Income Tax Ordinance (XXXI of 1979)---

----S.79---Customs Act (IV of 1969), S.25(4)(5)---Income from transactions with non-residents---Export---Trading account---Addition---Assessing Officer made addition in trading account on account of difference in declared selling rate and the rate adopted by the Custom Authorities for assessment of export duty which was confirmed by First Appellate Authority ---Assessee contended that remittances received were verifiable and valuation was done under S.25, Customs Act, 1969 on a hypothetical basis and not on actual price---.Validity---Criteria for application of S.25, Customs Act, 1969 was that the seller and the buyer could be "deemed to be associated in business with one another" and so was the criteria under S.79, Income Tax Ordinance, 1979 for determining the amount of profits which would have accrued to the resident but, by reasons of making or imposing conditions between them in their financial transactions which differed from those which would be made between independent persons; had not so accrued---No appeal was filed against valuation by the Custom Authorities---Impugned order was confirmed and appeal was dismissed by the Tribunal.

Arshad Siraj for Appellant.

Shaheen Aziz Niazi, D. R. for Respondent.

Date of hearing: 24th February, 1999.

ORDER

S. M. SIBTAIN (ACCOUNTANT MEMBER).---Objections are taken in this appeal to the order of the learned C.I.T.(A) for upholding the rejection of trading A/c. and .addition of Rs.6,888,698 in molasses export account made for the alleged difference in the declared .selling rate and the rate adopted by Custom Authorities for assessment of export duty, for maintaining the disallowance of Rs.4,48,317 out of expenses claimed in storage account and for setting aside the order on charging WWF instead of deleting it.

2. Objections taken to setting aside of addition of Rs.416,740 in sugar account and maintaining the add backs out of various expenses claimed in the P&L A/c. are not pressed by Mr. Arshad Siraj, the learned counsel of the appellant: hence appeal dismissed on these grounds is not pressed.

3.We have heard the learned representatives of the two parties.

4. The appellant, a registered firm, is engaged in the business of molasses export, trading of sugar besides undertaking handling and storage jobs.

5.Brief facts regarding molasses export account are that the appellant has declared G.P. @ 31.07 % on export proceeds of Rs.138,438,096 in the instant year against G.P. declared @ 31.3% on export proceeds of Rs.118,326,376 in 1989-90. While there is a nominal fall in G. P. rate there is a slight increase in the percentage of wastage/shortage from 1.77% to 1.89% which is found by the learned Assessing Officer (AO) to be "favourably comparable with other parallel cases". Further, he has observed that the entire purchases having been made from sugar mills and the entire sales being exports are fully verifiable. However, he has noted that while exports during the corresponding income year have been declared @ US $40.00 and US $50.00 per tone. Customs have valued the exports @ US $42 and US $52 under section 25 of the Customs Act, 1969 on the basis of rate quoted in the International Market after due allowance of variation ranging from 3 % to 5 % for the purposes of charging export duty.

6. The learned A. O., therefore, has asked the appellant to explain why the gross export proceeds should not be worked out at the rate assessed by Customs.

7. It is explained on behalf of the appellant that income-tax assessment is to be made on actual gross sales as evidenced by the LCs from its customers. The LC is a primary evidence in support of the genuineness of the price i.e. FOB export price charged by it and received by it from the customers. Apart from the LCs, the actual remittances received through National Bank of Pakistan under their advices are also fully verifiable and are supported by certificates from National Bank duly attested by State Bank of Pakistan. So far as the customs valuation is concerned, the same is done under section 25 of the Customs Act on a hypothetical basis and not on actual price. The valuation is governed by subsections (4) and (5) of section 25 which are meant only as guide-lines for. the purposes of assessment of custom duty and they have nothing to do with the actual price contracted and received by the exporter.

8. The learned Assessing Officer has discarded the explanation supra holding:

"The selling rates of the molasses are not only doubtful but the same are on the lower side as per International Market since the Custom Authorities have adopted higher rate of export according to the price prevailing in the International Market and have also charged the export duty on the enhanced rate. Besides, same treatment was given by the Department in the case bearing N.T. No. 12-12-326800 and the estimate of export sale price as per custom valuation was upheld by the Commissioner of Income-tax (Appeals) Zone-III, Order No. 198, CIT (A)/III/1991 dated 21-11-1991."

9. The learned CIT(A) has upheld the impugned finding holding:

"The assessing authority was quite justified in rejecting the Molasses export trading account and making addition of Rs.6,888,689 because the same is based on the valuation made by the Department of Pakistan Custom which is an expert authority to determine the export rate on a particular date. The arguments of the learned counsel in this respect have no force hence discarded and the action of the assessing authority is hereby upheld."

10. We, therefore, shall consider the relevant provisions of the Customs Act as well as the Rules in this context, Section 25(1) of the Customs Act ibid provides:

"25. Value of imported and exported goods.---(1) The value of any imported goods shall be taken to be the normal price, that is to say, the price which they would fetch, (on the date referred to in section 30), on a sale in open market between a buyer and a seller independent of each other."

11. Subsection (4) of section 25 and the explanations provide:

"(4) The value of any exported goods shall be taken to be the normal price, that is to say, the price which they would fetch, at the prescribed time, on a sale in open market for exportation to the country to which the goods are consigned between a seller and a buyer independent of each other.

Explanation. ---For the purposes of this subsection, the expression 'prescribed time' shall mean the time when the bill of export is delivered under section 131 or, when export of the goods is allowed without a bill of export or in anticipation of the delivery of a bill of export, time when export of the goods commences.

Explanation I.---A sale in open market between a buyer and a seller independent of each other presupposes:---

(a) that the price is the sole consideration;. and

(b) that the price is not influenced by any commercial, financial or other relationship, whether by contract or otherwise between the seller or any person associated in business with him and the buyer or any person associated in business with him other than the relationship created by the sale itself;

(c) that no part of the proceeds of any subsequent resale; other disposal or use of the goods will accrue, either directly or indirectly, to the seller or any person associated in business with him.

Explanation II.---Two persons shall be deemed to be associated in business with one another if, whether directly or indirectly, either of them has any interest in the business or property of the other or both have a common interest in any business or property or some third person has an interest in the business or property or both of them. "

12. Before proceeding further we shall make an observation at this juncture that reference to the Rules, printed at pages 213 and 215 of the Customs General Order, 1971 and 1982, made before the learned assessing officer is not relevant in context of exports because the Rules ibid relate to valuation of imported goods.

13. We find on consideration of the provisions of the Customs Act supra that the criteria for application of provisions of subsection (4) of section 25 supra, inter alia, is that the seller and the buyer can be deemed to be associated in business with one another" and so is the criteria under section 79 of the Income Tax Ordinance, 1979 for determining the amount of profits which would have accrued to the resident but, by reasons of making or imposing conditions between them in their financial transactions which differ from those which would be made between independent persons, have not so accrued.

14. We further find that the admission of the appellant that Pakistan Customs have taken the value of exported goods at the rates supra because the transactions of its exports are hit by the criteria supra is implied in the fact that it has riot 'filed any appeal against such valuation by the Customs.

15. Accordingly, we find no substance in the submissions of the learned counsel of the appellant that the learned CIT(A) has failed to appreciate that the learned Assessing Officer has failed to establish that the nature of export transactions of the appellant attracts the provisions of section 79 of the Income Tax Ordinance to determine the proper amount of profits; hence impugned order confirmed and appeal dismissed..

C.M.A./90/Tax(Trib.)Appeal dismissed.