I.T.A. NO.274(IB) OF 1994-95 VS I.T.A. NO.274(IB) OF 1994-95
1997 P T D (Trib.) 2014
[Income-tax Appellate Tribunal Pakistan]
Before Tariq Aziz, Accountant Member and Rasheed Ahmad Sheikh, Accountant Member
I.T.A. No.274(IB) of 1994-95, decided on 30/01/1995.
Income Tax Ordinance (XXXI of 1979)---
-----Ss. 66-A & 148---Revision by Inspecting Additional Commissioner-- Power---Extent---Cancellation of assessment on mere change of opinion-- Validity---Loan through cross-pay order ---Genuineness---Assessee introduced loans---Assessing Officer issued notice under S.148 of the Income Tax Ordinance to the creditor for verification which was not complied with-- Assessing Officer accepted loans as genuine on the ground that payments were made through cross pay order---Assessing Officer, applying 10% G.P. rates framed the assessment---Inspecting Additional Commissioner finding the order/assessment erroneous and prejudicial to revenue, issued notice under S.66-A, for framing the assessment afresh---Held, observations made by Inspecting Additional Commissioner were hypothetical and definitely involved a change of opinion---Merely on a change of opinion of the Higher Authority assessment framed by Assessing Officer could not be reopened under S.66-A of the Ordinance---Order passed by Inspecting Additional Commissioner could not be sustained in circumstances.
C.A. Habib, C.A. for Appellant.
Mobeen Gul Khan, D.R. for Respondent.
Date of hearing: 11th January, 1995.
ORDER
TARIQ AZIZ (ACCOUNTANT MEMBER).---The abovementioned appeal has been filed by the assessee against the order of the learned Inspecting Additional Commissioner of Income Tax, Company Circle, Rawalpindi passed under section 66-A of the Income Tax Ordinance, 1979 (hereinafter called the "Ordinance"). The grounds of appeal are:---
(a) That the order of learned Deputy Commissioner is not erroneous in law or prejudicial to the interest of revenue Cancelling of order on a mere change of opinion is not sustainable;
(b) that the loans were fully explained documented, genuine and through crossed cheques and fully probed; and
(c) that the cost of construction declared against verifiable sales resulting in an application of gross profit rate of ten per cent is reasonable and change of application of gross profit rate without any basis or cogent reason is, a mere change of opinion and not sustainable.
We have heard the learned A.R. of the assessee and the learned D.R. and the appeal is disposed of as under:---
While examining the assessment record for the year 1992-93, the Inspecting Additional Commissioner of Income Tax (IAC), found that the assessee had introduced loans of Rs.1,95,58,975 during the period relevant to the assessment year 1992-93. He also observed that the Assessing Officer had issued notices under section 148 of the Ordinance to the parties from whom the loans were stated to have been received in order to verify their genuineness and the source from which these could have been advanced, The parties did not make compliance. Despite non-compliance, the learned I.A.C. observed, the Assessing Officer accepted these loans without looking into their genuineness merely on the ground that the loans were through cross pay orders. It was also noted by the learned I.A.C. that the Assessing Officer had applied gross profit rate of 10% on the sale of flats constructed by the assessee whereas in other parallel cases, gross profit rate of 25 % was being applied. For these reasons, the Additional Commissioner found the order of the Assessing Officer to be erroneous in so far as it was prejudicial to the interest of revenue. A show-cause notice under section 66-A of the Ordinance was issued to the assessee which reads as under:---
"Examination of your record shows that loans of Rs.1,95,58,975 were outstanding in the balance sheet as on 30-6-1992 for the Assessment Year 1992-93 from the following three parties:---
| (1) Mr. Tariq Khan | Rs.46,08,975 |
| (2) Mr. Azher Ali Khan | Rs.66,50,000 |
| (3) Striate Association | Rs.83,00,000 |
"The Assessing Officer accepted these loans stating that these were received through cross pay orders. Loans were expended for purchase of land in diplomatic enclave as well asMarkaz F.10, Islamabad. Payment of Rs.66,50,000 No.051253, dated 29-10-1991 has been shown to be from one Mr. Azhar Ali Khan whereas the alleged loan from Smata Association was also straight away paid to the C.D.A. as per the following details:--
| Call deposit No.357662, dated 30-1-1992. | Rs. 20,00,000 |
| Pay order No.051463, dated 14-1-1992. | Rs.50,00,000 |
| Pay order, dated 30-1-1992. | Rs.10,00,000 |
| Call deposit No.367681, dated 13-2-1992. | Rs.3,00,000 |
| | Rs.83, 00,000 |
"Under the provisions of section 12(18) the loans should have been through cross cheques drawn on a bank which is not so in the present case. Loan received through pay order is not covered under section 12(18). It may also be emphasised that even if a loan is received through cross cheque drawn one bank, its genuineness has to be verified and if it is proved to not genuine, it still can be added to the income under overriding provisions of section 13. In your case, the Assessing Officer issued notices under section 148 to the above parties for verification of genuineness of the alleged loans but no compliance was made. The sources from which these parties could have advance loans have also remained unverified. Despite non-compliance to the notice under section 148, the action of the Assessing Officer in accepting these loans is erroneous in so far as it is prejudicial to the interest of revenue.
"G.P. @ 10% was applied to the declared receipts which is grossly low in view of other Parallel cases for example at A.T.N. 02.02.0401203. G.P. rate of 10% is also low because in cases of construction contracts, 18% is applied whereas m your case, besides construction work profit on land purchased has also be there in the total sale price of property constructed and sold. Thus G.P. rate of 25% as in other parallel cases should have been applied in your case also. Action of the Assessing Officer in applying 10% is also erroneous in so far as it is prejudicial ;o the interest of revenue.
"Your are, therefore, required to show cause why your assessment for the charge year 1992-93 should not be cancelled to be made afresh."
In reply to the above show-cause notice, written reply was received from the assessee in which it was stated that as per C.B.R. Circular No.3 of 1992, pay order, demand draft or a telegraphic transfer gave the same meanings as to a crossed cheque drawn on a bank. Accordingly, the assessee stated that the loans received through pay orders were covered under section 12(18) of the Ordinance.
Regarding the genuineness of the loans, the assessee replied that the onus of proving the same was with the persons granting loans. There was no non-compliance by the assessee as these loans were genuine and bona fides transactions and the company had documentary proof which was on the I.T.O., record and the assessment could not be reopened under section 66-A of the Ordinance on a change of opinion.
Regarding the application of gross profit rate, the assessee stated that the case quoted by the learned I.A.C. was not parallel as the assessee had incurred additional expenses on account of electric lifts, centrally air-conditioning aluminium fittings etc.
In his order under section 55-A, the Additional Commissioner stated that the stress of the C.B.R. Circular No.3 of 1992 was on the genuineness of the loans. He further stated that the said Circular required that the nature and source of money claimed to have been received as a loan, had to be satisfactorily explained otherwise the addition under section 13 of the Ordinance could still be made. The relevant portion of the said circular is reproduced as under:---
"In any case, where the nature and source of the amount of money is not satisfactorily explained, addition to the income of the assessee can still be made under section 13 notwithstanding the claim that any loan was received through crossed bank cheque, pay order, demand draft, telegraphic transfer or any other instrument."
The crux of the arguments given by the learned Additional Commissioner in his order under section 66-A of the Ordinance is that the Assessing Officer failed to establish whether the loans were genuine or not. He further argued that since the notices under section 148 issued to the creditors remained uncompelled with, the Assessing Officer could not have accepted the genuineness of the loans.
With regard to application of lower gross profit rate, the learned I.A.C. pointed out that installation of items stated above did not prove that the gross profit rate in the present case was lower. In fact, the learned I.A.C. stated that these additional facilities would fetch much higher price. Thus, holding that the order of the Assessing Officer on these points was erroneous in so far as it was prejudicial to the interest of revenue, assessment for the year 1992-93 was cancelled to be made afresh by the Assessing Officer. The learned A.R. of the assessee vehemently contested that during the course of 'assessment proceedings, on argument advanced by the learned A.R. of the assessee, the I.T.O. must have felt satisfied with genuineness of the loans as he did not insist on the production of creditors before him. It was explained to the I.T.O. that some creditors were outside the country. Similarly, he argued that the Assessing Officer applied a gross profit rate of 10% after considering the facts of the case and the learned I.A.C. could not cancel the assessment merely on change of opinion.
We have gone through the assessment order and the detailed order of the learned I.A.C. Before making addition under section 13 of the Ordinance the I.T.O. has to be satisfied that the money available with the assessee or the assets in possession of the assessee have not been genuinely explained. Other provisions of the Ordinance also lay stress on the satisfaction of the I.T.O. whether or not he is convinced about the facts declared by the assessee. In the present case, the I.T.O. issued notices under section 148 of the Ordinance, which Were not complied with by the creditors. The I.T.O. was satisfied that the loans were advanced by genuine parties and the money did not belong to the assessee as he did not pursue the matter further on the issue. Although the Assessing Officer failed to express this opinion in the assessment order, absence of such opinion also proves that he was satisfied that the amount involved did not belong to the assessee. Since the Assessing Officer was satisfied that the loans advance did not belong to the assessee, he never made an attempt to initiate proceedings under section 13 of the Ordinance. Observations made by the learned I.A.C. are hypothetical and definitely involve a change of opinion. Merely on a change of opinion of the higher authority assessment framed by the Assessing Officer cannot be re-opened under section 66-A of the Ordinance.
With regard to the lower gross profit rate, we strongly feel that it is again a change of opinion. The Assessing Officer after applying his mind to the facts of the case, applied gross profit rate of 10 % . The assessee during the course of assessment proceedings had also made a reference to a case where a gross profit rate of 1 % (one per cent.) - had been applied. The observation of the learned I.A.C. that a higher gross profit rate had been applied in similar cases, although he has not quoted any such case, is also a change of opinion.
For the reasons given above, we hold that the order passed by the Assessing Officer was not erroneous according to the provisions of section 66-A of the Ordinance. We further hold that the order of the I.A.C. was misconstrued and cannot be sustained.
The appeal of the assessee accordingly succeeds.
M . S. /364/Trib.