I.T.AS. NOS. 2574/KB, 2572/KB AND 3467/KB OF 1987?88, 1490/HQ OF 1988 89, VS I.T.AS. NOS. 2574/KB, 2572/KB AND 3467/KB OF 1987?88, 1490/HQ OF 1988 89,, 1994 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 47 (1993)

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

----S. 53---C.B.R. Circular No.4 of 1979 dated 23-8-1979---Advance payment of tax---Main ingredients which determine the applicability of S.53 to the advance enlisted---First instalment of advance payment of tax is due before Fifteenth day of September on the basis of latest assessment order available prior to such date---Amount-payable before the Fifteenth September is 1/4 of the full amount and full amount is the total amount of the latest assessment order prior to the Fifteenth September---Reliance on C.B.R. Circular No.4 of 1979 is legal and proper.

The following are main ingredients, which determine the applicability of section 53 of the Income Tax Ordinance, 1979:

(i) The assessed income of an assessee is fifty thousand or more in case of company and in other cases one hundred thousand;

(ii) instalments are payable quarterly on Fifteenth day of September, Fifteenth day of December, Fifteenth .day of March and the Fifteenth day of June in each financial year;

(iii) the amount so payable must be equal to 1/4 of the full amount of income-tax and super-tax determined; and

(iv) the amount payable should be less than the tax deducted or calculated under section 50 in the said financial year.

In short, the assessee is required to pay 1/4 of the full amount of income-tax and super-tax on the basis of assessment made under sections 59, 59A, 60, 62, 63 or 65. According to section 53, the first instalment is due before Fifteenth day of September, therefore, the first instalment is payable on the basis of latest assessment order available prior to this date. The amount payable before the Fifteenth September, is 1/4 of the full amount. Now the question is which amount is the full amount. The answer of this question would be that full amount is the total amount of the latest assessment order prior to the Fifteenth September. Therefore, in order to maintain uniformity, the legislature has laid down that 1/4 amount payable as advance tax should be 1/4 of the full amount, which is determined on the basis of latest assessment order. Otherwise, if any other interpretation is taken into consideration, then there would be no uniformity and every now and then, there would be change in the instalment, which would never be 1/4 or equal to first instalment paid by the assessee.

The intention of the legislature is to be gathered from the clear meaning of the words used in section 53. There is no ambiguity in the words used in section 53. Liability of advance tax is dependent on latest assessed income which may be less or more as compared to other latest assessment after Fifteenth September, Fifteenth December and Fifteenth March, therefore, the assessee may gain some time and may lose some time, therefore, shifting liability may be some time more and some time less. This may create non-uniformity, which has been removed by clear words of section 53. The interpretation of section 53 as explained is the plausible explanation.

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

----S. 134--Appeal to Income Tax Tribunal---Commissioner of Income-tax (Appeals) had set aside the finding on all issues except disallowance and I.T.O. had redecided all the set aside issues---Appeal of assessee having become infructuous on these issues, Tribunal dismissed the appeal accordingly.

(c) Income-tax---

----Addition---Assessee had failed to furnish details of expenses specifically required by the I.T.O. and the quantum of addbacks was found reasonable by the C.I.T. (A)---Appellate Tribunal in view of such categorical findings maintained all the addbacks i.e. staff welfare, travelling and conveyance, car expenses, telephone, postage and telegram, printing and stationery, repair, maintenance and general expenses.

(d) Income-tax---

----Addition---Perquisites---Excess perquisites ---I.T.O. had added the amount on the basis of assessee's own working---Commissioner of Income Tax (Appeals) maintained the addition---Nothing having been produced before the Tribunal to rebut the findings of I.T.O: and C.I.T., Tribunal upheld the issue as such.

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

----S. 134---Appeal to Appellate Tribunal---Loss disallowed to assessee--?Departmental appeal relating to loss of another year was pending before the Appellate Tribunal---Held, since only the disallowance of loss was pressed before the Tribunal, therefore, finding of the Tribunal would affect the departmental appeal and any consequential relief available to the assessees would be given on the basis of Tribunal's order in departmental appeal pending before the Tribunal.

(f) Income-tax---

----Rejection of accounts---Assessing Officer has to point out specific defects.

Once an Assessing Officer wants to reject the books of accounts or declared version of the assessee, then he has to point out specific defects.

Where accounts are rejected, the assessing authorities are required to spell out their belief that accounts are fictitious and unreliable. No doubt, their such belief should be judicious and not capricious.

(1980) 42 Tax 190 (SC) ref.

(g) Income-tax---

----Gross-profit rate---Determination of---Parallel cases---Value---History of the assessee was more relevant as compared to parallel cases.

(h) Income-tax---

----Business expenditure---Element of unverifability of expenses and involvement of personal element existed in travelling, conveyance, telephone, vehicle expenses, repair & maintenance and general expenses---Order of Commissioner disallowing the expenses accordingly was upheld by the Tribunal.

(i) Income-tax---

----Loss---Proof---Declaration of loss by assessee on sale of plots---Strong reason to disbelieve the transaction because of the fact that in normal cases, the value of properties was always on the increasing side---Heavy burden lay on the assessee to prove that the transaction was genuine.

Khalid Siddiqui, D.R. for Appellant.

Muhammad Naseem for Respondent.

Date of hearing: 5th September, 1993.

ORDER

SYED KABIRUL HASAN (JUDICIAL MEMBER).--By this consolidated order, we intend to dispose of six appeals out of which four have been filed by the assessee relating to assessment years 1983-84, 1986-87, 1987-88 and 1989-90 other two appeals have been filed by the Department relating to assessment years 1986-87 and 1989-90. Therefore, there are two cross appeals.

ASSESSEE'S APPEAL--ASSESSMENT YEAR 1983-84:

In this year, the only grievance of assessee is against the computation of advance tax under section 53 of the Income Tax Ordinance, 1979. According to learned counsel for the assessee, during the assessment year, the assessee was required to pay advance tax under section 53 before 15th September on the basis of latest assessment order, which was of assessment year 1981-82. But in November, 1982, other assessment for the assessment year 1982-83 was also finalized, therefore, according to learned counsel, the Income Tax Officer was required to recalculate the instalments due for 15th December, on the basis of this order, whereas the I.T.O. had calculated the second instalment on the basis of assessment order relating to assessment year 1981-82.

In support of this contention, he has referred to section 53, whereby he intended to prove that the wording of this section is quite clear and according to that, an assessee is required to pay tax on the basis of latest assessment order whichever is available before the instalment is due. He has also referred to identical provisions contained in the Repealed Act, which is section 18-A and he has relied upon third proviso of subsection (1) of section 18-A.

The learned D.R., on the other hand, submitted that in view of C.B.R. Circular No.4 of 1979 dated 23-8-1979, this position has been explained and the I.T.O. is required to calculate all the instalments on the basis of latest assessment order available prior to 15th September of that year.

In order to understand the view point of the learned counsel for the assessee, it would be pertinent to reproduce sections 53 and 18A (1), which are as under:--

"53. Advance payment of tax.-- (1) Where the total income of any assessee (excluding income to which section 27 or subsections (1) and (2) of section 50 applies) for the latest assessment year in respect of which the tax payable by him has been determined under section 59, 59-A, 60, 62, 63 or 65 is, in the case of a company not less than fifty thousand rupees, and in other cases not less than one hundred and fifty thousand rupees, he shall pay, by way of advance tax, to the credit of Federal Government, on or before the Fifteenth day of September, the Fifteenth day of December, the Fifteenth day of March and the Fifteenth day of June in each year an amount equal to one-fourth of the full amount of income-tax and super-tax so determined to be payable in respect of that assessment year (without making any adjustment for any tax already paid by way of advance tax or otherwise), as reduced by the tax, if any, already collected or deducted and paid under section 50 in the said financial year.

18-A. Advance payment of tax.--In the case of income other than income in respect of which provisions is made under subsections (2) and (2B) of section 18 for deduction of income-tax at the time of payment, an assessee shall pay quarterly to the credit of the Central Government on the Fifteenth day of September, the Fifteenth day of December, the Fifteenth day of March and the Fifteenth day of June in each financial year, respectively, an amount equal to one-quarter of the income tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed under section 23 or, where no assessment under section 23 has been made, under section 23B, as the case may be, if that total income exceeded twenty-five thousand rupees. Such income-tax and super-tax shall be calculated at the rates in force in respect of the year in which he is required to pay the tax and shall bear to the total amount of income-tax and super-tax so calculated on the said total income the same proportion as the amount of such inclusions bears to his total income or, in cases where under the 'provisions of subsection (1) of section 17 tax is 'chargeable with reference to the total world income, shall bear to the total amount of tax which would have been payable on his total world income of the said previous year had it been his total income the same proportion as the amount of such inclusions bears to his total world income. The tax so calculated shall be reduced by the amount of the tax deducted during the said year under subsection (3), (3-A), (3-B), (3-BB), (3-C) or (3-E) of section 18:

Provided that, where the previous year of the assessee in respect of any source of income ends after the Thirty-first day of March and before the Thirty-first day of July, the payment of income-tax and super-tax on that source of income shall be made in three payments of equal amount to be made on the Fifteenth day of December, the Fifteenth day of March, and the Fifteenth day of June, respectively:

Provided further that, if the assessee is a partner of a registered firm and an assessment of the firm has been completed for a previous year later than that for which the assessee's last assessment has been completed, his share in the profits of the firm shall for the purposes of this subsection, be included in his total income on the basis of the latest assessment of the firm:

Provided further that, if before the Fifteenth day of May of the year, an assessment of -the assessee, or of the registered firm of which he is a partner, is completed in respect of a previous year later than that on the basis of which the tax was computed under this clause, the assessee shall pay in one instalment on the specified date, or in equal instalments on the specified date, if more than one falling after the date of the said assessment, the tax computed on the revised basis as reduced by the amount, if any, paid in accordance with the original computation."

(Only relevant portion has been reproduced.)

The learned counsel for the assessee has relied on third proviso attached to subsection (1) of 18-A to clarify this point that an assessee is required to recalculate his every instalment on the basis of latest assessment order available before the payment of such instalments. According to him, if section 53 is read historically, then it would appear that intention of legislature is to ask the assessee to pay instalment of advance tax on the basis of latest assessment order available before the payment of any instalment. This contention of learned counsel for the assessee prima facie appears to be correct but if we go into deep, then it appears that why that provision which was added in the Repealed Act in the shape of provision has been omitted in new Ordinance. The only answer for this would be that the legislature did not want to incorporate that proviso because of the fact that the clear words used in section 53 are unambiguous. Therefore, we would only look to the provisions of section 53 and there would be no need to refer back to identical provisions contained in section 18-A of the Repealed Act.

From perusal of section 53, it would appear that the following are main ingredients, which determine the applicability of this section.

(i) The assessed income of an assessee is fifty thousand or more in case of company and in other cases one hundred thousand;

(ii) instalments are payable quarterly on Fifteenth day of September, Fifteen day of December, fifteenth day of March and the Fifteenth day of June in each financial year; .

(iii) the amount so payable must be equal to 1/4 of the full amount of income-tax and super-tax .determined; and

(iv) the amount payable should be less than the tax deducted or calculated under section 50 in the said financial year.

In short, the assessee is required to pay 1/4 of the full amount of income-tax and super-tax on the basis of assessment made under sections 59, 59-A, 60, 62, 63 or 65. According to section 53, the first instalment is due before Fifteenth day of September, therefore, the first instalment is payable on the basis of latest assessment order available prior to this date. But if we scrutinize deeply; then it would appear that the amount payable before the Fifteenth September, is 1/4 of the full amount. Now the question is which amount is the full amount. The answer of this question would be that full amount is the total amount of the latest assessment order prior to the Fifteenth September. Therefore, in our view in order to maintain uniformity, the legislature has laid down that 1/4 amount payable as advance tax should be 1/4 of the full amount, which is determined on the basis of latest assessment order. Otherwise, if any other interpretation is taken into consideration, then there would be no uniformity and every now and then, there would be change in the instalment, which would never be 1/4 or equal to first instalment paid by the assessee. We are in agreement with the contention of the learned counsel that C.B.R. Circular No.4 of 1979, if it is not in conformity with the clear provision of law, is of no legal value but in this case, we have also reached to this conclusion that the instalments payable would be determined on the basis of latest assessment order available before Fifteenth September of the financial year, therefore, the reliance on Circular No.4 by the I.T.O. is-legal and proper.

We have already explained that identical provision in Repealed .Act contained in proviso to section 18A have not been incorporated, therefore, the intention of the legislature is to be gathered from the clear meaning of the words used in section 53. From the reading of section 53, we have come to the conclusion stated above, and since we are of the view that there is no ambiguity in the words used in section 53, therefore, the case-law relied upon by the learned counsel for the assessee as regards to beneficial construction, reference to earlier statute in aid of construction are not applicable. We have already given our finding on the applicability of the C.B.R. Circular. It would also be proper to state that liability of advance tax is dependent on latest assessed income which may be less or more as compared to other latest assessment after Fifteenth September, Fifteenth December and Fifteenth March, therefore, the assessee may gain some time and may lose some time therefore, shifting liability may be some time more and some time less. This, may create non-uniformity, which has been removed by clear words or' section 53. In our opinion, the interpretation of section 53 as explained is the plausible explanation.

The appeal for this year is, therefore, rejected.

ASSESSMENT YEAR 1986-87:

Mr. Muhammad Naseem, the learned counsel for the assessee has stated that all the issues on which the assessee was in appeal, have been redecided by the I.T.O. and finding on this issue is in favour of the assessee. In spite of this, he intended to argue his appeal.

We have examined the record and from the appellate order, it appears that the learned C.I.T.(A) had set aside the finding on all the issues except disallowances and since all the set aside issues have been redecided by the I.T.O., therefore, the appeal of assessee has become infructuous on those' issues. We, therefore, dismiss the appeal as infructuous on those issues, which have been decided by the I.T.O.

As regards disallowances out of Profit and Loss Account, it is observed that the learned C.I.T.(A) while deciding this issue has observed as under:--

"Other Addbacks:

The other addbacks as enumerated in the foregoing para of this order are maintained because the appellant failed to furnish details of expenses specifically required by, the I.T.O. and the quantum of addbacks is found reasonable."

In view of above categorical finding, all the addbacks i.e. staff welfare, travelling and conveyance, car expenses, telephone, postage and telegram, printing and stationery, repair and maintenance and general expenses are maintained. Charity and donation is not pressed.

As regards disallowance of perquisites, the? learned C.I.T.(A) has observed as under:--

"Addition of Rs.34,776---Excess perquisites:

The I.T.O. has added the amount on the basis of appellant's own working. As such I do not find any substance in the contention of the learned counsel that the working was erroneous. The addition is maintained, accordingly."

Nothing has been produced before us to rebut the above observation, therefore, the finding on this issue is upheld.

ASSESSMENT YEAR 1987-88:

During this year, the loss claimed at Rs.1,06,999 was disallowed. This disallowance was confirmed because of the fact that this loss related to assessment year 1986-87 and on this issue, the departmental appeal was pending before the Tribunal. Since the only disallowance of loss is pressed before us and we are of the view that our finding on departmental appeal would affect this issue, therefore, any consequential relief available to the assessee would be given on the basis of our order in departmental appeal relating to assessment year 1986-87. The finding on this issue would therefore be given in departmental appeal relating to assessment year 1986-87.

ASSESSMENT YEAR 1989-90:

In this year, the assessee has contested the estimate of G.P. rate at 12.5% as well as certain disallowance out of Profit and Loss Account.

During the assessment year, the assessee declared sale at Rs.2,78,75,737. The I.T.O. after holding that complete details of purchases were not filed, no day-to-day register regarding the consumption of material and the work completed had been maintained, the declared version of the assessee was rejected and on the declared sales, which were verifiable, G.P. rate at 15% was applied. The learned C.I.T.(A) after taking into consideration all the necessary details, confirmed the rejection of accounts and for application of G.P. rate at 12.5%, he observed as follows:

"I have considered the various arguments listed. However, I find that the Assessing Officer in the immediately preceding year had determined the Gross Profit at 12.5%, which the appellant had accepted and has not contested any further. I am not impressed from the argument of Mr. Muhammad Naseem, Advocate that 1988-89 was a year when a lot of adjustments were made in the receipts and receivables and some of the Books of accounts of the assessee's projects outside Karachi were lost and in that circumstance alone, the appellant had accepted a treatment different from the past years. It is also submitted that each year is an independent year and the treatment has to be given to the facts of-each year. This arguments also however, do not advance the appellant's case in any manner. I would, therefore, direct that Gross Profit of 12.5% be applied."

Mr. Muhammad Naseem, the learned counsel for the assessee has submitted copious case-law, which was also submitted before the learned C.I.T.(A). We have also studied the case-law submitted by the assessee and are of the view that the overriding position is that once an assessing officer wants to reject the books of accounts or declared version of the assessee, then he has to point out specific defects. Out of the above case-law, it would be pertinent to refer to case reported as (1980) 42 Tax 190 (SC). In this ruling, the powers of I.T.O. vis-a-vis evidence produced by assessee have been explained. On page 9, it is observed:

"The assessing officer was not bound to rely on all the evidence produced by the assessee in case he was not satisfied about it. He was entitled to reject the account believed by him to be a false and unreliable, although there may be no direct and definite evidence with him to prove their incorrectness. There is no rule of law compelling a Judge to accept evidence even though it is uncontradicted which he believes to be a pack of lies (in re: Baghat Halwai) 3 I.T C 48 In this connection in Ganga Ram Balamokand v. Commissioner of Income tax Punjab, 1937 I.T.R. 464 it was held that the law does not impose any burden on the Income Tax Authority to prove by positive evidence that the accounts are unreliable or that the figure at which they assess is the correct figure. On the other hand, the question of the unreliability of accounts is a question of fact and primarily falls for the determination of the Income Tax Authorities alone. If, therefore, it is once decided by them that the accounts are fictitious or unreliable their finding cannot be disturbed unless it is altogether capricious and injudicial. In matters like these a very wide discretion vests in the Income Tax Authorities in view of the exigencies of the case, and the control exercisable on them is very meagre. What alone has to be seen in such 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. In this connection their Lordships of the Privy Council in Commissioner of Income Tax, United and Central Provinces v. Badridas Ramrai Shop, Akola AIR 1937 P C 133 has held that the Assessing Officer must make what he honestly believes to be a honest estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily by guesswork of the matter, it must be honest guesswork. In that sense too the assessment must necessarily be arbitrary."

(underlined for emphasis.)

We have also taken into consideration the case-law submitted by the assessee but in our opinion, the Supreme Court ruling is more relevant and is binding on us. Therefore, in case where accounts are rejected, the assessing authorities are required to spell out their belief that accounts are fictitious and unreliable. No doubt, their such belief should be judicious and not capricious. In this case, if we scrutinize the assessment order, then it appears that he has clearly spelled out his reason for rejection of account and those reasons are also accepted by learned C.I.T.(A): It would be advantageous to refer to relevant observation/finding of the learned C.I.T.(A) on the issue of G.P. rate which is reproduced above.

"I have considered the various arguments listed. However, I find that the assessing officer in the immediately preceding year had determined the Gross Profit at 12.5% which the appellant had accepted and 'has not contested any further. I am not impressed from the argument of Mr. Muhammad Naseem, Advocate that 1988-89 was a year when a lot of adjustments were made in the receipts and receiveables and some of the Books of accounts of the assessee's projects outside Karachi were lost and in that circumstance, alone, the appellant had accepted a treatment different from the past years. It is also submitted that each year is an independent year and the treatment has to be given to the facts of each year. This argument also however, do not advance the appellant's case in any manner. I would, therefore, direct that Gross Profit of 12.5% be applied."

From the above-finding, it would appear that the reasons assigned by the I.T.O. for rejection of books of accounts were accepted by the learned C.I.T.(A) but he granted some relief on the basis of G.P. rate being excessive. We have also taken into consideration this fact that the learned counsel for the assessee has submitted before us that all the necessary details were filed before the learned C.I.T.(A) but it is observed by us that even after taking into consideration all those details, the learned C.I.T.(A) came to the conclusion that rejection of books of accounts was justified.

Mr. Muhammad Naseem, the learned counsel for the assessee, submitted before us that he had produced large number of parallel cases for consideration before the learned C.I.T.(A) where G.P. rate was charged between 5% to 10% and the learned C.I.T.(A) did not consider those cases. In this respect, we would like to observe that the learned C.I.T.(A) had, in fact, taken into consideration the parallel cases but the history of the assessee regarding G.P. rate was around 12.5% in the immediate preceding year i.e. 1988-89. In our opinion, the history of the assessee was more relevant as compared to parallel cases. The contention of learned counsel for the assessee is that assessment year 1988-89 was a unique year as there were lot of adjustments made in the receipts and receivables, therefore, the history for this year cannot be relied. This contention was examined by the learned C.I.T.(A) and it was repelled. We are in agreement with the reasons assigned by him.

Considering all the facts and circumstances of the case, we are of the view that the finding of learned C.I.T.(A) on issue of G.P. rate was justified under the circumstances and is upheld.

As regards disallowance of expenses in travelling and conveyance, a telephone and vehicle expenses, repair and maintenance and general expenses, it is observed, by us that the observation of learned C.I.T.(A) that element of unverifiability of expenses does exist and involvement of personal element cannot be ruled out, seems to be correct on the facts and circumstances of the case. We have also taken into consideration the argument of learned counsel that this is a case of huge turnover and the projects are spread over to the entire country and far-off sites, therefore, the expenses are fully vouched, but we could not persuade ourselves to agree with this contention. In our opinion, sufficient relief has been granted by the learned C.I.T.(A), therefore, his finding is confirmed on this issue also.

DEPARTMENT'S APPEAL---ASSESSMENT YEAR 1989-90:

In terms of our observation in assessee's appeal for this assessment year, the departmental appeal also stands partly disposed of as the issues are common. As regards reduction in disallowances it is observed that the same are reasonable and are justified under the circumstances, therefore, the order of learned C.I.T.(A) is upheld on this issue.

ASSESSMENT YEAR 1986-87:

In this year, the Department is aggrieved against the deletion of Rs.22,25,999 as income earned on disposal of commercial plots.

The brief facts as disclosed by the learned D.R. are that in assessment Year 1986-87, the Income Tax Officer discovered that land valuing at Rs.34,31:000, which was being shown by the assessee in b4lance-sheet was not shown in the balance-sheet of this year, on this basis, he made enquiry and it was revealed that 4 plots; the value of which was shown at Rs.34,31,000 were disposed of during the year at a sale consideration of Rs.33,74,001 thereby the assessee incurred a loss of RS.56,999,-It also transpired that these 4 plots were commercial plots situated in Scheme No.24, Gulshan-e-Iqbal, Karachi each measuring 400 sq. yds and were purchased in 1982 at different rates but the average rate was around Rs.2,144 per sq. yds. From the sale consideration, it appears that in assessment year 1985-86, these plots were sold at Rs.2,108 per sq. yds. The I.T.O. considering the sale price to be grossly understated asked for explanation vide letter/notice under section 62 No. Co. Cir. C-7/1986?87/1058, dated 22-3-1987. This notice is: on page-8 of the assessment order. It would be more advantageous to reproduce the contents of said notice and reply of the assessee and final observation of the I.T.O. on this point. The same are as under:--

"(1) You have been found to have sold four commercial plots measuring 400 sq. yds. each for a reported consideration of Rs.33,74,001. In 1982, these plots had cost you Rs.34,31,000. In this manner your loss on the sale of plots works out to Rs.56,999. This loss has not been accounted for in your final accounts. Please show cause, why this omission may not be treated as intentional and why you may not be held liable for default of section 111.

(2) The abovementioned commercial plots in 1982 were purchased by you @ Rs.2,144 per sq. yd. for Rs.34,31,000. Sale of these plots in calendar year 1985 at the average rate of Rs.2,108 (total Rs.33,74,001) appears to be grossly understated. In the same period KDA had sold its plots in Gulshan-e-Iqbal through open auction @ Rs.4,600. per sq. yd. Please explain with evidence, as to what were the special circumstance, that you were compelled to sell your plots, at loss and at price much lower than the prevalent market rate. Please also explain as to why your sale price my not be adopted @ Rs.4,600 per square yard.

(3) Please also show cause, as to why for intentional understatement of sale price of plots, you may not be held liable for default of section 111.

(4) Why your profits on sale of plots may not be treated as your business profits, because as per Memorandum of Association, this trade is within the scope of your business.

The above-stated notice was to be complied with on 28-3-1987 but on assessee's request, the compliance date was adjourned to 28-3-1987. On 28-3-1987 written reply to our notice was sent to this office through Mr. Mohsin Qasmi, Accounts Clerk of the assessee. The same has been considered and placed on record. It is worthwhile to reproduce the same here. I quote

(1) We had purchased the relevant plots in the year 1982. At the time of said purchase, the prices of these plots in Gulshan-e-Iqbal were rising.

(2) Subsequently, prices of the plots decreased to such an extent that KDA had to sell its L.S. Category plots at a price between Rs.2,000 and Rs.2,200 per sq. yd. and petrol pump plot of 1,500 sq. yds. on the main road of Block 10 at a price of Rs.2,600 per sq. yd. in the year 1985, whereas no S.B. Category plots were sold by KDA in the auction during 1985.

(3) In premises, the averment made in your letter that in 1985 KDA sold its S.B. Category plots @ Rs.4,600 per sq. yd. is absolutely incorrect.

(4) From the above facts, it is crystal clear that there is no mis-statement on our part and the declared sale is true and my pray be accepted.??

The plea of the assessee that the price of the plot decreased since 1982 is against the facts. None of the pleas of the assessee is supported by any evidence. The per square yard rate Rs.4,600 confronted to the assessee was based upon on information obtained from KDA through Survey and Collation Wing, of this Department. KDA had informed us that on 22-12-1985 it had disposed of its plot for Petrol Pump through open auction @ Rs.4,600 per sq. yd. The size of plot for Petrol Pump is normally 1,500 sq. yds. The plots of our assessee on the other hand admeasured 400 sq. yds each only. It is a common knowledge that plots smaller in size fetch much higher price than the plots large in size. Although the date of auction falls a few months later than the dates of disposal by the assessee still the auction date can help us lot in arriving at the market rates prevalent at the time of disposal of plots by the assessee. In the circumstances but taking a lenient view of the matter, sale

Before we take up the argument of learned DR, it would be appropriate to dispose of the legal preliminary objection of the learned counsel for the assessee. Mr. Muhammad Naseem, the learned counsel for the assessee, has taken a preliminary objection that the original assessment for the assessment year 1986-87 were set aside by the learned C.I.T.(A) and the reassessment proceedings have been completed, therefore, the appeal of the Department has become infructuous.

The above contention of learned counsel for the assessee has been examined by us and on this issue, the appeal has been-held infructuous. The contention of learned counsel for the assessee in departmental appeal, seems to be misconceived because of the fact that the assessment on this issue was annulled by the learned C.I.T.(A), therefore, the I.T.O. did not proceed with the matter on this point as the appeal of the Department was pending before this Tribunal. We are at a loss to understand as to why this appeal has become infructuous when no finding was accorded by the I.T.O. in order passed under section 62/132 of the Income Tax Ordinance. In view of this, the contention of preliminary objection of the learned counsel for the assessee is repelled.

??????????? In support of his appeal, the learned D.R. has submitted that from the scrutiny of assessment order, it is abundantly clear that the I.T.O. had treated the income from sale of plots, as normal income as the assessee is a construction company and is also doing business of real estate. The learned C.I.T.(A) has gone astray by taking 'into consideration the provision of Rule 7(b) read with rule 8(1) of the Third Schedule to the Income Tax Ordinance. The learned C.I.T.(A) has also misdirected himself by taking into consideration section 29 which was never taken into consideration by the I.T.O. According to him, it was a simple case of business income which was concealed, therefore, the finding of the learned C.I.T.(A) was beyond his jurisdiction and ought to be vacated. As regards the valuation of plots, he has submitted that the I.T.O. had considered the fact that the value of these plots as obtained from KDA was around Rs.4,600 per sq. yds. He had also taken into consideration that on 22-12-1985, KDA had disposed of a plot for petrol pump through open auction at Rs.4,600 per sq. yd. This fact was also considered by him that bigger plots in size are cheaper as compared to smaller plots in size. But adopting a lenient view, he fixed the price of these plots at Rs.3,500 per sq. yds. He had submitted that the value fixed by the I.T.O. was reasonable and the learned C.I.T.(A) was not justified to annul the finding on this issue.

In reply, the learned counsel for the assessee has urged as follows:--

(i) the valuation of plots was not proper, as the I.T.O. had not taken into consideration the parallel cases cited by the assessee;

(ii) the assessee had provided copies of sale-deed and the necessary details of buyer, therefore, the fixing of price at Rs.3,500 per sq. yd. is illegal, improper and uncalled for; and

(iii) the assessee was not confronted with the valuation adopted by the I.T.O.

In support of his first contention, the learned counsel for the assessee has submitted that the value adopted by the I.T.O. was on the basis of a petrol pump plot disposed of by KDA on 22-12-1985 at Rs.4,600 per sq. yd. This comparison was not `like with like'.

We have examined this contention and also gone through the record. In our view, the I.T.O. was required to only reasonably determine the value of plots. He was of the opinion that value was understated. In our opinion the fact that the assessee had declared loss on sale of plots was a strong reason to disbelieve the whole transaction because of the fact that in normal cases, the value of properties are always on the increasing, whereas in these exceptional circumstances where commercial plots were sold at a loss, then heavy burden lay on the assessee to prove that the transaction was genuine. In our opinion, the I.T.O. had made best efforts to find out the reasonable value of these plots, as he had discarded the value of petrol pump which was Rs.4,600 per sq. yd. but has adopted the value at Rs.3,500 per sq. yd. The parallel cases cited by the learned counsel for the assessee before us find no mention in the assessment order or in appellate order. Moreover, from the scrutiny of value of parallel plot submitted by the learned counsel for the assessee it appears that it is not "like with like" as the sector or block seem to be different.

The learned counsel for the assessee secondly contends that he has provided the copies of sale-deed and necessary details of buyer, therefore, it is incumbent upon the assessing officer to make inquiries and determine that the value shown in the sale-deed was correct or not. We have examined this contention and in number of cases, it has been held that consideration shown in sale-deed is not binding on assessing officer if he believes that the value of plot is understated. About the justification of belief of the I.T.O. we have already explained above. This contention of learned counsel for the assessee has no force and is, therefore, repelled.

As regards to his third contention, it is observed that the assessee was duly confronted vide letter dated 22-3-1987 wherein it was mentioned that the value of these plots would be adopted at Rs.4,000 per sq., yd. It would be pertinent to mention here that the value adopted by the I.T.O. was Rs.3,500 per sq. yd. This contention, has, therefore, no force.

In view of above, we are of the view that there was sufficient evidence with the I.T.O. to tax profit on sale of plots, as it was a regular business of the assessee as per Article and Memorandum of Association. Secondly, the value determined by the I.T.O. @ Rs.3,500 per sq. yd. is reasonable and is sufficiently proved from evidence on record. Lastly, it is observed by us that the finding of learned C.I.T.(A) is based on meaningless and irrelevant considerations which are not apparent either from the assessment order or from the records.

In the result, the finding of learned C.I.T.(A) on this issue is vacated and the order of the I.T.O. is restored.

The above appeals are disposed of in the manner indicated above.

M.BA./2595/T ??????????????????????????????????????????????????????????????????????????????????? Order accordingly,