I.T.AS. NOS. '9523/LB OF 1991-92; 632/LB OF 1992-93, 8321, 8322/LB, 9236/LB, 9237/LB VS I.T.AS. NOS. '9523/LB OF 1991-92; 632/LB OF 1992-93, 8321, 8322/LB, 9236/LB, 9237/LB
1996 P T D (Trib.) 1111
[Income-tax Appellate Tribunal Pakistan]
Before Iftikhar Ahmad Bajwa, Accountant Member and Muhammad Saleem Shad Qureshi, Judicial Member
I.T.As. Nos. '9523/LB of 1991-92; 632/LB of 1992-93, 8321, 8322/LB, 9236/LB, 9237/LB and 1391/LB of 1988-89, decided on 04/09/1994.
(a) Income-tax---
----Rejection of accounts---Validity---Assessee, a private limited company, deriving income from sale of cigarettes, matches, cookies etc.---Case of assessee had a history of acceptance of accounts and a departure from the history in the immediately preceding year had failed the test of appeal---Purchases were fully verifiable while sales were also mostly verifiable---Rates of purchases as well as sales were easily ascertainable and the Assessing Officer had not found any fault with the rates of purchases and sales shown by the assessee---Declared results were better than before and its last year's results having already been accepted in appeal, rejection of this year's accounts in routine observations was totally unwarranted and unjustified.
(b) Income tax---
----Addition---Validity---Position of accounts and nature of business of the assessee was the same as before---No specific defect had been detected in thz course of proceedings---Case had a history of acceptance of accounts---Additions in trading accounts were not justified in circumstances.
(c) Income-tax----
----Addition---Validity---Appeal in respect of Assessment year 1985-8ti was decided against the Department by Tribunal and Departmental Appeal in respect of year 1986-87 had been rejected---Prior to the. year 1986-87, the case of assessee had a history of acceptance of accounts while rejection of accounts and additions in trading account were undone in 1988-89---Additions in trading accounts, for assessment years 1989-90 and 1990-91 having no legs to stand on, f the same were ordered to be deleted by the Tribunal.
Muhammad Sarfraz, F.C.A. for Appellant (in I.T.A. Nos.9523/LB of 1992-93, 8321/LB, 8322/LB of 1991-92 and 632/LB of 1992-93).
Muhammad Shahid Zaheer, D.R. for Respondent (in I.T.A. Nos.9523/LB of 1992-93, 8321/LB, 8322/LB of 1991-92 and 632/LB of 1992-93).
Muhammad Shahid Zaheer, D.R. for Appellant (in I.T.As. Nos. 1391/LB of 1988-89, 9236 and 9237/LB of 1991-92).
Muhammad Sarfraz, F.C.A. for Respondent (in I.T.As. Nos.1391/LB of 1988-89, 9236 and 9237/LB of 1991-92).
Date of hearing: 4th September, 1994.
ORDER
IFTIKHAR AHMAD BAJWA, ACCOUNTANT MEMBER.---This is the case of a private limited company which derives income from sale of Cigaretts, Matches, Cookies etc. Cross-appeals by the department as well as the assessee have been filed against various orders of the first appellate authorities. The departmental appeals relate to assessment years 1986-87, 1989-90 and 1990-91 while assessee's appeals are in respect of assessment years 1988-89, 1989-90, 1990-91 and 1991-92 respectively. The seven appeals are disposed of in this order as under:---
Assessment year 1986-87 (Departmental appeals)
2. In this appeal objections have been raised against C.I.T. (Appeal's) directions for accepting the trading account and allowing the P&L expenses in respect of "Salary of Postman". "Salary of Mistri" and "Staff Welfare Allowance". For the year under appeal assessment was made on 21-7-1988 on income of Rs.3,76,798 as against declared income of Rs.91,854. The trading results as declared by the assessee and as per, the order of the assessing authority were as under:
???????????
| Cigarette etc.??? ??????????? | Declared | Assessed |
| Sales | Rs.3,359,58,293 | Rs.3,42,00,000 |
| Gross profit | Rs. 6,27,474??? | Rs.8,55,000 |
| G. P. rate???????? | 1.85% | 2.5% |
| Matches etc. | | |
| Sales | Rs.14,91,333?? | Rs.15,50,000 |
| Gross Profit????? ??????????? | Rs. 34,470 | Rs. 77,500 |
| G. P. rate | 2.37% | 5% |
As a result of the above treatment, additions of Rs.2,27,526 and Rs.43,030 were made on account of sales of Cigarettes and Matches respectively. The treatment meted out by the assessing authority was exactly the same as in the immediately preceding year. Last year's assessment had been challenged in appeal and vide C.I.T. (Appeals) order, dated 10-12-1987 the additions in the trading account were deleted. The order of the first appellate authority has since been confirmed by the Tribunal vide order, dated 4-9-1994 in I.T.A. No. 2415/LB of 1987-88 relating to assessment year 1985-86.
3. In the year under consideration G.P. rate in respect of cigarettes way shown to be the same as in the preceding year although the sales were shown to be higher than the preceding year. In case of matches G.P. rate was shown to have declined from 3.35% to 2.3% while a sizeable improvement in sales was recorded which were shown at Rs.14,91,331 as against Rs.2,54,142 in the preceding year. The over all results during this year were much better than the preceding year when a loss of Rs.3,731 had been disclosed. The rejection of accounts by the I.T.O. was based on routine observations. Neither any discrepancy in accounts was specified nor any parallel case-was cited in support of the treatment meted out by him. The order of the first appellate authority in respect of immediately preceding year was completely ignored and no mention whatsoever of the fate of the last year's assessment was made in the assessment order. The C.I.T. (Appeal's) did not approve deviation from the past history. Considering the fact that purchases were completely verifiable and sales were considerably higher than the preceding year, the rejection of accounts was held to be untenable.
4. No exception is possible to the findings of the first appellate authority. The case has a history of acceptance of accounts and an attempt at departure from the history in the immediately preceding year had failed the test of appeal. The purchases were fully verifiable while sales were also mostly verifiable. The rates of purchases as well as sales were easily ascertainable and the I.T.O. had not found any fault with the rates of purchases and sales shown by the assessee. Declared results were better than before and last year's results having already been accepted in appeal, rejection of this year's accounts on routine observations was totally unwarranted and unjustified. Following our order in respect of the preceding year, the C.I.T. (Appeal's) directions regarding acceptance of trading results must be confirmed.
5. The position of P&L add-backs is also the same. The disallowance under these very heads had been deleted in the immediately preceding year. The disallowances on similar grounds were apparently untenable and rightly deleted by the first appellate authority. The objection on this point is also without any merit. The departmental appeal in respect of assessment year 1986-87, therefore fails.
Assessment year 1988-89 (Assessee's Appeal)
6. In this year assessment was originally made on income of Rs.2,86,571. This was set aside by the C.I.T. (Appeals) vide his order, dated 16-1-1991 with specific directions. On second appeal the Tribunal confirmed the order of the first appellate authority but at the same time directed the I.T.O. to keep in mind the ultimate fate of the assessment for the last two years as determined by the first appellate authority on 19-12-1987 and 10-1-1989 in respect of assessment years 1985-86 and 1986-87 respectively. In his orders under section 62/132, the I.T.O. reassessed the income at Rs.2,84,348 more or less on the same lines as the original assessment. In the re-assessment proceedings the I.T.O. required certain detail from the assessee. The assessee in a written reply which has been reproduced in the assessment order also, affirmed that all purchases were supported by purchase bills which had been furnished and the sales which were made on the fixed rates were either to wholesalers or to retailers made through salesmen of which complete record was available. The stock register was also stated to be available for examination. The assessee had, however, expressed inability to provide certificates from the principal company as the company had since ceased to exist. The detailed reply of the assessee was disposed of in the following words:
"The explanation offered by the Authorised Representative is not convincing one. The assessee has failed to furnish necessary details requisitioned in compliance with the instructions contained in the order of the learned C.I.T.(A), Multan. So far as the instructions of the learned I.T.A.T. regarding keeping in view of ultimate fate of cases decided by the first appellate authority on 19-12-1987 and 10-1-1989 are covered, the department has gone in 2nd appeal against the said instructions and the matter is pending with the learned I.T.A.T. As the assessee has failed to support his version with the requisitioned details so re-assessment is framed as under "
The I.T.O., thus, proceeded to determine the income as in the original assessment and thus repeated the same treatment as had been meted out in assessment for assessment years 1985-86 and 1986-87.
7. In appeal before the C.I.T. (Appeals) the assessee had not only highlighted the deviation from the past history but also brought on record cases of the same trade in which a lower rate of profit had been accepted/applied. After mentioning these cases the C.I.T. (Appeals) proceeded to observe: "Case record was consulted to look into history which is best guide. It is observed that second appeal in earlier years are pending before the learned I.T.A.T. and for those subsequent vide my predecessor Order No. 390; dated 11-1-1993 for Assessment year 1991-92 applied G.P. rate of 2.5% in the case of Cigarette and 6.18 % in the case of matches confirmed. In view of the same, I find no hesitation in confirming the G.P. rate applied by the assessing officer at 2.5% and 5 % in cigarette and matches accounts respectively".
8. It is evident that the assessing officer as well as the first appellate authority disregarded the history in a casual and non-chalant manner. Assessee's explanation in response to notice under section 62 had been rejected by the I.T.O. without any justification. Tribunal's directions to keep in mind the fate of earlier assessment as determined by the first appellate authority w4 thrown to the winds with the remarks that the department had gone in second appeal. No effort was made to judge the reasonableness of the declared results by ascertaining the prevailing sale rates in cigarette and matches during the relevant period nor any effort was made to find out the position of assessments in other cases of the same trade. The first appellate authority did not bother to adjudicate the specific objections raised before it. The orders of his predecessors-in-respect of earlier years were ignored merely because second appeals in respect of said order was pending before the I.T.A.T. but another order of his colleague in respect of subsequent year was given a lot of weight although that order was also a subject-matter of appeal before the I.T.A.T. The orders of the lower authorities are apparently unsustainable.
9. The position of accounts and nature of business was the same as before. No specific defect had been detected in the course of proceedings. The case has a history of acceptance of accounts. The additions in trading account for the assessment year 1988-89 are, therefore, unjustified.
10. Appellant's A.R. failed to substantiate the objection against disallowance out of P&L account. The objections on this point, therefore, fail.
Assessment years 1989-90 and 1990-91 (Cross appeals)
11. There are cross-appeals by the department as well as the assessee in respect of these two years. For the two years assessment made on income of Rs.1,64,795 and Rs.59,099 respectively were set aside by the learned C.I.T. (Appeals) vide a combined order, dated 12-8-1992 mainly on the ground that appeals in respect of 1985-86 and 1986-87 were pending before the Tribunal and the assessment for assessment year 1988-89 after having been set aside was still pending and, therefore, assessments for these two years would be passed on the basis of ultimate results of assessment for the earlier years. The C.I.T. (Appeals) had, however, reproduced assessee's objections against the assessments in detail in the appellate order. Though the objections were mentioned in a favourable light, the C.I.T. (Appeals) stopped short of allowing relief to the assessee in deference to the Tribunal as appeals in respect of earlier years were pending before the said forum. The I.T.O. had also taken refuge under the pretext of pendency of appeals in respect of earlier years before the Tribunal in justifying the treatment meted out in assessment orders for 1989-90 and 1990-91. In similar footnotes to the two assessments the I.T.O. observed:---
"G.P. rate of 2.5% in Cigarettes account is applied keeping in view the history of the case. The same G.P. Rate was applied in the assessment years 1985-86 and 1986-87. For both the years C.I.T. (Appeals) Multan has directed to accept the trading results. For both the years departmental appeals are pending with I.T.A.T. against the order of the learned C.I.T. (Appeals), Multan. Since Department has gone in appeal against the order of the C.I.T. (Appeals), Multan so the same G.P. rat; has been applied in the assessment ...."
12. As indicated earlier, appeal in respect of assessment year 1985-86 was decided against the department vide Tribunal's order, dated 4-9-1994 and departmental appeal in respect of assessment year 1986-87 has been rejected in earlier part of this order. Prior to assessment year 1.985-86 the case had a history of acceptance of accounts while rejection of accounts and additions in trading account in assessment years 1985-86, 1986-87 and 1988-89 were undone in appeals. Thus, additions in trading accounts for assessment years 1989-90 and 1990-91 have no legs to stand on, the same are accordingly deleted.
13. The add-backs in P&L account in the two assessments were quite reasonable and do not warrant any interference. The finding of the first appellate authority in respect of P&L account for the assessment years 1989-90 and 1990?91 are, therefore, vacated and P&L add-backs as per assessment orders stand restored.
Assessment year 1991-92 (Assessment's appeal)
14. Additions of Rs.15,729 and Rs.9,352 had been made in cigarette account and matches account respectively on the basis of past history. Similar additions in earlier years have since been deleted in appeals, the aforementioned additions in trading account would, therefore, be deleted. Assessee's A.R. was unable to substantiate the objection in respect of P&L add-backs. The rejection on this point, therefore, fails.
15. The seven appeals are disposed of as indicated above.
M.B.A./177/Trib. ??????????????????????????????????????????????????????????????????????????????? Order accordingly.