I.T.AS. NOS.1485/KB AND 1959/KB OF 1997-98, DECIDED ON 7TH JANUARY, 1999. VS I.T.AS. NOS.1485/KB AND 1959/KB OF 1997-98, DECIDED ON 7TH JANUARY, 1999.
1999 P T D (Trib.) 3892
[Income-tax Appellate Tribunal Pakistan]
Before Aftab Iqbal Rathore, Accountant Member and Jawaid Masood Tahir Bhatti, Judicial Member
I.T.As. Nos.1485/KB and 1959/KB of 1997-98, decided on 07/01/1999.
Income Tax Ordinance (XXXI of 1979)---
--S.62(1), proviso---C.B.R. Circular No.11of 1993, dated 7-7-1993, para. 8---Notice---Assessing Officer while completing assessment made addition in trading and profit and loss account without giving notice to the assessee to explain his point of view about the defects in the accounts presented---Validity---Assessing Officer in terms of proviso to subsection (1) of S.62, Income Tax Ordinance, 1979, which was mandatory, should have confronted the assessee with the defects found in the books of accounts-- Assessing Officer having failed to do so, had no legal authority to make any addition in the declared trading results of the assessee---Addition made was, therefore, declared to be ab initio illegal and void, which was deleted with direction that trading result of the assessee should be accepted. [pp. 3895, 3896] A & B
Collector, Sahiwal v. Muhammad Akhtar 1971 SCMR 681 rel.
1991 PTD (Trib.) 531; 1993 PTD 392; NTR 1993 (Trib.) 143 and 1999 PTD (Trib.) 4 ref.
Sajjad Ahmed, D. R. for Appellant (in I.T.A.. No.1485/KB. of '1997-98)
Javed Zakaria for Respondent (in I.T.A. No. 1485/KB of 1997-98)
Javed Zakaria for Appellant (in I.T.A. No. 1959/KB of 1997-98)
Sajjad Ahmed, D. R. for Respondent (in T.A. No:1959/KB of 1997-98).
Date of hearing: 7th January, 1999.
ORDER
AFTAB IQBAL RATH6RE (ACCOUNTANT MEMBER). ---These two, cross-appeals have been filed for the assessment year 1995-96 against the order of learned CIT(A), dated 8-10-1997. As the appeals relate to one assessee, these are disposed of through this single order.
2. Heard Mr. Sajjad Ahmed, learned D.R. and Mr. Javed Zakaria,Advocate, learned representative of the assessee.
3. We first take up appeal of the assessee in I.T.A. No. 1959. In addition to agitating the impugned order on facts. the appellant has raised legal objection. In the preliminary legal objection raised, learned A.R. submitted that proviso to section 62(1) of the Income Tax Ordinance was brought on the statute book by Finance Act, 1993. It makes it mandatory for the Assessing Officer, where the assessee produces. books of accounts as evidence in support of the return, that he shall, before disagreeing with such accounts give notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to explain his point of view about such defect and record such explanation and the basis of computation of total income of the assessee in the assessment order. (underlined by us). It was stated that the word "shall" makes it obligatory for the Assessing Officer to give notice to the assessee, if defects in the accounts are found which have to be made basis of computation of income. Further, a notice has to be given in writing. I.T.O. is also legally bound to discuss his objections alongwith reply and explanation of the assessee in the assessment order. It was pleaded that the assessee has maintained proper books of accounts, which were produced before the I.T.O. who examined the same. No notice of the defects alleged to have been found in the books were conveyed in a notice to the assessee. The Central Board of Revenue in its Circular No. 11 of 1993, dated 7th July, 1993 has explained in para. 8 the procedure to be followed for assessment in account cases under section 62(1) of the Income Tax Ordinance. The relevant portion of the Circular is reproduced as under:--
"A proviso has been added to subsection(l) of section 62 to the effect that where the assessee produces books of account as evidence in support of the return, the Assessing Officer shall, before discarding such accounts, give a notice to the assessee of the defects noted in the accounts to provide an opportunity to the assessee to explain his point of view and record such explanation and the basis of computation of total income of the assessee in the assessment order. This is in line with judicial decisions on the subject. With the introduction of this provision following such a procedure has become mandatory."
As the I.T.O it was pleaded, has not followed the mandatory provisions of law, the assessment framed is ab initio void being illegal. Learned A.R. referred to decision of their Lordships of the Supreme Court of Pakistan in the case of Collector Sahiwal v. Muhammad Akhtar 1971 SCMR 681. Their Lordships observed as under:--
"The principle so far as this country is concerned, is accordingly well-settled that where the requirement to be fulfilled to be given by they statute is a mandatory, then the failure to comply with such a mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute". It was further observed by their Lordship that any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage."
5. Learned-A.R. also relied on case-law referred as 1991 PTD (Trib.) 531, 1993 PTD 932 and NTR 1993 (Trib.) 143 and a recent decision of this Tribunal in 1999 PTD (Trib.) 4. Learned A.R. further emphasised that the assessee is an agent of multi-nationals and big companies such as Agro Chemicals, F.F.C., Hoechst. Pakistan Ltd., United Distributors, I.C.I. Pakistan Ltd. and Jan & Sons. Commission received from them was fully vouched and verifiable. If there was any doubt in the mind of the I.T.O. he should have verified the correct position from the said companies. He, however, failed to do so. Regarding the trading account, it was submitted that purchases were made from Jan & Sons, Agro Chemicals, Hoechst Pakistan Ltd. These are fully verifiable. The observation of I.T.O. that sales and commission are not verifiable is not based on any evidence as no such example of unverifiability has been recorded in the assessment order. Regarding the mention of ledger account at page 329 of M/s. Azizuddin & Brothers, it was pleaded that the observation of I.T.O. that no separate trading account of this ledger account has been furnished is neither logical nor reasonable. It is a ledger account of a party with which some trading has been done. The transactions recorded in the ledger are included in the statement of accounts filed with the return of income. No separate trading account for dealings with each party is separately prepared or filed or can be prepared or filed. All the transactions of purchase and sale with other parties, separately recorded in the books of accounts, are consolidated and summarised in the form of purchases and sales and are declared in the Trading account submitted alongwith the return of income. I.T.O. in the assessment order has not made any basis for rejection of accounts and for estimation of addition made in the Trading and Commission accounts. Regarding the profit and loss account expenses, it was submitted that no relief has been given by learned CIT(A). The addition made by I.T.O. at Rs.37,725 has been confirmed and is evident from the order passed under section 132 of the Income Tax Ordinance, 1979 for giving effect to theimpugned order. The ground of appeal taken by the Department in respect of P&L Account is not only vague but superfluous.
6. Learned D.R. submitted that in this case books of account were not produced. It was pleaded that I.T.O. has mentioned the production of only ledger, which cannot be said to be by itself as complete books of accounts. The basic book required to be maintained is Cash Book which was not produced in this case: It was explained that the assessee lead not produced stock register as has also been recorded in the assessment order. It was, however, admitted that I.T.O. has not mentioned the non-production of cash book. It was pleaded that the proviso to subsection (1) of section 62, therefore, cannot be invoked. Learned A.R., however, produced for our perusal books of accounts consisting on cash book ledger, bill books, cash memos and other evidence. It was stated that the books of accounts were accept by 1.T.O. for more than a month for his examination. It was argued that I.T.O. has mentioned non-production of stock register which is not a very important book but has failed to say that cash book was not produced which is most important book. Maintenance of ledger is also dependent on maintenance of cash book. Learned D.R., however, submitted that the defects in accounts have been pointed out by I.T.O. He also agitated the relief given in respect of profit and loss account expenses.
7. We have considered the submissions made,, by both learned representatives. We agree with learned A.R. of the assessee. We are of the opinion that books of accounts which have been produced before us are genuine and were produced before I.T.O. Non-production of stock register has been mentioned by I.T.O. which is not the most important book required to be maintained by a trader. The most important primary book which must be maintained is cash book. The I.T.O. is so casual and careless that he has not cared to mention the production or non-production of this book of account. He has only mentioned production of ledger and that to with reference to the account of M/s. Azizuddin & Sons. The observation made with reference to this account, from the face of it, appears to be illogical and absurd. In view of the above facts and conclusions drawn, I. T. O. in terms of proviso to subsection (1) of section 62 should have confronted the assessee with the defects found in the, books of accounts. It was a mandatory provision which he was required to follow. As he failed to do so he has no legal authority to make any addition in the declared trading results. Any addition made is, therefore, ab initio illegal and void. Even otherwise on fact I.T.O. was not justified to reject- the trading results. Dealings of the assessee are mostly with known and important companies/trading concerns. If there was any doubt with regard to verifiability of any transaction he could have addressed letters to those parties or deputed Inspector for doing the needful. He, however, failed to take any reasonable and correct action. Making observations of transactions in this case being unverifiable, sitting in the office, is not justified and, therefore, cannot be accepted. The attitude and carelessness of I.T.O. is evident from the fact that he has agitated the deletion of additions made out of expenses debited to profit and loss account. Perusal of impugned order shows that no relief has been given by learned CIT(A). The I.T.O. who framed the assessment also drafted ground of appeal and gave effect to the impugned order referred supra. Apparently, as is evident from the facts recorded above, he was totally oblivious of what he was doing. In view of the above facts and the case-law referred above, the additions made by I.T.O. are deleted and it is directed that the declared trading results should be accepted. The appeal of the assessee succeeds in themanner indicated above.
8. As the appeal of the assessee has succeeded and the additions have been deleted, the appeal of the Department in I.T.A. No. 1485 fails and is therefore, rejected.
C.M.A./M.A.K./79/Tax(Trib.) Appeal rejected