I.T.AS. NOS. 124/LB, 125/LB OF 1989-90, 1248/LB TO 1252/LB AND 2268/LB TO 2271/LB OF 1995 VS I.T.AS. NOS. 124/LB, 125/LB OF 1989-90, 1248/LB TO 1252/LB AND 2268/LB TO 2271/LB OF 1995
2001 P T D (Trib.) 2848
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Tauqir Afzal Malik, Judicial Member and
Mahmood Ahmad Malik, Accountant Member
I.T.As. Nos.124/LB, 125/LB of 1989-90, 1248/LB to 1252/LB and 2268/LB to 2271/LB of 1995, decided on 14/07/2000.
(a) Income Tax Ordinance (XXXI of 1979)--
.----Ss.154, 62 & 63---Service of notice ---Assessee contended that assessment should not have been framed under S.63 of the Income Tax Ordinance, 1979 because the alleged notice under S.62 was served on the ex-Chief Accountant of the assessee---Validity---Assessing Officer had no means of knowing that the ex-Chief Accountant who received the notice under S.62 had left the service of the assessee---Representative of assessee kept attending the office of the Assessing Officer but no such objection was ever raised during these proceedings---Contention was repelled by the. Tribunal in circumstances.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.63---Best judgment assessment---Non-attendance of the assessee---Ex parte assessment---Validity---Ex parte action of Assessing Officer was upheld by the Tribunal as the Assessing Officer discharged his legal responsibility of giving adequate opportunity of representation to the assessee and waited for a sufficiently long time for compliance'.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc.-- Enhancement of sales in absence of books of accounts ---Validity---Assessee was duty bound to submit complete and comprehensive details of the sale pertaining to the year under consideration and to satisfy the Assessing Officer regarding their verifiability---Assessee having not done so could not take the plea that its declared version merited acceptance---Enhancement made in the sale was found quite commensurate with the reputation and over all production capacity of the assessee-company and for that reason same were confirmed by the Tribunal.
(d) Income-tax---
----Gross profit rate ---Assessee's declared gross profit for the previous two years was 28 % and 23 % respectively ---Assessee's request for reduction of gross profit to 15 % for the year under consideration was rejected by the Tribunal and it was deemed fit and reasonable to reduce the gross profit rate to 25 % on the same level as in the previous years.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc.---Assessee submitted unaudited accounts---Production record was not submitted for scrutiny---Declared version was rejected by the Assessing Officer-- Validity---Assessing Officer developed co-relationship between the consumption of electricity' and production---Fluctuations in the production pattern which were unnatural and could not be satisfactorily explained-was also noted ---Assessee itself gave certain information regarding the ratio and proportion of consumption of the components and Assessing Officer found that production pattern which evolved the consumption of electricity was at variance with the declared formula---Assessing Officer, on the basis of such blatant and patent discrepancies, was justified to reject the declared version of the assessee.
(f) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Part IV, C1.9 & S.80-C---Option for presumptive tax regime ---Assessee's products were such that those could be utilized only by known industrial concerns which made its sales primarily in the nature of supplies ---Assessee having not exercised its option in C1.9, Part IV of the Second Sched., therefore, the case of assessee fell within the ambit of S.80-C of the Income Tax Ordinance, 1979.
(g) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc. --Rejection of trading result---In the absence of books of accounts it was maintained that the Assessing Officer was justified in rejecting the declared trading result-- Assessing Officer was left with no alternative but to resort to the estimation of the overall production as well as the sales on the basis of sketchy information provided by the assessee as well as the past history of the case--- Treatment given by Assessing Officer merited confirmation because no worthwhile rebuttal was pleaded or given at the appeal stage.
Shafqat Mahmood Chohan and Naseer Ahmad, D.R. for Appellant.
Nemo for Respondent.
Date of hearing: 28th April, 2000 ORDER
MUHAMMAD TAUQIR AFZAL MALIK (JUDICIAL MEMBER).-- These were 11 appeals fixed for today by constituting a Special Bench by the learned Chairman on receipt of Honourable High Court's order, dated 19-4-2000 on 27-4-2000 vide our Diary No. 1602. The appeals were fixed for today by the Honourable High Court; in para. 6 of the High Court's order there was a clear-cut direction to-the appellant as well as tote Revenue for appearing before this Tribunal on 28-4-2000. As an abundant precaution personal service of the A.R. of the assessee was got on order-sheet of appeal bearing I.T.A. No.125/LB/DB of 1989-90 but the assessee/appellant has chosen, not to appear; hence he is proceeded ex parte.
Mr. Shafqat Mahmood Chohan, Legal Advisor and Mr. Naseer Ahmad, D.R. are present for the Revenue.
Perusal of the cause list and files show that appeals are for the assessment years 1986-87, 1987-88,1989-90, 1990-91, 1991-92, 1992-93' and 1993-94 filed by the assessee. Appeals for the assessment years 1989-90, 1991-92, 199.2-93 'and 1993-94- were filed on behalf of the Revenue.
The perusal of the High Court's order shows that in view of the outcome of Tax References Nos.135/1999 for the assessment years 1989-90 to 1993-94, the appeals of the assessee bearing Nos. 1248 to 1252 of 1995 for the assessment years 1989-90 to 1993-94 have only been restored. Rest of the appeals which have been fixed for today by the office have no nexus with the orders of the Honourable High Court, therefore, they are being sent back as having already been disposed of and the appeals of the assessee for the assessment years 1989-90-to 1993-94 are being heard today.
Arguments by the L.A. have been heard. He has objected to the grounds of appeal which are not in conformity with Rule 10 of I.T.A.T. Rules which reads as follows:
"10. Contents of memorandum of appeal.---Every memorandum of appeal shall be written in Urdu or English and shall set forth concisely and under distinct heads the specific grounds of appeals without any argument or narrative, and such grounds shall be numbered consecutively.".
The L.A. has further contended that grounds of all the appeals are neither concise nor narrative but are argumentative. We -agree with the arguments of the L.A. It will not be out of place to mention that when the appeals were originally heard and decided i.e: 26-8-1995 the thon counsel was also confronted about this fact and the same is available on the order sheet dated 24-8-1995 in I.T.A. No.124/LB/DB of 1989-90. This time though there was a clear-cut direction from the Honourable High Court in para. 6 of its order.
"That the petitioner is directed to appear before the learned Income tax Appellate Tribunal on 28-4-2000. "
He has opted to be absent.
It is crystal clear that even in view of Rule 10 of the I.T.A.T: Rules, 1981, these appeals can be rejected summarily being not in conformity with the above said Rule but this is a typical case in which the assessee by using all tactics avoids the finalization of the tax element. Therefore, we will like to dispose of- the appeals on merits also. In view of what had been said supra, we are constrained to reproduce the grounds of appeals which are as under:
Assessment year 1989-90.
(i) The orders of the learned officers below are bad in law' and against the facts of the case inasmuch as that learned Deputy Commissioner of Income-tax was wrong in framing ex parte assessment and learned Commissioner of Income-tax (Appeals) erred in confirming his action of invoking the provisions of section 63 of the Income Tax Ordinance, 1979.
(ii) That notice of section 62 was served upon an unauthorised person the ex-Chief Accountant on the same day i.e. on 29-12-1993 instead of A.R. or Principal Officer of the appellant company. The finding of the learned Commissioner of Income-tax (Appeals) that Deputy Commissioner of Income-tax had no means of knowing that Chief Accountant who received the notice under 'section 62 had left service of the appellant is not in conformity with the record inasmuch as that learned Deputy Commissioner of Income-tax vide Letter No.08 dated 6-1-1994, was duly informed that the Accountant of appellant company had resigned from service and appellant had been facing great difficulties in collecting the requisite information. That admittedly at the time of regular assessment, dated 30-6-1992 made under section 62 details wherever required were provided which were duly scrutinised and placed on the record. Thereafter, no specific details were asked for by the learned Deputy Commissioner of Income-tax who vindictively framed the ex parte assessment under section 63 repeating the same assessment which was not approved by the learned Deputy Commissioner of Income-tax (Appeals). The learned Deputy Commissioner of Income-tax while making revised -assessment has' not at all examined the details and informations which were submitted to his predecessor.
(iii) [xxxxxxxl. .
(iv) That learned Commissioner of Income-tax (Appeals) was not justified in maintaining the rejection of accounts arbitrarily made bythe Deputy Commissioner of Income-tax without complying with the and carrying out the instructions issued by learned Commissioner of Income-tax (Appeals) in appellate order, dated 30-11-1992 in Appeal No.610.
(v) That officers below have arbitrarily fixed the consolidated sales of gases and Calcium Carbide at Rs.45,000,000 against the declared sales of Rs.40,726,582 which were almost twice of the sales of last year i.e. 1988-89 amounting to Rs.20,990,702 declared by appellant and accepted by the department. The declared sales supported by proper sales invoices . and production record should have been accepted.
(vi) That the learned Deputy Commissioner of Income-tax erred, in applying a G.P. rate at 30% against 3.43% evolved from the account books without taking into consideration the directions of the learned Commissioner of Income-tax (Appeals) vide appellate order, dated 30-11-1992 in which he observed that in immediate preceding two years the declared results were accepted when a G.P. rate for the years 1987-88 and 1988-89 was at 16.5 % and 14.53 respectively and he categorically observed that learned Deputy Commissioner of Income-tax having accepted the lower gross profit rate in the immediate preceding two .years was not justified in applying G.P. rate of 30% against the past history of the case.
(vii) That the learned Commissioner of Income-tax (Appeals) failed to appreciate the facts of the case and he was not justified in reducing the G. P. rate from 30% to 25% against 3.43% shown by books: His observations that sales mostly consisted of gases is contrary to facts inasmuch as Calcium Carbide sales amounted to Rs.22,743,234 while the sales -of gases amounted to Rs.17,983,348 aggregating to Rs.40,726,582. This factual position is verifiable from record and details already filed.
(viii) That without prejudice to above, the learned Commissioner of Income-tax (Appeals) has erroneously and without any basis directed for application of an overall G. P. rate of 25% despite the fact that in assessment year 1988-89 a G.P. rate applied at 25.7% was declared and accepted on sales of gases and similarly G.P. rate of 16.08% was declared and accepted in assessment year 1985-86 on sales of Calcium Carbide. Even while dealing with the appeal against the assessment for the charge year 1990-91 the learned Commissioner of Income-tax (Appeals) has maintained the G.P. rate applied at 15.7% on sales of bases against 8.32% shown by appellant while G.P. rate of 21.2% declared and accepted. The application of different rates in two years is unjustified and without any plausible reason.
(ix) That without prejudice to above, the sales estimated and G.P. rate applied are both highly excessive.
(x) That learned officers below have erred in disallowing a sum of Rs.3,000,000 out of the expenses claimed in profit- and loss account expenses.
Assessment year 1990-91
(i) That the orders of the learned officers below are bad in law and against the facts of the case inasmuch as the alleged notice under section 62 was served on the unauthorised person i.e. the ex-Chief Accountant instead of Principal Officer of the company and under the circumstances adverse inference should have not been drawn.
(ii) That the appellant, a public limited company, maintains a regular set of books of account and keeps other relevant record properly. The sales and purchases have been made to and from the known and verifiable parties. The alleged officers below have unjustifiably, illegally and wittingly rejected and confirmed the declared trading results on the basis of whims and surmises. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the submissions of the appellant and his finding regarding non-' submission of books and production record are contrary to facts. The entire addition-made in trading results is uncalled for and liable for deletion.
(iii) That the learned officers below have unjustifiably and arbitrarily estimated and adopted the overall sales of Calcium Carbide and gases at Rs.116,316,324 against Rs.77,502,000 declarod by the appellant company: The sales of Calcium Carbide and gases declared at Rs.58,552,865 and Rs.18,948,900 are supported by exhaustive record and there was no justification in estimating or confirming them at Rs.89,R16,324 and Rs.26,500,000 respectively.. The sales being open to verification should have been accepted. The production record is available for perusal. Surprising the G.P. evolved from books on Carbide at 21.2 % is accepted but declared results are rejected on doubts and suspicion.
(iv) That learned Deputy Commissioner of Income-tax has wrongly worked out short production of calcium carbide at 568 tons and evaluated the same at the sale rate of Rs.22,000 per ton. He .has arbitrarily adopted the electric units consumption at 15,591,541 against actual consumption of 13,958,141 units. While examining production viz-a-viz units consumption he could not appreciate that monthly production figures were from the 1st day of the month to the last day of the each month but billing ranged from 19th to 18th thus, the very basis adopted are illogical and erroneous. The learnedDeputy Commissioner of Income-tax failed to appreciate that plant of the appellant is very old installed sometime in 1970 and formula described by the manufacturer under ideal circumstances can hold good especially when the plant has altogether lost its efficiency. The learned Commissioner of Income-tax (Appeals) also failed to appreciate the submission of appellant inasmuch as that in assessment year- 1991-92 the learned Deputy Commissioner of Income-tax has worked out the production adopting electricity unit consumption at 3800 units per ton but the consumption at 3404 per ton shown by appellant was not accepted. The entire alleged short production is liable to be deleted.
(v) That the learned officers below have erred in applying the G. P. rate of 15% on the estimated sales of gases against declared G.P. rate of 8.32 % evolved from the books of account and no parallel case has been cited.
(vi) That without prejudice to above, the estimate of sales and application of G. P. rate are both highly excessive and uncalled for.
(vii) That the following add backs out of profit and loss account expenses are either uncalled for or highly excessive:
| (a) Salaries and benefits | Rs. 1,000,000 |
| (b) Sales promotion | Rs. 100,000 |
| (c) Repair & maintenance | Rs. 250,000 |
| (d) Legal expenses | Rs. 74,000 |
| (e) Travelling conveyance | Rs. 200,000 |
| (f) Telephone | Rs. 150,000 |
(viii)That finding of learned Assessing Officer regarding alleged late filling of return and proceeding under section 116 are erroneous and contrary to the facts.
Assessment Year 1991-92
(i) That the orders of the learned officers below are bad in law and against the facts of the case.
(ii) That the learned Deputy Commissioner of Income-tax erred in rejecting declared trading version on the basis of whims, surmises and doubts. The learned Commissioner of Income-tax (.Appeals) was also not justified in confirming the rejection of accounts which are supported by all the necessary record and documentary evidence and are liable to be accepted. The learned officers have failed to appreciate that figures communicated to them were all submitted tothe High Court and Corporate Law Authority where some issues werepending decision.
(iii)That learned Deputy Commissioner of Income-tax has arbitrarily and prejudicially raised the sales of Calcium Carbide and Gases from gs.75,651,000 to Rs.103,110,788 without any justification. The products of the company are consumable by industrial undertaking and sales are open to verification which should have been accepted. The learned Commissioner of Income-tax (appeals) erred in confirming the estimate made by the learned Deputy, Commissioner of Income-tax for which there was no valid reason.
(iv) That the' officers below have not appreciated that provisions of section 80C are un-Constitutional and under the Income Tax Ordinance, 1979 the tax can be charged on the income and not on the turnover. The learned Commissioner of Income-tax (appeals), thus erred in confirming' chargeability of tax on the sale and receipts (excluding self-consumption) at rate of 2.5% against 3% applied by the Deputy Commissioner of Income-tax. No credits is allowed even for deductions made under sections 50(4) and 50(5).
(v) That the observations of the, officers below that appellant has not exercised the option to be out of the regime of section 80C is not based on facts.
(vi) That production of the Calcium Carbide worked out by the learned Deputy Commissioner of Income-tax at 3937 tons and confirmed by learned Commissioner of Income-tax (Appeals) adopting consumption of electricity at 3800 units per ton of Calcium Carbide is without any justification and declared results should have been accepted as the plant of the appellant company being old one had lost its efficiency.
(vii) That learned Deputy Commissioner of Income-tax erred in adopting the sales rate of Calcium Carbide at Rs.22,000 per ton which is highly excessive and contrary to the facts. The sales to the Government institutions were admittedly made at Rs.15,554 per ton while the rate in open market was Rs.14,000 per ton which should have been adopted.
(viii) That learned officers below have erred in discarding sale prices of the gases and they have also arbitrarily and without any basis made additions in other income. Such other income forms a part of business which was not a separate source of income. Even otherwise the computation is erroneous and expenses are not correctly allowed. The learned Commissioner of Income-tax (appeals) was wrong in confirming the treatment met out at assessment stage.
(ix) That there, was no justification with the learned Deputy Commissioner of Income-tax in curtailing the profit and loss account expenses by Rs.2,100,000 and the learned Commissioner of Income-tax (Appeals) erred in maintaining such addition.
Assessment year 1992-93:
(i) That orders of the learned officers below are bad in law and against the facts of the case.
(ii) That learned Deputy Commissioner of Income-tax erred in rejecting declared trading. version on the basis of whims, surmises and doubts. The learned Commissioner of Income-.tax (Appeals) was also not justified in confirming the rejection of accounts which are supported by all the necessary record and documentary evidence and are liable to be accepted. The learned officers have failed to appreciate that figures communicated to them were all submitted to the High Court and Corporate Law Authority where some issues were pending decision.
(iii) That learned Deputy Commissioner of Income-tax has arbitrarily and prejudicially raised the sales of Clacium Carbide and Gases from Rs.86,999,000 to Rs.94,732,308 without any justification. The products of the company are consumable by industrial undertaking and sales are open to verification which should have been accepted. The learned Commissioner of Income-tax (appeals) erred in confirming the estimate made by the learned Deputy Commissioner of Income-tax for which there was no valid reason.
(iv) That the officers 'below have not appreciated that provisions of section 80C are un-Constitutional and under the Income Tax Ordinance, 1979 the tax can be charged on the income and not on the turn-over. The learned Commissioner of Income-tax (Appeals), thus erred in confirming chargeability of tax on the sale and receipts (excluding self-consumption) at rate of 2.5 % against 3 % applied by the Deputy. Commissioner of Income-tax, No credit is allowed even for deductions made under sections 50(4) and 50(5).
(v) That the observations of the officers below that appellant has not exercised the option to be out of the regime of section 80C is not based on facts.
(vi) That production of the Calcium Carbide worked out, by the learned Deputy Commissioner of Income-tax at 3744 tons and confirmed by learned Commissioner of Income-tax (Appeals) adopting consumption of electricity at 3800 units per ton. of Calcium Carbide is without any justification and declared results should have beenaccepted as the plant of the appellant company being ld one had lost its efficiency.
(vii) That learned Deputy Commissioner of Income-tax erred in adopting the sales rate of Calcium Carbide at Rs.22,000 per ton which is highly excessive and contrary to the facts.
(viii) That learned officers below have erred in discarding sale prices of the gases and they have also arbitrarily and without any basis made additions in other income. Such other income forms a part of business which was not a separate source of income. Even otherwise the consumption is erroneous and expense are not correctly allowed. The learned Commissioner of Income-tax (Appeals) was wrong in confirming the treatment met out at assessment stage.
(ix) That there was no justification with the learned Deputy Commissioner of Income-tax in curtailing the profit and loss account expenses by Rs.2,501,250 and the learned Commissioner of Income-tax (Appeals) erred in maintaining such addition.
Assessment year 1993-94:
(i) That orders of the learned officers below are bad in law and against the facts of the case.
(ii) That learned Deputy Commissioner of Income-tax erred in rejecting declared trading version on the basis of whims, surmises and doubts. The learned Commissioner of Income-tax (Appeals) was also not justified in confirming the rejection of accounts which are supported by all the necessary record and documentary evidence and are liable to be accepted. The learned officers have failed to appreciate that figures communicated to them were all submitted to the High Court and Corporate Law Authority where some issues were pending decision.
(iii) That the officers below have not appreciated that provisions of section 80C are un-Constitutional and under the Income Tax Ordinance, 1979 the tax can be charged on the income and not on the turn-over. The learned Commissioner of Income-tax (Appeals), thus erred in confirming chargeability of tax on the sale and receipts at rate of 2.5 % against 3 % applied by' the Deputy Commissioner of Income-tax. No credit is allowed even for deductions made under sections 50(4) and 50(5).
(iv) That the observation of the officers below that appellant has not exercised the option to be out of the regime of section 80C is not based on facts.
(v) The learned officers below have erred in making addition in other income. Such other income forms a part of business which was not a separate source of income. Even otherwise the computation is erroneous and expenses are not correctly allowed. The learned Commissioner of Income-tax (Appeals) was wrong in confirming the treatment met out at assessment stage.
(vi) to (viii) [xxxxxxx].
(ix) That there was no justification with the learned Deputy Commissioner of Income-tax in curtailing the profit and loss account expenses by Rs.1,827,000 and the learned Commissioner of Income-tax (Appeals) erred in maintaining such addition.
Assessment year 1989-90:
For the charge year 1989-90 return was filed declaring loss of Rs.1.25,72,745 which was assessed at an income of Rs.31,30,242 after rejecting the declared trading results and making add backs out of P&L account. '
The declared version was rejected by the Assessing Officer because the assessee was unable to produce books of accounts and production record to establish the verifiability of trading results. Furthermore, no details or evidence were provided to substantiate the administrative and financial charges claim, thus resulting in add back of Rs.40 lacs on this account.
The assessment order was set aside for de novo proceedings with the directions to make fresh assessments after providing the assessee opportunity to furnish the required document/details but according to the assessment order despite six opportunities (the detail of dates are available in the assessment order) the assessee failed to provide details whatsoever therefore the Assessing Officer left with no alternate but after giving a notice under section 62 making it clear to the assessee for the repetition of the original assessment repeated the same.
Assessment year 1990-91 :
For this year the assessee, a public limited company, failed to file its return in time. Therefore, a notice was issued under section 56 of the Income Tax Ordinance. Return showing income of Rs.12,91,000 was filed on 11-5-1993 alongwith un-audited accounts, The reasons for delay were explained to be non-receipt of record from the Head Officer of the Company at Karachi where the main business of the company is based. The assessee derives income from manufacturing of Calcium Carbide and Industrial Gases. Again the assessee's Chief Accountant Muhammad Akram and authorised representative Messrs Manzoor Hussain Mir & Company were given lot of opportunities to provide the books of accounts but in vain. Hence after issuing a notice under section 62, dated 12-12-1993 the detail of which is available in the assessment order on pages 3, 4, 5, 6, 7 and 8 the Company was also obliged to give the audited accounts but in vain. Therefore, the D.C.I.T. after getting information from Karachi Electric Supply Corporation and on the basis of previous judgments, keeping in view the units and electricity consumed made the assessment assessing the assessee at Rs.1,42,71,072. '
Assessment years 1991-92, 1992-93 and 1993 ;
Provisional assessments were finalized at an Income of Rs.1,48,00,000, Rs.1,50,00,000, Rs.1,50,00,000 and Rs.1,50,00,000 respectively because no return was filed in time. Later on return for 1991-92 was filed on 25-4-1994 declaring income at Rs.8,21,000 for 1992-93 return was filed on 30-5-1994 declaring an income of Rs.9,31,000 and for 1993-94 return was also filed on 30-5-1994 declaring a loss of Rs.57,78,000. All these returns were accompanied by provisional and un-audited accounts. It was explained that due to internal feuds amongst the directors of the company (the directors have entered into litigation in High Court and with CLA) the accounts could not be audited and return could not be filed in time. However, the fact that the assessee company is a public limited concern with stock quoted on the stock exchange and with capital of more than Rs.2.5 million, the assessee company was under obligation to get its accounts audited and in the absence of audited accounts, the declared version could not be accepted. Therefore, after issuing notices under sections 61 arid 62 to Mian Zahid Samad, Managing Director of the Company attended the officer to explain the reasons for late filing of returns and unaudited accounts but he in writing showed his inability to furnish the details of books of accounts, as according to him, the directors at Karachi were not cooperating. However, he was able to furnish some details and explanation regarding sales production capacity of plants and production achieved. He also vehemently argued for acceptance of trading results in view of mitigating circumstances of the company. It was pointed out to him that sales in respect of Ozygin 'Acyteline gas and Carbide were subject to tax under section 80C as the assessee company has not opted out of the presumptive tax regime. Furthermore, the invoices of sales furnished for examination show that the nature of sales comes within the ambit of section 50(4) and thus, attracted provisions of section 80C but there was no response from the assessee. Hence the assessments were made by the Deputy Commissioner by getting information through his own sources. It will not be out of place to mention that alongwith the assessments issuance of D.N.C., Notice under section 116 were also issued for late filing of returns and non-submission of account-, for the charge years 1990-91 to onwards.
The assessee went in appear for all the years. The C.I.T.(A) as per order dated 22-3-1995 gave its decision on the grounds before us as under:
" 1989-90 Assessment years
The assessee is a public limited company which is engaged in the manufacture and sale of industrial gases and chemicals. The comparative position of the original assessment is given as under:
DeclaredEstimated SalesRs.407,26,582 Rs.450,00,000 G.P. rate 3.43% 30% |
And Addition of Rs.40,00,000 out of the P&L expenses was made thereby determining the net income at Rs.31,30,242 against the declared loss of Rs.1,25,72,745. The, assessment was made in a summary manner for the alleged non-production of the record. It was set aside in appeal.
Re-assessment has been made by only repeating the original figures of Rs.31,30,242 without giving computation or any other figures whatso ever. Natural corollary of this is that the discussion as well as the computation which was made in the original order had become a part and parcel of the order under sections 63/132 and it is the figures of the original order which have been contested in the grounds of appeal.
The first objection is that the assessment should not have been framed under section 63 because the alleged notice under section 62 was served on the ex-Chief Accountant on 29-12-1993. The second objection is that the order has not been passed in accordance with the contents of the notice under section 62 and that the I.T.O. has repeated the original figures of assessment. Both these objections are rejected. The I.T.O. had no mean of knowing that the ex-Chief Account who received the notice under section 62 had left the service of the assessee-company. In any case proceedings went on till 25-1-1994 and the representative of the assessee company kept, attending the office of the Income-tax Officer. No such objection was raised during these further proceedings. The contents of the notice' dated 29-12-1993 have been perused and it, is found that the various points mentioned therein pertaining to assessment years 1990-91 and 1991-92 also because this was a combined notice which was issued for the charge years 1989-90 to 1991-92. The only observation made by the Assessing Officer in respect of 1989-90 was as under:---
"You have failed to provide details in respect of assessment year 1989-90 (set aside case) despite ample opportunities. Please explain why original assessment should not be repeated."
The last order sheet entry reads as under:---
"None attended. In view of the assessment for 89-90 is finalized under sections 132/63. Assessment year 1990-91 is to be finalized under section 62 as part details have been furnished."
Final order was passed on 1-2-1994. In view of the facts discussed above I am .of the considered opinion the I.T.O. discharged his legal responsibility of giving adequate opportunity of representation to the assessee and waited for a sufficiently long time for compliance on its behalf which was not forthcoming for which reason he was constrained to proceed on ex parte basis. The ex parte action of the Assessing Officer is, therefore, upheld.
SALES
In the grounds of appeal it has been contended that the I.T.O. was not justified in estimating sales at Rs.4,50,00;000 against declared at Rs.4,07,26,582 because the sales were entirely verifiable. It- has also been pleaded, that in the immediately preceding year the sales were declared at almost 1/2figure which were accepted because of their verifiable nature. These contentions are found to be without any merit. The past history of the case does not help the assessee in this situation. Its duty is to submit complete and comprehensive details of the sale pertaining to the year under consideration and to satisfy the I.T.O. regarding their verifiability. This was not done. Hence the assessee cannot take the plea that its declared version merits acceptance. The enhancement made in the sales is quite commensurate with the reputation and overall production capacity of the assessee-company for which reason these are confirmed.
G.P. RATE
G.P. of 30% has been applied against declared rate at 3.43% Mr. Nadeem Akhtar Sheikh, A.R. vehemently contended that Calcium Carbide plant of the company had remained document in the past many years and had been re-activated during the year. There was heavy expenditure on its repairs. Because of the teething problems faced on account of restarting of the plant its production was inadequate which resulted in an unusually low G.P. rate. He vehemently argued that there was no justification for the application of G.P. rate of 30% which was highest ever applied in the history of the case. He further contended that due to litigation between the directors the assessee was not in a position to produce record. In the light of these arguments the A.R. vehemently requested that the G.P. rate should be reduced to 15 % which had been applied by the Assessing ' Officer in the succeeding years.
Due consideration has been given to the above observations. However, these are not found fully convincing for the following reasons:
The willing cooperation of an assessee does prove prima facie its bona fide intention. Without a doubt it is felt that for the year under consideration the assessee did not cooperate at all to produce the record to help the Assessing Officer in framing the assessment. Even if there was a tussle going on between the directors the assessee could easily have arranged for the production of the record to which its directors placed at Lahore had access to. This was not done.
The fact that the Calcium Plant was operated only for a period of two months goes to show that the main manufacturing activity of the company was in respect of other products like Oxygen etc. The G.P. rate declared by the company for Oxygen in the years 1986-87 and 1987-88 were about 28% and 23% respectively. Mr. Naeem Akhtar Sheikh was not able to give convincing answer as to why the gross profit available on the company products like oxygen should not be considered to be of the same level as in the previous years.
Keeping in view the above discussion the request of the A.R. for reduction of G.P. rate to 15% is hereby firmly rejected. Taking notice of the partial adverse effect of the starting up of Calcium Carbide Plant, non -production of account books as well as production record it is deemed fit and reasonable to reduce the G. P. rate to 25%.
ADD BACKS Rs.1,15,89,000
On ad hoc basis an amount of Rs.40,00,000 has been disallowed. Mr. Nadeem Akhtar Sheikh submitted the following chart:---
| Reference Year | Declared sales | Claimed | Disallowed. |
| 1988-89 | 2,09,91,000 | 9,651,000 | -738,150 |
| Assessment years | | | |
| 1989-90 | 4,07,26,582 | 11,589,000 | 4,000,000 |
| 1990-91 | 7,75,02,000 | 8,944,000 | 1,774,000 |
| 1990-91 | 7,56,51,000 | 8,700,000 | 2,100,000 |
| 1992-93 | 8,69,99,000 | 10,005,000 | 2,501,250 |
| 1993-94 | 3,47,98,000 | 7,308,000 | 1,827,000 |
He argued that on proportionate basis the Assessing Officer has made highly excessive addition. This objection is found to have some weight. The addition is, therefore, reduced to Rs.30,00,000 Rs.30 lacs.
1990-91Assessment year
The Company declared income of Rs.12,91,000 which has been assessed at Rs.1,42,71,072.
CALCIUM CARBIDE
| DeclaredAssessed Sales5,85,52,8858,98,16,324 G. P. rate21.2 %21.2% Gas Unit Sales1,89,48,9002,65,00,000 G.P. rate8.32%15% |
With the return the assessees submitted unaudited accounts, However, the books of accounts on the, basis of which these were comphea were not produced before the Assessing Officer. Neither production' record was submitted for his scrutiny.
The Assessing Officer took initiative of obtaining necessary information with regard to the consumption of electricity from Karachi Electric Supply Corporation. He also developed co-relationship between the consumption of electricity and production of Calcium Crbide. He noted fluctuations in the production pattern which were unnatural and could not be satisfactorily explained. He took cognizance of consumption of various components which were required to manufacture Calcium Carbide like coke, electrode paste, limestone and packing material. In this connection the assessee itself gave certain information regarding the ratio and proportion of consumption of the components and it was found by the I.T.O. that the production pattern which evolved viz-a-viz the consumption of electricity was at variance with the declared formula. On the basis of these blatant and patent discrepancies he felt justified to throw out the declared version. He adopted the basis for calculating the production sales which is given in page 9 of the order. These facts were verbally confronted to Mr. Naeem Akhtar Sheikh and he had no plausible answer to rebut the basis and treatment given by Assessing Officer both in rejecting the declared version and in adopting the sales as per the order in respect of Calcium Carbide as well as oxygen gas.
As far as the question of applied rates is concerned there can be no cavil at these. In respect of Calcium Carbide the declared rate has been adopted. In respect of oxygen gas 15 % has been applied against declared rate of 8.32 % which is in accordance with the, history of the case.
In view of the above discussion the treatment meted out by the Assessing Officer is held to be reasonable.
Here C.I.T.(A) has made an mistake, because in previous year he applied 25% G. P.
Add backs:
Itemwise discussion of add backs is not being made. It is considered that these are consistent with the objective realities of the appellant's business and are otherwise also reasonable. I confirm all the add backs.
In this case I have my hats off to the Assessing Officer for having discreetly obtained and intelligently marshalled the vital information regarding the consumption of electricity as well as the formula of production in respect of the components of coke, electrode paste, limestone and packing material. With almost no support from the assessee the single handedly and intelligently obtained the necessary information from the concerned quarters and placed together the missing links of the jigsaw puzzle to form a composite picture, of the assessee's production of Calcium Carbide as well as industrial gases. The basis adopted for working out the production has been explicitly given in the order which is rational and reasonable. Mr. Naeem Akhter Sheikh could not point out harshness of treatment of any contradiction in figures of logic of the Assessing Officer. Before parting I would like to say that the Assessing Officer does deserve a pat on his back for framing a logical as well as reasoned order.
In view of the above discussion, the appeal is held to be without any merits and is dismissed.
1991-92 Assessment year:
Unmistakably the assessee-company made supplies of Calcium Carbide to Pakistan Oxygen Limited and Pakistan Railways as under:
| Pakistan Oxygen Ltd. Rs. 579..88 tons Pakistan Railways 26.60 tons Total 606.48 tons |
It is worth noting that the nature of assessee's products is such that these can be utilized only by known industrial concerns which thus, makes its sales primarily in the nature of supplies'. Since the assessee had not exercised its option in clause (9) Part IV of the Second Schedule, therefore, its case fell within the ambit of section 80C.
Even in this year the assessee-company failed to produce books of accounts alongwith necessary documentary evidence. The Assessing Officer was left with no alternative but to resort to the estimation of the overall production as well as the sales on the basis of sketchy information provided by the appellant as well as the past history of the case. In the absence of the books of accounts it is maintained that the Assessing Officer was justified in rejecting the declared trading results. The details of the figures are not being discussed because it is felt to be unnecessary in the circumstances of the case.
Suffice it to say that the production as well as sale rate adopted by the Assessing Officer appear most reasonable and are, therefore, confirmed. However, certain computational errors which are apparent from the order are being removed.
Show-cause notice under section 62 dated 19-6-1994 was issued. The details are contained at pages 2 and 3 of the order. In it the Assessing Officer gave facts and figures to justify the proposed production and sales which he intended to estimate. At serial No.6 of this notice he stated "Sales to own unit -20 % of production as per history @ 11,000 Rs.1,02,85."
The contention of the assessee is that the Assessing Officer failed to give effect to it while computing the sales of Calcium Carbide. In his -written arguments the learned counsel has stated as under:
"The Assessing Officer also erred by assuming that the entire production made by -the assessee has been sold to 'the outsiders whereas in fact the Calcium Carbide is basic raw material- which is used by the, assessee in its own units for production of industrial gases. As no Calcium Carbide was imported during the year, therefore, even production was used in gas units as per practice in the past. This fact also stands confirmed from the notice issued under section 62 in which the assessee has been given an allowance of heavy consumption equal of 20% based on the history of the case. However, while computing the tax, this factor was ignored by the Assessing Officer. "
The argument of the A.R. is correct both factually and logically.
Calcium Carbide being raw material for the production ofindustrial gases it is natural to conclude the part of the total production of Calcium Carbide was diverted towards the production of gases 20% production of Calcium Carbide has been considered as self-consumption even in the past. The Assessing Officer failed to give effect to this important observation made himself in the notice, under section 62 at serial No.6 as discussed above. Therefore, relief is given to the assessee on this score. At page 4 of the order the total production of calcium cabridge has been worked out, at 3939.17 tons. 20 per cent. of this production is to be considered as sales to own unit for purposes of self-consumption of manufacture of industrial gases. Necessary effect to it will be given by the I.T.O.
On the sales to Pakistan Oxygen, Pakistan Railways as well as to other parties,the I.T.O. had adopted deduction of 3 % under section 80C. It is the contention of the A.R. that the correct rate is 2.5 % within the meaning of the Board's Circular No. 11 of 1991 dated 30-6-1991. It is also observed that the I.T:O.. Circle 8 Companies Zone-II, Lahore who is currently holding charge of the case vide her Letter No.427 dated 19-2-19 (sic) has stated as under:
"As far the application of rate of 3 %a on supplies is concerned the contention of the A.R. seems to tie correct because on supplies of goods. 2.5% tax should be deducted."
In view of this admission of the incumbent I.T.O. rate is reduced from 3% to 2.5%.
Other income
The assessee has declared an amount of Rs.12;00,000 as income from sale of scrap and cylinder bodies etc. Since no details were furnished; this has been estimated at Rs.13,00,000. The A.R. stated that the estimate was excessive. However, in the absence of the record it is considered to be reasonable and is confirmed.
Mr. Naeem Akhtar Sheikh, A.R. submitted additional ground of appeal in which 'he argued that this income should not be considered as a separate income assessable under section 62, rather it should be taken as part and parcel of the supplies which have been taxed under section 80C. His additional ground is reproduced as under:
"During the above years, the assessee's income included receipts on account of sale of scrap and profit on sale of fixed assets shown under the head Miscellaneous Income. The Assessing Officer while framing the assessment under section 80C estimated the above receipts and subjected them to tax under. normal law.
We wish to submit that the above treatment is against the spirit of section 80C. Under subsection. (4) of section 80C, where assessee does not have any other income, then the income taxed under, section. 80C, the same is considered as a full and final discharge of tax under the Ordinance. Your honour will appreciate that in the above case, the entire sales of the assessee has been subjected to tax under section 80C, and therefore, in light of the above subsection, the estimate of Miscellaneous Income is patently, illegal and unwarranted by law. We, submit that Miscellaneous Income is nothing but additional business.
The clause (IV) of Circular No.8 relevant to the above issue. Is reproduced as under:
The tax deducted or collected at source shall be deemed to be the final discharge of tax liability in respect .of all persons including company and registered firms who have no other receipt or source of income.
It is submitted that the word other receipts used in the above circular refers to sales which are non-supplies and are to be taxed under normal law on prorata basis. Similarly, other sources of income represents the income derived from sources other than those subjected to tax under section 80C.
It is interpretation taken by the Department is considered as correct then there will be almost no assessee liable to tax under section 80C as the Miscellaneous Income accrues to all the businesses. Therefore, the interpretation taken by the Department if assumed to be correct will make the application of 80C as redundant.".
This contention is found to be absolutely illegal and is firmly rejected. Circular No. 12 of 1991 makes a clear-cut distinction between the supplies and other receipts. Sales of scrap and cylinder bodies were not made to known parties in the shape of supplies. These, therefore, be taxed under, normal law under section 62. The treatment of the Assessing Officer is hereby confirmed.
Add Backs
Total amount of Rs.87,00,000 has been claimed as expenses out of which Rs.66,00,000 have been allowed which means an amount of Rs.21,00,000 has been disallowed. Keeping in view the total turn over from all the sources, the past history, as well as the absence of the documentary evidence in support of the claimed expenses the treatment is considered reasonable and is confirmed.
1992-93 Assessment year.
For the purpose of brevity the detail of the case for the year under consideration are not being given. Suffice it to say that the issues involved and the decisions made are the same as in the year 1991-92. Briefly the assessee-company indulged in the manufacture' and sale of Calcium Carbide and oxygen, but did not produce 'the books of accounts and the accompanying documentary evidence. Also it did not file the option as contemplated in clause (9) part IV of the Second Schedule because of which fact its case falls within the four corners of section 80C. A specific mention to this effect has also been made by the I.T.O, in the assessment order itself. The: treatment given by the Assessing Officer in rejecting the trading results, in estimating sales, in applying G.P. rate, the add backs are confirmed because no worthwhile rebuttal was pleaded or given at the appeal stage. Furthermore, the plea of the appellant that other income should be considered to be part and parcel of the supplies and be taxed under section 80C is considered to be unacceptable and is rejected for the same reasons as given in the order for 1991-92. However, partial relief is given in the computational errors on the same lines as in the preceding years and in the following manner.
The rate of tax is reduced from 3 % to 2.5
2. The assessee is to be given relief to the extent of 20% of the production of Calcium. Carbide as intimated in the show-cause notice dated 15-6-1994 at serial No.6 but no given while calculating the production and sales in the subsequent part of the order.
1993-94 Assessment year.
The facts and circumstances of the case are almost identical to those of 1991-92 and 1992-93' and for that reason are not being given or repeated in detail. It is enough to say that the I.T.O. was justified in rejecting the declared version of the assessee for the reasons recorded in the order and subjecting the sales to tax-under section 80C because the option contained in clause (9) of Part IV of the Second Schedule was not exercised by the assessee. Therefore, the entire treatment given in .the order is held to be fair and reasonable except the issues which are discussed hereunder:
(1) ' Rate of tax is reduced from 3 % to 2.5 % .as in the earlier years. '
"The assessee's plea that sales in respect of the other income should be considered an integral part of the section 80C sales is hereby rejected for the same reasons as have been recorded in the earlier orders."
The C.I.T.(A) has thoroughly examined all aspects of the case and has given a detailed judgment thereon. The appeals having not been substantiated by the appellant and after hearing the LA/DR for 'the Revenue and going through the record, we are not inclined to interfere for the assessee. The order of the C.I.T.(A) on all the grounds of assessee taken before us being exhaustive and with proper application of take and mind, we uphold it and dismiss all the appeals of the assessee on merits as well.
The upshot of this discussion is that all the appeals of the assessee are dismissed.
C.M.A./M.A.K./84)/Tax(Trib.)Appeals dismissed.