CRESCENT ART FABRICS (PVT.) LTD., LAHORE VS COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE
2001 P T D 1386
[Lahore High Court]
Before Nasim Sikandar and Jawwad S. Khawaja, JJ
Messrs CRESCENT ART FABRICS (PVT.) LTD., LAHROE
versus
THE COMMISSIONER OF INCOME-TAX, COMPANIES, LAHORE
C.T.R. No.368 of 1991, decided on 20/12/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.136---Reference to High Court---Question of law or , fact-- Determination---Tribunal maintained rejection of accounts as made by the Assessing Officer and upheld by Commissioner of Income-tax (Appeals) on the ground that the defect of unverifiability of debit side of trading account could not be demolished even before them---In absence of real challenge to such findings of fact, same did not raise any legal controversy.
Printers Combine (Mercantiles) v. C.I.T. 1984 PTD 229 and C.I.T. Companies-III v. Krudd Sons Ltd. 1994 SCMR 229 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.136---Reference to High Court---Question of fact---Estimation of cost of construction by the department as against the declared version could hardly be said to have given rise to a legal controversy to be resolved by the High Court.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.13(l)(d)---Deemed income---Addition---Directors of assessee-company had transferred the land to the company at cost and evident intention appeared to be the allotment of shares of its value to them ---Assessee company had not yet started any business nor had paid any sale price for the land in question though subsequently shares of the equivalent value appeared to have been allotted---Revenue claimed and the Tribunal agreed that declared value of the property was not binding upon the Assessing Officer- Validity---Assessing Officer, however, totally lost sight of the fact that under the provision of S.13(1)(d), Income Tax Ordinance, 1979 an addition could be made only if the assessee had made investment or was found in respect of any such year to be the owner of any valuable article and the amount expended on making such investment exceeded the amount recorded in that behalf in the books of account maintained by the assessee---Tribunal, therefore, was not justified in confirming the addition made under S.13(1)(d) of the Ordinance on account of lowness of cost of purchase of land discarding the assessee's plea that the Directors had sold the land at cost.
There was no doubt that the addition in land account was totally unjustified and against law. The Directors had transferred the land to the company at cost. Evident intention appeared to be the allotment of shares of its value to them. The assessee-company had not yet started any business nor had paid any sale price for the land in question though subsequently shares of the equivalent value appeared to have been allotted. The Revenue claimed and the Tribunal agreed that declared value of the property was not binding upon the Assessing Officer. To that proposition there was no denial. However, the Assessing Officer totally lost sight of the fact that under the provision of section 13(1)(d) an addition could be made only if the assessee had made investment or was found in respect of any such year to be the owner of any valuable article and the amount expended on making such investment exceeded the amount recorded in this behalf in the books of account maintained by him.
In the present case the Directors purchased the land from its owners and then transferred the same at cost to the assessee-company. For the assessee-company as well as the Directors there was absolutely no occasion or reason to understate the value. Even if it was believed that the Directors at the time of purchasing the land understated its value even then the addition of the kind could not be made in the hands of the assessee-company. Instead it ought to have been made in the hands of the Directors.
The Tribunal was not justified in confirming addition made under section 13(1)(d) of the Ordinance on account of lowness of cost of purchase price of land.
Mian Ashiq Hussain for Petitioner.
Shafqat Mehmood Chohan for the Revenue.
ORDER
NASIM SIKANDAR, J.---At the instance of the assessee, a private limited company, at the relevant time engaged in manufacturing and sale of rexion cloth, as also trading of imported goods, the Lahore Bench of the Income-tax Appellate Tribunal has framed following questions for our consideration and reply:---
"(i) Whether in the facts and circumstances of the case, the Tribunal was justified in upholding rejection of the applicant's accounts and application of G.P. rate of 27%.
(ii) Whether the Tribunal was justified in confirming the total additions made under section 13(1)(d) of the Ordinance for understatement of cost of construction.
(iii) Whether the Tribunal was justified in confirming the addition made under section 13(1)(d) of the Ordinance on account of -lowness of cost of purchase of land discarding the applicant's plea that the Directors had sold the land at cost."
2. The original assessment in respect of the assessee for the year 1984-85 was framed at declared income of Rs.2,92,489. Subsequently its case was reopened and an assessment to the best of the judgment of the Assessing Officer under section 63 of the Ordinance was framed computing total income for the year at Rs.32,84,130. In appeal, the case was remanded whereafter the Assessing Officer framed another assessment under sections 63/65 of the Ordinance at Rs.21,24,656. In the process an addition of Rs.2,24,437 was made in trading and manufacturing account after rejection of accounts. Also two other additions respectively at Rs.10,33,580 and Rs.5,72,150 were made under the head building account and loan account. The first addition was made on account of lowness of declaration construction cost while the second was made on account of lowness of cost of 15 Kanals, 19 Marlas of land at Sheikhupura Road, Lahore purchased by the assessee on 12-6-1983. The assessee had declared the cost of land at Rs.18,000 while in reassessment proceedings it was adopted at Rs.37,000 per kanal. The balance was added towards income as said above.
3. The learned First Appellate Authority allowed partial relief in the aforesaid three accounts which was maintained by the Tribunal.
4. The learned counsel for the petitioner/assessee by relying upon re: Printers Combine (Mercantiles) v. C.I.T. 1984 PTD 229 and C.I.T. Companies-III v. Krudd Sons Ltd. 1994 SCMR 229 attempted to show that rejection of accounts in the given situation, was totally unjustified. However, we are not persuaded to agree. The learned Tribunal maintained rejection of accounts as made by the Assessing Officer and upheld by C.I.T. (Appeals) on the ground that the defect of unvarifiability of debit side of trading account could not be demolished even before them. In absence of real challenge to these findings of fact we are not inclined to entertain question No. 1 as the same does not raise any legal controversy.
5. Question No.2. is also a question of fact inasmuch as the estimation of cost of construction as against the declared version can hardly be said to have given rise to a legal controversy to be resolved by this Court. In case of question No.3 however, we entertain no doubt that the Addition in lane account was totally unjustified and against law. The Directors had transferred the aforesaid piece of land to the company at cost. .Evident intention appears to be the allotment of shares of its value to them. The assessee-company has not yet started any business nor had paid any sale price for the land in question though subsequently shares of the equivalent value appeared to have been allotted. The Revenue claimed and the Tribunal agreed that declared value of the property. was not binding upon the Assessing Officer. To that proposition there is no denial. However, the Assessing Officer totally lost sight of the fact that under the provision of section 13(1)(d) an addition could be made only if the assessee had made investment or was found in respect of any such, year to be the owner of any valuable article and the amount expended on making such investment exceeded the amount recorded in this behalf in the books of account maintained by him.
6. In the present case the Directors purchased the land from its owners and then transferred the same at cost to the assessee-company. For the assessee-company as well as the Directors there was absolutely no occasion or reason to understate the value. Even if it is believed that the Directors at the time of purchasing the land under-stated its value even then the addition of the kind could not be made in the hands of the assessee-company. Instead it ought to have been made in the hands of the Directors. Therefore, we will return a negative answer to Question No.3.
7. Accordingly questions Nos. 1 and 2 are found to be a questions of fact and, therefore, are declined to be answered. Question No.3 as said above is answered in the negative holding that the Tribunal was not justified in confirming addition made under section 13(1)(d) of the Ordinance on account of lowness of cost of purchase price of land.
M. B. A./C-41/LOrder accordingly.