I.T.A. NO. 135/KB OF 1991-92 VS I.T.A. NO. 135/KB OF 1991-92
1997 P T D (Trib.) 1677
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqi, Chairman, Nasim Sikandar, Judicial Member and Muhammad Mahboob Alam, Accountant Member
I.T.A. No. 135/KB of 1991-92, decided on 20/05/1997.
(a) Income-tax---
----- Intangible addition" ---Concept.
An "intangible addition" may be described as the difference between the declared and assessed gross profits. It is the estimate made by the Revenue as against the returned trading results. The term is neither that of art nor it finds mention in the Income Tax Ordinance, 1979 or for that matter any other similar legislation previous or current. It is a convenient way to state the "forced profits" which the Revenue assumes an assessee to have earned and, therefore, requires him to pay tax thereupon. Besides being a moot point for appellate forums if an addition in the facts of a case could be made, its effect on income computed for the same year or in subsequent years has given rise to varying judicial pronouncements. The all important question being whether the income which is evolved from the gross profit declared and gross profit worked out is real or notional? If it is real income then all the incidents of real income must accompany it.
The principle underlying and the rationale behind giving credit for an intangible addition made in the same or an earlier year is that an amount once taxed in the hands of an assessee should not be taxed again. It is neither a rule of law nor an accounting standard. It is a rule of prudence and propriety. Although a kind of concensus appears to have evolved that an intangible addition is real income of an assessee yet the manner and extent of its benefit in the same or subsequent years is not settled. All the more so when a set-off is sought against one or more kinds of additions made under the provisions of section 13 of the Income Tax Ordinance, 1979. The ever changing policy of C.B.R. has also been, to a large extent, responsible for the uncertainty.
That an intangible addition is real income and, therefore, available to an assessee like other book profits is now a foregone conclusion.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(a)---Deemed income---Assessing Officer is authorised to deem any sum found credited in the books of an assessee as his income if the assessee offers no explanation or the explanation offered is not satisfactory as the nature and source of such amount.
(c) Income-tax---
----Intangible addition---Such addition made in the income of an assessee is as real income as the declared one could be---Such income is available for set off against unexplained investments and unproved cash credit etc. both in the year of the addition as well the following years if the assessee can successfully connect the, intangible addition with the unexplained investment, expenditure etc. or the fact that amounts representing such additions were available to him when the impugned credit was introduced or investment was made.
1968 PTD (Trib.) 146; (1957) 31 ITR 815; (1961) 4, Tax 154 (Trib.); 1962 PTD (Trib.) 202; (1966) 13 Tax 224; 1988 PTD 662; I.T.A. No.1977/HQ of 1990-91; LT :A. No.1959/HQ of 1989-90; I.T.A. No.169 of 1991; 1968 PTD (Trib.) 146; CIT v. Gun Nidhi Dalmia 1988 PTD 662; I.T.A. No.497/HQ; I.T.A. No. 113/HQ; S. Kuppuswami Mudaliar v. CIT, Madras 1989 PTD 280 = (1964) 51 ITR 757; Lagadapati Subba Ramaiah v. C.I.T. (1956) 30 ITR 593; L:R. Brothers v. C.I.T. (1957) 31 ITR 815; Anantharam Veerasingnaiah & Co. v. C.I.T., A.P. (1980) 123 ITR 457; C.I.T., Madras-II v. Banarsilal Dhawan 1993 PTD 28; Smt. Annamma Paul v. C.I.T., Emakulam (1980) 121 ITR 433; C.I.T., Lahore v. National Typewriter Co. 1993 PTD 37; C.I.T. v. K. Sreedharan 1995 PTD Note 73 at p.98 = 201 ITR 1010; 1963 PTD (Trib.) 152 and 1994 PTD (Trib.) 849 ref.
(d) Income-tax---
----Intangible addition---Such an addition does not lose its character of being an amount which the Revenue treated and taxed as income merely for the reason that the assessee agreed to the same--Principle that an amount should not be taxed twice is also not affected in any way if the assessee had agreed to be assessed at a higher than the declared income.
(e) Income-tax---
----Agreed assessment ---Assessee cannot be deprived of an allowance or benefit if it is otherwise available to it on principle.
1993 PTD (Trib.) 125 ref.
(f) C.B.R. Circulars---
----Scope---Such circular cannot override general principles of law.
1962 PTD (Trib.) 202 ref.
(g) Income-tax---
----Intangible addition---Such addition is not a "concession" as erroneously described by Revenue ---C.B.R. Circular cannot operate to deny the claim and that too for the only reason that an assessee has agreed to such an addition in the same or previous years.
(h) C.B.R. Letter---
---- Letter issued by C.B.R. in reply to a query from an Income-tax Practitioner does not carry the facts, the backgrounds and the actual question put to Revenue, one cannot rule upon the reasons that motivated the expression of the view contained in such a letter.
(i) Income-tax---
----Self-Assessment Scheme---Intangible addition---Self-Assessment Scheme being exception to the regular assessment process contemplated by the Income Tax Ordinance, 1979 a bar to claim of benefit of intangible addition cannot be presumed for the reason that the Scheme has not provided for acceptance of such claim or was silent on the issue.
The C.B.R. no doubt, has vast powers to make a Scheme for Self -Assessment as visualized to section 59 of the Income Tax Ordinance and also to settle its for corners, conditions and qualifications to avail it. By an express provision it may deny the facility of Self-Assessment to an assessee who intends to lodge a claim for the benefit of intangible additions made in the earlier years. However, since such Schemes are exception to the regular assessment process contemplated in the Ordinance, a bar to such claim cannot be presumed for the reason that the Scheme has not provided for acceptance of such claim or was silent on the issue.
(j) Income-tax---
----Intangible addition---Such addition made to the current or previous year is available to an assessee for a set off against additions made or income deemed under various provisions of S.13, Income Tax Ordinance, 1979-- Irrespective of penal provisions contained in the Income Tax Ordinance, 1979 an intangible addition will continue to be available whether or not it was made on agreement with the assessee---It is only the payment of tax on "assumed profit" which is relevant to see if the amount is available to the assessee as any other real income declared to the revenue and taxed accordingly---Such rule is neither immense nor absolute---Some of the conditions to which the rule is subject, enumerated---Burden of proof to deny the claim in the same or subsequent years---Principles.
An intangible addition made in the current or a previous year is available to an assessee for a set-off against additions made or income deemed under various provisions of section 13. Also that irrespective of the penal provisions contained in the Ordinance, an intangible addition will continue to be available whether or not it was made on agreement with the assessee. It is only the payment of tax on "assumed profits" which is relevant to see if the amount is available to the assessee as any other real income declared to the Revenue and taxed accordingly. The view of the C.B.R. explained through letter dated 25-9-1989 does not change the legal position which, is based upon propriety and prudence.
The rule, however, is neither immense nor absolute. Some of the conditions to which it is subject to, may be detailed in these words. Firstly, a claim for set-off or benefit of intangible addition will have to be made at the first available opportunity and in original proceedings. A claim for the benefit of intangible addition made in the same or an earlier year will lose its moral ground if it is put up as a defence of last resort. In other words the claim as an alternate plea shall not be seen with favour. Because, that will permit taking a chance to allege certain facts like cash credits etc., and on failure to prove them to revert back a step and plead "guilty" by claiming the benefit of amounts already assessed or additions already made.
Secondly, in case of a claim of credit in the same assessment year, the Revenue by bringing home cogent and relevant evidence may dislodge it on the ground that amount of addition was not available for use to the assessee or was not directly relatable to the addition made in the trading account. Same would be the situation with regard to additions made in previous year if the Revenue can establish that the unexplained amount had been earned during the year of assessment from a source unconnected with the declared sources of income in the previous years. Thirdly, that the intangible addition was only in trading account and not in profit and loss account.
The burden of proof to deny the claim in the same or subsequent years will initially be on the Revenue. It may, however, shift to the assessee if the Revenue is in possession of material evidence that the amount of addition had either been expended or was otherwise not available with the assessee for any other reason. An assessee, therefore, can always be called upon to explain if the cash deposits or credits were attributable to the pre-existing funds of concealed income earned in the previous or relevant year.
In the present case the Assessing Officer though accepted the factum of intangible addition of the amount in the previous year yet refused its introduction in the capital by simply observing that it was not "permissible". No material was brought or indicated from record to say that the added amount was not available with the assessee for such introduction as capital. Nor the nexus between the addition and the capital introduced was doubted in any other manner. The impugned addition, therefore, was not legally sustainable and was rightly deleted by the appellate authority.
(k) Income-tax---
----Intangible addition ---Sustainability---Assessing Officer though accepted the factum of intangible addition of the amount in the previous years yet refused its introduction in the capital by simply observing that it was not "permissible" ---No material was brought or indicated from record to say that the added amount was not available with the assessee for such introduction as capital nor the nexus between the addition and the capital introduced was doubted in any other manner---Such an addition, therefore, was not legally sustainable and was rightly deleted by the Appellate Authority.
Anayat Ullah Kashani, D.R. for Appellant.
Irfan Ullah, I.T.P. for Respondent.
Date of hearing: 8th January, 1997.
ORDER
An "intangible addition" may be described as the difference between the declared and assessed gross profits. It is the estimate made by the Revenue as against the returned trading results. The term is neither that of art nor it finds mention in the Income Tax Ordinance, 1979 or for that matter any other similar legislation previous or current. It is a convenient way to state the "forced profits" which the Revenue assumed an assessee to have earned and, therefore, required him to pay tax thereupon. Besides being a moot point for appellate forums if an addition in the facts of a case could be made, its effect on income computed for the same year or in subsequent years has given rise to varying judicial pronouncements. The all important question being whether the income which is evolved from the gross profit declared and gross profit worked out is real or notional? If it is real income then all the incidents of real income must accompany it.
2. The principle underlying and the rationale behind giving credit for an intangible addition made in the same or an earlier year is that an amount once taxed in the hands of an assessee should not be taxed again. It is neither a rule of law nor an accounting standard. It is a rule of prudence and propriety. Although a kind of concensus appears to have evolved that an intangible addition is real income of an assessee yet the manner and extent of its benefit in the same or subsequent years is not settled. All the more so when a set-off is sought against one or more kinds of additions made under the provisions of section 13 of the Income Tax Ordinance, 1979. The ever changing policy of C.B.R. has also been, to a large extent, responsible for the uncertainty. This Full Bench has, accordingly, been constituted to see if a consistent and harmonized finding is possible to express the opinion of the Tribunal on the issue.
3. The facts of the case before us demonstrate the simplest possible form of the proposition. In this case the assessee, an individual, in the year 1989-90 filed a return to disclose an income of Rs.1,31,500 from dealings in Iron Pipe Fittings Brass Wire netting and sanitary works etc. After rejecting the declared results, the assessing officer estimated the sales and subjected them to an enhanced G. P. rate to assessee business income at Rs.1,77,844.
While reconciling his wealth as stated in the accompanying wealth statement, the assessee added a sum of Rs.88,000 being the addition made to her declared income in the immediate preceding year, 1988-89. The assessing officer held that it was not legally permissible. After confronting the assessee and observing usual formalities the amount was added towards income under section 13(1)(a) of the Income Tax Ordinance. This provision authorises an assessing officer to deem any sum found credited in the books of an assessee as his income if the assessee offers no explanation or the explanation offered is not satisfactory as to the nature and source of such amount.
5. Before the first appellate authority, CIT(A)-VII, Karachi the assessee succeeded on the ratio settled in 1968 PTD (Trib.) 146 and (1957) 31 ITR 815. To hold that the assessee was entitled to the claimed benefit of intangible addition. The appellate authority also referred to (1961) 4 Tax 154 (Trib.), 1962 PTD 202 (Trib.), (1966) 13 Tax 224 and 1988 PTD 662. Although the assessing officer had made no mention of any Circular of C.B.R. on the subject yet the appellate authority opined that the claimed benefit of intangible was disallowed on the authority of C.B.R.s Circular NO.ITA (1)(12)(I)/88(3), dated 25-9-1989 and that the same was not attracted to the facts of the case. Therefore, the addition of Rs.88,000 made under section 13(1)(a) was deleted. Also partial reliefs of paltry sums was allowed in profit and loss account additions.
6. The Revenue assails the deletion of the above addition as also the reduction in P&L account additions under the heads telephone and conveyance.
7. Parties have been heard. Mr. Irfan Ullah, I.T.P., learned A.R. for the assessee has referred to two unreported decisions of this Tribunal recorded in cross-appeals in I.T.A. No.1977/HQ of 1990-91 (assessment year 1989-90) end I.T.A. No.1959/HQ of 1989-90 (assessment year 1989-90) dated 19-8-1990 and I.T.A. No.169 of 1991 (assessment year 1989-90) decided on 6-3-1991. In the first case the assessee added a sum of Rs.55,000 to his capital on account of intangible addition made in the previous year on agreement basis. The assessing officer rejected the claim and added the amount towards his income. The assessee succeeded in appeal as the addition so made was deleted. Before the Tribunal the Revenue relied upon C.B.R.'s Circular No.ITA-1(12(1)88(3), dated 25th September, 1989. A Division Bench of the Tribunal refused interference by holding that the issue in hand stood resolved as the view of the Tribunal was expressed by reported decision cited as 1968 PTD (Trib.) 146. Reference was also made to a case decided by Delhi High Court in re: CIT v. Gun Nidhi Dalmia, reported as 1988 PTD 662.
8. The facts in the second case I.T.A. No.169/KB of 1991 were also not different where the assessee had agreed to an addition to its income and the amount of intangible addition was claimed as capital in the next year. The assessing officer disallowed but the C.I.T. accepted the claim and deleted the addition made on this score. The department filed appeal before the Tribunal where it was observed that the assessing officer having accepted the amount as an intangible addition and that having been taxed in the preceding year, an addition of the kind would amount to double taxation.
9. Mr. Anayat Ullah Kashani, learned D.R. supports the addition in line with the view expressed through the said C.B.R. letter dated 25-9-1989 a copy of which has been placed on record. This letter appears to have been written in reply to a query from an Income Tax Practitioner. The relevant portion reads: " ..the Board is of the view that the addition made in the trading account in agreement with the assessee would not qualify to be incorporated in the books of account". The finding recorded by two Division Benches in I.T.A. No.497/HQ, dated 22-5-1991 and I.T.A. No.113/HQ, dated 22-5-1991 have also been brought to our notice. In both cases claimed benefit of intangible addition was refused by the Revenue and the treatment was maintained by the Tribunal on the basis of the aforesaid C.B.R. Circular letter dated 25-9-1989.
10. In the first case the assessee relied upon para. 9(e) of the S.A.S., for the year 1987-88 which provided that "the trading account additions made in agreement with assessee would qualify for incorporation in books of account". The learned Division Bench declined to interfere for the assessee on the ground that the above para. or an alike provision was not available in the S.A.S. enforced for the year 1989-90 to which the appeal in question related. In the second case decided on 12-11-1991 the Revenue succeeded on the basis of the above C.B.R. Circular as the learned Bench noted that the benefit allowed in the year 1987-88 through the above para. 9(e) of the Scheme was limited to that year only and in respect of other year or years the C.B.R. Circular dated 25-9-1988 applied. Therefore, relying upon their earlier decision dated 22-5-1991 the addition made by the assessing officer was upheld and the order of the CIT(A) reversed.
11. That an intangible addition is real income and, therefore, available to an assessee like other book profits is now a foregone conclusion. The Madras High Court in re: S. Kuppuswami Mudaliar v. CIT, Madras cited 1989 PTD 280 = (1964) 51 ITR 757 (Madras) dilated upon the term "intangible" as used by Revenue Authorities and the Tribunal. Their Lordships considered the issue in the background of facts before them and said: "It is a hard fact that for the two years 1947-48 and 1948-49 a total addition of Rs.52,230 was made by the department in computing the assessable income. This was, therefore, treated as the real income of the assessee for the years in question. There was nothing notional or fictional about it. However, convenient it might be to describe the addition as "intangible" as has been done by the department and the Tribunal, the fact is that it was found to have accrued to the assessee and was not merely supposed to have been earned by him. Once the addition is made the department is fixed to the position that the assessee earned the amount in the relevant year. There can be no relaxation from that position and we have no doubt that the department cannot deviate from or wriggle out of it without departing from ordinary standards of justice and fairplay. If in such a case the assessee points to that addition as the source from which he got a particular amount which he is called upon to explain, the department is bound to accept it as exceedingly likely and probable, consistent with its previous act in treating the addition as income, unless it be that it is possible to say that source was not available to the assessee. The onus of proving thus would be on the department. Otherwise it would amount to the department saying, "heads I win, tails you lose.
12. At page 287 of the report it was further remarked, "Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee".
13. The ratio in this case was indebted to another case decided by Andhra High Court in Lagadapati Subba Ramaiah v. CIT (1956) 30 ITR 593. In that case the assessee was a shareholder of a Private Limited Company. According to the books of account of the Company its profits for three years amounted to Rs.34,352. The Revenue rejected the declared version and estimated its income at a higher rate on which a sum of Rs.62,000 was assessed and paid as tax. The Company issued dividends to shareholders for a sum aggregating to Rs.1,16,280. The assessee claimed to have deceived various amounts in the three years out of the total dividend declared by the Company. The Revenue as well as the Tribunal rejected the clam of the assessee to have received any, sum as dividend. In their view after payment of income-tax at Rs.62,000 levied on the Company, there were no funds available with it out of which dividends could have been declared and paid. The Honourable Judges on a reference found in favour of the assessee and concluded, "Having assessed the Company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company's books and could not, therefore, have been available for the payment of dividends. Among common man, such an attitude would be regarded as blowing hot and cold or playing fast and loose".
14. The availability of amounts of assessed undisclosed profits or amounts treated as income on account of unproved cash credits was found in favour of the assessee in (1957) 31 ITR 815 re: L.R. Brothers v. CIT. Their Lordships of the Ahmadabad High Court at page 825 of the report remarked: " .... The amount which has already been added back as concealed income or extra profits or in respect of losses wrongly shown cannot be taxed as concealed income of the previous years in question because they had already been taxed and added back and double taxation of the same income is not permissible". It was, therefore, held that the amounts added back to assessee's income as suppressed profits and losses disallowed in the same year must be taken into account to avoid double taxation.
15. The Supreme Court of India in re: Anatharam Veerasinghaiah & Co. v. CIT, A.P. (1980) 123 ITR 457 held that "When an "intangible" addition is made to the book profits during an assessment proceedings, it is no the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as "intangible" is as much as part of his real income as that disclosed by his account books. It has the same concrete existence". While holding the above their Lordships approved the ratio settled in Lagadapati Subba Ramaiah v. CIT, (supra) and in S. Kuppuswami Mudaliar (supra). This case also serves as an authority on the point that Revenue may bring home, by collecting material evidence, that cash deficit or cash credit could not reasonably be related to the amount covered by the intangible addition and must be regarded as pointing to the undisclosed income earned during an assessment year under consideration. Their Lordships while disapproving the findings of the Tribunal held that it erred in law when it confined itself to the fact that an intangible addition having been made to the assessee's book profits in earlier years a part of these amounts remained available to the assessee thereafter. In the view of the Lordships the Tribunal had to consider from an overall consideration of all the relevant facts and circumstances whether the unexplained cash deposits and cash credits could be reasonably attributed to the pre-existing funds of concealed income and that they were reasonably explained by reference to the concealed income earned in the relevant year. Their Lordships finally settled the issue in the following words:---
"The secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. It is a matter for consideration in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credits must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration It is open to the Revenue to rely on all the circumstances pointing to that conclusion They must be such as can lead to the firm conclusion that the assessee had concealed the Particulars of his income or had deliberately furnished inaccurate particulars. The burden remains on the Revenue of proving the existence of material leading to that conclusion." (Exmphasis are underlined).
16 This decision was followed by Delhi High Court in re: CIT v. Gun Nidhi Dalmia cited as 1988 PTD 662, a case relied upon by the learned A.R. for the assessee. It may be noted that the Madras High Court also reached a similar conclusion in (1977) 36 Tax 284 = 1993 PTD 28 re: CIT, Madras II v. Banarsilal Dhawan. Their Lordships distinguished and explained the ratio earlier settled by them in re: S. Kuppuswami Mudaliar v. CIT (supra) to say that onus was on the assessee to establish connection between additions made in previous years and the cash credits etc. introduced in the succeeding year. The Hon'ble Judges held, "this Court did not lay down any such general proposition of law, as if the additions made to the income returned by an assessee, by the department, constitute his last refuge whenever he finds himself in a tight corner not being able to explain the credits found in his accounts. The truth is that such additions are as real an income, at any rate as far as the department is concerned, as the income returned by the assessee, and one can as much as the other constitute the source to explain the credits in the accounts in the subsequent years. Therefore, the decision of this Court does not invest such additions with any special significance as a source to explain the credits in the subsequent years. In any case, it will be a question of fact whether there was evidence to find that such additions were the source of the subsequent credits and in this behalf there is no-difference between this source and any other source, apart from the position that with regard to the income assessed in the earlier years, its existence as a possible source of the credits will be a matter of record with the department while with regard to other sources, their existence may be a matter to be proved".
17. To the same effect were the conclusions drawn by a Full Bench of the Kerala High Court in Smt. Annamma Paul v. CIT, Ernakulam, (1980) 121 ITR 433. These may be summarized and stated in the words of the report: "It is well established that it is for the assessee to give a satisfactory explanation in regard to the cash credit entries in his books: and if the explanation furnished by the assessee is found to be not acceptable, the entries may be taken to represent the income that have accrued to the assessee during the year of account. This principle is no way rendered inapplicable -merely because it is found that the assessee had earned some undisclosed income in some year anterior to the period of account. If the assessee has a case that the cash credits noticed during the relevant accounting period have come out of the amount which had been added to his income for an earlier year it is undoubtedly a matter to be taken note of by the I T O in considering the question whether the source of the cash credits had been satisfactorily explained by the assessee The burden of proof, however, rests squarely on the shoulders of the assessee to establish the truth and tenability of the explanation" (Emphasis are underlined).
18. The above decision in re: CIT, Madras-II v. Banarsilal Dhawan was cited with favour by the Lahore High Court in 1993 PTD 37 re: CIT, Lahore v. National Typewriter Co. In that case the Court decided against the assessee on the ground that claim of benefit of intangible addition against unproved cash credits was made and allowed for the first time before the Tribunal. The question referred for the opinion of the Court being: "Whether on the facts and circumstances of the case, the Tribunal was justified in directing the ITO to allow intangibles of the earlier years when such a plea was not taken by the assessee-respondent at the two earlier stages of assessment and appeal"? The returned negative answer was primarily based upon the reason that the claimed benefit was an afterthought and had been made after the explanation about the cash credits was found to be false both in assessment as well as in first appeal proceedings.
19. With reference to the burden of proof in average conditions, the Kerala High Court in 1995 PTD Note 73 at page 98 = 201 ITR 1010 re: CIT v. K. Sreedharan followed the ratio in Anantharam Veerasinghaial & Co. v. CIT (supra). In the light of the facts before it, the Court said: "It is now established that the onus is on the assessee to explain the cash credit entries in his books of account. He may relate it to the intangible additions made for a previous year. An intangible addition made to the book profits of an assessee is as real an income as that disclosed by the assessee. The fact that it represented secret profits, not disclosed, but added in the course of the assessment proceedings or disclosed in some other ancillary Proceedings does not make it any-the-less the income of the assessee available for investment. Once an intangible addition is made, that is as good as the disclosed income of the assessee and it could be treated as available for investment from the year in which such an addition was made. It is for the assessing authority to consider the acceptability of the explanation of a cash credit entry with reference to all the facts and circumstances of the case. The presumption that cash credits represent intangible additions of prior years cannot be drawn if a sufficiently long period of time has elapsed after the earning of the undisclosed profits". The issue was, however, resolved in favour of the assessee on the finding that the department had not pointed out. any circumstances from which an inference could be drawn that the assessee had as a matter of fact spent the amounts. Also that the period of four years was not so long a period as to rebut the presumption regarding the continued availability of the amount". (Emphasis are underline).
20. It was for the first time in 1954 when C.B.R. issued instructions through Circular No. 11 of 1954 making a "concession" that where cash credits appeared in the books of account of an assessee and the same were covered by the intangible additions of the preceding four years, no adverse inference should be drawn. It read: "It has come to the notice of the Board that Income Tax Officers very often raise the quantum of gross profit on the ground that a portion of the income was concealed from the account books but when in a subsequent year some cash credit is discovered, no allowance is made for the intangible additions made in the earlier years. This practice entails hardship inasmuch as the same income comes to be taxed all over again. The Board, therefore, directs that in a case where additions for concealed profits have been made in any year and a cash credit is discovered in some later year, the Income Tax Officer should carefully examine the case and reduce the amount of the addition on account of the cash credit to the extent of their intangible additions, if any, made in the earlier year's assessment. In doing so, he should not, however, go back more than four years earlier to the previous year in which the cash credit has been discovered where the assessee represents that the Income Tax Officer should go further, he should be told that the reduction has been made as a matter of concession and the Income Tax Officer is not bound in law to make any concession".
21. An open letter on the subject was issued on 28th December, 1958 which was in connection with the processing of declaration of excess income filed in pursuance of Martial Law Regulations Nos.43 and 48. Another Circular issued in September, 1961 re-affirmed the right of an assessee to introduce as part of his capital the income which had already been subjected to tax.
22. The above Circulars and 'the instructions contained therein were withdrawn by Circular No. 12 of 1972 when definition of "concealed income" was amended. In the enlarged scope of the definition the additions made under sections 4(2-A), (2-B) etc., were brought to be treated as concealed income. However, when the scope of concealed income was again restricted and position prior to 1972 was restored, following instructions were issued through Circular No.9 of 1975:
"In 1972, unexplained cash credits etc., deemed to be income under subsections (2-A), (2-B), (2-C), (2-D), (2-E) and (2-F) of section 4 were included in the definition of concealment. The original position has once again been restored and although unexplained cash credits etc., will continue to be deemed to be the assessee's income yet these shall not be treated as concealed income for the purpose of levying a penalty or starting prosecution proceedings."
23. After enforcement of the Income Tax Ordinance, 1979 the legal position with respect to unexplained credits, investments, expenditure etc., remained unchanged under the provisions of section 13 of the Ordinance till the spreading of net of "concealment-of income" through the addition of sub clause (c) to subsection (2) of section 111 of the Ordinance in 1984. During the period ranging from 1975-76 to 1981-82 the "concession" of incorporation of "intangible addition" was made available to assessee under Self-Assessment Scheme. It was, however conditional to payment of composition fee @ 10% of such additions and filing of fresh returns (see Circular No.3(9)IT-1/75 PT, dated 1-3-1983). In the years 1982-83 to 1984-85 intangible additions made in detailed scrutiny cases in agreement with the assessee could be incorporated in books without filing a return or payment of composition fee. In other cases such additions were to be treated in accordance with Circular No.9 of 1975 (supra).
24. With regard to Circular No.1(12)(1) 88(3), dated 25th September, 1989 which was disapproved by the Tribunal in cases referred to in para. 7 ante but distinguished in other two cases detailed in para. 9 ante it may be noted that these instructions were further revised on 13th of June, 1990, through Letter C.No.7(5)Dt-14/90. According to this letter the instructions made through above letter, dated 25th September, 1989 "may not be applicable where the assessee exercises his legal right given under section 57 of the Income Tax Ordinance, 1979".
25. The Tribunal has all along been accepting the plea of availability of intangible additions as real income in the same or subsequent years. Its approach to the point in issue is amply demonstrated by reported decision cited as 1968 PTD (Trib.) 146. In that case a Division Bench of the Tribunal agreed that intangibles were not notional but real income and that, "the intangibles that arise in a particular year must be considered to be the real receipt relevant to that very year although the qualification of the same may be made much later by the I.T.O. by making additions to the income of the assessee of that particular year". In the cases cited at the bar as 1963 PTD (Trib.) 152 and 1962 PTD (Trib.) 202 the issue in hand was not directly addressed. The two unreported decisions relied upon by the A.R. of the assessee re-state the view of the Tribunal. Another unreported decision in I.T.As. Nos.3249 to 3251/KB of 1991-92 (assessment years 1989-90 and 1990-91) dated 20-1-1993 was cited with favour and followed in 1994 PTD (Trib.) 849, wherein it was held, "Credit for intangible addition can be claimed by the assessee for additions made in the trading in the earlier years or additions made in the same year, provided the assessee can prove (i) that the additions were made in the trading account and not P&L Account and (ii) that the amount was available with the assessee and had not been expended".
26. In 1992 PTD (Trib.) 739 a Division Bench of the Tribunal reiterated the legal position with respect to intangible additions made in previous years. As far the same year it was found that a separate addition could only be made if it was over and above the intangible addition made in the trading account: that no separate addition under section 13(1)(b) could be made if the addition in trading account was more than the figure contemplated for addition under the said provision.
27. From the study of above case-law as unanimous pattern of views is clearly seen: that an intangible addition made in the income of an assessee is as real as the declared one could be. It is accordingly available for set-off against unexplained investments and unproved cash credits etc., both in the year of the addition as well as the following years if the assessee can successfully connect the intangible addition with the unexplained investment, expenditure etc., or the fact that amounts representing such additions were available to him when the impugned credit was introduced or investment was made.
28. The Revenue, however, is vibrant. It has persistently been moving forth and back. Whatever be the reason, it appears uncertain and at times even contradictory. The frequent widening and narrowing of its concept of concealed income is an important factor responsible for the change of policy on the issue. Another reason may be found in its changing perception of an agreed assessment.
29. Be that as it may, an intangible addition does not lose its character of being an amount which the Revenue treated and taxed as income merely for the reason that the assessee agreed to it. The principle that an amount should not be taxed twice is also not affected in any way if the assessee had agreed to be assessed at a higher than the declared income. An agreed assessment, per majority view in 1993 PTD (Trib.) 125 suits both the assessee as well as the Revenue. Therefore, an assessee cannot be deprived of an allowance or benefit if it is otherwise available to it on principle. As found in 1962 PTD (Trib.) 202 a C.B.R. Circular cannot override the general principles of law. The benefit of an intangible addition though not a legal right is nevertheless established by a chain of authoritative judicial precedents. It is not a "concession" as erroneously described by the Revenue. Therefore, C.B.R. Circular dated 25-9-1989 could not operate to deny the claim and that too for the only reason that an assessee had agreed to an addition in the same or a previous year. The Circular issued on 13-6-1990 to explain that Circular is all the more confusing if not a straight contradiction.
30. The Circular letter dated 25-9-1989, as stated earlier, was issued in reply to a query from an income-tax practitioner. Since it does not carry the facts, the background and the actual question put to Revenue, we cannot rule upon the reasons that motivated the expression of the view contained in that letter. However, it appears to have been made in the perspective of the Self- Assessment Scheme announced for the year. The C.B.R. no doubt, has vast powers to make a Scheme for Self-Assessment as visualized in section 59 of the Ordinance and also to settle its four corners, conditions and qualifications to avail it. By an express provision it may deny the facility of Self -Assessment to an assessee who intends to lodge a claim for the benefit of intangible additions made in the earlier years. However, since such Schemes are exception to the regular assessment process contemplated in the Ordinance, a bar to such claim cannot be presumed for the reason that the Scheme has not provided for acceptance of such claim or was silent on the issue. Therefore, to this extent we will respectfully disagree with the conclusions arrived at by the learned Benches in the appeals mentioned in para. 9 ante. For the other reasons discussed above, we will also not agree with the proposition, as put forth in the appeal decided on 12-11-1991 that C.B.R. Letter dated 25-9-1989 in any way had the effect of withdrawing the facility for subsequent years which was allowed in S.A.S., for the year 1987-88 vide para 9(e).
31. On the basis of what has been discussed above, we have concluded that an intangible addition made in the current or a previous year is available to an assessee for a set-off against additions made or income deemed under various provisions of section 13 Also that irrespective of the penal provisions contained m the Ordinance, an intangible addition will continue to be available whether or not it was made on agreement with the assessee. It is only the payment of tax on "assumed profits" which is relevant to see if the amount is available to the assessee as any other real income declared to the Revenue and taxed accordingly. The view of the C.B.R. explained through above letter dated 25-9-1989 in our estimation does not change the legal position which, as said above, is based upon propriety and prudence.
32. The rule, however, is neither immense nor absolute. Some of the conditions to which it is subject to may be detailed in these words. Firstly, a claim for set-off or benefit of intangible addition will have to be made at the first available opportunity and in original proceedings. A claim for the benefit of intangible addition made in the same or an earlier year will lose its moral ground if it is put up a defence of last resort. In other words the claim as an alternate plea shall not be seen with favour. Because, that will permit taking a chance to allege certain facts like cash credits etc., and on failure to prove them to revert back a step and plead "guilty" by claming the benefit of amounts already assessed or additions already made.
33. Secondly, in case of a claim of credit in the same assessment year, the Revenue by bringing home cogent and relevant evidence may dislodge it on the ground that amount of addition was not available for use to the assessee or was not directly relatable to the addition made in the trading account. Same would be the situation with regard to additions made in previous years if the Revenue can establish that the unexplained amount had been earned during the year of assessment from a source unconnected with the declared sources of income in the previous years. Thirdly, that the intangible addition was only in trading account and not in profit and loss account.
34. The burden of proof to deny the claim in the same or subsequent years will initially be on the Revenue. It may, however, shift to the assessee if the Revenue is in possession of material evidence that the amount of addition had either been expended or was otherwise not available with the assessee for any other reason. An assessee, therefore, can always be called upon to explain if the cash deposits or credits were attributable to the pre-existing funds of concealed 'income earned in the previous or relevant year.
35. In the case in hand the assessing officer though accepted the factum of intangible addition of the amount in the previous year yet refused its introduction in the capital by simply observing that it was not "permissible". No material was brought or indicated from record to say that the added amount was not available with the assessee for such introduction as, capital. Nor the nexus between the addition and the capital introduced was doubted in any other manner. The impugned addition, therefore, was not legally sustainable and was rightly deleted by the appellate authority.
36. Since the learned D.R. has not addressed us on the other ground relating to relief in P&L Account, this departmental appeal will fail in toto.
M.B.A./351/Trib. Appeal dismissed.