I.T.AS. NOS.3294/LB, 3294-A/LB, 3295/LB, 3295-A/LB AND 3295-B/LB OF 1995 VS I.T.AS. NOS.3294/LB, 3294-A/LB, 3295/LB, 3295-A/LB AND 3295-B/LB OF 1995
1997 P T D (Trib.) 2334
[Income-tax Appellate Tribunal Pakistan]
Before Iftikhar Ahmad Bajwa, Accountant Member and Malik Muhammad Tauqir Afzal, Judicial Member
I.T.As. Nos.3294/LB, 3294-A/LB, 3295/LB, 3295-A/LB and 3295-B/LB of , 1995 , decided on 19/02/1996.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 63---Best judgment assessment---Ex parte---Non-compliance of notice---Ex parte assessment was made because of non-compliance of statutory notice---Ex parte action was contested on account of unlawful default of statutory notices and pre-occupation of partners in division of ancestral property---Held, contention was without force---Even notices served on partners had not been complied with---Objection on ex parte point rejected.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.22---Income from business---Estimate of sales---Estimate of sales was totally based on Tax Inspector's Report which was at higher figure---Held, considerable rush of customers in shops of area certainly did not warrant estimate of sales at level adopted in those assessments unless other shops of area were also being assessed at similar figures---Further held, that estimate of income on account of receipts from paper cutting machines was contrary to history and without basis---Even in the past receipts under this head had not been separately declared or assessed---Sales already fixed would be deemed to cover receipt from paper cutting machine.
Mujahid Islam for Appellant.
Zafar Ahmad, D.R. for Respondents.
Date of hearing: 19th February, 1996.
ORDER
IFTIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER). ---The five appeals by a Registered Firm deriving income from sale of Stationery involve assessment for assessment years 1988-89, 1990-91, 1991-92, 1992-93 and 1993-94.
2. The impugned assessments were made ex parte for repeated non compliance of statutory notice. For assessment years 1988-89 and 1990-91 to 1993-94 income was assessed at Rs.4,22,306, Rs.4,78,122, Rs.5,09,600, Rs.5,55,717 and Rs.6,32,000 as against declared income of Rs.94,750, Rs.62,000, Rs.21,250, Rs.22,500, and Rs.20,500 respective]\ The ex parte action and estimate of income in consequence of ex parse assessments is contested by the appellant
3. Ex parte action is contested on the ground that there was no wilful default of statutory notices. It was argued that some of the notices were not served on any authorized person while some of the property served notices could not be complied with as the business had remained neglected due to preoccupation of the partners (who are real brothers) in division of the ancestral property including this business which was a family concern. The contention is without any force. Even the notices indisputably served on the partners had not been complied with. Objection on the point of ex pane action must, therefore, be rejected.
4. So far as the quantum of income is concerned, appellant's objection is not without merit. For Assessment Year 1987-88 which was the last year prior to the assessments under appeal, the assessment was made under the normal law and as against the declared income of Rs.63,500 income had been assessed at Rs.2,41,558. Earlier assessments, most of which were completed under the self-assessment scheme, had been made on much lower figures of income. Thus assessments on income of Rs.4,22,346, Rs.478,122, Rs.5,09,600, Rs.5,55,717, and Rs.6,32,000 were obviously excessive. The aforementioned assessments were made on the basis of G.P. rate of 20% on sales which had been estimated at Rs.25,00,000, Rs.28,00,000, Rs.30,00,000, Rs.32,00,000, and Rs.34,00,000, respectively. The G.P. rate was not doubt consistent with the past history but estimate of sales was without any basis and apparently excessive. Appellant's argument that the business had been on the decline after the death of the father of both the partners may or may not be true but the fact remain that there is nothing on record to justify assessments on progressively increasing incomes. Assessment for Assessment Year 1988-89 had originally been made under Section 63 on income of Rs.2,52,344. This was, however, set aside in appeal and in an order under section 63/132 income was reassessed on 28-6-1993 at Rs.4,22,346. All subsequent assessment were apparently based on this assessment. The assessment for Assessment Year 1988-89 was based on enquiry report of the Inspector dated 26-12-1992. The Inspector had reported the position of business as under:--
"The instant case is a R.F. during the relevant period, and derives income from sales purchases of stationery items, calendar, diaries, repair of pens and paper cutting etc. The shop is located in very important commercial area of Anarkali which is famous for sales of similar items. A considerable rush of customers is always visible in these shops. The instant shop being old and enjoys very good repute in the market. The size of the shop is extraordinary capacious as compared to other shops of similar trades in the nearby shops. It is worth mentioning here that one of the partner. Mr. Ijaz Ahmad has also constructed a market at Ram Gali. Brandreth Road, Lahore and enjoys related income wherefrom. It indicates that the instant line of business yields him respectable amount of share income. At the time of my visit following salesmen were busy in dealing customers.
1. Mr. Faryad Khokhar.(Salesman and Driver).
2. Muhammad Latif.(Salesman).
3. Syed Sadiq Ali.()
4. Abbasul Islam.()
5. Name not disclosed()
6.-- do --Operator for operating
paper cutting-machine.
8. Show cases of 4x6 are placed in the shop and are used as sale counter in addition to receiving cash from the customers. Stock of all sorts of goods is determined at Rs.7,00,000 daily sales are estimated at Rs.7,000/9,000 G.P. rate is proposed at 20%.
Paper cutting machine is installed in the basement which is also partly used as store. One office is also maintained alongwith telephone facility.
It is also pointed out that the aforementioned persons engaged as salesmen, flatly refused to disclose their salary/remuneration. This aspect may be examined in the light of P&L expenses claimed by the assessee. Assessment for the relevant years is proposed to be finalized in the light of above facts."
It is not clear as to how the Inspector who had been unable to find out the salary and remuneration of the employees who were available at the premises, had been able to estimate the stocks at Rs.7,00,000 and daily sales at Rs.7,000/9,000. The routine observations preceding the above estimates did not throw any light on the extent of business. "Considerable rush of customers in the shops of the area certainly did not warrant estimate of sales/income at the level adopted in these assessments unless the other shops of the area were also being assessed at similar figure. The "market" on Brandreth Road reported to have been constructed by a partner Mr. Ijaz Ahmad out of the income of the shop was stated to have been constructed above 30 years back when Mr. Ijaz Ahmad was not a partner in this business. Ownership of an inherited property by a partner was certainly no indicator of the extent of this business. Keeping in view the past history circumstances of the case and facts on record the aforementioned estimate of sales are unsustainable. The sales are accordingly reduced to Rs.16,50,000, and Rs.15,00,000, Rs.15,50,000, Rs,16,00,000, and Rs.14,00,000 for Assessment Years 1988-89, 1990-91, 1992-93, and 1993-94 respectively.
5. Appellant's Authorized Representative had also objected to separate addition on account of receipts from a paper-cutting machine. Estimate of income from this source was contrary to the history and without any basis. The Inspector had noticed that the paper-cutting machine had been stored in the basement. It was contended that the paper-cutting machine had remained idle during this period. According to the A.R. same insignificant receipts from the cutting machine were duly reflected in the declared sales. There is nothing on record to disbelieve the contention of the appellant. Even in the past receipts under this had not been separately declared or assessed. The sales as fixed in the preceding para would, therefore,, be deemed to cover receipt from paper-cutting-machine also.
6. Objection against additions out of P&L expenses remain unsubstantiated and do not warrant any interference
7. The appeals succeed as above.
C.M.S./327/Trib.Appeals allowed.