I.T.AS. NOS.10328/LB OF 1991-92, 9643/LB OF 1992-93, 1911 /LB OF 1994 AND 6405/LB OF 1995 VS I.T.AS. NOS.10328/LB OF 1991-92, 9643/LB OF 1992-93, 1911 /LB OF 1994 AND 6405/LB OF 1995
1997 P T D (Trib.) 2190
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Zaman Khan, Judicial Member and
Iftikhar Ahmad Bajwa, Accountant Member
I.T.As. Nos. 10328/LB of 1991--92, 9643/1-13 of 1992-93, 1911/LB of 1994 and 6405/1-13 of 1995, decided on 09/10/1996.
Income Tax Ordinance (XXXI of 1979)---
----S. 22---Income from business---Additions---Add backs ---Validity-- Assessee returned income for four years claiming allowances to different heads of P & L Accounts---Assessing Officer, finding returns unsatisfactory, turned down assessee's version and made additions in all accounts ---C.I.T. (Appeals) gave relief arid add backs were either reduced or deleted---Held additions were made without examining record available with assessee-- Expenditures were verifiable and Assessing Officer could have ascertained veracity of claims if he had any doubt---In absence of such effort to verify genuineness of claims, additions made on hypothetical assumptions were unsustainable and were deleted.
M. R. Farooqi, I.T.P. for Appellant.
Mian Qasim Ali, D.R. for Respondent.
Date of hearing: 7th October, 1996.
ORDER
ITIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER).-- Appellant, a private limited company deriving income from manufacturing and sale of 'towels and tapestry cloth' is contesting disallowances under various heads of profit and' loss accounts for assessment years 1991-92. 1992-93, 1993-94 and 1994-95 respectively Appellant's objections disposed of as under:
2. Travelling Expenses.
The expenses claimed and disallowed were as under: ---
| A/Y | Claimed. | Disallowed. |
| 1991-92 | 31,482 | 11,000 |
| 1992-93 | 36,159 | 12,000 |
| 1993-94 | 30,291 | 10,000 |
| 1994-95 ' | 43,751 | 18,000 |
It is the assessment for the preceding year i.e., for assessment year 1990-91, an amount of Rs.12,000 had been disallowed out of expenses claimed at Rs.33,459. The disallowances of travelling expenses in the first three years was no more than the amount disallowed in assessment year 1990-91 whereas a higher disallowance of Rs.18,000 in assessment yea: 1994-95 was not unjustified considering the fact that a much higher expenditure had been claimed during this year. The objection on this point, therefore, fails.
3. Car expenses.
The expenses claimed and disallowed were as under:
| A/Year | Claimed. | Disallowed |
| 1991-92 | 52,568 | 10,000 |
| 1992-93 | 86,562 | 36,000 |
| 1993-94 | 94,302 | 25,000 |
| 1994-95 | 1,26,254 | 50,000 |
In the last two assessments for assessment years 1989-9V an 6 1990-91 expenses claimed at Rs.33,139 and Rs.37,308 were curtailed by Rs.8,000 and Rs.13.500 respectively. Considering the nature of the expenditure as well as the total amount claimed under this head, the add backs to assessment years 1991-92 and 1993-94 were not at all unreasonable and do not call for any interference the disallowances in assessment years 1992-9 3 and 1993-94 were somewhat excessive. Therefore, the disallowance in assessment year 1992-93 is reduced from Rs.36,000 to ks.25,000 and in assessment year 1994-95 from Rs.50,000 to Rs.40,000 respectively.
4. Medical Aid.
The expenses claimed and disallowed were as under: ---
| A/Year | Claimed. | Disallowed. |
| 1991-92 | 19,884 | 7,000 |
| 1992-93 | 72,534 | 30,000 |
| 1993-94 | 31,805. | 9,000 |
| 1994-95 | 56,556 | 20 400 |
In assessment of assessment year 1989-90 disallowance of Rs.8,000 was deleted in appeal whereas in assessment year 1990-91 disallowance of Rs.11,000 out of total claim of Rs.31,046 was maintained. Thus, disallowances of Rs.7,000 and Rs.9,000 in assessment years 1991-92 and 1993-94 being consistent with the past history do not call for any interference. For assessment year 1992-93, the expenditure claimed was disproportionately higher but this was attributed to prolonged treatment of an employee who had met an accident while at work. Considering the nature of the expenditure and the expenses claimed during the two years and also taking into account the fact that the expenditure was incurred entirely on treatment of the employees disallowance of Rs.10,000 each in assessment years 1992-93 and 1994-95 would be fair and reasonable. The disallowances in the two years are reduced accordingly.
5. Repair and Maintenance.
The expenses claimed and disallowed were as under: ---
| A/Year | Claimed. | Disallowed |
| 1991-92 | 2,67,053 | 40,000 |
| 1992-93 | 3,18,497 | 80,000 |
| 1993-94 | 3,86,393 | 80,000 |
| 1994-95 | 3,04,137 | 60,000 |
The expenditure was stated to have been incurred on repairs of building, machinery (etc.). The abovementioned additions were male for lack of complete verification of the expenses claimed under this head. Appellant's objection that the expenditure having been incurred exclusively for business out to have been allowed in toto is not sustainable especially in view of the fact that additions under this head had been made in the earlier assessments also. However, the objection that amounts disallowed were excessive is not without merit. In assessment years 1989-90 and 1990-91 additions of Rs.10,000 out of expenses claimed at Rs.2,37,238 arid Rs.25,000 out of total claim of Rs.2,73,238 had been maintained. The nature of expenditure and position of accounts being the same as in the earlier years, additions of Rs.20,000, Rs.40,000, Rs.50,000 and Rs.35,000 would have been in line with the history of the case. The additions are reduced accordingly.
6. Uniform for Staff.
Additions of Rs.1,900, Rs.38,000, Rs.3,000 and Rs.3,000 were made in the four years under appeal. A similar addition of Rs.2,000 out of expenses claimed at Rs.6143 in assessment year 1990-91 had been deleted in appeal. The expenses claimed at Rs.5,862, Rs.7,734, Rs.8,660 and Rs.8,061 in the four years under appeal were not at all unreasonable. The disallowance under this head is, therefore, unwarranted. The additions are deleted accordingly.
7. Postage.
A disallowance of Rs.2,000 out of expenses claimed at Rs.18,718 for assessment year 1994-95 is contested. Considering the nature of the expenditure and the amount claimed, the disallowances, was unwarranted and is hereby deleted.
8. Stationery.
The disallowances of Rs.5,000, Rs.6,000, Rs.4,500 and Rs.10,000 in the four years respectively were unwarranted as in the case of postage. The additions would be deleted accordingly.
9. Cartage.
The add backs of Rs.6,000, Rs.2,300 and Rs.1,500 in assessment years 1991-92 to 1993-94 were unwarranted and unjustified as the expenses claimed were not excessive in relation to the turnover during those two years. The additions would be deleted accordingly.
10. Calendaring Charges.
A disallowance of Rs.4,000 out of total claim of Rs.9,084 in assessment year 1994-95 was contrary to the history and unwarranted by the circumstances of the case. The same is accordingly deleted.
11. Freight Out Ward.
Disallowance of Rs.2,000 out of total claim of Rs.6,951 in assessment year 1991-92 was an unnecessary tinkering and is, therefore, deleted.
12. Packing and Forwarding.
The expenses claimed and disallowed were as under: ---
| A/Year | Claimed | Disallowed |
| 1991-92 | 1,31,305 | 10,000 |
| 1992-93 | 1,32,132 | 10,000 |
| 1993-94 | 1,78,353 | 15,000 |
| 1994-95 | 1,32,905 | 10,000 |
The expenses under this head were apparently a necessary business expense. The expenditure claimed was not disproportionately high in comparison with the expenses claimed in earlier years as well as in relation to the turnover during the four years under appeal. In assessment for assessment year 1990-91, the claim of Rs.1,69,260 had been allowed. The additions in the years under appeal were apparently unjustified and are hereby deleted.
13. Directors Remuneration.
An amount of Rs.1,06,759 had been disallowed in assessment year 1991-92 by invoking section 24 (cc) of the Ordinance. The aforementioned provision was made inapplicable to assessment year 1991-92 onwards by insertion of a proviso to section 24 (cc) through the Finance Act, 1992. The addition would accordingly be deleted.
14. Advertisement.
Additions of Rs.40,000, Rs.20,000 and Rs.15,000 in assessment years 1992-93 to 1994-95 are disputed by the appellant. The expenditure under this head was being allowed in the past and had been allowed in assessment year 1991-92 also. The disallowance on the ground of lack of verification was contested by the appellant who pointed out that the entire payments had been made to an advertising company and were thus fully verifiable. The additions under this head were apparently made without examining the claim. The same are, therefore, unsustainable and are hereby deleted.
15. Discount to Customers.
Disallowance of Rs.80,000 in assessment year 1994-95 is in question. Up to assessment years, 1991-92 no addition had been made under this head. For Assessment Years 1992-93 and 1993-94 additions of Rs.20,000 and Rs.22,000 were deleted in appeal. According to the I.T.O. the amount claimed for this year was excessive and also lacked verification. The findings of the I.T.O. were vehemently disputed by the appellant. It was contended that the claim represented discount allowed to various shop keepers details of which were provided to the I.T.O. According to appellant's Authorised Representative, almost all the parties were existing customers of the appellant and discount allowed to them in the earlier years had been accepted by the Department. A list of parties were produced on the date of hearing and was -examined in the presence of the Departmental Representative. The parties are obviously verifiable and I.T.O's. assumption that the claim lacked verification was apparently unwarranted and unjustified. The addition is accordingly deleted.
16. Bonus to employees.
Additions of Rs.20,000, Rs.25,000 and Rs.15,000 in assessment years 1992-93 to 1994-95 are disputed by the appellant. It was contended that the expenditure claimed under this head had been allowed up to assessment year 1991-92. The disallowance for the first time had been made in assessment year 1992-93 with the following remarks: ---
"During the preceding year claim under this head was at Rs.4,356. The claim for the year under review is too excessive and not open to verification hence disallowed. "
For assessment year 1993-94, the addition of Rs.25,000 was based on the 'past treatment' and un-verifiability of the claim was also mentioned. In year 1994-95 the addition was justified on the ground of claim being un-vouched and unverifiable. According to Appellant's A.R., this was a necessary business expenditure and any addition in this head was totally unjustified. Appellant's contention is not without merit. Apparently, the additions were made without examining the records available with the assessee. The expenditure claimed was easily verifiable and the I.T.O. could have ascertained the veracity of the claim from the concerned employees if he had any doubt in the matter. In the absence of any effort by the I.T.O. to verify the genuineness of the claim, the additions made on hypothetical assumption were apparently unsustainable and are hereby deleted.
17. The four appeals succeed to the extent indicated above.
C.M:S./333/Trib. Appeal accepted.