I.T.A. NO.3569/LB OF 1983-84, DECIDED ON 24TH DECEMBER, 1990. VS I.T.A. NO.3569/LB OF 1983-84, DECIDED ON 24TH DECEMBER, 1990.
1991 P T D (Trib.) 669
[Income-tax Appellate Tribunal Pakistan]
Before Saiyid Saeed Ashhad, Judicial Member and Inam Elahi Shaikh, Accountant
Member
I.T.A. No.3569/LB of 1983-84, decided on 24/12/1990.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 62---Application of higher gross profit rate---Income-tax Officer could deviate from the past history for application of higher gross profit rate only if he could point out existence of exceptional and extraordinary circumstances for doing so.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 23---Latc delivery charges---Any payment made by, way of late delivery charges has to be distinguished from payment of amount by way of penalty or fine---Payment made as late delivery. charges was an expenditure wholly and exclusively incurred for the purpose of business inasmuch as the non-payment thereof might have resulted in cancellation of agreement and thus such payment was made to avoid loss.
Sohail Babri, I.T.P. for Appellant.
M. Arshad Malik, D.R. for Respondent.
Date of hearing: 22nd December, 1990.
ORDER
SAIYID SAEED ASHHAD (JUDICIAL MEMBER).---The above appeal has been filed by the assessee against the order of the learned C.I.T. (Appeals), Zone-11, Lahore dated 14-5-1984 challenging the finding whereby the learned Commissioner (Appeals) confirmed the setting apart of the return filed under the Self-Assessment Scheme; confirmed the G.P. rate of 20% applied by the I.T.O. and also confirmed some of the disallowances made by the I.T.O. out of several heads of accounts of the profit and loss account.
We have heard the arguments of Mr. Sohail Babri, the learned A.R. of the appellant and Mr. M. Arshad Malik, the learned D.R. and have also perused the material on record. The ground whereby the appellant had agitated the setting apart of the return from the Self-Assessment Scheme and finalization of the assessment in the regular process under section 62 of the Income Tax Ordinance, was not pressed by the learned A.R. during the course of arguments and this ground is not being considered and adjudicated.
The next ground raised on behalf of the appellant was with regard to the application of G.P. rate of 20$ and the learned A.R. submitted that the same was not only against past history of the appellant but also was contrary to the G.P. rate applied in parallel cases of comparable concerns. In this connection he submitted that in the normal assessment for the; assessment year 1979-80 a G.P. rate of 15% position was applied in the case of the appellant and also drew our attention to the case of one Messrs Naeem & Co., bearing NTN 05-25-1252419, which was also carrying on the business of supply of stores items, wherein a G.P. rate of 15 % was applied. The learned A.R. prayed that in view of the above factual position and circumstances of the case the learned C.I.T. (Appeals) was not justified in confirming the G.P. rate of-20% applied by the I.T.O. The learned D.R. on the other hand supported the order of the learned C.I.T. (Appeals). After having taken it-do consideration the respective arguments of the learned representatives of the parties, we are satisfied that the application of G.P. rate of 20% by the I.T.O. was not based on any satisfactory, convincing and plausible ground or basis and was also contrary to the past history of the appellant. No doubt that the I.T.O. could have deviated from the past history and applied a higher &P. rate but for doing so he was required to point out the existence of exceptional and extraordinary circumstances which did not exist in the case. The learned C.I.T. (Appeals) had erred in confirming the applied G.P. rate of 20% and his above finding cannot be sustained. Accordingly, the I.T.O. is directed to apply a G.P. rate of 15% (Fifteen per cent only).
The other ground agitated on behalf of the appellant was with regard to the disallowances out of several heads of the profit and loss account. The learned A.R. submitted that he would only press the disallowances out of "salaries" and "late delivery charges" and no other disallowance was pressed by him. With regard to the disallowance of Rs.28,000 out of the claim of Rs.56,290 under the head salaries, it is to be observed that the total claim of Rs.56,290 was about 1% of the total turnover of the appellant during the above-assessment year and the same could not by any stretch of imagination be said to be disproportionate and excessive. It was also pointed out by the learned A.R. that the I.T.O. did not call for any document to prove the payment of salaries and he could not have made any disallowance without first calling upon the appellant to produce the proof of payment of salaries. The learned D.R. was unable to satisfy us that the disallowance of Rs.28,000 was valid and proper and we find ourselves in agreement with the contention of the learned. A.R. that the disallowance was arbitrary and without any satisfactory and plausible reason and the addition thereof stands deleted. The other disallowance pressed by the learned A.R. was with regard to the sum .of Rs.78,230 which was paid by the appellant to Messrs WAPDA on account of "late delivery" of certain items/materials. Both the I.T.O. and the learned CI.T. (Appeals) had taken a view that the payment of Rs.78,230 was in the nature of FINE or PENALTY and payments made by an assessee on account of violation of any provision of law resulting in imposition of fine or levy of penalty were not to be treated as business expenses and were, not allowable as such under section 23 of the Income Tax Ordinance. However,, it is to be observed that payment by way of late delivery charges is to, be distinguished from payment of amounts by way of penalty or fine. A penalty is levied or a fine is imposed on account of violation of any provision of law which provides for imposition of fine or levy of penalty. In other words, fine is imposed or penalty is levied in accordance with the provisions of a statute for violation of any provision contained therein.' In the present case late delivery charges were paid by the appellant to Messrs WAPDA not on account of violation of any provision of statutory law or any other law but on account of an agreement mutually arrived at between the appellant and Messrs WAPDA. Violation of any condition or provision agreed upon mutually by the appellant and Messrs WAPDA could neither he treated at par with the violation of any provision of a law nor payment of late delivery charges by the appellant to Messrs WAPDA on account of mutual agreement could be equated with the payment by way of fine or penalty imposed or levied can an assessee for violation of any provision of law. It is further to be observed that the payment of Rs.78,230 by the appellant to Messrs WAPDA was as expenditure wholly and exclusively connected and for the purpose of the business of the appellant inasmuch as the non-payment thereof might have resulted in cancellation or coming to an end of the agreement between the appellant and Messrs WAPDA AND THE SAME WAS in fact paid by the appellant to save its business and to avoid losses. In view of the above, we are satisfied that the learned C.I.T. (Appeals) was not justified in upholding the disallowance of the above sum of Rs.78,230 and his finding to the above effect cannot be sustained. Accordingly, the sum of Rs.78,230 paid by way of late delivery charges is to be allowed in full as an item of expenditure.
The appeal stands disposed of in terms of the above observations and findings.
Z.S./1185/TOrder accordingly.