BEFORE' KHAWAJA FAROOQ SAEED, JUDICIAL MEMBER AND MUHAMMAD MUNIR QURESHI, ACCOUNTANT MEMBER VS BEFORE' KHAWAJA FAROOQ SAEED, JUDICIAL MEMBER AND MUHAMMAD MUNIR QURESHI, ACCOUNTANT MEMBER
2002 P T D (Trib.) 546
[Income-tax Appellate Tribunal Pakistan]
Before' Khawaja Farooq Saeed, Judicial Member and Muhammad Munir Qureshi, Accountant Member
W.T.As. Nos.453/LB and 454/LB of 1996, decided on 11/09/2001.
Income Tax Ordinance (XXXI of 1979)---
----S. 80-D---Turnover Tax---Provision for taxation---Reserve to balance sheet---Determination---Amount of provision for taxation to be correct determined---Keeping unlimited and unbridled reserves in balance-sheet could change the scenario and it has to be the liability proper and not merely a spurious figure.
Commissioner of Wealth Tax, Lahore v. Mst. Fouzia Mughis 1988 PTD 629 and 1992 PTD 671 rel.
Muhammad Asif, D.R. for Appellant.
Muhammad Iqbal Khawaja and Faisal Iqbal Khawaja, C.A. for Respondent.
Date of hearing: .8th February, 2001.
ORDER
KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER).---These appeals have been filed by the Department against the order of the learned CIT(A). The finding, which is challenged, is as follows:---
"It has been held in this decision that the taxation reserve is a liability and should be considered as such alongwith other liabilities in the balance sheet. The only point which has to be carefullv scrutinized is that it should be the liability proper and not merely a spurious figure. The appellant has produced copies of balance sheets in -the case of all the companies in which shares are owned by the appellant. Taxation reserves have been correctly provided as reported by the auditors in the case of different companies. It is, therefore, held that the appellant had correctly worked out and declared the break-up value of shares of different companies. It is, therefore, directed that the value as declared by the appellant in all the three years should be accepted."
The D.R. says that the above para. is not a speaking decision and learned CIT(A) was not justified in entertaining the balance sheet at this stage. He remarked that not only this way he has exceeded his jurisdiction by entertaining an evidence not produced before the Assessing Officer but also have denied the principle of natural justice by not confronting the same to the Assessing Officer. He said that the principle of natural justice makes it obligatory in all proceedings that no one is condemned - unheard. Since for deciding the case against the Assessing Officer, this principle has been denied. The order should not be confirmed
Before proceeding further it wjll be in the fitness of things to decide the arguments regarding, principle of natural justice. In all proceedings before the CIT(A) an IT-56 is sent to the Assessing Officer through which the record of the file is requisitioned. Through this IT 56 among other things the Assessing Officer is asked as to whether he would like to be heard in person or not. Generally, the Assessing Officers do not opt for personal appearance and rely upon their orders against which the appeals are pending. This procedure has been adopted to provide appearance and to say that the Assessing Officer has not been called upon is unjustified. In any case learned A.R. has informed in unequivocal terms that said balance sheet was also produced before the Assessing Officer. Hence, there is no question of either any additional evidence of non-confrontation.
Other objection is with regard to determination of the provision. The learned D.R. practically has conceded that provision for taxation is an allowable expense in view of the case of Commissioner of Wealth Tax, Lahore v. Mst. Fouzia Mughis 1988 PTD 629 (HC). However, as to whether the same has correctly been calculated remains undecided. He, therefore, urged that the matter should be sent back for; the consideration of the Assessing Officer who may determine the actual liability in each case with the help of the assessee:
The learned A.R. argued that not only the provision had been properly calculated but the same has subsequently been paid and settled. He argued that the provision is a legal requirement as per Companies Law and the determination is as per accountancy standards rule 12. The balance-sheet is audited by a Chartered Accountant and the determination is as per law, rules and actual requirements. In support, he said this amount is basically on account of new charge created by Legislature in terms of section 80D i.e. turnover tax. The amount he remarked 'is exactly 50% of the turnover, which was undoubtedly a legal requirement and has already been settled after the Hon'ble Supreme. Court gave its verdict in the case of Ellahi Cotton Mills, on charge of turnover.
We have heard both and we are conscious that the amount should be correctly determined otherwise keeping unlimited anti unbridled reserves in balance sheet can totally change the scenario. However, this situation does not exist in the present case. The assessee is having shares of various Companies and each one-of them has separately) determined its reserves: The balance sheets have disclosed the true r picture .of the reserves and in fact remarks of the learned D.R. that learned C.I.T. has not taken stock of the situation correctly, is a misconception. In the aforementioned para. CIT has categorically mentioned that the only point, which has to be carefully scrutinized, is that it should be the liability proper and not merely a spurious figure. He has further narrated that the Taxation reserves have been correctly provided as reported by the auditors in the case of different companies. In view of this unequivocal finding and further the statement of learned D.R. that the amount represents turnover tax support the finding i-hat it is a determined provision for taxation.
In addition to above we mention here with advantage that in earlier 3 years vide W.T.As. Nos.36 to 38/LB of 1993-94 for the assessment years 1989-90, 1990-91 and 1991-92 order, dated 5-4-2000 this Tribunal has confirmed a similar treatment. We, further, take advantage from the judgment of the Supreme Court reported as 1992 PTD 671 (SC) which has held the wealth tax- and Income-tax Liability payable during the year on the valuation date to be "debt owed".
In view of discussion above, we have no hesitation in our mind in confirming the treatment of the CIT(A) though the learned D.R. had very ably and intelligently made a good effort for exception.
The learned A.R. has challenged the authority of the I.A.C. as a petition in this case on-which the department has produced proof to say that said I.A.C. in this case was assigned duties as a special officer. This objection of learned A.R., therefore, is rejected. However, in view of acceptance of appeal otherwise it does not affect the assessee at all.
As a result these departmental appeals fail and are accordingly disposed of.
C.M.A./M.A.K.1176/Tax(Trib.) Appeals dismissed.