I.T.AS. NOS. 1349/KB ARID 747 OF 1997-98, DECIDED ON 2ND MARCH, 1998 VS I.T.AS. NOS. 1349/KB ARID 747 OF 1997-98, DECIDED ON 2ND MARCH, 1998, 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1898 (1998)

(a) Income-tax---

----Appeal---Practice and procedure---Normally it was not advisable to set aside the assessment and Appellate Authority should always endeavour to finalise the issue instead of keeping the same lingering on.

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

----S. 13(1)(aa)---Protection of Economic Reforms Act (XII of 1992), Ss.4 & 5---S.R.O. 714(1)/1993, dated 21-8-1993---Unexplained investment- -Deemed income---Import of gold by assessee---Immunity---Import of gold does not enjoy protection under protection of Economic Reforms Act, 1992---Assessee had imported gold and paid duties thereon ---Assessee having failed to produce source of investment on import of gold and payment of duties, Assessing Officer had rightly added the relevant amount under S.13(1)(aa) to the total income of assessee as deemed income.

Muhammad Majid, D.R. for Appellant (in I.T.A. No. 1349/KB of 1997-98)

A.K. Shamim for Respondent (in I.T.A. No. 1349/KB of 1997-98).

A.K. Shamim for Appellant (in I.T.A. No.747/KB of 1997-98).

Muhammad Majid, D.R. for Respondent (in I.T.A. No.747/KB of 1997-98)

Date of hearing: 24th February, 1998

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---The above cross appeals at the instance of department and assessee are directed against the order dated 2-9-1997 by the learned CIT(A), Zone VII, Karachi in I.T.A No.209/VII relating to the assessment year 1994-95. The common objection raised on behalf of both the parties is to the setting aside of assessment on the point of addition under section 13(1)(aa).

2. The relevant facts as contained in the assessment order are that the assessee did not file any return of total income for the assessment year 1994-95. The assessing officer received information from custom authorities to the effect that the assessee had imported 77.60 tolas of gold on 1-2-1994 worth Rs.33,17301 on which duties and taxes were paid at Rs.66,346. A notice under section 46 was, therefore, issued and the assessee appeared before the assessing officer after issuance of several notices under section 148. His statement was recorded in presence of his counsel. Summary whereof is given in the assessment order which is reproduced below: ---

"(1)That he used to export Jewellery on behalf of M/s. Chottani Jewellers, Saddar, Karachi from 1-7-1992 to April 1994.

(2)That from May, 1994 onwards he started his own export business in the name and style of M/s. Nauratan Exports.

(3)That he imported the abovementioned gold on behalf of M/s.Chottani Jewellers, Saddar, Karachi.

(4)That he had no proof that the said gold was imported on behalf of M/s. Chottani Jewellers except that his travelling expenses were born by M/s. Chottani Jewellers for which no proof was submitted."

3. The assessee submitted an affidavit also dated 18-11-1995 stating that he was working for M/s. Chottani Jewellers on commission basis and his expenses for travelling abroad were borne by them and duties and taxes payable on arrival at Karachi Airport were also paid by them. Since the assessee failed to prove that the gold imported did not belong to him he was required to explain as to why addition under section 13(1)(aa) should not be made. In reply to notice under section 13(1)(aa) he changed his version. The reply on behalf of respondent reads as follows: ---

"In response to notice dated 9-12-1995 on the subject, I have to reply thereto as under:

That the Government of Pakistan allowed all the Nationals of Pakistan to bring any quantity of Gold from abroad out of their own resources of Foreign Exchange and charged duty thereon as such I brought Gold worth Rs.33,17,301 from abroad which I received as Gift from my relatives at abroad and the same has also been gifted away be me to my relatives as your honour has issued this notice without making any reference to the competent authorities of Ministry of Commerce and Ministry of Finance and Customs Authorities of Government of Pakistan, those permitted import of gold and clearance at Karachi Port and continued harassment and enquiry for no reason as the provisions of section 13(1)(aa) attracts in such cases where an assessee is found to have made any investment or is found to be the owner of any money or valuable article in any year, whereas in the instant case there is found nothing to have made any investment or I am not found to be owner of any money or valuable article in the year 1994-95.

That the notice under review based on reasons other than facts law and Government policy for imports of Gold against payment of import duty @ 2% on import value.

Your honour is requested to refer the matter to the authorities concerned for verification and to note that I also gifted away the said gold to my family members by way of oral gifts."

4. The assessing officer duly confronted with the contradictory pleas taken on behalf of the respondent. It was specifically intimated to the respondent that in addition to his statement recorded on 17-11-1995 and filing of affidavit to the effect that the gold belongs to M/s. Chottani Jewellers, his authorised representative had also contended vide order sheet entry dated 26-11-1995 that no explanation can be asked for from him for making addition under section 13(1)(aa) as the imported gold belongs to M/s. Chottani Jewellers. It was further intimated to the assessee that in view of above contention his A.R. was required to produce documentary evidence failing which addition under section 13(1)(aa), shall be made. Adjournment was sought but no compliance was made and ultimately on 14-12-1995 letter was written that gold brought by the assessee was received by him from his relatives abroad as gift and after importing the said gold he gifted the same to his relatives. The Assessing Officer further informed to the assessee that no objection was being taken to the import of gold but explanation was being sought in respect of the source because net wealth of assessee as per wealth statement as on 30-6-1993 and 30-6-1994 was Rs.2,77,410 only.

5. The sole plea taken in response to the above query was that since the gold was imported, therefore, as per SRO 714(1)/97, dated 21-8-1993 and SRO 1108(1)/89, dated 15-11-1989 of the Ministry of Commerce, Finance and Economic Affairs, source of investment in the said gold could not be investigated.

6. The Assessing Officer did not accept the contention and informed the A.R. of the assessee vide order sheet entry dated 27-12-1995 that the contention was based on misinterpretation of the circular which merely allows import of gold but places no bar on investigation in respect of the source of investment for the purpose of income-tax. The A.R. of the assessee was further informed that since no explanation was furnished, therefore, addition under section 13(1)(aa) shall be made and the order was received. Before the order could be passed the A.R. of the assessee Mr. Aslam Shelot, Advocate appeared and stated vide order sheet entry for the same date as follows: --

"(i)That the assessee has reconsidered the whole matter and that now he stands by his statement on oath recorded on 7-11-1995 wherein it was claimed that the assessee had imported the said gold on behalf of M/s. Chottani Jewellers.

(ii)That the assessee had changed his statement in his aforementioned letter, dated 14-12-1995 as he feared that he would lose his place in the market by giving statement against M/s. Chottani Jewellers.

(iii)That his claim regarding payment of travel expenses by M/s. Chottani Jewellers could be verified from the travel agency, Airlines and Karachi Chamber of Commerce and Industries.

(iv)That investigation should be made on these lines and that orders should not be passed till such investigation is completed. "

7. The Assessing Officer took a very lenient view in the interest of justice and issued notices under section 144(c) of the Income Tax Ordinance to the travel agents M/s. Aero Travels and Karachi Chamber of Commerce and Industries. In response to the said notices M/s. Aero Travels provided a complete list of the travels made by the assessee but denied maintenance of T-2 form from which payer of the Air fare could be confirmed. The Karachi Chambers of Commerce and Industries informed that they had checked their record but had not found any T-2 form having been issued to the assessee by M/s. Chottani Jewellers. Subsequently the A.R. of the assessee produced copies of tickets on which the assessee had travelled, which were sent to M/s. Aero Travel for verification. M/s. Aero Travel informed that the tickets on which the assessee travelled (which culminated in the import of the said gold) was paid by M/s. Elegant Jewel Corner, Saddar, Karachi. Summons under section 148 was, therefore, issued to M/s. Elegant Jewel Corner. One of the partners namely Muhammad Farooq appeared and stated on oath as follows: --

"(1) That the firm had paid for the said ticket on which the assessee travelled.

(2)That they had utilized services of the assessee for procuring export orders only.

(3)That the gold imported by the assessee was not ordered by them andthey had nothing whatsoever to do with the said gold.

(4)That the assessee had in the past brought gold for them under entrustment scheme only which is strictly used for export of jewellery, and on which no duties or taxes are leviable/paid.

(5)That the gold imported by the assessee was not under entrustment scheme as duties and taxes had been paid thereon in the name of Shaikh Matiullah and that as such they had nothing to do with it."

8. In view of above statement of Mr. Muhammad Farooq the Assessing Officer formed opinion that the gold did not belong to M/s. Elegant Jewel Corner as they had been bringing gold under entrustment scheme on which no duties and taxes were payable. He further formed opinion that since the gold was admittedly imported by the assessee Shaikh Matiullah and the duties and taxes were paid by him in his own name and he has been changing his statement from time to time, the gold imported by him belongs to him. The assessee was again confronted with the entire proposed finding and the view held by Assessing Officer.

9. In response to the above facts the assessee and his counsel Mr, Aslam Shellot, Advocate again appeared and furnished explanation on the letter head of M/s: Saiduddin & Co. Advocates contending that the assessee had purchased the said gold in foreign exchange and since source of investment in foreign exchange cannot be probed as per provisions of Economic Reforms Act, 1992, hence the assessee was immune from probe into source of investment in gold. The Assessing Officer did not accept the contention for the following reasons:---

"(1)The assessee had not declared the said gold himself, which was discovered only after receipt of information from the Custom Authorities.

(2)The assessee had never filed statement under section 143-B

(3)The assessee has all the time given contradictory statements, disowning, then owning, again disowning and then again owning the said gold.

(4)If something is purchased abroad, payment for it obviously has to be made in foreign exchange. Reference to Economic Reforms Act, 1992 is totally irrelevant in this context.

(5)The Economic Reforms Act, 1992 refers to Foreign Currency Accounts and movement of foreign exchange. Nowhere does the said Act hints that it covers the cases of imports which are always made by payment in foreign exchange. "

10. The Assessing Officer ultimately held that the assessee invested money in import of gold out of his unexplained sources and thus made addition at Rs.33,83,647 under section 13(1)(aa).

11. The assessee being aggrieved with the above addition preferred first Appeal contending that the addition under section 13(1)(aa) at Rs.33,17,301 representing value of gold was fully covered by protection given in the Economic Reforms Act, 1992. It was further submitted that the taxation authority has no power to question to assessee in regard to possession of foreign exchange. The addition of Rs.66,346 on account of duty paid on import of gold was also assailed, Reliance was placed by the A.R. of the assessee before learned CIT(A) on the following provision in the Economic Reforms Act, 1992:---

"All Citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled and free to bring, hold, sell, transfer and take out, foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall any one be questioned in regard to the same."

12. On factual plane it was contended that assessee was a carrier of Jewellery for export and used to bring back gold against the said jewellery under the various Government Schemes and that assessee had stated before the Assessing Officer that the gold brought under accompanied baggage belonged to Mr. Abdul Sattar Chottani one of the partners in M/s. Elegant Jewel Corner, Saddar, Karachi who arranged for his travel abroad on their T-2 form submitted in the State Bank of Pakistan. It was further submitted that after receiving notice from the Assessing Officer the assessee contacted Mr. Abdul Sattar Chottani the partner of M/s. Elegant Jewel Corner to interfere in the matter and save him from this trouble of benami investments. The assessee was told to contact Mr. Abdul Sattar Chottani's tax attorney who asked him to change his statement. It was further contended that the Assessing Officer instead of calling Mr. Abdul Sattar Chottani called Mr. Muhammad Farooq the other partner and that right of cross-examination was not allowed. It was further stated before the First Appellate Authority that on 1-2-1994 no import under accompanied baggage of 77.60 tolas was made as on this date Mr. Matiullah was in Karachi as per his Passport. It was further stated that the assessee Mr. Matiullah is not a man of means to have brought gold worth Rs.33,83,647 (the figure is not correct because the gold is worth Rs.33,17,301 and the amount of duty paid is Rs.66,346 the total where of is Rs.33,83,647) nor his financing worth was investigated by the D.C.I.T. as since 1988-89 he was filing his returns on commission received from Chottani Jewellers. It was further submitted that the assessee made various trips to U.S.A. during the period and that on the same tickets of M/s. Elegant Jewel Corner. Nobody can bring such a huge quantity of gold without declaration in the U.S. Customs at the time of departure. It was pleaded that the Assessing Officer ought to have ascertained the name of the party who handed, over the gold on the date of departure to Karachi and co -relate with export consignment of M/s. Elegant Jewel Corner. It was further stated that if the assessee was bringing back the gold on his own personal investment from U.S.A. he might have brought the cash U.S. Dollars which would have paid him better in terms of profit than to bring back gold, pay duty on it and sustain a loss on exchange rate difference On the basis of above contention the learned CIT(A) held as follows:---

"Assessee's contention regarding protection under Economic Reforms Act (Act XII of 1992) should again be looked into if it has any remote linkage in the instant case. Regarding assessee's version that Gold belongs to Mr. Abdul Sattar Chottani who is reported to be partner in M/s. Chohtani Jewellers, M/s. Elegant Jewel Corner and M/s. A.S.A. Qadir. Although assessee's changing version has apparently damaged his case yet on the other side Assessing Officer too has not acted in a judicious manner. Casus Belli of entire issue is the implicit ownership of Gold. He should have called Mr. Abdul Sattar Chohtani to comment assessee's statement regarding ownership of Gold. Above all assessee is ready to provide further data which could be lawfully verified from United States by invoking provisions of S.H.O. S.R.O. 237, dated 3rd June, 1959 (Article XVI). If the position is ascertained in affirmative regarding ownership of Gold then in such case doctrine of respondent superior stands invoked.

Further, it is also required to be looked with if the appellant was man of means to undertake such a high figure transaction. Also custom in the trade is the best interpretation of things in certain cases.

In the interest of fairness and justice assessment being deficient in various respect cannot be upheld and is hereby set aside for de novo proceedings with the direction that a proper opportunity be offered to assessee in the aforesaid background and simultaneously aided by systematic investigation. "

13. Both the parties are dissatisfied with the setting aside of assessment for de novo proceedings and hence the above appeals before us.

14. Heard Mr. Muhammad Majid learned representative for the department and Mr. A.K. Shamim, learned counsel for the respondent. As both the parties have preferred appeals against the setting aside of assessment order and direction for further probe, it means that the common pleas of both the parties is that sufficient enquiries and probe has already been made and according to both the parties sufficient material is available on record on the basis of which the issue should be decided. We are also of the opinion that very lengthy proceedings have already taken place and it is established on, record that the assessee has been changing his version on facts and law both. No further probe is, therefore, required and we are of the considered opinion that the learned CIT(A) was not justified in setting aside the assessment with the direction for further enquiries. In fact the learned CIT(A) ought to have decided the issue conclusively instead of keeping the parties in lurch Normally it is not admissible to set aside the assessment, and appellate authorities should always endeavour to finalise the issue instead of keeping the same lingering on. The enquiry directed by the learned CIT(A) in the present case is not warranted at all and in fact is not going to serve any purpose. On a bare perusal of the facts obtaining on record it stands established that the gold was imported by the appellant and the onus of proof lay on him to show that it does not belong to him. In his attempt to wriggle out of the wood, the assessee took several versions not compatible with each other and ultimately realising it, he has sought refuge in the provision contained in the protection of Economic Reforms Act, 1992. Mr. A.K. Shamim has submitted before us that under SRO 714(1)/1993 issued by Revenue Division, Ministry of Finance and Economic Affairs on 21-8-1993, the Assessing Officer cannot question the source. The said notification reads as follows: --

GOVERNMENT OF PAKISTAN

MINISTRY OF FINANCE AND ECONOMIC AFFAIRS

(REVENUE DIVISION)

Islamabad, the 21st August, 1993.

NOTIFICATION

CUSTOMS

S.R.O.714(I)/93---In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), section 13 of the Sales Tax Act, 1990, subsection (2) of section 5 of the Finance Act, 1985 (I of 1985) and in supersession of this Ministry's Notification No.S.R.O. 1118(1)/89, dated the 14th November, 1989, the Federal Government is pleased to exempt gold falling under Heading No.71.08 of the First Schedule to the Custom Act, 1969 (IV of 1969), if imported as accompanied baggage from so much of the customs-duty as is in excess of 2 % ad valorem, regulatory duty leviable under subsection (2) of section 18 of the Custom Act, 1969 (IV of 1969), whole of sales tax and iqra surcharge.

(Sd.)

(Alvi Abdul Rahim),

Additional Secretary.

15. We asked Mr. A.K. Shamim to show from the above notification anything in support of his contention that the I.T.O. was debarred from questioning the 'source of investment for the purpose of section 13 of the Income Tax Ordinance, 1979. It was pointed to him that this notification has been issued under the provision of Custom Act, 1969, Sales Tax Act, 1990 and section 5 of the Finance Act, 1985 which have nothing to do with the Income-tax. Mr. A. K. Shamim had no option but to concede to this proposition. Mr. A.K. Shamim then placed reliance on the provisions contained in protection of Economic Reforms Act, 1992. Reliance was placed before First Appellate Authority on section 4 of protection of Economic Reforms Act, 1992 and reliance has been placed on the said pro-4ision again. Mr. A.K. Shamim has submitted that by virtue of the provision contained in section 4 of the protection of Economic Reforms Act, 1992, no one can raised any question in regard to the bringing, holding, selling, transferring or taking out of foreign exchange within or without Pakistan in any firm and, therefore, the assessee enjoys immunity. He has submitted that gold is also foreign exchange. However, when called upon to define the foreign exchange he has submitted that foreign exchange is foreign currency. Ultimately Mr. A.K. Shamim has conceded that the gold itself is not a foreign exchange but since it was purchased in foreign country in foreign currency, therefore, investment of foreign exchange in foreign ''country is also protected. However, he was unable to show any law under where he was claiming protection. The learned D.R. has submitted that the Assessing Officer has fully discussed all the issues and has rightly held that no immunity is available to an assessee in respect of source of investment in bringing the gold in Pakistan. The learned D.R. has submitted that the protection in the 'Protection of Economic Reforms Act, 1992 has been given to the foreign currency and foreign currency account only and not to the import of gold. He has submitted that the department has no objection to the import of gold by assessee in the present case, and no action is being initiated for the import of gold as such, but the only enquiry on the part of Assessing Officer is in respect of source with reference to section 13 of the Income Tax Ordinance, 1979.

16. We have carefully considered the contentions raised on behalf of the learned representatives for the parties. Sections 4 and 5 of the Protection of Economic Reforms Act, 1992 are reproduced below, so that the contentions may be considered in the light of permission contained therein: ---

"4. Freedom to bring, hold sell and take out foreign currency.---All citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any formand shall not be required to make a foreign currency declaration at any State nor shall any one be questioned in regard to the same.

5. Immunities of foreign currency account ---(1) All citizens of Pakistan resident in Pakistan or outside Pakistan who hold foreign currency accounts in Pakistan, and all other persons who hold such accounts, shall continue to enjoy immunity against any enquiry from the Income Tax Department or any other taxation authority as to the source of financing of the foreign currency accounts.

(2).The balances in the foreign currency accounts and income therefrom shall continue to remain exempted from the levy of wealth tax and income tax and compulsory deduction of Zakat at source.

(3)The banks shall maintain complete secrecy in respect of transactions in the foreign currency accounts.

(4)The State Bark of Pakistan or other banks shall not impose any restrictions on deposits in and withdrawals from the foreign' currency accounts and restrictions, if any, shall stand withdrawn forthwith."

17. A perusal of the above provisions contained in the Protection of Economic Reforms Act, 1992 shows that it does not deal with the import of gold at all and provides protection to the transaction of foreign currency and foreign currency account only. So far the import of gold is concerned it is allowed under S.R.O. 714(1)/1993, dated 21-8-1993 issued under the Custom Act, 1969, Sales Tax Act, 1990 and section 5 of the Finance Act, 1985 but it has nothing to do with the provision contained in the Income Tax Ordinance, 1979. We are, therefore, of the considered opinion that the plea taken on behalf of the assessee that the gold imported by him enjoys protection under the protection of Economic Reforms Act, 1992 is without substance. On facts it is admitted position that the assessee imported the gold and paid duties thereon, while he has no known sources for investment in the purchase of gold and the payment of duties on import thereon, therefore, it is held that the Assessing Officer had rightly added the amount of Rs.33,83,647, under section 13(1)(aa) to the total income of assessee. The appeal at the instance of department is, therefore, allowed and the appeal at the instance of assessee stands dismissed. The impugned direction of learned CIT(A) is hereby vacated and the assessment order is hereby restored.

M.B.A./522/Trib. Order accordingly.