ITA S. NOS. 3789 AND 3790 OF 1994, DECIDED ON 26TH APRIL, 1995. VS ITA S. NOS. 3789 AND 3790 OF 1994, DECIDED ON 26TH APRIL, 1995.
1996 P T D (Trib.) 799
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Zaman Khan, Judicial Member and Ashfaq Ahmed Accountant Member
ITA s. Nos. 3789 and 3790 of 1994, decided on 26/04/1995.
Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(aa)---Unexplained income---Deemed income ---Addition---Validity-- No statutory notice under S. 13, Income Tax Ordinance, 1979 was given to assessee---Effect---Assessee' s plea was that imported goods had been disposed of in advance on receipt of funds from the buyers and the named persons to whom goods were sold were existing assessee and had sufficient funds for running the business and they had also 'filed the returns of income---Held, in such circumstances the contention of assessee must be accepted and if at all any enquiry was required the same could be initiated against the persons who had admitted that advances were made by them to the assessee---Addition under S.i3(1)(aa); Income Tax Ordinance, 1979, as deemed income, therefore, was not justified and the disputed amount could not be treated as unexplained income in circumstances.
Fayyaz Ahmed Choudhry and Amar Umar Khan for Appellant.
Muhammad Asif Hashmi, D.R. for Respondent.
Date of hearing: 26th March, 1995.
ORDER
Through this appeal we propose to dispose of the titled two appeals which are inter-linked. Both the appeals are pertaining to the assessment year, 1990-91.
2. The brief facts of the matter are that the ITO, Circle-08, Zone-B, Lahore had formulated assessment order for the year 1990-91 under section 62 of the Income Tax Ordinance, 1979. The assessee feeling aggrieved by the same lodged first appeal which was rejected by the CIT (Appeals), Zone-4, Lahore vide his border dated 2-6-1994. Due to the charge of concealment against the assessee, Deputy Commissioner of Income-tax, Circle-08, Zone-B, Lahore passed a penalty order against the assessee under section 111 of the Income Tax Ordinance, 1979. Appeal against this order was also filed by the assessee, as indicated above, and the same was also disposed of through a consolidated order passed by the CIT(Appeals), as pointed out above, on 2-6-1994. The penalty levied by the Deputy Commissioner of Income-tax was upheld in first appeal. The assessee has also filed two appeals in the Tribunal against the order of the CIT (Appeals) in regard to the assessment made under section 62 and the penalty imposed under section 111 respectively. We shall also decide both the appeals through a joint order.
3. The brief facts of the matter are that the assessee, an individual derives income from import of chemicals. Return in this case was filed for the year under appeal to declare net income at Rs.2,77,000. Total imports were declared at Rs.72,40,850. As per wealth statement on 30-6-90, the assessee had shown capital in the business at Rs.4,18,600.
4. Books of accounts were not produced on the plea that the same were not being maintained in this case. The assessing officer found that the cost of most of consignments had ranged between 5 to 11 lacs whereas the capital employed as disclosed above, was hardly sufficient to meet the relevant transactions. The assessee was specifically confronted under section 62/ 13(1)(aa) in which the discrepancies in the capital employed and the capital declared in the wealth statement were also pointed out to the assessee and the assessee was called upon to explain as to why an addition of Rs.8,50,000 be not made in his income, taking the same as unexplained investment.
5. In his reply, the assessee submitted that he had disposed of the imported goods in advance to create funds for getting the goods cleared from the port and the advance sales had been made to Shaukat Ali, Mahmood-ul-Hassan and Abdul Hamid who were the assessees of income-tax and were carrying on business of sales and purchases in the chemicals.
6. The assessing officer found the reply of the assessee unsatisfactory. After some investigation, the assessing officer also arrived at the conclusion that the parties to whom the goods were allegedly sold in advance were bogus and self-created. The ITO, therefore, after the scrutiny of bill of entries produced by the assessee concluded that peak investments were made by the assessee on 13-1-1990 which amounted to Rs.10,80,565 and for which the assessee has failed to produce evidence about the source of investment made in that behalf. The assessing officer, therefore, assessed the difference between the capital shown in the wealth statement i.e. at Rs.4,18,600 and cost of goods at Rs.10,80,565 being Rs.4,61,964 and added the same under section 13(1)(aa) of the Ordinance in the income as declared by the assessee at Rs.2,77,000 and thus finalized the assessment under section 62 at total income of Rs.9,38,964.
7. As indicated above, the order of assessment was assailed by the assessee by filing first appeal before the CIT(Appeals) for various reasons. In the first instance, it was pleaded that the said addition was unjustified and illegal. It was further contended that the notices issued under section 148 to the parties to whom the goods were sold in advance were not properly served and that the assessing officer had also not taken into account the available cash at Bank and prize Bonds amounting to Rs.1,56,921 which the assessee had also been utilizing for the business. The contentions raised as stated above, did not find favour with the first appellate authority and as such the appeal filed by the assessee was rejected. The penalty order as narrated above had also arisen of the parent assessment order.
8, The case of the assessee is that the CIT(Appeals) has failed to appreciate the facts of the case in hand. It is also alleged that the law has not been correctly applied in this case. The assessee, has therefore, vehemently contested the order of the CIT(Appeals) on both the counts.
9. We have heard detailed arguments as addressed by -the learned representatives of both the parties and have also minutely scrutinized the orders rendered by the Departmental Officers.
10. In the first instance, the learned counsel for the assessee has drawn our attention to the notices which were issued to the assessee by the ITO on 12-11-1992 and 10-1-1993 respectively. In the notice dated 12-11-1992, it was pointed out to the assessee that the ITO intended to make an addition of Rs.8,50,000 being unexplained investment and an amount of Rs.15,50,000 in the trading account being the net income of the assessee. Similarly, in the notice dated 10-1-1993 Company amount of import at Rs.19,00,342 was also pointed out to the assessee by the ITO to be liable for the addition in the net income of the assessee being concealed income. However, as indicated above, finally, an addition of Rs.6,61,964 was made under section 13(1)(aa). It has been submitted on behalf of the assessee that no proper notice under section 13 of the Ordinance has been given to the assessee and as such the assessee was never told as to what precise amount was being added in his income. As is manifest by now the amounts with which the assessee was confronted for addition were different than the one which was actually added in the income of the assessee. The contention is that since no legal notice under section 13 has been served on the assessee, the assessee has been condemned unheard and thus the addition which was also based on conjectures and surmises was not sustainable at law. The learned D.R. has not been able to controvert the line of action which has been adopted on behalf of the assessee and thus the contention which has been raised on behalf of the assessee is bound to prevail.
11. Besides the above, it has also been forcefully argued on behalf of the assessee that the proceedings which were taken by the ITO under section 148 of the Income Tax Ordinance, 1979 were also not proper. It has been submitted that all me three parties in Shoukat Ali, Mahmood-ul-Hassan and Abdul Hamid were the existing assessees whose N.T. numbers had also been mentioned by the assessee. The said parties had also filed their affidavits stating that they had been advancing money to the assessee. It is further stated that Shoukat Ali had also specifically stated before the assessing officer that he had advanced money to the assessee for the purchase of chemicals but his statement was never properly considered by the assessing officer. Regarding the death of Mahmood-ul-Hassan the other creditor who was also making payments in advance to assessee, it has been submitted that no fault can be found in the case of the assessee because of the said death. Similarly, proper efforts for causing the appearance of Abdul Hamid were also not allegedly made. In any case the plea of the assessee is that the version of imported goods having been disposed of in advance should have been admitted by the assessing officer became the said persons to whom the goods were sold were existing assessees and had sufficient funds for running the business of chemicals and that they had also filed their income-tax returns, It appears that this contention is also not devoid of force. It is by now a settled principle of law that in such circumstances the contention of the assessee must be accepted and if at all any enquiry was required the same could be initiated against the persons who had alleged that advances were made by them to the assessee. We are, therefore, of the considered view that this version of the assessee was also wrongly rejected by the authorities below.
12. It is also pertinent to point out that the plea of the assessee that he had cash at Bank and Prize Bonds amounting to Rs.1,56,921 which he has been utilizing in the business was also never considered by the authorities below. The order of the CIT(Appeals) is also silent on the point as the objection raised by the assessee in this behalf before him has not been disposed of in the impugned order passed by the CIT(Appeals). We feel that on this count as went the case of the assessee has been prejudiced.
13. On account of what has been observed above, we agree with the learned counsel for the assessee that there was no justification for the Departmental officers to make addition under section 13(1)(aa) as the disputed amount could not be treated as unexplained income. It is also proved from the record in unequivocal terms that statutory notice as required under section 13 has not been served on the assessee. We, therefore, feel no hesitation in arriving at the conclusion that the addition of Rs.6,61,961 is illegal and thus cannot be sustained at law. We, therefore, delete the same being unjustified, arbitrary and unwarranted by law.
14. As the assessment order under section 62 regarding the addition has been declared illegal by us, the superstructure regarding penalty shall also stand demolished and thus the amount of penalty is also hereby deleted.
15. As a sequel to the above, the appeals filed by the assessee succeed in the above terms and to the extent as indicated above.
M.B.A./168/TOrder accordingly.