I.T.A. No.3041/LB of 1994, decided VS I.T.A. No.3041/LB of 1994, decided, 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2106 (2002)

(a) Income‑tax‑‑‑‑

‑‑‑‑Gross profit rate‑‑‑Deviation from case history ‑‑‑Validity‑‑‑Assessing Officer had deviated from history of the case while applying gross profit rate of 17.5% to the contractual receipts‑‑Perusal of the facts revealed that the gross‑profit rate of 15% was applied to the declared payment in the preceding assessment years‑‑‑Departure from history of the case had been made without any plausible reasonings, Appellate Tribunal directed the Assessing Officer to apply gross profit rate of 15% to the declared payment for the year under appeal as well.

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

‑‑‑‑S.13(1)(a)‑‑‑Deemed income‑‑‑Filing of wealth statement alongwith reconciliation statement‑‑‑Unexplained amount‑‑‑Addition of‑‑‑Validity‑‑ Assessing Officer had acted in flagrant violation of law in making addition under S.13(1)(a) of the Income Tax Ordinance, 1979 as the said provisions clearly, envisaged that where any sum was found to be credited in the books of account of an assessee maintained for any income year and the assessee offered no explanation about the nature and sources of such sum or, the explanation offered by him was not of satisfactory, the sum so credited shall be deemed to be the income of the assessee‑‑‑Assessee admittedly was not maintaining any books of accounts therefore the addition made under S.13(1)(a) of the Income Tax Ordinance, 1979 was not sustainable in law for the simple reason also that the Legislature had intentionally catered six eventualities in S.13 of the Income Tax Ordinance, 1979 i.e. cls. (a), (aa), (b), (c), (d) & (e) in order to treat and tax deemed income of the assessee in the section otherwise only S.12 could have been introduced by; the Legislature to cover all the situations referred to in those clauses‑‑‑Case being not that of quoting wrong clause of S.13 of the Income Tax Ordinance, 1979 but being that of applying incorrect clause, such act of the Assessing Officer was certainly unlawful‑‑‑Case being a no account case, Appellate Tribunal deleted the addition instead of setting aside the same on the sole ground that the addition had not been lawfully made by the Assessing Officer.

Azhar Ehsan Sheikh for Appellant.

Javed‑ur‑Rehman, D.R. for Respondent.

Date of hearing: 2nd April, 2002.

ORDER

RASHEED AHMAD SHEIKH (JUDICIAL MEMBERS) ‑‑This appeal at the instance of the appellant is directed against order passed by C.I.T.(A) Zone IV, Lahore, dated ?4‑2‑1994 in respect of assessment year 1989‑90.

2. On behalf of the asses4ee‑appellant, application of G.P. rate as well as the addition made‑ under section 13(1)(a) of the Income Tax Ordinance, 1979 has been challenged. Facts leading for disposal of both these points are that the assessee, an individual besides deriving income from execution of construction contracts also enjoys interest income from Messrs Paragone Enterprises and Mian Traders Lahore whereby 1/3rd share was being held by the assessee in those firms. As per the assessment order, receipts from construction contracts were shown at Rs.11,40,112 and gross profit rate of 14.7% was conceded thereon. Before finalizing the assessment, the assessee was confronted; as to why gross profit rate of 17.5% may not be applied in view of the parallel cases. In response thereto ,it was contended that since the assessee is engaged in construction of runways/airport buildings for which quality of works has to be maintained, therefore, the gross profit rate was bound to be lower than the comparable cases if any available. The explanation furnished by the assessee was found unsatisfactory as ‑a result of which the Assessing Officer, after rejecting the assessee's returned version, proceeded to apply gross profit rate of 17.5% as was proposed in the show‑cause notice, to the receipts declared by the assessee. When the point regarding application of gross profit was assailed before the Appeal Commissioner who upheld the gross profit rate applied at 17.5% after having found the same to be reasonable in this line of business.

3. We find a lot of substance in the learned A.R.'s contention that the Assessing Officer has .deviated ‑from history of the case while applying gross profit rate of 17.5% to the contractual receipts. Perusal of the facts reveals that the gross‑profit rate of 15% was applied to the declared payment in the preceding assessment year 1987‑88. Since departure from history of the case has been made by the Assessing Officer without any plausible reasonings, therefore, we direct the Assessing Officer to apply gross‑profit rate of 15% to the declared payment for the year under appeal as well.

4. Coming to the addition made under section 13(1)(a), during the course of assessment proceedings the assessee was required to file wealth statements alongwith ‑ reconciliation statement ending 30th June, 1989. On scrutiny thereof it was found that accretion of Rs.24,00,417 had taken place which was duly explained except the huge amount of Rs.23,08,279 which was shown as a capital investment on the one hand and on the other hand as income from Messrs Paragone Enterprises. The assessee was, accordingly, confronted with the intention to make addition under section 13(1)(a) of the Income Tax Ordinance, 1979 amounting to Rs.23,08;279 in the year under appeal. On the date of hearing' the assessee furnished a revised wealth statement alongwith reconciliation statement contending therein that share income of Naeem Haider from Messrs Paragone Enterprises had wrongly been adopted at Rs.23,08,279 as against earlier shown Rs.14,08,110 owing to an oversight. On perusal thereof it was observed by the Assessing Officer that net wealth of the assessee stood reduced from Rs.76,24,585 to Rs.67,24,585, however, liabilities amounting to Rs.900,000 were introduced in the wealth statement. The explanation furnished by the assessee could not convince Assessing Officer and he, for the reasons recorded in the assessment order, concluded that difference of Rs.900,000 remained unexplained. However, addition of Rs.868,481 was made under section 13(1)(a) of the Income Tax Ordinance, 1979 after allowing credit of trading addition made in the instant case. On first appeal, the Appeal Commissioner set aside the impugned addition for de novo decision.

5. After having carefully examined the facts of the case and after having given anxious thought to the rival arguments, we find ,that the Assessing Officer has acted in flagrant violation of law in making addition under section 13(1)(a) of the Income Tax Ordinance, 1979 in the present case. It is so because clause (a) of subsection (1) of section 13 clearly envisages that where any sum is found to be credited in the books of account of an assessee maintained for any income year and the assessee offers no explanation about the nature and sources of such sum or the explanation offered by him is not, in the opinion of the Deputy Commissioner of Income‑.tax is satisfactory the sum so credited shall be deemed to the income of the assessee for such income year chargeable to tax under this Ordinance. Admittedly the assessee is not maintaining any books of accounts, therefore, the addition made under section 13(1)(a) of the Income Tax Ordinance, 1979 is not sustainable in law in the‑present case. We do not subscribe to the findings of the Appeal Commissioner that by quoting incorrect provisions of law the addition could not be held to be not tenable in law for the simple reason that the Legislature has intentionally catered six eventualities in section 13 of the Ordinance 1979, i.e. (a), (aa), (b); (c), (d) and (e) in order to treat and tax deemed income of the assessee in this section. Otherwise only a single section i.e. section 13 could have been introduced by the Legislature to cover up all the situations referred to in those clauses. So, this was not a case of quoting wrong clause of section 13 of the Income Tax Ordinance, 1979 but was that of applying incorrect clause which act of the Assessing Officer was certainly unlawful. Since this is a no account case we therefore, feel no hesitation in deleting the impugned addition instead of setting aside the same on the sole ground that the addition had not been lawfully made by the Assessing Officer.

6. So far as addbacks under the heads office rent and salary in P&L account are concerned, these are not maintainable as the Assessing Officer had never confronted the assessee with the proposed additions and the expenses claimed under these heads are duly supported by documentary evidence. Thus, the additions made under the heads office rent and salaries are directed to be deleted. However, rest of the disallowances as restricted confirmed by the Appeal Commissioner are maintained being reasonable.

7. In the result, the assessee's appeal succeeds on both the counts.

C.M.A./M.A.K./345/Tax(Trib.)Appeals accepted.