I.T.A. NO.2700/LB OF 1995 VS I.T.A. NO.2700/LB OF 1995
1997 P T D (Trib.) 2075
[Income-tax Appellate Tribunal Pakistan]
Before Iftikhar Ahmad Bajwa, Accountant Member and
Syed Mumtaz Alam Gillani, Judicial Member
I.T.A. No.2700/LB of 1995, decided on 03/08/1995.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 13 & 80-C (5)---Deemed income---Addition---Presumptive tax -- Validity---Assessee returned income worked out under normal law-- Assessing Officer relying upon S.80-C(5) read with S.13(l) (aa) of the Income Tax Ordinance, 1979 assessed income on his own---Difference of both returned and assessed incomes was added back---Held, S.13, Income Tax Ordinance, 1979 comes into play only when any credit had been detected and assessee was required to explain, but in the instant case S.80-C(5) of the Ordinance had been made function of calculation which was not in consonance with letter and spirit of law---Assessing Officer had detected nothing---Income-tax Officer worked out income imputable to supplies taxable under S.80-C and charged them to tax under S.13---Such action was beyond scope of S.80-C(5) and amounted to putting cart before horse---Sales and purchases were accepted by ,Assessing Officer---Neither inflation in expenses nor suppression of any item of income was suspected by Assessing Officers---No hint of unexplained income was given on record-- Section 13 was invoked in round about manner---Assessing Officer applied S.80-C(5) on basis of notional figure---Addition under S.80-C(5) read with S.13 was thus ordered to be deleted.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.23 & 24---Addition---Disallowance of expenses for provision of pension in anticipation of privatization---Assessee objected to provision of pension in anticipation of privatization--Provision was based-on actual valuation for meeting pension obligation on impending privatization---Held, provision for meeting obligations which may or may not arise was held to be inadmissible---Added amount in question would indeed be admissible as and when privatisation took place.
(c) Income Tax Ordinance (XXXI of 1979)---
--.-Ss.88 & 80-C (5) read wish Third Sched., R.3(2)- -Addition---Shift depreciation allowance---Assessing Officer allowed extraordinary shift depreciation allowance with reference to member of days daring which machinery had been in operation---No exception could be taken to such course.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.88 & 80-C(5)---Additional tax under S.88 Income Tax Ordinance, 1979 was leaved in consequence of view taken by Authority regarding scope of S.80-C(5) of the Ordinance---Held, such action regarding application of S.80-C(5) was not appropriate. consequently, levy of additional tax became unsustainable.
1995 PTD 856 ref.
Rustam Jee, F.C.A. and Naveed Haider, A.C.A. for Appellant.
HajiAhmad, D.R. for Respondent.
Date of hearing: 3rd August, 1995.
ORDER
IFTIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER).-- Appellant, a wholly owned subsidiary of Federal Chemical and Ceramics Corporation- -a Government Organisation is contesting the order of the first appellate authority relating to assessment year 1993-94. Appellant's objections relate to:
(i) application of section 80-C (5) read with section 13(1)(aa) resulting in addition of Rs.2,60,19,511,
(ii) disallowance of pension expenditure to the extent of Rs.1,75,70,000,
(iii) computation of extra shift depreciation allowance, and
(iv) levy of additional tax under section 88.
2. The accounting statements accompanying the return disclosed income of Rs.10,47,59,628 on total turnover of Rs.86,60,88,216. The turnover comprised of supplies falling in the ambit of section 80-C amounting to Rs.31,87,33,840 and other sales totalling Rs.52,42,87,573. Pro-rata income in respect of sales which did not fall under the presumptive tax regime of section 80-C had been shown by the appellant as Rs.6,34,16,392. The Assessing Officer, on the other hand, worked out such income at Rs.8,57,87,397. The difference (i.e. Rs.8,57,87,397 Rs.6,34,16,392 = Rs.2,23,71,005) was deemed as income under section 13(1)(aa) of the Income Tax Ordinance and charged to tax accordingly. The addition of Rs.2,23,71,005 which was confirmed in first appeal, is the first point of contention before us.
3. Appellant had worked out the income, taxable under normal law in accordance with C.B.R.'s Circular No.12 of 1991, dated 30-6-1991 which contained detailed instructions with relevant examples for computation of income and tax for composite business representing income taxable under normal law as well as presumptive tax regime of section 80-C. Appellant had followed the method illustrated in example 1 in the said Circular to work out the income taxable under normal law. The Assessing Officer, however, adopted a different method. Relying on example (vi) of Circular No.12 of 1991 the Assessing Officer worked back the income relating to supplies at Rs.1,89,72,231 and the balance income chargeable under normal law was determined at Rs.8,57,87,397 as against declared amount of Rs.6,34,16,392. To figure out the income taxable under normal law, both parties took different routes and came up with different results.
4. The Assessing Officer had relied upon section 80-C(5) and section 13(1)(aa) of Income Tax Ordinance in support of his action. The D.P. justified the action to be in accordance with the provisions of law while appellant's AR vehemently disputed the treatment meted out by the Assessing Officer. It was argued on behalf of the appellant that subsection (5) of section 80-C can be invoked only if any of the items mentioned in section 13 (unexplained cash credits, instruments, expenditure etc.) is in question. According to the A.R., no investment or ownership of any money or valuable article as provided in section 13(l)(aa) had been specified by the Assessing Officer, therefore, there was no occasion for invoking the provisions of section 80-C(5) in this case. In support of this contention, appellant's A.R., relied on a recent judgment of the High Court of Sindh Karachi, reported as 1995 PTD 856 (H.C. Karachi Re: Prince Cloth Works Limited and others.
5. It was held in the aforementioned judgment that subsection (5) of section 80-C cannot be invoked without reference to the provisions of section 13 of the Ordinance. In the case before us the Assessing Officer had worked back the income relating to supplies falling under section 80-C and the surplus was charged to tax under section 13 of the Income Tax Ordinance. This was contrary to the relevant provisions of law i.e. subsection (5) of section 80-C which is reproduced below:---
"Where an assessee, while explaining the nature and source of any sum, investment, money, valuable article, excess amount or expenditure, referred to in section 13, takes into account any source of income which is subject to tax in accordance with the provisions of this section, he shall not be entitled to take credit of any sum as is in excess of an amount which if taxed at a rate or rates, other than the rate applicable to income chargeable to tax under this section, would have resulted in tax liability equal to the tax payable resulted in respect of income under this section".
The opening words where an assessee, which explaining the nature and source of any sum ...." leave no doubt in the matter that the provision comes into play only when any credit, investment expenditure etc., has been identified and the assessee is required to explain the same within the meaning of section 13 but in this case section 80-C (5) has been made a function of calculation which was certainly not consonant with the letter and spirit of law.
6. The Assessing Officer did not detect or specify any unexplained investment as per section 13(1)(aa) of the Ordinance while taking recourse to section 80-C(5). He merely worked back the income imputable to supplies taxable under section 80-C and charged to tax the surplus under section 13. This was tantamount to putting the cart before the horse. The action was clearly beyond the scope of section 80-C (5) of the Ordinance as delineated in the judgment of the Karachi High Court.
7. It may be pointed out that the declared sales and purchases for the period under appeal had been accepted. Neither any inflation in expenses nor suppression of any item of income had been suspected by the Assessing Officer. There was not even a hint of any unexplained investment. Section 13 had been invoked in a round about manner. Instead of pressing it into service after specifying the unexplained investment or expenditure etc, which is pre-requisite ordained by the statute, the Assessing Officer applied section 80-C(5) on the basis of notional figures. There can be no cavil to the contention that section 80-C(5) can be invoked only with reference to any unexplained investment or expenditure mentioned in section 13. Appellant's objection on this issue must therefore be upheld. The addition under section 80-C(5) read with section 13 is accordingly deleted.
The next abjection is against addition of Rs.1,75,70,000 on account of provision for pension in anticipation of privatisation. The provision for this extraordinary expenditure had rightly been made as the company had been selected for dis-investment under Government's Privatisation Scheme. It was contended by appellant's A.R., as had been done before the lower authorities, that the provision was based on an actuarial valuation for meeting the pension obligations on the impending privatization. This, according to the appellant's A.R., was an ascertained liability admissible against the profits for the year.
9. Appellant's arguments are apparently without any force. The provision for meeting an obligation, which may or may not arise, was rightly held to be inadmissible. The amount in question would indeed be admissible as and when privatization takes place. The objection on this point fails.
10. The objection in respect of depreciation allowance is also without any merit. The Assessing Officer allowed extraordinary shift depreciation allowance with reference to the number of days during which the machinery had been in operation. This was in accordance with the Rule 3(2) of the Third Schedule. Not interference on this account is called for.
11. The objection against levy of additional tax under, section 88 must be upheld in view of our finding regarding application of section 80-C (5) of the Ordinance. The additional tax had been levied as a consequence of the view taken by the Assessing Officer regarding the scope of section 80-C (5) Assessing Officer's action regarding application of section 80-C(5) has not been approved, consequently levy of additional tax also become unsustainable and would be deleted.
12. The appeal succeeds as above.
C.M.S./239/Trib. Order accordingly.