BEFORE INAM ELLAHI SHEIKH, CHAIRMAN AND JAVED IQBAL, JUDICIAL MEMBER VS BEFORE INAM ELLAHI SHEIKH, CHAIRMAN AND JAVED IQBAL, JUDICIAL MEMBER
2002 P T D (Trib.) 333
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Javed Iqbal, Judicial Member
I.T.As. Nos. 771/KB to 774/KB of 2000-2001, decided on 04/10/2001.
(a) Income-tax----
----Assessment, setting aside of---Justification---First Appellate Authority was not justified in setting aside the assessments second time when the assessee had been non-cooperative and provided no information on the issue involved in the re-assessment proceedings, despite the fact that the assessee was provided a number of opportunities.
(b) Income Tax Ordinance (XXXI of 1979)----
----S. 24---Inadmissible deduction---Head Office expenses-- Disallowance of---Relationship between branch and Head Office --Disallowance of Head Office expenses by the Assessing Officer was maintained by the Tribunal as there was no evidence to establish the relationship of branch and Head Office to justify the claim of Head Office expenses.
(c) Income-tax---
Exchange gain---Receipts---Application of---G. P. rate---Exchange gain should be treated as part of the receipts of the assessee for the purpose of application. of G.P. rate.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 52---Liability of persons failing to deduct or pay tax---Assessing Officer was not justified to proceed in a stereotype manner by invoking the jurisdiction under S.52 of the Income Tax Ordinance, 1979 to the total amounts of supplies or expenditure without specifying the payment, which attracted the deduction---Assessing Officer even failed to specify the name of the assessee in the main body of the order---Appeal of the department was dismissed by Tribunal.
Imtiaz Ahmed Barakzai, D.R. for Appellant.
Abid Sherazi for Respondent.
Date of hearing: 22nd September, 2001.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN). ---These four departmental- appeals are directed against an order, dated 4-10-2000 recorded by the learned Commissioner of Income-tax (Appeals).
2. The relevant facts in brief are that the assessee-respondent is a public sector corporation of Peoples Republic of China and executed a contract to build a bridge in Karachi. 'The assessee filed a return to declare the income at Rs. 503,306 in the assessment year 1996-97 which was revised to show a loss of Rs. 6,958,391. Such revision was said to have been made as in the original return, the assesses had failed to charge head office expenses and also not excluded the value of materials supplied by the principal. The assessee was also paid certain portion of the amounts of contract in foreign currencies with a fixed parity rate US$I-Pak Rupee 24. The Assessing Officer made various inquiries and issued notices. The receipts of the assessee in foreign currency with a fixed party were translated current rate of US$ and the exchange gain of Rs. 16,716,398 was charged to tax. The explanation of the assessee with regard to head office expenses was rejected in the absence of proper evidence and 50% of the claim was disallowed. The receipts of the assessee were grossed up to include the value of material supplied by the principal for the purpose of application of G.P. rate. Add backs were also made under the different heads and income for the year was assessed at Rs. 21,780,186 against which the brought forward losses were set off. The first appellate authority set aside this assessment vide an order, dated 13-4-1999 to be passed afresh in accordance with law with the direction to the Assessing Officer to pass de novo order after affording the assessee reasonable opportunity of being heard. By the same order the first appellate authority also set aside the assessment for the assessment year 1997-98 the facts of which were not available with the parties before us. As per the impugned order of the Assessing Officer passed under sections 132/62 of the 1979; Ordinance the assessee was again provided the opportunity. It appears from the impugned order of the Assessing Officer that the assessee failed to avail the opportunity afforded. Hence the Assessing Officer made the re-assessment at Rs. 27,126,266 by disallowing the head office expenses totally in the assessment year 1996-97. In the assessment year 1997-98 the assessment was made at an income of Rs. 20,917,168 as against the assessment at Rs. 13,586,740 in the first round and declared loss of Rs. 8,320,627. The learned Commissioner of Income-tax (Appeals) vide his impugned order, dated 4-10-2000 set aside the assessment order once again to be passed afresh in accordance with the law.
3. The assessee was also found to have failed to deduct tax from various parties while making the payments. Hence action was taken under section 52 of the 1979, Ordinance and a demand of Rs. 2,672,240 was raised in the assessment year 1996-97 and at Rs. 1,341,575 in the assessment year 1997-98. Such order of the Assessing Officer was also set aside by the learned Commissioner of Income-tax (Appeals) vide the same impugned order.
4. The learned D.R. has strongly objected to the observation of the learned Commissioner of Income-tax (Appeals) on page 10 of the impugned order stating that the explanation of the assessee had been rejected in cursory manner. The learned D.R. has submitted that the assessee in fact had provided no information on the issue involved in the A re-assessment proceedings, despite the fact that the assessee was provided a number of opportunities. The learned D.R. has produced the order sheet showing the taxation of the proceedings and the adjournment thereof on 31-7-1999, 1i-8-1999, .19-8-1999, 21-8-1999,. 23-8-1999, 28-8-1999, 29-8-1999, 17-9-1999, 18-9-1999 and then too 22-9-1999. On 23-9-1999 it was represented and the assessment proceedings were finalized. Thus according to the learned D.R. there was no justification with the decision of learned Commissioner of Income-tax (Appeals) to set aside the assessment. The learned A.R. of the assessee company state that no information was provided to the Assessing Officer in the proceedings after setting aside of the original assessments. However, he says that the details had already been provided to the Assessing Officer in the first round, which should have been considered.
5. The submissions of both the parties considered and the relevant orders perused. We find force in the arguments of the learned D.R. that the learned Commissioner of Income-tax (Appeals) was not justified in setting aside the assessments second time when the assessee had been non-cooperative on the issue of head office expenses. A perusal of the original assessment order for the assessment year 1996-97 passed under section 62 of the 1979, Ordinance shows that explanation in respect of the head office expenses was not plausible. The assessee produced before the Assessing Officer in the first round an agreement between Beijing Municipal Engineering Corporation and China Yunnan Corporation, Jinnah Bridge Phase-II, Karachi to support the head office expenses. There is no evidence to establish the relationship of branch and head office between the two parties to justify the claim of head office expenses. Hence the departmental appeal on the issue of head office expenses are accepted and the order of the Assessing Officer is restored.
6. On the issue of exchange gain, we find that the Assessing Officer has taken the entire exchange gain as income of the assessee while he has applied a G.P. rate of 23% to the receipt, gross up for the value of material supplied by the principal. The G.P rate of 23% is said to have been applied on the basis of parallel case the fact of which were not available at the time of hearing of appeals. The exchange gain has to be treated as part of the receipts as the foreign currency amounts receipts on account of execution of contract also emanate from the same contract to which the G.P rate of 23% has been applied. In these circumstances we would direct that the exchange gain should be treated as part of the receipts of the assessee for the purpose of application of G.P. rate. The issue of G.P. rate has already been set aside by the learned Commissioner of Income-tax (Appeals) and facts of the parallel case are not before us. In these circumstances we are inclined to maintain the order of the learned Commissioner of Income-tax (Appeals) on the issue of G.P rate only and direct that an appropriate G.P. rate be applied to the gross receipts of the assessee after confronting the assessee. However, this direction is without prejudice to the final outcome of issue of the treatment of the value of materials supplied by the principal which has been set aside as part of the total assessment and the same has not been agitated in the grounds of appeal before us. In other words our finding is restricted only to the three items agitated before us in the grounds of appeal and set-aside on the other aspect is maintained.
7. With regard to the action of the Assessing Officer under section 52 of the 1979, Ordinance, we find no merit in the appeals. The Assessing Officer has proceeded in a stereotype manner by invoking the jurisdiction under section 52 of the 1979 Ordinance to the total amounts of supplies or expenditure without specifying the payment, which attracts the deduction. We also find that the Assessing Officer has not even bothered to specify the name of the assessee in the main body of the order and he has simply stated this as the `A' as indicated below:--
The 'A' is a Chinese non-resident company engaged in various contracts in Pakistan accorded by the respective departments of Federal and Provincial Governments.
The 'A' is also under legal obligation to provide the details statements and. evidence of such deductions under respective rules of the Income-tax Rules 1982. "
8. As a result of above discussions the departmental appeals bearing I.T.As. Nos. 771 and 773/KB of 2000-2001 are accepted to the extent indicated above whereas the appeals bearing I.T.A. Nos. 772 and 774/KB of 2000-2001 in respect of action under section 52 of the 1979 Ordinance are dismissed.
C.M.A./M.A.K./168/Tax(Trib) Order accordingly.