Income Tax Rules, 1982---

----R. 20 [as revised by Notification S.R.O. 773(1)/1992, dated 16-8-1992)]---Income Tax Ordinance (XXXI of 1979), Ss.135 & 136-- Reference---Revised assessment return---Disallowance based upon stock phrases---Question of law---Failure to raise before the Tribunal-- Appellate Tribunal did not accept the revised income-tax return filed by the assessee---Validity---Assessee was justified in claiming that no disallowance could be based upon stock phrases like partial un-varifiability and alleged presence of an element of personal use-- Tribunal failed to take into consideration that assessee being a juristic or legal person its personal use of a facility like telephone, vehicles needed all the more strict test to bring home that any employee/Director of the Company had in fact used or availed the same which was not directly or indirectly connected with the business of the Company---Where the question raised in the reference was not raised before the Tribunals below, same could not be said to have arisen' out of their order recorded under 5.135 of the Income Tax Ordinance, 1979---Assessee in the present case having failed to file any appeal against the setting aside and remand order of the Appellate Authority on the issue of reconsideration of the revised return in the light of the amended provision, it could not agitate the same as a question of law which had to arise from the order of the Tribunal recorded under S.135 of the Income Tax Ordinance, 1979, or a natural consequence thereof---Reference was answered in negative.

A.K. Dogar for Appellant.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 30th January, 2002.

JUDGMENT

NASEEM SIKANDAR, J.---In this P.T.R. under section 136(2) of the Income Tax Ordinance, 1979 (for short the Ordinance) a non resident company seeks answer of .the following question earlier submitted before the learned Tribunal for reference to this Court under section 136(1) of the Ordinance on the ground of its having arisen out of their order, dated 15-6-1995:---

"Whether based on the material on record of the case, the learned ITAT was justified to vacate the order of the CIT(A) and to uphold disallowance of expenses which the Assessing Officer had made using stock phrases and without pinpointing any specific defects or identifying any expenses which suffered from defects which he had alleged to exist."

2. For the assessment year 1992-93 the petitioner Messrs Coca Cola Export Corporation, Lahore filed a return to disclose a profit of Rs. 2,17,83,850. However, subsequently a revised return was filed to declare a profit, reduced to Rs. 1,83,05,826. The revision was sought to be made in view of the amendment made in rule 20 of the Income Tax Rules, 1982 which provided for certain concessions in respect of head office expenditure where the assessee was a non-resident company.

3. The Assessing Officer refused to consider the revised return on the ground that the concession allowed by way of the amendment in the rules on 16th August, 1992 was not applicable to the return in hand ac the accounting period of the assessee ended on first December, 1991 while the return was due on first January, 1992. Thereafter, though he accepted the declared trading results yet proceeded to make certain is allowances including profit and loss account claims to compute total COMO for the year at Rs. 2,31,99,141.

4. Learned first Appellate Authority/CIT(Appeals) on 30-6-1994 set aside that portion of the assessment order wherein revised return was refused to be considered. It was noted that even the Central Board of Revenue through their letter, dated November 23, 1992 had confirmed the application of the new rule 20 to the assessment year 1992-93. In case of profit and loss disallowances including travelling and entertainment, repair and maintenance, telephone, vehicle running, donation and exchange loss, the learned first Appellate Authority agreed that the Assessing Officer was not justified in making partial addbacks without pointing out any instance of unverifiability or of non-business use. It was also noted that no such disallowance was made in the past, nor the Assessing Officer brought home any distinguishing factors in the claims of these expenses when compared with the previous year. Accordingly these were found to be uncalled for and deleted. As regards addition of donation of 83.50,000 again the learned first Appellate authority partly agreed with the submission made before it that it had been disallowed twice. Therefore, one of the two additions was directed o be deleted while admissible rebate on donations made to approved Institutions was directed to be allowed after verification.

5. The department agitated the aforesaid relief in profit and loss account additions before the Income Tax Tribunal. Through their order, and 15-6-1995 they proceeded to uphold the disallowance on the round that the learned first Appellate Authority was not justified in deleting them, and therefore, its order was set aside to that extent and that of the Assessing Officer was restored.

6. The application under section 136(1) made by the assessee seeking reference of the aforesaid question was also refused on 30-1-1996 on the ground that the question as framed was not a question of law although it had arisen out of their order, dated 15-6-1995.

7. After hearing the learned counsel for the parties, we will readily agree that the Tribunal was not justified in restoring the order of is allowance as made by the Assessing Officer. The first Appellate authority appears perfectly justified in allowing the relief after including that the Assessing Officer was required to pinpoint the nature of unverifiable expenditure as found by him. Also it was correct n pointing out that no disallowance of the kind having been made in the previous years, it was all the more necessary for the Assessing Officer to support the disallowances by bringing home the distinction in the accounts maintained for the year under review and the expenditure incurred when compared with similar claims in the previous year. Learned Tribunal failed to make note of the reasons advanced by the first Appellate Authority. Without differing with the reasons and stating their reasons for difference, restoration of the disallowances was totally unjustified. In fact it was also not recorded as to why they agreed with the Assessing Officer. In the course of deciding reference application, however, they attempted to improve their earlier order by observing that the disallowances had resulted on account of part unverifiability of the claimed expenses. That was too late in the day. Therefore, the learned counsel for the Revenue cannot seek any strength from these observations and findings which ought to have been made in the order recorded under section 135 of the Income Tax Ordinance, 1979. If they had recorded these reasons in their earlier order the situation could have been somewhat different. That order as it stood had certainly given rise to the aforesaid question of law. The assessee appears justified in claiming that no disallowance could be based upon stock phrases like partial unverifiability and alleged presence of an element of personal use. Learned Tribunal also failed to take into consideration that assessee being a juristic or legal person its personal use of a facility like A telephone, vehicles, needed all the more strict test to bring home that any employee/director of the company had in fact used or availed the same which was not directly or indirectly connected with the business of the company.

8. Therefore, our answer to the question is in the negative.

9. Before parting with this order we would like to record that while admitting this reference application on 22-9-1998 we considered some of the submissions made by the learned counsel for the assessee with respect to the concession allowed by rule 20 of the Income Tax Rules, 1982 published through S.R.O. 773(1)/92, dated 16th August, 1992. That issue having never been raised before the learned Tribunal could not be said to have arisen out of their order recorded under section 135 of the Ordinance. Secondly, the assessee having failed to file any appeal against the setting aside and remand order of the CIT (Appeals) on the issue of re-consideration of the revised return in the light of the aforesaid B amended provision it could not agitate the same as a question of law which had to arise from the order of the Tribunal recorded under section 135 of the Ordinance or a natural consequence thereof. The point raised before us on that day answers neither of the two conditions. Therefore, admission of that point is re-called.

10. Question answered in the negative in the light of the penaltimate para.

Q.M.H./M.A.K./C-151/L

Order accordingly.