(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32(3)---Income from business---Rejection of accounts---Estimate of sales ---Profit and loss account---Gross profit rate---Change of opinion-- Effect---Assessing Officer rejecting sales estimated them at a higher figure and applied 30% G.P. rate----Commissioner (Appeals) set aside order and remanded case only on point of G.P. rate with direction to re-assess with appropriate application of G. P. rate---Assessing Officer while re-assessing changed his opinion and estimated sales at still higher figures with application of 30% G.P. rate---Commissioner (Appeals) in second round of appeal upheld the treatment----Validity---Held, law did not permit change of opinion---Assessing Officer was not empowered to open the closed transactions---Mode applied for discarding declared version, in view of assessee having its history of acceptance of trading accounts was not justified---Tribunal, keeping in view, history of acceptance of trading account directed to accept declared version of assessee and G.P. rate to make it consistent with history of there case.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 22---Sale of property by assessee---Estimate of sales---Receipt of payment through instalments by assessee---Sales effected through agreements---Appellant returned sales of property and payment was received through instalments---Sales were based on agreements---Assessing Officer keeping aside such facts, rejected declared versions being understated-- Commissioner (Appeals) upheld the treatment---Validity---Rejection of assessee's version having bean made on irrelevant considerations, order of the Commissioner (Appeals) was set aside by the Tribunal with direction to calculate liability on basis of declared version.

(c) Income Tax Ordinance MXXI of 1979)---

----Ss.22 & 32(3)---Rejection of accounts ---Assessee returned sales effected through registered deeds by applying better gross Profit rate as compared to parallel cases---Assessing Officer without giving opportunity to assessee, rejected declared sales by a applying his own G.P. rate---Commissioner (Appeals) confirmed treatment---No cogent reasons for rejection of price as shown in registered sale-deeds were given ---G.P. rate being better than parallel cases, impugned order set forth no sound basis for deviation therefrom---Accepting appeals impugned orders were set aside with the direction to accept the declared trading results for the relevant years and calculate the tax liability thereon.

(1938) 6 ITR 265; M/s. Bhandaras (Pvt.) Ltd. (1993) 68 Tax 41 (SC); (1992) 66 Tax 89 and 1995 PTD (Trib.) 1 ref.

Muhammad Ilyas, F.C.A. for Appellant.

Shahhaz Butt, L.A. and Naseer Ahmed, D.R. for Respondent

Date of hearing: 13th April, 1995

ORDER

CH. MUHAMMAD ISHAQ (JUDICIAL MEMBER).---The appellant assessee has preferred four appeals in respect of the assessment years 1987-88, 1989-90, 1991-92 and 1992-93. The appeals call in question the order, dated 9-10-1991 passed. by the Commissioner of Income tax (Appeals-I), Lahore on the grounds pertaining to the estimate of sales and the application of G.P. rate. Some legal questions such as competency of the assessing officer to frame assessment contrary to the directions of the appellate authority and the disregard of the case-law of the superior Courts have also been agitated. Since the appeals contain common issues, we propose to decide all these appeals by a single order.

2. The precise grounds taken by the learned A.R. of the assessee in respect of the assessment year 1987-88 are the following:---

(i) That the order passed by the learned officers below are bad in law and against the facts of the cases. The original order was set aside by the learned Commissioner of Income Tax with the directions to reassess the income of the assessee with appropriate application of G.P. rate which at that time was applied at the rate of 30% whereas, in the re-assessment the learned Income Tax Officer has changed his mind and ignored the application of G.P. rate and estimated the income by applying his own/alternate methods.

(ii) That the estimation of sale at Rs.30,12,416 against the declared sale of Rs.19,92,000 is very excessive. In the original order the sale was estimated at Rs.19,93,000.

(iii) That the disallowance of the following profit and loss account expenses have been made on estimation basis and are excessive in any case.

(iv) That the additions made to the income of the appellant may kindly be deleted, reduced or modified.

(v) That the appellant may kindly be allowed to add and alter grounds of appeal at thetime of hearing.

3. We have heard the learned counsel and examined the record.

4. It is noticed that the appellant's source of income is through sale of shops, offices and flats as are built by him in the complex known as Auriga Complex, Gulberg Lahore. The complex was built in the year 1981-82, therefore, the first assessment year was 1982-83. According to the learned A.R. the appellant's declared sales for the assessment year 1982-83 onward 1986-87 were accepted by the department. However, the declared rate was not accepted. The department applied 20% G.P. rate. This was done by the Department in view of parallel cases referred to in the order of assessment. The learned A.R. states that the appellant is a Private Limited Company and it is maintaining regular accounts which are duly verified by the respondent from time to time. It was further explained that in this complex the first floor and the second floor comprise shops whereas the second and third floors from residential flats. According to the learned A.R. the sale commenced from the year 1982-83 and is continuing. The modus operandi adopted by the appellant in respect of various sale transactions, by and large, was based on agreements with the buyers wherein the total sales price was settled to be paid through instalments under terms of these agreements. Accordingly the amount of instalment, upon the receipt, was duly accounted for in the relevant assessment year.

5. The learned A.R. stated that with this background the appellant ubmitted his return for the assessment year 1987-88 with the following trading results:---

Declared sales Rs.19,93,000

G.P. rate 18.12%

6. On 26-6-1988 the assessing officer framed the assessment under the normal law. The sales were accepted as the history of the case. The declared G.P. rate, however, was rejected and instead 30% G.P. rate was applied.

7. The appellant, being dissatisfied with the application of G.P. rate at 30 % preferred the first appeal before the Commissioner of Income Tax (Appeals), Lahore. Since the sales were accepted, the question pertaining thereto was obviously not agitated in this appeal. The plea of the assessee before the first appellate authority was that the application of the G.P. rate of 30% was excessive as against 20% applied by the department in the previous years.

8. The learned Commissioner of Income Tax (Appeals), Lahore vide his order, dated 24th February, 1990 accepted the plea of the assessee in respect of the G.P. rate. The department's plea for the application of 30% G.P. rate in the case was rejected by him. The case was, however, remanded to the assessing officer with the following observations:---

"After having heard the arguments and on going through the facts, I find that the appellant was not afforded opportunity to exercise its right of rebuttal after proper appraisal of the facts of the parallel cases quoted by the I.T.O. Application of G. P. rate of 30% in such a bad manner cannot be upheld, especially when the department has itself applied G.P. rate at 20% in the immediately preceding year."

It was further observed that the appellant be provided proper opportunity of being heard before resorting to rejection of accounts and application of appropriate G.P. rate and that the appellant be confronted with the facts of the parallel cases as indicated in the order of assessment.

9. The appellant preferred the second appeal before the Tribunal which was dismissed with the following observations:

"Since the learned C.I.T. (Appeals) has already set aside the order of the I.T.O. and the I.T.O. shall re-examine the assessee's case, we refuse to interfere in this order."

10. From this point onward second round of assessment proceedings commences. The assessing officer framed de novo assessment. In doing so he embarked upon the reconsideration of the whole case regardless of the afore mentioned directions of the C.I.T. (Appeals).

11. The I.T.O. vide his order, dated 11-4-1991 determined the total sales at Rs.30,12,416 against the declared sales at Rs.19,93,000 by adopting his own method. These sales were calculated on the basis of sale-rates for different floors. The assessing officer by applying construction rate at Rs.175 per sq. ft. the cost of sales of Rs.11,72,947 and obtained G.P. rate at Rs.18,39,469 as against the declared G.P. rate at Rs.3,61,179. Further, the amount of profit and loss expenses, endorsed in the appeal by the learned C.I.T. (Appeals) in his order of remand, was also added.

12. The aggrieved appellant again preferred appeal before the Commissioner of Income Tax (Appeals) in the second round of the assessment proceedings. The estimates of sales at Rs.30,12,414 as against the actual sales of Rs.19,93,000 was agitated alongwith curtailment of cost of construction by Rs.4,58,756 thereby making trading additions of Rs.14,78,172. ' However, the learned C.I.T. (Appeals) did not accept the contentions of the appellant. He up held the treatment ignoring the directions passed in this case earlier and dismissed the appeal. .

13. The appellant, feeling aggrieved of the order of' the first appellate authority, preferred this appeal before us contending that the authorities below lacked power to enter into the re-assessment of sales for the reason that the factum of sales at Rs.19,93,000 had become conclusive in the first round of assessment proceedings. The second round, according to the learned A.R. was to settle the G.P. rate and that too within the framework of the aforestated directions of the first appellate authority. The impugned order is faulty as it fails to examine the competency of the assessing officer to frame the de novo assessment contrary to the directions of the first appellate authority. By exercising jurisdiction in a manner unwarranted by the various provisions of the Income Tax Ordinance, 1979 has rendered impugned order coram non-judice. The learned A.R. stresses that the determination of sales afresh by resort to a novel method is both against the principle of natural justice as well as the history of the case. In support of ibis contention the learned A.R. referred to a case reported as (1938) 6 ITR 265.

14. In reply the learned Legal Advisor of the Department defended the impugned order. According to him the learned appellate authority had set aside the entire assessment order: therefore, the question of re-determination of sales by the assessing authority was justified. He further submitted that setting aside of the order, in fact would mean cancellation of assessment. The 'earned Legal Advisor of the Department took up through the entire assessment order to show that the account version of the appellant was faulty and as such unreliable for being accepted. It was stressed that each year w as an independent entity therefore, the history of the case could be ignored to arrive at the correct income. In support of his contention 1994 SCMR 229 was cited.

15. We have heard the parties at length and noted their respective contentions. There appears to be force in the arguments of the learned A.R. of the appellant. The fact regarding the acceptance of sales is established on the record. It is also proved that the case was remanded only on the point of the application of G.P. rate.

16. The law does not permit the change of opinion. The assessing officer is not empowered to open up a transaction past and closed except under circumstances warranted by law. In our view there existed no circumstances to justify the re-examination on the point of sales.

17. The arguments advanced by the Legal Advisor of the department enunciate a principle of law. The principle that every year is an independent entity is not attracted on the facts of this case. His connection in respect of the production of books of accounts by the appellant is not supported from the record.

18. This case has a history of its own as to the acceptance of the sales and the application of 20% G.P. rate as against this it was open to the department to build up a case for rejection of sales and the application of G.P. rate different from the history. This was, however, not done. On the contrary, the impugned order went on to strengthen an arbitrary assessment order by resort to reasons which in our view are extraneous to the issue in hand, namely the correct application of the G.P. rate. The impugned order supports the order of the assessing officer on the ground that the project is located at a posh place at Gulberg and that there are doubts as to the final sale price allegedly settled at the time of the execution of the agreements. The impugned order makes parallel cases as the basis for adopting its own trading version. We are not convinced with the line of assessing officer whose order the learned C.I.T.(A) purports to support. There certainly is the power available with the assessing officer to ascertain the correct income by resort to methods as are usually applied in such like business to arrive at correct income. The examination of the impugned order further reveals that mode adopted for discarding the declared version and making its own estimates, the authorities below have dealt with the case as if proceedings under the Wealth Tax Act were being taken.

19. In these circumstances we do not feel inclined to support the impugned order. Keeping all the facts in view we are of the considered opinion that it is a case of acceptance of the trading account. We, therefore, direct that the appellant's declared sales be accepted and 20% G.P. rate consistent with the history of case as well as parallel cases be supplied for this year. The assessment for the year 1987-88 be made accordingly.

20. Regarding the add-backs in respect of profit and loss account items, we are not convinced to allow any relief to the appellant on this score.

21. For the assessment year 1989-90 the appellant declared sales as under.:---

22. The learned D.A. stated that the sale rate was rejected by the I.T.O. on the ground that the agreement of sale executed by the appellant with the buyers did not give correct sale price. The assessing officer considered the price under stated as according to him, it was done to avoid Government dues. The learned D.A. for the Department further stated that in addition to old customers over couple of dozens sale-deeds were registered in favour of new buyers. Few other reasons were also advanced in the impugned order to justify the adoption of the sale rate. We do not feel it necessary to reproduce these reasons as the same are available in the order of assessment.

23 The following rates were applied:---

24. The learned A.R. representing the appellant argued that since the sales have been made to the buyers on the basis of instalments, therefore there was no possibility for under statement. He further stated that the existence of agreements to sell is not denied and a copy of each of then agreements has been submitted. The learned A.R. strengthen his submission by reference to a case law with the title M/s. Bhandaras (Pvt.) Ltd. decide by this Tribunal. In this case the learned Bench had held that where sale were made through instalments under the written agreements, the declare sales be accepted. The learned A.R. further argued that no instances of un-verifiability or concealment were pointed out nor the existence of the agreements was denied. It is submitted that the appellant is regularly maintaining books of accounts which were duly presented for examination In such circumstances there was no question of any understatement. Reliance is placed on (1993) 68 Tax 41 (SC). As regards the observations about the sale to new customers, the learned A.R. stated that the observations at neither correct nor are based on the record. A detailed list of collection c advances received on yearly basis was placed on the record which was state to be self-explanatory. According to the learned. A.R. these documents clearly show the correct figures as regards the trading results. The department, it was submitted, had no basis for any suspicion. Moreover, suspicion cannot be made the basis for discarding the trading results.

25. On the other hand the learned Legal Advisor of the department was not able to rebut these contentions. However, the case of the department was supported on the basis of the observations made in the impugned order.

26. We are of the view that every assessee deserves to be treated in accordance with law. In the instant case the law has been spelt out in the case referred to above, by this Tribunal. The fact that the appellant entered into sale transactions as per agreements executed years before which laid down the mode of payment any instalments. This fact, as observed earlier stands proved on the record. Moreover, section 54 of Transfer of Property Act allows sales to be made for the price paid or promised or partly paid and partly promised. Since in this case sales have been effected mainly through agreements which envisaged payment through instalments, the case-law referred to above is fully attracted to the facts of this case. We may observe here that there have been a few transactions in which the appellant is stated to have negotiated fresh deals. May it be so, they are also recorded in the sales declared by the appellant. However, in case any of the sale transactions is discovered to have been made which is not duly recorded in the accounts of the assessee, there is nothing in law to stop the revenue for proceedings in accordance with law.

27. As per the submission of the appellant's A.R. the declared sale rate of Rs.401 per sq. ft. has been calculated by dividing the total sales at Rs.60,50,750 by the area sold at 15098 sq. ft., during this year. The learned A.R. argued that these were applied in identical cases by the department itself particularly so in cases of commercial building located on the Main Gulberg, Lahore. The Gulberg Centre and the Raja Centre were referred to in this context. In these cases the assessments were finalised at Rs.465 per sq. ft. during the year 1988-89. In the case of the appellant the average sale price in the years from 1987-88 to 1992-93 works out to be Rs.484 per sq. ft. This figure certainly is better than the rate applied by the department in the abovestated cases.

28. We notice that respondent-department has not set-forth any special reasons to refuse the treatment it stands entitled in the circumstances of this case. For us it is difficult to endorse the view that in such-like circumstances when two parties are placed nearly in the same situations, different treatment be given to them unless it is so warranted by support from the record. Certainly when there are two buildings erected by two different individuals it is not necessary that they would be absolutely identical for all intents and purposes. What is mainly required to be seen is the proximity of location coupled with the type of construction and the prevailing rate at that time.

None of these factors have been ascertained to be variable in the case of the aforesaid references, when compared to the facts of the instant case.

29. Keeping all these facts in view we are not inclined to uphold the impugned order which is hereby set aside. The respondent/department is directed to calculate the liability of the assessee-appellant on the basis of the declared version for the year under review.

30. For the assessment years 1991-92 and 1992-93 the I.T.O. rejected the declared sales and made his own estimates: The learned C.I.T. (Appeals) confirmed this treatment. Learned A.R. submitted that the impugned order fails to touch the technical aspects of the case i.e., the location and the size of the shops, prevalent market price and slump in the plaza business. The fact that after a lapse of long time, many shops are still vacant has also been ignored. About the sale rate the learned A.R. stated that the impugned order ignored parallel cases which were offered for consideration on behalf of the assessee while for the figures adopted no such references were quoted. The learned A.R. further argued that no sanctity to the registered sale-deed was given although they were correct and genuine documents. This treatment of the department against the assessee/appellant was contrary to the declared law. In support of the contentions regarding the sanctity of the sale-deed (1992) 66 Tax 89 was referred. The learned A.R. further stated that the average sale rate declared at Rs.380 and Rs.660 was very favourable then the rate assessed by the department in parallel cases for the years 1991-92 and 1992-93. The learned A.R. submitted that under the circumstances when a better average sale rate, as compared to other parallel cases, is offered by the appellant, there was no justification left for the department to refuse to accept the declared rate particularly when the instant case has a history of the acceptance of the declared sales. The learned A.R. further stated that despite the maintenance of complete accounts which were duly shown to the assessing officer, no notice under section 62 was ever served to confront the appellant regarding any defect in the books of accounts.

31. The learned Legal Advisor for the department stated that the record did not indicate that the appellant had been confronted by the assessing officer and that any notice under section 62 was ever served on the appellant. It was admitted that there was a legal requirement for the respondent/department to seek appellant's explanation before drawing adverse inferences.

32. It is noticed that during these two years, under review, the appellant declared G.P. at 29.46% and 38% but the rate was applied at 30% and 35% for these years respectively. It is not understood that in the wake of the books of accounts what was the basis with the I.T.O. on which the rates were substituted by his own figures at the time of framing the assessment. In case it was required to be so done, proper opportunity to the appellant was required to be allowed. But the record is silent over this legal requirement. Despite the admission by the Legal Advisor for the department to this effect, his supports for the impugned order is not intelligible.

33. We have failed to ascertain reasons for the rejection of the registered sale-deeds merely on presumptions. On the point of acceptance of the value as mentioned in the sale-deed, the learned A.R. referred to a case 1995 PTD (Trib.) 1. Keeping in view the case-law, we may observe that there are no convincing reasons which may justify the rejection of the price of the registered sale-deeds. The arguments advanced by the learned A.R. are certainly weighty. The law pertaining to the acceptance of the sale price, as mentioned in the sale-deed, has amply been thrashed out. A reference thereof has already been made above. No cogent reasons have been advanced to rebut the prices mentioned in the sale-deeds. We are of the view that in such circumstances full sanctity be attached to the sale price recorded in the registered sale-deed. Questions pertaining to the application of G.P. rate also appear to tilt in favour of the appellant as the impugned order sets-forth no relevant and sound basis for recording a deviation. Moreover, in the absence of any defects in the declared version, even duly touched by confronting appellant as to its reliability, we decline to uphold the impugned order which is hereby set aside.

34. In view of these reasons, the respondent (I.T.O.) is directed to accept the declared trading results for both the years under review and calculate the appellant's tax liability accordingly.

35. As a result what has stated above, all the four appeals are allowed as indicated above.

M.B.A./237/Trib. Appeal allowed.