1997 P T D (Trib.) 2227
[Income-tax Appellate Tribunal Pakistan]
Present: Syed Mumtaz Alam Gillani, Judicial Member and Khalid Mahmood, Accountant Member
I.T.As. Nos.5884/LB, 5885/LB, 8628/LB, 8629/LB of 1991-92, 3155/LB, 3218/LB of 1994, 296/LB and 1518/LB of 1995, decided on 10/10/1995.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.23(1)(v) & Third Sched.---Vehicle depreciation--Add back of vehicle depreciation was held unlawful as it was claimed in accordance with rates provided by law---Addition was deleted.
(b) Income Tax Ordinance (XXXI of 1979)---
---S.23(1)(viii)---Bonus addition---Validity---Addition in bonus was made on ground because company was running into loss and existence of profit was precondition for bonus---Held, existence of profit was not pre-condition for allowance of bonus---Addition was deleted.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---Addition----Validity---Appellant purchased property-- Declared its value as per consideration paid for---Assessing Officer adopted more value---Held, there should have been some basis for valuation, mere presumption could not be given any weight---Addition was deleted.
(d) Income Tax Ordinance (XXXI of 1979)-
----S.111---Additions---Imposition of penalty---Assessing Officer imposed penalty as addition was upheld ---C.I.T.(A) justified penalty and addition made was deleted---Held, on legal plane addition did not warrant imposition of penalty unless definite information was available with Assessing Officer-- Addition was made on mere presumption which is in no way could legally attract provisions of S.111---Penalty imposed was held to be unlawful.
1973 PTD 238; 1993 PTD 992 and 1991 PTD 488 ref.
Sohail Matee Babri, I.T.P. for Appellant.
Zafar Ahmad, D.R. for Respondent.
Date of hearing: 10th October, 1995.
ORDER
These cross appeals assail four separate orders recorded by learned CIT(A) Faisalabad. The first order dated 13-11-1991 was recorded by the CIT(A), Faisalabad for assessment years 1988-89 and 1989-90. The second order dated 30-4-1991 was recorded for the assessment year 1990-91. The third order was recorded by CIT(A) on 12-2-1994 for the assessment year 1991-92. The fourth order was also recorded by the learned CIT(A), Faisalabad pertaining to penalty under section 111 of the Income Tax Ordinance, 1979 for the assessment year 1991-92. The Department is in appeal for the assessment years 1988-89, 1989-90 and 1990-91 only.
2. The appellant, a private limited company, derived income from cotton ginning and oil extraction. Trading in other items such as gray cloth, yarn and viscose fiber and commission etc., has also been undertaken. The issues involved in these appeals are dealt with thereunder:---
Purchase of Kappass.
The assessee declared purchases at average rate of Rs.2,01.03, Rs.196.10 per mond for Jehania and Khanewal Section respectively for 1988-89 assessment. In the assessment year 1989-90 average purchase rate for both these Sections have been shown at Rs.237.20 and Rs.232.20 per mond respectively. For the assessment year 1990-91, average purchase rate was declared at Rs.236.30 per mond for Jehania Section. The Assessing Officer made additions in purchase account with the observation that the purchases from Zamindars were not verifiable and there was rate variation in different transactions. The learned CIT(A) confirmed the additions made in both the Sections for 1988-89. The addition made in Jehania Section relating to 1989-90 was reduced to Rs.5 per mond. However, at the addition made in Khanewal Section was deleted. Likewise, the addition made in 1990-91 was also deleted. The learned Counsel for the appellant contends that the declared purchase rate was very reasonable as such no addition was warranted. It has further been contended that the cases relied upon by the Assessing Officer were not comparable, the arguments put forth by the learned Counsel carry weight. The Tribunal vide I.T.A. No.10309/310, dated 7-2-1975 has accepted average purchase rate of Rs.202.73 per mond. The Department itself has been accepting average purchase rate of Rs.203.24, Rs.205.27 and Rs.207.31 per mond at NT No.04-01[-1717533, No.04-33-0800430 and No.04-34-0800273 respectively for 1988-89 assessment. For the assessment year 1989-90 the average purchase rate in a parallel NT No.06-07-1445003 has been adopted at Rs.238.76 per mond. Keeping in view that the declared, average rate by the assessee is reasonable and the cases relied upon by the Assessing Officer are fairly distinguishable the additions made in purchase of Kappas are deleted. As regards the Department appeal in respect of deletion in this head pertains to 1989-90 and 1990-91 the learned CIT(A) has rightly observed that the case relied upon were of different areas. In absence of unverifiability of purchases from Zamindars which also are quite nominal the addition was wrongly made. The learned D.R. has not been able to rebut the finding of the learned CIT(A). We find no reason to modify the same. The departmental appeal on this point fails.
4.Ginning Account:
The declared ginning results of the appellant for the years under appeal were considered to be low by Assessing Officer who adopted yield by making reference to two cases. The comparative results are reproduced thereunder:
| Yield of Kappas | | | 1988-89 | 1989-90 | 1990-91 |
| Particulars | Jahania | Khanewal | Jahania | Khanewal | Khanewal |
| Cotton | Sr-Ch-tl | Sr-ch-tl | Sr-ch-tl | Sr-ch-tl | Sr-ch-tl |
| Declared | 13-1-3 | 13-2-0 | 13-2-4 | 13-2-2 | 13-3-2 |
| Adopted | 13-3-0 | 13-3-0 | 13-3-0 | 13-3-0 | 13-3-4 |
| Addition | 0-1-2 | 0-1-0 | 0-0-1 | 0-0-3 | 0-0-2 |
| Cotton Seed. | | | | | |
| Declared. | 25-13-2 | 25-13-0 | 25-13-1 | 25-13-1 | 5-13-0 |
| Adopted. | 25-14-0 | 25-15-0 | 25-15-1 | 25-15-1 | 25-15-0 |
| Addition | 0- -3 | 0-2-0 | 0-2-0 | 0-2-0 | 0-2-0. |
The learned CIT(A) confirmed the additions made in cotton account The learned CIT(A) confirmed the additions made in cotton account relating to 1988-89 and 1989-90. The addition made in 1990-91 was deleted. The addition in cotton seed account (Jehania Section) pertaining to 1988-89, 1989-90 and 1990-91 were also deleted. The learned Counsel has contended that the declared results were very reasonable, it was argued that the cases relied upon by the Assessing Officer were of different zones and in view of difference in quality of Kappas these were not comparable. The learned Counsel has made reference to N.T. No.03-27-0531127, No.04-O1-1717533 and No.04-34-0800793 in support of the declared results. After having gone through the record and considering the arguments putforth by the learned Counsel the additions made in yield of cotton and cotton seed are found to be unjustified as such are deleted. As regards the departmental grievance of deletion in yield of cotton seed at 2 Chitank. The learned CIT(A) has found that the declared yield results are very reasonable as such the addition made has rightly been deleted. No interference in made as such.
5.Ginning Expenses.
The Assessing Officer has curtailed these expenses at Rs.5 in 1988-89 for both Sections and at Rs.5 and Rs.6 for these Sections in 1989-90 and at Rs.5 for 1990-91 assessment. The learned CIT(A) confirmed the addition in Jehania Section for 1988-89, 1989-90 and 1990-) ( whereas the addition made in Khanewal Section has been reduced to Rs.3 per bale for the assessment years 1988-89 and 1989-90. The learned Counsel contact the order of the learned CIT(A) whereas the earned D.R. objects the reduction in rates per bale but since no specified material was furnished which could displace the order of the learned CIT(1A) we find no reason to modify the same. The cross appeals on this point, therefore, fail.
6.Sale of Seed
The assessee declared average sale rate at Rs.77.42 and Rs.79.00 in both Sections for 1988-89 and at Rs.93.73 and Rs.96.40 for 1989-90 and at Rs.95.13 for 1990-91. The Assessing Officer made ad hoc addition in Jehania Section Rs.1,00,000 and Rs.60,000 for 1988-89 and 1990-91 respectively and adopted the average sale price at Rs.80.00 in Khanewal Section for 1988-89 and at Rs.95 and Rs.98.40 for both sections in 1989-90. The learned CIT(A) has deleted the additions made in 1988-89 whereas the additions made in 1989-90 and 1990-91 have been confirmed. The department feels aggrieved at the deletions made whereas the assessee objects to the additions maintained. The learned counsel has made reference to I.T.A. 10309/10310 dated 7-2-1995 and case at NT No.06-07-1445003 wherein much less sale rate has been adopted. In view of these facts we find that the declared sales rates are very reasonable as such the additions confirmed for 1989-90 and 1990-91 are deleted.
7. As regards the Departments appeal in view of parallel cases cited there seems to be no justification for any additions to be made as such the same were rightly deleted The order of the learned CIT(A) pertaining to 1988-89 is, therefore, upheld.
8.Oil Section at Khanewal.
(a) Yields of Oil.
The declared yield of oil at 4 Seer 6.25 Chitank and 4 Seer 1 Tola for the assessment years 1988-89 and 1989-90 which was considered to be low and the Assessing Officer adopted the same at 5 Seer for both years. The learned CIT (A) has reduced the same to 4 Seer 13 Chitank. The learned Counsel has made reference to ITA No.10309 and 10310 wherein the yield has been adopted at 44, Seer 6 Chitank 5 Tolas and cited case at N.T. No.04-34-0800293 wherein the yield was adopted at 4 Seer 6.25 Chitank. In view of above parallel cases the yield declared for 1988-89 is directed to be accepted and for the assessment year 1989-90 it is directed to be taken at 4 Seer and 2 Chitank as at N.T. No.06-07-1445003. The order of the learned CIT(A) is modified accordingly.
9.(b) Oil Cake.
The assessee declared yield of oil cake at 33 Seer 4 Chitank 1.73 Tolas which was adopted at 33 Seer 11 Chitank by the Assessing Officer. The learned CIT(A) has maintained the addition made. The learned Counsel has contested that the declared yield is easily comparable with parallel case at NT No.04-34-0800293. It was also stated that yield of 33 Seer 8 Chitank and 2 Tolas has been accepted in I.T.A. No.10309/10310. dated 7-2-1995. The arguments addressed by the learned Counsel carry weight We therefore, delete the addition under the head.
10.(c) Crushing. Expenses.
These expenses were curtailed by Rs.90,053 and Rs.60,000 for 1988-89 and 1989-90 respectively by the Assessing Officer. The learned CIT(A) has observed that no parallel case was cited or confronted before making these additions. It has been found that the appellant results were the best. The learned D.R. could not cite any parallel case to support the addition made under these circumstances we find no reason to interfere with the finding of the learned CIT(A). The Departments objection in this matter are therefore, rejected.
11.(d) Sale of Oil & Oil Cake.
The assessee has declared average sale rate at Rs.400 and Rs.75 for 1988-89 and Rs.412.83 and 73.88 for 1989-90 assessment. The Assessing Officer adopted average sale price at Rs.405 and Rs.76 for 1989-90 and an addition of Rs.80,000 was made in 1989-90 for oil and sale rate of oil cake was taken at Rs.75.88. The learned CIT(A) deleted the additions in 1988-89 and for 1989-90 these were confirmed. The learned Counsel has cited parallel cases at N.T. No.04-34-0800793 and No.06-07-1445003 wherein much less rate has been adopted. The deletion sale rates for both the years were very reasonable. The learned CIT(A) has already accepted these rates for 1988-89. The addition made for 1989-90 under both these heads are deleted. The Department's objection in this matter pertaining to 1988-89 in view of parallel cases are rejected.
12. Yarn Account.
The Assessing Officer has estimated sales at Rs.6,00,000 and Rs.35,00,000 against declared sale of Rs.4,52,600 and Rs.29,08,000 for 1988-89 and 1989-9(3 respectively and subjected them to a G. P. rate of 3 % . The learned CIT(A) have confirmed the treatment given by the Assessing Officer. The learned Counsel has contested the estimation of sales and application of G. P. rate of 3 % to be excessive and in support of G . P. rate has relied upon I.T.A. Nos.462, 464 of 1979-80 and 10309 and 10310, dated 7-2-1995 wherein the G.P. rate has been reduced to 2%. After considering the facts of the case the estimation of sales for both the years is found to be reasonable hence confirmed. The GP rate applied at 3 % is found to be excessive as such is reduced to 2% as in parallel cases.
13.Viscose Fiber.---
The learned Counsel has not pressed this ground. The order of the CIT(A) is, therefore, confirmed. The Department has contested deletion of Rs.25,000 in Karachi office, It is, found that the addition made was with out any cogent reason. The order of the learned CIT(A) is, therefore, maintained.
14. Gray Cloth.
The declared sales of Rs.2,07,02,884 were estimated at Rs.2,40,00,000 and subjected to G.P. rate of 4% as against declared rate of 3.26 % . The learned CIT(A) has confirmed the estimation of sale but has reduced the G.P. rate to 3.5 % . The learned Counsel has contested the estimation of sales and application of G.P. rate of 4 % reduced to 3.5 % as excessive. He has relied on I.T.A. No.462-464, of 1979-80, NT No.03-06 3262079 and NT No.03-06-0520707. In these cases the G. P. rate ranges from 1.5 % to 3 %. Considering the facts of the case we direct that the declared G.P. rate of 3.26% is ordered to be accepted. The estimate of sales is, however, confirmed.
15.Profit and Loss Additions.
The additions reduced by the CIT(A) under the head vehicle running, entertainment, general change, packing, and telephone are confirmed for 1988-89 and 1989-90. The addition made in telephone for 1991-92 is to be restricted to 15% of the claim. The add-back of vehicle depreciation is unlawful as it has claimed in accordance with the rates provided by law. These additions are, therefore, deleted. The addition in Bonus was made that the company is running into loss and existence of profit was preconditioned for bonus. The learned Counsel has relied upon a case reported as 1973 PTD 238 wherein the honourable Karachi High Court has held that existence of profit was not a pre-condition for allowance of bonus. Respectfully following the said decision the additions made under this head for 1988-89, 1989-90 and 1991-92 are hereby deleted.
16. Addition under section 130)(d) 1990-91 Assessment.
During this year the appellant purchased property measuring 1 Kanal, 10 Marlas and 7-1/2 Sarsahi at Civil Lines, Faisalabad for a consideration of Rs.10,00,000. The Assessing Officer firstly confronted the assessee for estimation at Rs.50,000 per Marla but during the awaited reply served another show cause and proposed valuation at Rs.65,000 per Marla. The cost of construction of existing super structure was also proposed to be adopted. The learned CIT(A) reduced the valuation of land and Building at Rs.45,000 per Marla and Rs.100 per sq. ft. respectively. Both the parties being aggrieved have filed cross-appeals on this issue. The learned counsel has contested the addition made under section 13(1)(d) with detailed arguments on this issue and has made reference to many cases which are found to be -distinguishable. The cases cited by the Assessing Officer are although not strictly comparable but lead to the fact that the value declared by the appellant is under-stated. In view of above facts and arguments put forth the action of the Assessing Officer in rejecting the declared purchase price is found to be justified and is, therefore, upheld. However, the valuation reduced to Rs.45,000 per Marla by the CIT(A) still seems to be excessive and the same is directed to be taken at Rs.25,000 per Marla. The value of building cost reduced to Rs.100 per sq. ft. is found to be reasonable hence confirmed. The Department's appeal on his issue being devoid of any merit is hereby rejected.
17. Intangible Additions (1990-91) Assessment.
The Department is further aggrieved at the directions of the learned CIT(A) to allow benefits of the intangible additions. The learned D.R. and learned Counsel have been heard. The Department has no case on this issue. There is no dearth of case-law on this issue and the learned CIT(A) has followed the reported cases. In view of above discussion we do not see any error in the order of the learned CIT(A) and his order is maintained on this issue.
18. Addition under section 13(1)(d) 1991-92 Assessment.
The assessee during this year purchased agricultural land at Chak No. 1205P, Faisalabad measuring 2 Kanals, 19 Marlas and 4 Sarsahi for a consideration of Rs.24,00,000. The average cost worked at Rs.4,047 per Marla. The Assessing Officer considered the value to be low: The purchase price was adopted at Rs.7,000 per Marla. The CIT(A) has confirmed the same. The learned Counsel contends that the additions under section 13(1)(d) has wrongly been made. It was argued that the Assessing Officer had no material to justify his action for discarding the declared purchase price. It was contended that the District Collector charged stamp duty at the time of registration in accordance with the prevailing market price of land. He has also, provided break up of incidental charges in support of the declared version. It has further been contended that addition made under section 13(1)(d) is not tenable as the Assessing Officer has to find out that the appellant has really spent more money than shown. To support his' contention reliance has been placed on cases reported as 1993 PTD 992 and 1991 PTD 488, Various other authorities of superior Court support the contention of the appellant that there should be some basis for valuation of property, mere presumption cannot be given any weight which in this case has been done by both the authorities below the learned D.R. could not controvert the contentions of the appellant. In view of the matter the addition made under section 13(1)(d) stands deleted being against the facts of the case.
19. Intangible Additions (1991-92)
The appellant's Counsel has contested that the learned CIT(A) was not justified for not allowing the credit for intangible addition against the additions under section 13. The addition made under section 13(I)(d) for 1991-92 has been deleted this ground is of no material effect. However, the issue of intangible addition has already been dealt in earlier part of this order and does not need any repetition. This ground is accordingly disposed.
20. Penalty under section 111 of the Income Tax Ordinance 1979.
The Assessing Officer has imposed penalty under section 111 of the Income Tax Ordinance, 1979 at Rs.2,20,125 as the addition made under section 13(1)(d) was upheld. The learned CIT(A) held imposition of penalty to be justified but reduced the quantum to Rs.88.050. The addition made under section 13(1)(d) relevant to 1991-92 has been deleted as such the penalty imposed warrants addition on merit alone. On the legal score we are inclined to hold that the additions under section 13 do not warrant any imposition of penalty unless a definite information is available with the Assessing Officer regarding any transaction. In the instant case the addition was made on mere presumption which in no way could legally attract the provisions of section 111 of the Income Tax Ordinance, 979. The penalty under section 111 of the Income Tax Ordinance, 1979 in terms of section 13(1)(d) as such is held to be unlawful.
21. No other grounds were raised or pressed by both the parties. The appeals filed at the instance of the assessee succeed to the extent amid in the manner indicated above whereas the appeals filed by the Department being devoid of any merits are dismissed.
C.M.S./289/Trib. Order accordingly.