I.T.AS. NOS.6183/LB, 6182/LB, 6180/LB, 6181/LB, 853/LB AND 854/LB OF 1999 VS I.T.AS. NOS.6183/LB, 6182/LB, 6180/LB, 6181/LB, 853/LB AND 854/LB OF 1999
2001 P T D (Trib.) 1480
[Income-tax Appellate Tribunal Pakistan]
Before Syed Nadeem Saqlain, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member
I.T.As. Nos.6183/LB, 6182/LB, 6180/LB, 6181/LB, 853/LB and 854/LB of 1999, decided on 19/04/2000.
(a) Income Tax Ordinance (XXXI of 1979)--- .
----S.62---Assessment on production of accounts, evidence etc.---No books of account were produced on ground of being lost---No specific notice was, issued under S.62, Income Tax Ordinance, 1979---Assessment of sales without confrontation of proposed sales---Validity---Assessing Officer though could not confront the assessee with the defects in account in absence of any books of accounts but the Assessing Officer should have confronted the assessee with the proposed estimation of sales rather than giving general type of notice which in no way could be equated with the notice under S.62(1) of the Income Tax Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)--
----S.52---S.R.O. No.368(1)/94, dated. 7-5-1994---C.B.R. Letter No.C. No.3(7)SS(WHT)/98-99---Assessee in default---Purchases by assessee company---Non-deduction of tax ---Company/assessee having paid up capital less than Rs.1.5 million was not liable to deduct tax on its purchases and the assessee was erroneously declared as assessee-in-default by the Assessing Officer---Order of the Assessing Officer was cancelled by the Appellate Tribunal in circumstances.
Muhammad Shahid Abbas for Appellant (in I.T.As. Nos.6183/LB, 6182/LB, 6180/LB and 6181 /LB of 1999).
Shahid Azam, D.R. for Respondent (in I.T.As. Nos.6183/LB, 6182/LB, 6180/LB and 6181/LB of 1999).
Shahid Azam, D.R. for Appellant (in I.T.As. Nos.853/LB and 854/LB of 1999).
Muhammad Shahid Abbas for Respondent (in I.T.As. Nos.853/LB and 854/LB of 1999).
Date of hearing: 22nd March, 2000.
ORDER
SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---Out of these six appeals; four are cross-appeals, two each by the assessee and the department; arising out of the order made under section 62 for assessment years 1997-98 and 1998-99 while the remaining two are directed by the assessee against the order made under section 52 of the. Income Tax Ordinance, 1979 in respect of the came assessment years. These appeals are instituted against two separate orders made by CIT(A), Zone-II, Lahore each, dated 13-12-1999. All the issues involved in these appeals are adjudged through this single order.
Appeals against the order made under section 62
It has vehemently been contended by the learned counsel for the assessee that as the assessee was not confronted with the proposed estimation of sales in terms of notice under section 62(1) of the Income Tax Ordinance, 1979, the Assessing Officer was not justified in invoking section 32 of the Income Tax Ordinance, 1979 in the instant case. It was pointed out that in similar circumstances it was held by the Tribunal that any addition made in the declared trading results in absence of confronting the assessee with the defects found in the books of accounts, renders the same to be ab initio illegal and void. Accordingly it was directed that the declared trading results be accepted. Reference in this regard was made to one reported judgment cited as 1999 PTD (Trib.) 3892 and to another unreported decision bearing I.T.A. No.1793/LB/1999 order, dated 10-12-1999. Alternative argument was that adequate relief has not been allowed to the assessee in the estimate of sales particularly when the assessee is declaring encouraging results year after year. Also contended that 3 the assessee could not deduct tax from the parties from whom purchases were made and he was declared assessee in default under section 52 of the Income Tax Ordinance, 1979, thus by operation of this section the entire purchases have become verifiable. In view of this position he stated that the sales cannot be estimated beyond shortfall in gross profit rate. The solitary grievance of the department on the
other hand is that the sales were reduced by the learned Appeal Commissioner without assigning any cogent reasons.
3. Coming to first contention of the assessee that the declared trading results merited acceptance in the absence of issuance of notice under section 62(1) of the Ordinance, is devoid of any force. Though the assessee was handicaped to produce books of accounts during the course of assessment proceedings, being those were lost and RIK alongwith newspaper clips were submitted to this effect, nevertheless the fact remains that the assessee could not substantiate its declared results with any corroborative evidence. It is amazing how come the Assessing Officer could confront the assessee with the defects in account in absence of any books of accounts produced for his examination. The case-law referred to before us on this point would be of no avail because decision in those cases revolves around altogether different set of facts viz. the assessee's case. Had the assessee substantiated his returned version with books of accounts or adduced any documentary evidence to support the declared result and the Assessing Officer failed to confront with the defects in account there would be prima facie a strong case in favour of the assessee. Anyhow, we agree to the contention of the learned counsel to the extent that the Assessing Officer should confront the assessee with the proposed estimation of sales rather than giving a general type of notice which in no way can be equated with the notice under section 62(1) of the Ordinance.
4. So far as cross-objection regarding estimation of sales are concerned, relevant facts leading for disposal of this issue are that the assessee-appellant is a private limited company which derives income from selling shoes at the shop. For the assessment years 1997-98 and 1998-99, sales were shown by the assessee at Rs.15,25,140 and Rs.17,82,960 respectively as against declared at Rs.14,73,383 in the immediately preceding assessment year 1996-97. The gross profit rate was yielded at 20 % in each year under reference. However, it was observed by the Assessing Officer; that not only increase in sales is visible yet the gross profit rate is also showing slight improvement in the years under appeal viz. the preceding assessment year. As the assessee could not substantiate its returned version with any documentary evidence, the Assessing Officer rejected the declared trading version and annual turnover was evolved at Rs.60 lacs and Rs.75 lacs by adopting daily sales at Rs.20,000 and Rs.25,000, as against worked out at Rs.5,084 and Rs.5,943 respectively, and multiplying them by number of working days Of 300. These sales were subjected to gross profit rate of 20% as was declared by the assessee. When this issue was assailed before the Appeal Commissioner who slashed down daily sales to Rs.10,000 and Rs.15,000.
5. We have considered the rival arguments advanced by the two learned counsel. There is hardly any substance in the contention of the assessee that the sales should be estimated on the basis of Dandikar formula. By no stretch of imagination the purchases can be declared verifiable in case the assessee is held to- be assessee in default under section 52 on account of non-deduction of tax on, purchases. This section only empowers the assessee (payer) to deduct tax 661rr the supplier of goods (recipient) at the prescribed rate otherwise he would-be declared assessee in default and nothing more. In any case heavy duty lies on the shoulders of the assessee to substantiate veracity of purchasers independently. As the purchases remained unverifiable in absence of production of books of accounts, the sales cannot be estimated by following Dandikar formula.
6. However, it is pertinent to mention that the Assessing Officer had shown his intention in the notice issued under section 62, dated 18-8-1989 that he would estimate "reasonable" sales in absence of production of books but conversely he pitched up the sales to such an exorbitant figures without any rhyme and reasons. Having taken regard to the fact that encouraging sales are shown by the assessee year after year coupled with it the assessee was not confronted with the proposed estimation of sales and also keeping in view the capital employed in business we feel 'convinced that further relief was warranted in the estimate of sales. Accordingly, the Assessing Officer is directed to adopt sales of the assessee at Rs.18,00,000 for assessment year 1997-98 and Rs.21,00,000 for assessment year 1998-99. Since we have allowed further relief to the assessee in the estimate of sales, therefore, the departmental objection does not carry any force in this regard.
7. The other contention of the assessee that the additions made in certain heads of the profit and loss expenses was uncalled for. For assessment year 1997-98, the additions made by the Assessing Officer under the heads telephone account, printing and stationery account, travelling and conveyance account, newspaper account, entertainment account and miscellaneous expenses seem to be reasonable, hence his action is maintained in this regard. In the assessment year 1998-99, the additions are restricted to Rs.570, Rs.888, Rs.441, Rs.753 and Rs.511 respectively under the head printing and stationery account, travelling and conveyance account, newspaper account, entertainment account and miscellaneous expenses account after considering the treatment confirmed by us in the preceding assessment year. However, following the history considering the fact that the claims were supported with documentary evidence, the additions made under the heads electricity bills/repair and postage account are deleted. In telephone account, the action of the Assessing Officer is endorsed by us.
Assessee in default under section 52 of the Ordinance
8. It has been contended by the learned counsel that the purchases affected by the assessee during the years under appeal do not hit by mischief of section 52 of the Income Tax Ordinance, 1979 as paid-up capital of the company is less than Rs.1.5 million. This limit of paid-up capital is fixed by the C.B.R. in pursuance of para. (i) of SRO No.368(1)/94, dated 7-5-1994. To substantiate the contention that paid-up capital was below Rs.1.5 million, copies of Company's Balance Sheets ending as at 30-6-1997 and 30-6-1998 are filed before us. Also pointed out by the counsel that this SRO is still operative. In this regard he referred to a clarificatory letter issued by the C.B.R. bearing No. C. No.3(7) SS (WHT)/98-99 Islamabad, dated 10th June, 1999 wherein it has been clarified that proviso to subsection (4) of section 50 is not applicable to companies whoever fulfils the condition as mentioned in clause (i) of the said SRO. Thus, the assessee was exempt from deduction of tax while making payments on its purchases. The learned D.R., on the other hand, could not controvert the contentions raised above by the learned AR with any plausible reasons.
9. Upon having perused the orders made by the two authorities below as well as the documents furnished before us we are fully convince that the assessee was erroneously declared as assessee's in default in the years under appeal. The SRO number ante has specified three classes of payers to whom subsection (4) of section 50 of the Income Tax Ordinance, 1979 would not apply. Out of these, one class of payer refers to Companies whose paid-up capital is below Rs.1.5 mullion. As per the Balance Sheets filed before us, paid-up capital of the Company has been shown at Rs.385,900. So, this circular applies with all force to the facts of the present case. Having taken regard to the fact that the SRO referred to ibid was in operation coupled with its paid-up capital of the company was less than Rs.1.5 million in the years under appeals, we hold that the order passed by the Assessing Officer under section 52 was without lawful jurisdiction. Consequently, the consolidated order made by the Appeal Commissioner is vacated and that of the Assessing Officer passed under section 52 stands cancelled.
10. In the result, the appeals filed by the assessee partially succeed while those of the department fail and are dismissed being bereft of any merits.
C.M.A./M.A.K./94/Tax(Trib.) Order accordingly.