I.T.AS. NOS.2961 AND 2962/LB OF 1991-92 VS I.T.AS. NOS.2961 AND 2962/LB OF 1991-92
1997 P T D (Trib.) 2087
[Income-tax Appellate Tribunal Pakistan]
Before Iftikhar Ahmad Bajwa, Accountant Member and
Muhammad Tauqir Afzal Malik, Judicial Member
I.T.As. Nos.2961 and 2962/LB of, 1991-92, decided on 13/02/1996.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.13 & 65---Additional assessment ---Addition---Validity---Conditions-- Definite information ---Assessee declared income under simplified procedure---Tax Authorities subsequently came to know about extensive business of assessee---Held, when definite information indicating substantial funds, besides capital in business, had come into possession of Assessing Officer; action under S.65 of the Income Tax Ordinance, 1979 for previous years was justified.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.59-B---Simplified procedure for assessment---Acceptance of declared income---Income Tax Officer rejecting assessee's version and assessed him at higher figure on basis of extent of - business and declared capital without showing extent of business---Held, I.T.O. was bound to accept declared income especially because no material showing extent of business had been placed on record.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.59-B---Simplified procedure for assessment---Assessee deposited receipts in Bank in short term deposits ---Assessee being vendor having no facility for storing cloth, claimed allowance for deposits which were part of capital of business---Assessing Officer deemed deposits as funds outside business not covered by simplified procedure---Held, I.T.O.'s assumption was without basis ---Assessee, being vendor and engaged in wholesale business in cloth, was in a position to have such amounts which, as a matter of expediency, were placed in short term deposits---Additions were deleted as unjustified.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.13 (1)(d)---Purchase of old constructed house---Deemed income-- Addition ---Validity---Assessee declared amount for purchase of old constructed house---Assessing Officer enhanced purchase amount on ground of local enquiries made by Circle Inspector---Validity---Held, addition made in such non-coherent manner was unsustainable---Details of enquiries must have been placed on record to justify addition, and I.T.O. should have verified consideration from seller of house---Estimate on basis of area of plot and cost of construction was unwarranted in case of old constructed house.
Mujahid Arshi for Appellant.
Zafar Ahmad, D.R. for Respondent.
Date of hearing: 13th February, 1996.
ORDER
IFTIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER).---In these appeals relating to Assessment Years 1987-88 and 1988-89 legality of action under section 65 estimate of income from business and additions under section 13 are being contested by the appellant and individual, who derived income from dealing 'in cloth on wholesale basis.
2. Action under section 65.
Appellant had declared an income of Rs.31,000 for assessment year 1989-90 as a new assessee under the simplified procedure. On receipt of a complaint that appellant had a business on extensive scale and had huge deposits in the bank, proceedings under section 65 were initiated for the preceding years and ultimately addition of Rs.1,10,000 under section 13(1)(aa) in assessment year 1987-88 and addition of Rs.1,95,000 under section 13(1)(d) for assessment year 1988-89 were made besides estimate of income from business in two years. It has contended by appellant's Authorized Representative that in view of CBR Notification No.5(ii)IT-IT/189, dated 27-2-1989 and Circular No. 7 of 198.9, dated 26-6-1990, the Assessing Officer was not empowered to initiate proceedings for the earlier years. In support of his arguments against action under section 65 certain judgments of superior Courts were also cited.
3. The reliance on the aforementioned Circular as well as case law was apparently misplaced. CBR"s circular merely provided that no explanation be sought in respect of capital equal to 3 times of the income declared under the simplified procedure. In this case definite information indicating substantial funds besides capital in business had come into the possession of the Assessing Officer. The action under section 65 for the two years was therefore, quite justified.
4. Income from Business.
In response to notice under section 65 appellant had declared income of Rs.22,000 and Rs.25,000 for Assessment Years. 1987-88 and 1988-89 respectively. It was estimated at Rs.50,000 and Rs.55,000 for the two years respectively. The only basis for the above estimates was stated to be the extent of business and capital declared at Rs.90,000. This certainly did not justify the estimates adopted in the two years. The ITO was bound to accept the declared income of Rs.31,000 for assessment year 1988-89 on the basis of the same capital in accordance with the simplified procedure. Thus declared income of Rs.22,000 and Rs.25,000 for the earlier two years ought to have been accepted in good grace especially because no material showing the extent of business had been placed on record. Income from business for the two years is accordingly reduced to Rs.22,000 and Rs.25,000.
5. Addition under section 13.
In the complaint mentioned earlier. Appellant was alleged to have made the following deposits in Habib Bank Limited, Katchery Bazar, Faisalabad.
| | Date | PLS SNTD No. | AMOUNT | Through. |
| 1. | 12-8-1986 | 159779 | 1,10,000 | Shehzad Ahmad |
| 2. | 19-8-1986 | 159780 | 35,000 | Muhammad Afzal |
| 3. | 23-8-1986 | 159783 | 75,000 | Muhammad Afzal |
| 4. | 22-1-1987 | 239396 | 70,000 | Pervaiz Danish Gill Vakilan No.5, Katchery Bazar,Fsd. |
| 5. | 23-8-1996 | 159784 | 40,000 | Shahbaz Ahmad. |
| 6. | 22-1-1988 | 396687 | 50,000 | Muhammad Afzal |
| 7. | 13-1-1988 | 396668 | 50,000 | Muhammad Aslam, |
After obtaining appellant's explanation deposits mentioned at No. 1, 4, 5 and 7 were found to be unrelated to the appellant. Deposits of Rs.35,000 and Rs.75,000 made on 19-8-1986 and 23-8-1986 which fell during the period relevant to assessment year 1987-88 were considered to be unexplainable and deemed as income under section 13(1)(aa) for Assessment Year 1987-88. The deposit of Rs.50,000 made on 22-1-1989 was similarly deemed as income for Assessment Year 1988-89 and another amount of Rs.75,000 claimed to have been obtained from a friend was also charged to tax under section 13(1)(aa). At the same time, investment for acquisition of a house estimated at Rs.1,95,000 was 'added under section 13(l)(d) of the Income Tax Ordinance in first appeals. Addition of Rs.1,10,000 for Assessment Year 1987-88 was confirmed while additions of Rs.50,000 and 75,000 for. Assessment Year 1988-89 were deleted and the addition of Rs.1,95,000 in the said year was reduced to Rs.1,45,000.
6. According to the AR the deposits of Rs.35,000 and Rs:75,000 on 19-8-1986 and 23-8-1986 were receipts of the business which were kept in the bank as short-term-deposits. It was contended that appellant was a vendor having no facility of any place for storage of cloth. The deposits in question were claimed to be part of the capital of the business for which allowance ought to have been given in accordance with the scheme of simplified procedure. This contention had been rejected by the Assessing Officer on the ground that capital was involved in the shape of stock day to day dealings (etc) and, therefore, the two sums were deemed as funds outside the business which were not covered by the simplified procedure. ITO's assumption was apparently. without any basis. Being a vendor having no place for keeping the stocks appellant was mainly engaged in sale and purchase of cloth on wholesale basis and was thus in a position to have such amounts which as a matter of expediency were placed in short-term-deposits. Considering the facts and circumstances of the case, the addition of Rs.1,10,000 was apparently unjustified. Credit to the extent of the declared capital of Rs.90,000 ought to have been allowed to the assessee. The addition is accordingly reduced to Rs.20,000.
7. So far as investment in the house is concerned, appellant had shown purchase of a house of a 4 1/2 Marlas plot for Rs.1,40,000 which was estimated at Rs.3,35;000 as under:---
| Purchase value of plot at Rs.35,000 per Maria. | Rs.1,40,000 |
| Cost of Construction @ Rs.195 per sq. ft. | Rs.1.95.000 |
| Total | Rs:3.35.000 |
While adopting the above estimates the ITO had mentioned.
"It has been ascertained from local enquiries got conducted through Circle Inspector that the assessee had actually purchased this house for a consideration of Rs.4,15,000. However, taking a lenient view, purchase value is adopted at Rs.3,35,000."
The CIT (Appeals) had disposed of appellant's objection with the ground:
"ITO has not given any solid reasons for this estimate, as it is merely based on Inspectors report. On the other hand AR has also not given any solid material for acceptance of declared value, except that he is critical of the manner, in which ITO has estimated it. But no doubt, it is a known fact that 'properties are undervalued. However, considering all facts, its value is ordered to be taken at Rs.2,85,000 by adopting the value of land at Rs.30,000 per marla, and constructed area at Rs.165 per sq. ft. reducing this addition to Rs.2,85,000 (Rs.1,40,000) = Rs.1,45,000.
The addition under section l3 (l) (d) made in such a non-chalet manner is unsustainable. No details of the local enquiries were brought on record. If the appellant had purchased the house for a consideration of Rs.4,15,000 as reported by the Inspector no provision of law empowered the ITO to take a lenient view and fix the value at Rs.3;35,000. To justify an addition under section 13(1)(d), the minimum that ITO should have done was to verify the consideration from the seller of the house and if he regarded the declared consideration to be a conclusive arrangement he ought to have placed on record the sale prices of similar properties of the same area and the sale rates notified by the Provincial Authorities. In any case estimate on the basis of the area of the plot and the cost of the construction was unwarranted in the case of the purchase of an old constructed house. At the time of hearing appellant's. AR produced copies of certain transfer deeds showing transactions at about the same rate as declared by the appellant. Taking into account the nature of the property, its location and size, its value could at best be estimated at Rs.2,00,000. The addition under this head is, therefore, reduced to Rs.60,000.
8. The appeal succeeds as above.
C.M.S:/282/Trib Order accordingly.