/-.=
The
treatment as accorded by the assessing officer was contested by the assessee
before the CWT(A) who held that there being no mutation of the cited proper=
ty
in assessee’s name, therefore the said plot of land was not to be
included in the “net wealth” of the assessee as defined in sect=
ion
2 (1) (16) of the Wealth Tax Act, 1963 (since repealed). Resultantly, the o=
rder
of the assessing officer was held to be not sustainable on this issue and
vacated.
4. The department f=
iled
appeal before the Tribunal against the order of the CWT(A) contesting the
findings as recorded by the first appellate authority with regard to the ci=
ted
property. The Tribunal vide WTA No. 1276/LB/02 (Assessment Year 2000-01) da=
ted
15-08-2003 disposed off the departmental appeal and after examination of
various pertinent aspects pertaining to valuation of the cited property held
that the assessee was indeed the “owner”
(3) =
&nb=
sp; MA
No. 662/LB/03
of said property and=
the
order of the CWT (A) accordingly vacated and assessing officer’s order
reinstated. In reaching the conclusion that the assessee is “owner=
221;
of the said plot, the Tribunal has taken cognizance of the all important fa=
ct
that the assessee has himself cited the said plot in his personal wealth tax
return as his immovable property and has included the same in his net wealt=
h.
Further more, the Tribunal has noted that the assessee having made full pay=
ment
to the seller and an agreement to sell having been executed and duly regist=
ered
with the sub-Registrar, Sialkot, the assessee’s rights in the said
property were fully protected and reference has been made in this context t=
o Hon’ble
Supreme Court of Pakistan judgment as recorded in the case of Mst. Ghulam
Sakeena Vs. Umer Baksh and another
Civil Appeal No.66 of 1963 decided on 2nd April, 1964 and reported as
PLD-1964-SC-456. Also, the Tribunal has referred to judgment cited as 1-ITC=
-140
(
“OwnershipR=
21;
for purposes of levy of wealth tax under the Wealth Tax Act, 1963 (since
repealed) does not have the narrow and technical meaning that has been assi=
gned
to it by the CWT (A). It is significant that the term “owner” h=
as
not been defined in the Wealth Tax Act, 1963, and this, in our view, this is
deliberate and if the law had indeed intended to define “owner”=
in
a narrow technical sense of the word then it would have done so. The fact t=
hat the
law had not done so shows that the law never intended to give it this narrow
and technical meaning that has been wrongly held to be applicable by the CWT
(A)”. (SIC)
5. The assessee has=
now
filed misc. application in which it is contended that the Tribunal’s
order was erroneous and reliance
(4) =
&nb=
sp; MA
No. 662/LB/03
placed on cited Supr=
eme
Court of Pakistan judgment is misplaced as the said judgment allegedly did =
not
have relevance in the context of levy of wealth tax under the Wealth Tax Ac=
t,
1963 (since repealed). It has been further contended that the Tribunal has
unjustifiably held earlier judgments of the Tribunal cited by the assessee =
when
arguing the main appeal to be order passed “per incurium” and
according to the applicant, the said judgments had binding force and were b=
ound
to have been followed by the Tribunal. Also, it has been pointed out by the
learned AR of the applicant that the Hon’ble Lahore High Court had
restrained the assessee from any subletting of main plot and also its alien=
ation.
6. As pointed out
Supra, the applicant has filed an affidavit with the misc. application in w=
hich
it has been stated that the Tribunal on 13-08-2003, when the main appeal had
come up for hearing, had rejected the departmental appeal and had so announ=
ced
in open Court. This contention of the applicant has been looked into. Appli=
cant
has been told that as per noting made in the court registers of both the
Judicial Member and Accountant Member of the Bench, there is no mention of =
any
judgment having been announced in open Court on 13-08-2003. Also, the Membe=
rs
of the Bench do not recall that had they made any such announcement nor is
there any independent corroboration thereof. After discussion of the matter,
the AR of applicant submitted that in actual fact he had gathered the
impression that the departmental appeal had been rejected and he acknowledg=
ed
that the Bench did not make any specific announcement regarding
(5) =
&nb=
sp; MA
No. 662/LB/03
rejection of the
departmental appeal. That being so, this part of the affidavit is rendered
infructuous as it is admittedly based on a mis-appreciation of the factual
position.
7. The departmental
representative has contested the submissions made by the learned AR and it =
is
argued that the Tribunal having taken a conscious decision as to the meanin=
g of
the term “owner”, as envisaged in wealth tax law, that firm fin=
ding
could not now be looked into afresh as it would amount to a
“review” which is not permissible in law.
8. We have heard bo=
th
sides and have examined the available record and our findings are recorded =
as
under: -
1. The condition
precedent for any action u/s 35 of the Wealth Tax Act, 1963, is the existen=
ce
of a mistake on the face of the record. According to the learned AR of
applicant such a mistake is present insofar as the Supreme Court of Pakistan
judgment cited by the Tribunal as [1964 PLD SC 456] is statedly not applica=
ble
as the facts in that particular case are different from those obtaining in =
the
present assessee’s ease insofar as the case of the assessee involves
wealth tax assessment / appraisal of immovable property for purposes of lev=
y of
wealth tax whereas in the cit=
ed
Supreme Court judgment, question of ‘dower debt’ etc was involv=
ed.
In view of the different context of the two cases, it is contended
(6) =
&nb=
sp; MA
No. 662/LB/03
that
there is both a factual as well as a legal mistake in the main order of the
Tribunal dated 15-08-2003 and hence recourse to the provisions of section 3=
5 of
the Wealth Tax Act, 1963 (since repealed) is justified.
We have looked into =
the
applicant’s contention and in our considered judgment, the
“ratio” of the cited Supreme Court of Pakistan judgment is fully
applicable in the case of the present assessee. We have made it abundantly
clear on Page-6 of Tribunal’s main order dated 15-08-2003 that
“ownership” for purposes of levy of wealth tax under the Wealth=
Tax
Act, 1963 has a much broader scope
than that attached to it by the CWT (A). It has been pointed out that
the term “owner” has not been specifically defined in the Wealth
Tax Act, 1963 and this has been held to be deliberate because if the law had
indeed intended to define “owner” in a narrow technical sense of
the word then it would have done so [1-ITC-140(Burma)]. We have then explai=
ned
that as held by the Supreme Court of Pakistan in [PLD-1964-SC-456], the rig=
hts
of the present assessee making payment for purchase of immovable properly &=
amp;
who is in possession of the cited property are fully protected notwithstand=
ing
the fact that a registered sale deed had not been executed. Thus once payme=
nt
has been made and possession handed
(7) =
&nb=
sp; MA
No. 662/LB/03
over in the presence=
of a
formal document viz; agreement to sell, there was no way the seller could
curtail in any manner the rights of the purchaser in the said property and
there was no way any one claiming title to the said property under the sell=
er
could alter the rights of the purchaser to the purchaser’s disadvanta=
ge.
This finding of the Supreme Court of Pakistan has been found to be fully
applicable in assessee’s case, as the purchase of immovable property =
in
assessee’s is similar insofar as plot of land had been purchased with=
out
execution of sale deed and there is an agreement to sell, duly registered,
payment has been made and possession handed over to the assessee. As per ra=
tio
of the Supreme Court of Pakistan judgment therefore, the assessee is now,
“owner” of the said plot of land under the Wealth Tax Law.
In view of the
observations recorded, we hold that reliance placed by the Tribunal on the
Supreme Court of Pakistan judgment cited as [1964 PLD SC 456] is not mispla=
ced.
2. When the assessee
has himself asserted
“ownership” of the said plot of land in the Return of net
wealth filed by him and when the law protects the rights of the assessee who
holds the cited property without fear of challenge from the seller or any o=
ne
(8) =
&nb=
sp; MA
No. 662/LB/03
acting under him, th=
ere
cannot, in our considered judgment, be any doubt as to the assessee being
“owner” of the said property “under wealth tax law”=
. In
the case of the present assessee, the said plot of land is specifically cit=
ed
by him in his Wealth Tax Return as his asset. A specific value has been
attached to the said asset by the assessee in the return and the asset has =
been
included in the assessee’s net wealth. As assessee is admittedly in
possession of the plot and has made full payment to the seller and formal
agreement to sell has been executed and registered, the assessee is indeed =
the
“owner” of the said plot “under wealth tax law”.
3. The Tribunal in =
WTA
No. 1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003 has held that the
assessee is “owner” of shop at Sadiq Plaza, for which payment at
Rs. 6,83,000/- has been made and possession is admittedly with the assessee.
Notwithstanding the fact that sale deed has not been executed, it has been =
held
that the “ambient circumstances” were compelling and clearly
indicated “constructive ownership” of the assessee in respect of
the premises and although the assessee in that case said that the payment m=
ade
was only an “advance”, the Tribunal rejected that contention and
held the assessee held to be “owner” of the shop. In the present
assessee’s case as well, it is asserted by
(9) =
&nb=
sp; MA
No. 662/LB/03
the learned AR that
payment made by the assessee for the plot may be treated as
“advance” etc.
Tribunal’s judgment WTA No. 1123/LB/00 (Assessment Year 1998-9=
9)
dated 31-07-2003 has been passed by the same Bench / Member that has passed
judgment in WTA No. 1276/LB/02 (Assessment Year 2000-01) dated 15-08-2003.
Precedent law of the Bench itself is of considerable significance and canno=
t be
ignored by the Bench.
4. The judgments ci=
ted
by the assessee before the Tribunal have been held to be orders passed
“per incurium” as the law pertaining to meaning of
“ownership” under wealth tax law has not been properly apprecia=
ted
in the said judgments, as explained Supra.
5.