I.T.A. NO. 1072/KB OF 2000-2001 VS I.T.A. NO. 1072/KB OF 2000-2001
2001 P T D (Trib.) 2922
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and
Javed Masood Tahir Bhatti, Judicial Member
I.T.A. No. 1072/KB of 2000-2001, decided on 28/04/2001.
Income Tax Ordinance (XXXI of 1979)- ---
--Ss.66-A, 62, 80-D & Second Sched., C.1. (118-D)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessee declared sales of Rs.153,462.972 for the period of "Trial Production" from 8-4-1993 to 30-9-1993 (Assessment year 1994-95) and tax under S.80-13 was paid---Assessing Officer while finalizing the assessment for the assessment year 1995-96 under S.62 of the Income Tax Ordinance, 1979 had taken the date of commercial production as 1-10-1993---Inspecting Additional Commissioner modified the assessment for the assessment year 1995-96 and date of production was taken as 8-4-1993 instead of 1-10-1993 contending that sale of such magnitude could not be termed as trial production-- Consequently, assessee's entitlement to exemption for a period of 5 years under C1. (118-D) of the Second Sched. of the Income Tax Ordinance, 1979 was allowed w.e.f. 8-4-1993 to 8-4-1998---Validity---According to Inspecting Additional Commissioner exemption would start from 8-4-1993 and not from 1-10-1993 which meant that income after 8-4-1998 would become taxable, whereas according to original assessment income after 30-9-1998 would become taxable---If there was an error iii the ascertainment of exact date of the start of the commercial production, the same occurred in the assessment year 1994-95 and not assessment year 1995-96--Case of the revenue was not that the income for the assessment year 1995-96 was taxable apprehension of the Revenue was that the assessee would be allowed exemption between 8-4-1998 and 30-9-1998 which was not due---Inspecting Additional Commissioner had not given a clear finding that there was in fact any income for such period of approximately 6 months on which the assessee could be asked to pay tax or if there was any other prejudice caused to the Revenue---Order of the Inspecting Additional Commissioner was cancelled by the Tribunal in circumstances.
1998 PTD (Trib) 3742 ref.
Shabbar Zaidi, F.C.A. for Appellant.
Qamaruddin, D.R. for Respondent.
Date of hearing: 24th April, 2001.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN). ---This is the appeal of a public company and is directed against an order, dated 21-2-2001 recorded by the learned IAC of Income-tax, Range-II, Special Zone, Karachi whereby she has proceeded under section 66-A of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) to modify the assessment order framed under section 62 of the Ordinance, dated 28-10-1996. The learned IAC has held the assessment order, dated 28-10-1996 to be erroneous in so far as prejudicial to the interest of the revenue with the following observations:---
"The perusal of the record shows that the assessment order of assessment year 1995-96 finalised on 28-10-1996 of the Ordinance, is erroneous, in so far as prejudicial to the interest of revenue. The examination of the record shows that trial operation (Yarn manufacturing) of the Industrial undertaking commenced from 8-4-1993 (Reference Note 1.2 of audited accounts for the year ending 30-9-1993), correspondingly year manufacturing sales during the period 8-8-1993 to 30-9-1993 (assessment year 1994-95) were declared at Rs:153,482,978. Tax under section 80D was charged on these sales. In the assessment year 1995-96 turnover has been declared at Rs.621,842,212 on account of sales of self-manufactured yarn. The Assessing Officer while finalizing the assessment for this year under section 62 on 28-10-1996 has taken the date of commercial production as 1-10-1993.
The assessee availed exemption in respect of profits and gains of industrial undertaking w.e.f. 1-10-1993 to 30-6-1998 under clause (118D) of the Second Schedule to the basis of findings of the Assessing Officer.
It has, however, been observed that the Assessing Officer fell in error in determining 1-10-1993 as the date' of commercial production of the industrial undertaking, whereas admittedly he had started sales of self-manufactured yarn w.e.f: 8-4-1993 and had made huge sales of over Rs.153,482(M) during the short span of 6 months up to 30-9-1993. Sales of this magnitude cannot be termed as trial production. The value of sales suggest that sales during this period were marketable and corresponding production ought to have been treated as commercial production as it is held by the learned ITAT in 1998 PTD (Trib) 3742. "
2. The learned IAC conducted detailed proceedings and confronted the assessee with various objections and also she has considered the reply before cancelling the assessment in the following manner:--
"In view of the issues discussed at length, the unsatisfactory reply of the assessee, dated 28-8-2000 to show cause under section 66-A of the Ordinance, and this Office Letter No.73, dated 25-9-2000 as reproduced above, the assessment of the assessment year 1995-96, framed under section 62 of the Ordinance, on 28-10-1996 being erroneous in so far it is prejudicial to the interest of revenue is hereby modified and date of commercial production is taken at 8-4-1993 instead of 1-10-1993. The assessee is, therefore, entitled to exemption for a period of 5 years w.e.f. 8-4-1993 to 8-4-1998."
3. The learned A.R. of the assessee has strongly argued that the learned IAC was not justified to initiate the proceedings under section 66-A of the Ordinance. It was submitted by the learned A.R. of the assessee that the assessment for the assessment year 1994-95, i.e. preceding year had been framed by assessing the income in respect of trial production after the Assessing Officer had categorical held that the assessee had not commenced the commercial production till 30-9-1993. The learned A.R. of the assessee further argued that the observations of the Assessing Officer in the assessment year 1994-95 had become final as no action has been taken in that year. It was also argued that the assessee was not allowed exemption in the assessment year 1994-95 and minimum tax has been charged after considering the sales as well as declared trading result. According to the learned A.R. of the assessee if-here was any error or prejudice caused to the revenue, the same had occurred in the assessment year 1994-95 and not in the assessment year 1995-96 in which year the tax exemption is un -disputably allowable. The learned A.R. of the assessee has also submitted that the learned I.A.C. was not justified to probe or discuss the facts as finally determined in the assessment year 1994-95 while proceeding under section 66-A of the Ordinance in the assessment year 1995-96. The learned D.R. on the other hand supported the order of the learned I.A.C. with the arguments that the observation of -the Assessing Officer with regard to the commencement of commercial production w.e.f. 1-10-1993 in the assessment year 1995-96 was erroneous and had caused prejudice to the interest of revenue since the period of exemption had illegally been extended beyond the limit allowed by the law.
4. The arguments of both the parties as well as facts of the case have been considered. The Assessing Officer while passing the assessment order for the assessment year 1994-95 has given the following observation in the assessment order:--
"Admittedly commercial production has not been started till 30-9-1993. This is evident from Note No.1.2 of audited accounts. In the absence of this basic pre-requisite no finding with regard to claim of assessee for exemption of its profits and gains under clause (118-D) of the Second Schedule to the Income Tax Ordinance, is given. Claim will be examined on start of commercial production. "
5. While making the assessment for the assessment year 1995-96 the Assessing Officer has examined the claim of exemption and given a finding that 'commercial production was started on 1-10-1993'. This finding has been given after verifying various certificates and other conditions. In the assessment year 1994-95 the assessee has declared turn-over of Rs.153;462,972 for the period of 'trial production' and tax amounting to Rs.767,415 under section 80D of the Ordinance is said to have been paid/was payable. In the. assessment year 1995-96 the assessee declared the turn-over at Rs.621,842,212 and again a minimum tax was charged at Rs.3,109,490 in respect whereof.
6. According to the learned IAC, the tax holiday should have started w.e.f 8-4-1993 when the assessee claims to have started trial production. For this conclusion the learned IAC has relied on a decision of the Tribunal mentioned above. In that case the Tribunal, after examining the facts and circumstances of the case, held that a certain amount of turnover could not be held to be a trial production keeping in view the facts and circumstances of that case. Irrespective of the question whether the ratio settled by the Tribunal in the case reported as 1998 PTD (Trib) 3742 (supra) is applicable to the fact of this case, the error, if any, was committed in the order for assessment year 1994-95 in which the assessee claim to have made only trial production and the learned IAC now thinks that was a commercial production. According to the learned IAC the exemption would start from 8-4-1993 and not from 1-10-1993 which means that the income after 8-4-1998 would become taxable, whereas according to the original assessment the income after 30-9-1998 would become taxable. We find force in the argument of the learned A.R. that if-there was an error in the ascertainment of exact date of start of commercial production, the same occurred in the assessment year 1994-95 and not assessment year 1995-96. It is not the case of revenue that income for the assessment year 1995-96 is taxable. It appears that the apprehension of the Revenue is that the assessee would be allowed exemption between 8-4-1998 and 30-9-1998 which, according to the learned IAC is not due. But then the IAC has not given a clear finding that there was in fact any income for such period of approximate 6 months on which the assessee may be asked to pay tax or if there was any other prejudice caused to the Revenue.
7. In view of the above discussions we are not inclined to maintain the order of the learned IAC in question and we cancel the same. The appeal is allowed.
C.M.A./M.A.K./105/Tax (Trib.) Appeal allowed.