I.T.A. NO.2199/LB OF 1995 VS I.T.A. NO.2199/LB OF 1995
1997 PT D (Trib) 1115
[Income-tax Appellate Tribunal Pakistan]
Before Shariq Mahmood, Accountant Member
I.T.A. No.2199/LB bf 1995, decided on 18/02/1996.
Income Tax Ordinance (XXXI of 1979)---
--S.13(1)(b)---Investment not shown in books of accounts---Addition-- Validity--- Assessee a private limited company returned income---Assessing Officer accepted same but in view of history of case, made add-backs in-profit and loss account and made additions under S.13(.1)(b) of the Income Tax Ordinance, 1979, on ground of concealment : of investment .in immovable property ---C.I.T. (A) upheld on assessment in appeal ---Assessee stated that investment worked out by revenue already stood explained and declared in balance-sheet---Originally, property was purchased from one, who was allotted that property on basis of Overseas Pakistani quota, in lieu of shares given to him---Assessing Officer found difference, between value transacted and original price paid and took that as tampering with value and wilful concealment---Held, that as assessee did not pay anything other than original price of allotment converted into value of shares, therefore, value transacted was accordingly reflected and market value of property was shown for purpose of stamp papers--Addition under S.13(1)(b), Income Tax Ordinance was reduced but add-backs in profit and loss account, being not verifiable, were maintained.
Yousaf Saeed, C. A. for Appellant.
Muhammad Mubeen Malik, D.R. for Respondent.
ORDER
The appeal before us arises out of a decision of the C.I.T.(A), Zone-IV, Lahore dated 15-3-1995 for the assessment year 1993-94. The appellant is private limited company who is engaged in assembling and manufacturing of air conditioning and cooling plants. For the year under appeal an income of Rs.1,77,477 Was declared with the following results.
2. The assessing officer accepted in declared turnover but, keeping in view the history of the case, applied a G.P. rate of 18%. Further, add-backs under eight heads of P and L account were also made. Besides, additions amounting to Rs.25,72,640 were made under section 13(1)(b) of the Income Tax Ordinance. 1979. The resultant assessed income stood .at Rs.35,58,223. The C.I.T.(A) upheld the entire treatment of the assessing officer and dismissed the appeal. The issues now raised before us regards the addition made under section 13(1)(b) on the plea that it is not based upon the facts of the case. The properties assessed in the hands of the appellant already stand declared and assessed by the Revenue. Besides, objection has also been taken to the curtailment of P and L Account add-backs.
3. The learned D.R. supports the action of the authorities below and is of the opinion that the assessee had deliberately concealed the facts of investment in the properties---Plot No.246-S. Small Industrial Estate. Township Scheme, Lahore. The assessee, according to the D.R., had hampered with the value/amount transacted in the registration deeds of the abovementioned properties for which the appellant's explanation had already been considered to the contrary to the facts of the case and, therefore, the additions made under section 13(1)(b) were justified. He pleaded that the total additions already made at Rs.25,72,640 should be confirmed. He based his arguments on the evidence already existing on record and that the appellant had already been afforded sufficient and ample opportunities to substantiate his submissions which after due consideration and examination had been found unsatisfactory.
4. The learned A R. was of the view that the investments as worked out by the Department Rs.12,91,360 for Plot No.S-246 and Rs.12,21,280 for Plot No.S-247 already stood explained and, therefore, the case did not attract the mischief of section 13(1)(b) of the Income Tax Ordinance, 1979. Further elaborating his stand the A.R. explained that Plot No.S-247 was owned by the company since its inception and it has been accordingly declared in the balance sheet. This aspect has already been considered, examined, discussed and assessed by the Department. When this was the case there was no ground in the conclusion drawn by the Department that the assessee had concealed the investment in the said property. Regarding the other plot i.e. S-246 learned A.R.'s point of view was that the Department was incorrect in assuming, presuming and concluding that this asset had been purchased by the appellant company from its sister concert. In the presence of documentary evidence it was not correct to assess this property in the hands of the appellant company and invoke the provisions of section 13(1)(b). Emphasis by the A.R. was laid on the documentary evidence existing on the tax records of the Department and in view of it was pleaded that the additions made under section 13(1)(b) should be deleted.
5. Before going into and dwelling upon the submission made by both the parties before us the facts of the case, briefly, are being repeated. In the course of assessment for the year under appeal it has been observed by the Assessing Officer that the company had failed to disclose the said properties Plots Nos.S-246 and S-247, Industrial Area, Kot Lakhpat, Lahore. This observation was based on the balance sheet entry of the company where under the head "land" value of asset had been shown at Rs.76,443. During the year 1-1-1992 to 31-12-1992 no addition or accretion had been declared. On the other hand, on the basis of evidence, it was ascertained:---
(i) Plot No.S-246, measuring 2 Kanals 4 Marlas 20 sq.ft. had been purchased through a valid executed sale-deed registered with the Sub -Registrar, Model Town, Lahore vide Document No.2025, Bahi No. 1, Jild No. 1422, dated 7-3-1992 wherein the value, as per sale-deed provided by the appellant, had been shown at Rs.53,000. On the other hand, on the reverse of page 1 and page 6 of the said sale-deed the value of the said plot was Rs.11,53,000 which was, besides the incidental charges amounting to Rs.1,38,360. The total value of this asset, therefore, came to Rs.12,91,360.
(ii) Plot No.S-247, measuring 2 Kanals 3 Marlas 165 sq. ft. situated in the same Industrial Estate had shown a value of Rs.44,000 while vide document No.2026, ' Bahi' No.1, ' Jild' No.1422, dated 7-3-1992 the entry of the reverse side of the sale-deed showed the actual cost of land Rs.11,44,000 which was besides the incidental charges amounting to Rs.1,37,280. The total value of the plot, therefore, came to Rs.12,81,280.
6. Proceeding on the above the assessing officer confronted the assessee with the observation that the investment of Rs.25,72,640, Rs.12,81,280 and Rs.12,91,360 had not been shown in the balance sheet and thereby the provisions of section 13 were invoked. The appellant replied to the same but the explanation was not accepted which resulted in the abovementioned additions.
7. At the time of hearing the A.R. drew the attention of the Court to the evidence on record regarding the acquiring of the two plots and the investment thereof. Briefly, it was explained:---
I. Plot No. S-247
(i) It was originally allotted to Syed Salim Akhtar Jafri on the basis of Overseas Pakistanis quota by the Government of Punjab in 1980. As the allottee was not residing in Pakistan. He, through a general power of attorney, executed on 14-9-1984 and attested by the Embassy of Pakistan Accra, authorised his younger brother Syed Tariq Siraj Jafri to settle all matters regarding this plot.
(ii) Syed Tariq Jafri, on the basis of General Power of Attorney then applied for construction on this plot. In the meantime the appellant company i.e., M/s. Koldcraft (Pvt.) Limited was incorporated on 21-5-1986 and the plot was taken-over by the company in lieu of which Syed Salim Jafri was allotted shares in the newly floated company. The plot was accordingly declared in the first balance sheet of the company. i.e. as on 31-12-1986.
(iii) When assessment proceedings in case of the company or the first year of business i.e., 1987-88 were taken up this aspect of acquiring of land and investment thereof was considered. In support of the appellant's A.R., referred to letter dated 8-12-1987 filed before the I.T.O., Central Circle, Lahore in response to his queries. Assessment was accordingly framed vide order under section 62 wherein on account of difference in the declared cost of construction of the factory building on Plot S-247 as addition of Rs.634,282 was made under section 13(1)(d). The assessee company went into appeal against this order, which was adjudicated -by the C.I.T. (A), Zone-I; Lahore vide order dated 23-6,1988 .wherein. the addition under section 13(1).(4).was directed to be reduced from Rs.188 per sq. ft. to Rs.150. per sq: ft: :It was further maintained that no second: appeal was preferred.
(iv) Subsequently the land alongwith the building continued to be declared in the balance sheet of the company. There was thus, it was emphasised, that no investment had been made in the acquiring of the immovable property by assessee during the year under consideration i.e., 1993-94.
(v) Regarding the different values i.e. Rs 44,000 and Rs.11,44,000 noted and mentioned by the , assessing officer was explained that- there was no tampering and neither was there any wilful concealment. The- necessity and purpose of executing a sale-deed arose out of the requirements of the company to obtain a running finance facility from the bankers the Bank of Punjab for which they had to mortgage the property. As the property stood in the name of one of the Directors. Syed ,Salim Jafri holding General Power of Attorney and the bankers required a change in the title of the said plot, therefore, to fulfil this requirement and condition the sale-deed was executed. As the value of the plot had been settled at Rs.53,000 by its owner with the company at the time of its incorporation, therefore, it was shown that the same amount as shown in the sale-deed. At the same time as the date of registration was March, 1992, therefore, in order to fulfil the conditions of the Stamp Act and get it registered judicial stamp paper had to be purchased keeping in view the rates fixed bye the District Authorities for registration purposes. Accordingly judicial paper amounting to Rs. 97,240 was purchased. There was no tampering or manipulation in the sale-deed as was evident froth its certified copy wherein the value of the plot has been shown at Rs.11,45,000. The amount of Rs.44,000 taken by the Department to have been erased from Rs.11,44,000 was the actual price of the said plot and it could in no way be inferred that the appellant had actually invested Rs.11,44,000.
II. Plot No.S-246
(i) This plot was originally acquired by, a sister company, M/s: Amesco (Pvt.) Limited through an agreement to sell on 6-6-1989. The general power of attorney in case of this plot was the same as in case of Plot No.S-247 i.e., Syed Tariq Siraj Jafri who also happened to be a Director in M/s. Amesco (Pvt.) Limited Syed Tariq Jafri is thus a Director in both the companies:
(ii) Plot No.S-246.,,was declared in ,the statement of accounts of M/s. Amesco. filed for the first year of the assessment year ending 31-12-1989 wherein it has already been discussed, accepted and assessed vide order under section 62, dated 30-5-1991 of the I.T.O. Company Circle 19, Lahore. On the acquiring of this plot and construction thereof an addition of Rs.4,11,750 was made under section 13(1)(4) wherein the value was adopted at Rs.3,00,000 and of construction at Rs.150 per sq. ft: In appeal, the C.I.T: (A) Zone-I, Lahore vide order dated 8-8-1994 reduced the value 6f plot from Rs.3,00,000 tier Kanal to Rs.2,75,000 per Kanal -while the rate of 'construction at Rs.I50 per, sq.ft was upheld. The assessee then went into revisions where the Member Income Tax Judicial vide order dated 19-6-1995 reduced the addition under section 13(1)(4) from Rs.2,79,780 to Rs.1,00,000. Based on these documentary evidences it was emphasised that the appellant company, M/s. Kolderaft had neither acquired the plot, nor was its owner and neither it has made any investment in it which led to the conclusion that the action under section 13(1)(4) was not called for.
(8) The explanation of the assessee regarding the observations of authorities below that the sale-deed had been tampered- with and the amount changed from Rs.11,53,000 to Rs.53,000 was on the same lines as, in the case of Plot S-247 i e. , the plot was with one of the Directors Syed Tariq Jafri holding general power of .attorney and. as it required refinancing facility from the Bank of Punjab, therefore, the property had to be registered. In the meantime M/S. Amesco (Pvt.) Ltd. has closed down its business. It was a dormant company and for facilitating the running finance facilities the said property was mortgaged in the name of M/s. Kolderaft. The appellant's A.R. referred to the balance-sheet of M/s. Amesco (Pvt.) Limited wherein Plot S-246 has been shown as on 31-12-1992 to further' strengthen its submission that no investment had been made by M/s. Koldcraft in the acquiring of this asset' which even did not appear in the books of accounts of the company.
9. The arguments made before us, the submission and reference to the records of the Department inclusive of the action of the Revenue including the action taken vis-a-vis the two plots under appeal have been considered and examined. The conclusions/emerges show that the appellant company during the year under appeal did not make investment in the purchase of two plots and shown at Rs.11,44,000 and Rs.11,53,000 respectively. Both the plots had been acquired earlier--one by the appellant company and the other by its sister concern--in the periods relevant to the assessment years 1987-88 and 1990-91. In the two companies Syed Tariq Jafri was a Director and at the same time holder of general power of attorney for both the plots. These two plots had been allotted and acquired under similar and identical circumstances i.e., allotted against Overseas Pakistani quota, for the management of it Mr. Tariq Jafri was authorised. On becoming a Director in both the companies he made his investment in the form of land in lieu of which he was allotted shares. Till the year under appeal the said properties were not registered, they stood in the name of the two limited companies and were reflected in their balance-sheets. But as far as documentation was concerned it was Syed Tariq Jafri who was authorised to act. When the need and necessity of obtaining a running finance facility from the bankers arose, mortgage of property was an essential requirement. As the running finance facility was required by M/s. Kolderaft and had to be extended to it, therefore, the bankers required that the property to be mortgaged should stand in its name and for this the essential requirement was a duly validly executed sale-deed. For this purpose the company then executed the deeds; details of which purpose the company then executed the deeds; details of which have been discussed in the foregoing paragraphs. As the companies did not pay anything, other than the original price of allotment converted into value of shares in the name of the common Director, Syed Tariq Jafri, therefore, the value transacted was accordingly reflected. It was only for the purposes of Stamp Act that the market value was as per the judicial stamp papers. To this extent we would agree and concur with the appellant no investment as price was made but the assessee company is not fully correct to claim that no investment was made in the year under appeal which has not been reflected in the books of accounts. From its own submissions that the judicial stamp paper was purchased as per requirements of law and incidents expenditure was incurred which has not been reflected. Thus, by its own submission a sum of Rs.1,37,280 for Plot No. S-247 and Rs.1,38,360 for Plot No.S-246 has no plausible explanation: Therefore, the additions under section 13(1)(b) is reduced to Rs.2,75,640.
9-A. The other issue raised by the appellant regards the add-backs made out of the P and 1_ Account on the plea that these were excessive and had been made without having examined them in detail. The appellant company thereby admits that the claim is not fully verifiable. At the same time we find that the disallowances are reasonable and are in line with the assessee's own history, At the time of hearing the learned A.R. was not able to make out any case before us either on merits or fact. The additions made are maintained and confirmed.
10. With the above observations and conclusions the appellant company's appeal for the assessment year 1993-94 is disposed of in the manner and to the extent indicated above.
C. M.S./261/Trib. Order accordingly.