I.T.A. NO.2536/LB OF 2000 VS I.T.A. NO.2536/LB OF 2000, 2001 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3420 (2001)

(a) Income-tax---

----Assessee, running a factory---Rent of the factory building was debitable to the manufacturing account according to the principles of accountancy.

Advanced Accountancy by Hrishikesh Chakraborty; Double-Entry Book-Keeping by Jamshed R. Batliboi, 24th Edn. and Advanced Accounts by M.G. Shukla and T.S. Grewal rel.

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

----Ss.66-A & 59(1)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Inaccurate particulars---Proper course of action on furnishing of inaccurate particulars of income by claiming excess rent was to proceed under S.65 of the Income Tax Ordinance, 1979 provided there was any definite evidence of concealment---Order passed under S.66-A of the Income Tax Ordinance, 1979 was vacated and assessment framed under S.59(1) of the Income Tax Ordinance, 1979 was restored by the Appellate tribunal in circumstances.

1984 PTD 137 and 1999 PTD (Trib.) 2851 ref.

Mirza Anwar Baig, A.R. for Appellant.

Ashraf Ahmed Ali, D.R. for Respondent.

Date of hearing: 4th November, 2000.

ORDER

KHALID WAHEED AHMED (JUDICIAL MEMBER).---The above-titled appeal preference at the instance of the appellant (assessee) impugned the order, dated 17-5-2000 passed under section 66-A by the learned I.A.C. of Income-tax and Wealth Tax, Sheikhupura pertaining to the assessment years 1999-2000.

2. Brief facts of the case are that the original assessment was framed at income of Rs.20,50,377 under section 59(1) of the Income Tax Ordinance, 1979. The assessment framed by the Assessing Officer was found erroneous and prejudicial to the interest of the Revenue by the learned I.A.C. of Income-tax/Wealth Tax, Sheikhupura. The assessee was confronted through show-cause notice issued under section 66A on 15-3-2000 to the effect that the Factory Rent of Rs.1,80,500 has been claimed in the Manufacturing Account instead of Profit and Loss Account and further since the amount exceeded Rs.50,000 the same having not been paid through crossed cheque, the same was inadmissible expense in terms of section 24(ff) of the Income Tax Ordinance, 1979. The reply submitted by the assessee to the above show-cause notice and another show-cause notice dated 5-4-2000 were found unsatisfactory by the learned I.A.C. with the following observations:---

"(i)As per your Trading Account, you have claimed factory rent at Rs.180,500, as per copy of lease deed provided during the proceedings under section 66-A for the assessment year 1998-99, four godowns, a residential house, office and room for Chowkedar have been got on rent at the rate of Rs.5,000 per month. As such total annual rent computes at Rs.60,000 while you have claimed total rent at Rs.1,80,500 which is quite excessive to the extent of Rs.1,20,500. How the expense has been boosted up to the extent of Rs.1,20,500 and is a bogus claim. This is furnishing of inaccurate particulars of total income. Please explain.

(ii)The above-quoted lease agreement specifies period of lease for three years starting from 15-10-1997 to 15-10-2000, where monthly rent remains at Rs.5,000 per month throughout. The building specified to be taken on rent is Godown, Residential House, Office and Room for Chowkedar from where it is clear that the said specified building establishment of the business. The rent of the said building was duly debitable to the trading account is not acceptable.

3. According to the learned I.A.C., no written explanation was submitted by the assessee in his defence. The order of the Assessing Officer was termed as erroneous and prejudicial to the interest of the Revenue by the learned I.A.C. on the ground that the assessee has claimed excessive rent to the tune of Rs.1,20,500 which was allegedly concealment of income of excessive claim of rent expenses and furnishing of inaccurate particulars of income.

The following grounds of appeal have been taken by the appellant (assessee) under section .66-A for the assessment year 1999-2000.

(i)That the Inspecting Additional Commissioner of Income-tax has erred in law in saying that the order passed under section 59(1) by the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Hence, the order of the I.A.C. in cancelling the original assessment is without any jurisdiction and is liable to be was not justified in cancelling the assessment in

(iii)That the I.A.C. has erred in law in relying upon a rent deed which was arrived at with the assessee's deceased husband who died on 23-10-19967

(iv)That the I. A. C. has erred in law in relying upon a rent deed which was not a part of the record available to the Assessing Officer at the time of making assessment under section 59(1).

(v)That the I.A.C. has erred in law in saying that the factory rent paid is an item of Profit and Loss Account and A not an item of manufacturing account.

(vi)That the I.A.C. has erred in law in saying that the rent paid is not for factory building but for establishment of office of the

(vii) That the order passed by the I.A.C. under section 66-A is otherwise bad for such further reasons in law and on facts as may be raised at the time of hearing of appeal.

5.Learned A.R. for the asses see in his arguments has contended that the action taken by the learned I.A.C. under section 66-A of the Ordinance was unjustified and uncalled for. According to the learned A.R., the assessee was originally confronted through the show-cause notice issued on 15-3-2000 and then on 5-4-2000 that the provisions under section 66-A were attracted for the reason that the rent of the factory was erroneously claimed and allowed in the Trading Account whereas the same pertained to the P&L Account and further that since the payment was more than Rs.50,000, the provisions of section 24(ff) of the Ordinance were attracted which aspect has not been considered by the Assessing Officer. Learned A.R. further submitted that after that the assessee was confronted through another notice issued by the I.A.C. on 20-4-2000 entirely on different reasons i.e. the excessive claim of rent amounted to furnishing of inaccurate particulars of income and that the building on rent was godown, residential house, office and room for Chowkidar which mean that the building was used as Establishment of the Business. Learned A.R. of the assessee also submitted that the rent agreement dated 23-10-1997 was executed with the husband of the assessee who died after eight days. Learned A.R. submitted that the assessee took over the business and claimed the rent at the rate of Rs.50,000 per month paid by him for the year under consideration. Learned A.R. further submitted that the plant and machinery was installed in the building. taken on lease which was situated at Sheikhupura. Learned A.R. further stated that the office was situated in Lahore. Learned A.R., however, was unable to substantiate this contention by producing any evidence or even address of the office in Lahore. Learned A.R. further contended that the rent of the factory building was rightly claimed in the Trading Account according to the principles of accounting, learned A.R. produced copies of the pages from the books "Advanced Accountancy" by Hrishikesh Chakraborty and "Double-Entry Book-Keeping" by Jamshed R. Batliboi (24th Edition) and "Advanced Accounts" by M.G. Shukla and T.S. Grewal to explain that the rent of the factory building was debitable to the manufacturing Account. It is the contention of the learned A.R. that since the rent of the factory building was an item of Trading Account, the provisions of section 24(ff) were not attracted even otherwise. It is also the contention of the learned A.R. that the case of the assessee qualified to be assessed under section 59(1) of the Ordinance for the year under appeal and could not be-excluded and only adjustment of inadmissible expenses could be made if called for. Learned A.R. contended that the invoking of the provisions of section 66-A by the I.A.C. was without any solid grounds and, therefore, unjustified. In this context, learned A.R. referred to the case-law reported as 1984 PTD 137 and 1999 PTD (Trib.) 2851. Learned A.R. contended that the order of the I.A.C. was not maintainable since the same is based on the basis of information supplied by the assessee in his reply to the original show-cause notice.

6.Learned D.R: in his arguments supported the impugned order of the I.A.C. for the reasons mentioned therein. According to the learned D.R., the following three reasons created sufficient cause justifying the action of the I.A.C.:---

(i)That the rent was claimed in trading Account instead of P&L Account;

(ii)that the amount of rent exceeding Rs.50,000 was not paid through cross cheque/bank draft, the provisions of section 24(ff) were attracted; and

(iii)that the rent claimed was in excess of annual rent which amounted to furnishing of inaccurate particulars of income.

7. Arguments advanced by learned representatives have been heard and the relevant orders as well as the documents submitted by learned A.R. have also been .perused: It has been observed , that the assessee was originally confronted through the show-cause notice issued under Section 66-A on the ground that the rent of factory building was incorrectly claimed in the manufacturing Account instead of P&L Account and further that the amount of rent exceeded Rs.50,000 the same having not been paid through cross cheque was an inadmissible expense under the provisions of section 24(ff) of the Ordinance. It has further been observed that through the last show-cause notice issued on 20-4-2000, the assessee was confronted on the following points:

(a)That the excessive amount of rent was claimed at Rs.1,80,500 against annual rent of Rs.60,000 payable as per rent agreement which amounted to furnishing of inaccurate particulars of income.

(b)That the building specified to be taken on rent as godown, residential use, office and room of Chowkidar from where it is clear that the building is used as an Establishment of the business.

The contention of the learned A.R. that the rent of the factory building was debitable to the manufacturing Account according .to the Principles of Accountancy carries weight. Further, the contention of the learned I.A.C. that the building was being used as an Establishment of the business is also a fact to be ascertained. Under the circumstances of the case, in our view, the action of the I.A.C. cannot be upheld for the above reasons. As regards, the furnishing of inaccurate particulars of income by claiming excess rent, in our opinion, the proper course of action in such a situation is to proceed under section 65 of the Ordinance provided if there is any definite evidence of concealment. As a result, the impugned order of the learned I.A.C. passed under section 66-A is hereby vacated and-the original assessment framed under section 59(1) of the Ordinance stands restored accordingly.

8. The appeal of the assessee succeeds in the manner mentioned above.

C.M.A./M.A.K./121/Tax(Trib.)Order accordingly