I.T.As. Nos. 9821/LB and 9781/LB of 1992-93, decided on 24th May 2001 VS I.T.As. Nos. 9821/LB and 9781/LB of 1992-93, decided on 24th May 2001, 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1964 (2001)

(a) Income‑tax‑‑‑

‑‑‑‑Rejection of accounts‑‑ ‑Declared version was rightly rejected as the defects in the accounts pointed out by the Assessing Officer namely non -maintenance of stage-wise production record and un-verifiability of wastage remained un-rebutted.

(b) Income‑tax‑‑‑

‑‑‑‑Claim under the head BMR‑‑‑Restriction on claim to the extent of cost of machinery ‑‑‑Assessee's claim under the head BMR included not only the cost of machinery but also incidental expenses which under the explicit instructions of Central Board of Revenue were not to be included under the head BMR‑‑‑Restriction to the extent of cost of machinery being fully in accordance with the Rules had rightly been confirmed by the First Appellate Authority.

(c) Income‑tax‑‑‑

‑‑‑‑Profit and loss expenses‑‑‑Travelling, conveyance, telephone and telex expenses‑‑‑Disallowance of‑‑‑Validity‑‑‑Disallowance in the various forms of heads was made for urvouched and unverifiable and personal nature of the expenses and disallowance under the head telephone was only at 15% of the claim ‑‑‑Disallowances being reasonable were restored by the‑Tribunal.

(d) Income‑tax‑‑‑

‑‑‑‑Cotton and polyester yarn‑‑‑Yield rate‑‑‑Acceptance of declared yield rate on the basis of history of the case‑‑‑Appellate Tribunal directed the department to accept the declared yield rates for cotton and polyester yarn at 84.56% and 98.32% respectively as the same rates were fixed by the First Appellate Authority which remained unchallenged before any higher forum in the immediately preceding year‑‑‑Non‑maintaining of production record and wastage record did not mean that the declared yield rate could be discarded by the Assessing Officer‑‑‑Incumbent upon the Assessing Officer to give his own cogent reason while adopting the yield rate‑‑‑History of the case on the issue could not be brushed aside unless there were strong reasons which were not found by the Tribunal in the case.

Muhammad Asif, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 16th May, 2001.

ORDER

MRS SAFIA CHAUDHRY (ACCOUNTANT MEMBER) ‑‑‑These are two cross‑appeals for the assessment year 1992‑93 which impugn order of the learned CIT(A), dated 25‑4‑1993. The assessee is aggrieved by confirmation of rejection of declared version as well as confirmation of restriction of BMR by the learned CIT(A) while the Department is aggrieved by deletion of addition on account of yield, adopted in respect of cotton yarn account and polyester yarn account and setting aside of the addition under the head provision for gratuity, selling and distribution expenses. Reduction in the disallowance under the heads travelling and conveyance, telephone and telex is also contested as being unjustified.

2. None appeared on behalf of the assessee. Hence, the appeals are decided ex parte on merit under Rule 20(2) of the ITAT Rules, 1981. While Mr. Muhammad Asif, Additional Commissioner of Income‑tax appeared on behalf of the Revenue and was heard.

3. Perusal of record shows that the assessee is a public limited company quoted on Stock Exchange which derives income from manufacturing of cotton as well as polyester yarn. For the assessment year 1992‑93, it declared loss at Rs.3,67,67,284. Assessment was made at loss of Rs.1,80,726. The assessee declared sales (local as well as export) at Rs.83,72,58,280 with Gross Profit (before depreciation) at 39.18% . The declared trading version of the assessee was not accepted for the reason that the assessee had not maintained stagewise production record although the purchases of the assessee were considered to be fully verifiable by the Assessing Officer. The declared yields at 84.50% and 98% in the cotton yarn and polyester yarn account were lower than the yield shown in the immediately assessment year at 84.56% and 98.32% respectively. The Assessing Officer adopted the yield at 85% and 98.5% in the cotton yarn and polyester yarn account respectively and made addition i this regard at Rs.29,42,555 only.

4. In appeal, the learned CIT(A) confirmed the rejection of the declared version as being justified by the defects in the accounts as pointed out by the Assessing Officer i.e. non‑maintenance of stagewise production record as well as unverifiability of the production yield age. He deleted the addition made for low yieldage. He accepted the declared yield in the polyester yarn and cotton yarn and restricted the claim for BMR. The disallowance for provisions of gratuity amounting to Rs.15,78,000 was also contested before the learned CIT(A) who confirmed the action of the Assessing Officer in respect of restriction of BMR claimed while set aside the case in respect of provision for gratuity. He further set aside the case on the issue of disallowance of Rs.4,00,000 under the head selling and distribution and relief allowed against the disallowance out of travelling and conveyance, telephone and telex. This has grieved both the parties and they have come, up in cross appeals before this Tribunal.

5. First the appeal of the assessee is .taken up. The assessee is aggrieved by the confirmation of rejection accounts and restriction of the claim of BMR. Both the contention of the assessee after thorough perusal of the assessment order and appellate order are found to be untenable. Defects in the accounts as pointed out by the Assessing Officer namely non‑maintenance of stagewise production record and unverifiability of wastage remain un-rebutted. Hence, the declared version was rightly' rejected. Similarly, the assessee's ‑claim under the head BMR included) not only the cost of machinery but also incidental expenses which under the explicit instructions of C.B.R. are not to be included under the head, BMR hence, the restriction of the claim to the extent of cost of machinery being fully in accordance with the rules has rightly been confirmed by the learned CIT(A) . The assessee 5 appeal being devoid of merits is rejected.

6. The Department feels aggrieved by acceptance of the declared yield both in the cotton yarn account and polysester account. The learned CIT(A) pointed out that the sole reason given by the Assessing Officer for rejection of the declared yield that stage-wise ,production record had not been maintained and wastage seas not fully verifiable. This was direct interlinked with the lower yield declared by the assessee in the year under consideration as compared with the immediately preceding year. After confirming the rejection of the declared version, the learned CIT(A) was not justified its directing to accept the declared yield in both the accounts. The contention of the learned D.R. is correct. After upholding rejection of declared version for non‑maintaining of stagewise production record and wastage record, the addition on account of low yield could not be deleted. The said addition being based on the treatment meted out by the Department in the immediately preceding assessment year, is restored.

7. The grievance of the Department in respect of setting aside of the case on the issue of provision of gratuity as well as ad hoc addition under the head selling and distribution expenses does not appear to be justified as the ball is in the Court of the Assessing Officer and no adverse instruction has been given by the carried CIT(A). This issue can be re‑adjudicated.

8. As regards the curtailment of disallowances under the head travelling and conveyance, telephone and telex from Rs.2,80,000 and Rs.4,78,500 to Rs.2,25,000 and Rs.3,50,000, the same is not justified as the claims .under these two heads amounted to Rs.17,49,800 and Rs.3,27;000 only and disallowance in the form head was made for unvouched and unverifiable and personal nature of the expenses and disallowance under the head telephone is only at 15% of the claim. These disallowance being reasonable are restored.

9. As a result, the departmental appeal succeeds as shown above.

KHALID WAHEED AHMAD (JUDICIAL MEMBER).‑‑‑I agree with the findings of my learned sitting Accountant Member given in assessee's appeal bearing ITA No.9821/LB/92‑93 pertaining to the assessment year 1992‑93. I also agree with the decision of the learned Accountant Member given in departmental appeal bearing ITA No.9781/LB/92‑93 for the same assessment year except her findings given on the issue of yield rates of Polyester Yarn and Cotton Yarn. I agree with her findings on this issue to the extent in upholding the rejection of declared version. However, in my opinion, the yield rates adopted by the Assessing Officer for the year under consideration were not in accordance with the treatment meted out by the department for the preceding assessment year. It was stated by the learned A.R. of the assessee before the First Appellate Authority that in the previous years, the yield rate of Cotton Yarn has been reduced to 84.5%, in the appellate order and the addition made in the polyester rate was deleted. It may be mentioned here that the declared Yield Rate in case of Polyester yarn for the immediately preceding year i.e. assessment year 1991‑92 was 98.32%. For the year under consideration, the Yield of Polyester Yarn was declared @ 98% against which the production of Polyester Yarn was adopted by the Assessing Officer at 98.5%. The Yield Percentage was adopted @ 85% and 98.5% in Cotton Yarn and Polyester Yarn respectively on the basis of the history as well as parallel case. In view of the contention of the assessee that for the previous year the rate of cotton yarn has been reduced to 84.5% in the appeal order and the addition made is, the Polyester Rate was deleted. The CIT(A) reduced the yield rate of cotton yarn to 84.5% and deleted the addition made in the Yield of Polyester Yarn for the year under consideration. In my opinion, it will be fair unjustified under the circumstances if the declared rates of Yield for Cotton and Polyester Yarn at 84.56% and 98.32% respectively for the immediately preceding year i.e. 1991‑92 are directed to be applied for the assessment year 1992‑93.

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).‑‑‑The titled appeal has been referred to me for resolving the difference of opinion having arisen on the issue of yield rates between the learned Accountant Member and learned Judicial Member while adjudicating the Appeal Bearing I.T.A. No. 9821/LB of 1992‑93‑‑‑Assessment Year 1992‑93 and ‑cross‑appeal I.T.A. No. 9781/LB of 1992‑93‑‑‑Assessment Year 1992‑93 filed both by the assessee as well as by the Revenue.

12. The learned Accountant Member accepted the departmental appeal and restricted the addition made by the Assessing Officer observing:

"After upholding the rejection of declared version for non -maintaining the stage‑wise production record and wastage record, the addition on account of low yield could not be deleted. The said addition being based upon the judgment meted out by the department in the immediately preceding assessment year is restored."

13. However, the learned Judicial Member directed to accept the declared rates of yield for cotton and polyester yarn at 84.56% and 98.32% for the reason that the same treatment was accorded to the assessee in the preceding assessment year.

14. After hearing the learned DR as well as going through the respective observation made by both the learned Accountant Member as well as learned Judicial Member, I find myself in full agreement with the learned Judicial Member. It is pertinent to mention here that the reason which weighed with learned Judicial Member while making direction to accept the declared yield rates for cotton and polyester yarn at 84.56% & 98.32% respectively was that in the immediately preceding year, the same , rates were fixed by the learned First Appellate Authority which remained unchallenged before any higher forum. It is also worth‑noting that the learned Accountant Member accepted the Departmental appeal and rejected the assessee's appeal for the reason that since the declared version has been rejected for non- maintaining of stage‑wise production record and wastage record, the addition on account of low yield could not be deleted. Non‑maintaining of production record and wastage record does not mean that the declared yield rate could be discarded by the Assessing Officer. It was incumbent upon the Assessing Officer to give his own cogent reason while adopting the yield rate as adopted by him. Even otherwise, the history of the assessee's case on the issue could not be brushed aside unless there are strong reasons which I do not find in the instant case.

15. For the following reasons, I agree with the findings of the learned Judicial Member being fair and justified.

C.M.A./M.A.K./291/Tax (Trib.)Order accordingly.