(a) Income Tax Ordinance (XXXI of 1979)---

----S.13(1)(e)---Addition under S.13(1)(e) can be made when the assessee offers no satisfactory explanation regarding excess amount or the money from which the expenditure is made.

1987 PTD 300 and 1989 PTD 150 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.13(2)---Addition under S.13(2) can be made when the Income-tax Officer finds the expenditure low.

1987 PTD 300 and 1989 PTD 150 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.13(l)(e) & 13(2)---Any addition made out of any expenditure for want of verification would not fall within S.13(1)(e) or S.13(2) of the Ordinance and in such a case prior approval of I.A.C. would not be required.

In the present case, the assessee firstly disclosed her source of income from property and then claimed expenditure against it out of the same income. Her disclosed ALV stood at Rs.1,79,640 and thus she was entitled to deduction of Rs.35,928 being 1/5, of the ALV of the property. The I.T.O. had no alternative but to allow it provided the assessee could establish before him that it was incurred in respect of repairs of the immovable property. However, the assessee claimed Rs.87,643 in all. The I.T.O., therefore, wanted her to prove the expenditure of Rs.51,712 and when she failed to discharge her burden, he made addition of Rs. 10,000 only out of her declared property income which was computed on the basis of the deduction of entire claim of Rs. 87,643. The I.T.O. had made this addition on the- basis of the agreed addition of Rs. 8,000 out of same type of expenditure. Thus, neither the I.T.O. had come to the conclusion that the assessee failed to prove the source of Rs. 10,000 nor he had treated any expenditure low and added Rs.10,000 to make it reasonable under section 13(2).

The addition made by the I.T.O., under the facts and circumstances had not made any addition under section 13 hence no approval was required. Any addition made out of any expenditure for want of verification would fall within section 13(1)(e) or section 13(2) under the Income Tax Ordinance. Prior approval-of Inspecting Assistant Commissioner, thus, would not be required in circumstances.

1987 PTD 300, 1989 PTD 150 and (1989) 51 Tax 13 ref.

Asrar Rauf, D.R. for Appellant:

Rehan Hassan Naqvi for Respondent.

Date of hearing: 10th June, 1992.

ORDER

This departmental appeal is directed against the order of learned Commissioner of Income Tax (Appeals) recorded by him on 30th January, 1991 relating to assessment year 1989-90.

2. Mr. Asrar Rauf, the learned Departmental Representative, supporting the departmental appeal, submits that during the relevant assessment year, the respondent declared her income from her share in a registered partnership at Rs. 88,625 and income from property at Rs.20,074. The learned D.R. submits that in her return, she declared only the annual letting value of her property at Rs. 1,79,640 and out of it she claimed Rs. 87,643 as expenses against property income including 1/5 statutory allowance admissible under section 20(1)(e) of the Income Tax Ordinance. Mr. Asrar Rauf contends that since the respondent failed to prove expenses which he allegedly incurred against property income, the Income Tax Officer added Rs. 10,000 out of them to her property income on the basis of the past history. Turning to assessment year 1988-89, the learned D.R. submits that the I.T.O. had asked for the details for repair and collection expenses and the same were not given to him but the assessee agreed to addition of Rs. 8,000. The learned D.R. submits that the I.T.O. had added Rs. 10,000 during this year on that basis. The learned D.R. further contends that the learned C.I.T. (A) was not justified at all in treating the addition of Rs.10,000 as an expenditure under section 13(1)(e) of the Income Tax Ordinance. The learned D.R. concludes that since no prior approval of I.A.C. was required, the order of learned C.I.T.(A) be vacated and that of the I.T.O. be restored.

3. Mr. Rehan Hassan Naqvi, the learned counsel for the respondent, on the other hand, submits that since the I.T.O. has made addition out of expenses, it should necessarily fall under section 13(1)(e) of the Income Tax Ordinance. According to him, since the I.T.O. failed to obtain the approval of the I.A.C., the order of learned C.I.T.(A) is unexceptionably sound and calls for no interference:

4. I have heard both the learned D.R. as well as learned counsel for the respondent. Before dealing with the arguments advanced at Bar, let me firstly reproduce the observations of both the officers below on the issue involved in this appeal. The I.T.O. at page 2 of his assessment order has made the addition with the following observation:

"Keeping in view past history of the cases and on the basis of facts available on record, the assessment is finalized by making an addition of Rs. 10,000 towards the property income. After discussion with the authorised representative of the assessee, total income is computed as under:-?

5. On the other hand, from perusal of the impugned order it appears that it was argued before the learned CIT (Appeals) that without mentioning the section the ITO actually made addition under section 13(1)(e) of the Ordinance on account of low personal expenses. 1t appears to have been further contended before him that since it was without prior approval of the IAC the addition was actually illegal. The learned CIT(A) has disposed of this contention with the following remarks:

" The case has been examined. It is noted that ITO had made addition under section 13(1)(e) without obtaining prior approval of the IAC. The I.T.O. made the addition on account of low personal expenditure but he was unable to show unverifiability of the expenses. The addition made by the ITO of Rs. 10,000 is deleted as the same was not justified."

6. In order to better appreciate the respective contentions of learned D.R. as well as learned counsel for the respondent let me mention at this juncture section 13 of the Income Tax Ordinance which reads as under:

"13. Unexplained investments etc deemed to be income.---

(1) Where, in the course of any proceedings under this Ordinance---

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

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

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

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

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

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

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

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

From perusal of section 13(1)(e) and section 13(2) as reproduced above, an addition under section 13(1)(e) of the Income Tax Ordinance can be made when the assessee offers no satisfactory explanation regarding excess amount or the money from which the expenditure is made. Similarly, under section 13(2) of the Income Tax Ordinance, an addition can be made when the I.T.O. finds the expenditure low. This Tribunal has elaborately dealt with the additions to be made under section 13(1)(e) or under section 13(2) of the Income Tax Ordinance in decisions reported as (1987) PTD 300 and 1989 PTD 150. However, in this case, the respondent firstly disclosed her source of income from property and then claimed expenditure against it out of the same income. Her disclosed ALV stood at Rs. 1,79,640 and thus she was entitled to deduction of Rs.35,928 being 1/5 of the ALV of the property. The I.T.O. had no alternative but to allow it provided the respondent could establish before him that it was incurred in respect of repairs of the immovable property. Let me mention here- that this Tribunal has already explained the meaning of `repairs' in a decision reported as (1989) 51 Tax 13. However, the respondent claimed Rs. 87,043 in all. The I.T.O., therefore, wanted her to prove of the expenditure of Rs.51,712 and when she failed to discharge her burden he made addition of Rs.10,000 only out of her declared property income which was computed on the basis of the deduction of entire claim of Rs.87,643. The I.T.O. appears to have made this addition on the basis of the agreed addition of Rs.8,000 out of same type of expenditure. Thus, it is clear that neither the I.T.O. has come to the conclusion that the respondent failed to prove the source of Rs.10,000 nor he has treated any expenditure low and added Rs.10,000 to make it reasonable under section 13(2).

7. With profound respect for the learned counsel for the respondent and the learned C.I.T(A), I am of the considered view that the addition made by the I.T.O., under the facts and circumstances discussed above, has not made any addition under section 13 hence no approval was required. In my humble opinion, any addition made out of any expenditure for want of verification would not fall within section 13(1)(e) or section 13(2) under the Income Tax Ordinance. The learned C.I.T.(A), therefore, appears to have grossly misdirected himself in ordering deletion of the addition of Rs.10,000 for want of prior approval of the Inspecting Assistant Commissioner.

8. I, therefore, allow this appeal and after vacating the order of learned C.I.T.(A), restore that of the I.T.O. The appeal stands disposed of accordingly.

(Empowered under section 133(6) of the Income Tax Ordinance, 1979 to exercise powers and functions of the Appellate Tribunal, sitting singly.)

M.BA./1.616/T??????????????????????????????????????????????????????????????????????????????????? Appeal allowed.