2001 P T D (Trib.) 3369

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member and

Mazhar Farooq Shirazi, Accountant Member

I.T.As. Nos.340/LB to 342/LB of 2001, decided on 20/06/2001.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---C.B.R. Circular No.16 of 1993, dated 23-8-1993---C.B.R. Circular No.8 of 1994, dated 11-7-1994---Assessment years 1993-94 and 1994-95---Fixed Tax Scheme---Conditions for eligibility.

Part 1 of the Scheme has laid down three conditionalities for eligibility of the case under the Scheme of fixed tax. Firstly, status of the taxpayer should be individual, A.O.P., H.U.P. and U.R.F. Secondly, he must conduct business or profession at a fixed or a temporary place of pucca shop. Thirdly, the area in which business or profession is being carried on should fall in any city of Pakistan including Metropolitan, Municipal Corporations, Committees. Cantonment Board, Federal Territory of Islamabad, Town Committees and villages. There is also one more condition, the fourth one which is enumerated in para. 6(a) of the Scheme. It has been provided therein that business capital of the taxpayer as on 30th June, 1993 and 30th June, 1994 should be less than Rs.1,00,000 and their income in the immediately preceding assessment year 1992-93 should not exceed Rs.36,000 or Rs.33,000 depending upon the tax paid in pursuance of paragraph 3 of the Scheme.

Para. 1 of the Scheme has provided three exceptions whereby the case of any taxpayer falling in any of the three exceptions mentioned in sub paras. (a) to (c) of para. 1 shall not be eligible for the Scheme of fixed tax. It has nowhere been provided in the Scheme that "successor-in-business" shall be treated as an "existing assessee" and he shall not be eligible for the Scheme of fixed tax, such meanings in no way can be deduced from any para. of the Scheme. The "successor-in-business" is also eligible for the Scheme of fixed tax if his case is otherwise not hit by any infirmity laid down in the Scheme.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---C.B.R. Circular No-16 of 1993, dated 23-8-1993, para. 1(c)-- C.B.R. Circular No.8 of 1994, dated 11-7-1994, para.. 1(c)---Fixed tax-- Successor-in-business is also entitled to avail Fixed Tax Scheme -- Assessee availed the facility of Fixed Tax Scheme as a "new tax payer" but his case was excluded from the ambit of the Fixed Tax Scheme by treating him as "successor-in-business"---Such treatment given by the Assessing Officer was confirmed by the First Appellate Authority---Validity---Scheme has not provided that "successor-in-business" shall not be treated as an "existing assessee" and he shall not be eligible for the Scheme, of Fixed Tax if his case was otherwise not hit by any infirmity laid down in the Scheme ---Assessee's case did not fall within the definition of "existing assessee" as is provided in para.l (c) of the scheme and was illegally excluded out of the ambit of the Scheme ---Assessee's case was erroneously proceeded under normal law owing to misconception of law and the whimsical inferences drawn from the facts available on record---Receipt obtained for payment of token tax shall be deemed to be an assessment order under S.59-C of the Income Tax Ordinance, 1979---Order of First Appellate Authority was vacated and that of Assessing Officer was set aside by the Appellate Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.59-C---Fixed Tax Scheme---Facility of Fixed Tax Scheme extended to the predecessor in the preceding assessment years could not be refused to the successor who availed such facility as a "new taxpayer".

(d) Income-tax---

----Inspector's report---Credibility---No credence could be attached to the Inspector's report in view of glaring contradictions that Inspector was available at assessee's business premises from 7-00 a.m. to 10-00 a.m. whereas attendance of the Inspector on the said date had been marked at 8-00 a.m. in the attendance register which certainly made the Inspector's report dubious.

(e) Income-tax---

----Inspector's report---Reliance on---Estimate of sale---Contents of the Inspector's report pertained to the assessment year 2000-2001 while the assessment was completed in respect of the assessment year 1995-96 meaning thereby that the inquiry was conducted after the lapse of five years from the year in which the business was conducted by the assessee---No reliance could be placed on Inspector's report and was ignored by the Tribunal for the purpose of estimating the sales.

(f) Income-tax---

----Estimate of sales and profits and loss expenses---Principles.

Azhar Ehsan Sheikh for Appellant.

M.B. Anjum, D.R. for Respondent.

Date of hearing: 18th May, 2001.

ORDER

RASHEED AHMAD SHEIKH (JUDICIAL MEMBER).---Vide this single order we proceed to adjudge these three assessee's appeals which are directed against the combined order passed by A.A.C. Appeal Range, Lahore dated 28-10-2000 in respect of assessment years 1993-94 to 1995-96.

2. The precise question which came for our consideration is whether the assessee's case can be excluded out bf ambit of the Scheme of fixed tax, announced by the C.B.R. under section 59-C of the Income Tax Ordinance, 1979, by treating him as "successor in business". Facts leading for disposal of this very issue are that the assessee had opted for scheme of fixed tax for the assessment years 1993-94 and 1994-95. According to this Scheme the taxpayers, otherwise eligible under the Scheme, will not be required to file a return of income for the assessment years 1993-94 and 1994-95 under section 55 or 56 of the Income Tax Ordinance, 1979. Such taxpayers shall pay Rs.900 tax in the post office of his choice, either fully by 15th September, 1993 and 15th September, 1994 or in two equal instalments. On making payment of tax, the taxpayers shall be given a token in receipt thereof by the post office which shall be displayed at conspicuous place on his business premises. Payment of tax under this Scheme by a taxpayer, who is eligible under the Scheme shall constitute an assessment.

3. In the present case this fact is not denied by the Assessing Officer that the assessee had not made payment of Rs.900 in each year and token of payment of fixed tax was not obtained by him. However, the Assessing Officer denied the benefits of Scheme of taxed tax to the assessee by observing that this facility has not been extended to the "successor-in- business".' According to the Assessing Officer, the said premises was previously being run by the assessee's father till assessment year 1982-83. Subsequently, that business was taken over by the assessee's brother namely Mr. Ghulam Ali who executed the said business from assessment years 1983-84 to 1992-93. Thereafter, Mr. Muhammad Liaqat Ali, the present assessee, took over the business from his brother in the assessment year 1993-94. Consequently, the proceedings in the predecessor's case for that assessment year were filed by the Assessing Officer. From these facts it was concluded by the Assessing Officer that this is a case of "succession in business" and as per para. l(c) of Circular No. 16 of 1993, dated 23-8-1993 also para. 1 (c) of Circular No.8 of 1994, dated 11-7-1994, the assessee was not eligible to avail the benefits of the Scheme of fixed tax. Before drawing any adverse inference, the assessee was confronted on this point and the explanation furnished by him was not found satisfactory by the Assessing Officer. He, therefore, held that the assessee's case fell outside the purview of Scheme of fixed tax. At the first stage of appeal, the A.A.C. endorsed the findings of the Assessing Officer by observing that the assessee's case, in the given circumstances, was not eligible to be processed under the fixed tax scheme being duty hit by mischief of the said paras. of the C.B.R. Circulars referred to above.

4. Although, for the purpose of eligibility of the case under the Scheme of fixed tax, para. 1(c) of the Scheme is common in its letter and spirits in 'both the years under appeal, however, brevity demands that para. 1(c) of the Scheme for one year be reproduced in order to resolve the present controversy. So, the para. pertaining to assessment year 1993-94 is being cited hereunder for the purpose of reference:

1.Eligibility:

All individuals, A.O.Ps. HUFs and URFs carrying on business or profession at a fixed place or in temporary tenements like kiosks cabins or khokhas and small shopkeepers carrying on business or profession in pucca shops, in the areas specified in paragraph 2, except the following:

(a)Wholesalers

(b)Persons claiming adjustment for any tax deducted or collected under section 50 of the Income Tax Ordinance, 1979.

(c)Existing assessee i.e. those who have at any time filed a return of income or in whose case an assessment has been made prior to the assessment year 1994-95.

5. After giving anxious thought to the rival arguments we find that the assessee's case has wrongly been set apart out of the Scheme of Fixed Tax. Para. 1 of the Scheme, cited above has laid down three conditionalities for eligibility of the case under the Scheme of fixed tax. Firstly, status of the taxpayer should be individual, A.O.P. H.U.P. and U.R.F. Secondly, he must conduct business or profession at a fixed or a temporary place of pucca shop. Thirdly the area in which business or profession is being carried on should fall in any city of Pakistan including Metropolitan Municipal Corporations, Committees. Cantonment Board, Federal Territory of Islamabad, Town Committees and villages.. There is also one more condition, the fourth one which is enumerated .in para. 6(a) of the Scheme. It has been provided therein that business capital of the taxpayer as on 30th June, 1993 and 30th June, 1994 should be less than Rs.1,00,000 and their income in the immediately preceding assessment year 1992-93 should not exceed Rs.36,000 or Rs.33,000 depending upon the tax paid in pursuance of paragraph 3 of the Scheme.

6. Anyhow, para. 1 of the Scheme has provided three exceptions I whereby the case of any taxpayer falling in any of the three exceptions mentioned in sub-paras. (a) to (c) of para. 1 shall not be eligible for the Scheme of fixed tax. On perusal of the Scheme in its entirety we feel convinced that it has nowhere been provided therein that "successor-in- E business" shall be treated as an "existing assessee" and he shall not be eligible for the Scheme of fixed tax. Such meanings in no way can be deduced from any para. of the Scheme. It is not understandable from which para. of the Scheme such meanings have been imported by the Assessing Officer to disentitle the taxpayer from the benefits of the Scheme of Fixed Tax. We, therefore, hold that the "successor-in-business" is also eligible for B the Scheme of fixed tax if his case is otherwise not hit by any infirmity laid down in the Scheme.

7. Reverting to the facts of the case, the present taxpayer does not fall within the expression used in para.l(c) of the Scheme to be an "existing assessee". Actually the assessee has availed the facility of Scheme of Fixed Tax as a "new taxpayer". It is so because previously the assessee's real brother Mr. Ghulam Ali was carrying on business at the existing place and he was also extended the facility of the Scheme of Fixed Tax by the r Department in the immediately preceding assessment year 1992-93 being his case was fully qualified to be accepted under the said Scheme. -After his cessation from the said business, the present assessee has started executing business at the same place. Since, identical facts exist in the case of the present taxpayer qua the predecessor's case, how could the department refuse to extend the benefits of the Scheme to the instant assessee. Pondering anxiously on the facts of the case as well as the Scheme of Fixed Tax, we ~, feel convinced that the assessee's case did not fall within the definition of "existing assessee" as is provided in para.l(c) of the Scheme and was illegally excluded out of the ambit of the said Scheme. We, are therefore, pursuaded to hold that the assessee's case was not hit by any para. of the, Scheme of Fixed Tax and was erroneously processed under normal law owing to misconception of law and the whimsical inferences drawn from the facts available on record. Consequently, .the receipt obtained for payment of token tax by the present taxpayer for the assessment years 1993-94 anti 1994-95 shall be deemed to be an assessment order under section 59(A) of the income Tax Ordinance, 1979. This would result into vacation of the learned A.A.C.'s order and setting aside that of the Assessing Officer for the two assessment years referred to supra.

Assessment Year 1995-96

8. For this assessment year a normal tax return was rather filed by the assessee. In the present case the assessee is carrying on business in a shop whereby he sells head, feet, brain, tongue etc. of goats commonly known as "Phajja Sirri Pai". Before finalizing the assessment an enquiry was got conducted through the Circle Inspector on 29-4-2000 who after discussing the seating capacity of the shop, capital employed and the number of employees engaged in business as well as the other features in his report, proposed to adopt the sales at Rs.49,60,999. The contents of the enquiry report were duly confronted to the assessee and the explanation furnished by him was not considered satisfactory by the Assessing Officer. For the reasons embodied in the assessment order, the Assessing Officer estimated sales Rs.24,80,000 and those were subjected to a gross-profit rate of 25%. After allowing 1/3rd expenses from the gross-profit so worked out the assessee's net income was computed at Rs.4,13,333 by the Assessing Officer. On first appeal, the A.A.C. maintained the order of the Assessing Officer on all the counts.

9. Mr. Azhar Ehsan the learned counsel for the assessee vehemently objected to the very basis of the enquiry report conducted by the Circle Inspector. He stated that the so-called enquiry report is merely a table word In addition to, he stated that the contents of the said report are based o' conjectures, surmises and whims. To substantiate the contention, the learneq counsel for the assessee pointed out that as per the enquiry report, the Ctrc1P , Inspector was available at the assessee's business premises from 7 a.m. to Ib a.m. on 28-4-2000 whereas attendance of the Inspector on the said date his been marked a't 8 a.m. in the attendant register. According to him how could t the Inspector be available at two sites simultaneously. This contradiction the facts negates credibility of the Inspectors report. Further pleaded that in that year under appeal, the sales pitched up at Rs.24,80,000 in view of tot;, consumption of Sui gas at Rs.83,519 speaks arbitrariness on the part of tl,e Assessing Officer. He stated that generally consumption of Sui gas is, rotate, to six times in order to evolve turnover in manufacturing concerns hereas that has been adopted at 30 times approximately in the present case which is highly unprecedented. The learned counsel also argued that by no stretch of imagination the Circle Inspector's report can be made basis for estimation of sales in the assessment year 1995-96 as according to him the Circle Inspector's report relates to assessment year 2000-2001. In the end he prayeh that the sales may be restricted in view of the time honoured formula of consumption of Sui gas. On the other hand, the learned D.R. supported the orders of the two authorities below for the reasons recorded therein.

10. We have perused the relevant orders as welt as the documents furnished by the learned counsel for the assessee before us for our consideration. We feel convinced that no credence can be attached t0 the Circle Inspector's report in view of glaring contradictions pointed out therein by the learned counsel for the assessee. This certainly makes the Inspector,, report dubious. Although the Inspector has submitted a comprehensive report in order to ascertain the extent of the assessee's business yet he has failed to mention as to how many customers were present at the time of his visit :It At shop. Actually this is a pivotal point amongst others from which magnitude of assessee's business could be gauged. There is no denying the fact that the sales were estimated by the Assessing Officer by adopting a mechanical method which has always been looked upon by the higher appellate authorities in a number of cases. There is alone ambiguity to this fact that the contents of the Inspector's report pertains to the assessment year 2000-2061 I while the assessment is completed in respect of the assessment year 1995 16 H meaning thereby that the inquiry was conducted after the lapse of five years from the year in which the business was conducted by the assessee. Thus no reliance is placed to the so-called Inspector's report and is being ignored for the purpose of estimating the sales for the year under appeal. After weighing pros and cons of the facts in its entirety we deem it appropriate to fasten the sales at Rs.6,00,000 for the year under appeal and it is so ordered accordingly. The expenses allowed by the Assessing Officer at 1/3rd of the gross profits so worked out seems to be reasonable and he is accordingly directed to allow the expenses to the same extent while giving appeal effect to this order.

11. Consequently, the three appeals filed at the behest of the assessee pertaining to the assessment years 1993-94 to 1995-96 are accepted to the extent and in the manner stated above.

C. M. A. /M. A. K./118/Tax Appeals accepted.