I.T.A. NO.479/KB OF 1997-98, DECIDED ON 24TH MARCH, 1999. VS I.T.A. NO.479/KB OF 1997-98, DECIDED ON 24TH MARCH, 1999.
1999 P T D (Trib.) 2884
[Income-tax Appellate Tribunal Pakistan]
Before S. M. Sibtain, Accountant Member and Jawaid Masood Tahir Bhatti, Judicial Member
I.T.A. No.479/KB of 1997-98, decided on /01/.
th
March, 1999. (a) Income Tax Ordinance (XXXI of 1979)---
----S.59(1)---Self-Assessment Scheme, 1995-96---C.B.R. Circular No.12 of 1991, dated 30-6-1991---C.B.R. Circular No.12 of 1991 was not issued under the Self-Assessment Scheme and, thus, was not covered by words "instructions or orders" as used under S.59(l) of the Income Tax Ordinance, 1979---Contention that instructions contained in Circular No.12 of 1991, dated 30-6-1991 were to be deemed to be the instructions as envisaged under S.59(1), Income Tax Ordinance, 1979 and were, thus, mandatory in effect was repelled.
Central Insurance Company v. C.B.R. 1993 SCMR 1232 = 1993 PTD 766 rel.
(b) Central Board of Revenue---
----Circular No.12 of 1991, dated 30-6-1991---Examples provided in a circular---Significance---Examples given in the circular were only hypothetical and any effect of prescribed pro forma could not be attributed to such examples.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.66-A, 143-B, 55 & 59(1)---C.B.R. Circular No. 12 of 1991, dated 30-6-1991---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Imports and local sales---Imports were liable to presumptive tax declared in the statement filed under S.143-B, Income Tax Ordinance, 1979---Local sales were declared in the return of income filed under S.55 and was assessed under. S.59(1) of the Income Tax Ordinance, 1979---Expenses claimed in Profit and Loss Account were not prorated to turnovers of import and local sales but a note was given that expenses claimed exclusively belonged to business income except import business-- Inspecting Additional Commissioner assumed jurisdiction under S.66-A of the Income Tax Ordinance, 1979 and disallowed the expenses of Profit and Loss Account to be prorated to turnovers of import on the ground that expenses in the Profit and Loss Account made it obvious that those must have been incurred both in manufacturing (local sales) and commercial imports and should have been prorated, which had not been done ---Validity- No basis 'existed for the Inspecting Additional Commissioner to consider the order passed by the Assessing Officer under S.59(1) of the Income Tax Ordinance, 1979 to be erroneous in so far as it was not prejudicial to the interest of Revenue---Assumption of jurisdiction under S.66-A of the Income Tax Ordinance, 1,979, thus, was ab initio void in law---Impugned order was annulled by the Tribunal.
Rehan Hasan Naqvi for Appellant.
Shaheen Aziz Niazi, D.R. for Respondent.
Date of hearing: 24th March, 1999.
ORDER
S. M. SIBTAIN (ACCOUNTANT MEMBER). ---Objections are taken, in this appeal to the order of the learned I.A.C., passed under section 66A on the grounds firstly, that it is ab initio void in law for want of valid jurisdiction, secondly, that the learned 1.A.C. has misconstrued that the Assessing Officer has passed an order under section 59(1) whereas, in fact, he has issued only a demand notice and an Income-tax 30 Form and thirdly that the learned I.A.C., without prejudice to the objections (supra), is not justified in estimating the proportionate import business expenses at Rs.138,473 and disallowing the same amount out of expenses claimed against other sales business.
2. We have heard the learned representatives of the two parties. Briefly, the facts are that the appellant is engaged in trading of imported and local medicines. Imports are liable to presumptive tax declared in the statement under section 143-B and income from local sales, amounting to Rs.85,000, declared in the return of income filed under section 55. The return under section 55 has been accepted under Self-Assessment Scheme, and is assessed under section 59(l) in writing on Income-tax 30 Assessment Form.
3. The learned I.A.C. during the course of inspection, has found the following statement of account enclosed with the return of income (supra):---
ASSESSMENT YEAR 1995-96 M/s. Shahbaz Laboratories, S.I.T.E. Hyderabad Proprietor Mr: Sabir Eli Khan 30-6-1995 Status : Individual |
| Total Sales estimated | 16,20,000 |
| Gross Profit @ 25% | 4,05,000 |
Less Expenses Salaries & Bonus Motor Vehicle Tax Printing & Stationery Oil & Lub. Misc. Expenses Travelling Exp. Telephone Electricity Repairs & Maintenance Advertisement Social Security and E.O.B.I. Contribution | 2,04,000 1,750 21 700 16,300 3 817 11,974 25,370 12,009 7,800 4,200 5,583 | | |
| | 3,20,000 | 3,20,000 | |
| Total Net Income | 35,000 | |
SUMMARY Total net income estimated . . . . .Rs. 85,000 Income Tax due . . . . . . Rs. 4,500 Surcharge due . . . . . . Rs. 300 Rs. 4,800 Less Income Tax deducted by WAPDA Rs. 250 Paid under section 54 = Rs. 4,650 NOTE: (1) Import value . . . . . . . .Rs.21,23,700 Tax deducted under section 50(5). . . Rs.42,474 IMPUTABLE INCOME . . . . . . Rs.2,54,913 |
(2) The expenses claimed Rs. 3,20,000 of other business are exclusively belongs to business income except import business under section 80(c)."
4. It does not reflect the trading results of imported medicines nor the overhead expenses have been prorated to turnovers of imported and local medicines in their respective proportion; instead only Notes 1 and 2 supra are recorded. He, therefore, has considered that the order passed by the learned Assessing Officer under section 59(1) is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, he has assumed jurisdiction under 66A and a notice has, been issued and served upon the appellant to explain why the assessment order should not be modified to appropriately enhance the assessed income.
5. It is submitted before the learned I.A.C. on behalf of the appellant that trading of imported medicine is a separate block of income and it His not necessary to submit any statement of overhead expenses incurred in respect of imports. It is further submitted that it is already clarified in the Notes to the statement supra that overhead expenses claimed therein are only against sales of local medicines.
6. The learned I.A.C. has discarded the submissions supra holding:
"The rebuttal filed by the assessee is found unsatisfactory as the nature of expenses claimed in the P&L Account makes it obvious that these must have been incurred both in manufacturing and commercial imports, and should have been prorated, which has not been done.
The order passed by the Assessing Officer under section 59(A) is erroneous in so far as it is prejudicial to the interest of revenue and is modified."
7. Mr. Rehan Hasan Naqvi the learned counsel of the appellant has submitted before us, after narrating the facts and circumstances of the case supra, that it is evident that the learned I.A.C. has considered the order passed under section 59(1) to be erroneous in so far as it is prejudicial to the interests of revenue on the basis of presumptions, whims and surmises. He submits that the basic assumption that, because the appellant is trading in imported and domestic medicines, the statement of account enclosed with the return of income from trading in domestic medicine filed under section 55, must reflect his gross trading transactions including cost of imports and sale proceeds thereof and costs of over all administrative operations so that administrative expenses are prorated in proportion to the ratio between turnover covered under section 80C and the other sales, is legally fallacious. He submits that section 55 requires every person whose total income exceeds the maximum amount which is not chargeable to tax under the Ordinance or who has been charged to tax for any of the four income years immediately preceding the said income year shall furnish a return of total income except the person whose entire total income consists of salary or who is otherwise not required to file return of total income under section 80C or 80CC. Since appellants total income includes income other than the deemed income under section 80C, he has filed a return under section 55 enclosed with a statement of Trading, Profit & Loss Account in respect of income of Rs.85,000 on sales other than sales/imports covered under section 80C. Imputable income of Rs.254,913 on the basis of tax collected under section 50(5) amounting to Rs.42,474 on imports amounting to Rs.2,123,700 has also been declared in the enclosed statement and it has been clarified through a Note recorded below the statement that the administrative expenses amounting to Rs.320,000 claimed in the statement of Profit & Loss Account (supra) have been incurred only in respect of business other than trading in imported goods covered under section 80C. He submits that there is no provision in law or any Rule prescribed under the law or in the Self-Assessment Scheme either, that in such case the assessee shall file a combined statement of administrative expenses to be prorated in proportion to the ratio between the sales relating to presumptive income and the sales relating to non -presumptive income. The learned D.C.I.T., while processing appellant's return of income supra under various Paragraphs of the Self-Assessment Scheme 1995-96, has committed no error, according to the learned counsel, in finding that it qualifies for acceptance in accordance with the provisions of the Self-Assessment Scheme or under any instructions or orders issued thereunder, in assessing, by an order. in writing, the total income of the appellant on the basis of such return and in determining the tax payable on the basis of such assessment. He, therefore, contends that in the absence of any basis to consider that the order passed by the learned D.C.I.T. under section 59(l) is erroneous in so far as it is prejudicial to revenue, the assumption of jurisdiction under section 66-A by the learned I.A.C. is ab initio void in law; hence the impugned order liable to annulment.
8. The learned D.R. on the other hand, has referred to sub para. (11) of Paragraph 4 of C.B.R. Circular No. 12 of 1991, dated June 30, 1991 which is being reproduced hereunder for the benefit of ready reference:
"Paragraph
(4) Where the purchases consist of imports and local purchases and turnover consists of supplies and other sales.
Where an assessee has imported certain goods on which tax has been deducted under section 50(5) at the rate of 2% and he has also made certain purchases locally while his turnover consists of supplies on which tax has been deducted @ 2% and partly of sales not covered by section 80C, the treatment shall be as under:
EXAMPLE III |
| Results declared | | Rupees |
| (1) | Local purchases | 20,00,000 |
| (2) | Imports | 25,00,000 |
| (3) | Supplies | 30,00,000 |
| (4) | Other sales | 20,00,000 |
| (5) | G. P. | 5,00,000 |
| (6) | P&L Expenses. | 3,00,000 |
| (7) | Net Profit | 2,00,000 |
| (8) | and (9)(a) to (h)(i) not relevant. | |
Sub-Para.
(ii) Where it can be established that the goods sold (other sales) are entirely out of local purchases:
The income from these sales shall be determined and taxed in the ordinary manner. The G.P. and P&L expenses shall be prorated (as given below):
| | Rupees |
| (a) Other Sales | 20,00,000 |
| (b) Proportionate G.P. (Other sales Total Sales x G.P.) | 2,00,000 |
| (c) Less proportionate expenses (Other sales Total Sales x P&L expenses) | 1,20,000 |
| Net Profit (2,00,000 -1,20,000) | 80,000 |
Note:If there are any add backs in the trading account, or P&L Account these shall be added to the G.P. and P&L expenses before pro-ration).
The resultant income shall be taxed in ordinary manner depending upon the status of the assessee. "
9. The learned representative of the Department has submitted that in accordance with the standing instructions of the C.B.R. contained in the Circular supra, the appellant is required to declare his trading results and P&L Account as per Example III (supra) and to claim such P&L expenses on pro rate basis. He submits that the instructions contained in the Circular supra are the instructions as envisaged under subsection (1) of section 59 and these are mandatory in effect.
10. We have given our careful consideration to the facts and circumstances of the case supra as well as the views canvassed from the two sides on the interpretation of the relevant provisions of law. Firstly we .are unable to agree with the view canvassed by the learned D.R. that the views expressed in the C.B.R. Circular 12 of 1991 (supra) are the instructions per se. The C. B. R. may .assist, guide or instruct the D. C. I. T., in the course of any proceedings under the Income Tax Ordinance as envisaged under section 7 of the Ordinance. However, as held by the Supreme Court of Pakistan in the case of Central Insurance Company v. C.B.R. 1993 SCMR 1232 = 1993 PTD 766. "It is evident from the above provisions that though the Central Board of Revenue has administrative control over the functionaries discharging their functions under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax. In this view of the matter, any interpretation placed by the Central Board of Revenue on a statutory provisions cannot be treated as a pronouncement by a forum competent to adjudicate upon such a acquisition judicially or quasi-judicially. We may point out that the Central. Board of Revenue cannot issue any administrative direction of the nature which may interfere with the judicial or quasi-judicial functions entrusted to the various functionaries under statute. The instructions and directions of the Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to the administrative matters. The interpretations of any provisions of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under the above provisions of the Ordinance, namely, the Income-tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High court and this Court, and not by the Central Board of Revenue. In this view of the matter, the interpretation placed by the Central Board of Revenue on the relevant provisions of the Ordinance in the circular, can be treated as administrative interpretation and not judicial interpretation."
Secondly, the Circular supra is not issued under the Self-Assessment Scheme, hence not covered by the words "instructions or orders", as used under 14 section 59(1). Thirdly, the Examples given in the Circular (supra) are only hypothetical and any effect of prescribed proforma cannot be attributed to it such examples.
Fourthly, any instruction or order issued under the Self-Assessment Scheme requiring the assessees to file details of administrative expenses incurred in respect of business transactions covered under presumptive tax regime separately or combined with such expenses incurred in respect of non presumptive tax business transactions has not been placed before us from either side.
11. We, therefore, are pursuaded to agree with the learned counsel of the appellant that, on the facts and circumstances of the case, there is no basis for the learned I.A.C. to consider the order passed by the learned D.C.I.T. under section 59(1) to be erroneous in so far as it is prejudicial to the interest of revenue.
12. Accordingly, we find that the assumption of jurisdiction under section 66-A by the learned I.A.C. is ab initio void in law. The impugned order passed in pursuance thereof, therefore, is hereby annulled.
C.M.A./63/Tax(Trib.) Order set aside.