I.T.As Nos.1184/KB/DB to 1185/KB/DB of 2000-2001, decided on 26th January, 2002. VS I.T.As Nos.1184/KB/DB to 1185/KB/DB of 2000-2001, decided on 26th January, 2002.
2002 P T D (Trib.) 2550
[Income Tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Muhammad Akhtar Nazar Mian, Accountant Member
I.T.As Nos.1184/KB/DB to 1185/KB/DB of 2000‑2001, decided on /01/.
th
January, 2002. (a) Income‑tax‑‑‑
‑‑‑‑Commission receipt‑‑‑Excessive estimation‑‑‑Rejection‑‑‑Reduction by First Appellate Authority‑‑‑Realistic approach‑‑‑Sufficient reasons were given by the Assessing Officer in rejecting the book version and he, had estimated receipts as in the past‑‑‑Receipts had, however, been estimated excessively by the Assessing Officer which were realistically reduced by the First Appellate Authority which was upheld by the Tribunal.
(b) Income‑tax‑‑‑
‑‑‑‑Profit and Loss expenses‑‑‑Verifiability‑‑‑Addition maintained by the First Appellate Authority‑‑‑Validity‑‑‑Appellate Tribunal set aside the additions maintained by the First Appellate Authority to meet the ends of justice for re‑examination by the Assessing Officer and directed the Assessing Officer that no addition shall be made if the expenditure was found to be verifiable and relatable to the business.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss.27 & 28; Second Sched., Part I, Cl. (65)‑‑‑Capital gain‑‑ Adventure in the nature of trade‑‑‑Shop was booked to be used as branch without transfer of title‑‑‑Subsequently, another property was acquired for such purpose and shop was disposed of‑‑‑Gain from such transaction was declared as `capital gain'‑‑‑Assessing Officer treated such transaction as `adventure in the nature of trade' and amount declared as capital gain was taxed as business income and First‑ Appellate Authority directed to accept the same as capital gain‑‑‑Validity‑‑‑Capital gain arose on transfer of capital assets and capital asset did not include immovable property‑‑‑If the gain had arisen on a shop ("immovable property"), then such gain was not to be calculated as capital gain under Ss.27 & 28 of the Income Tax Ordinance, 1979‑‑‑Declaration of the amount as capital gain was against law‑‑‑Assessing Officer also misdirected himself by treating such single transaction as venture in the nature of trade‑‑‑Title over the shop had not been transferred to the assessee and in the balance sheet the amount so invested was being shown as advance‑‑‑Such amount was return on advance and such income likely to be calculated as income from other sources‑‑‑Even if it was a casual receipt, it was taxable after deletion of CI.(65) of the Part‑I of the Second Sched. to the Income Tax Ordinance, 1979‑‑‑‑Amount was includable in the total income of the assessee not under income or as capital gain but as income from other sources.
Ianayatullah Kashani D.R. for Appellant.
Amanullah C.A. for Respondent.
Date of hearing : 26th January, 2002.
ORDER
These cross‑appeals by the assessee and the Department are directed against combined order of learned CIT (A) dated 23‑1‑2001 relating to assessment years 1998‑99 and 1999‑2000. Since the grounds are common, we will dispose of the appeals through this common order after hearing the learned representatives of both the parties and perusing the orders of the authorities below.
2. The facts relevant for disposal of these appeals are that, the assessee is a private limited company deriving income as Money Changer under licence. from State Bank of Pakistan. From the assessment years under appeal he had filed returns declaring commission of Rs.14,757,434 and Rs.16,804,414 in the respective assessment years 1998‑99 and 1999‑2000. After claiming expenses of Rs.13,969,477 and Rs.16,088,858 in the respective years business income was worked out at Rs.787,957 and Rs.717,556 in the respective assessment years 1998‑99 and 1999‑2000. An amount of Rs.1,225,000 was declared exempt as capital gain in the assessment year 1998‑99. The Assessing Officer, after giving notice under section 62 on certain issues, made addition of Rs.1.3 million and Rs.1.6 million in the commission receipts of the assessment years 1998‑99 and 1999‑2000 respectively. He made partial add backs out of expenses claimed under the heads salary/allowance/benefit, telephone/mobile phone, entertainment, vehicle, conveyance, printing/stationery repair/ maintenance, travelling, office expenses, Miscellaneous expenses, advertisement expenses, leasing expenses and donations to arrive at total incomes. The capital gain was claimed in respect of sale of a shop but this was not so accepted by the Assessing Officer as capital gain but it was treated as adventure in the nature of trade and the amount of capital gain declared at Rs.1,225,000 was taxed as business income.
3. The assessee went in appeal before the learned CIT (A) who vide his order impugned before the reduced addition in commission receipts from Rs.13,00,000 to Rs.300,000 and. from Rs.16,00,000 to Rs.400,000 in the respective assessment years 1998-99 and 1999‑2000. The partial add backs out of profit and loss account were mostly confirmed except giving a relief in telephone, printing and stationery expenses by restricting the disallowance to 10% of the claim and in vehicle and conveyance expenses by restricting .the disallowance to 20% of the claim. The gain in the transaction of property was held to be capital gain and the DCIT was directed to accept it as such. It is against this treatment meted out by the CIT(A) that these appeals have been filed. The ground of appeals taken up by the parties are as under:‑‑
ASSESSEE'S APPEALS;
Assessment Year 1998‑99:
That the learned CIT(A) erred in reducing the addition in gross commission instead of deleting the entire addition.
That the learned CIT(A) erred in confirming additions/ disallowances in following expenses.
| | | Amount Rs. |
| Salaries & Benefits | 10% | 307,714 |
| Telephone | 10 % | 117,589 |
| Entertainment | 25 % | 33,014 |
| Vehicle &Conveyance | 20% | 83,531 |
| Printing & Stationery | 10% | 26,140 |
| Repairs & Maintenance | 1/3rd | 39,847 |
| Traveling Expenses | 1/3rd | 13,908 |
| Office Expenses | 1/3rd | 31,502 |
| Misc. Expenses | 1/3rd | 15,299 |
| Advertisement Exp. | 25 % | 126,735 |
| Leasing Expenses | 25% | 92,565 |
| Donation | Full | 26,600 |
| | | 914,444 |
Assessment Year 1999‑2000:
That the learned CIT(A) erred in reducing the addition in gross commission instead of deleting the entire addition.
That the learned CIT(A) erred in confirming additions/ disallowances in following expenses:
| | | Amount Rs. |
| Salaries & Benefits | 10% | 370,138 |
| Telephone | 10 % | 101,190 |
| Entertainment | 25 % | 33,814 |
| Vehicle & Conveyance | 20% | 89,760 |
| Printing & Stationery | 10% | 12,795 |
| Repairs & Maintenance | 1/3rd | 31,130 |
| Travelling Expenses | 1/3rd | 15,782 |
| Office Expenses | 1/3rd | 31,783 |
| Misc. Expenses | 1/3rd | 16,500 |
| Advertisement Exp. | 25% | 112,529 |
| Leasing Expenses | 25 % | 91,750 |
| Donation | Full | 25,800 |
| | | 922,971 |
DEPARTMENTAL APPEALS:
Assessment year 1998‑99:
"That the learned Commissioner of Income Tax (Appeals) was not justified in reducing the quantum of additions made on account of difference in rates of Sales and Purchase from Rs.13,00,000 to Rs.3,00,000, without any cogent reason and without appreciating the facts of the case.
That the learned Commissioner of Income Tax (Appeals) was not justified in directing to consider the amount of Rs.12,25,000, as capital gain on account of sale of shop without any cogent reasons and without appreciating the facts of the case."
Assessment Year 1999‑2000:
"That the learned Commissioner of Income Tax (Appeals) was not .justified in reducing the quantum of additions made on account of difference in rates of Sale and Purchase from Rs.16,00,000 to Rs.4,00,000, without any cogent reason and without appreciating the facts of the case."
4. So far as the estimates of receipts is concerned, the learned A.R. has submitted that without rejecting the books of accounts, the Assessing Officer has jumped over estimating the commissions receipts. We have found that sufficient reasons were given by the Assessing Officer in rejecting the book version and he had estimated receipts as in the past. However, the receipts had definitely been estimated excessively by the Assessing Officer and these have now been realistically reduced by the learned CIT(A). In view of this position, we uphold the decision of the learned CIT(A) on the issue of estimation of receipts and all the appeals on this point fail.
5. So far as the disallowances out of profit and loss expenses, as contested by the assessee, are concerned, the learned A.R. at the time of hearing .of the appeals contested only the disallowances made out of salaries and benefits and leasing expenses. It has been argued by him that the facts regarding maintenance of accounts pertaining to these accounts were distinguishable in these years as compared to the preceding years. He claims that the total expenditure of salaries, benefits and the leasing expenses is verifiable and relating to the business only. In this view of, the matter, we feel that it will meet the ends of justice if the additions maintained by the CIT(A) are set aside for re‑examination by the Assessing Officer. He will not make any addition if the expenditure is found to be verifiable and relatable to the business.
6. Now we are left with the only issue of addition of Rs.1.225 million made by the Assessing Officer as business income treating the transaction as venture in the nature of trade and its deletion by the CIT(A) treating it as capital gain. We feel that both the officers below have fallen in error on this issue in view of the details given below.
7. The assessee had booked a shop on Tariq 'Road. According to the learned A.R. the shop was proposed to be used as a branch. There was inordinate delay in completing the construction and meanwhile the appellant got another premises on Shahrah‑e‑Faisal, for opening the branch and, therefore, it was decided to dispose of the shop. In this transaction a gain of Rs.1.225 million was made which was declared as capital gain by the assessee. As against this, the legal position is that capital gain arises on transfer of capital assets and capital asset does not include irremovable property. So, if the gain has arisen on a shop ("immovable property"), then this gain is not to be calculated as capital gain under sections 27 and 28 of the Income Tax Ordinance, 1979. Thus, the declaration of the amount as capital gain is against the law. The Assessing Officer also misdirected himself by treating this single transaction as venture in the nature of trade. During discussion, however, it has been admitted by the learned A.R. that the title over the shop had not been transferred to the assessee and in the balance‑sheet the amount so invested was being shown as Advance. So, the fact of the matter is that the amount of Rs.1.225 million is return on advance. This is income likely to be calculated is income from other sources. Even if this is a casual receipt, it is now taxable after deletion of clause (65) of Part‑I of the Second Schedule to the Income Tax Ordinance, 1979. This being so, it is held that the amount of Rs.1.225 million in includable in the total income of the assessee not under business income or as capital gain but as income from other sources.
8. Consequently both the appeals filed by the assessee and the departmental appeal for the assessment year 1998‑99 succeed to the extent and in the manner indicated above and the departmental appeal for the assessment year 1999‑2000 fails and is dismissed.
C.M.A./M.A.K./384/Tax(Trib.)
Appeal dismissed.