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

----Ss.13(1)(e) & 62---Deemed income---Addition---Validity---Assessments completed under Self-Assessment Scheme---Notices under S.62, Income Tax Ordinance, 1979 alleging that expenditure incurred on account of salaries were understated---Agreed assessment---Amount added were exactly the same as claimed in the books of accounts of salaries paid to employees-- Assessment order was not speaking order, giving adequate and informative reasons---Held, .addition made on the basis of agreed assessment instead of working out the deemed income on the basis of substantial information about payments was not sustainable both on facts as well as in law.

1990 PTD 903 ref.

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

----S.65---Re-opening of assessment ---Assessee, running a restaurant returned income which was accepted under Self-Assessment Scheme-- Subsequent information revealed that investment made in the crockery and utensils had not been shown in the balance-sheet ---Assessee stated that cost of purchase of said items was claimed as revenue expenditure and thus, was not capitalized---Validity---Held, alleged concealments were neither proved nor could be inferred from the assessee's books of accounts---No concealment, thus, could be alleged on account of crockery and utensils in circumstances.

Umer Farooq, D.R. for Appellant.

Aqeel Ahmed Abbasi for Respondent.

Date of hearing: 22nd July, 1997.

ORDER

Common objections are taken in these appeals, by the department against the combined order of the learned CIT(A) on the following grounds:-

"(i)That the learned CIT (A) was not justified to hold that the approval from the Additional Commissioner has not been obtained.

(ii)That the learned CIT(A) was not justified to hold that the assessee never agreed on the quantum of addition.

(iii)That the learned CIT(A) was not justified to cancel the assessment. "

I have heard the learned representatives of the two parties. Briefly, the facts are that the appellant, a registered firm, is engaged in restaurant business at M.A. Jinnah Road, Karachi. Assessments have been made originally under section 59(1) on declared total incomes of Rs.93,928 in 1990-91, Rs.95,220 in 1991-92, Rs.95,500 in 1992-93 and Rs.100,000 in 1993-94. Assessment for 1994-95 has been made under section 62 at total income of Rs.221,648 against declared income of Rs.121,648 and the learned. CIT(A) has set aside the assessment for alleged absence of prior approval of the I.A.C. and the alleged absence of any agreement on the impugned addition; hence the appeal. However, in the four earlier assessment years, proceedings under section 65 have been initiated, according the impugned assessment orders, with the prior approval of the I.A.C., because the respondent, allegedly, has failed to declare in the balance sheet the investment made in the crockery and utensils, being used in the restaurant. The respondent has complied with the notices by (sic) filing the returns declaring the same total incomes as in the original returns. Regarding crockery and utensils the respondent has submitted that the cost of purchases from (sic) claimed as revenue expenditure and since it has not capitalized, it does not

appear in the balance sheet as a separate asset. The learned DCIT, thereafter, has served, upon the respondent, notices under section 62 for all the five assessment years under appeal, calling upon it to explain why the expenditure incurred on account of salaries, which are understated, should not be added as deemed income under section 13(I)(e) of the Ordinance. The learned DCIT has recorded in the impugned orders that the respondent has agreed to the under mentioned additions under section 13(1)(e) and to the imposition of minimum penalty for concealment provided no prosecution proceedings are initiated:---

The respondent/assessee has preferred appeals before the learned CIT(A) and it is submitted before him that the learned DCIT has neither taken into consideration the limitation period for initiating proceedings under section 65, nor has come in possession of any definite information nor has he taken double approval of the I.A.C for making the impugned additions under section 13(1).(e), nor the addition are made on account of alleged basis for initiating the proceedings under section 65 nor has recorded any basis, in the impugned orders, for concluding that the expenditure claimed under the head of salaries is "understated" and, to the extent of sums (supra), has been met out of the unexplained sources, nor has he obtained any agreement on the quantum of impugned additions under section 13(1)(e). It is further submitted before the learned CIT (A) that there is no validity in law of such allegedly agreed assessments. Reliance has been placed on the decision of the Hon'ble Lahore High Court in the case of Afzal Construction Company (Pvt.) Ltd. v. CIT 1990 PTD 903. In the case ibid where a short assessment order is recorded on the basis of an agreement to be assessed at a total income of Rs.220,000 against declared total income of Rs.29,317 after examination of books of account comprising of cash book and ledger the Hon'ble High Court has held:---

"The assessment has to be made by the assessing officer on the foundation of the material before him. If the atsessee's book of account, his bank account or other evidence produced by him or mustered by the I.T.O., warrant a higher, assessment, the I.T.O. cannot ignore that evidence and go ahead with an agreed assessment. However, the position would be different if there is no material at all and the assessee agrees to be assessed at a particular figure. In such an eventuality the assessee's admission constitutes evidence, and may be acted upon by the I.T.O. It may be added that the I.T.O., is a quasi judicial. Tribunal and required, pass a speaking order manifesting application of mind for resolution of the controversy before him. He must give reasons in support of his order which should be adequate and informative so that if the order is called in question before a higher forum, the latter can appreciate and evaluate the process by which the decision was reached. Both the orders of 30th March, 1989 rendered by -the I.T.O., do not answer this test. The assessee is a Private Limited company and has maintained books of account, which were produced before the I.T.O., The reasons for rejecting the accounts followed by discarding of the declared version and then making agreed assessment instead of computing the income, on the strength of the material on the file, are not sufficiently forthcoming from the record. The CIT, has also failed to advert to this aspect of the case. Thus, the order of the ravisional authority confirming the order of the I.T.O., also suffers from the same infirmity.

The learned CIT(A) after reproducing the written submissions of the learned counsel of the assessee/appellant has held:---

"That the learned CIT(A) was not justified to hold that the approval from the Additional Commissioner has not been attained. "

"That the learned CIT(A) was not justified to hold that the assessee never agreed on the quantum of addition."

"That the learned CIT(A) was not justified to cancel the assessment".

4. Having given my careful consideration to the foregoing facts and circumstances of the case I find that the learned CIT(A) has not given any specific finding on the plea made before him on behalf of the assessee/appellant that the approval from the I.A.C. has not been obtained. It can, only be inferred from his order. Regarding the issue of agreement on the quantum of addition, I find on perusal of the records of proceedings that there is an agreement, on behalf of the appellant, only on proposed penal action if it is kept at minimum level and subject to the condition that no prosecution proceedings shall be proposed. Thus, it can, only, be inferred that the respondent has agreed to some additions on account of concealed incomes though there is no explicit agreement on, the quantum of additions.

5. Regarding the objection taken to the cancellation of the impugned assessment orders I find that the alleged concealments are neither proved nor even can be inferred from the respondent's books of account. Admittedly, no concealment is found on account of crockery and utensils as originally alleged for initiating proceedings under section 65 Further, the notice under section 62 available on records of assessment proceedings shows that the allegation of under statement of expenditure incurred on account of salaries, which is ultimately imputed to have been met out of unexplained sources, is also unfounded because the accounts added in each of the years under appeal, as deemed income under section 13(1)(e), are exactly the same as claimed in the books on account of salaries paid to employees. The learned counsel of the respondent, therefore, has submitted that the learned assessing officer has not discharged his onus of passing an speaking order, giving adequate and informative reasons in support of his order enabling the higher forums to appreciate and evaluate the process by which the decision is reached. He has further submitted that the basis for concluding that the expenditure incurred on account of salaries is understated and then making agreed assessment instead of working out the deemed incomes on the basis of substantial information about payment of salaries in each year out of unexplained source, on the strength of the material on the file, is not at all forthcoming from the record.

6. I am, therefore, pursuaded to agree with the learned counsel of the respondent that the learned CIT(A) is justified in holding that the ratio of decision in 1990 PTD 903 squarely applies on the facts of the instant case and that the impugned additions made on the basis of the so-called agreement are not sustainable both on facts as well as in law. Accordingly, the impugned orders on the learned C.I.T. (A) are, hereby, confirmed and the appeals are dismissed.

C.M.A./549/Trib. Appeals dismissed.